EX-99.1 2 g19879exv99w1.htm EX-99.1 EX-99.1
Exhibit 99.1
         
(LORILLARD LOGO)
  Contact:   David Taylor
Chief Financial Officer
(336) 335-7668
 
        
 
      Investor Relations
 
      (866) 321-5418
LORILLARD, INC. REPORTS SECOND QUARTER 2009 RESULTS
GREENSBORO, NC, July 27, 2009—Lorillard, Inc. (NYSE:LO) today reported results for the quarter ended June 30, 2009.
Highlights
  •   Net sales were $1.519 billion for the second quarter of 2009, compared to $1.070 billion for the second quarter of 2008. This includes a significant increase in federal excise taxes.
 
  •   Operating income increased 29.5% to $456 million, or 44.1% of net sales excluding excise taxes.
 
  •   Net income increased 31.8% to $286 million, or $1.71 per share (diluted).
 
  •   Total wholesale shipment volume increased 2.1% over the year ago period.
 
  •   Newport domestic retail market share increased by .44 points over the year ago period to 10.38%.
 
  •   The Company completed its first debt offering of $750 million of Senior Notes due 2019.
 
  •   The Company repurchased approximately 2.2 million shares and paid a cash dividend of $0.92 per share.
“We are pleased to report strong second quarter results despite the impact of the increase of the federal excise tax on April 1, 2009 and the overall economic environment. These results clearly reflect the continuing success of our strategy of balancing profitability and nurturing Newport’s market share. Our second quarter volumes were, to a degree, positively impacted by the adjustments in our wholesale customers’ inventory levels following the federal excise tax increase. We remain cautious about unit volumes going forward, however, in anticipation of continuing increases in state excise taxes and the longer term effects of the higher federal excise tax,” stated Martin Orlowsky, Chairman, President and Chief Executive Officer. “We have taken steps to enhance our capital structure through a debt financing and two share repurchase programs, one of which is announced today. These steps will allow us to reduce the Company’s cost of capital and improve shareholder returns.”
Second Quarter 2009 Results
Net sales were $1.519 billion in the second quarter of 2009, compared to $1.070 billion in the second quarter of 2008, an increase of $449 million. $304 million of that increase was the result of the April 1, 2009 increase in federal excise taxes on cigarettes. Net sales excluding excise taxes in the second quarter of 2009 increased $147 million, or 16.6% from the second quarter of 2008 as the result of higher average unit prices and higher net unit sales volume, partially offset by higher sales promotion costs accounted for as a reduction in net sales. Gross profit was $554 million in the second quarter of 2009, or 53.6% of net sales excluding excise taxes compared to $443 million, or 50.0% of net sales excluding excise taxes in the second quarter of 2008. The increase in gross profit reflects the increase in net sales, partially offset by higher manufacturing costs due to higher unit sales volume, higher federal excise taxes and higher costs related to the State Settlement Agreements.
Total Lorillard wholesale shipment volume for the second quarter of 2009 of 9.871 billion units increased 2.1% compared to the second quarter of 2008. Total industry wholesale shipments decreased an estimated 4.1% for the second quarter of 2009 compared to the second quarter of 2008. Lorillard’s domestic wholesale shipments increased 2.1% for the same period. This increase in domestic wholesale shipments in

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the second quarter of 2009 reflects the impact of wholesalers and retailers partially restoring their inventory levels after depleting them in the first quarter of 2009 to minimize floor taxes on inventory held at the time of the April 1, 2009 increase in federal excise taxes. Newport’s domestic wholesale shipments decreased 1.2%, while Maverick’s domestic wholesale shipments increased 67.6% in the second quarter of 2009 compared to the second quarter of 2008. See attached table for details of Lorillard’s wholesale shipments.
Based on Lorillard’s proprietary retail shipment data, Newport continued to increase its domestic retail market share during the second quarter of 2009 by .44 share points from 9.94% in the second quarter of 2008 to 10.38% in the second quarter of 2009. See attached table for selected retail share data.
Selling, general and administrative costs increased $7 million, or 7.7% in the second quarter of 2009 to $98 million compared to the second quarter 2008, which included a $5 million charge related to the separation from Loews. The increase in the second quarter of 2009 is primarily due to a $3 million increase in pension costs and a $3 million increase in legal expenses due primarily to the continuing defense costs associated with the Engle progeny cases.
Investment income decreased $5 million in the second quarter of 2009, compared to the second quarter of 2008 and the decrease primarily reflects lower interest rates on investments. Investments in cash and cash equivalents as of June 30, 2009 were in government money market funds.
Lorillard’s effective income tax rate was 37.1% in the second quarter of 2009 compared to 39.2% in the second quarter of 2008, which decreased income tax expense by $9 million. The lower tax rate was primarily due to the impact of, in 2008, the separation from Loews on the availability of the manufacturer’s deduction for the pre-separation period and the non-deductibility of certain separation expenses, and, in 2009, the favorable resolution of certain state income tax matters, partially offset by an increase in state tax rates.
Net income in the second quarter of 2009 was $286 million, or $1.71 per share (basic and diluted), compared to $217 million, or $1.25 per share in the second quarter of 2008. These results reflect the impact of the aforementioned factors and the effect on earnings per share of a lower average number of shares outstanding in the second quarter of 2009 than in the second quarter of 2008 resulting from the share repurchase programs authorized in August 2008 and May 2009. The impact of the reduction in the average number of shares outstanding increased earnings per share by $0.06.
See following table for additional information regarding the impact of excise taxes on reported results:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2009     2008     2009     2008  
Net sales
   $ 1,519     $ 1,070     $ 2,436     $ 1,991  
Less excise taxes
     (486 )     (184 )     (635 )     (347 )
 
                        
Net sales excluding excise taxes
     1,033       886       1,801       1,644  
 
                                
Cost of sales
     965       627       1,496       1,181  
Less excise taxes
     (486 )     (184 )     (635 )     (347 )
 
                        
Cost of sales excluding excise taxes
     479       443       861       834  
 
                                
Gross profit
     554       443       940       810  
Percentage of net sales excluding excise taxes
     53.6 %     50.0 %     52.2 %     49.3 %
 
                                
Selling, general and administrative
     98       91       189       191  
 
                        
 
                                
Operating income
   $ 456     $ 352     $ 751     $ 619  
 
                        
Percentage of net sales excluding excise taxes
     44.1 %     39.7 %     41.7 %     37.7 %

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First Half 2009 Results
Net sales were $2.436 billion in the first half of 2009, compared to $1.991 billion in the first half of 2008, an increase of $445 million. $304 million of that increase was the result of the April 2009 increase in federal excise taxes on cigarettes. Net sales excluding excise taxes in the first half of 2009 increased $157 million, or 9.6% from the first half of 2008 as the result of higher average unit prices, partially offset by lower net unit sales volume and higher sales promotion costs accounted for as a reduction in net sales. During the first half of 2009, Lorillard’s domestic wholesale unit shipments decreased by 2.8% versus an estimated industry decline of 7.1%. Gross profit was $940 million, or 52.2% of net sales excluding excise taxes in the first half of 2009, compared to $810 million, or 49.3% of net sales excluding excise taxes in the first half of 2008. The increase in gross profit reflects an increase in net sales, partially offset by higher federal excise taxes and higher costs related to the State Settlement Agreements. See attached tables for wholesale and selected retail share data comparing first six months of 2009 and 2008.
Selling, general and administrative costs decreased $2 million, or 1.0% in the first half of 2009 to $189 million compared to the first half 2008, which included an $18 million charge related to the separation from Loews. First half 2009 results included a $5 million increase in pension costs and a $12 million increase in legal expenses due primarily to the continuing defense costs associated with the Engle progeny cases.
Investment income decreased $14 million in the first half of 2009, compared to the first half of 2008 and the decrease primarily reflects lower interest rates on investments.
Lorillard’s effective income tax rate was 37.4% in the first half of 2009 compared to 38.2% in the first half of 2008, which decreased income tax expense by $6 million. The lower tax rate was primarily due to the impact of, in 2008, the separation from Loews on the availability of the manufacturer’s deduction for the pre-separation period and the non-deductibility of certain separation expenses, and, in 2009, the favorable resolution of certain state income tax matters, partially offset by an increase in state tax rates.
Net income in the first half of 2009 was $470 million, or $2.80 per share (basic and diluted), compared to $391 million, or $2.25 per share in the first half of 2008. These results reflect the impact of the aforementioned factors and the effect on earnings per share of a lower average number of shares outstanding in the first half of 2009 than in the first half of 2008 resulting from the share repurchase programs authorized in August 2008 and May 2009. The impact of the reduction in the average number of shares outstanding increased earnings per share by $0.10.
Additional News
On July 27, 2009, Lorillard, Inc. also announced that its Board of Directors approved an additional share repurchase program, authorizing the Company to repurchase in the aggregate up to $750 million of its outstanding common stock. Please see the release issued today regarding the share repurchase program for further details.
During the second quarter of 2009, Lorillard, Inc. made the following significant announcements.
On May 21, 2009, Lorillard, Inc. announced a quarterly dividend on its common stock, in the amount of $0.92, payable June 12, 2009 to shareholders of record June 1, 2009, the results of its annual meeting of shareholders, and a share repurchase program, pursuant to which the Board of Directors authorized the Company to repurchase in the aggregate up to $250 million of its outstanding common stock. During the second quarter, the Company repurchased approximately 2.2 million shares of its common stock at an average price of $67.67 per share, for a total of $146 million. As of July 24, 2009, the Company repurchased approximately 1.4 million additional shares of its common stock during July 2009 at an average price of $68.61 per share for a total of $97 million.

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On June 18, 2009, Lorillard, Inc. announced an underwritten public offering of an aggregate principal amount of $750 million 8.125% Senior Notes due 2019 through its main operating subsidiary, Lorillard Tobacco Company, and guaranteed by Lorillard, Inc. The offering closed on June 23, 2009. The net proceeds from the offering will be used for general corporate purposes, which may include, among other things, the repurchase, redemption or retirement of securities including Lorillard, Inc.’s common stock, additions to working capital and capital expenditures.
Conference Call
A conference call to discuss the second quarter 2009 results of Lorillard, Inc. has been scheduled for 10:00 a.m. EDT, July 27, 2009. A live broadcast of the call will be available online at the Lorillard, Inc. website (www.lorillard.com). Please go to the website at least ten minutes before the event begins to register and to download and install any necessary audio software. Those interested in participating in the question and answer session of the conference call should dial (888) 679-8038 (domestic) or (617) 213-4850 (international). The passcode for this event is: 39001786. An online replay will be available at the Company’s website following the call.
If you wish to listen to the replay of this conference call, please visit Lorillard’s website at www.lorillard.com or dial (888) 286-8010 (domestic) or (617) 801-6888 (international) and enter the passcode:37595225. The conference call will be available for replay in its entirety through August 3, 2009.
About Lorillard, Inc.
Lorillard, Inc. (NYSE: LO) is the third largest manufacturer of cigarettes in the United States. Founded in 1760, Lorillard is the oldest continuously operating tobacco company in the U.S. Newport, Lorillard’s flagship menthol-flavored premium cigarette brand, is the top selling menthol and second largest selling cigarette in the U.S. In addition to Newport, the Lorillard product line has five additional brand families marketed under the Kent, True, Maverick, Old Gold and Max brand names. These six brands include 44 different product offerings which vary in price, taste, flavor, length and packaging. Lorillard maintains its headquarters and manufactures all of its products in Greensboro, North Carolina.
Forward-Looking Statements
Certain statements made in this press release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, (the “Reform Act”). 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 Reform 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 our control, that 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 our filings with the Securities and Exchange Commission (the “SEC”), including but not limited to, our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. These filings are available from the SEC over the Internet or in hard copy, and are available on our website at www.lorillard.com. Forward-looking statements speak only as of the time they are made, and we expressly disclaim 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.

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Lorillard, Inc. and Subsidiaries
Consolidated Condensed Statements of Income
                                 
    Three Months   Six Months
    Ended June 30,   Ended June 30,
    2009   2008   2009   2008
(Amounts in millions, except per share data)   (Unaudited)
Net sales (a)
   $ 1,519     $ 1,070     $ 2,436     $ 1,991  
Cost of sales (a) (b)
     965       627       1,496       1,181  
     
 
                                
Gross profit
     554       443       940       810  
Selling, general and administrative
     98       91       189       191  
     
 
                                
Operating income
     456       352       751       619  
Investment income
     1       6       2       16  
Interest expense
     (2 )     (1 )     (2 )     (2 )
 
                                
Income before income taxes
     455       357       751       633  
Income taxes
     169       140       281       242  
     
 
                                
Net income
   $ 286     $ 217     $ 470     $ 391  
     
 
                                
Earnings per share:
                                
Basic
   $ 1.71     $ 1.25     $ 2.80     $ 2.25  
Diluted
   $ 1.71     $ 1.25     $ 2.80     $ 2.25  
     
 
                                
Number of shares outstanding:
                                
Basic
     167.66       173.92       167.87       173.92  
Diluted
     167.79       173.92       167.98       173.92  
 
(a)   Includes excise taxes of $486, $184, $635 and $347 for the respective periods.
 
(b)   Includes charges of $307, $293, $554 and $550 to accrue obligations under the State Settlement Agreements and charges of $28, $27, $48 and $50 to accrue obligations under the Federal Assessment for Tobacco Growers for the respective periods.

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Lorillard, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
                 
    June 30,     December 31,  
    2009     2008  
(In millions)   (Unaudited)          
Assets:
                
Cash and cash equivalents
   $ 1,558     $ 1,191  
Accounts receivables, less allowances of $3 and $2
     15       7  
Other receivables
     35       55  
Inventories
     326       255  
Deferred income taxes
     454       454  
Other current assets
     75       —  
 
            
 
                
Total current assets
     2,463       1,962  
 
                
Plant and equipment
     221       218  
Prepaid pension assets
     37       36  
Deferred income taxes
     67       71  
Other assets
     46       34  
 
            
 
                
Total assets
   $ 2,834     $ 2,321  
 
            
 
                
Liabilities and Shareholders’ Equity:
                
Accounts and drafts payable
   $ 23     $ 30  
Accrued liabilities
     386       255  
Settlement costs
     604       974  
Income taxes
     5       14  
 
            
 
                
Total current liabilities
     1,018       1,273  
 
                
Long-term debt
     750       —  
Postretirement pension, medical and life insurance benefits
     309       317  
Other liabilities
     98       100  
 
            
 
                
Total liabilities
     2,175       1,690  
 
            
 
                
Commitments and Contingent Liabilities
                
 
                
Shareholders’ Equity:
                
Preferred stock, $0.01 par value, authorized 10 million shares
     —       —  
Common stock:
                
Authorized — 600 million shares; par value—$0.01 per share
               
Issued — 174 million and 174 million shares
               
Outstanding — 166 million and 174 million shares
     2       2  
Additional paid-in capital
     229       222  
Earnings retained in the business
     1,126       965  
Accumulated other comprehensive loss
     (152 )     (158 )
 
            
 
     1,205       1,031  
Treasury shares at cost, 8 million and 6 million shares
     (546 )     (400 )
 
            
 
                
Total shareholders’ equity
     659       631  
 
            
 
                
Total liabilities and shareholders’ equity
   $ 2,834     $ 2,321  
 
            

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Lorillard, Inc. and Subsidiaries
Wholesale Shipments
Information regarding unit volume shipped by Lorillard Tobacco Company to its direct buying customers by brand follows:
                                                 
    Three Months           Six Months        
    Ended June 30,           Ended June 30,        
(All units in thousands)   2009   2008   % Chg   2009   2008   % Chg
     
Full Price Brands
                                                
 
                                                
Total Newport
     8,479,761       8,584,348       -1.2       15,321,180       16,234,727       -5.6  
Total Kent Family
     83,238       103,272       -19.4       151,554       203,460       -25.5  
Total True
     82,524       95,484       -13.6       148,176       186,606       -20.6  
Total Max
     5,415       6,465       -16.2       9,711       12,495       -22.3  
     
 
                                                
Total Full Price Brands
     8,650,938       8,789,569       -1.6       15,630,621       16,637,288       -6.1  
     
 
                                                
Price/Value Brands
                                                
 
                                                
Total Old Gold
     120,719       143,748       -16.0       223,163       270,744       -17.6  
Total Maverick
     889,122       530,358       67.6       1,532,286       970,866       57.8  
     
 
                                                
Total Price/Value Brands
     1,009,841       674,106       49.8       1,755,449       1,241,610       41.4  
     
 
                                                
Total Domestic Cigarettes
     9,660,779       9,463,675       2.1       17,386,070       17,878,898       -2.8  
 
                                                
Total Puerto Rico and U.S. Possessions
     210,528       203,286       3.6       394,326       349,752       12.7  
     
 
                                                
Grand Total
     9,871,307       9,666,961       2.1       17,780,396       18,228,650       -2.5  
     
Notes:
1.   This information is unaudited and is not adjusted for returns.
 
2.   Domestic unit volume includes units sold as well as promotional units, and excludes volumes for Puerto Rico and U.S. Possessions.
 
3.   Unit volume for a quarter is not necessarily indicative of unit volume for any subsequent period.
 
4.   Unit volume is not necessarily indicative of the level of revenues for any period.
 
5.   The six month period ended June 30, 2009 contained one less shipping day than the comparable period ended June 30, 2008.

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Lorillard, Inc. and Subsidiaries
Selected Domestic Retail Market Share Data (1)
                                                   
    Three Months       Six Months  
    Ended June 30,       Ended June 30,  
    2009   2008   Pt Chg     2009   2008   Pt Chg
Lorillard
     11.81       10.95       .86         11.62       10.90       .72  
 
                                                  
Newport
     10.38       9.94       .44         10.26       9.91       .35  
 
                                                  
Total Industry Menthol
     29.98       28.73       1.25         29.68       28.80       .88  
 
                                                  
Newport Share of Menthol Segment
     34.63       34.59       .04         34.58       34.42       .16  
 
(1)   Unaudited information based on Lorillard’s Proprietary Retail Database

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