Exhibit 99.1
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg01.jpg)
Lorillard
2014 CAGNY Conference
Newport
Cigarettes
Newport
Cigarettes
blu
February 18, 2014
Lorillard 1
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg02.jpg)
Murray S. Kessler
Chairman, President and Chief Executive Officer
Lorillard 2
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg03.jpg)
Agenda
Lorillard Business & Opportunities Review
Regulatory Update & Assessment Financial Update Summary & Q&A
Murray Kessler
Chairman, President & CEO
Neil Wilcox
SVP, Chief Compliance Officer
David Taylor
EVP, Finance & CFO
All
Lorillard 3
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg04.jpg)
Safe Harbor Disclaimer
You are cautioned that certain statements made in this presentation are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words “expect”, “intend”, “plan”, “anticipate”, “estimate”, “believe”, “will be”, “will continue”, “will likely result”, and similar expressions. In addition, any statement that may be provided by management concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions by Lorillard, Inc. are also forward-looking statements as defined by the Act.
Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond the control of Lorillard, Inc., and could cause actual results to differ materially from those anticipated or projected.
Information describing factors that could cause actual results to differ materially from those in forward-looking statements is available in Lorillard, Inc.’s various filings with the Securities and Exchange Commission (“SEC”). These filings are available from the SEC over the Internet or on hard copy, and are, in some cases, available from Lorillard, Inc. as well.
Forward-looking statements speak only as of the time they are made, and Lorillard, Inc. expressly disclaims any obligation or undertaking to update these statements to reflect any change in expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based.
This forward-looking statements disclaimer is only a brief summary of Lorillard, Inc.’s statutory forward-looking-statements disclaimer. You are urged to read that disclaimer, which is included in Lorillard Inc.’s Form 10-K and Form 10-Q filings with the SEC.
Lorillard 4
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg05.jpg)
Regulation G Compliance
You are also reminded that during this presentation, certain non-GAAP financial measures, such as Adjusted Earnings Per Share may be discussed. These measures should not be considered an alternative to net income, or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles (GAAP). These measures are not necessarily comparable to a similarly titled measure of another company. Please refer to Appendix A for information that reconciles these measures with the most comparable GAAP measures.
Lorillard 5
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg06.jpg)
Lorillard Has Built Very Strong Brands Through a Long-Term Focus
The #2 U.S. Cigarette Brand - Newport®
The #1 U.S. Menthol Brand - Newport
The #1 U.S. electronic cigarette – blu eCigs®
– Newly-acquired international e-cigarette business - SKYCIG®
Newport
Cigarettes
Blu CGS
Source: MSA, Inc. retail shipment database. As of full year ended 12/31/2013.
Newport
Box 100s
Lorillard 6
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg07.jpg)
In Cigarettes, Lorillard has Gained Market Share For Eleven Consecutive Years
Lorillard Retail Market Share of U.S. Cigarettes
16%
14%
12%
10%
8%
6%
4%
2%
0%
8.7%
9.0%
9.2%
9.6%
10.0%
10.4%
11.0%
11.8%
12.9%
14.1%
14.4%
14.9%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Newport
Total Lorillard
Source: MSA, Inc. retail shipment database.
Lorillard 7
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg08.jpg)
Lorillard’s Cigarette Volume Has Dramatically Outperformed Peer Companies over the Long-Term
Volume Change (billions of cigarettes) 2005 - 2013
+4.1 Altria Reynolds
Lorillard
-43
-56
Source: MSA, Inc. domestic shipment data
Lorillard 8
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg09.jpg)
And Lorillard Has Been Consistently Rewarding
Shareholders with Superior Returns over the Long-Term
Prices Indexed to 100
600 500 400 300 200 100 0
+443.0%
+63.5%
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
LO S&P 500
Source: Bloomberg. From Carolina Group IPO on 1/31/2002 through 12/31/2013.
Lorillard 9
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg10.jpg)
Ultimately Contributing To Significant Increases In Shareholder Value
Approximately $9 billion of value creation just since 2008
Stock Price $25.5
P/E Ratio 14.9
Enterprise
Value (B) $12.2
Stock Price $50.7
P/E Ratio 16.2
Enterprise
Value (B) $20.6
2008 2009 2010 2011 2012 2013
Source: Bloomberg. From LO spinout on 6/10/2008 through 12/31/2013.
Lorillard 10
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg11.jpg)
Key Elements of Lorillard’s Consistent Success Over The Long-Term
1. Focus on the Core
2. A Passion for Brand-Building
3. Lean Cost Structure Mentality
4. Pursuing Close-in Adjacencies without Distracting or Detracting from the Core Menthol Business
5. Shareholder-Friendly Policies
6. Recognition that Top People Make a Significant Difference
Lorillard 11
Newport is our Core Flagship Brand
Newport
Non-Mentol Box
Newport
Non-Mentol
CIGARETTES
Newport
BOX 100s
CIGARETTES
Approximately $6 Billion in Net Sales
Over $10 Billion in Retail Sales
Brand is larger at U.S. Retail than Coke, Tylenol
Two of the Top 5 Cigarette SKUs in the U.S.
Lorillard 12
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg13.jpg)
Over 75% of Sales and 85% of Profits Come from Newport Full Flavor Menthol Cigarettes
Lorillard 2013 Net Sales & Operating Profit
Newport
Net Sales
Newport
Profit
Source: Lorillard.
Lorillard 13
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg14.jpg)
Newport Full-Flavor Menthol in Core Geographies Is Job #1
Premium Full-Flavor Menthol, Core States
100%
All Other
All Other
All Other
All Other
80%
60%
40%
Newport
Newport
Newport
Newport
20%
0%
FF Prem Menthol
Rest of Industry
-1.6%
-5.0%
Newport Share of Premium Full-Flavor Menthol Core States
74%
74%
73%
73%
5 Year CAGRs
2008 - 2013
Source: MSA, Inc. retail shipment database.
Lorillard 14
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg15.jpg)
As is the Discipline to Maintain a Narrow Product Line
Cigarette Product Offerings by Company
43
Other
Maverick
Newport
Lorillard
169
Other
L&M
Basic
Marlboro
Altria
141
Other
Monarch
Doral GPC
Pall Mall
Camel
Reynolds
Source: MSA, Inc. retail shipment database - based on products sold in Q4 2013.
Lorillard 15
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg16.jpg)
This Focus Allows for Greater Operational Efficiency And Enhanced Profitability
Long Manufacturing Runs
Sales Force Focus
Consistency within Retail Shelf Space
Focused Brand Management
Lorillard 16
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg17.jpg)
Key Elements of Lorillard’s Consistent Success Over The Long-Term
1. Focus on the Core
2. A Passion for Brand-Building
3. Lean Cost Structure Mentality
4. Pursuing Close-in Adjacencies without Distracting or Detracting from the Core Menthol Business
5. Shareholder-Friendly Policies
6. Recognition that Top People Make a Significant Difference
Lorillard 17
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg18.jpg)
Brand-Building is Also a Top Priority
Brand-Building Initiatives
Advertising
Product
Newport
pleasure!
Consistent 40-year campaign
Distinctive & recognizable
Proven messaging
Newport
BOX 100s
Newport
CIGARETTES
Iconic brand
Consumer preferred
Unique taste profile
Merchandising
275,000+ retail stores
New product visibility
Best relationships in industry
Lorillard 18
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg19.jpg)
Leading to Strong Brand Equity as Measured By A High Net Promoter Score
NPS Scores
61% 53% 51% 30% 27% 23% 19% 7%
Newport
Cigars Average
Cigarettes Average
Chewing Gum Average
Breath Mint Average
Overall CPG Average
Coffee Average
Beverage Average
Source: 2013 Lorillard Adult Consumer Survey and research company benchmarks.
Lorillard 19
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg20.jpg)
Discounting is Avoided as Much as Possible
Percentage of 2013 Menthol Volume Sold at Full Price*
100%
97%
80%
63%
60%
54%
40%
Newport
#2 Menthol Brand
#3 Menthol Brand
* Source: MSA, Inc. retail shipment database.
Full price is defined as within 50 cents per pack of the most common retail price of the mainline brand.
Lorillard 20
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg21.jpg)
All of this Results in Newport Commanding a Premium Price
Average Retail Price Per Pack of Major Cigarette Brands
$ 6.45
$ 6.52
$6.50
$6.36
Newport
$6.25
$6.28
$6.24
Marlboro
$6.00
Camel
$5.64
$5.62
$5.60
$5.50
2011
2012
2013
Source: Nielsen Convenience store scanner data, 2011 - 2013
Lorillard 21
And Most Importantly, Newport Has Become More and More Relevant!
Newport market share among total adult smokers vs. 18-25
25%
22.5%
22.6%
20.8%
20%
19.3%
18.9%
19.9%
15.3%
15%
13.3%
14.1%
12.6%
12.1%
11.6%
Total
10%
18-25
5%
0%
2007
2008
2009
2010
2011
2012
Source: National Survey on Drug Use and Health (NSDUH) 2007-2012
Lorillard 22
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg23.jpg)
Key Elements of Lorillard’s Consistent Success Over The Long-Term
1. Focus on the Core
2. A Passion for Brand-Building
3. Lean Cost Structure Mentality
4. Pursuing Close-in Adjacencies without Distracting or Detracting from the Core Menthol Business
5. Shareholder-Friendly Policies
6. Recognition that Top People Make a Significant Difference
Lorillard 23
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg24.jpg)
A Lean Cost Structure is Part of Lorillard’s DNA
2013 Controllable Costs Per Pack*
$0.65
$0.57
$0.55
Lorillard Altria RJR
2013 Adjusted Operating Income Per Pack For Cigarette/Smokeable segments
$1.01
$0.92
$0.77
Lorillard Altria RJR
Source: Morgan Stanley Research, 2/12/2014 Source: Company filings.
* Controllable costs are SG&A plus Cost of Sales less MSA, FDA and Tobacco Growers costs. See Appendix A for further discussion of adjustments.
Lorillard 24
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg25.jpg)
Key Elements of Lorillard’s Consistent Success Over The Long-Term
1. Focus on the Core
2. A Passion for Brand-Building
3. Lean Cost Structure Mentality
4. Pursuing Close-in Adjacencies without Distracting or Detracting from the Core Menthol Business
5. Shareholder-Friendly Policies
6. Recognition that Top People Make a Significant Difference
Lorillard
25
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg26.jpg)
Four Key Priorities for Adjacency Expansion
1234
Build Newport Share in non-core geographies
Invest to breakthrough in non-menthol
Strengthen our less than full-flavor menthol franchise
Opportunistically pursue non-cigarette adjacencies
Lorillard
26
Geographic Expansion of Promotions and Product Line Have Been Successful
Results from geographic expansion strategy in the non-core
Volume Trends
5.5%
Newport
-4.9%
18.6%
-1.1%
Total
Lorillard
Pre
Post
Market Share
5.0%
4.3%
7.3%
5.5%
Pre
Post
Source: MSA, Inc. retail shipment database. Pre period is 2009 change and Post period is 2012 change.
Lorillard 27
As Has Lorillard’s Entry into Non-Menthol, with Newport Red
46 B units
Newport
RJR
Altria
100%
80%
60%
40%
20%
0%
2013
Premium Non-Menthol Full Flavor Units by Brand
Newport NON-MENTHOL BOX
Newport NON-MENTHOL
CIGARETTES
0.9% retail market share
2.4 billion units in 2013
Pricing up more than 35% since 2010 launch
Source: MSA, Inc. retail shipment database.
Lorillard
28
As Has Our Initial Effort to Strengthen Non-Full Flavor Menthol with Smooth Select
17 B units
100%
Newport
80%
RJR
60%
40%
Altria
20%
0%
2013
Premium Menthol Non-Full Flavor
Units by Brand
Newport
MENTHOL GOLD BOX
Newport
MENTHOL GOLD
CIGARETTES
Newport SMOOTH SELECT
MENTHOL
Only 11% share of category
Smooth Select launch in 2013
Product improvements identified
Source: MSA, Inc. retail shipment database.
Lorillard
29
Non-Menthol Gold Represents a Large Opportunity, Albeit Off to a Slow Start.
84 B units
100%
Other
RJR
80%
60%
40%
Altria
20%
0%
2013
Premium Non-Menthol Non-Full Flavor Units by Brand
Shipments began October 2013
Consumer-preferred taste
Consumer-preferred packaging
Priced in-line with Newport Red
Sources: MSA, Inc. retail shipment database ; Newport 80mm Box Gold Non Menthol Product Test,
January 2011; Newport Non-Menthol Gold Online Packaging Test, August 2011;
Lorillard
30
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg31.jpg)
Our Entry into e-Cigarettes Has Been Another Success For the Company
Rise from the Ashes
blu TM ELECTRONIC CIGARETTES
blu
National retail roll-out –136,000+ outlets currently
National TV and print advertising campaign ($40 MM 2013 marketing spend)
Product enhancements & quality controls
Increased manufacturing capacity & inventory
Lorillard
31
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg32.jpg)
Brand-Building is Also the Top Priority in e-Cigarettes
Stephen Dorff
Jenny McCarthy
Lorillard
32
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg33.jpg)
2013_Event_marketing_recap_-_Internal_Use_Only_
blu™ eCIGS
ELECTRONIC
CIGARETTES
NOT FOR SALE TO MINORS blu eCigs® electronic cigarettes are not a smoking cessation product and have not been evealuated by the Food and Drug Administration, nor are they intended to treat, prevent or cure any disease or condition. ©2013 LOEC,INC
blu™ and blu eCigs® are trademarks of Lorillard Technologies, Inc.
INTERNAL USE ONLY
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg34.jpg)
These Brand-Building Efforts Have Quickly Built Strong Brand Dynamics
Awareness – Have You Heard of blu eCigs?
57%
82%
Q1 2013
Q3 2013
Incidence of use among adult
cigarette smokers
eCigs
MST
Snus
47% 24% 16% 24% 9% 5% 15% 5% 3%
Ever Tried
Used in the Past
Used in the Past
3 Months
7 Days
Sources: blu eCigs market research and IPSOS eNation omnibus survey among 2,100 adults 21+ (October 2013)
Lorillard
34
And Have Made blu the Clear e-Cig Category Leader!
Quarterly blu eCigs Retail Market Share
40%+ Market Share
~136,000 Retail
Outlets
50%
48%
40%
~10% Market Share*
34%
30%
~12,000 Retail
Outlets
20%
15%*
10%*
10%
0%
Q2 2012
Q3 2012
Q4 2012
Q4 2013
EPS Accretive in Year 1
Source: MSA, Inc. retail shipment database for electronic cigarettes, as of Dec. 31, 2013. * blu eCigs internal estimates.
Lorillard
35
We Also Completed Another e-Cigarette Acquisition – The First Step in Global Expansion
Demonstrated track record of bringing innovative products to market
Provides platform for further geographic expansion
Establishes Lorillard as a global leader in tobacco harm reduction
Lorillard
36
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg37.jpg)
It is Our Goal to Build blu eCigs into a Global Brand
Re-branding of SKYCIG to blu eCigs
Transitioning of the brands in the UK
blu eCigs brand to be expanded into Western Europe
Requires incremental investment
blu by SKYCIG
Lorillard
37
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg38.jpg)
Key Elements of Lorillard’s Consistent Success Over The Long-Term
1. Focus on the Core
2. A Passion for Brand-Building
3. Lean Cost Structure Mentality
4. Pursuing Close-in Adjacencies without Distracting or Detracting from the Core Menthol Business
5. Shareholder-Friendly Policies
6. Recognition that Top People Make a Significant Difference
Lorillard
38
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg39.jpg)
Rewarding Shareholders is Always Top-of-Mind
Focused on generating cash flow
70-75% dividend payout ratio
Dividend growth tied to earnings
Modest capital spending needs
Excess cash from operations targeted to share repurchases
Transparency in financial reporting, although no guidance
Lorillard
39
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg40.jpg)
Resulting in Significant Cash Returns to Shareholders
Annualized Dividend Per Share
$3.00
+79%
$2.20
$2.00
$2.07
$1.73
$1.50
$1.33
$1.00
$1.23
Q3 2008
Q3 2009
Q3 2010
Q3 2011
Q3 2012
Q3 2013
70-75% Dividend Payout Policy
Total Shares Outstanding
millions
600
-30%
522
500
400
365
300
200
Q2 2008
Q4 2013
$5 Billion in Share Repurchases
Source: Lorillard filings. Since Lorillard spin-off completed in June 2008. Dividend data adjusted to reflect 3-for-1
stock split effected January 15, 2013.
Lorillard
40
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg41.jpg)
Key Elements of Lorillard’s Consistent Success Over The Long-Term
1. Focus on the Core
2. A Passion for Brand-Building
3. Lean Cost Structure Mentality
4. Pursuing Close-in Adjacencies without Distracting or Detracting from the Core Menthol Business
5. Shareholder-Friendly Policies
6. Recognition that Top People Make a Significant Difference
Lorillard 41
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg42.jpg)
People Make the Difference
Percentage of Critical Executives Filled from Inside / Outside of Company
Inside
Outside
Of the 42 most critical Lorillard roles identified, 45% have been filled from within and 55% have been new hires.
Lorillard Net Promoter Scores
Benchmarks
65%
32%
23%
4%
-16%
Low Average High Lorillard ‘10 Lorillard ‘12
How likely would you be to recommend Lorillard as a place to work to a friend or relative?
Lorillard
42
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg43.jpg)
Compensation and Governance Philosophies Align With Shareholder Interests
Short-Term
40% operating profit
40% Newport market share
20% individual goals
Long-Term
50-80% of compensation in shares with 3-year vesting
Tied to EPS targets
Compensation policies coupled with strong governance
Declassified board
Stock ownership requirements
No hedging policy
Majority voting
Lead independent director
No employment agreements
No change in control gross-ups
Lorillard
43
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg44.jpg)
Summary
Focus on the Core
Shareholder- Friendly Policies
A Passion For Brand-Building
Double-Digit Shareholder Return*
Pursuing Close-In Adjacencies Without Distractions
Lean Cost Structure
People Make a Difference
* As measured by annual EPS growth plus dividend yield.
Lorillard
44
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg45.jpg)
Regulatory Update & Assessment
Neil Wilcox
SVP, Chief Compliance Officer
Lorillard
45
Two Regulatory Issues That Some Worry Can Affect Lorillard’s Long-Term Success
1. Menthol’s potential impact on public health
2. Deeming regulations for electronic cigarettes
CTP is required to navigate within FDA’s regulatory framework
CTP is committed to “Follow-the-Science”
Mitch Zeller, JD
Although No Friend of Tobacco, Mr. Zeller Will Likely Drive CTP Decisions and Reduce Uncertainty
Lorillard
46
What’s The Current Status of Menthol?
On July 24, 2013 -FDA published two documents:
PSE (Preliminary Scientific Evaluation) on menthol, and
ANPRM (Advanced Notice of Proposed Rulemaking),
As of January 24, 2014 FDA received 174,796 comments to the docket
Every comment submitted to the menthol docket must be reviewed and the review process has just started.”
Lorillard
47
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg48.jpg)
Lorillard’s View on CTP’s Menthol Assessment
Ø FDA’s PSE is Fundamentally Flawed
– Lack of transparency in FDA’s selection and weighting of studies
– FDA’s conclusions often based on strained interpretations of data and not supported by suitable evidence
– FDA inappropriately uses “association” instead of causation
– FDA appears to ignore some studies and peer review comments
– FDA relies upon unpublished and non-peer reviewed studies
– Conclusions are not supported by scientific evidence
Lorillard
48
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg49.jpg)
What’s the Likelihood of FDA Action?
According to Mitch Zeller, “FDA has met its congressional obligations as required by the TCA:
- TPSAC completed report on menthol
- PSE & ANPRM published
- Completing these requirements does not imply future rule-making and FDA is not obligated to take any action.”
Lorillard
49
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg50.jpg)
Lorillard Agrees with Comments from the CTP Director
“It would be inappropriate for me to prejudge any potential action that we could take other than to say we’re in information-seeking mode.”
“We want more evidence, more information as we ponder any potential action that we could take.”
Mitch Zeller, Director, FDA Center for Tobacco Products
-National Public Radio Interview, January 2, 2014
Lorillard
50
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg51.jpg)
Lorillard’s Position on Menthol is Based on Science
Scientific evidence does not support a finding that
a product standard related to menthol would be
“appropriate for public health”
We continue to believe that the science does not provide a basis for
regulating menthol cigarettes differently from non-menthol cigarettes
FDA-NIH funded PATH Studies may provide additional information on
menthol over the next several years – which should show no difference
FDA review of the menthol issue could be a very long process
Lorillard is fully prepared to respond to any FDA action on menthol
Lorillard 51
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg52.jpg)
FDA’s Deeming Regulations for e-Cigarettes
Lorillard intends to hold regulators to science-based decisions
• Lorillard supports reasonable regulations for e-cigs including:
– Minimum age of purchase laws restricting sales to minors
– Product quality and safety standards
– Science-based regulation - proportional with harm reduction potential
• Lorillard believes e-cig regulations should also allow marketing freedoms including:
– Broad retail and online availability
– Marketing freedom to communicate with adult consumers and inform of product advantages and attributes
– Flavors acceptable as a choice for adult consumers
– Flexibility enabling the swift introduction of new products
Lorillard 52
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg53.jpg)
Lorillard is Well Positioned for Opportunities!
Lorillard has FDA expertise as demonstrated by obtaining the only two authorizations for SE cigarette products
FDA is mandated to “follow-the-science” when justifying regulations – the science is simply not there for regulating menthol in cigarettes
E-cigs quite possibly represent the most important harm reduction potential in the history of cigarettes
E-cig regulations must be intelligently flexible
Lorillard 53
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg54.jpg)
Summary
Excellent communications have been established with CTP
We have received the first and only SE Orders for new cigarette products
We look forward to working with the FDA on e-cig regulations
We have communicated our views on menthol in cigarettes to CTP – supported by robust science
Lorillard’s is well prepared for all regulatory requirements and actions
Lorillard 54
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg55.jpg)
Financial Update
David Taylor
EVP, Finance and Planning & CFO
Lorillard 55
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Lorillard Formula for Success is Unchanged
Industry Leading Fundamentals
Lean Cost Structure
Focus on Returning
Cash to Shareholders
Consistent Delivery of a Double Digit Total Shareholder Return Over the Long-Term
* Double-digit shareholder return as measured by EPS growth and the dividend yield.
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Driving a Consistent Track Record of Superior Financial Results
Net Sales (ex-FET)
Billions
$6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0
3.49 3.69 4.05 4.45 4.64 4.97
2008 2009 2010 2011 2012 2013
+ 7.3%
Operating Income*
Billions
$2.5 $2.0 $1.5 $1.0 $0.5 $0.0
1.42 1.54 1.73 1.87 1.88 2.03
2008 2009 2010 2011 2012 2013
+ 7.5%
E.P.S.*
$3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0
1.71 1.91 2.25 2.63 2.82 3.12
2008 2009 2010 2011 2012 2013
+ 12.8%
CAGRs
* Adjusted results. See Appendix A for further discussion of adjustments. Source: Company filings.
Lorillard 57
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Allowing The Company to Return Significant Cash to Shareholders
Cumulative Cash Returned (millions)
$10,000
$7,500
$5,000
$2,500
$0
$8,928 $7,310 $5,925
$3,615 $2,254
$713
$1,310
$944
$2,026
$1,589
$3,613
$2,312
$4,191
$3,119
$4,986
$3,942
2008 2009 2010 2011 2012 2013
Dividends
Buybacks
$9 Billion Cash Returned to Investors Since Going Public
Source: Lorillard filings. Since Lorillard spin-off completed in June 2008.
Lorillard 58
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2013 Was a Continuation Of Lorillard’s Industry-Leading Fundamentals
Lorillard 2013 performance versus year ago
14%
12% 10.6%
10%
7.2% 7.8%
8%
6% E.P.S.* Operating
4% Net Sales
Income*
2% (ex-FET)
0%
2013 Change
* Adjusted results. See Appendix A for further discussion of adjustments. Source: Company filings.
Lorillard 59
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Capital Needs
Capital Expenditures ~ $70 - $80 million per year
Other – blu eCigs acquisition $135 million in 2012; SKYCIG acquisition in 2013
Working capital investments to fund growth
Capital Expenditures
$100 $75 $50 $25 $0
$44 $51 $40 $56 $74 $62
2008 2009 2010 2011 2012 2013
Source: Lorillard filings.
Lorillard
60
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Capital Returns - Dividends
Dividend Policy – 70% - 75% of Earnings
Annualized Dividend Rate
$2.50
$1.50
$0.50
$1.23 $1.33 $1.50 $1.73 $2.07 $2.20
Q3 2008 Q3 2009 Q3 2010 Q1 2011 Q1 2012 Q1 2013
Source: Lorillard filings.
Lorillard 61
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Capital Returns – Share Repurchases
Share repurchases continue to be attractive uses of cash
$3.0 $8.9 Billion Total
Cash Returned to Shareholders
Returned
$2.5
Share Repurchases
$2.0 Dividends
$1.5 $1,586 $795 $910 $578
$1.0 $716
$0.5 $400 $723 $807 $823 $631 $645 $313
$0.0
2008 2009 2010 2011 2012 2013
~$314 million remaining under current program (as of 12/31/13)
Source: Lorillard filings.
Lorillard 62
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Leverage
Target is 1.5x – 2.0x debt to EBITDA
Not likely to change without change in current environment
Protect investment grade ratings
Currently at 1.7x
Gross Debt
$4,000 $3,000 $2,000 $1,000 $0
$750 $1,750 $2,500 $3,000 $3,500
2009 2010 2011 2012 2013
Weighted average interest rate 4.95%
Source: Lorillard filings.
Lorillard 63
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Financial Guidance Scenarios
Potential Long-Term EPS Growth Rate Scenarios – All Delivering Double-Digit Shareholder Return*
Mid-Single Digit
Heightened promotion environment
No new products
Share repurchases from free cash flow
Limited contribution from blu eCigs
High-Single Digit
Normal historical pricing
No new products
Share repurchases from free cash flow
Limited contribution from blu eCigs
Low-Double Digit
Normal historical pricing
New incremental products
Additional leverage-driven share repurchases
Meaningful contribution from blu eCigs
* As measured by earnings per share growth and the dividend yield.
Lorillard 64
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Financial Outlook
Some positive factors in place:
Share repurchase program increased following $500 million debt issuance in May 2013
Partial settlement of NPM dispute provides liquidity and some continuing earnings benefit
Obligations for the Federal Assessment for Tobacco Growers will end in 2014 ($120 million in 2013)
Opportunities exist for cost savings in e-cigarette supply chain
Lorillard 65
![LOGO](https://capedge.com/proxy/8-K/0001193125-14-057392/g679368ex99_1pg66.jpg)
Summary
All elements are in place to continue our history of superior financial results
Positioned to deliver robust earnings growth
We remain committed to rewarding shareholders with cash returns
Lorillard 66
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Lorillard
Questions
Murray S. Kessler
Chairman, President and Chief Executive Officer
David H. Taylor
Executive Vice President and Chief Financial Officer
Neil L. Wilcox, DVM, MPH
Senior Vice President and Chief Compliance Officer
Lorillard 69
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Appendix A
Regulation G Reconciliations
Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Results
(Amounts in millions, except per share data) (Unaudited)
Year ended December 31, 2011
Reported (GAAP) results
GAAP results include the following:
1) Tobacco settlement expense impact of RAI mark-to-market
pension accounting adjustments
Adjusted (Non-GAAP) results
Year ended December 31, 2012
Reported (GAAP) results
GAAP results include the following:
1) Tobacco settlement expense impact of RAI mark-to-market pension accounting adjustments
2) Tobacco settlement expense impact of RJRT adjustments to its 2001-2005 operating income and restructuring charges
3) blu eCigs acquisition expenses Adjusted (Non-GAAP) results
Operating Income
$1,892
(25)
$1,867
Operating Income
$1,878
(8)
7
6
$1,883
Diluted EPS
$2.66
(0.03)
$2.63
Diluted EPS
$2.81
(0.01)
0.01
0.01
$2.82
E-Cigarette Segment Operating Income
N/A
N/A
N/A
E-Cigarette Segment Operating Income
$1
1
-
$2
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Appendix A (cont.)
Regulation G Reconciliations
Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Results
(Amounts in millions, except per share data) (Unaudited)
Year Ended December 31, 2013
E-Cigarette
Operating
Diluted
Segment
Income
EPS
Operating Income
Reported (GAAP) results
$2,074
$3.18
$ -
GAAP results include the following:
1) Settlement to resolve certain MSA payment disputes
(155)
(0.26)
-
2) Estimated costs to comply with the U.S. Government
Case judgment
20
0.03
-
3) Accrued costs related to compensatory damages and statutory interest to dismiss Evans case
79
0.14
-
4) SKYCIG acquisition expenses
4
0.01
-
5) Amortization of SKYCIG brand
6
0.02 6
6) Accrued costs related to Engle Progeny cases
2
-
-
Adjusted (Non-GAAP) results
$2,030
$3.12
$6
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Appendix A (cont.)
Regulation G Reconciliations
Leverage Ratios
2010
2011
2012
2013
Adjusted operating income
$1,725
$1,867
$1,883
$2,030
Depreciation and amortization
35
37
39
50
Earnings before interest, taxes, depreciation and amortization (B)
$1,760
$1,904
$1,922
$2,080
Long-term debt
$1,769
$2,595
$3,111
$3,560
Fair value of interest rate swap
(69)
(95)
(111)
(60)
Long-term debt, net of fair value of interest rate swap
(A)
$1,700
$2,500
$3,000
$3,500
Leverage (A/B)
1.0
1.3
1.6
1.7
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Lorrilard
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