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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

The provision (benefit) for income taxes consisted of the following:


	Year Ended December 31,
	2013			2012			2011
	(In millions)
Current
Federal	$	606		$	530		$	548
State		140			111			120
Foreign		—			—			—
Deferred
Federal		(36	)		(10	)		(10	)
State		(5	)		(2	)		(4	)
Foreign		(1	)		—			—

Total	$	704		$	629		$	654

Pre-Tax Income (Loss) for Domestic and Foreign Operations

Pre-tax income (loss) for domestic and foreign operations is as follows:


(In millions)	2013			2012		2011
Domestic	$	1,891		$	1,728	$	1,770
Foreign		(7	)		—		—

	$	1,884		$	1,728	$	1,770

Reconciliation Between Statutory Federal Income Tax Rate and Effective Income Tax Rate as Percentage of Income

A reconciliation between the statutory federal income tax rate and Lorillard’s effective income tax rate as a percentage of income is as follows:


	2013			2012			2011
Statutory rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in rate resulting from:
State taxes		4.7			4.1			4.3
Domestic manufacturer’s deduction		(2.7	)		(2.8	)		(2.4	)
Other		0.4			0.1			0.1

Effective rate		37.4	%		36.4	%		37.0	%

Deferred Tax Assets (Liabilities)

Deferred tax assets (liabilities) are as follows:


	December 31,
(In millions)	2013			2012
Deferred tax assets:
Employee benefits	$	137		$	161
Settlement costs		525			511
State and local income taxes		22			18
Litigation and legal		24			6
Inventory		3			4
Other		3			2

Gross deferred tax assets		714			702

Deferred tax liabilities:
Depreciation		(66	)		(63	)
Federal effect of state deferred taxes		(42	)		(34	)

Gross deferred tax liabilities		(108	)		(97	)

Net deferred tax assets	$	606		$	605

Reconciliation of Beginning and Ending Amount of Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


(In millions)	2013			2012			2011
Balance at January 1,	$	41		$	42		$	33
Additions for tax positions of prior years		4			4			6
Reductions for tax positions of prior years		(2	)		(6	)		(2	)
Additions based on tax positions related to the current year		10			9			9
Settlements		—			(4	)		(1	)
Lapse of statute of limitations		(1	)		(4	)		(3	)

Balance at December 31,	$	52		$	41		$	42

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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