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J. REYNOLDS TOBACCO COMPANY _ 10 YE AR Fti E CONDENSED COMPARATIVE ; FINA , 1957t 1956 1955 1954 1953 ;,-,SALES, EARNINGS AND DIVIDENDS ~°{amounts in thousands of dollars) Net Sales $1,053,326 $957,367 $866,426 $814,274 $876,189 Income before taxes 138,606 137,103 121,268 103,343 102,873 Federal and state taxes on income 74,446 75,190 68,000 58,516 68,701 Net Earnings 64,160 61,913 53,268 44,827 34,172 Dividends on Preferred Stock 2,657 2,763 2,794 2,894 2,934 Dividends on common stocks 32,718 30,707 25,737 23,732 19,756 FINANCIAL POSITION AND EQUITIES (amounts in thousands of dollars) Current Assets $ 646,593 $611,100 $566,735 $574,025 $558,394 Federal and state tax liabilities 63,744 71,202 69,574 62,279 71,513 Other current liabilities 116,241 76,363 51,865 82,593 66,189 Working Capital 466,608 463,535 445,296 429,153 420,692 Real Estate, Machinery and Equipment-net 63,557 45,012 41,486 40,259 36,395 Total Assets 713,097 659,394 611,641 617,636 598,609 Funded Debt 104,000 110,000 115,000 120,000 125,000 Equity of holders of Preferred Stock 66,572 68,483 70,686 73,377 75,000 Equity of holders of common stocks 362,540 333,346 304,516 279,386 260,907 FINANCIAL STATISTICS Income taxes per share of common stocks'` $ 7.44 $ 7.52 $ 6.80 $ 5.85 $ 6.87 Earnings per share on common stocksk` 6 15 5 91 5 05 4 19 12 3 . . . . . __ Dividends per share on common stocks 3.30 3.10 2.60 2.40 2.00 Book value per share of common stocks* 36.25 33.33 30.45 27.94 26_09 °Based on 10,000.000 shares, tThe 1957 figures reflect the adoption of the LIFO method, as explained in this report. t11 O O .t3 10 w ~.t v -4 M

RE C OR,D FINANCIAL DATA YEAR ENDED DECEMBER 31 1952 1951 1950 1949 1948 $881,424 $814,217 $759,856 $746,345 $724,921 95,514 92,177 77,979 68,925 60,939 63,565 60,060 37,721 28,471 26,322 31,949 32,117 40,258 40,454 34,617 2,934 2,934 2,934 2,934 1,994 19,723 19,715 19,714 19,661 20,000 $553,200 $540,646 $518,122 $493,678 $497,691 65,237 60,594 38,146 28,971 27,065 71,979 67,158 70,185 66,501 83,397 415,984 412,894 409,791 398,206 387,229 34,551 32,751 31,611 31,153 29,628 591,641 577,886 553,997 528,529 530,698 130,000 135,000 140,000 145,000 150,000 ,• 75,000 75,000 75,000 75,000 75,000 249,425 240,133 230,666 213,056 194,187 • $ 6.35 $ 6.00 $ 3.77 $ 2.84 $ 2.63 t 2.90 2.92 3.73 3.75 3.26 2.00 2.00 2.00 2.00 2.00 24.94 24.01 23.06 21.30 19.42 ® ao EQUITY AND BORROWED, FUNDS AT YEAR END - 1= LLIONS I M fLL1ON~ OF DQLLAR OF DOB ® •az CAPITAL EXPENDITURES AND DEPRECIATION.-~ 0 Im

R. J. REYNOLDS TOBACCO COMPANY ASSETS CURRENT ASSETS: Cash Financial Position .#957 $26,141,981 Accounts receivable from customers (less discounts ) 33,910,491 Leaf tobacco, supplies, manufactured products, etc.- at cost (Note A) . . . . . . . . . . 586,5-10,29-1 TOTAL CURRENT ASSETS . . . . . . . . . 646,592,766 REAL ESTATE, MACHINERY AND EQUIPASENT-at cost . . 99,869,772 Less depreciation and obsolescence ...... 36,312,707 NET REAL ESTATE, MACHINERY AND EQUIPMENT . . 63,557,065 OTHER ASSETS: Investments in non-competitive companies .... 225,000 Sundry receivables and deposits . . . . . . . 486,901 Brands, trade-marks and good will . . . . . . I Prepaid expenses and deferred charges . . . : . 2,2r35.717 TOTAL OTHER ASSETS . 2,947.619 S713,097.-150 12 1956 $ 23,697,2-17 30,155,025 557,2-17,333 611,099,605 78,692,520 33,680,838 45,011,682 225.000 1,555, 776 1 1,471.881 3,2s2.65S $659,393,945 D

:)n December 31, 1957 WITH COMPARATIVE FIGURES FOR 1956 , I t I LIABILITIES CURRENT LIABILITIES: Accounts payable . . . . . . . . . . . \otes payable . . . . . . . . . . . . Funded debt due within one year . ... Fecieral and state taxes (accrued and contingent) . Snndry accrued accounts . . . . . . . . . TOTAL CURRENT LIABILITIES . FumDr•.D DEBT ( \ote B ) : ?' _"~ Promissorv Notes 3;~~ Debentures, due 1973 . TOTAL FUNDED DEBT . . . CAPITAL AND EAR\I\GS RETAINED: Preferred Stock-Par $100 Authorized and issued 750,000 shares :3.60 fo Series . . . . . . . . . . . -I.50r'o Series . . . . . . . . . Common Stock-Par $10 Authorized and issued, 1957-337,492 shares . . . . : . . . . 1956-376,378 shares . . . . • • New Class B Common Stock-Par $10 (Note C) Authorized 15,000,000 shares Issued,1957-9,66`?,508 shares . . Issued, 1956-9,623,622 shares . . Earnings Retained for requirements (\ote D) . . . . . . . of the business Less cost of Preferred Stock, 3.60;"c Series, in Treasury (84,277 shares in 1957; 65,166 shares in 1956) -TUTAL CAPITAL AND EARNINGS RETAINED . . . . 1957r-<'.; , $ 11,985,440 94,475,000 6,000,000 63,744,444 3,780,265 179,985,149 53,000,000 51,000,000 104,000,000 49,000,000 26,000,000 3,374,920 96,625,080 17 5,000,000 261,072,510 436,072,510 6,960,209 429,112,301 $713,097,450 1956 $ 9,681,341 58,450,000 5,000,000 71,202,497 3,230,911 147,564,749 58,000,000 52,000,000 110,000,000 49,000,000 26,000,000 3,763,780 96,236,220 175,000,000 232,287,575 407,287,575 5,458,379 401,829,196 $659,393,945 l

R. J. REYNOLDS TOBACCO COMPANY STATEMENT OF EARNINGS Year Ended December 31, 1957 -with Comparative Figures for 1956 NET SALES OTHER INCOME TOTAL INCOME . . . . . . . . . . . LESS : Cost of goods sold, selling and general expenses,• exclusive of items below . . . . . . . . Provision for depreciation and obsolescence Interest and debt expense Provision for Federal and state taxes on income TOTAL INCOME DEDUCTIONS NET EARNINGS FOR YEAR (Note A) . . Dividends paid on Preferred Stock . NET EARNINGS APPLICABLE TO COMMON STOCKS . 1956 $1 ,053,325,579 $957,366,8-16 88,092 51,630 1,053,413,6 71 957,418,4 76 902,811,683 810,263,229 5,102,760 5,059,382 6,893,228 4,993,185 74,446,000 75,190,000 989,253,671 895,505,796 $ 64,160,000 $ 61.912.680 _ $ 2,656,588 $ 2,762,959 $ 61.503,412 $ 59,149,721 14

c i . . ... _ R. J. REYNOLDS TOBACCO COMPANY STATEMENT OF EARNINGS RETAINED Year Ended December 31, 1957 -with Comparative Figures for 1956 Ea.R-,ixcs RETAINED for requirements of the . at beginning of year ADD: \ et Earnings for year . . . . . . . DEDUCT: Cash dividends- Preferred Stock 3.60`,'~ Series -1.Wc Series business- Common stocks at $3.30 per share for 1957 ($3.10 per share for 1956) . . . . . . . . . 1,486,588 I 1,592,959 1,17 0,000 1,17 0,000 at end of year (Note D) . . . . . . . . _ $261,072,510 1 82:32,287,575 EaR-Nises RETAINED for requirements of the business- NOTES TO FINANCIAL STATEMENTS-DECEMBER 31, 1957 NOTE A: The Company has adopted, effective for 1957, the last-in, first-out method of pricing inven- tories instead of the average cost method previously used. Such change had the effect of reducing the amount stated for inventories at December 31, 1957, by 528;312,68-1 and reduced the net income (after income taxes) by $12,342,049. N OT E B: The principal payments required annually with respect to the 21/3r/c Promissory Notes and the 3% Debentures, due October 1, 1973, are as follows: 1958-1065,56,000,000;1966-1972,$7,000,000;1973, S13.000,000. NOTE C: Of the authorized but unissued shares of New Class B Common Stock, :337,492 shares are re- ser%'ed for issuance upon exchange of shares of Com- mon Stock pursuant to the Exchange Option to Hold- ers of Common Stock set forth in the Company's Certificate of Incorporation as amended. Of the 9,662,508 shares of issued New Class B Common Stock, 84,373 shares are held for exchange pursuant to said Exchange Option to Holders of Common Stock. NOTE D: The 271~~1 Promissorv Notes and the In- denture under which the 3% Debentures are issued contain certain restrictions as to the declaration of_ _ dividends (other than stock dividends) on the com- mon stocks of the Company and as to the purchase, redemption or retirement of shares of its stock. At December 31, 1957, the part of Earnings Retained not affected by these restrictions was $?06,105,0:3?. 15

:REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS R. J. REYNOLDS TOBACCO COMPANY, ITS DIRECTORS AND STOCKHOLDERS We have examined the statement of financial position of R. J. REYNOLDS TORACCO COMPANY as of December 31, 1957, and the related statements of earnings and of earnings retained for the vear then ended. Our examination was made in accordance with generallv accepted auditing standards, and accoi•dinah• included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We were present when inventories -were taken by the Company and checked procedures followed in determining quantities and valuation. In our opinion, the accompanying statementt of financial position and statements of earnings and of earnings retained present fairly the financial position of the Company at December 31, 1957, and the results of its operations for the year then ended, in conformitv with generally accepted accounting principles which have been applied on a basis consistent -with that of the preceding year. except for the change (in which we concur) to the last-in, first-out method of inventory valuation as explained in Note A. ERNST & ERNST, Certifird Puhlir Arrountnnts Winston-Salem, N. C. Janttrtry •31, 195$ 16

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