Consolidating Financial Information

12 Months Ended

Dec. 31, 2011

Consolidating Financial Information [Abstract]

Consolidating Financial Information

18. Consolidating Financial Information

In June 2009, April 2010 and August 2011, Lorillard Tobacco, as primary 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 December 31, 2011 and 2010, condensed consolidating statements of income for the years ended December 31, 2011, 2010 and 2009, and condensed consolidating statements of cash flows for the years ended December 31, 2011, 2010 and 2009 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

December 31, 2011

(In millions)

	Parent			Issuer			All Other Subsidiaries		Total Consolidating Adjustments			Consolidated
Assets:
Cash and cash equivalents	$	235		$	582		$	817	$	—		$	1,634
Accounts receivable, less allowances of $2		—			10			—		—			10
Other receivables		—			956			2		(875	)		83
Inventories		—			277			—		—			277
Deferred income taxes		—			535			—		—			535
Other current assets		—			25			—		—			25
Total current assets		235			2,385			819		(875	)		2,564
Investment in subsidiaries		(1,347	)		219			—		1,128			—
Plant and equipment, net		—			262			—		—			262
Deferred income taxes		—			50			4		—			54
Other assets		—			302			213		(387	)		128
Total assets	$	(1,112	)	$	3,218		$	1,036	$	(134	)	$	3,008
Liabilities and Shareholders’ Equity (Deficit):
Accounts and drafts payable	$	—		$	32		$	—	$	—		$	32
Accrued liabilities(1)		14			354			803		(875	)		296
Settlement costs		—			1,151			—		—			1,151
Income taxes		—			6			—		—			6
Total current liabilities		14			1,543			803		(875	)		1,485
Long-term debt		—			2,595			—		—			2,595
Postretirement pension, medical and life insurance benefits		—			388			—		—			388
Other liabilities		387			39			14		(387	)		53
Total liabilities		401			4,565			817		(1,262	)		4,521
Shareholders’ Equity (Deficit):
Common stock		2			—			—		—			2
Additional paid-in capital		266			55			214		(269	)		266
Retained earnings		2,059			(1,174	)		5		1,169			2,059
Accumulated other comprehensive loss		(228	)		(228	)		—		228			(228	)
Treasury stock		(3,612	)		—			—		—			(3,612	)
Total shareholders’ equity (deficit)		(1,513	)		(1,347	)		219		1,128			(1,513	)
Total liabilities and shareholders’ equity (deficit)	$	(1,112	)	$	3,218		$	1,036	$	(134	)	$	3,008

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

Condensed Consolidating Balance Sheets

December 31, 2010

(In millions)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating 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		—			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 Year Ended December 31, 2011

(In millions)

	Parent		Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Net sales (including excise taxes of $2,014)	$	—	$	6,466		$	—		$	—		$	6,466
Cost of sales		—		4,123			—			—			4,123
Gross profit		—		2,343			—			—			2,343
Selling, general and administrative (1)		—		1,473			(1,022	)		—			451
Operating income		—		870			1,022			—			1,892
Investment income		1		1			1			—			3
Interest expense		—		(125	)		—			—			(125	)
Income before taxes		1		746			1,023			—			1,770
Income taxes		—		290			364			—			654
Equity in earnings of subsidiaries		1,115		659			—			(1,774	)		—
Net income	$	1,116	$	1,115		$	659		$	(1,774	)	$	1,116

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

Condensed Consolidating Statements of Income

For the Year Ended December 31, 2010

(In millions)

	Parent		Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Net sales (including excise taxes of $1,879)	$	—	$	5,932		$	—		$	—		$	5,932
Cost of sales		—		3,809			—			—			3,809
Gross profit		—		2,123			—			—			2,123
Selling, general and administrative (1)		—		1,330			(932	)		—			398
Operating income		—		793			932			—			1,725
Investment income		—		3			1			—			4
Interest expense		—		(91	)		(3	)		—			(94	)
Income before taxes		—		705			930			—			1,635
Income taxes		—		268			338			—			606
Equity in earnings of subsidiaries		1,029		592			—			(1,621	)		—
Net income	$	1,029	$	1,029		$	592		$	(1,621	)	$	1,029

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

Condensed Consolidating Statements of Income

For the Year Ended December 31, 2009

(In millions)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Net sales (including excise taxes of $1,547)	$	—		$	5,233		$	—		$	—		$	5,233
Cost of sales		—			3,327			—			—			3,327
Gross profit		—			1,906			—			—			1,906
Selling, general and administrative (1)		1			969			(605	)		—			365
Operating income		(1	)		937			605			—			1,541
Investment income		—			4			1			—			5
Interest expense		—			(26	)		(1	)		—			(27	)
Income before taxes		(1	)		915			605			—			1,519
Income taxes		—			354			217			—			571
Equity in earnings of subsidiaries		949			388			—			(1,337	)		—
Net income	$	948		$	949		$	388		$	(1,337	)	$	948

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

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2011

(In millions)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	1,116		$	1,115		$	659		$	(1,774	)	$	1,116
Adjustments to reconcile net income to net cash provided by operating activities:
Equity income from subsidiaries		(1,115	)		(659	)		—			1,774			—
Depreciation and amortization		—			37			—			—			37
Pension, health and life insurance contributions		—			(42	)		—			—			(42	)
Pension, health and life insurance benefits expense		—			28			—			—			28
Deferred income taxes		—			(16	)		1			—			(15	)
Share-based compensation		—			16			—			—			16
Excess tax benefits from share-based arrangements		—			(4	)		—			—			(4	)
Changes in operating assets and liabilities:
Accounts and other receivables		(1	)		(873	)		(2	)		877			1
Accounts payable and accrued liabilities		12			(37	)		869			(877	)		(33	)
Settlement costs		—			91			—			—			91
Income taxes		—			(2	)		(4	)					(6	)
Other current assets		—			(10	)		—			—			(10	)
Other assets		—			(170	)		(213	)		387			4
Return on investment in subsidiaries		1,730			1,212			—			(2,942	)		—
Net cash provided by (used in) operating activities		1,742			686			1,310			(2,555	)		1,183
Cash flows from investing activities:
Additions to plant and equipment		—			(56	)		—			—			(56	)
Return of capital		252			—			—			(252	)		—
Net cash provided by/(used in) investing activities		252			(56	)		—			(252	)		(56	)
Cash flows from financing activities:
Share repurchases		(1,586	)		—			—			—			(1,586	)
Proceeds from issuance of long-term debt		387			750			—			(387	)		750
Dividends paid		(723	)		(1,982	)		(1,212	)		3,194			(723	)
Debt issuance costs		—			(9	)		—			—			(9	)
Proceeds from exercise of stock options		—			8			—			—			8
Excess tax benefits from share-based arrangements		—			4			—			—			4
Net cash provided by (used in) financing activities		(1,922	)		(1,229	)		(1,212	)		2,807			(1,556	)
Change in cash and cash equivalents		72			(599	)		98			—			(429	)
Cash and cash equivalents, beginning of year		163			1,181			719			—			2,063
Cash and cash equivalents, end of year	$	235		$	582		$	817		$	—		$	1,634

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2010

(In millions)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	1,029		$	1,029		$	592		$	(1,621	)	$	1,029
Adjustments to reconcile net income to net cash provided by operating activities:
Equity income from subsidiaries		(1,029	)		(592	)		—			1,621			—
Depreciation and amortization		—			35			—			—			35
Pension, health and life insurance contributions		—			(32	)		—			—			(32	)
Pension, health and life insurance benefits expense		—			30			—			—			30
Deferred income taxes		(5	)		7			(1	)		—			1
Share-based compensation		1			7			—			—			8
Excess tax benefits from share-based arrangements		—			(2	)		—			—			(2	)
Changes in operating assets and liabilities:
Accounts and other receivables		—			5			—			—			5
Inventories		—			4			—			—			4
Accounts payable and accrued liabilities		(16	)		(14	)		(16	)		—			(46	)
Settlement costs		—			78			—			—			78
Income taxes		(1	)		(44	)		11						(34	)
Other current assets		—			(2	)		—			—			(2	)
Other assets		—			2			15			—			17
Return on investment in subsidiaries		1,398			401			—			(1,799	)		—
Net cash provided by (used in) operating activities		1,377			912			601			(1,799	)		1,091
Cash flows from investing activities:
Additions to plant and equipment		—			(40	)		—			—			(40	)
Return of capital		17			—			—			(17	)		—
Net cash provided by (used in) investing activities		17			(40	)		—			(17	)		(40	)
Cash flows from financing activities:
Shares repurchased		(716	)		—			—			—			(716	)
Proceeds from issuance of long-term debt		—			1,000			—			—			1,000
Dividends paid		(645	)		(1,399	)		(417	)		1,816			(645	)
Debt issuance costs		—			(13	)		—			—			(13	)
Excess tax benefits from share-based arrangements		—			2			—			—			2
Net cash provided by (used in) financing activities		(1,361	)		(410	)		(417	)		1,816			(372	)
Change in cash and cash equivalents		33			462			184			—			679
Cash and cash equivalents, beginning of year		130			719			535			—			1,384
Cash and cash equivalents, end of year	$	163		$	1,181		$	719		$	—		$	2,063

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2009

(In millions)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	948		$	949		$	388		$	(1,337	)	$	948
Adjustments to reconcile net income to net cash provided by operating activities:
Equity income in subsidiaries		(949	)		(388	)					1,337			—
Depreciation and amortization		—			32			—			—			32
Pension, health and life insurance contributions		—			(37	)		—			—			(37	)
Pension, health and life insurance benefits expense		—			46			—			—			46
Deferred income taxes		—			(10	)		1			—			(9	)
Share-based compensation		—			5			—			—			5
Excess tax benefits from share-based arrangements		—			(1	)		—			—			(1	)
Changes in operating assets and liabilities:
Accounts and other receivables		—			16			(4	)		—			12
Inventories		—			(26	)		—			—			(26	)
Accounts payable and accrued liabilities		18			39			(1	)		—			56
Settlement costs		—			8			—			—			8
Other assets		—			(4	)		—			—			(4	)
Other		—			13			(6	)		—			7
Return on investment in subsidiaries		1,635			350			—			(1,985	)		—
Net cash provided by (used in) operating activities		1,652			992			378			(1,985	)		1,037
Cash flows from investing activities:
Additions to plant and equipment		—			(51	)		—			—			(51	)
Return of capital		—			100			—			(100	)		—
Net cash provided by investing activities		—			49			—			(100	)		(51	)
Cash flows from financing activities:
Shares repurchased		(910	)		—			—			—			(910	)
Proceeds from issuance of long-term debt		—			750			—			—			750
Dividends paid		(631	)		(1,635	)		(450	)		2,085			(631	)
Debt issuance costs		—			(5	)		—			—			(5	)
Proceeds from exercise of stock options		—			2			—			—			2
Excess tax benefits from share-based arrangements		—			1			—			—			1
Net cash used in financing activities		(1,541	)		(887	)		(450	)		2,085			(793	)
Change in cash and cash equivalents		111			154			(72	)		—			193
Cash and cash equivalents, beginning of year		19			565			607			—			1,191
Cash and cash equivalents, end of year	$	130		$	719		$	535		$	—		$	1,384