Document and Company Informatio
Document and Company Information (USD $) | |||
In Billions, except Share data | 12 Months Ended
Dec. 31, 2009 | Feb. 19, 2010
| Jun. 30, 2009
|
Document and Company Information [Abstract] | |||
Entity Registrant Name | LORILLARD, INC. | ||
Entity Central Index Key | 0001424847 | ||
Document Type | 10-K | ||
Document Period End Date | 2009-12-31 | ||
Amendment Flag | false | ||
Company Fiscal Year End Date | --12-31 | ||
Entity Well Known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | 11.3 | ||
Entity Common Stock Shares Outstanding | 154,810,465 |
Consolidated Balance Sheets
Consolidated Balance Sheets (USD $) | ||
In Millions | Dec. 31, 2009
| Dec. 31, 2008
|
ASSETS: | ||
Cash and cash equivalents | $1,384 | $1,191 |
Accounts receivable, less allowances of $3 and $2 | 9 | 7 |
Other receivables | 41 | 55 |
Inventories | 281 | 255 |
Deferred income taxes | 466 | 454 |
Total current assets | 2,181 | 1,962 |
Plant and equipment, net | 237 | 218 |
Prepaid pension assets | 60 | 36 |
Deferred income taxes | 48 | 71 |
Other assets | 49 | 34 |
Total assets | 2,575 | 2,321 |
LIABILITIES AND SHAREHOLDERS' EQUITY: | ||
Accounts and drafts payable | 23 | 30 |
Accrued liabilities | 318 | 255 |
Settlement costs | 982 | 974 |
Income taxes | 14 | 14 |
Total current liabilities | 1,337 | 1,273 |
Long-term debt | 722 | 0 |
Postretirement pension, medical and life insurance benefits | 300 | 317 |
Other liabilities | 129 | 100 |
Total liabilities | 2,488 | 1,690 |
Shareholders' Equity: | ||
Preferred stock, $0.01 par value, authorized 10 million shares | 0 | 0 |
Common stock: | ||
Authorized - 600 million shares; par value-$.01 per share Issued - 174 million and 174 million shares Outstanding - 156 million and 168 million shares | 2 | 2 |
Additional paid-in capital | 234 | 222 |
Earnings retained in the business | 1,282 | 965 |
Accumulated other comprehensive loss | (121) | (158) |
Treasury stock at cost, 18 million and 6 million shares | (1,310) | (400) |
Total shareholders' equity | 87 | 631 |
Total liabilities and shareholders' equity | $2,575 | $2,321 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) (USD $) | ||
In Millions | Dec. 31, 2009
| Dec. 31, 2008
|
ASSETS: | ||
Allowance for doubtful accounts | $3 | $2 |
Shareholders' Equity: | ||
Preferred stock, par value | 0.01 | 0.01 |
Preferred stock, shares authorized | 10 | 10 |
Common stock: | ||
Common stock, par value | 0.01 | 0.01 |
Common stock, shares Authorized | 600 | 600 |
Common stock, shares Issued | 174 | 174 |
Common stock, shares Outstanding | 156 | 168 |
Treasury stock at cost, shares | 18 | 6 |
Consolidated Statements of Inco
Consolidated Statements of Income (USD $) | |||
In Millions, except Per Share data | 12 Months Ended
Dec. 31, 2009 | 12 Months Ended
Dec. 31, 2008 | 12 Months Ended
Dec. 31, 2007 |
Consolidated Statements of Income [Abstract] | |||
Net sales (including excise taxes of $1,547, $712 and $688) | $5,233 | $4,204 | $3,969 |
Cost of sales | 3,327 | 2,434 | 2,313 |
Gross profit | 1,906 | 1,770 | 1,656 |
Selling, general and administrative | 365 | 355 | 382 |
Operating income | 1,541 | 1,415 | 1,274 |
Investment income | 5 | 20 | 109 |
Interest expense | (27) | (1) | 0 |
Income before income taxes | 1,519 | 1,434 | 1,383 |
Income taxes | 571 | 547 | 485 |
Net income | $948 | $887 | $898 |
Earnings per share: | |||
Basic | 5.76 | 5.15 | 5.16 |
Diluted | 5.76 | 5.15 | 5.16 |
Weighted average number of shares outstanding: | |||
Basic | 164.48 | 172.09 | 173.92 |
Diluted | 164.62 | 172.21 | 173.92 |
1_Consolidated Statements of In
Consolidated Statements of Income (Parenthetical) (USD $) | |||
In Millions | 12 Months Ended
Dec. 31, 2009 | 12 Months Ended
Dec. 31, 2008 | 12 Months Ended
Dec. 31, 2007 |
Consolidated Statements of Income [Abstract] | |||
Excise taxes | $1,547 | $712 | $688 |
Consolidated Statements of Shar
Consolidated Statements of Shareholders Equity (USD $) | ||||||||||
In Millions | Previously Reported
| Previously Reported
Additional Paid-in Capital | Previously Reported
Earnings Retained in the Business | Previously Reported
Accumulated Other Comprehensive Loss | Common Stock
| Additional Paid-in Capital
| Earnings Retained in the Business
| Accumulated Other Comprehensive Loss
| Treasury Stock
| Total
|
Beginning Balance at Dec. 31, 2005 | $2 | |||||||||
Par value adjustment, Lorillard common stock - 1.7 million to 1 stock split | 2 | (2) | ||||||||
Cumulative effect from adoption of new accounting for income taxes | (25) | (25) | ||||||||
Comprehensive income: | ||||||||||
Ending Balance at Dec. 31, 2006 | 1,295 | 215 | 1,179 | (99) | 2 | 213 | 1,154 | (99) | 1,270 | |
Comprehensive income: | ||||||||||
Net income | 898 | 898 | ||||||||
Other comprehensive gains, pension liability, net of tax expense of $6 for 2007, net of tax benefit of $38 for 2008 and net of tax expense of $20 for 2009 | 11 | 11 | ||||||||
Comprehensive income | 909 | |||||||||
Dividends paid | (1,170) | (1,170) | ||||||||
Share-based compensation | 4 | 4 | ||||||||
Ending Balance at Dec. 31, 2007 | 2 | 217 | 882 | (88) | 1,013 | |||||
Comprehensive income: | ||||||||||
Net income | 887 | 887 | ||||||||
Other comprehensive gains, pension liability, net of tax expense of $6 for 2007, net of tax benefit of $38 for 2008 and net of tax expense of $20 for 2009 | (70) | (70) | ||||||||
Comprehensive income | 817 | |||||||||
Dividends paid | (804) | (804) | ||||||||
Shares repurchased | (400) | (400) | ||||||||
Share-based compensation | 5 | 5 | ||||||||
Ending Balance at Dec. 31, 2008 | 2 | 222 | 965 | (158) | (400) | 631 | ||||
Comprehensive income: | ||||||||||
Net income | 948 | 948 | ||||||||
Other comprehensive gains, pension liability, net of tax expense of $6 for 2007, net of tax benefit of $38 for 2008 and net of tax expense of $20 for 2009 | 37 | 37 | ||||||||
Comprehensive income | 985 | |||||||||
Dividends paid | (631) | (631) | ||||||||
Shares repurchased | (910) | (910) | ||||||||
Share-based compensation | 12 | 12 | ||||||||
Ending Balance at Dec. 31, 2009 | $2 | $234 | $1,282 | ($121) | ($1,310) | $87 |
Consolidated Statements of Equi
Consolidated Statements of Equity (Parenthetical) (USD $) | |||
In Millions | 12 Months Ended
Dec. 31, 2009 | 12 Months Ended
Dec. 31, 2008 | 12 Months Ended
Dec. 31, 2007 |
Comprehensive income: | |||
Pension Liability, Tax expense/benefit | $20 | $38 | $6 |
Comprehensive Income (Loss) | |||
Comprehensive income: | |||
Pension Liability, Tax expense/benefit | 20 | 38 | 6 |
Accumulated Other Comprehensive Loss | |||
Comprehensive income: | |||
Pension Liability, Tax expense/benefit | $20 | $38 | $6 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (USD $) | |||
In Millions | 12 Months Ended
Dec. 31, 2009 | 12 Months Ended
Dec. 31, 2008 | 12 Months Ended
Dec. 31, 2007 |
Cash flows from operating activities: | |||
Net income | $948 | $887 | $898 |
Adjustments to reconcile to net cash provided by (used in) operating activities: | |||
Depreciation and amortization | 32 | 32 | 40 |
Deferred income taxes | (9) | 72 | (62) |
Share-based compensation | 5 | 3 | 2 |
Gain on investments | 0 | 0 | (34) |
Amortization of marketable securities | 0 | 0 | (22) |
Pension, health and life insurance benefits expense | 46 | 21 | 24 |
Pension, health and life insurance contributions | (37) | (32) | (31) |
Excess tax benefits from share-based arrangements | (1) | 0 | 0 |
Changes in operating assets and liabilities: | |||
Accounts and other receivables | 12 | (38) | 6 |
Inventories | (26) | (32) | (40) |
Accounts payable and accrued liabilities | 56 | 28 | (20) |
Settlement costs | 8 | 43 | 102 |
Income taxes | 0 | 5 | (44) |
Other assets | (4) | 9 | (9) |
Litigation accrual | 0 | 0 | 66 |
Other | 7 | (18) | 6 |
Net cash provided by operating activities | 1,037 | 980 | 882 |
Cash flows from investing activities: | |||
Purchases of investments | 0 | (1,050) | (4,916) |
Proceeds from sales of investments | 0 | 545 | 1,934 |
Proceeds from maturities of investments | 0 | 750 | 3,400 |
Additions to plant and equipment | (51) | (44) | (51) |
Net cash provided by (used in) investing activities | (51) | 201 | 367 |
Cash flows from financing activities: | |||
Dividends paid | (631) | (804) | (1,170) |
Shares repurchased | (910) | (400) | 0 |
Proceeds from issuance of long-term debt | 750 | 0 | 0 |
Debt issuance costs | (5) | 0 | 0 |
Proceeds from exercise of stock options | 2 | 0 | 0 |
Excess tax benefits from share-based arrangements | 1 | 4 | 3 |
Net cash used in financing activities | (793) | (1,200) | (1,167) |
Change in cash and cash equivalents | 193 | (19) | 82 |
Cash and cash equivalents, beginning of year | 1,191 | 1,210 | 1,128 |
Cash and cash equivalents, end of year | 1,384 | 1,191 | 1,210 |
Cash paid for income taxes | 563 | 514 | 598 |
Cash paid for interest, net of interest rate swaps | $28 | $0 | $0 |
Significant Accounting Policies
Significant Accounting Policies | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Significant Accounting Policies [Abstract] | |
Significant Accounting Policies | 1. Significant Accounting Policies Basis of presentation Lorillard, Inc., through its subsidiaries, is engaged in the manufacture and sale of cigarettes. Its principal products are marketed under the brand names of Newport, Kent, True, Maverick and Old Gold with substantially all of its sales in the United States of America. The consolidated financial statements of Lorillard, Inc. (the Company), together with its subsidiaries (Lorillard), include the accounts of the Company and its subsidiaries after the elimination of intercompany accounts and transactions. The Company manages its operations on the basis of one operating and reportable segment through its principal subsidiary, Lorillard Tobacco Company (Lorillard Tobacco). On May7, 2008, the Company amended its certificate of incorporation to effect a 1,739,234.29 for 1 stock split of its 100shares of Common Stock then outstanding. All common share and per share information has been retroactively adjusted for the periods presented. On June10, 2008, Loews Corporation (Loews) distributed 108,478,429shares of common stock of the Company in exchange for and in redemption of all 108,478,429 outstanding shares of Loews Carolina Group stock, as described in the Registration Statement (File No.333-149051) on FormS-4 filed with the Securities and Exchange Commission (the SEC) under the Securities act of 1933 as amended (the Separation). Pursuant to the terms of the Exchange Offer, described in the Registration Statement, on June16, 2008, Loews accepted 93,492,857shares of Loews common stock in exchange for 65,445,000shares of the Companys Common Stock. As a result of such distributions, Loews ceased to own any equity interest in the Company and the Company became an independent publicly held company. Prior to the Separation, Lorillard was included in the Loews consolidated federal income tax return, and federal income tax liabilities were included on the balance sheet of Loews. Under the terms of the pre-Separation Tax Allocation Agreement between Lorillard and Loews, the Company made payments to, or was reimbursed by Loews for the tax effects resulting from its inclusion in Loews consolidated federal income tax return. In September 2009, Loews reimbursed Lorillard $14million, which was recorded as a receivable in 2008, related to pre-Separation tax benefits and payments. Subsequent to the issuance of the Companys 2008 consolidated financial statements included in Form8-K, filed on June11, 2009, the Company determined that immaterial errors existed in the footnote disclosure containing the condensed consolidating statement of cash flows for the year ended December31, 2008. The Issuers statement of cash flows for the year ended December31, 2008 has been corrected to reflect $150million return of capital, previously reported as a financing inflow, as an investing inflow. In addition, the statement of cash flows for All Other Subsidiaries for the same period has been corrected to properly include the $150million payment to the Issuer, previously reported as return of capital outflow within financing activities, as a component of dividends paid also within fina |
Inventories
Inventories | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Inventories [Abstract] | |
Inventories | 2. Inventories Inventories are valued at the lower of cost, determined on a LIFO basis, or market and consisted of the following: December31, 2009 2008 (In millions) Leaf tobacco $ 236 $ 208 Manufactured stock 41 42 Materials and supplies 4 5 $ 281 $ 255 If the average cost method of accounting was used, inventories would be greater by approximately $189million and $155million at December31, 2009 and 2008, respectively. |
Plant and Equipment
Plant and Equipment | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Plant and Equipment [Abstract] | |
Plant and Equipment | 3. Plant and Equipment Plant and equipment is stated at historical cost and consisted of the following: December31, 2009 2008 (In millions) Land $ 3 $ 3 Buildings 87 87 Equipment 563 532 Total 653 622 Accumulated depreciation (416 ) (404 ) Plant and equipment-net $ 237 $ 218 Depreciation and amortization expense was $32million, $32million and $40million for 2009, 2008 and 2007, respectively. |
Other Assets
Other Assets | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Other Assets [Abstract] | |
Other Assets | 4. Other Assets Other assets were as follows: December31, 2009 2008 (In millions) Other investments $ 15 15 Restricted cash 13 13 Debt issuance costs 5 Other prepaid assets 16 6 Total $ 49 $ 34 |
Accrued Liabilities
Accrued Liabilities | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Accrued Liabilities [Abstract] | |
Accrued Liabilities | 5. Accrued Liabilities Accrued liabilities were as follows: December31, 2009 2008 (In millions) Legal fees $ 21 $ 21 Salaries and other compensation 16 21 Medical and other employee benefit plans 30 27 Consumer rebates 86 62 Sales promotion 21 23 Excise and other taxes 78 56 Other accrued liabilities 66 45 Total $ 318 $ 255 |
Commitments
Commitments | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Commitments [Abstract] | |
Commitments | 6. Commitments Lorillard leases certain real estate and transportation equipment under various operating leases. Listed below are future minimum rental payments required under those operating leases with noncancelable terms in excess of one year. December31, 2009 (In millions) 2010 $ 1.8 2011 1.4 2012 0.8 2013 0.2 2014 0.0 Net Minimum lease payments $ 4.2 Rental expense for all operating leases was $6million, $6million and $6million for 2009, 2008 and 2007, respectively. At December31, 2009, Lorillard had contractual purchase obligations of approximately $47million. These purchase obligations include agreements to purchase machinery. Future contractual purchase obligations at December31, 2009 were as follows: 2010 2011 2012 2013 2014 (In millions) Contractual purchase obligations $ 46 $ 1 $ 0 $ 0 $ 0 |
Fair Value
Fair Value | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Fair Value [Abstract] | |
Fair Value | 7. 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 Level1, as these are the most transparent or reliable: Level1 Quoted prices for identical instruments in active markets. Level2 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. Level3 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 December31, 2009 were as follows: (In millions) Level 1 Level 2 Level 3 Total (In millions) Cash and Cash Equivalents: Prime money market funds $ 1,384 $ $ $ 1,384 Total cash and cash equivalents $ 1,384 $ $ $ 1,384 Derivative Liability: Interest rate swaps fixed to floating rate $ $ 28 $ $ 28 Total derivative liability $ $ 28 $ $ 28 The fair value of the money market funds, classified as Level1, utilized quoted prices in active markets. The fair value of the interest rate swaps, classified as Level2, utilized a market approach model using the notional amount of the interest rate swap multiplied by the observable inputs of time to maturity and market interest rates. See Note9 for additional information on the interest rate swaps. |
Long Term Debt
Long Term Debt | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Long Term Debt [Abstract] | |
Long Term Debt | 8. Long Term Debt In June 2009, Lorillard Tobacco issued $750million of 8.125% unsecured senior notes due June23, 2019 (the Notes) pursuant to an Indenture, dated June23, 2009, and First Supplemental Indenture, dated June23, 2009 (the Supplemental Indenture). Lorillard Tobacco is the principal, wholly-owned operating subsidiary of the Company and the Notes are unconditionally guaranteed on a senior unsecured basis by the Company. The interest rate payable on the Notes is subject to incremental increases from 0.25% to 2.00% in the event either Moodys Investors Services, Inc. (Moodys), Standard Poors Ratings Services (SP) or both Moodys and SP downgrade the Notes below investment grade (Baa3 and BBB- for Moodys and SP, respectively). In September 2009, Lorillard Tobacco entered into interest rate swap agreements, which the Company guaranteed, with a notional amount of $750million to modify its exposure to interest rate risk by converting the interest rate payable on the Notes from a fixed rate to a floating rate based on LIBOR. See Note9 for additional information on the interest rate swap agreements. Upon the occurrence of a change of control triggering event, Lorillard Tobacco will be required to make an offer to repurchase the Notes at a price equal to 101% of the aggregate principal amount of the Notes, plus accrued interest. A change of control triggering event occurs when there is both a change of control (as defined in the Supplemental Indenture) and the Notes cease to be rated investment grade by both Moodys and SP within 60days of the occurrence of a change of control or public announcement of the intention to effect a change of control. The Notes are not entitled to any sinking fund and are not redeemable prior to maturity. The Notes contain covenants that restrict liens and sale and leaseback transactions, subject to a limited exception. At December31, 2009, the carrying value of the Notes was $722million and the fair value was $826million. The fair value of the Notes was based on market pricing. |
Derivative Instruments
Derivative Instruments | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Derivative Instruments [Abstract] | |
Derivative Instruments | 9. Derivative Instruments In September 2009, Lorillard Tobacco entered into interest rate swap agreements, which the Company guaranteed, with a total notional amount of $750million to modify its exposure to interest rate risk by effectively converting the interest rate payable on the Notes from a fixed rate to a floating rate. Under the agreements, Lorillard Tobacco receives interest based on a fixed rate of 8.125% and pays interest based on a floating one-month LIBOR rate plus a spread of 4.625%. As of December31, 2009, the variable rate was 4.856%. The agreements expire in June 2019. The interest rate swap agreements qualify for hedge accounting and were designated as fair value hedges. Under the swap agreements, Lorillard Tobacco receives a fixed rate settlement and pays a variable rate settlement with the difference recorded in interest expense. That difference reduced interest expense by $6million for 2009. For derivatives designated as fair value hedges, which relate entirely to hedges of debt, changes in the fair value of the derivatives are recorded in other assets or other liabilities with an offsetting adjustment to the carrying amount of the hedged debt. At December31, 2009, such adjustments decreased the carrying amount of debt outstanding by $28million and increased other liabilities by $28million in the consolidated condensed balance sheet. If our debt rating is downgraded below Ba2 by Moodys or BB by SP, the swap agreements will terminate and we will be required to settle them in cash before their expiration date. |
Earnings Per Share
Earnings Per Share | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Earnings Per Share [Abstract] | |
Earnings Per Share | 10. Earnings Per Share Basic and diluted earnings per share (EPS) were calculated using the following: Year Ended December31, 2009 2008 2007 (In millions) Net Earnings $ 948 $ 887 $ 898 Weighted Average SharesOutstanding Basic 164.48 172.09 173.92 Stock Options and Stock Appreciation Rights 0.14 0.12 Weighted Average SharesOutstanding Diluted 164.62 172.21 173.92 Options to purchase 1.1million shares and 0.4million shares of common stock were excluded from the diluted earnings per share calculation because their effect would be anti-dilutive for the years ended December31, 2009 and 2008, respectively. Loews distributed its interest in the Company to holders of Loews Carolina Group stock and Loews common stock in a series of transactions which were completed on June10, 2008 and June16, 2008, respectively. The Company had 173,923,429shares outstanding as of the Separation from Loews. All prior period EPS amounts were adjusted to reflect the new capital structure of the Company. |
Income Taxes
Income Taxes | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Income Taxes [Abstract] | |
Income Taxes | 11. Income Taxes Prior to the Separation, Lorillard was included in the Loews consolidated federal income tax return, and federal income tax liabilities were included on the balance sheet of Loews. Under the terms of the pre- Separation Tax Allocation Agreement between Lorillard and Loews, Lorillard made payments to, or was reimbursed by Loews for the tax effects resulting from its inclusion in Loews consolidated federal income tax return. As of December31, 2009, there were no tax obligations between Lorillard and Loews for periods prior to the Separation. Following the Separation, Lorillard and its eligible subsidiaries filed a stand alone consolidated federal income tax return. The Separation Agreement imposes restrictions on Lorillards ability to engage in certain significant corporate transactions, for a period of two years, that could cause the Separation to become taxable to Loews. Lorillard, however, may undertake any such action if it first obtains a supplemental ruling from the IRS or an unqualified tax opinion of a nationally recognized law firm, in either case in form and substance reasonably acceptable to Loews, to the effect that the proposed transaction would not adversely affect the tax-free nature of the Separation. The Separation Agreement also requires Lorillard (and any successor entity) to indemnify Loews for any losses resulting from the failure of the Separation to qualify as a tax-free transaction (except if the failure to qualify is solely due to Loewss fault). This indemnification obligation applies regardless of whether the action is restricted as described above, or whether Lorillard or a potential acquirer obtains a supplemental ruling or an opinion of counsel. The Separation Agreement further provides for cooperation between Lorillard and Loews with respect to additional tax matters, including the exchange of information and the retention of records which may affect the income tax liability of the parties to the Separation Agreement. Lorillards 2006 consolidated federal income tax return is subject to examination by the IRS. For 2007 and 2008, the IRS has invited Loews and its eligible subsidiaries to participate in the Compliance Assurance Process (CAP) which is a voluntary program for a limited number of large corporations. Loews and Lorillard, as an eligible subsidiary, agreed to participate. Under CAP, the IRS conducts a real-time audit and works contemporaneously with Lorillard to resolve any issues prior to the filing of the tax return. Lorillards participation in the CAP will end when the IRS approves Loews 2008 consolidated federal income tax return as filed. During 2008, the IRS completed its examination of the 2007 Loews consolidated federal income tax return resulting in no changes being made to the reported tax on the return. Lorillard adopted the uncertain tax provisions of ASC 740, Income Taxes, on January1, 2007. As a result of this adoption, Lorillard recognized a decrease to beginning retained earnings on January1, 2007 of $25million. At December31, 2009, 2008 and 2007 there were $18million, $19million and $21million, respectively, of tax benefits that, |
Retirement Plans
Retirement Plans | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Retirement Plans [Abstract] | |
Retirement Plans | 12. Retirement Plans Lorillard has defined benefit pension, postretirement benefits, profit sharing and savings plans for eligible employees. Pension and postretirement benefits The Salaried Pension Plan provides benefits based on employees compensation and service. The Hourly Pension Plan provides benefits based on fixed amounts for each year of service. Lorillard also provides medical and life insurance benefits to eligible employees. Lorillard uses a December 31 measurement date for its plans. Lorillard also provides certain senior level management employees with nonqualified, unfunded supplemental retirement plans. While these plans are unfunded, Lorillard has certain assets invested in an executive life insurance policy that are to be used to provide for certain of these benefits. Weighted-average assumptions used to determine benefit obligations: Other Pension Benefits Postretirement Benefits December31, December31, 2009 2008 2009 2008 Discount rate 6.0 % 6.3 % 6.0 % 6.3 % Rate of compensation increase 4.8 % 5.0 % Weighted-average assumptions used to determine net periodic benefit cost: Other Postretirement Pension Benefits Benefits Year Ended December31, Year Ended December31, 2009 2008 2007 2009 2008 2007 Discount rate 6.3 % 6.0 % 5.8 % 6.3 % 6.0 % 5.8 % Expected long-term return on plan assets 7.5 % 7.5 % 7.5 % Rate of compensation increase 5.0 % 5.0 % 5.5 % The expected long-term rate of return for Plan assets is determined based on widely-accepted capital market principles, long-term return analysis for global fixed income and equity markets and the active total return oriented portfolio management style. The methodology used to derive asset class risk/return estimates varies due to the nature of asset classes, the availability of historical data, implications from currency, and other factors. In many cases, where historical data is available, data is drawn from indices such as MSCI or G7 country data. For alternative asset classes where historical data may be insufficient or incomplete, estimates are based on long-term capital market conditions and/or asset class relationships. The expected rate of return for the Plan is based on the target asset allocation and return assumptions for each asset class. The estimated Plan return represents a nominal compound return which captures the effect of estimated asset class and market volatility. Other Postretirement Benefits Year Ended December31, 2009 2008 Assumed health care cost trend rates for other postretirement benefits: |
Share-Based Compensation
Share-Based Compensation | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Share-Based Compensation [Abstract] | |
Share-Based Compensation | 13. Share-Based Compensation Stock Option Plan On June10, 2008, Lorillard separated from Loews, and all of the outstanding equity awards granted from the Carolina Group 2002 Stock Option Plan (the Carolina Group Plan) were converted on a one-for-one basis to equity awards granted from the Lorillard Inc. 2008 Incentive Compensation Plan (the Lorillard Plan) with the same terms and conditions. In May 2008, Lorillards sole shareholder and Board of Directors approved the Lorillard Plan in connection with the issuance of the Companys Common Stock for the benefit of certain Lorillard employees. The aggregate number of shares of the Companys Common Stock for which options, stock appreciation rights (SARs) or restricted stock may be granted under the Lorillard Plan is 3,714,825shares, of which 714,825 were outstanding Carolina Group stock options converted to the Lorillard Plan; and the maximum number of shares of Lorillard Common Stock with respect to which options or SARs may be granted to any individual in any calendar year is 500,000shares. The exercise price per share may not be less than the fair value of the Companys Common Stock on the date of the grant. Generally, options and SARs vest ratably over a four-year period and expire ten years from the date of grant. The fair value of the awards immediately after the Separation did not exceed the fair value of the awards immediately before the Separation, as measured in accordance with the provisions of ASC Topic 718, and no incremental compensation expense was recorded as a result of the modification of the Carolina Group awards. A summary of the stock option and SAR transactions for the Carolina Group Plan from January1, 2008 through June10, 2008 follows: 2008 Weighted Average Number of Exercise Awards Price Awards outstanding, January 1 628,328 $ 49.78 Granted 111,000 79.03 Exercised (24,503 ) 34.78 Awards outstanding, June10, 2008 714,825 $ 42.93 Awards exercisable, June10, 2008 307,303 $ 32.51 Shares available for grant, June10, 2008 249,500 A summary of the stock option and SAR transactions for the Lorillard Plan for the post-separation period from June11, 2008 to December31, 2008 and from January1, 2009 to December31, 2009 follows: 2009 2008 Weighted Weighted Average Average Number of Exercise Number of Exercise Awards Price Awards Price Awards outstanding at January1, 2009 and June11, 2008 814,950 $ 57.21 714,825 $ 42.93 Granted 810,421 70.59 111,000 69.94 Exercised (100,186 ) 37.74 (10,875 ) 31.00 |
Share Repurchase Programs
Share Repurchase Programs | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Share Repurchase Programs [Abstract] | |
Share Repurchase Programs | 14. Share Repurchase Programs In July 2008, the Board of Directors authorized the repurchase of up to $400million of the Companys common stock, which was completed on October10, 2008. The number of shares repurchased under this program were 5.9million shares. In May 2009, the Board of Directors authorized the repurchase of up to $250million of the Companys common stock, which was completed on July28, 2009. The number of shares repurchased under this program were 3.7million shares. In July 2009, the Board of Directors authorized the repurchase of up to $750million of the Companys common stock. Purchases under this program were made from time to time at prevailing market prices in open market purchases, privately negotiated transactions, block purchases or otherwise, as determined by the Companys management. The repurchases were funded from existing cash balances, including proceeds from the Companys June 2009 issuance of the Notes. See Note8 for a description of the Notes. As of December31, 2009, the Company repurchased 8.6million shares of its common stock for $660million at an average price of $76.59 per share with $90million the maximum remaining dollar value of shares that could be purchased under the program. As of January19, 2010, the Company completed this repurchase program after repurchasing an additional 1.1million shares at an average price of $78.36 per share. The total number of shares repurchased under the above programs were 19.3million shares. |
Related Party Transactions
Related Party Transactions | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Related Party Transactions [Abstract] | |
Related Party Transactions | 15. Related Party Transactions Lorillard was a party to individual services agreements (the Agreements) with Loews through June9, 2008. Under the Agreements, Loews performed certain administrative, technical and ministerial services. Those services included internal auditing, cash management, advice and assistance in preparation of tax returns and obtaining insurance coverage. Under the Agreements, the Company was required to reimburse Loews for (i)actual costs incurred (such as salaries, employee benefits and payroll taxes) of the Loews personnel providing such services and (ii)all out-of-pocket expenses related to the provision of such services. Those Agreements were terminated on June10, 2008 with the Separation from Loews. The Company was charged approximately $100,000 and $800,000 for the support functions during the years ended December31, 2008 and 2007, respectively. The Company believes, if these services were provided by an independent third party, the cost incurred would not differ materially. |
Quarterly Financial Data
Quarterly Financial Data (Unaudited) | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Quarterly Financial Data [Abstract] | |
Quarterly Financial Data (Unaudited) | 16. Quarterly Financial Data (Unaudited) December31 September30 June30 March31 (In millions) 2009 Quarter Ended Net sales $ 1,378 $ 1,419 $ 1,519 $ 917 Gross profit 481 488 552 383 Net income 242 235 286 184 Net income per share $ 1.52 $ 1.44 $ 1.71 $ 1.09 Basic weighted average number of shares outstanding 158.72 163.58 167.66 168.07 Diluted weighted average number of shares outstanding 158.89 163.72 167.79 168.18 2008 Quarter Ended Net sales $ 1,088 $ 1,125 $ 1,070 $ 921 Gross profit 493 470 441 365 Net income 258 237 217 174 Net income per share $ 1.54 $ 1.38 $ 1.25 $ 1.00 Basic weighted average number of shares outstanding 168.19 172.37 173.92 173.92 Diluted weighted average number of shares outstanding 168.29 172.49 173.92 173.92 |
Consolidating Financial Informa
Consolidating Financial Information | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Consolidating Financial Information [Abstract] | |
Consolidating Financial Information | 17. Consolidating Financial Information In June 2009, Lorillard Tobacco issued Notes, which are unconditionally guaranteed by the Company, as primary obligor, for the payment and performance of Lorillard Tobaccos obligation in connection therewith. The following sets forth the condensed consolidating balance sheets as of December31, 2009 and 2008, condensed consolidating statements of income for the years ended December31, 2009, 2008 and 2007, and condensed consolidating statements of cash flows for the years ended December31, 2009, 2008 and 2007 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 Rule3-10 of SEC RegulationS-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 December31, 2009 (In millions) All Total Other Consolidating Parent Issuer Subsidiaries Adjustments Consolidated Assets: Cash and cash equivalents $ 130 $ 719 $ 535 $ $ 1,384 Accounts receivable, less allowances of $3 9 9 Other receivables 35 6 41 Intercompany receivables 50 (50 ) Inventories 281 281 Deferred income taxes 466 466 Total current assets 130 1,510 591 (50 ) 2,181 Investment in subsidiaries (20 ) 581 (561 ) Plant and equipment 237 237 Prepaid pension assets 60 60 Deferred income taxes (5 ) 49 4 48 Other assets 34 15 49 Total assets $ 105 $ 2,471 $ 610 $ (611 ) $ 2,575 Liabilities and Shareholders Equity: Accounts and drafts payable $ $ 23 $ $ $ 23 Accrued liabilities 18 300 318 Intercompany payables 50 (50 ) Settlement costs 982 |
Legal Contingencies
Legal Contingencies | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Legal Contingencies [Abstract] | |
Legal Contingencies | 18. Legal Contingencies Tobacco Related Product Liability Litigation As of February22, 2010, approximately 11,235 product liability cases are pending against cigarette manufacturers in the United States. Lorillard Tobacco is a defendant in approximately 10,275 of these cases. Lorillard, Inc. is a co-defendant in approximately 710 cases. Approximately 7,600 of these lawsuits are Engle Progeny Cases, described below, which include approximately 4,400 Engle Progeny claims initially asserted in a small number of multi-plaintiff actions that were severed into separate lawsuits by one Florida federal court during 2009. The pending product liability cases are composed of the types of cases listed below. Pending cases are those in which the Lorillard, Inc. or Lorillard Tobacco have been joined to the litigation by either receipt of service of process, or execution of a waiver thereof, and no final, non-appealable judgment has been entered. Conventional Product Liability Cases.Conventional Product Liability Cases are brought by individuals who allege cancer or other health effects caused by smoking cigarettes, by using smokeless tobacco products, by addiction to tobacco, or by exposure to environmental tobacco smoke. As of February22, 2010, approximately 140 cases are pending against cigarette manufacturers, including approximately 30 cases against Lorillard Tobacco. Lorillard, Inc. is a co-defendant in three cases. Engle Progeny Cases.Engle Progeny Cases are brought by individuals who purport to be members of the decertified Engle class. These cases are pending in a number of Florida courts. Lorillard Tobacco is a defendant in approximately 7,600 Engle Progeny Cases. Lorillard, Inc. is a co-defendant in approximately 700 cases. Some of the cases have been filed on behalf of multiple class members. The time period for filing Engle Progeny Cases expired in January 2008 and no additional cases may be filed. West Virginia Individual Personal Injury Cases.West Virginia Individual Personal Injury Cases are brought by individuals who allege cancer or other health effects caused by smoking cigarettes, by using smokeless tobacco products, or by addiction to cigarette smoking. The cases are pending in a single West Virginia court and have been consolidated for trial. Lorillard Tobacco is a defendant in approximately 50 of the 700 pending cases that are part of this proceeding. Lorillard, Inc. is not a defendant in any of these cases. The first phase of an anticipated three-phase trial of these consolidated cases is scheduled to begin on June1, 2010. Flight Attendant Cases.Flight Attendant Cases are brought by non-smoking flight attendants alleging injury from exposure to environmental smoke in the cabins of aircraft. Plaintiffs in these cases may not seek punitive damages for injuries that arose prior to January15, 1997. Lorillard Tobacco is a defendant in each of the approximately 2,600 pending Flight Attendant Cases. Lorillard, Inc. is not a defendant in any of these cases. The time for filing Flight Attendant Cases expired during 2000 and no additional cases in this category may be filed. ClassAction Cas |
Valuation and Qualifying Accoun
Valuation and Qualifying Accounts of Lorillard, Inc. and Subsidiaries | |
12 Months Ended
Dec. 31, 2009 USD / shares | |
Valuation and Qualifying Accounts [Abstract] | |
VALUATION AND QUALIFYING ACCOUNTS OF LORILLARD, INC. AND SUBSIDIARIES | Schedule Of Valuation And Qualifying Accounts Disclosure SCHEDULEII VALUATION AND QUALIFYING ACCOUNTS OF LORILLARD, INC. AND SUBSIDIARIES Column A Column B Column C Column D Column E Additions Balance at Charged to Charged Balance at Beginning Costs and to Other End of Description of Period Expenses Accounts Deductions(1) Period (In millions) For the Year Ended December31, 2009 Deducted from assets: Allowance for discounts $ $ 175 $ $ 174 $ 1 Allowance for doubtful accounts 2 $ 2 $ 2 $ 175 $ $ 174 $ 3 For the Year Ended December31, 2008 Deducted from assets: Allowance for discounts $ $ 145 $ $ 145 $ Allowance for doubtful accounts 2 $ 2 Total $ 2 $ 145 $ $ 145 $ 2 For the Year Ended December31, 2007 Deducted from assets: Allowance for discounts $ $ 138 $ $ 138 $ Allowance for doubtful accounts 2 $ 2 Total $ 2 $ 138 $ $ 138 $ 2 (1) Discounts allowed. |