t%4 PQ t4a qh B.A.T INDUSTRIES P.I-C. - MWNESOTA DEPOSITORY COPY - PROIDUcEo PuRsuANr To I VIIA oF CONSEW JUDGMW DATED 5/8M IN STATE OF ANIMMSOTA, 11 AL V. PNXlP UORRIS, ET CASE NO. CI-944M r\) Cl rl-) rl; B.A.T IMKMTFMS P.LC. - M*mLwTA DavaffoRy Copy - PwwcED PuRwAw To I VILD. oF COMENT JUDGMENT BATED SMM IN STATE OF A*NWSOTA, ET AL V. PHILP UORM, ST Cat No. C14M4M5 The BATE:S Group of Companies Table of C- 7i DEPARTMENT STORES SPECLUNSTOP" T-7 T ODD Som -7 -A ... L6'j. AIM 7, .4 124 own. al. 3 v* z Dep"tKAWN storis rW numomm Rt"co, 5 Pap- GmW 21 Tubacco Gmup 6 &MIWC ch-i- Durneubc 24. 9 Conclusion . '-.4. latemb0ow 25 10 Mumounm's Analysis 26 R"" Gro" . 7- 13 Finarew S,'cj'aa ;'0' -17 32 15 Uroup of c4awanin, B.A.T INDUSTRIES P.LC. MINNEWTA DEPCISITORY COPY PWWCED PURWANT To VILD. OF CoNsENT JUDGMENT DATED S/M IN SrATF OF A&NNESOTA, Er AL V. PNXP WROW ET-AL. CASE NO. CI-944MS Fb=cial IfighUghts (Dollian Ln M1111ons) Foc cbe Year: Ir9 1900 1981 1982 1983 1962-19113 % aunsc Ne-. Sales SM51 s4.t61 S4.592 $5.507 $6,064 +10% Optraung !f:corn;! S 350 S 432 S 419 1 5@O $ 698 +10% .Ne! 1.1come S 136 S 197 S 180 1 2-4 $ 259 +21% Re-un or. Net Sales 4% 5% 4% 4% 4% - Capital Ex-,end1wres S 113 S 1-0 S -700 $ 268 $ 1" -29% AzYew Fud3 W&&* C-*U1 S 7, 97 S 704 $ 6" S 678 $ 841 +24% CU12.1 Ratio 2.4 to 1 2.0 to 1 1.9 to 1 1.6 to 1 1.7 so I + 6% ToW unts S2A95 $2,766 $2,930 $5,745 ft"3 +4% Fl- ywr I*oWy- fto yew HINM- Total Sala He Imam* (a OMM) 6-4 30D 4.8 ns 12 ISO Is 79 so 81 92 63 0 79 so 41 62 83 c:) B.A. T lNotowmas P.LC. - MINNESOTA DEPOsrrORY COPY - PRMcED PuRwAWr To I vILD. OF CONSENT JUDWANT DATED 5/8W IN Sum OF A*NmEsoTA. Er AL V. PHILP AfORMS. ET AL- CASE No. C14MJMS Tobacco Group Retal Group Paper Group NJ B.A.T INDusTmEs P.Lc. - MINNESOTA DEPOSITORY COPY - PRODUCED PURWAKr To VILD. OF CONSENT JUDWANT DATED 5/8W IN STATE OF MAMSOTAL ET AL V. PHxP MoRm, er A CASE No. CI-9441565 B.-;,TL*S thc s fo& cco- and 4- t:mcs mana gvncn(,,f the L!i%v.-se bu@inv!@sc, within dle BATUS Group of Coninanics and the acili-Vc.111:11t of tial irtcrna! Ij, in Lhv AnicrLan kL Vdk- IL IML UL XW m cl BAT INmwmiEs P.LC. MINNESOTA DEPOSITIM COPY - PMOIJCED PuFtsuAMT To I VILD. OF CONSENT JUDGMSNT DATED NOW IN STATE OF Aftmoirsom Er Ai. v. PHILP AkRm, Er CASE No. C14M4=5 (NN, W SATUS Inc. 1983 Business Review ATUS Inc. achieved record results in 1983 as it concen- trated on improved productivity and internal growth of its m.-ting businesses. The benefits of this focus flowed through in terms of improved profit; and sales. Net income grew to S259 million for the year. up 21% over the previous year. Consolidated sales for BATUS reached a new high of $6 billion, 3 gain of 10% ove- 1982. as the American economy cqxrienced a measure of recovery after two years of recession. The improvement in net income was accompanied b% a signifi- cant increase in cash flow from Group op mtions. This improved cash flow enabled MATUS to reduce its debt obligations by $172 million. putting the business in a strong financial position for further e.Vansion. Capital expenditures 1xvre at a lower level than in 1982. totaling $190 million for the vear. a decrease of 39%. The pattern of sustained business growth over the past decade is a result of continued good returns from the Tobacco Group and the additional strength provided by effective management of a diversification program which his established the Company as a leader in two other industries -reMII and specialized paper products. Diversification into the remil Industry began in 1972, with the acquisition of The Kohl Corporation. A %ear later, Gimbelsi and Saks Fifth Avenue joined the RMS Group of Companies. Appleton Papers, the world's leading producer of carbonless copy paper, %-as added to the Group in 19-8 and.Marshall Field & Company, one of the top quality retail names in the world was purchased in 1982. Through acquisition and internal growth, BATUS sales have grown at a compound rate of 1-% from 19-2 through 1983, and in that period, net income increased at a rate of 12% annually Brown & Williamson, operabrig in a declining domestic market and after investing in the launch of a new brand, reported growth In operating income in 1983 of 11% to $405 million. The retail businesses posted a rise in operating income of 31% to $218 million, due to increased consumer spending and to operat- ing improoiements. Appleton Papers, enjoying continued success through further emphasis on manufacturing efficiency. innovative marketing and customer service, improved its operating income to $80 million, up 26% over the previous year. oxnanst Is SIM M. 3 . - UgOLWTA DgMffoRy Copy Pmwcfo P ANT To VILD. OF B.A.T IMXMMIES p.LC URSU CotmENT jUDGMENT DATSD SIM IN SrATE OF JtmwsorA, Er AL v. PHLiP UORRM ET CAsE No. C1410114105 0 @A Brown & Williams,ri sales were 52.1 billion in 1983. tip li.0mily from 1982. Sales from the retail businesses. aided by ven rrong third and fourth quarters. totaled $3.1 hillion. an increase of 2-% over the previous year. -%4)1)lett)n Papers recorded a rise of 130o over 1982. to S-16i million. A decade of diversification has given &ATUS the broacl-b@,@ed strength for weathering adverse economic condiduns and for flour- ishing: in times of prosperity, Effective management of the diverse businesses within the B.ATV5 Group of Companies and the achieve- ,nent of substantial internal growth has established the Company as a vital. positive force in the.&menc2n business community The following comments provide information on the progress of B.AWS Inc.'s three business Groups.while a fuller explaration of operational results is presented in subsequent sections of chis Report. TheftbaiioatiGmwonoeaon M .. apumm Inomw -0 11% ftm VM P yew to $405 ffdMM Tobacco Group dl@ he tobacco industry operated in a dr2matjC211%1.changed I KFM ll@ marketplace in 196 -a marketplace that reaa'ed to the M= doubling of the federal excise tax on January 1. Consumer resistance to the higher prices triggere@ by the tax levy. as well as continued anEi-smoWng efforts by private anti governmen- t3l bodies, resulted in 2 sales decline for the entire tobacco industr% in 1983. Industirv reaction to these changing condkicins created an atmosphere of fierce competition for a share of the existing market. In this environment. Brown & Williamson once again reported record operadng income. and 2 slight rise in sales revenue. The rise in operating income to $405 million. up 11% from the previous year. vms due. primarily. to higher cigarette prices and the realization of continued production efficiencies from the Macon. Georgia. manufacturing plant. Further utilizaEion of this facility has enhanced Brown & Williamson's position as the most efficient producer of cigarenes in the industry. Profits were also affeaed positively in 1983 by reduced LIFO expenses. Altho@gh sales re'venue rose slighdy, at $2.1 billion, thereaus a drop in unit sales and a decline in total market share from 13.4% to 11.5%. Because of the reduced volume, and as a means of maximizing its* potential for production efficiency, Brown & Williamson announced in December that it was phasing out its older Petersburg. % irginia, manufacturing facility over die next mmo years. and eventually shift- ing 211 cigarette manufacturing to the more efficient Macon. Georgia. plant. C@- C:) co B.A.T INDUSTRIES P.LC. - MMESOTA DEposiTORy Copy PRODUCED PURSUANT To VILD. OF CONSENT JUDGMENT DATED 5/8M IN SrATE OF AftwsOTAL ET AL V. PMLV MORM, ET AL., CASE NO. C1.944MS 0 B.A.T Imummis P.Le. - MINNESOTA DeposTony Copy - PoooucEo PURSUANT To VILD. oF CoNsEmT JuoomEpcT DATED 5/8M IN Sun oFMkwsoTA, ErAL V. PMV.PAkNOW ETA CAsENo.Cl4M4M5 A key acziv;:@- for Brown & \N'llia-ison in 1983 vkus the deferse of BARCL-kYan i Y the uniC.Je ACTIRON filter, which the brand uses. lenz:hv couna:zion. in October. B.ARC1_-\Y%-as upheld J:,. ultra lc-.N- A Fe_Jeral Discria Court judge ruled Brovvr. & \Villiamsor: could ccn:inue to advertise B,%R(Z_1kYas *Z@`..'Ltr ircu anJ as an -jltra-low 'tar" cigarette. but could no use -:-e rncta: - rafina its packaging or 3civerasing 7".r Jcc.-@ior, short Fede:al Trade Comr-.,.ssior,*s mDuon m iniuric:: -n restrain:ng Brown & Williamson from adve-ing .k3CLAX as no-@@ "I Trig :ar"' an' '99% *Ear* free." .,)%%-n Q. Wi;!.amion :4 pursuing _. an appeal of that poruor. cf the @Llc's order id,ectin I - -1 g uhe use & 1 mg "tar" on packagirg and i, j-hcrtising ,. ard expects -1 ruling in @ate 1984. Br,mvn & Wiiliamson managernent is tomlly commined to B.43CLM'and lo the ACTRON flizer. B.ARCLkY is a riew and suc- @e::@.:Ul U.S. International *_@ranci ar-,' Brown & Williamson plans to .:,.)nunue to pramote the @rand 35ai alternative which offers c;garerte comsuriers excellent taste at ultirit-low "tar" levels. To meet future challerges facing :he company, consolidation moves mith respect to Export Leaf Tobacco were undertaken. Some of Export Led's administrative func--ons previously located in Richmond. Virginia, were moved to Brown & Williamson headquarters in Louisville, Kentuckm Other administrative functions were Trans. ferred to its leaf-processing facility in Wilson, North Carolina. Export Leaf purchases. processes and stores U.S.-grown burley and flue-cured tobacco for the manu- facruring operations of Brown & Williamson and of other B-.,%-T affili- ates. As the third largest buyer of U.S. tobaccos, It 21SO Supplies other companies around the world. Brown & Williamson relocated A its corporate offices last, -ear To a new 26-story tower in th e Galleria comple% in dowritown Louisvitte. Kentucky. ro B.A.T mmleTRiEs Pax. - Mmum DomffoRy COPY - PR=cEo ftMANt To VILD. OF Comm juDamEwr DATED MM im STATE oF A&W*$oTA, ET AL V, PMP UORRIS, ET A CAsE Ho. CI-944US The Smav. A Wfflsmr-@-. Domestic ron- & i@ well positioned to take advantage of MM' 'nM)rlUlll*l;:i XIJ EO Lnnuvate according to inarket LB* ], 'i ' Tlib- jn..'@-jJes o7oortunitic!@ for ne-w brand@ such as RICHLkN,- RICHL.ALN::' of a gon-.n@ the r-I.-ket. Vie brand irt: cipre:-c .1 prici tig -%,ate@p which pro%i-gc@. 224 :iprer:e@ f, w the pnce 4 existing 200'@ cart RICHLkN-D. offered in a 25's pack. was intro- duced in anticipadon of a growing econnnt,% - priced,seg-ment vvidun the market. U14 B.A.T INDurmas P.LC. - MINNESOTA DUOSITM Copy ppOMM PURSUANT To VILD. OF CONSENT JUDGMENT DATED 518M IN STATE OF UNNESOM ET AL V. PHALP AfMRM Er A" CASE No. Cl-94-M5 V 1:N NV L RICHLLND.whic',. uses die advertising theme of -Take -We. .1uncrica. anw' -LLte the sood times. five extra times per pack.- %\-as in 20"V uf the w.ii1able U.@. marke(by the end of 19S3. It also was or red in menthol. in keeping with Brown son Williams *s traditionally strone position within this segment of the cigatene market. Brown &- Williamson gave ne-.%- and 5:rong support cc its farnil@ of KOOL brands jq.t; 1: Lhrough corporate sponsorship of an exien- .4;%-e music program. the keysiore of ninch :@ the -K00LJAZ2 FE5TTV.ALS-. Theic LLTR X musia events afford Brown & Wiffiamson in effective marketing tool which, is unique within the tobacco industry 119. Alert to the ever-changing ma.-ke-.place. Brown & Williamson continued to empha- size its specialty tobacco products in 1983 with three new introductions. ISL@N`D TR46DER pipe tobacco is an aromatic blend vvith a new spice flavor, JOHN HENRY plug tob2CCO is the only hard pJug on the mar- ker which offers 2 reclosable foil package designed to help m2inmin freshness. And. TUBE ROSE KAIN Scotch snuff. introduced into ten trading markets during the year. offers consumers the full, rich flavor of plain snuff- the sales leader in the dry snuff products categury. Intemationall ales of cigarettes manufactured in the United States and marke,ed internadonaliv continued to decline due to the growing strength of the U.S. dollar, the worlduide reces- Aon. and incr=sed protectionist measures overseas.As a result of thes-e factors. growth in the sale of loc2ity-nianufaccured brands continued anJ is expected to follow this trend in the foreseeable future. Because of this trend. Brown & Williamson's international volurne wa.; down. as was operating income for the imernatiunil husiness. BARCLAY int.-oduced in Switzerland in October 1982. under a license agreenient with B-A-T (Suisse) S.A.. achieved dramatic suc- ce@s in the Sm. i4s market. gaining a -i% market share by the end of 1%3. Fu rther expansion of BARCL-%Yin Europe %%-a-,- undertaken in Ick-A thr,)ugh succesiful launches in Belgium. Holland and Finland. un,ler hcc:-.@-e arraneementst uith other B-.k-T subsidiaries. The ro B.A.T INDUSTRIES P.I-C. - MMJEKVrA DEPOSITORY COPY PMMcED PURMANT To VILD. OF CoNsEw JuDOWNT DATED 54M INSTATE OFMAINESOTA ETAL V. PHLIPA10fiJIM, ETA CASE NO. Cl-94-8565 ARCLM* j7piacei BAF ritrovab L BAT IMXMMSS P.LC. - MWW=A DEpowToFty COPY PRMCEI) ftMIANT TO VU.D. OF CONSEWr JUDGMENT DATED 5/11M IN STATE OF AfIWSOTAL Er AL V. PMLIp AfoggM ET AL_ CASE No. C1.944M L brand obtaine-d a shire of 30@ in each of the three markets. BARCLAY sol,' me- one--illion ciga.,ettess in the4e key E'uropean markeo: in 11)e@. c. the international dimension of vu- appeal. In rcipon.%e to cot-urner for full-flax-or filter cigaretwes. LUCKYSTRIKE Filter n-as laundic in Spain in early 1983. undler an agreernent with the Monopoly. Significant success was achievcn-4. with altf@ tweeding t hillion uni[N hy thu t:11'! of the ,car. Similar I-1011i.il III for thi, brand @irt: ';vmg pur@ucd. atZ,:rv--wcl%- In Ia-zan. B-. -.-m 8, W-Olia:tt@on mmurd -,%N suppon aid U S -c:rmcnr cfft or:@ trade !,arriers an .-pr-it c axe-- ", thm *lapjnr@c Incr. Won:. pr-,vej to m.:'. @: %N.t- .0-:c to accelvxr :lie B.A.T INIXIMES P.LC. MINNGWTA DEPOWORY CO" - PROOUCED PuRsumT To I VILD. oF ComENT.JuDameNT DATEo SIM IN SrATEOFAIIAMSOTA, ETAL V. PHXPAWRM ETA CAseNo.C14M4IW5 Remill Group he BATVS Retail Group is responsible for 12 sepx-Xe oper- iting companies which repre@ent four specific segn-.entss of T the retail industry. Saks Fifth, Avenue is in the high-qualicy specialty store segment. Kohl's Depan-nent Stores operatem the value-oriented specialty store segment. while both Breuner s and Thimbles are categorized as focused specialty stores. The uaditional department store segment consist; of @iarshall Field's. Fre -erick & Nelson. Ivey's-C3rolinas, lvey's-Florida. Gimbels-East. Gimbels-Mid- west. Gimbels-Pjitsburgh and The Crescent. The BATVS retail businesses were well positioned to take advan- mge of an improved domestic economy in 1983. Through s-zore-for- store growth, selective expansion and effective expense control. the Recall Group posted record operating income of S218 million. a dr2matic rise of 31% over 1982. This performance tvas based on Wes of $3.1 billion. an increase of 27% over the previous year. All operating companies posted sales gains, with parEicularly strong results achieved by Saks Fifth Avenue. Kohl's Department Stores, Breuner*s. Frederick & Nelson. lvey*s- Carolinas and Ivevs-Florida. In keeping wlt@ an on-going program of selective expansion. the BAWS Retail Group opened a total of 15 ntm* stores in 1963. as it increased its retail square footage in specialty and deparunent stores bv 4%. an addition of 1.1 million square feet. The Retail Group took several significant steps in 1983 to better position its businesses for future growth and development. The central buying office facilities that formerh- served the vari. ous Marshall field's operating companies were merged into the existing BATVS Retail organization. Gimbels-New York- and Gimbels- Philadelphia were consolidated into a single operating unit. Gimbels- East, which is headquartered in New York. Both of these moves strengthen the merchandising capabilities of the Retail Group and achieve economics arising from centralized activities. Additionally, Kohl*s Food Stores was sold during L@e -.var to The GrearAtlantic & Pacific Tea Company. The sale x%w a result of B.ATUS'reassessment of its involvement in the retail food business in light of a long-term strategic plan to concentrate it5 activities in the fashion apparel and general merchandise sectors of the retail industry. 02 '63 L I B.A.T INWimEs P.LC. MINNESOTA DpaWrM Copy PRODUCED PURISUANT To VILD. OF CONSENT JuDamENT DATED s/9= IN.STArE OF A*NwsorA, Er AL V. PHXV Ataggst Er CASE No. C14M4"S The P*W1 Gm* posW r9cord opmong Incoo of we millim a drwnsdc ft* of 31% aver19112. (S -0 N.@ B.A.T lNousTRiEs P.LC. MINNEWTA DEposrroRy COPY - PWWcEo PuRsuAMT To VILD. oF CoNsENT JuDamENT DATEo SIM jN SrATE oF Almmsom ErAL v. PmtrAtoRgm ETA CASENO.Cl-94-MS Specialty Stores alis Fif*@` Avenue made a particularly strong showing in 1983 and reported record earnings. topping it:- previous high ac`iLved in 1981. Sales rose by 13% and operating income vvas up 26%. Continuing its strong commitment to expan- sion. Saks opered four new stores-Scaniford, Connecticut; West Houston, Texas: San Diego, California: and New Orleans, Louisiana. .4j the end of 19S3. the number of Saks stores totaled 38. as the Company continued to advance its position as the nation 's leading high-quatin. specialty fashion retailer. Kohl's Depanment Stores. the multi-mark-et network of value- oriented retail outlets, has been a growing factor in the BAM Retail Group. Five new stores were added in 1982 as Kohl's ex-peri- enced very significant sales growth. Again. in I9S;. Kohl*s expanded by opening nine new stores - four of them s;-nulcaneously in Indianapolis-as it ventured into a totally new ni3:ket area. Sales volume was up 51% and operating income rose Kohl's management continued to focus on developing the strong organizational 411ruccure and the necessary facilities and systems to .support the ra;id growth justified by consumer acceptance of the unique concep., upon which die business is based. john Breuner Company is a focused specialty store which oper- ace, l- furnicu.-e and home furnishings stores in California. Arizona and Nevada. 157euner's also operates 36 furniture rental unim set- vicing a rapid@-.- growing segment of the home furnishings business. $carted in 5 in Francisco more than 125 years ago. Breuner's has Srowr to be a :eading furniture retailer on the'West Coast and is arriong the largest in the United States. Part of the Marshall Field S, Comrany acquisition. Breuner*s has shown a strong poten- tial for ftirdie- groa-th as it successfully continues its strategy of offc.-mg one-:.,p 3hopping for the home. The Specialry Store seginent of tli,. HAT,-5 Retaii hu!-ine!-@ made ;i @-h ...... : in in un,_@ if; '17-cratim, L-) con) Z:. _N N, BAT INDumIES P.LC. - kJoNaMMA 00,0SUM COPf rAu CONSENT JUOGIAENT DATED SIM IN SrATE OF MINNESOTA, ET AL - PRMCED PU ANT TO VILD. OF - - V. PHLP ET At- CASE 140. C1 -944US -.C;l knom.-a ii..Wotiafi@ for i-!@ imagr and 'Oy its :-och t2ic F:'.kNGO Mints. Thimbles is antylier business within [fit focused specialty store seginent that is experiencing favorable consumer acceptance. This ,as evidenced b%- a sales increase of 19%. A chain of specialty stores for women. it offers career-oriented, classic clothing at moderate prices. 'Minibles a-.Ls originated by dic BArUS Re,:ail Group in 19-9. With eight stores currently siruate@ in mall locations ;.-imarily in the Nlid-,vest and dic East. Thimbles mana-ement expects to open addi- tional stores in 198-t. Department Stores perating income rose by 31% at Marshall Fieid's. well known 0 nationally to millions of consumer@ for iE: image of fine A@- quality and exclusivity. Its unique offerings range from high-quality designer apparel to rare books. elegant antiques, exotic imports and private label foods such as the farivous FR.-ILNGOE Ntints and other related products. In addition. as the dominant MI-line department store retailer in one of the nabor's Ia.-SeSE metropolitan retailing areas, Marshall Field's brings a wide array of price lines, national brands, service and value to a very large segment of (be marketplace. Marshall Field's presently serves Chicago and surrounding mar- kets with 18 stores. In recognition of the strength of Marshall Field's in the Midwest and in the belief that the store offers a highb.. - attractive, transportable retail concept. three stores have been opened In Tens. Entrv into the Texas market began i with the Houston Galleri2 in 19-9. This was followed by the Dallas Gal- leria in 1982. and a second Houston store. which n-as opened in Febru- ary 1983. In addition to expanding Marshall Field's into new markets, BxTUS management is committed to improving the growth and prof- Imbifiry of the existing 21 Marshall Field's stores through significant investment in store renovations and merchandising strategies. Frederick & Nelson*s sales rose 14% and operating income was up 28%. The Company. which began as a frontier store in Seattle, Washington, in 1890. now operates 15 depart- CO B.A.T ImLwR*s P.LC. MWESOTA DEMITM COPY - PMMCED PURSuAmT To I VILD. OF CONSENTJUDGMENT DATED 54MIN STATE oFAIMEsorA, ErAL V. PKIP MORRNL ETA CASENO.CI444MS rQ B.A.T INDUSTRES P.Lc. - MU40MA DEposffoFty COPY - PwmcEo PuRwANr To VILD. oF ComsENT JuoamENT DATED SAM IN Surr oFA*NmEsorA, ErAL v. PmxpAkgm. ETA CASE NO. Cl-94-8565 men( @tores in Washington and Oregon. Management strategy for Frederick & \elson in 1983 focused on improving sales volume on a store-for-store basis and increasing operating efficiencies. Implement- ing this strategy resulted in gains in both sales and operating income for tile year. Major steps in maintaining it Nelson's Position 25 3 Frederick & . leading quality department store in n-e:-c tAen in n-i:;l renovation and redesigr efforts in 7quare. rened in 19i6 as in anchor to a Seattle mail. wa, & Nekotl's ft-..@t,;uhurhan store. The redesign of this 't, .. -. a "111311 within a niall." with the various departments wp%::'a*.i:,.-z 'L.; -@-.)eciattv slxip,: strategicalty placed along.,iralkm-avs and @::vinga European atinosphere. S: Ne!@- w. As, 1 renovated itskurora Village store in i:- Tacoin.t. V.I.Shington sture during the year. Jinj- lvey*@-Florida ioined the BAT"US Group of C. 191,2 Marshall Field & Company 3cquj,;i- a- rw- - @MOUS Units. each of which reports C,:- -up hcaJquarters in Nem- York. Ivey'5- lvv% tile BATUS Retail GrOUD with Xld nipidly gr 1xving Southeamern corridor BAT INDusmiEs P.LC. - Mw4E9oTA Domsffow COPY - PRMCEO PURWAwr To VILD. oF CONSENI'JUDGMENT DATED 5MM IN SrArE oFMAwsom ErAL Y. PmtPA6wow ErA CAsElilo.Cl-944as Both. x-e qLl'.Ilit%- deparlinclit stores. ofiering illojerale XI.J. fashioll apparel for the fanifl%. decorilwe holile ac':C:@Suric@. !"nnesics and housen-ares. which 1; across North jnd Souch Carolw.j. incr=,-ed it@ ope:.!tjng :w si'o allj enjoved Sub- sta-116.1, @.lies of 1-@" ill 198- 1%-e% :.-Florida a6t) expencnccd inicrilal growth. inore dou!@iiiig its operating line in 19%13. It Opellrd, one new store. colorial Pl:izl ir 1,.;:,.@:ing the cotal nurnbcr of @-*,ores in thi@. Unit To 12. Wit!-. the co@@.@ohdxion t,-* York 3nd Philj;.!c:phiLi w. 1983. there ire nk -%@ Ehrm Ginlbcls optralinu, Giinbc!@-NiiNxesi. and Ginihcls- Pittsburgh. A: illree Girnbc;s unirs opcrared profitably. with Gimbe!i;-.\1id%\t:st rai!,ing it!, uptraun.,-, incoine b%- 92%. Gin,.@>els@East hi-@ 20 szorts in the Ne%\ York alld Philadelphia area-m. Girnbels-Midweit operates I I -@turc@ ill Milwaukee and surrounding rnark-ets. while Gimbe!@-Pj((:.buqCh has - stores in the Pimsburi a gh area. Athough Strategic emphasis %ilries for e ch market. each of the companies continues an operating stritegy of refining merchandising concepts 3nd incre;ving productivity through ay,gressive marketing and throuQ, i the implementation of sound expense controls. The Crescent is the leading full-line, family-oriented department store in Spokane. Washington. With three stores. the business achieved modest growth in Sales. up 100o. and an incretiiie of 31% in operating inwme during 1983. The Crescent continued iti practice of offering quality. fashion selection.service and %ulue to the pokane market. S I Through selective expansion. the BANUS Retail Group opened 15 new stores in 19S3. incrmsing by 1.1 million its retail square footage in specialty and depart- ment stores. B.A.T 1MNjsTwq P.LC. - L&NNESOTA DEjMffORV Copy PRODUCED PURNANT To VILD. OF CONSENT JUDGMENT DATED SAM IN.SrATE OF AIINNEsorA. ET AL V. PHXP NORM ETA" CASE No. C14M4"5 c: B.A.T ImLwmn P.Lc. - MmovA Dposcrofty Copy - Pm=cEn PuimAKr To I VILD. OF CONSENT JuDowmr DATED 5MM INITATIEOFUMVESOTA, ETAL v. PmxpAkgga. ETA CASE NO.Cl-9l 2425 Paper Group ppleton Papers is strategically positioned vothin the paper 'V industm to serve a specific segment of the market through 11. efficient manubcrure of specialized products. U Its key produa-carboftless paper- is designed to serve the growing business forms and information processing industries. Ass the world*s largest producer of this unique specialn. product, Appleton possesses 3 strength and 2 Cap2Cir%. for growth unparalleled in the industry. .Appleton also is the industn- leader in the manufacture of hear- sensitive thermal paper, used extensively in information processing equipment..Addition3fly, the Company is a major supplier of co2ted enamels to the graphic arts industrV and a specialty co3ter for converted products. With five manufacturing facilities in Wisconsin and Pennsylvania, Appleton possesses integrated manubcturing capability that embraces pulpmak-ing. papermakiing, the manufacture of micro- capsules for carbonless paper. and the conversion of base materials into finished products. Appleton sales grew substantially in 1983. reaching S-465 million. This was a 130* increase over 1982. Total tonnage rose by 13% In the ve2r. with increases of N% in carbonless and 5% in noncarbonlew tonnage. Due to new manufacturing efficiencies. improved raw material usage and emphasis on products which serve the high-tech infor- mation processing industry. the Company achieved an increase in operating income of 26%. yielding S80 million for the year. The Ps1w Omp addwed on kwrm" in of 21%. ;Qd _mMm #or am vow. a MOW rQ PQ @@4 rV L'14 B.A.T INDUNMIES P.LC, - MMOAMA DOODSTORY COPY - PMWCED PMWAMT To I VII.D. OF CONBEIcrJuDawwr DATED SON iN.STATEoFA*NwsorA, ETAL v. PwrAtmin, ErA CASENO.Cl-044MS 12 V U 2 realized from moderniz=..)n of existing facilities and through @ strong employee educatien and training programs. The Vplecon. Harrisburg and Portage plams and the Locks and Spring mills 311 reported record efficiency ',evels -Miich were attributer-' to educ3- tional progr2ms involving ;aiety. quality control and waqe reduction. TheAppleton marketing )rgarliz:ition. which ww. re@-rtjctrured n 1982 to serve the Cor-.pX.'.'4,:W-(,N11ler@ nwre effectivei@... operated in ..is improved organ zatwn envirornwntfor its first @-:l year in 19S3. contributing to rl".e . e: @rJ sale, level. Manufacturing efflicien- The Company continue-C :o make sizable capital expenditures ;,)r cies and prodoctivirv environmental control. im-iernentint g highly sophisticated engineer- ing concepts and installin; 'zjte-oklie-art equipment. improvements were A significant example t- -.;It '526-nullion wcovery 1-1, Lier Con- realized both from -truction at the Coinj%im'- Mill. v.-hich was cor-.:Nlett-d ill modernization of 19M3, The rtmwerv Ntiler :- anothcr ficet of cnvironrnrntal ew-ting facilities and -enient activitic, th.i: .%wc t.iketi pl;we at this I joi d r impri i% 1 11 in@ through strung the pa-;r few year, Another rnaOr cupit.d )vement. ailm unced in N--cnihe.-. emploi-c,z education and -rovtdes for the - , ingprograuls. 31'er sion and modernizatwn. Lock- \till nnanufacturw.: it-, Manufacturing efficiencies and producthiry improvements B-A.'T IMMMIES P.L.C. MWIMMA DEPOSITORY COPV PROWJCED PURWAW To I VILD- OF COMENT iuoamw DATED SAM IN STA-TE OF AjjNwsorA, Er AL v. PmXV MORRO. ET CASE NO. CI-94-GM U -1 Coml,ine.' Lock-.@. Wiscon@in. Con4truction of a 4:23 million muid- :',je! powcr i., also urlder way These investnlCnES are dt:bigned -C IC7='@V M.11.1 -,tput -,:arh()nles4 Pirer by in eitinixed 20.. Or M,.w 1;. tht Fujeral Tradv Curnniis@jon issued j Com- ::.unr that --ne acquisition on Julie AO. 19-8. by A:,ulet,:-. Inc. of ';'.e Appiezon Papers G, oup of NCR Corpo- r.".,Wn :@@e fedt:%.,! anti-n-wE la"s. In Dcccmber. 1983. the . " ist-jm e L-,v%' Judge rende:ed -.in initial dec!sion in fivor of A,@m@r A:"Al,on Rincr@ and B,.@-T lndl,_@trir@. and cecommended dj@anissjl . r o@:he f7c The 17C 4tx@* is lppeahng this decision to Llw fi;i@ :'wc-:nem@)er Fe-"t::31 TraJe Commission. Appleton Papvrs .MJ B-A-T l:,.I'u,-,nes he!lL%V that he AdMinistr3tive Law.ludge's 4 decislon %%-;!I be uplieL'. in Cx-a.@a..Apcleton PIDers enaered into negotiations for the purr-h-tse of a manufacxing facilin, .for the coating and converting of carbonies4 paper at Peterborough. Ontario. V'hen the transaction is compleed. the facility will operate as the manufaauring arm of .Appleton Papers Canada Lid. The plant is being acquired from Nashua Canada Limited. a subsidiary of Nashua Corporation. .Nashu3. New Hampshire. Operation is scheduled to be8in in Jul% 1984. This acquisition %%ill provide Appleton PapersRith manufactur- ing capabilities to meet the needs of a groming Canadian market. Thc nia:-k-.:;Iig or.,,;znization. which was ust:11CM:'C'_@ in WS2 to 'I . L e atly !. cus- t:,tucrs morr effcctiveiv oper2tt:d ill LhjS improved orpnizat:onul nvirunmesit for its - @-st tu*l %-car ill 1965. .1. 1 . - :untributilic to the r,,:cc)rd sale!. level. B.A.T INDUSTRIES P.LC. - MINNESOTA DEPOSI, ORV COPY - PRODUCED PURSUANT To VILD. OF CONSENT JUDGMENT DATED 5/8M iN SrATE OF Aftwsom Er AL v. Pmxp Afoo#W ET CASE No. C14M.M5 (0 L-1 I BATUS is the co-frimon Executive Changes thread which unites its diverse businessesand through leadership focuses on motivating everv individual in the BATUS Group of Com- panies to experience the satisfaction of reach- ing full perforniance Potentw- he year, 1983, saw a further strengthening of BATUS Inc. management capabilities through org3rift3tiona! changes ra and senior appointments: ABan R. Johnson. former Chairman of the BATU-5 Reud Group who retired from the BATUS Inc. Board of Directors it, :962. %as re-elected to the Board effective September 1. A. C. Longn-as elected to the Board effective October 1. Concur- rent with his appointment to the BATUS Inc. Board. Mr. Long vw named Finance Director of B-A-T Industries pl.c. Thomas W. Busch. who has served as President and Cnief Operat. ing Officer of Appleton Papers since January 2982, uw 2ppointed to the BATUS Board effective December 1. Brian P. Garrav6ay, who has been a BATUS Board Dire= since June 1979, resigned from the Board January 1. 1984. Mr. Gar=-ay, ,%tto serves as a Deputy Chairman of B-A-T Industries p1c., %ill be devoting more of his time to financial activities at B-A-T Industries. Gerald L. Dennis, 21SO 2 Deputy Chairman of B-A-T Industries pl.c., became a member of the BATUS Inc. Board effective January 1, 1984. He succeeded Mr. GaTamy as the &A-T Industries) fain Board Director responsible for liaison vAth BATUS Inc. Henry F. Frigon, formerly Executive Vice President & Chief Firian- cial & A@rninistrative Offic@r of BATUS Inc., was named President of the Company effective September 1. Mr. Frigon continues to serve on the BATUS Inc. Board, a poskion he has held sinceMarch 1981. In his new post, Mr. Frigon also continues his activities as Chief Financial Officer and has assumed responsibility for the Tobacco and Paper Groups. The Retail Group continues to report to WLTUS Inc.'s Chairman and Chief Executive Officer, Charles 1. NicCam-. There were several senior executive appointments,%Ithin the BATUS Group management structure- Arnold H. Aronson, formerly President of the Retail Gfoul; sss named Chairman & Chief Executive Officer effective September 1. M. Ronald Rusldn, formerly Vice Chairman of the Retail GrouA became President September 1. 3oseph Berzok joined the BATUS Retail Group and vas appointed Mice Chairman effective November 1. Thomas W, Busch, fortneriv President & Chief Operating Officer ofAppleton Papers, became @halrrnan & Chief Executive Officer of the paper company effective March 31, 1984. Mr. Busch succeeded John J. Hangen in that position following Mr. H2ngen*s retirement in %larch 1984. Mr. Hangen had headed -N, -1i rQ 13.A.T INMWMES P.Lr- - umam DEPowrow COPY - PRMCED PWMANT TO I VILD. OF CONSENT jUDGMENT DATED 5/9M IN STATE OF AeNNEscrA, Er AL v. PNLV UORRIS. ET CASE No. CI-94-MS (0 W Appleton Papers since October 1977. His expertise and dedication will be missed by all who knew and worked with him. BATUS extends its sincere gratitude for his distinguished service. Conclusion s the holding and management company for a large and diverse group of businesses, WVS Inc. is responsible for MMMW providing strong support to its Group of Companies in the form of guidance and services. The responsibilities of BATVS Inc. to members of the BkTU-S cup are divided into five major areas: o establishing policy to guide the sw2tegic development of each of the businesses in the Group. *developing sources of capital and allocating capital resources to the businesses, monitoring the performance of each of the businesses to ensure that they are achit:%ing agreed objectives, ensuring organizational development and management can- tinuirv for the businesses. and provj@ing certain centralized services to the businesses. IELIMS Inc is the common thread which unites its diverse busi- nesses and through leadership focuses on motivating every individual in the RAWS Group of Companies to experience the satisfaction of reaching full performance potential. It is commitzed to the highest standards of excellence and to communicating these standards to the individuals in the Group, to the business com. munir$@ and to the socieTy in which it operates. Houvver, It is the efforts of die individuals who comprise these .ts-each one a unique and vital force-which drive the Com- pany to success. Last year was a vcry successful year for the BATUS Group of Companies. It was a recovery year for the American economy and BATUS is conunitted to that contributed, in pan. to our favorable finandal'resuhs. But@ awe the highest standanb of dm anything else, it was the spirit, the commianent and the deter- excellence and to com. min2tion of the individuals in our businesses that made 1983 a 't successful year. snualcating these sandwds to the individ- ualsi in the Group, to the business communitv. Charles 1. NkCarry and to the socleW In* Chairman & Chief Executive Officer which it opeitiates. C.:) Zi J B.A. T IMXMTMS P.L.C. - MOMMMA DEp0S=M Copy Pp=cEID PusMAWr To I VILD. OF COMEW juoQuEmT DATEo SMM iN STATE OFUNWSOTA, ETAL. V. PWP AWRM, ETA CnEft.CI-944105 Management's Discussion And Analvsis U11 RESULTS OF OPERATIONS The Company again achieved record levels in both sales and net income for 1983. Net sales increased 10.1% in 1983 to $6.1 billion. principally 3 result of the strong year-end performance in the Retail Group and the effect of a full year of operations forMarshill Field & Company. Net income reached 52@8.6 million, an increase of 20.8% over 1982 results. ALI three groups. Tobacco. Retail and Paper. contributed significantly to the increa.-e in net income. Total sales in 1982 increased to S5.5 billion. 2 2006 gain over 1981 due primarily to the acquisition of Marshall Field & Company The increase in net income for 1982 u2s 19.1%, resulting in $214 million for the year. Cost of sales, including buying and occupancy costs, and selling, general and administmti%*e expenses as a percentage of sales, were as follo%vs for years 1983,1982 and 1981- - - - - 1") cm of Un ............. 9_.0% senim Geftw Wd Mmonwaum ............ z3A% 23.6% The decline in the cost of sales percent- age, in 1983, %%w due, in part. to the effect of LIFO (before the sale of Koh! Food Stores) which reduced 1983 costs by $7.0 million as opposed to LIFO charges in 1982 and 1981 of $19 5 million and $-1.5 million, respectively, Other factors include improved producdvfty at the Tobacco Group's facility in Macon, Georgia and improved margins in the Retail Group and Paper Group. The decrease in selling, general and administrative expense as 3 percent of sales in 1983 was due to lower Tobacco marketing costs and improved Retail expense productivity, partly offset by non-recurring produ6ion realignment expenses of $45.6 million in connection with phase-down of the Tobacco Group's Petersburg, Virginia manufacturing facility A major portion of the 1982 increase was due to the non-recurring write-off of a portion of the goodwill arising from the acquisition of the Kohl's Food Stores and additional provisions for production realignment in the Tobacco Group. Total $81" (1 O'Na"I 00W 5 RMA P.JW 111'r IL ago- n so of 92 83 M-1 B.A.T INDUSTRIES P-L-r- - MMESOTA DEPOSITORY COPY PWWcEo PURMAmr To I VILD. OF Co"sENTjuoomEmTDATEogl$MlmSrA,rEoFA*NNEsorA.ErAi-v.AaipAfoggoErA CASENO.Cl-94-MB Tobacco Croup The Tobacco Group includes the oper- ations of Brown & W71ii3mson Tobacco which principally manufactures and sells cigarettes within the United States. Inter- national sales of U.S. manufactured ciga- rettes; account for 8.3% of total sales. Tobacco 531M for 1983 were $2.1 billion. up S5.6 million from 1962. The increase ntis due to price increases during the year as domestic unit sales declined by 14.7 billion units or I- *6%. The increase in U.S. Federal Excisse Tax on cigarettes on January 1, 1983, from eight cents to sixteen cents per pack continues to have an adverse effect on total industry con- sumption, which declined 4% .in 1983. International volume declined br 22.4% due to the strength of the dollar Iand increased local maritifacture of such brands. Income from operations increased $39.7 million to W-1 million in 1983, an increase of 10.9% over the prior year. Selling price increases along with improved productivity and lower market- ing costs contributed to the increase in operating income. Further, as a result of lower inflation rates and reductions in inventory quantities. the Group's operating income v6-as increased by a favorable LIFO 2djustment of $12.6 million. Tobacco Group operating income increased in 1982 by 44.7% to $365.4 million. This was attributable to the absence of the significant marketing expenditure to launch B.ARCLkY in 1981, lower LIFO expenses and higher selling prices associated with the doubling of the cigarette excise tax. Retail Group The Retail Group includes the operations of Marshall Field & Company, Saks fifth Avenue, Gimbels Department Stores, Kohl's Department Stores and Thimbles Specialty Stores.Comparative amounts for 1982 and 1981 have been "=ted to exclude Kohl's Food Stores whichmm sold in 1983. Sales for the Group were $3.1 bilUon in 1983, an increase of 27.5% over 1982. The increase BAT INDUSTRIES P.LC. - MINNESOTA DgMORy Copy _ pROM=0 PURM CONSENT JUDOWNT DATED SWU IN ANT TO I VILD. OF STATE OF A*WSOTA, ET AL V. PMXjP MORRIS, CASE No. CI-944M was due to a strong year-end performance and the inclusion of Marshall Field & Company, which was acquired inMay of 1982. for the entire vear. Aso contributing to the increase in sales was the addidon of four new Saks high-fashion specialty stores, nine new Kohl's Department Stores. and one new store each in the Marshall Field*s and Ivey .s-Florida department store groups. Operating income for the Group increased bv 3 1. 1% for the vear to $216.3 million. The increase v6% a result of increased sales, improved margins and expense productivity, which were, in large part, due to improved economic conditions during 1983. The Retail Group also showed increases in both net sales and operating income in 1982 with sales increasing to $2.5 billion, an increase of 58.4% over 1981 and operating Income increasing by 36.5% to $166.4 million. 7he sales increase from 1982 includes sales of $W.5 million from MarshaU Field & Company which was acquired on May 1, 1982. Opu0n A"ets (8 111080f NPAW POW 11IT006= C.: M: Paper Group The Paper Group consists of the operations of Appleton Papers, a leadi: manufacturer of carbonless and other specialty papers. In 1983 the Group enjoyed strong gains in both sales and operating income for the year, with sal increasing by 33% to $465.3 million. Overall sales volume rose 13.1% to a record level. Sales of carbonless paper, the Group's major product, increased t 16.1% in the U.S. market, reflecting the introduction o( new carbonless produc and the recovery of the U.S. economy from depressed 1982 levels. Export volume fell as a result of the continued strength of the U.S. dollar. Operating income increased by 25.891 over 1982 to $80.5 million, in part as a result of the increase in sales. Also contributing to the increased operating income were greater efficiencies and productivity improvements realized fror the modernization of e.-Jsting facilities and strong employee education and training programs. A.'T INDUSMIES P.Lr_ - M*#JEWTA DOMITORY Copy ppAMMD pUpWAW To VILD. OF B. y. Pwp MORFIN, 6T m, CAM No. CI-94-M5 Comm JuDGMEW DATED 5/8= IN SrATE OF A_(1NWS0rA. Er AL - The Paper Group showed a small increase in sales in 1982, with an increase of 2.1% to $411.8 million, reflecting the depressed level of the U.S. economy However, operating income increased significantly by 73.2% to S64 million reflecting a disconcinuadon of mill grade papers and concentration on higher margin carbonless papers. Interest F-ipense Interest expense. net of interest income, increased by S9.4 million in 1983 to $164.6 million. The 1982 amount also exceeded the 1981 amount bi $61.4 million. The 1983 and 1982 increases were attributable to an increase in average debt, In part, due to the increased debt incurred to finance the Aushall Field & Company acquisition in 1982, partly offset by lower interest rates. The increased debt incurred to finance the Marshall. Field & Company acquisition in 1982 had a full year effect in 1983 versus a partial year effect in 1982. Provisionfor Income TW= . The effective tax rate for 1983 was 45.2% compared to 43.7% In 1982 and Wee4" Capital pnWMsd cy opwationws mmonsi N DWw#W ums & orwrs nowsomon a CHO cce 0 ow 2W 0 72 110 V 62 93 44.6% in 1981. Lower investment tax credits in 1983. in conjunction with lower capital expenditures, resulted in an increase in the effective tax rate. The decrmce in 1982 versus 1981 was also associa:ed with the high level of invest- ment ",credit in 1982. FLNA-NCIAL COIND1710N Liquid,*.7- and Working Capital WbrLdng Capital provided by operations for the last three years vkus as follows (in millions): IM 1"2 1961 Net Income ..... ....... #2"'6 $.'I.I,o SI-9.7 Deprauzznand Mnon.-2aOn i%j 13. 110.4 DdOnred-uftand0uner 15L7 it! 6 77.7 Working Cap*W Prmided toy ope-uons .......... $465A -1567A Increased sales and margins were the principal sources of woricing capital gener- aEed from operations. Changes In federal tax laws which allow faster write-offs con- tributed to the increase in deferred taxes in 1983 and 1982. In 1983 and in 1981, the Company acquired tax benefits Erom other companies under safe-harbor lease pro- N _Nj M-) B.A.T INDUSMIES P.LC. MMMOTA DEPOSITORY COPY - PROWCO PURMANT To VII.D. OF CoNsENTJuDomEmrDATEo5AmiNSrATEoFAfimwsorA.ErALV.PHXPAfCRRB.ErA CASENO.Cl-944M Co visions of the Economic Recover%- Tax Act which also generated deferred m,; in. creases in all three yiears. The principal uses of cash ove: the Wt three years were as follows (in millions): 19113 - 1 ".1 M Capacd Lqwr4rures ..... $109.9 M6; $M- DmderAs .. . ...... 10010 11:1 950 Wer Inmitmnu Tax L42M ........... . -2.5 - 33.2 .4cciumum ofmunjlzu field S, Compaw.... 3t- 4 - Other ...... .. ....... -02.5) 5.: 41.0- TIXW ..... .. .. ..... I - IS391-9 SW 4 JML Thile the investments in tax kases were uses of cash in 1983 and 198 1, the% will be sources of cash in subsequent VMS. The acquisition ofMarshall. Field & Company in 1982 nus financed by borrowings from an insurance company, an affiliated company and by using cash. Capital expenditures by Group for the past three years were as follows (in millions): - - 19115 M2 1961 TWOM ................ 1452 $125.8 U02.6 Rew ................... 115.3 10-3 "0 hi . ................... ".0 30.4 25.4 00M ................... 2A 6-4 5.5 TWAI .................... SIM SM&I 11M.? The Tobacco Group spending declinv.1 in 1983 in conjunction with the cornpit: tion of the Macon, Georgia production facility. Ret3il expenditures increased slightiv over the 1982 level as the Group continued its aggressive expansion and renovation program. Paper Group expenditures remained at the same annual level with primary emphasis on environmental protection s,.L stems and modernization. Net working capital and the current ratio for the last three years were as follows: 1"S 1982 M Towng Qptul (Ir =MkKU) ........... M112 16-j" ogle) curmu bac ............ 1.7 1.6 Cash pro%rided by operationswas more than sufficient to meet the financial needs of the business including a reduction of short-term borrowings (net of short-term investments) of $153.3 million. Plincipsi Uses of Cash (S %I-WI: r. ftQV*I*% 01PW 11110.0was IICMIIME,@ d,-n To W 111 42 83 C40W ExpandRums (5 MdWS) worw MP4W Paw Mrobacco XO 79 so of 82 13 ka-4 r,j B.A.T INDusTRiEs P.LC. MWMOTA DEIXXMTORY COPY PRODUCED PURSUANT To VILD. OF ComENTJummEw DATED 5MMiN SrATEoFA*NwscrA, rrAt- v. PmxvA#dRRm ETA CASENO.Cl-944MS U I Capital Stnicture m n.. i 1" .%, 1 1"3 D@N. Siv.n.rem $1.4 1 IAO 1 1 94 - ng f'M @nhinonewir 49.2 -10 9 JLN .V@@:.jacd c,@.Pjn- ..N'r.low@j . - 6-.6 t@.3 3 435.5 1_9@ 2 7. dil ;kft Iri.0 1.442 k P" i 1.209.5 10%9 6.1.490.1 11 -9@ - PC'.Vr:1AW4 I'ta: Abt to 1.1W CWILA . - - _ Pece.-mWe Uf eggma 'X@r to uaw ...... 7he significant decrease in debt as a percentage of total capital in 1983 is due to the use of cash provided by operations to reduce total debt by $171.5 million and a similar increase in equity as 1983 earn- ings retained in the business totaled $158.6 million. In 1982 the ratio of total debt to capital increased as a result of debt incurred to finance the acquisition of CBPIW' (I wwn) shm on dw D&AGrowed dW '!NWHPAWdw*W 111114UNY 10 20 'It*.44.0. 10 79 so $1 82 113 Marshall Field & Company and the assumption of its debt. As noted, the majority of debt pa% able to an affiliated company is subordinated. In 1982 the Company entered into an agreement with an affiliate to subordinate debt up to $1 billion of external debt in order to increase the financial flexibilir% of the Compan%@ At December 31, 1983 the Company has $161 million of unused lines of credit with banks and an informal agreement with B-A-T Industries under which an additional 5272 million mav be borrowed from an affiliate to provide for short-term financing needs. The Company has sufficient financial flexibility to meet its fbreseeable obliga- tions and finance further expansion from its strong financial position. cash Raw from operations and available sources of short-term financing PWO Ot OM 10TOWCO" MAftwo cw"ny dW §Evwno dot 79 so at U 93 M.) N) BAT IMUSTRES P.LC. - MMESOTA DOMFtORY Copy - PMWCED PURSUMT To VILD. oF CoNuNTJuoamEwrOATEos/&seiNsrATEoFAtwiEsOTA,ETALV-PHXPAIORRO.ErA CASENO.Cl-94-M5 RATUS Inc. Financial Report L32 Maitialemenfs ItesponsibWry fbr Finstacial XeponLng The follouing consolidated (In2nci2I statements of BATUS Inc. were prepared by management which is responsible for their integnty and obiectivin: The in2riciall sutements have been prepared in cc.-formiry with generally accepted accounting prrciples and necessarily include amounts v%-N&. represent the best estimates and judgments of rnanagement. Stanagernent @$ further responsible for main- taining 2 systern of internal accounting controls, designed to provide reasonable assurance that assets are safeguarded, established policies and procedures are followed and transactions are properly executed and reported. The system is continually rviewed for Its effectiveness and is augmented by %Tmen policies and guidelines, the careful seilection and training of qualified personnel. anda strong program of internal audit. Arthur Young & Compapi; certified public accountants, are engaged to examine the con- sollidated financial statements of RATUS Inc. and Issue a report thereon. Their examination is conducted in accordance 96ith generally accepted auditing standards and includes an objective miew and et-Aluation of internal Report of CerdGed Public Accotitiatimts The Board of Directors and Shareholder BATLIS Inc. We lave examined the accompanying consoh- dated balance sheen of BATUS Inc. at December 31, 19113 and 1982, and the related consolidated statements of income and retained earnings and chair%es in financial position for each of the three years in the period ended December 31,1983. Our examinations were rude in siccordiance with Xenera]4- accepted auditing standards and. accordingly. included such tests of the accounting records and such other auditing procedures as we considered necessity in the circumstances. accounting controls to the extent deemed necessary by them. The Board of Directors. through theiwdit Committee of the Board. is responsible for: (1) assuring t@:it management fulfills its respon. sibilitics in the preparation of the financ:31 statements; and (2) engaging the certified public accountants with wham the Carnmittee miews the scope of theaudits and the accou:@:- ing principles to be applied In financial reporting The Audit Committee mee:s , egularh (separately and jointly) with the certifie-d public accountants. representatives of management, and the internal auditors to review the activities of each and to ensure that each is properly dis@ng its responsibilities. To ensure com- plete independence, Arthur Young & Compary has full and if ee access to meet with theAudit Committee. without management represen- tatives present, to discuss the results of their eitsmination and their opinions on the ade- quacy of internial accounting controls and the quality of finaricial reporting. )4`7 Henry F. Frigon Praidew In our opinion, the statements mentioned above proem fairly the consolidated ftmclal position of BAIM Inc- at December 31, 1983 and 1962, and the consolidated results of operittions and in financial position for each of the duree y"IFS the period ended December 31, 1983, in con- fbrftty with generally accepted accounting principles applied on a consistent basis during the periods. A.LL--- LaAwille. Kentucky Mamh 16, 1984 -N, ___4 B.A.T Moumm P.LC. - Mwasou GlEposirroRy Copy - PRO01=0 PuRsumr To VII.D. oF Comsefr JuDamw DATEo Waft im SrATE oF Aftimsom ET AL v. PHxP Mom& Er AL CAsE No. CI-94-ma BArUSInc. Consolidated Statements of Income and Retained Earnings )Lwrs Ended December 31, 1"3 1982 1981 (In Thousamt; qfDoi -lvi) Net sales ................................................. $6.063,520 $5.506.698 $4.592.259 Costs and cepenses: C'm of swes ....... ..................................... 3.456.949 3.257,628 2,741.532 FoJer3l exciw taxes ...................................... 540.329 341,259 346-787 , Selling. general and 2 -Ininisuative expenses .................. l.,42909 1372344 1,085.538 InLetest expense, w. of interest income: 1983-$4,168.1962-122.696: I"l-S37,113 ............. 164.563 155,175 93,81 ToW costs 3nd expenses .............................. 5.591.450 5.126.406 4.26-@673 Income before prov-bion (or Income laxes ................. 4.2,070 380192 324.586 Provilsion for income outes ................................ 213,510 166,337 244.888 Net income .............................................. 258,560 213.955 179.698 Retained earular. beXinnino of y ear ...................... 932.551 ", 696 793-M Dividends declared ....................................... 100,000 IIIJOD 95DOO Reaft" earalaV, end of year ............................ $1,140,121 $ "1.351 $VSA96 See accompanjing summary of sccounting policies and notes to consdidared financial mtements. LA L7. B.A.T INMWMS P.LC. MINMUOTA DEPOSITORY Copy - AWDUMD PURNJMT TO VILD. OF CONSENT JUDGMENT DATED S/M IN SrATE OF A*NWSOTA, Er AL V. PHXAP MORM& AFT AL CASE No. C1 4M4W5 BATUS Lnc. consoudated Balance Sheets L34 Decertr6er.;I. 1963 ASSUS (In 7boumn.,.1, Current assets: Cash .... ................... .. .................. ......... ....... $ 18,918 5 91818 Short-term investments ................................ .......... ...... 57,400 6X37 .jiccountsmceivkle. less allovvance: 1983-133.5-0:1962 - S34-A . ................ ...... ... ........ ... 1.030,912 938.022 Inventories ...................... ................ . ............... 922.324 694.140 Other ........................... ................. ................ 25,881 2-.000 Cur,ent assets .. ................................ ................. 2.055,435 1-9-5.817 Property. plant and equipment. at cost. Und and improvements ....................................... 73,123 91,548 Buildings and improvements .......................................... . 778,7724 740,675 Store &%tures, machinery and equipment .................................. 926.222 819,014 Construction in progress ............................................... 46,594 103.120 Leased property under capital leases .................................... 102.715 132.22- 1,934.3-,7 1AS6584 Less accumulated depreciation and arnord-, on ............................ 558,550 517339 2.379.827 1369.245 IntaxWble assets ............................. ........................ 3411.802 403,112 Other assets ........................................................... 223,061 97.106 $3, See accompanying summary of accounting poUcies and notes to consolidated finandal statements. B.A.T INIMATARS P.Lc. - MiNNESOTA DEpOSffM Copy PRMCED pURSUMT To I.VII.D. OF CONSENT JUDGMENT DATED S/Wle iN Sun OF AIINAwsorA, ET AL y. pWV AkRgg, ET AL, CASE No. C,444=5 December3l. 1983 1982 LLkB[UTMS.A-N*D SHAREHOLDERS EQL17T (in Tbousan& of Dollars) Cuff ent UabWdes- Short-term borrouings ....... .... ......... ... ...................... 11 83A18 $ IS6.135 Long-term debt due vtit@::n one I.e2r ... ............ ............... ..... 49.203 -4.90b .kccounts payable .......... ..................... ...................... 398,647 3-#6.-108 .NcCrued liabilities ............................... ...................... 412,388 362.304 Due to Alized companies ........... ......... .. ..................... 60.910 ;4.425 Income =es p3juble ..... . .................... ...................... 219.835 1-3.301 Current liabilities. ........... ...... I ............. 1.214.401 1.19-.5-1 LMS-terw debt: .41fifi2ted compan@- prinaL311%, subordinated ............................... 702.564 6S8.240 Other ...................... .................................. 435.797 493.1-2 1.138.381 1.181.412 Other long-tem UabilUties , ........ ................................... 340,855 315.368 Sbarebolder's eqWty. Common shares, $1 par valuez 1,0DO shares 2uthorized, issued and ourstanding ..................................... I I P2id-in capital ......................................................... 69376 693-6 Retained earnings ................................................... m4oan 981-551 1.209,488 1,050.928 $3,903,225 111-45,279 _Ij BAT lwumas P.L.C. - MWNESOTA DEPOWORY COPY - PWWCED PURSUAICT To VILM OF ComsEw JuDowNT DATEo SMM iN SrArE oF Alimmsom Er AL v. PHar MoRgo. ET CAw No. C14M4W5 BMS Inc. Consolktated Statements of Changes in Finandal Position W= Ended 1983 1962 (in Tbo"wyds C@DC)114rs) Cmh provided by operatlow: Net Uicome ..................................................... $ ZS6.560 $ 213.9!@5 S 17%M Items not affecting working capit2l: Depreciation of properry. plant and equipment ..................... 12814" 109.@$3 82,563 Amorti;zation of intangible assets ................................. 26.365 2-.912 27.7" Deferred income tam ......................................... 71.343 60.811 5-1@550 Other ....................................................... $03" 52.9,q 18204 Working capital provided by operations ......................... 565.113 -465.N9 36-313 changes in components of operating working c2pital .Accounts receivable ................. .......................... (92.890) (214.%0) (71.334) Inventories on first-in. first-out basis .............................. (7,240) 9-,--!4 (152ZQ Lax-in, first-our irwentory teserve ................................ (20,91") 19.-1-6 71.530 Odw current assees ........................................... 1.239 3Z.56 (3.844) Accounts p2%2ble, accrued liabillues and due to aMlized compasues ... 10Q58Z (6.4-9) AM income =es payable .......................................... 46.534 -15.411 (23,647) 32.161 (27.182) @148.583) Cash p-ided by opead ons .................................. 50.274 43-.8V7 239.2M Coals used for bxvwtmmt- Acquisition oflibishall Field & Company ............................ - (367.6-16) - Additions w property, plant and equipment .......................... (I"J" (268,064) (1".730) Acquisition of in beneft through tax: leases ......................... (72.40) - (33,M) other ......................................................... 22.540 _(54.135) (4100) (23900 (6691125) L274,754 Cah used 1w dividends ......................................... (10010" (111-100) ("Aw) Cob used for finitnefts activities: Addtdorks to long-term debt ....................................... 23.160 393.233 %A70 Payment of long-term debt ........................................ ':,fAJ iftyment of obligation under trademark and ujde name 8 26 397) acquisition agreements ................ I ........................ (25.1 2) , ( A kberease (decrease) in short-term borro%ttgs ........................ (102,717) 23.542 (j9C72!;)_ 251.622 30.947 Inavae (decreew) in cob and short-tem Inveaments ........... "03 110 1 IAW KI 19-5M See accompam summm of accounting poticies aid notes to consolidated financial statements. B.A.T INDLtmiEs P.LC. MiNNESMA DEpOWORy Copy ppoo=o pURSU To VII.D. OF CONSENT JUDGUIENT DATED SMW IN &,@ ANT 47F iW AftMSOM EY AL V. PHALIP Aftaw ET M- CASE No. Ci 444MS BATUS Inc. Summary of Accounting Policies BASIS OF PRESLY]UTION &-kTVS Inc. (Company), through another company, is a wholly-owned sub- sidi= of B-A-T Industries p.l.c. (&A-T), a company incorporated in England. The accompaniiing consolidated financial statements include the accounts of the Company and all significant subsidiaries. Certain insignificant subsidiaries are accounted for using the equity method. SHORT-TERM INVESTMENTS Short-term investmems consist pri- marily of commercial paper and bank term deposits and are stated at cost utdch approximates market. ACCOUN.TS RECENABLE Retail deferred payment accounts due after one year are classified as cum= assets in accordance with trade practice. Sales and related cost of sales for cus- tomer purdwes made on clef@rred payment accounts are recorded in full at the time of the sale. Finance charges on customer accounts are recorded as income when earned and used to reduce selling, general and administrative expenses. MMNITORMS irn-entories are stated at the lower of cost or awket %ith cost, for substantially all inventories, determined by the last-in, first-out (UFO) method. Leaf tobacco in- ventories, which are not used within one year due to the duration of the aging process, are classified as current assets in accordance with trade practice. DEPRECUTION AND XMORTMAMON The cost of properM plant and equip- ment is generally depreciated on a straight-line basis over the estimated useful lives of the assets. The depredation rates on buildings and improvements range from 27% to 20% and from 5% to 50% on store ffixtures, machinery and equipment. Property rights under capital leases and improvements to [eased property are amortized on a straight-line basis over the term of the lease or useful life of the asset, whichever is shorter. MAING11BLE ASSETS Intangible assets are being amortized on a straight-line basis as follows: trade- marks and trade names, over 25 yeam; patents, over their remaining useful lives with a maximum life of 25 years; excess of cost over net assets of acquired businesm, over periods ranging from 10 to 40)vars. B-A-T INDUMIES KLCL - MINNMWA DEpOWORy COPY PWWCED PLOWANT TO VILD. oF CONSENT JUDGMENT DATED SAIM IN SUTE OF Aftimsom ET AL v. Pmxip Afogm, rr Al- CA9E No, C1.944"S US LNCONtE ZLXES investment tax credits reduce the pro- vision for income taxes in the year the related assezs are placed into swice. . The total provision for income taxes is generally greater than actual taxes paid bemuse of acquired tax benefits and cer- min items of income and expense included in the financial statements which are reported in different years for tax pur- poses. The tax, effect of such items is reported as deferred income taxes. PENSION PLAINS The Company has several plans which cover substantially all employees. The Company makes annual contributions to the plans which generally equal the amounts of accrued pension cost. Pension cost includes amortization of unfunded past semice costs over periods ranging from 10 to 30 years. FEDERAL EICISE TAXES Excise taxes billed to customers on tobacco products are included in net sales and deduaed separately as part of total costs and expenses. BUYING A.ND OCCURkNCY COSTS Buying and occupancy costs incurred by retail operations are classified as cost of sales. STORE PRE-OPE.NLNG COSTS Expenses associated with the opening of new stores are deferred and charged to income in the year of the store opening. ACQUIRED TAX BENEFITS The Company*s investment in tax bene- fiLs acquired through tax leases under the "safe harbor" leasing provisiors of the Economic Recovery Tax:Act of 1981 are recorded it cost and have been allocated between the tax credits and thekcceler- aced Cost Recovery System (.kCRS) deductions. income on the tax credit com- ponent is recognized over the periods that the benefits are realized at 2 constant rate of return on the unrecovered cost. The cost allocated to the ACRS deductions component is amortzed to expense on the interest method, over the portion of the term of the lease during which the benefits realized exceed the initial invest-. ment. During the amortizadon period the Company has the use of the related tem- porary savings. rQ CD B.A.T ftuxmms P.Lc. - Mm"EwA DEposrroRy COPY - PMDUCED PuRwANr To VILD. oF CONSENT JUDGMENT DATED 50" IN STATE OF MWWSOTA, ET AL V. P11KIP MORW ET A CAsE No. CI-9441565 BATUS Inc Notes to C@nsoiidatecl Finzincial statements ACQMMON OFMARSHAU FIELD & COMPAW During 1982, the Compan% acquired Nlarshall Field & Company (.%Iarshall field) for $367,626.000. The acquisition has been accounted for using the pur- chase method of accounting and, 2ccordingly, the results of operations and changes in financial position of %WshaU Field have been included in the Com- pany's consolidated financial statements since.%Iav 1, 1982. Marshall Field is primarily engaged in the retail sale of merchandise through department and home himishing stores located in several geographical area of the United States. The following pro forma results of operadons (in thoutwids) are presented as if the acquisition had taken place January 1, 198L The historical results of %larshall Field for 1982 and 1981 have been adpzted to include the pro forma effect of acquisition interest and purchase accounting adjustments. net of applicable income cm effects. 1952 - M M211112 $s.TZ1.M :s . ........... N Morm ...... ..... S 301JN2 1 1100=1 TPANsAcnONS WM AFFILIATM COMPANM In 1"0 the company entered into agreements with B-A-T to acquire certain trademarks and trade names related to cigwerte sales outside the United Sizes. The agreements provide for payments through 1987,which are contingent upon the sales volume of cipretres bearing the trademarks and trade names. It is cur- rently estimated that the remaining contingent payments, which are included in"Other long-term liabilities", %III be at least 1123.252,000, including $19,408.000 due in 198+ B-A-T Cappical Corporation, a finance subsidian- of B-A-T, is the principal source of short-rer.-n financing for the Compan%. As discusseJ in the long-term debt note. the Company also has long-term bor:ow- ings due to an affiliated company The Cor.Dany incurred interest expense of $112.553,000, $101,-60,000 and S84,602,000 in 1983,1982 and 1981, respective!%. on short and long-term bor- rovvings from affiliated companies. 114VENTOREES Inventories at December 31 consist of the follo%ing (in thousands): 1"s IND PAW merdwWjw ........ $ 07MI 1 W51- Muwhmmd produm indudini; cxcsc um .... ".772 MM3 LW Wbam .............. "4.919 61r.13P W.Mauk WW Vipplin ............ =472 GS.465- 'raw a PVO cm ...... 1. "44" 1.4117,164 b@ of PWO cm ove LIM VILW ............. (%2.44111 (%3924) 7be effect, on income before provision for Income =es, of using the UFO method is summarized as follows (in thousands): IMUM W I ), kkwc NCIUMISUM of CUUM UFO bwew-y 41-nWal ....... $Mrs) S05.02) V1330) VFW of 11quWxm at MUM UFO 101ftntory *Lafttia ........ SWCOMA"' FWd ........ 13.924 "1 TOW ........... 6 311.9" It 1914-16) Sri.W NJ BAT IMMMTHMS P&C. - UNGBOTA Dgio=oRy COPY - PMMCED pURSUANT To I VILD. OF CoNsEwr JuDalaw DATEu 5/"e wMATE oF AfInasorA, Er AL v. Pmtp AkRgM Er CAsE No. C14M-M5 Lo MMLNGIBLEASSETS Intangible assets at December 31 consist of the following (in thousands): --1"3-- -1962 ..zJe.TarU 3nd =ze rama .... $294.620 $30136' ftWM I I @... ........ 112.573 116.610 Ex cm 0( cost ov- '.%-. nw-3 of xquamd bustneum -4.NM 45509 49ZA91, Lm ammuLxW zrnvumon 1"7 ".560 IWA02 5403.111 The unamortized excess of cost over net assets related to food store operations, which were sold In 1983, was v@Tjaen down by $30,000,000 in 1982. SHORT-TERINI BORROWINGS Short-term borrowings at December 31 consist of the following (in thousands): 2"s M2 Low ftm aftwed axr4mm ...... $7&418 SIS6.155 B" IM ....................... SAM - ses,412 81S6.135 The weighted arerage interest rate on boffowinp ottutanding at December 31, 1903 and 1982 %vis 9.8% and 9.2%, respec- tively. A summary of certain data r"ng to short-term borrowings follows (in thousands): 1"s M M AWW dolly bor-ftip ..... P129A= $305,340 854019 Mwom bm&wMp --WANG x my ad *a" the ym ........ 12".M3 0153% 5118A33 VoWund "Iy b--V -diN 1he !W. 1AWW ftm AlLued 9-1% 119% 14.0% c4maw" POW ...... - - 17.6% BX* lam ... Its% U." 16.5% UNUSED LINES OF CREDIT At December 31,1983, the Cor-,pan% has S161,00,0M of unused lines of credit for short-term financing with barks. Fee and compensating balance requirements are not significant and balances are not restricted as toaithdr:rmal. In ad-';:ion, the Company has an informal agreement with B-A-T under which it may borrow up to $350,000.000 from B-.k-T Capital Corpo. radon; $2-1.582.000 of this amount is unused and a%-ailable at Decembe: 31,1983. LONG-TERINI DEBT Long-term debt a December 3 1. exclusive of the amounts due within one year, consists of the followirg (in thousands): 1"I AMlimd mopw &6ordmwl nom Ift dat IM (9) ............... 031840 $31S.240 SWxwdU=W me. IM " 1W (1) ............... MM 2MOM SWwrdLrAwd rAm 10-M dw 1"2 (&Xb) ............. MAC 120AM UtbotdUmN am, 9%% dw IM (a) ............... 25AN 31M 14.416 am. 4" IM6 .......... 35AN is= 011W W .... 7925" 6M240 I Qz Me- C_ BAT Moumm P.LM MIMMMA DMXMTM COPY Pnmcrr.D PuRsuAwr To VIIA oF CoNsENrJuDowNTOATEiDSM=iNSrATEaFAfiNNEsoTA.ETALv.PmxpAfoRRmLErA CASENO.Cl-944M Othen [Asurance 154A Once. 11@t 198 . . .... 15; 1% note. ,it AnAUAL11 198510:04 ..... 44JOG 43.5'! 91A nae. .4je mnaly w 1965 . ......... U."o 19.21@-! - 4% rMe. tue to 1967 - - . .. . 10.000 61,% note. _@e 3nnuaJ!v to 1984 Te-m lawL chm =AWk . wJ908(d). -1 60.0" Tcm k=6 15%Aut 1964 .... - Morqpge noteF pm:*It. -e*p.,ed mecalt kwerer- 102% (Col. luerWived b@- 3u= mth a -cc bwk%,Wueo1W.0GIAWz Decenbe231.19113).. _ ... 92323 04.640 Ob143DW Under CjpLjW loam& wagnmd 3%vLW interag. 10.0% ...... ... ... 66393 $6.92. 06". ptkwe-aj@ W.&W.W mvmt bonds. -w*xed XKTW WUML 9."% ........ 73.r?3 69.%4 43017" ME It.13$.M S1.101.4,; (a) Subordinaae in payment to all debt to out- siders up to a mmisnum of III ladliom (b) Interest charged at %4% over affiliate's imerm rxe; the fue a December 31, 1983 10.2%. (c) During 1983. the Company entered into a $30.000AW m-ohing credit agreement i6ith an affilize. Icon oumanding under the agreement are due October 1. 1993 and are subordinate in payment to all debt to outsiders. Interest is charged at %wiable rates. (d) Imefest prior to December 31, 1964 is base(l, a dw option of the Company, on the prime rwe 0 1A% at December 31, 1983X the bank certillkme of deposit rate (10.1% at December 31. 1993) plus Vs% or the London interbank Offered Rate (9.9% at December 31,1983) plus %%. Interest aba December 32. 1984 is based, a the option of the Compaq. on the prime rate plus '/.%. the bank cenific2te of deposit rze plus V.% or the London Interbank Offered Rate plus -v.%. Interest charges that are based on the certificate O(deposk rite and the London Interbank Offered Rate may be fixed by the Comp3ny for a maximum Of Sm mOnths. The approximate amounts of payments on long-term debt, excluding obligations under capital leases, for the next five years are as follows (in thousandi). 1964 .... ...... .............. . ..... 1 45.403 L"S .... .. . ............. 1, . - - . . !4..t% 1"6 ...... .... .. .... .. . ....... 26,@r I. . ....... .. . . - - - @ I 102VO INS ........... ... ........... N."42 Certain debt agreements impose restric- tions on, among other things, the payment of cash dividends by. the Company, acquisitions and investments, worldng capital and funded indebtedness, as defined. Retained earnings of apprcx- imately S319,000,000 at December 31, 1983 were not restricted under these provisions. INCOME TAXES Income =es payable, included in cur- rent liabihties, at December 31 consist of the following (in thousands): 1903 M3 cwwm rqdww ........... staltudlow ................ M24 342 cuam "6 Fedaw ...................... 600.131 GIA44 swe and load ................ 11447 V.M su" '11.438 altalls 1111"I @'j B.A.T INDUSTRIES P.L.C. - MINNESOTA DEPOSITORY COPY PROWICED PURSUANT TO WI-D- OF CONSENT JuoQWNT DATED 54W IN STATE OF A*NWSOTA, Er AL. v. PHILP UORRIS. Er CASE No. C14M-MS U-1 The components of :he ptovision for income taxes are as follows (in thousands): IM 1962 M Currem Feder3l SWA61 $-.2A 1 ".5 State And luca; 3-Ji" 153N I -X5 134.-1 "@Im '639- Deferred Ft&.,W 73.-1 66,-60 63-106 State and k)c@ 4.%j 6.4- 5.263 -3-13, d6.q9I $213.510 8 166.!3' 1144AN The table below re:onciles the U.S. stat. utorv income tax at a -are of 46% to the Company's pro%ision *or income taxes (in thousands): 1103 I'M2 INI ftakism X ==ry = roe .......... $174.934 $149310 IMMUNIM Sind Odw Got Crieft ....... (14.6m) (22,9r) State anid IocaJ Lnecime taisa (net of kiltral = benelk) ...... M-138 IL046 12,465 Nan4eduaMe %",e@ off d caaw a cm am na Ikam of acquired businesses; - 14.410 O*W. na ...... ... M*12) (12.126) (4.065) $215.510 WQ5' SI*ijW Iffima" tn Me 452% 45.-% 44!!. Components of the provision for deferred income ta%es arise from dw following (in thousands): 1983 IN! MI LU-05 of Us Ow financial staternevit depreciaticirt and JIMOMIZZIAM ... S34AI9 SM.i22 J-Iil.si- Excess of current tax savings MW Inancial siatemeni effeca a acquired sax benefits ...... . 52.2" 15.62. :9.154 Use of installment nwhod for deferred Payment sales .... 61449 12.530 9.W Pcinsion and deferred compewation .... (13%) (IM) 2.415 CaoLahwd Ifflerm 1.4" 3.16, 1-03S Producuon rea@jnfnent ...... (11351) 15j" t659) 5= and locial um . (6"2) (IA-'B) L.0215 Othec not .......... 7.437, (4-3") (160) M733 r52r. W.491 IEMES The Company leases land, retail stores, %2rehouses, store ftxtures and other equipment. Many of the retail store leases obligate the Company to pay real estate taxes, insurance and maintenance costs and contain multiple renmal options, v4dch range Erorn an additional one-year period to a maximum of six mrenry-year periods. Leased property under capital leases at December 31, 1983 and 1982 consists primarily of land, buildings and improvew, ments. Accumulated capital lease amord- zation mis S37,422,000 and S49,134,000 in 1983 and 1982, respectivviv. Future minimum lease payments at December 31, 1983 under leases that hav -@j I-j Nj Ztb 4n. B.A.T l1wDusmas P.LC. - UNWESOTA Oovsrrm COPY - PWWCED PURMANT To I VILD. oF CoNwwJuoaww OATEo wMiN.SrATE oFAtowsom ErAL V. PHILIP AAMMM ETA CmNo.CI-94-OWS inkial or remaining non-cancellable terms in excess of one year are as follows (in thousands): C4pul Operaung Lewsa Lr@,m 111.035 S 23--W6 101-6 MW 1946 9.-33 15.!15 1911- 9.186 : '146 5.041 Funire capital lease pay ments include executory costs of $7,44 000, interest of $82,237,000 and principal payments of $72,193,000. including $3.800,000 due in 1984. Rent expense vk-4 W.5-iS,000 in 1983, $38,431,000 in 1982 and $24,785,000 in 1981, including contingent rental pay- ments of $10364,000, $7,800,000 and S7.317,000, respectively Contingent rental payments are based primarily upon sales at various retail store locations. OTHER LOING-TEILM LLABILITIES other long-term liabilities at December 31 consist of the following (in thousands): OtApum under wa&mwk W wade form Xq4tsioan moverro is .................. 4120SA" 0129.-" 00med mKome crAL rM ....... 12"77 110." Aftem for p an reftwoerd .................. 4L464 GIM Fer"ns sod deferred ompe"Uhm .. @ ........ Opreac coup- mde-q- . 26IS38 oLher ...................... . 111.1196 li..'03 113404" S31!3" On December 13.1983 the Companv announced a plan for the realignment of certain tobacco related production from an older plant to 2 more efficient facility and. in connecuon dierewith. provided a reserve of S45,586,000 ($23,139-000 after income axes) to cover the estimated costs of implementing the plan. Such costs include the write-down of the plant to net realizable value, severance pay, supple- mental pension benefits (net of actuarial pension plan gains) and relocation. The charge to income is included in selling. general and administracive e-vpenses in the accompanying consolidated state- ments of income. Obligations under trademark and trade name acquisiLion agreements are payable to an affiliated company. PENSION PLANS Costs of the Company s pension plans charged to Incomeavm $39,293,000, $39,692,000 and $33,637,000 for 1983, 1982 and 1981, respeccively A comparison of accumulated plan ben- efts and plan net assets for the Company's defined benefit plans as of the latest valua- tion date is as follows (in thousands): )mow 1. 111113 19C AQ1QWW PreWM rakle of mccumuliated plan bemfim: Vested ............... $395.246 $361.341 %offivued ................. 61A$G 64.r6 11414J$2 6432.5t- Na una valable for birnerus ...... ........... $Mile AGMS C: B.A.T INDUSTRIES P.LC. - MINNESOTA DVOSnvRy COPY PRMCEO PWMAMr To VILD. OF CONSENT JUDGMENT DATED WM IN STATE OF UMNSOM ET AL V. PMUP NORM ET CASE NO. C1444=5 The assumed rite of return used in determining the actuarial present value of accumulated plan benefits was 81.4% in 1981 and ranged from 6% to 9% in 1982. FLN.kNCE CHARGE MCOME Finance charge income on retail cus- tomer accounts. &hich reduced selling, general and administrative expenses in the 3ccom-anving consolidated statements r . of income. %\us $83,525.000, $63.130.000 and $32,502.000 in 1983,1982 and 1981. respecEivel%. SALE OF KOHL'S FOOD STORES On September 30, 1983 the Company sold the assets of Kohl's Food Stores. The proceeds of the sale, including related income tax benefits, were approximarel y equal to the net book value of the assets sold. The food store results of operations, net assets and changes in financial position for 1983, 1982 and 1981, which are not significant, are included in the accom- pariving consolidated financial statements. ioc@ store net sales were $319,803,000, $500,053,000 and S601.239,000 for 1983, 1982 and 1981, respectively. 14NDUSTRY SEGNILNT ][INFORMATION The Company has operations in three principal industry segments: Tobacco, Retail and Paper. Tobacco operations con- sist of the production and Marketing of cigarettes and other specialn. tobacco products and processing of leaf tobacco. Retail operations consist of store facilities in three n es of retail merchandising: YP department. specialty and home furnish. ings. The Rezail amounts in the following table include Marshall Field since Mjv 1. 1982. Paper operations consist primar*il%- of the manufacture and sale of carbonle'ss er. Net sales b%- inclustry segment pap include sales to B-A-T and its affiliates and intersegment sales. both of which are immaterial. In 1983 the Retail segment nis rede- fined to exclude food operations, the sale of which ims completed on September 30, 1983-. accordingly, 1982 and 1981 have been restated by .classihing food opera- dons as "Other" activities. Operating income is defined as net sales less operating expenses. General corporate expenses, net interest expense, non-operating expenses and income taxes have not been deducted In determining operating income by inclusn, segment. Total assets are those assets used in the operations of the respective industry seg- ments. Corporate assets consist pri=ril% of cash and short-term investments and, in 1983 and 1982, investment in an uncon- solidated subsidiary. The Company has no significant foreign businesses. Financial information for the Companfs c:: _Nj (7,% B.A.T INDusTRas P.LC. - MMMOTA DEPOWORY COPY - PRODUCED PURSUANT To I VILD. OF CowwJuDamwr DATFD SAWiN STATE oFMwjEsoTA, ETAL. V. PNLVAfQR#W ETA CASENO.Cl-944=5 operations by industrv segment for 1983. 1982 and is@i is as follows (in thousands): 1963 1012 1991 Net Saks T,iD=o 12.133-16-62 1: 1.2-a-3- 31.91@ at ReWl ).145.050 2.46'j!5 1.5!!1@1.4.0 ftp- 46S.S25 411.-3 40!213 Other ... ... 319.603 IN 043 6-i 1115 Qw"Jawd 66M3.920 V.406.011 64.59-2239 Opemas lftcofflw. Tob@m ..... 5 405.W 6 30-M-0 S2-1-3 Read 2182" 166,09 1.1:.902 111M W-64 63.9-9 36,949 Other ........ MM) ( 53-D TaA mgmem . . 691.206 590AW 418.647 Ge.ww coeptrat etpenm . ...... WAM t 16.+42) (34392) Nun4wermig inwrise ketioeme) ........ (43a") (39.1911 Net "am expew. (164-M) (91416) Immm befac P-,W- IMUMM =a S 412.0"0 5 3W292 1324."6 TOW AIML Tobam ......... 11,101.238 11.154.6" 111.119AS now ........... 24195AM 2091.499 IMOAM ........... 357."3 30.965 S%M Other ........... - 106.&S 19IA54 Tod mwam.. MUMS 1713342 2.796,11M Capum ........ 14&430 313r, 1-33.034 Cw*Wdmd ... 115."3MS 13.7451-9 U929W cap" LV-A- Tobww ......... 045.362 1123AII 6102A36 ReW ........... 315.247 107W 6017 Pq Or ........... 29,039 30.41-1 2"M other ........... 1AM 6.10* 046 TOW fernem.. 169.274 AT.r MASS Corp . ....... 6" 36" 645 ca"Mudwd ifts" 9M."4 $3".10 Deptramn W4 Amnividw Tobwo ......... $47A" S42.'" 835.7,76 PAW ... ........ 68AM $5347 KIM ftW ........... 32.1" Xro r,"s OkW .......... 6AGI 9.9" 39-1-0 TM 5 .. isc%o t5-.(ri 310.121 C-V0 . ........ 2" .11.4 - - 240 Consolidmd ... 0MAN 813-21" $ 310361 INFLATION .4-N-D CHANGING PRICES (LNALDITED) The Compir.% "s consolidated financial statements are prepared on a historical cost basis, the-efore, they consist of mon- tuain. transactions at varying levels of purchasing power. The iollowing infor- mation is prescited as an estimate of the effects of irflation on the Company under m-o disfinctIv different methods in accordance with Statement of Financial Accounting Standards 33 "Financial Reporting and Changing Prices"; the coti- sEant dollar method, which presents financial information in dollars of equiv- alent purchasing power, and the current cost method, which measures the specific effects of inflation. The constant dollar method utilizes changes in the Consumer Price Index as the sole indicator of the degree to which the purchasing power of the dollar has changed Under the current cost method, recent prices for produccion costs and purchases, externa.] and internal price indices, appraisals and functional pricing techniques are used to measure changes in purchasing power Under both rnedh- ods, only propeM,, plant and equipment, depreciation, inventories and cost of sales am restated for the estimated drects of Inflation. In management's opinion, the current cost method more accuratelv reflects the impact of inflation on t@e Company CZ. -N, B.A.T INDusTmEs P.LC. MWASOTA DEPOWORY COPY PRODUCED PU6tSUAmT To VILD. OF ComENT JuDGmENr DATED &8M iN SrATE OF Aftwsorg, ET AL v. PHxp AkRPA. ET CASE NO. CI-94-MS CONSOLIDATED STATEMEN7 OF INCOME tQXSTED FOR nM EFFECTS OF CHANGViG PRICES For rbr Mw &ufed Dece"ibur 31,1983 o7ti 7boumuds of DoUars) q,n,ud&tfd) pmmm,@' Sommeas (;@naw lap"ce M-Jj"qlk Pik* fuiva"adQW1 ICMAU" DW&IJ "C@ daw) %41 S"'-'- .................. . .. ...... ...... $6.063.5.10 $6.063.520 of C@u and eVens". cog or ula. tuljdU4 dwea3um 3nd amc:-@=on ...... .. .... 3J.43,411 5.424..#95 Y@A3% Deprusauors and unardwasca of propem pir: JAd eqmiprncnl ... ... 1' .9,4" 1-0.06 Fcdad txasc uxa .. - - - ... - - - - - - .. ........ I ......... Wj?9 5403Z9 441329 Win& VwW and adrmntrnu@,c expmm. cu."iding 40prgasom 304 wwrtirminn .. ...... . .... ..... ..... IA14AN 1,414.688 1.414.61W Inmw expaw.ne. of inicran Lncorne . . ....... .. ........ 164.%S 164-565 164.565 UW am and avenso ............ . ................ 5.191.450 5.-14.461 !--:4MQ Mcamebatni pmulonkWinoornewes ........................... 4-7.0-0 549.059 MAW hc@ism for tneorne =ns ......................................... :15.510 213.510 M.510 . ............. .... ........... ...................... 256.560 $ 135.5-19 -1 Lskvaw incom ax mat .......................................... 0.0% Unm2bu,d pin ftm dgchw in purchaft .......... ...... ................... 54.199 TbW Wwram, In amma cam of inwwxia and ;-Opem-, pbw uW cqmp- kid dwft dw ywe ......................... 93.186 lamima in dw curraw cam or kwentarbas and pwpWry, Pkfd and apipawn saftuaw in 10dw 4"'imll"'d ............... I ........... w2w ha=ft In valac prim am dwqc in leftert price kM ............ I tw *At DKwnba St. 1943 ck&mm cam of kwanony wu SW4.4jo smi curcox cog of papgm. pLmw and eqwpmm not of atmauaLuad deprecialan W4 smartoom vu 1042A". CC BAT ftusmjEs P.LC. MINNESOTA DEpOsffORV Copy pRODUCgD PURSUANT To W.9). CW CONSENT JUDGMENT DATED 54M IN SrA7-E OF "@*MSOrA ET AL V. ftp Afollge, Er CASE NO. C144-65" Management's Analysis The ComDanv estimates that the effect of eliminatirg differences in the purchas- ing power of the dollar in the historical consolidated statement of income is to decrease ne, income bv S 123,03 1,000 or 48*6 on the consmit dollar method and $133.430ADO or 52% on the current cost method. The decrease under both meEh- ods is the result of increased depreciation expense and cost of sales. Depreciation has been res=ed in order to eliminate the distortion in net income caused by matching prior years' fixed asset costs against current sales revenues. Similarly, cost of sales has been increased to reverse the impact of quantity reductions in cer- tain LIFO inventories which, in the historical financial statements, are shown in cost of sales at lower prior -.xw costs. The unrealized on from the decline in purchasing power of net amounts owed ($54.199,000) reflects the benefit of hold. ing monetary lijbilities in excess of monetary assets during periods of infla- tion. This amount is effecivelv an offset historical interest expense. a portion of which is a cost of inflaVon. If Ns amourr had been used to reduce interest expense in the computation of constant dollar and current cost net income. inflation adjusted results would h2l-e been $68.832,000 (27%) and V 9.23 1,000 (3 1 %) lower, respectively, than net income reported on a historical cost basis. The following is a five-year comparison of historical and inflation adjusted dam with the inflation adjusted data, for 311 years, presented in terrris of average 1983 "purchasing power" dollars (dollars in thousands): %41 Hhow"Wom ................................... AdOoOd fW 2W.VW irdlatitsis ...................... "3.520 5.01"! 5.0303W 5.031,115 51215.41 110 inco" HAROCkod cm ..... ...... *...... 25415" $ 213ms 1 179.6" 8 196Y3 S *5736 AdWOW kr rr.CW i ...................... 13515" 12111A32 154A21- 1"30 129.311 curfm Cm .............. ............ ......... 125.130 127,14S 154.591 181.493 1=30 %a wats a ivar-vA (1) low"Cal 0= ....................... A4ssWW ast P=W udboan .......... ctarmstam ....... ................. ftcess of kwftm Ln ponetel WM kVd am , ft-Inspeaeptimarinmecgy. Papem, Plans and mpg-, (2) ... ........ Cnamebsed PM ftm decune In Perdue" P0 afnesarmatts.-vd ............. ........ AvWW comurnor ;nm &(Wm ......... ............ Issmentmv d-arp In ctenstiaw pme kNiser ............ IM.2"A" SIMMS $ %$A-3 $ "3375 1 @71ioo 23".786 ZJQ3404 2.nsjri 2-145.665 2.QLL--7 2.27L666 201.989 MUM IA04A31 L"40.4% S (506) S (3&346) 8 (63-0) S 175AIt I 1742MA 11 94.1" 1 43AM 8 "353 s 117.749 IF 141.46' "&4 2".1 M4 2468 ,!-4 3J% 6.1% 103% 13.5% WS (2)"Nes amcs a; @=r-vid' is dw was of the @jsscrkal finsntes! Rxemem sawtswe for Owdwidees equay adwsted 1br mviustsm cc s wmaint dolist wW cirrm can bests. respeaWy. of invorwria w4 im prqteery@ ptant end eWapmem (I) %ep" smeu-As indme m ex" of vecac p"m inaetam am durqp u% che gexseW price le%*L BAT INDuxm*S P.LC. - MINNESOTA DEp0qrrORV Copy - ft=CED 1RUIMANT TO I VILD. OF CONSENT JUDGMENT DATED SIM IN STATE OF Aftwsom E-r AL V- PHILIP WdRRAS, a A" CASE No. CI-944US The UTUS Group of Couipanies -4s of December N. 1903 Corporate Headquarters 011fles L McCarty, Chairman A Chid Lxecutisv 01ricer 2OW Citizens Plus Louin-wit. Xcggtuck@- 40202 (30.'l 581-8000 TOBACCO Brings 19111histisonTobsiccoCorponstion Third Urgings tobacco company in US.-Frincipal Donsasik Brands; NARCLILY. BElAM KOOL. RALUGH. JUOIL4-%l). VICER01 -UMCnOU09W &rgug& 0AXCLAY. KE%T KOOL LVCkN MOM PALL %tut "ICERoy-manufactar" Facdktcl-.%Utor,.GA;WUL%ton-Sai- NC-Peters' VA- Export LgafTobacco Pfoc Facilities: Vds=N7 Tood casplawagent-4101) colporste Offices: P.O. box 35M. ISDO Brown & VUSamson Tower. Loulvilue GaLLeriL Louicinlue, Kenn3cicy 40202 (501.) 568--000 RETAM BATES Restall Group CAsucillichmed songal oleo of over $1 billjoss Tacelemploymects-54.001) Executhn: Obogm 1270 Amuse af the Americu, 12* Flow, 1411:110 It adL.,@kw Yost 10020 (212) Frederickilt.Nelson 15 deps swca in 0rcVm ad Washlington; 5111 & rim Se&WLV2d=V=98[11 Giciabel&-EM 20 department stores in Connecticut. Neigrjency, New Vark and Pecasucy Insua; 1275 Broaftin- ,New voed.Ngrii, York tooo t Glisibel*-Xidanese I I departzscut sunces in Witcoaft 101 VAN `1171000001111s! Avcnuic, MUWIUbm'Wiscmin 93201 Glaabelp-Plusbisruh 7 department stores it, 339 6th Avenue PlasburSh. Pinginsvivgusis 15222 15 department Pam in Nards and Sowsh, CaraUnts; 127 North Trnxg Street Charfocte.North CaroUna 38230 IT ' Flo I ,2 in Florida. 500 North Odanda Avenue Winter ParL Flonda 32789 John Bremer cocapsw 17 quality how hunishing stores and 36 hingintre reigui stwft 91 Art@ C11001[tul and %crada; 3-Va Finegatu Way San Ramon. CaLdorgua 94583 Kohl's Depecratient Stores 31 value depannuent stores in MinoiL ladiaggs and Wisconsin; 2315.North 124di S cgs Broninfi.1d. WicinZ $3005 Marshall Field. '11 de .partment stores in Illinois, Texas andWicconsin; I I I North State Suva Chicago. minoLs 60690 Saki Fiffis Armue 38 huhlon specialty stores in Arizona. Caiding" Comasectic%tt, Florida. CKWFL Illinois, Kuwk& Louisiana. MUN Land. -wassachusetu.nchwA Missourt, Ncvsdz.Ncg%,jecWAV,.NCgv York. Ohign, Peancylintab and Texas; 611 ftVt Avenue New York New York 10022 The Crescent 3 department sconat In Washinput; 710 West Riverside Avenue Spolagne, warkingam "201 7blicables 0 bsbJ- gPtddm SW= ut Winals. Michigan. SLinciesots, Neggrjersey, Visslids and Vissmaggim. ofo CAmbels- 10th Floor 1275 Broadway NcgvYoAr.Xcw York 10001 PAPER ers Ism prisiduccur o(cubodess"er, dievand Pf0d1=A9g%gaCwbcgdW=P%( PVW D-W@ Graphic: Arts Pticub-tsigper and ncgapugar@. saftimpagn;" Papers (AMA-- Tb-uW P*-). gaging 1 Converser Cesdes speciality caused pupm ad mcugpepcrs@- Mancishcatrigns Facilities: Pulp and Pspw.%m in Ria" Spring PA and Combined Lods, nun to Harrisburs. PA and Applecon, V11-Capadics, Planis in Harrisburg, Pit and Forage. W11-4cateragaloW Ofte Applecon Papers Canack Lscl.@ Ta @ a. Ontano Toul empla%ineat-3.000 Gergad 045ings; P.O, Box 359,825 but Wisconsin Avenue, Appleton. Wisconsin $4912 (414)-34-ge4i *%'CR Paper u a trademark of NCR Corporation licensed to Appleton Papa Inc. B.A.T INDtMM*s p.Lc. - Mw*SOTA DOMITM Copy _ PWDUCrD , PURSUANT TO I VILD. OF CONSENT JUDGMENT DATED 51&" M STATE of ""IfOrd, Er AL V- PNtF AkRM& ErA" CASE No. C1444=5 r1i B.A.T INDUSTRIES P.LC. - MmEsoTA DEposffm COPY - PRODUcED PURSUANT To I VILD. oF CoNsENT JuDamENr DATEo Mft IN STATE oF A*NwsoTA, Er AL v. PHxip Moggis, Er CASE NO. CI-94-8565 N-1 C, -71 tl\2 t_-t ri B.A.T ImousTRiEs P.Lc. - MINNESOTA DOOSITM CWV - PRMCED PURSUANT To I VII.D. OF CoNsENT JuoawNT DATfo MOO jN STATE oFA*wsaTA, ErAL v. PmxpWnow, rrA CASEND.Cl-944=5