Fair Value

12 Months Ended

Dec. 31, 2011

Fair Value [Abstract]

Fair Value

8. Fair Value

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:

• Level 1 — Quoted prices for identical instruments in active markets.

• Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable directly or indirectly.

• Level 3 — Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

Lorillard is responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value. Lorillard performs due diligence to understand the inputs used or how the data was calculated or derived, and corroborates the reasonableness of external inputs in the valuation process.

Assets and liabilities measured at fair value on a recurring basis at December 31, 2011 were as follows:

(In millions)	Level 1		Level 2		Level 3		Total
Cash and Cash Equivalents:
Prime money market funds	$	1,634	$	—	$	—	$	1,634
Total cash and cash equivalents	$	1,634	$	—	$	—	$	1,634
Derivative Asset:
Interest rate swaps — fixed to floating rate	$	—	$	95	$	—	$	95
Total derivative asset	$	—	$	95	$	—	$	95

Assets and liabilities measured at fair value on a recurring basis at December 31, 2010 were as follows:

(In millions)	Level 1		Level 2		Level 3		Total
Cash and Cash Equivalents:
Prime money market funds	$	2,063	$	—	$	—	$	2,063
Total cash and cash equivalents	$	2,063	$	—	$	—	$	2,063
Derivative Asset:
Interest rate swaps — fixed to floating rate	$	—	$	19	$	—	$	19
Total derivative asset	$	—	$	19	$	—	$	19

There were no transfers between Level 1 and Level 2 for the years ended December 31, 2011 and 2010.

The fair value of the money market funds, classified as Level 1, utilized quoted prices in active markets.

The fair value of the interest rate swaps, classified as Level 2, utilized a market approach model using the notional amount of the interest rate swap and observable inputs of time to maturity and market interest rates. See Note 11 for additional information on the interest rate swaps.