Consolidating Financial Information

6 Months Ended

Jun. 30, 2011

Consolidating Financial Information [Abstract]

Consolidating Financial Information

14. Consolidating Financial Information

     In June 2009 and April 2010, Lorillard Tobacco, as primarily obligor, issued Notes, which are unconditionally guaranteed by the Company for the payment and performance of Lorillard Tobacco’s obligation in connection therewith.

     The following sets forth the condensed consolidating balance sheets as of June 30, 2011 and December 31, 2010, condensed consolidating statements of income for the three and six months ended June 30, 2011 and 2010, and condensed consolidating statements of cash flows for the six months ended June 30, 2011 and 2010 for the Company as parent guarantor (herein referred to as “Parent”), Lorillard Tobacco (herein referred to as “Issuer”) and all other non-guarantor subsidiaries of the Company and Lorillard Tobacco. These condensed consolidating financial statements were prepared in accordance with Rule 3-10 of SEC Regulation S-X, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” Lorillard accounts for investments in these subsidiaries under the equity method of accounting.

Condensed Consolidating Balance Sheets
June 30, 2011
(In millions)
(Unaudited)

							All			Total
							Other			Consolidating
	Parent			Issuer			Subsidiaries			Adjustments			Consolidated
Assets:
Cash and cash equivalents	$	306		$	377		$	471		$	—		$	1,154
Accounts receivable, less allowances of $3		—			17			—			—			17
Other receivables		—			14			—			—			14
Inventories		—			319			—			—			319
Deferred income taxes		—			507			—			—			507
Other current assets		—			106			—			—			106
Total current assets		306			1,340			471			—			2,117
Investment in subsidiaries		(1,112	)		552			—			560			—
Plant and equipment, net		—			250			—			—			250
Prepaid pension assets		—			66			—			—			66
Deferred income taxes		—			5			4			—			9
Other assets		—			56			—			—			56
Total assets	$	(806	)	$	2,269		$	475		$	560		$	2,498
Liabilities and Shareholders’ Equity (Deficit):
Accounts and drafts payable	$	—		$	39		$	—		$	—		$	39
Accrued liabilities (1)		25			506			(98	)		—			433
Settlement costs		—			734			—			—			734
Income taxes		—			—			7			—			7
Total current liabilities		25			1,279			(91	)		—			1,213
Long-term debt		—			1,780			—			—			1,780
Postretirement pension, medical and life insurance benefits		—			287			—			—			287
Other liabilities		—			35			14			—			49
Total liabilities		25			3,381			(77	)		—			3,329
Shareholders’ Equity (Deficit):
Common stock		2			—			—			—			2
Additional paid-in capital		256			297			214			(511	)		256
Retained earnings		1,832			(1,297	)		338			959			1,832
Accumulated other comprehensive loss		(112	)		(112	)		—			112			(112	)
Treasury stock		(2,809	)		—			—			—			(2,809	)
Total shareholders’ equity (deficit)		(831	)		(1,112	)		552			560			(831	)
Total liabilities and shareholders’ equity (deficit)	$	(806	)	$	2,269		$	475		$	560		$	2,498

(1) Includes intercompany royalties between Issuer and other subsidiaries of a corresponding amount.

Condensed Consolidating Balance Sheets
December 31, 2010
(In millions)

							All			Total
							Other			Consolidating
	Parent			Issuer			Subsidiaries			Adjustments			Consolidated
Assets:
Cash and cash equivalents	$	163		$	1,181		$	719		$	—		$	2,063
Accounts receivable, less allowances of $3		—			9			—			—			9
Other receivables		1			67			—			—			68
Inventories		—			277			—			—			277
Deferred income taxes		—			502			1			—			503
Other current assets		—			15			—			—			15
Total current assets		164			2,051			720			—			2,935
Investment in subsidiaries		(387	)		772			—			(385	)		—
Plant and equipment, net		—			243			—			—			243
Prepaid pension assets		—			66			—			—			66
Deferred income taxes		—			2			4			—			6
Other assets		—			46			—			—			46
Total assets	$	(223	)	$	3,180		$	724		$	(385	)	$	3,296
Liabilities and Shareholders’ Equity (Deficit):
Accounts and drafts payable	$	—		$	27		$	—		$	—		$	27
Accrued liabilities (1)		2			397			(66	)		—			333
Settlement costs		—			1,060			—			—			1,060
Income taxes		—			—			6			—			6
Total current liabilities		2			1,484			(60	)		—			1,426
Long-term debt		—			1,769			—			—			1,769
Postretirement pension, medical and life insurance benefits		—			284			—			—			284
Other liabilities		—			30			12			—			42
Total liabilities		2			3,567			(48	)		—			3,521
Shareholders’ Equity (Deficit):
Common stock		2			—			—			—			2
Additional paid-in capital		242			283			214			(497	)		242
Retained earnings		1,666			(561	)		558			3			1,666
Accumulated other comprehensive loss		(109	)		(109	)		—			109			(109	)
Treasury stock		(2,026	)		—			—			—			(2,026	)
Total shareholders’ equity (deficit)		(225	)		(387	)		772			(385	)		(225	)
Total liabilities and shareholders’ equity (deficit)	$	(223	)	$	3,180		$	724		$	(385	)	$	3,296

(1) Includes intercompany royalties between Issuer and other subsidiaries of a corresponding amount.

Condensed Consolidating Statements of Income
For the Three Months Ended June 30, 2011
(In millions)
(Unaudited)

						All			Total
						Other			Consolidating
	Parent		Issuer			Subsidiaries			Adjustments			Consolidated
Net sales (including excise taxes of $533)	$	—	$	1,692		$	—		$	—		$	1,692
Cost of sales		—		1,093			—			—			1,093
Gross profit		—		599			—			—			599
Selling, general and administrative (1)		—		380			(268	)		—			112
Operating income		—		219			268			—			487
Investment income		—		1			—			—			1
Interest expense		—		(28	)		—			—			(28	)
Income before taxes		—		192			268			—			460
Income taxes		—		74			95			—			169
Equity in earnings of subsidiaries		291		173			—			(464	)		—
Net income	$	291	$	291		$	173		$	(464	)	$	291

(1) Includes intercompany royalties between Issuer and other subsidiaries of a corresponding amount.

Condensed Consolidating Statements of Income
For the Six Months Ended June 30, 2011
(In millions)
(Unaudited)

						All			Total
						Other			Consolidating
	Parent		Issuer			Subsidiaries			Adjustments			Consolidated
Net sales (including excise taxes of $1,012)	$	—	$	3,227		$	—		$	—		$	3,227
Cost of sales		—		2,085			—			—			2,085
Gross profit		—		1,142			—			—			1,142
Selling, general and administrative (1)		—		745			(511	)		—			234
Operating income		—		397			511			—			908
Investment income		—		2			—			—			2
Interest expense		—		(56	)		—			—			(56	)
Income before taxes		—		343			511			—			854
Income taxes		—		133			182			—			315
Equity in earnings of subsidiaries		539		329			—			(868	)		—
Net income	$	539	$	539		$	329		$	(868	)	$	539

(1) Includes intercompany royalties between Issuer and other subsidiaries of a corresponding amount.

Condensed Consolidating Statements of Income
For the Three Months Ended June 30, 2010
(In millions)
(Unaudited)

						All			Total
						Other			Consolidating
	Parent		Issuer			Subsidiaries			Adjustments			Consolidated
Net sales (including excise taxes of $482)	$	—	$	1,520		$	—		$	—		$	1,520
Cost of sales		—		978			—			—			978
Gross profit		—		542			—			—			542
Selling, general and administrative (1)		—		372			(275	)		—			97
Operating income		—		170			275			—			445
Investment income		—		1			—			—			1
Interest expense		—		(26	)		(2	)		—			(28	)
Income before taxes		—		145			273			—			418
Income taxes		—		51			104			—			155
Equity in earnings of subsidiaries		263		169			—			(432	)		—
Net income	$	263	$	263		$	169		$	(432	)	$	263

(1) Includes intercompany royalties between Issuer and other subsidiaries of a corresponding amount.

Condensed Consolidating Statements of Income
For the Six Months Ended June 30, 2010
(In millions)
(Unaudited)

						All			Total
						Other			Consolidating
	Parent		Issuer			Subsidiaries			Adjustments			Consolidated
Net sales (including excise taxes of $919)	$	—	$	2,879		$	—		$	—		$	2,879
Cost of sales		—		1,860			—			—			1,860
Gross profit		—		1,019			—			—			1,019
Selling, general and administrative (1)		—		646			(454	)		—			192
Operating income		—		373			454			—			827
Investment income		—		1			—			—			1
Interest expense		—		(35	)		(2	)		—			(37	)
Income before taxes		—		339			452			—			791
Income taxes		—		127			169			—			296
Equity in earnings of subsidiaries		495		283			—			(778	)		—
Net income	$	495	$	495		$	283		$	(778	)	$	495

(1) Includes intercompany royalties between Issuer and other subsidiaries of a corresponding amount.

Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2011
(In millions)
(Unaudited)

							All			Total
							Other			Consolidating
	Parent			Issuer			Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	539		$	539		$	329		$	(868	)	$	539
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries		(539	)		(329	)		—			868			—
Depreciation and amortization		—			19			—			—			19
Pension, health and life insurance contributions		—			(18	)		—			—			(18	)
Pension, health and life insurance benefits expense		—			15			—			—			15
Deferred income taxes		—			(6	)		1			—			(5	)
Share-based compensation		—			7			—			—			7
Excess tax benefits from share-based arrangements		—			(3	)		—			—			(3	)
Changes in operating assets and liabilities:
Accounts and other receivables		1			(3	)		—			—			(2	)
Inventories		—			(42	)		—			—			(42	)
Accounts payable and accrued liabilities		23			122			(32	)		—			113
Settlement costs		—			(326	)		—			—			(326	)
Income taxes		—			(38	)		3			—			(35	)
Other assets		—			1			—			—			1
Return on investment in subsidiaries		1,275			549			—			(1,824	)		—
Net cash provided by (used in) operating activities		1,299			487			301			(1,824	)		263
Cash flows from investing activities:
Additions to plant and equipment		—			(26	)		—			—			(26	)
Net cash used in investing activities		—			(26	)		—			—			(26	)
Cash flows from financing activities:
Shares repurchased		(783	)		—			—			—			(783	)
Dividends paid		(373	)		(1,275	)		(549	)		1,824			(373	)
Proceeds from exercise of stock options		—			7			—			—			7
Excess tax benefits from share-based arrangements		—			3			—			—			3
Net cash used in financing activities		(1,156	)		(1,265	)		(549	)		1,824			(1,146	)
Change in cash and cash equivalents		143			(804	)		(248	)		—			(909	)
Cash and cash equivalents, beginning of year		163			1,181			719			—			2,063
Cash and cash equivalents, end of period	$	306		$	377		$	471		$	—		$	1,154

Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2010
(In millions)
(Unaudited)

							All			Total
							Other			Consolidating
	Parent			Issuer			Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	495		$	495		$	283		$	(778	)	$	495
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries		(495	)		(283	)		—			778			—
Depreciation and amortization		—			18			—			—			18
Pension, health and life insurance contributions		—			(18	)		—			—			(18	)
Pension, health and life insurance benefits expense		—			16			—			—			16
Deferred income taxes		—			13			—			—			13
Share-based compensation		—			5			—			—			5
Changes in operating assets and liabilities:
Accounts and other receivables		—			(6	)		(7	)		—			(13	)
Inventories		—			(36	)		—			—			(36	)
Accounts payable and accrued liabilities		(18	)		67			(40	)		—			9
Settlement costs		—			(332	)		—			—			(332	)
Income taxes		—			(80	)		3			—			(77	)
Other		—			3			2			—			5
Return on investment in subsidiaries		558			400			—			(958	)		—
Net cash provided by (used in) operating activities		540			262			241			(958	)		85
Cash flows from investing activities:
Additions to plant and equipment		—			(18	)		—			—			(18	)
Net cash used in investing activities		—			(18	)		—			—			(18	)
Cash flows from financing activities:
Issuance of long-term debt		—			1,000			—			—			1,000
Shares repurchased		(340	)		—			—			—			(340	)
Dividends paid		(307	)		(558	)		(400	)		958			(307	)
Debt issuance costs		—			(13	)		—			—			(13	)
Net cash provided by (used in) financing activities		(647	)		429			(400	)		958			340
Change in cash and cash equivalents		(107	)		673			(159	)		—			407
Cash and cash equivalents, beginning of year		130			719			535			—			1,384
Cash and cash equivalents, end of period	$	23		$	1,392		$	376		$	—		$	1,791