10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                  to                 

Commission File Number: 001-34097

Lorillard, Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-1911176
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

714 Green Valley Road, Greensboro, North Carolina 27408-7018

(Address of principal executive offices) (Zip Code)

(336) 335-7000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

Class	Outstanding at April 25, 2012
Common stock, $0.01 par value	130,516,763 shares

TABLE OF CONTENTS

	Page No.
PART I. FINANCIAL INFORMATION		1
Item 1. Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3. Quantitative and Qualitative Disclosures about Market Risk		42
Item 4. Controls and Procedures		43
PART II. OTHER INFORMATION		43
Item 1. Legal Proceedings		43
Item 1A. Risk Factors		43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		49
Item 3. Defaults Upon Senior Securities		49
Item 4. Mine Safety Disclosures		49
Item 5. Other Information		49
Item 6. Exhibits		49
SIGNATURES		54

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

LORILLARD, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions, except share and per share data)	March 31, 2012			December 31, 2011
	(Unaudited)
Assets:
Cash and cash equivalents	$	1,929		$	1,634
Accounts receivable, less allowances of $2 and $2		10			10
Other receivables		67			83
Inventories		342			277
Deferred income taxes		534			535
Other current assets		28			25
Total current assets		2,910			2,564
Plant and equipment, net		268			262
Deferred income taxes		52			54
Other assets		121			128
Total assets	$	3,351		$	3,008
Liabilities and Shareholders’ Deficit:
Accounts and drafts payable	$	27		$	32
Accrued liabilities		366			296
Settlement costs		1,488			1,151
Income taxes		110			6
Total current liabilities		1,991			1,485
Long-term debt		2,586			2,595
Postretirement pension, medical and life insurance benefits		383			388
Other liabilities		57			53
Total liabilities		5,017			4,521
Commitments and Contingent Liabilities
Shareholders’ Deficit:
Preferred stock, $0.01 par value, authorized 10 million shares		—			—
Common stock:
Authorized—600 million shares; par value $0.01 per share
Issued—175 million and 175 million shares (outstanding 131 million and 132 million shares)		2			2
Additional paid-in capital		276			266
Retained earnings		2,080			2,059
Accumulated other comprehensive loss		(224	)		(228	)
Treasury stock at cost, 44 million and 43 million shares		(3,800	)		(3,612	)
Total shareholders’ deficit		(1,666	)		(1,513	)
Total liabilities and shareholders’ deficit	$	3,351		$	3,008

See Notes to Consolidated Condensed Financial Statements

LORILLARD, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended March  31,
(In millions, except per share data)	2012			2011
Net sales (including excise taxes of $467 and $479, respectively)	$	1,526		$	1,535
Cost of sales		1,003			992
Gross profit		523			543
Selling, general and administrative		131			122
Operating income		392			421
Investment income		1			1
Interest expense		(39	)		(28	)
Income before income taxes		354			394
Income taxes		131			146
Net income	$	223		$	248
Earnings per share:
Basic	$	1.71		$	1.71
Diluted	$	1.70		$	1.71
Weighted average number of shares outstanding:
Basic		130.48			144.80
Diluted		130.80			144.94

See Notes to Consolidated Condensed Financial Statements

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LORILLARD, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended March 31,
(In millions)	2012		2011
Net income	$	223	$	248
Other comprehensive income, net of tax:
Defined benefit retirement plan gains, net of tax expense of $2 and $1		4		1
Other comprehensive income		4		1
Comprehensive income	$	227	$	249

See Notes to Consolidated Condensed Financial Statements

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LORILLARD, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Compre- hensive Loss			Treasury Shares			Total Sharehold- ers’  Equity (Deficit)
(In millions, except per share data)
Balance, January 1, 2011	$	2	$	242	$	1,666		$	(109	)	$	(2,026	)	$	(225	)
Net income						248									248
Other comprehensive gains, net of tax expense of $1									1						1
Dividends paid ($1.30 per share)						(188	)								(188	)
Shares repurchased												(289	)		(289	)
Share-based compensation				4											4
Balance, March 31, 2011	$	2	$	246	$	1,726		$	(108	)	$	(2,315	)	$	(449	)
Balance, January 1, 2012	$	2	$	266	$	2,059		$	(228	)	$	(3,612	)	$	(1,513	)
Net income						223									223
Other comprehensive gains, net of tax expense of $2									4						4
Dividends paid ($1.55 per share)						(202	)								(202	)
Shares repurchased												(188	)		(188	)
Share-based compensation				10											10
Balance, March 31, 2012	$	2	$	276	$	2,080		$	(224	)	$	(3,800	)	$	(1,666	)

See Notes to Consolidated Condensed Financial Statements

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LORILLARD, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March  31,
	2012			2011
(In millions)
Cash flows from operating activities:
Net income	$	223		$	248
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization		10			10
Pension, health and life insurance contributions		(10	)		(8	)
Pension, health and life insurance benefits expense		12			8
Deferred income taxes		—			(4	)
Share-based compensation		4			4
Excess tax benefits from share-based payment arrangements		(5	)		—
Changes in operating assets and liabilities:
Accounts and other receivables		(2	)		(4	)
Inventories		(65	)		(31	)
Accounts payable and accrued liabilities		65			77
Settlement costs		337			321
Income taxes		118			136
Other current assets		5			2
Other assets		(2	)		—
Net cash provided by operating activities		690			759
Cash flows from investing activities:
Additions to plant and equipment		(16	)		(7	)
Cash flows from financing activities:
Shares repurchased		(188	)		(289	)
Dividends paid		(202	)		(188	)
Proceeds from exercise of stock options		6			—
Excess tax benefits from share-based payment arrangements		5			—
Net cash used in financing activities		(379	)		(477	)
Change in cash and cash equivalents		295			275
Cash and cash equivalents, beginning of year		1,634			2,063
Cash and cash equivalents, end of period	$	1,929		$	2,338
Cash paid for income taxes	$	10		$	13
Cash paid for interest	$	18		$	—

See Notes to Consolidated Condensed Financial Statements

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LORILLARD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Overview. 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 condensed 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 reportable segment through its principal subsidiary, Lorillard Tobacco Company (“Lorillard Tobacco” or “Issuer”).

Basis of Presentation. The accompanying unaudited consolidated condensed financial statements reflect all adjustments necessary to present fairly the financial position as of March 31, 2012 and December 31, 2011 and the consolidated income, shareholders’ deficit and cash flows for the three months ended March 31, 2012 and 2011.

Results of operations for the three months for each of the years reported herein are not necessarily indicative of results of operations of the entire year.

These consolidated condensed financial statements should be read in conjunction with the Consolidated Financial Statements and related Notes to Consolidated Financial Statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 21, 2012.

Recently adopted accounting pronouncements. Lorillard adopted FASB ASU 2010-09 “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.” ASU 2010-09 amends Topic 855 for SEC filers to eliminate the disclosure of the date through which subsequent events have been reviewed. The effective date was February 24, 2010. ASU 2010-09 did not have a material impact on Lorillard’s financial position or results of operations.

Lorillard adopted FASB ASU 2010-06 “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 establishes additional disclosures related to fair value. Transfers in and out of Level 1 and Level 2 and the reasons for the transfers must be disclosed. Level 3 purchases, sales, issuances and settlements should be presented separately rather than net. In addition, the level of disaggregation and input and valuation techniques need to be disclosed. The effective dates are periods beginning after December 15, 2010 for the Level 3 purchases, sales, issuances and settlements disclosure, and periods beginning after December 15, 2009 for all other provisions. ASU 2010-06 did not have a material impact on Lorillard’s financial position or results of operations.

Lorillard adopted FASB ASU 2010-09 “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.” ASU 2010-09 amends Topic 855 for SEC filers to eliminate the disclosure of the date through which subsequent events have been reviewed. The effective date was February 24, 2010. ASU 2010-09 did not have a material impact on Lorillard’s financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” ASU 2011-04 clarifies certain areas of the fair value guidance, including application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, and quantitative information about unobservable inputs used in a Level 3 fair value measurement. Additionally, ASU 2011-04 contains guidance on measuring the fair value of instruments that are managed within a portfolio, application of premiums and discounts in a fair value measurement, and requires additional disclosures about fair value measurements. The amendments contained in ASU 2011-04 are to be applied prospectively, and ASU 2011-04 is effective for public companies for interim and annual periods beginning after December 15, 2011. ASU 2011-04 did not have a material impact on Lorillard’s financial position or results of operations.

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In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 requires presentation of comprehensive income in either a single statement of comprehensive income or two separate but consecutive statements. ASU 2011-05 does not change the definitions or the components of net income and other comprehensive income (OCI), when an item must be reclassified from OCI to net income, or the calculation or presentation of earnings per share. The entity still has the choice to either present OCI components before tax with one line amount for tax, or net of taxes. Disclosure of the tax impact for each OCI component is still required. ASU 2011-05 is effective for public companies for reporting periods beginning after December 15, 2011 and must be applied retrospectively. ASU 2011-05 did not have any impact on Lorillard’s financial position or results of operations, but resulted in the presentation of a separate statement of other comprehensive income.

2. Inventories

Inventories are valued at the lower of cost, determined on a last-in, first-out (“LIFO”) basis, or market and consisted of the following:

	March 31, 2012		December 31, 2011
	(In millions)
Leaf tobacco	$	246	$	230
Manufactured stock		91		43
Material and supplies		5		4
	$	342	$	277

If the average cost method of accounting was used, inventories would be greater by approximately $229 and $223 million at March 31, 2012 and December 31, 2011, respectively.

3. Other Current Assets

Other current assets were as follows:

	March 31, 2012		December 31, 2011
	(In millions)
Prepaid income taxes	$	8	$	—
Restricted cash		13		13
Appeal bonds		7		7
Other current assets		—		5
Total	$	28	$	25

4. Plant and Equipment, Net

Plant and equipment is stated at cost and consisted of the following:

	March 31, 2012			December 31, 2011
	(In millions)
Land	$	3		$	3
Buildings		90			90
Equipment		609			597
Total		702			690
Accumulated depreciation		(434	)		(428	)
Plant and equipment, net	$	268		$	262

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5. Other Assets

Other assets were as follows:

	March 31, 2012		December 31, 2011
	(In millions)
Debt issuance costs	$	23	$	24
Interest rate swap		86		95
Other prepaid assets		12		9
Total	$	121	$	128

6. Accrued Liabilities

Accrued liabilities were as follows:

	March 31, 2012		December 31, 2011
	(In millions)
Legal fees	$	47	$	28
Salaries and other compensation		25		20
Medical and other employee benefit plans		31		31
Consumer rebates		53		60
Sales promotion		20		23
Accrued vendor charges		29		7
Excise and other taxes		87		52
Accrued bond interest		52		27
Other accrued liabilities		22		48
Total	$	366	$	296

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 Level 1, as these are the most transparent or reliable:

• Level 1 — Quoted prices for identical instruments in active markets.

• Level 2 — 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.

• Level 3 — 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 estimating 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.

-8-

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2012, were as follows:

	Level 1		Level 2		Level 3		Total
	(In millions)
Cash and Cash Equivalents:
Prime money market funds	$	1,929	$	—	$	—	$	1,929
Total cash and cash equivalents	$	1,929	$	—	$	—	$	1,929
Derivative Asset:
Interest rate swaps — fixed to floating rate	$	—	$	86	$	—	$	86
Total derivative asset	$	—	$	86	$	—	$	86

Assets and liabilities measured at fair value on a recurring basis at December 31, 2011 were as follows:

	Level 1		Level 2		Level 3		Total
	(In millions)
Cash and Cash Equivalents:
Prime money market funds	$	1,634	$	—	$	—	$	1,634
Total cash and cash equivalents	$	1,634	$	—	$	—	$	1,634
Derivative Asset:
Interest rate swaps — fixed to floating rate	$	—	$	95	$	—	$	95
Total derivative asset	$	—	$	95	$	—	$	95

There were no transfers between levels within the fair value hierarchy or Level 3 purchases, sales, issuances or settlements for the three months ended March 31, 2012 or the twelve months ended December 31, 2011.

The fair value of the money market funds, classified as Level 1, utilized quoted prices in active markets.

The fair value of the interest rate swaps, classified as Level 2, utilized a market approach model using the notional amount of the interest rate swap and observable inputs of time to maturity and market interest rates. See Note 10 for additional information on the interest rate swaps.

8. Credit Agreement

In March 2010, Lorillard Tobacco, the principal, wholly owned operating subsidiary of the Company, entered into a $185 million revolving credit facility that expires March 26, 2013 (the “Revolver”) and is guaranteed by the Company. Proceeds from the Revolver may be used for general corporate and working capital purposes. The interest rates on borrowings under the Revolver are based on prevailing interest rates and, in part, upon the credit rating applicable to the Company’s senior unsecured long-term debt.

The Revolver requires that the Company maintain a ratio of debt to net income plus income taxes, interest expense, depreciation and amortization expense, any extraordinary losses, any non-cash expenses or losses and any losses on sales of assets outside of the ordinary course of business (“EBITDA”) of not more than 2.25 to 1 and a ratio of EBITDA to interest expense of not less than 3.0 to 1. EBITDA is determined based on the trailing 12-months’ results of operations. In addition, the Revolver contains customary affirmative and negative covenants, including restrictions on liens and sale and leaseback transactions subject to a limited exception. The Revolver contains customary events of default, including upon a change in control that could result in the acceleration of all amounts and cancellation of all commitments outstanding, if any, under the Revolver.

As of March 31, 2012, Lorillard was in compliance with all financial covenants and there were no borrowings under the Revolver.

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9. Long-Term Debt

Long-term debt, net of interest rate swaps, consisted of the following:

	March 31, 2012		December 31, 2011
	(In millions)
2016 Notes – 3.500% Notes due 2016	$	500	$	500
2019 Notes – 8.125% Notes due 2019		836		845
2020 Notes – 6.875% Notes due 2020		750		750
2040 Notes – 8.125% Notes due 2040		250		250
2041 Notes – 7.000% Notes due 2041		250		250
Total long-term debt	$	2,586	$	2,595

In June 2009, Lorillard Tobacco issued $750 million aggregate principal amount of 8.125% unsecured senior notes due June 23, 2019 (the “2019 Notes”) pursuant to an Indenture, dated June 23, 2009 (the “Indenture”), and First Supplemental Indenture, dated June 23, 2009 (the “First Supplemental Indenture”).

In April 2010, Lorillard Tobacco issued $1 billion of unsecured senior notes in two tranches pursuant to the Indenture and the Second Supplemental Indenture, dated April 12, 2010 (the “Second Supplemental Indenture”). The first tranche was $750 million aggregate principal amount of 6.875% Notes due May 1, 2020 (the “2020 Notes”), and the second tranche was $250 million aggregate principal amount of 8.125% Notes due May 1, 2040 (the “2040 Notes”).

In August 2011, Lorillard Tobacco issued $750 million of unsecured senior notes in two tranches pursuant to the Indenture and the Third Supplemental Indenture, dated August 4, 2011 (the “Third Supplemental Indenture”). The first tranche was $500 million aggregate principal amount of 3.500% Notes due August 4, 2016 (the “2016 Notes”) and the second tranche was $250 million aggregate principal amount of 7.000% Notes due August 4, 2041 (the “2041 Notes”). The net proceeds from the issuance will be used for general corporate purposes, which may include, among other things, the repurchase, redemption or retirement of securities including the Company’s common stock, acquisitions, additions to working capital and capital expenditures.

Lorillard Tobacco is the principal, wholly owned operating subsidiary of the Company, and the 2016 Notes, 2019 Notes, 2020 Notes, 2040 Notes and 2041 Notes (together, the “Notes”) are unconditionally guaranteed on a senior unsecured basis by the Company.

The interest rate payable on the 2019 Notes is subject to incremental increases from 0.25% to 2.00% in the event either Moody’s Investors Services, Inc. (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) or both Moody’s and S&P downgrade the 2019 Notes below investment grade (Baa3 and BBB- for Moody’s and S&P, respectively). As of March 31, 2012, our debt ratings were Baa2 and BBB- with Moody’s and S&P, respectively, both of which are investment grade.

Upon the occurrence of a change of control triggering event, Lorillard Tobacco would 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 Indentures) and the Notes cease to be rated investment grade by both Moody’s and S&P within 60 days 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 March 31, 2012 and December 31, 2011, the carrying value of the Notes was $2.586 billion and $2.595 billion, respectively, and the estimated fair value was $2.905 billion and $2.801 billion, respectively. The fair value of the Notes, classified as Level 1, utilized quoted prices in active markets.

-10-

10. Derivative Instruments

In September 2009, Lorillard Tobacco entered into interest rate swap agreements, which the Company guaranteed, with a total notional amount of $750 million to modify its exposure to interest rate risk by effectively converting the interest rate payable on the 2019 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%. The variable rates were 4.869% and 4.896% as of March 31, 2012 and December 31, 2011, respectively. 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 $6 million for the three months ended March 31, 2012 and 2011.

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 March 31, 2012 and December 31, 2011, the adjusted carrying amounts of the hedged debt outstanding were $836 million and $845 million, respectively and the amounts included in other assets were $86 million and $95 million, respectively.

If our debt rating is downgraded below Baa3 by Moody’s or BBB- by S&P, the swap agreements will terminate and we will be required to cash settle them before their expiration date. As of March 31, 2012, our debt ratings were Baa2 and BBB- with Moody’s and S&P, respectively, both of which are above the ratings at which settlement of our derivative contracts would be required.

11. Earnings Per Share

Basic and diluted earnings per share (“EPS”) were calculated using the following:

	Three Months Ended March 31,
	2012			2011
Numerator:
Net income, as reported	$	223		$	248
Less: Net income attributable to participating securities		(1	)		(1	)
Net income available to common shareholders	$	222		$	247
Denominator:
Basic EPS- weighted average shares		130.48			144.80
Effect of dilutive securities:
Stock Options and SARS		0.32			0.14
Diluted EPS- adjusted weighted average shares and assumed conversions		130.80			144.94
Earnings Per Share:
Basic	$	1.71		$	1.71
Diluted	$	1.70		$	1.71

Options to purchase 0.2 million and 0.6 million shares of common stock were excluded from the diluted earnings per share calculation because their effect would be anti-dilutive for the quarters ended March 31, 2012 and March 31, 2011, respectively.

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12. Retirement Plans

Lorillard has defined benefit pension, postretirement benefits, profit sharing and savings plans for eligible employees.

Net periodic benefit cost components were as follows:

	Three Months Ended March 31,
Pension Benefits	2012			2011
Service cost	$	6		$	6
Interest cost		14			14
Expected return on plan assets		(18	)		(18	)
Amortization of net loss		5			2
Amortization of prior service cost		1			1
Net periodic benefit cost	$	8		$	5

	Three Months Ended March 31,
Other Postretirement Benefits	2012		2011
Service cost	$	1	$	1
Interest cost		3		3
Amortization of net loss		—		(1	)
Net periodic benefit cost	$	4	$	3

Lorillard expects to contribute $31 million to its pension plans and $15 million to its other postretirement benefit plans in 2012, of which $6 million and $4 million had been contributed to the pension and postretirement benefit plans, respectively, as of March 31, 2012.

13. Share Repurchase Programs

As of August 9, 2011, the Company completed its $1.4 billion share repurchase program. The program was announced in August 2010 and authorized the Company to repurchase in the aggregate up to $1 billion of its outstanding common stock. The Board of Directors amended this program in May 2011, authorizing an additional $400 million in repurchases for a total of $1.4 billion under this program. The Company repurchased 15.0 million shares at an average price of $93.05 per share under this program.

As of February 24, 2012, the Company completed its $750 million share repurchase program that was announced in August 2011, after repurchasing an additional 1.6 million shares in January and February 2012 for $188 million at an average purchase price of $114.85. The Company repurchased a total of 6.7 million shares at an average price of $111.87 per share under this program.

-12-

As of March 31, 2012, total shares repurchased under share repurchase programs authorized by the Board since the Separation were as follows:

Program	Amount   Authorized		Number of Shares   Repurchased
	(In millions)		(In millions)
July 2008 – October 2008	$	400		5.9
May 2009 – July 2009		250		3.7
July 2009 – January 2010		750		9.7
February 2010 – May 2010		250		3.3
August 2010 * - August 2011		1,400		15.0
August 2011 – February 2012		750		6.7
Total	$	3,800		44.3

* As amended on May 19, 2011

14. Consolidating Financial Information

In June 2009, April 2010 and August 2011, Lorillard Tobacco, as primarily obligor, issued Notes, which are unconditionally guaranteed by the Company for the payment and performance of Lorillard Tobacco’s obligation in connection therewith.

The following sets forth the condensed consolidating balance sheets as of March 31, 2012 and December 31, 2011, condensed consolidating statements of income for the three months ended March 31, 2012 and 2011, and condensed consolidating statements of cash flows for the three months ended March 31, 2012 and 2011 for the Company as parent guarantor (herein referred to as “Parent”), Lorillard Tobacco (herein referred to as “Issuer”) and all other non-guarantor subsidiaries of the Company and Lorillard Tobacco. These condensed consolidating financial statements were prepared in accordance with Rule 3-10 of SEC Regulation S-X, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” Lorillard accounts for investments in these subsidiaries under the equity method of accounting.

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Condensed Consolidating Balance Sheets

March 31, 2012

(In millions)

(Unaudited)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Assets:
Cash and cash equivalents	$	31		$	1,727		$	171		$	—		$	1,929
Accounts receivable, less allowances of $2		—			10			—			—			10
Other receivables					66			1			—			67
Inventories		—			342			—			—			342
Deferred income taxes		—			534			—			—			534
Other current assets		1			27			—			—			28
Total current assets		32			2,706			172			—			2,910
Investment in subsidiaries		(1,310	)		375			—			935			—
Plant and equipment, net		—			268			—			—			268
Deferred income taxes		—			47			5			—			52
Other assets		—			295			213			(387	)		121
Total assets	$	(1,278	)	$	3,691		$	390		$	548		$	3,351
Liabilities and Shareholders’ Equity (Deficit):
Accounts and drafts payable	$	—		$	27		$	—		$	—		$	27
Accrued liabilities (1)		1			453			(88	)		—			366
Settlement costs		—			1,488			—			—			1,488
Income taxes		—			22			88			—			110
Total current liabilities		1			1,990			—			—			1,991
Long-term debt		—			2,586			—			—			2,586
Postretirement pension, medical and life insurance benefits		—			383			—			—			383
Other liabilities		387			42			15			(387	)		57
Total liabilities		388			5,001			15			(387	)		5,017
Shareholders’ Equity (Deficit):
Common stock		2			—			—			—			2
Additional paid-in capital		276			65			214			(279	)		276
Retained earnings		2,080			(1,151	)		161			990			2,080
Accumulated other comprehensive loss		(224	)		(224	)		—			224			(224	)
Treasury stock		(3,800	)		—			—			—			(3,800	)
Total shareholders’ equity (deficit)		(1,666	)		(1,310	)		375			935			(1,666	)
Total liabilities and shareholders’ equity (deficit)	$	(1,278	)	$	3,691		$	390		$	548		$	3,351

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

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Condensed Consolidating Balance Sheets

December 31, 2011

(In millions)

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

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

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Condensed Consolidating Statements of Income

For the Three Months Ended March 31, 2012

(In millions)

(Unaudited)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Net sales (including excise taxes of $467)	$	—		$	1,526		$	—		$	—		$	1,526
Cost of sales		—			1,003			—			—			1,003
Gross profit		—			523			—			—			523
Selling, general and administrative (1)		—			376			(245	)		—			131
Operating income		—			147			245			—			392
Investment income		—			1			—			—			1
Interest expense		(1	)		(38	)					—			(39	)
Income before taxes		(1	)		110			245			—			354
Income taxes		(1	)		43			89			—			131
Equity in earnings of subsidiaries		223			156			—			(379	)		—
Net income	$	223		$	223		$	156		$	(379	)	$	223

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

Condensed Consolidating Statements of Income

For the Three Months Ended March 31, 2011

(In millions)

(Unaudited)

	Parent		Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Net sales (including excise taxes of $479)	$	—	$	1,535		$	—		$	—		$	1,535
Cost of sales		—		992			—			—			992
Gross profit		—		543			—			—			543
Selling, general and administrative (1)		—		365			(243	)		—			122
Operating income		—		178			243			—			421
Investment income		—		1			—			—			1
Interest expense		—		(28	)					—			(28	)
Income before taxes		—		151			243			—			394
Income taxes		—		59			87			—			146
Equity in earnings of subsidiaries		248		156			—			(404	)		—
Net income	$	248	$	248		$	156		$	(404	)	$	248

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

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Condensed Consolidating Statements of Comprehensive Income

For the Three Months Ended March 31, 2012

(Unaudited)

(In millions)	Parent		Issuer		All Other Subsidiaries		Total Consolidating Adjustments			Consolidated
Net income	$	223	$	223	$	156	$	(379	)	$	223
Other comprehensive income, net of tax: Defined benefit retirement plan gains, net of tax expense of $2		—		4		—		—			4
Other comprehensive income		—		4		—		—			4
Comprehensive income	$	223	$	227	$	156	$	(379	)	$	227

Condensed Consolidating Statements of Comprehensive Income

For the Three Months Ended March 31, 2011

(Unaudited)

(In millions)	Parent		Issuer		All Other Subsidiaries		Total Consolidating Adjustments			Consolidated
Net income	$	248	$	248	$	156	$	(404	)	$	248
Other comprehensive income, net of tax: Defined benefit retirement plan gains, net of tax expense of $1		—		1		—		—			1
Other comprehensive income		—		1		—		—			1
Comprehensive income	$	248	$	249	$	156	$	(404	)	$	249

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Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2012

(In millions)

(Unaudited)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	223		$	223		$	156		$	(379	)	$	223
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries		(223	)		(156	)		—			379			—
Depreciation and amortization		—			10			—			—			10
Pension, health and life insurance contributions		—			(10	)		—			—			(10	)
Pension, health and life insurance benefits expense		—			12			—			—			12
Deferred income taxes		—			1			(1	)		—			—
Share-based compensation		—			4			—			—			4
Excess tax benefits from share-based arrangements		—			(5	)		—			—			(5	)
Changes in operating assets and liabilities:
Accounts and other receivables		—			872			1			(875	)		(2	)
Inventories		—			(65	)		—			—			(65	)
Accounts payable and accrued liabilities		(13	)		94			(891	)		875			65
Settlement costs		—			337			—			—			337
Income taxes		(1	)		30			89			—			118
Other current assets		—			5			—			—			5
Other assets		—			(2	)		—			—			(2	)
Return on investment in subsidiaries		200			—			—			(200	)		—
Net cash provided by (used in) operating activities		186			1,350			(646	)		(200	)		690
Cash flows from investing activities:
Additions to plant and equipment		—			(16	)		—			—			(16	)
Cash flows from financing activities:
Shares repurchased		(188	)		—			—			—			(188	)
Dividends paid		(202	)		(200	)		—			200			(202	)
Proceeds from exercise of stock options		—			6			—			—			6
Excess tax benefits from share-based arrangements		—			5			—			—			5
Net cash (used in) provided by financing activities		(390	)		(189	)		—			200			(379	)
Change in cash and cash equivalents		(204	)		1,145			(646	)		—			295
Cash and cash equivalents, beginning of year		235			582			817			—			1,634
Cash and cash equivalents, end of period	$	31		$	1,727		$	171		$	—		$	1,929

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Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2011

(In millions)

(Unaudited)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	248		$	248		$	156		$	(404	)	$	248
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries		(248	)		(156	)		—			404			—
Depreciation and amortization		—			10			—			—			10
Pension, health and life insurance contributions		—			(8	)		—			—			(8	)
Pension, health and life insurance benefits expense		—			8			—			—			8
Deferred income taxes		—			(4	)					—			(4	)
Share-based compensation		1			3			—			—			4
Changes in operating assets and liabilities:
Accounts and other receivables		(1	)		(3	)		—			—			(4	)
Inventories		—			(31	)		—			—			(31	)
Accounts payable and accrued liabilities		(2	)		107			(28	)		—			77
Settlement costs		—			321			—			—			321
Income taxes		—			52			84			—			136
Other		—			2			—			—			2
Return on investment in subsidiaries		689			550			—			(1,239	)		—
Net cash provided by (used in) operating activities		687			1,099			212			(1,239	)		759
Cash flows from investing activities:
Additions to plant and equipment		—			(7	)		—			—			(7	)
Cash flows from financing activities:
Shares repurchased		(289	)		—			—			—			(289	)
Dividends paid		(188	)		(689	)		(550	)		1,239			(188	)
Net cash provided by (used in) financing activities		(477	)		(689	)		(550	)		1,239			(477	)
Change in cash and cash equivalents		210			403			(338	)		—			275
Cash and cash equivalents, beginning of year		163			1,181			719			—			2,063
Cash and cash equivalents, end of period	$	373		$	1,584		$	381		$	—		$	2,338

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15. Legal Proceedings

Overview

As of April 23, 2012, 9,488 product liability cases are pending against cigarette manufacturers in the United States. Lorillard Tobacco is a defendant in 8,561 of these cases. Lorillard, Inc. is a co-defendant in 675 pending cases. A total of 5,902 of these lawsuits are Engle Progeny Cases, described below. In addition to the product liability cases, Lorillard Tobacco and, in some instances, Lorillard, Inc., are defendants in Filter Cases and Tobacco-Related Antitrust Cases.

Pending cases against Lorillard are those in which Lorillard Tobacco or Lorillard, Inc. have been joined to the litigation by either receipt of service of process, or execution of a waiver thereof, and a dismissal order has not been entered with respect to Lorillard Tobacco or Lorillard, Inc. The table below lists the number of certain tobacco-related cases pending against Lorillard as of the dates listed. A description of each type of case follows the table.

Type of Case	Total Number of  Cases Pending against Lorillard as of April 23, 2012
Conventional Product Liability Cases		32
Engle Progeny Cases		5,902
West Virginia Individual Personal Injury Cases		38
Flight Attendant Cases		2,585
Class Action Cases		3
Reimbursement Cases		1
Filter Cases		33
Tobacco-Related Antitrust Cases		2

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. Lorillard Tobacco is a defendant in each of the Conventional Product Liability cases listed in the table above, and Lorillard, Inc. is a co-defendant in five of the Conventional Product Liability 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 each of the Engle Progeny Cases listed in the above table and Lorillard, Inc. is a co-defendant in 669 Engle Progeny Cases. The time period for filing Engle Progeny Cases expired in January 2008 and no additional cases may be filed. Some of the Engle Progeny Cases were filed on behalf of multiple class members. Some of the courts hearing the cases filed by multiple class members have severed these suits into separate individual cases. It is possible the remaining suits filed by multiple class members may also be severed into separate individual cases.

West Virginia Individual Personal Injury Cases. In a 1999 administrative order, the West Virginia Supreme Court of Appeals transferred a group of cases brought by individuals who allege cancer or other health effects caused by smoking cigarettes, by smoking cigars, or by using smokeless tobacco products, to a single West Virginia court (the “West Virginia Individual Personal Injury Cases”). The plaintiffs’ claims alleging injury from smoking cigarettes have been consolidated for trial. The plaintiffs’ claims alleging injury from the use of other tobacco products have been severed from the consolidated cigarette claims and have not been consolidated for trial. Lorillard Tobacco is a defendant in each of the West Virginia Personal Injury Cases listed in the above table. Lorillard, Inc. is not a defendant in any of the West Virginia Individual Personal Injury Cases. The time for filing a case that could be consolidated for trial with the West Virginia Personal Injury Cases expired in 2000.

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 January 15, 1997. Lorillard Tobacco is a defendant in each of the Flight Attendant Cases listed in the above table. Lorillard, Inc. is not a defendant in any of the Flight Attendant Cases. The time for filing Flight Attendant Cases expired in 2000 and no additional cases in this category may be filed.

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Class Action Cases. Class Action Cases are purported to be brought on behalf of large numbers of individuals for damages allegedly caused by smoking. Lorillard Tobacco is a defendant in each of the Class Action Cases listed in the above table, and Lorillard, Inc. is a co-defendant in one of the Class Action Cases. Neither Lorillard Tobacco nor Lorillard, Inc. is a defendant in additional Class Action Cases that are pending against other cigarette manufacturers, including approximately 21 “lights” Class Action Cases and two Class Action Cases that are based primarily on medical monitoring.

Reimbursement Cases. Reimbursement Cases are brought by or on behalf of entities seeking equitable relief and reimbursement of expenses incurred in providing health care to individuals who allegedly were injured by smoking. Plaintiffs in these cases have included the U.S. federal government, U.S. state and local governments, foreign governmental entities, hospitals or hospital districts, American Indian tribes, labor unions, private companies and private citizens.

Included in this category is the suit filed by the federal government, United States of America v. Philip Morris USA, Inc. (“Phillip Morris”), et al., that sought to recover profits earned by the defendants and other equitable relief. In August 2006, the trial court issued its final judgment and remedial order and granted injunctive and other equitable relief. The final judgment did not award monetary damages. In May 2009, the final judgment was largely affirmed by an appellate court. In June 2010, the U.S. Supreme Court denied review of the case. See “Reimbursement Cases” below.

Filter Cases. Filter Cases are brought by individuals, including former employees of Lorillard Tobacco, who seek damages resulting from their alleged exposure to asbestos fibers that were incorporated into filter material used in one brand of cigarettes manufactured by Lorillard Tobacco for a limited period of time ending more than 50 years ago. Lorillard Tobacco is a defendant in 32 of the 33 Filter Cases listed in the above table. Lorillard, Inc. is a co-defendant in five of the 32 Filter Cases that are pending against Lorillard Tobacco. Lorillard, Inc. is also a defendant in one additional Filter Case in which Lorillard Tobacco is not a defendant. In January 2012, a jury returned a verdict for the defendants in the case of McGuire v. Lorillard Tobacco Company and Hollingsworth & Vose Company (Circuit Court, Division Four, Jefferson County, Kentucky).

Tobacco-Related Antitrust Cases. Lorillard Tobacco is a defendant in two Tobacco-Related Antitrust Cases as set forth in the table above. Lorillard, Inc. is not a defendant in either case. In 2000 and 2001, a number of cases were brought against cigarette manufacturers, including Lorillard Tobacco, alleging that defendants conspired to set the price of cigarettes in violation of federal and state antitrust and unfair business practices statutes. Plaintiffs sought class certification on behalf of persons who purchased cigarettes directly or indirectly from one or more of the defendant cigarette manufacturers. All of the cases have been either successfully defended or voluntarily dismissed. The other case in this category was brought by a small cigarette manufacturer against a number of states and the cigarette manufacturers, including Lorillard Tobacco, that signed the Master Settlement Agreement (as described herein) with 46 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and the Commonwealth of the Northern Mariana Islands. It was alleged that certain provisions of the Master Settlement Agreement violate the antitrust laws. On February 22, 2012, the Court of Appeals for the Sixth Circuit affirmed the judgment of the District Court dismissing the case. As of April 23, 2012, the time period for plaintiff to file a petition for certiorari with the U.S. Supreme Court had not expired.

Loss Accrual and Disclosure Policy

Lorillard establishes accruals in accordance with Accounting Standards Codification Topic 450, Contingencies (“ASC 450”), when a material litigation liability is both probable and can be reasonably estimated. There are a number of factors impacting Lorillard’s ability to estimate the possible loss or a range of loss, including the specific facts of each matter; the legal theories proffered by plaintiffs and legal defenses available to Lorillard Tobacco and Lorillard, Inc.; the wide-ranging outcomes reached in similar cases; differing procedural and substantive laws in the various jurisdictions in which lawsuits have been filed, including whether punitive damages may be pursued or are permissible; the degree of specificity in a plaintiff’s complaint; the history of the case and whether discovery has been completed; plaintiffs’ history of use of Lorillard Tobacco’s cigarettes relative to those of the other defendants; the attribution of damages, if any, among multiple defendants; the application of contributory and/or comparative negligence to the allocation of damage awards among plaintiffs and defendants; the likelihood of settlements for de minimus amounts prior to trial; the likelihood of success at trial; the likelihood of success on appeal; and the impact of current and pending state and federal appellate decisions. It has been Lorillard’s experience and is its continued expectation that the above complexities and uncertainties will not be clarified until the late stages of litigation. For those reasonably possible loss contingencies for which an estimate of the possible loss or range of loss cannot be made, Lorillard discloses the nature of the litigation and any developments as appropriate.

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Lorillard monitors the status of all outstanding litigation on an ongoing basis in order to determine the probability of loss and assess whether an estimate of the possible loss or range of loss can be determined. In evaluating litigation, Lorillard considers, among other things, the nature of the claims; the jurisdiction in which the claims have been filed and the law and case law developed in that jurisdiction; the experience of plaintiffs’ counsel in this type of litigation; the parties’ respective litigation strategies; the stage of the proceedings; the outcome of the matters at trial or on appeal; the type and amount of damages claimed by plaintiffs; the outcomes and damage awards, if any, for similar matters brought against Lorillard and/or the tobacco industry; and the possibility and likelihood of success on appeal. Lorillard’s assessment of a possible loss or range of loss is based on its assessment of the final outcome of the litigation upon the conclusion of all appeals.

Lorillard records provisions in the consolidated financial statements for pending litigation when it determines that it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. Except for the impact of the State Settlement Agreements as described below, while it is reasonably possible that a loss has been incurred, (i) management has concluded that it is not probable that a loss has been incurred in any material pending litigation against Lorillard, (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome in any material pending litigation due to the many variables, uncertainties and complexities described above, and (iii) accordingly, management has not provided any amounts in the consolidated financial statements for possible losses related to material pending litigation. It is possible that Lorillard’s results of operations or cash flows in a particular quarterly or annual period or its financial position could be materially adversely affected by an unfavorable outcome or settlement of certain pending or future litigation or an inability to secure bonds where required to stay the execution of judgments on appeal.

Tobacco-Related Product Liability Litigation

Conventional Product Liability Cases

Since January 1, 2010, verdicts have been returned in eight Conventional Product Liability Cases against cigarette manufacturers. Lorillard Tobacco was the only defendant in one of these eight trials, Evans v. Lorillard Tobacco Company (Superior Court, Suffolk County, Massachusetts). In December 2010, the jury in Evans awarded $50 million in compensatory damages to the estate of a deceased smoker, $21 million in damages to the deceased smoker’s son, and $81 million in punitive damages. In September 2011, the court granted in part Lorillard Tobacco’s motion to reduce the jury’s damages awards and reduced the verdicts to the deceased smoker to $25 million and to the deceased smoker’s son to $10 million. The court did not reduce the punitive damages verdict, and it denied the other motions Lorillard Tobacco filed following trial that contested the jury’s verdict. In September 2011, the court also issued an order that addressed the single claim that was not submitted to the jury. While the court made certain findings that were favorable to the plaintiffs, it did not award additional damages to the plaintiffs on this final claim. The court has denied the various motions filed by Lorillard Tobacco following the entry of the order on the claim that was not submitted to the jury. In September 2011, the court entered a judgment that reflected the jury’s damages awards and the court’s reductions following trial. The judgment awarded plaintiffs interest on each of the three damages awards at the rate of 12% per year from the date the case was filed in 2004. Interest on the three awards will continue to accrue until either the judgment is paid or is vacated on appeal. The judgment permitted plaintiff’s counsel to request an award of attorneys’ fees and costs. In November 2011, the court granted in part plaintiff’s counsel’s application for attorneys’ fees and costs and has awarded approximately $2.4 million in fees and approximately $225,000 in costs. The court entered a final judgment that incorporated the amounts of the verdicts, as reduced by the trial court, the awards of interest, and the awards of attorneys’ fees and costs. Lorillard Tobacco has noticed an appeal from the final judgment to the Massachusetts Appeals Court. In March 2012, plaintiff’s application for direct appellate review was granted, transferring the appeal to the Massachusetts Supreme Judicial Court. As of April 23, 2012, the court had not ruled on plaintiff’s motion for preliminary injunction.

Neither Lorillard Tobacco nor Lorillard, Inc. was a defendant in the seven other trials since January 1, 2010. Juries found in favor of the plaintiffs and awarded compensatory damages in two of these trials. Plaintiff in one of the two cases was awarded $4.0 million in punitive damages. Defendants’ appeals of these verdicts are pending. The plaintiff in another case was awarded $25 million in punitive damages in a retrial ordered by an appellate court in which the jury was permitted to consider only the amount of punitive damages to award. Juries found in favor of the defendants in the four other trials. Two of these four cases have concluded because the plaintiffs did not pursue appeals. Plaintiff in the third case has noticed an appeal, and the plaintiff in the fourth case has filed a post-trial motion for a new trial. As of April 23, 2012, the trial court has not ruled on this motion.

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In rulings addressing cases tried in earlier years, some appellate courts have reversed verdicts returned in favor of the plaintiffs while other judgments that awarded damages to smokers have been affirmed on appeal. Manufacturers have exhausted their appeals and have been required to pay damages to plaintiffs in thirteen individual cases since 2001. Punitive damages were paid to the smokers in six of these cases. Neither Lorillard Tobacco nor Lorillard, Inc. was a party to any of these matters.

Some cases are scheduled for trial in 2012. As of April 23, 2012, neither Lorillard Tobacco nor Lorillard Inc. is a defendant in any of the Conventional Product Liability Cases that are scheduled for trial in 2012. Trial dates are subject to change.

Engle Progeny Cases

In 2006, the Florida Supreme Court issued a ruling in Engle v. R.J. Reynolds Tobacco Co., et al., that had been certified as a class action on behalf of Florida residents, and survivors of Florida residents, who were injured or died from medical conditions allegedly caused by addiction to smoking. During a three-phase trial, a Florida jury awarded compensatory damages to three individuals and approximately $145 billion in punitive damages to the certified class. In its 2006 decision, the Florida Supreme Court vacated the punitive damages award, determined that the case could not proceed further as a class action and ordered decertification of the class. The Florida Supreme Court also reinstated the compensatory damages awards to two of the three individuals whose claims were heard during the first phase of the Engle trial. These two awards totaled $7 million, and both verdicts were paid in February 2008. Lorillard Tobacco’s payment to these two individuals, including interest, totaled approximately $3 million.

The Florida Supreme Court’s 2006 ruling also permitted Engle class members to file individual actions, including claims for punitive damages. The court further held that these individuals are entitled to rely on a number of the jury’s findings in favor of the plaintiffs in the first phase of the Engle trial. The time period for filing Engle Progeny Cases expired in January 2008 and no additional cases may be filed. In 2009, the Florida Supreme Court rejected a petition that sought to extend the time for purported class members to file an additional lawsuit.

The pending Engle Progeny Cases are before various Florida state and federal courts. Some of the Engle Progeny Cases were filed on behalf of multiple plaintiffs. Various courts have entered orders severing the cases filed by multiple plaintiffs into separate actions. In 2009, one Florida federal court entered orders that severed the claims of approximately 4,400 Engle Progeny plaintiffs, initially asserted in a small number of multi-plaintiff actions, into separate lawsuits. In some cases, spouses or children of alleged former class members have also brought derivative claims.

Various Engle Progeny Cases have been dismissed. Beginning in 2010 and through April 23, 2012, the United States District Court for the Middle District of Florida entered orders that dismissed approximately 1,210 cases for various reasons. In some instances, the plaintiffs whose cases were dismissed also were pursuing cases pending in other courts. In other instances, the attorneys who represented the plaintiffs asked the court to enter dismissal orders because they were no longer able to contact their clients. In addition, other courts, including state courts, entered orders dismissing additional cases. The United States District Court for the Middle District of Florida also entered other orders in 2011 that addressed approximately 500 cases filed by family members of alleged former class members. These 500 cases were among the 4,400 cases that were severed into separate lawsuits in 2009. In the 2011 orders, the court combined each one of these approximately 500 cases with the cases filed by the smoker from which the family members’ claims purportedly derived.

Various intermediate Florida appellate courts have issued rulings that address whether plaintiffs in the Engle Progeny Cases are entitled to rely on a number of the jury’s findings in favor of the plaintiffs in the first phase of the Engle trial. In December 2010, the Florida First District Court of Appeal ruled that the trial court correctly construed the Florida Supreme Court’s 2006 decision and that it properly instructed the jury on the preclusive effect of certain of the Engle jury’s findings in an appeal from a verdict in which the plaintiff was awarded damages. Since that decision, the Florida First District Court of Appeal has affirmed six other verdicts in which the plaintiff was awarded damages, three in 2011 and three in 2012. Defendants in the first four of these cases were denied review by the Florida Supreme Court in July 2011 and subsequent petitions for review by the U.S. Supreme Court were denied

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in March 2012. The Florida Fourth District Court of Appeals has affirmed judgments entered in favor of the plaintiffs in two cases, one in 2011 and one in 2012, but it had a different interpretation of the effect of the 2006 decision on plaintiffs’ claims. Defendants in both of these cases are seeking review by the Florida Supreme Court. As of April 23, 2012, the Florida Supreme Court had not announced whether it would grant review of these cases. In March 2012, the Florida Second District Court of Appeal affirmed the final judgment in another case, however the appeals court certified to the Florida Supreme Court the question of whether reliance on the findings in the first phase of the Engle trial violates the tobacco companies’ due process rights. As of April 23, 2012, the Florida Supreme Court had not announced whether it would grant review of this case.

Cigarette manufacturers, including Lorillard Tobacco, asked the U.S. District Court for the Middle District of Florida to certify for appeal to the U.S. Court of Appeals for the Eleventh Circuit an order that addressed the application of the Florida Supreme Court’s Engle ruling on plaintiffs’ claims. The order that prompted defendants’ application addressed whether the Due Process Clause of the United States Constitution permits use of the Engle jury’s Phase I findings to establish the wrongful conduct elements of plaintiffs’ claims. Defendants acknowledged that the district court is bound by two rulings issued by Florida intermediate courts of appeal, but contended that these two decisions are inconsistent with federal due process. During February 2012, the U.S. District Court for the Middle District of Florida denied defendants’ motion to certify the order for appellate review.

Various courts, including appellate courts, have issued rulings that have addressed the conduct of the cases prior to trial. One intermediate state appellate court ruled in 2011 that plaintiffs are permitted to assert a claim against a cigarette manufacturer even if the smoker did not smoke a brand sold by that manufacturer. The defendants are seeking review of this decision by the Florida Supreme Court. In March 2012, another intermediate state appellate court agreed with the 2011 ruling and reversed dismissals in a group of cases. Defendants in these cases are also seeking review by the Florida Supreme Court. The Florida Supreme Court has announced that it is deferring decision on whether to accept review of these cases until it decides whether to review the 2011 decision. These rulings may limit the ability of the defendants, including Lorillard Tobacco and Lorillard, Inc., to be dismissed from cases in which smokers did not use a cigarette manufactured by Lorillard Tobacco.

Lorillard Tobacco and Lorillard, Inc. are defendants in Engle Progeny Cases that have been placed on courts’ 2012 trial calendars or in which specific trial dates have been set. Trial schedules are subject to change and it is not possible to predict how many of the cases pending against Lorillard Tobacco or Lorillard, Inc. will be tried in 2012. It also is not possible to predict whether some courts will implement procedures that consolidate multiple Engle Progeny Cases for trial.

As of April 23, 2012, trial was underway in one Engle Progeny case in which Lorillard Tobacco is a defendant, the case of Calloway v. RJ Reynolds Tobacco Company, et al. (Circuit Court, Seventeenth Judicial Circuit, Broward County, Florida) Lorillard, Inc. is not a defendant in this trial.

As of April 23, 2012, verdicts had been returned in eight Engle Progeny Cases in which Lorillard Tobacco was a defendant. Lorillard, Inc. was not a defendant in any of these eight cases. Juries awarded compensatory damages to the plaintiffs in six of these cases. In two of the six cases in which juries awarded compensatory damages, plaintiffs were awarded punitive damages from Lorillard Tobacco. In one of the cases, the court entered an order following trial that awarded plaintiff compensatory damages. The eight cases are listed below in the order in which the verdicts were returned:

• In Rohr v. R.J. Reynolds Tobacco Company, et al. (Circuit Court, Broward County, Florida), a jury returned a verdict in favor of the defendants, including Lorillard Tobacco. Plaintiff in Rohr did not pursue an appeal and the case is concluded.

• In Mrozek v. Lorillard Tobacco Company (Circuit Court, Fourth Judicial Circuit, Duval County, Florida), the jury awarded plaintiffs a total of $6 million in compensatory damages and $11.3 million in punitive damages. The jury apportioned 35% of the fault for the smoker’s injuries to the smoker and 65% to Lorillard Tobacco. The final judgment entered by the trial court reflected the jury’s verdict and awarded plaintiff $3,900,588 in compensatory damages and $11,300,000 in punitive damages plus 6% annual interest. Lorillard Tobacco has noticed an appeal to the Florida First District Court of Appeal. As of April 23, 2012, the trial court had not ruled on plaintiff’s motion for costs and attorneys’ fees.

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• In Tullo v. R.J. Reynolds, et al. (Circuit Court, Palm Beach County, Florida), the jury awarded plaintiff a total of $4.5 million in compensatory damages. The jury assessed 45% of the fault to the smoker, 5% to Lorillard Tobacco and 50% to other defendants. The jury did not award punitive damages to the plaintiff. The court entered a final judgment that awarded plaintiff $225,000 in compensatory damages from Lorillard Tobacco plus 6% annual interest. Defendants noticed an appeal from the final judgment to the Florida Fourth District Court of Appeal. The trial court has granted plaintiff’s application for costs but it has not awarded an amount. As of April 23, 2012, the trial court had not ruled on plaintiff’s motion for costs.

• In Sulcer v. Lorillard Tobacco Company, et al. (Circuit Court, Escambia County, Florida), the jury awarded $225,000 in compensatory damages to the plaintiff and it assessed 95% of the fault for the smoker’s injuries to the smoker with 5% allocated to Lorillard Tobacco. The jury returned a verdict for Lorillard Tobacco as to whether plaintiff is entitled to punitive damages. The court entered a final judgment that incorporated the jury’s determination of the parties’ fault and awarded plaintiff $11,250 in compensatory damages. Lorillard Tobacco paid approximately $246,000 to resolve the verdict, costs and fees, as well as all post-trial motions and any potential appeal by the plaintiff. Following this payment, Sulcer was concluded.

• In Jewett v. R.J. Reynolds Tobacco Co., et al. (Circuit Court, Duval County, Florida), the jury awarded the estate of the decedent $692,981 in compensatory damages and awarded the plaintiff $400,000 for loss of companionship. The jury assessed 70% of the responsibility for the decedent’s injuries to the decedent, 20% to R.J. Reynolds and 10% to Lorillard Tobacco. The jury returned a verdict for the defendants regarding whether punitive damages were warranted. The final judgment entered by the trial court reflected the jury’s verdict and awarded plaintiff a total of $109,298 from Lorillard Tobacco plus 6% annual interest. Defendants have noticed an appeal from the final judgment to the Florida First District Court of Appeal. As of April 23, 2012, the trial court had not ruled on plaintiff’s motion for costs and attorneys’ fees.

• In Weingart v. R.J. Reynolds Tobacco Company, et al. (Circuit Court, Palm Beach County, Florida), the jury determined that the decedent did not sustain any compensatory damages from the defendants, including Lorillard Tobacco, and it returned a verdict for the defendants that punitive damages were not warranted. The jury assessed 91% of the fault for the decedent’s injuries to the decedent, 3% to Lorillard Tobacco and 3% to each of the other two defendants. Following trial, the court granted in part a motion filed by the plaintiff to award damages and it tentatively awarded plaintiff $150,000 in compensatory damages. The court entered a final judgment that applied the jury’s comparative fault determinations to the court’s award of compensatory damages. The final judgment awarded plaintiff $4,500 from Lorillard Tobacco. Defendants have noticed an appeal to the Florida Fourth District Court of Appeal from the order that awarded compensatory damages to the plaintiff and have amended their notice of appeal to address the final judgment. In March 2012, the court entered a judgment against the defendants for costs with Lorillard Tobacco’s share amounting to $43,081 plus 4.75% annual interest. Defendants have noticed an appeal from this cost judgment.

• In Sury v. R.J. Reynolds Tobacco Company, et al., (Circuit Court, Duval County, Florida), the jury awarded plaintiff $1,000,000 in compensatory damages and assessed 60% of the responsibility for the decedent’s injuries to the decedent, 20% to Lorillard Tobacco and 20% to R.J. Reynolds. The jury returned a verdict for the defendants regarding whether punitive damages were warranted. In March 2012, the court entered a final judgment against defendants in the amount of $1,000,000 plus 4.75% annual interest, declining to apply the jury’s comparative fault findings to causes of action alleging intentional conduct. Defendants have noticed an appeal to the Florida First District Court of Appeal from the final judgment that awarded compensatory damages to the plaintiff. The plaintiff has filed a motion for determination of entitlement to attorney’s fees and costs. As of April 23, 2012, the court had not ruled on this motion for attorney’s fees and costs

• In Alexander v. Lorillard Tobacco Company, et al. (Circuit Court, Eleventh Judicial Circuit, Miami-Dade County, Florida) the jury awarded plaintiff $20,000,000 in compensatory damages and $25,000,000 in punitive damages. Lorillard Tobacco is the only defendant in this case. The jury apportioned 20% of the fault for the smoker’s injuries to the smoker and 80% to Lorillard Tobacco. In March 2012, the court entered a final judgment that applied the jury’s comparative fault determination to the court’s award of compensatory damages, awarding the plaintiff $16,000,000 in

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compensatory damages and $25,000,000 in punitive damages from Lorillard Tobacco. Lorillard Tobacco has filed a number of post-trial motions challenging the verdict and the plaintiff has filed a post-trial motion for attorneys’ fees and costs. As of April 23, 2012, the trial court had not ruled on these post-trial motions.

As of April 23, 2012, trial was not underway in any Engle Progeny Cases involving defendants other than Lorillard Tobacco or Lorillard, Inc.

As of April 23, 2012, verdicts have been returned in 55 Engle Progeny Cases since the Florida Supreme Court issued its 2006 ruling that permitted members of the Engle class to bring individual lawsuits in which neither Lorillard Tobacco nor Lorillard, Inc. was a defendant at trial. Juries awarded compensatory damages and punitive damages in 21 of the trials. The 21 punitive damages awards have totaled approximately $620 million and have ranged from $50,000 to $244 million. In 13 of the trials, juries’ awards were limited to compensatory damages. In the 21 remaining trials, juries found in favor of the defendants.

With the exception of the Sulcer case discussed above, defendants had filed, or were expected to file, challenges to each of the verdicts in which plaintiffs were awarded damages as of April 23, 2012. These challenges were pending before various courts and were in various stages as of April 23, 2012. In some of the trials decided in defendants’ favor, plaintiffs have filed motions challenging the verdicts. As of April 23, 2012, none of these motions had resulted in rulings in favor of the plaintiffs.

In a case tried prior to the Florida Supreme Court’s 2006 decision permitting members of the Engle class to bring individual lawsuits, one Florida court allowed the plaintiff to rely at trial on certain of the Engle jury’s findings. That trial resulted in a verdict for the plaintiffs in which they were awarded approximately $25 million in compensatory damages. Neither Lorillard Tobacco nor Lorillard, Inc. was a party to this case. In March 2010, a Florida appellate court affirmed the jury’s verdict. The court denied defendants’ petitions for rehearing in May 2010, and the defendants have satisfied the judgment by paying the damages award.

In June 2009, Florida amended the security requirements for a stay of execution of any judgment during the pendency of appeal in Engle Progeny Cases. The amended statute provides for the amount of security for individual Engle Progeny Cases to vary within prescribed limits based on the number of adverse judgments that are pending on appeal at a given time. The required security decreases as the number of appeals increases to ensure that the total security posted or deposited does not exceed $200 million in the aggregate. This amended statute applies to all judgments entered on or after June 16, 2009. The plaintiffs in some of the cases have challenged the constitutionality of the amended statute. As of April 23, 2012, none of these motions had been granted and courts either denied these challenges or rulings have not been issued. In January 2012, the Florida Supreme Court agreed to review one of the orders denying a challenge to the amended statute.

West Virginia Individual Personal Injury Cases

The West Virginia Individual Personal Injury Cases (the “IPIC Cases”) are brought by individuals who allege cancer or other health effects caused by smoking cigarettes, by smoking cigars, or by using smokeless tobacco products in a single West Virginia court. Approximately 600 IPIC Cases are pending. Most of the pending cases have been consolidated for trial. The order that consolidated the cases for trial, among other things, also limited the consolidation to those cases that were filed by September 2000. No additional IPIC Cases may be consolidated for trial with this group. The court has entered a trial plan for the IPIC Cases that calls for a multi-phase trial. The first phase of trial began in October 2011 but the court ordered a mistrial in November 2011. As of April 23, 2012, a new date for trial had not been scheduled.

In September 2000, there were approximately 1,250 IPIC Cases, and Lorillard Tobacco was named in all but a few of them. Plaintiffs in most of the cases alleged injuries from smoking cigarettes, and the claims alleging injury from smoking cigarettes have been consolidated for a multi-phase trial. Approximately 645 IPIC Cases have been dismissed in their entirety. Lorillard Tobacco has been dismissed from approximately 565 additional IPIC Cases because those plaintiffs did not submit evidence that they used a Lorillard Tobacco product. These additional IPIC Cases remain pending against other cigarette manufacturers and some or all of the dismissals of Lorillard Tobacco could be contested in subsequent appeals. As of April 23, 2012, Lorillard Tobacco is a defendant in 31 of the pending IPIC Cases. Lorillard, Inc. was not a defendant in any of the IPIC Cases.

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The court has severed from the IPIC Cases those claims alleging injury from the use of tobacco products other than cigarettes, including smokeless tobacco and cigars (the “Severed IPIC Claims”). The Severed IPIC Claims involve 30 plaintiffs. Twenty-eight of these plaintiffs have asserted both claims alleging that their injuries were caused by smoking cigarettes as well as claims alleging that their injuries were caused by using other tobacco products. The former claims will be considered during the consolidated trial of the IPIC Cases, while the latter claims are among the Severed IPIC Claims. Lorillard Tobacco is a defendant in seven of the Severed IPIC Claims. Lorillard, Inc. is not a defendant in any of the Severed IPIC Claims. Two plaintiffs have asserted only claims alleging that injuries were caused by using tobacco products other than cigarettes, and no part of their cases will be considered in the consolidated trial of the IPIC Cases (the “Severed IPIC Cases”). Neither Lorillard Tobacco nor Lorillard, Inc. is a defendant in either of the Severed IPIC Cases.

As of April 23, 2012, the Severed IPIC Claims and the Severed IPIC Cases were not subject to a trial plan. None of the Severed IPIC Claims or the Severed IPIC Cases was scheduled for trial as of April 23, 2012. Trial dates are subject to change.

Flight Attendant Cases

Lorillard Tobacco and three other cigarette manufacturers are the defendants in each of the pending Flight Attendant Cases. Lorillard, Inc. is not a defendant in any of these cases. These suits were filed as a result of a settlement agreement by the parties, including Lorillard Tobacco, in Broin v. Philip Morris Companies, Inc., et al. (Circuit Court, Miami-Dade County, Florida, filed October 31, 1991), a class action brought on behalf of flight attendants claiming injury as a result of exposure to environmental tobacco smoke. The settlement agreement, among other things, permitted the plaintiff class members to file these individual suits. These individuals may not seek punitive damages for injuries that arose prior to January 15, 1997. The period for filing Flight Attendant Cases expired in 2000 and no additional cases in this category may be filed.

The judges who have presided over the cases that have been tried have relied upon an order entered in October 2000 by the Circuit Court of Miami-Dade County, Florida. The October 2000 order has been construed by these judges as holding that the flight attendants are not required to prove the substantive liability elements of their claims for negligence, strict liability and breach of implied warranty in order to recover damages. The court further ruled that the trials of these suits are to address whether the plaintiffs’ alleged injuries were caused by their exposure to environmental tobacco smoke and, if so, the amount of damages to be awarded.

Lorillard Tobacco was a defendant in each of the eight Flight Attendant Cases in which verdicts have been returned. Defendants have prevailed in seven of the eight trials. In one of the seven cases in which a defense verdict was returned, the court granted plaintiff’s motion for a new trial and, following appeal, the case has been returned to the trial court for a second trial. The six remaining cases in which defense verdicts were returned are concluded. In the single trial decided for the plaintiff, French v. Philip Morris Incorporated, et al., the jury awarded $5.5 million in damages. The court, however, reduced this award to $500,000. This verdict, as reduced by the trial court, was affirmed on appeal and the defendants have paid the award. Lorillard Tobacco’s share of the judgment in this matter, including interest, was approximately $60,000.

As of April 23, 2012, none of the Flight Attendant Cases were scheduled for trial. Trial dates are subject to change.

In 2010, some of the attorneys who represent the plaintiffs in the Flight Attendant Cases filed a motion for sanctions against the defendants, including Lorillard Tobacco, in which plaintiffs alleged that the defendants engaged in certain conduct. In the motion for sanctions, as amended, plaintiffs contended that Philip Morris USA, R.J. Reynolds Tobacco Company and Brown & Williamson Tobacco Corporation tortuously interfered with negotiations the plaintiffs in the Flight Attendant Cases initiated with Lorillard Tobacco and caused Lorillard Tobacco to reject plaintiffs’ offers of judgment. Plaintiffs in all of the Flight Attendant Cases submitted offers of judgment to Lorillard Tobacco during 2000 that proposed to resolve plaintiffs’ claims against Lorillard Tobacco in each of the pending Flight Attendant Cases in which plaintiffs allege lung cancer for $15,000 and to resolve all remaining Flight Attendant Cases for $2,650 each. Plaintiffs contended in the motion for sanctions that Lorillard Tobacco’s subsequent rejection of the offers of judgment was prompted by an agreement it reached with Philip Morris USA, R.J. Reynolds Tobacco Company and Brown & Williamson Tobacco Corporation to partially indemnify Lorillard Tobacco should it be required to satisfy any judgment for attorneys’ fees returned against it in the Flight Attendant Cases. Plaintiffs contended this agreement constituted misconduct and that it violated the Broin settlement agreement.

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Plaintiffs sought $30 million in sanctions, plus interest of 9% from the date of the anticipated acceptance of the offers of judgment, on behalf of all of the plaintiffs in the Flight Attendant Cases. In June 2011, the Circuit Court of Miami-Dade County, Florida, denied the motion for sanctions, and plaintiffs filed a petition for writ of certiorari to the Florida Third District Court of Appeal. In January 2012, the Court of Appeal denied review of plaintiffs’ petition. Plaintiffs then filed a petition for rehearing or certification to the Florida Supreme Court and this petition was subsequently denied by the Court of Appeal.

Class Action Cases

Lorillard Tobacco is a defendant in three pending Class Action Cases. Lorillard, Inc. is a co-defendant in one of these cases. In most of the pending cases, plaintiffs seek class certification on behalf of groups of cigarette smokers, or the estates of deceased cigarette smokers, who reside in the state in which the case was filed.

Cigarette manufacturers, including Lorillard Tobacco, have defeated motions for class certification in a total of 36 cases, 13 of which were in state court and 23 of which were in federal court. Motions for class certification have also been ruled upon in some of the “lights” cases or in other class actions to which neither Lorillard Tobacco nor Lorillard, Inc. was a party. In some of these cases, courts have denied class certification to the plaintiffs, while classes have been certified in other matters.

The Scott Case. In one Class Action Case against Lorillard Tobacco, Scott v. The American Tobacco Company, et al. (District Court, Orleans Parish, Louisiana, filed May 24, 1996), a Louisiana jury awarded damages to the certified class in 2004. The jury’s award was reduced on two separate occasions in response to defendants’ appeals, but defendants exhausted their appeals and have paid the final judgment. In August 2011, Lorillard Tobacco paid approximately $69.7 million, or one-fourth of the award, to satisfy its portion of the final judgment and the interest that accrued while appeals were pending.

In 1997, Scott was certified a class action on behalf of certain cigarette smokers resident in the State of Louisiana who desire to participate in medical monitoring or smoking cessation programs and who began smoking prior to September 1, 1988, or who began smoking prior to May 24, 1996 and allege that defendants undermined compliance with the warnings on cigarette packages.

In the fourth quarter of 2007, Lorillard, Inc. recorded a pretax provision of approximately $66 million for this matter which was included in selling, general and administrative expenses on the consolidated statements of income and was reclassified from other liabilities to accrued liabilities in the second quarter of 2010 on the consolidated balance sheets.

Counsel for the certified class has filed a motion for attorneys’ fees, for costs and expenses, and for an award to the class representatives. Plaintiffs’ counsel contends they incurred approximately $59.0 million in attorneys’ fees, and further contend that the value of those fees, given the age of the case, is approximately $92.0 million. Plaintiffs’ counsel request that a multiplier as high as seven be applied to any award ordered by the court. Plaintiffs’ counsel ask the court to order defendants to pay an award in excess of $300.0 million, but request in the alternative that they be awarded, from the fund awarded to the class, 33%-40% of the amount of that fund. In addition, plaintiffs’ counsel seeks approximately $13.4 million in costs and expenses. Plaintiffs’ counsel further request that the court order a “substantial” award of an unspecified amount to the two class representatives for their services. As of April 23, 2012, the court had not ruled on plaintiffs’ counsels’ applications. The defendants have filed an application for review with the Louisiana Fourth Circuit Court of Appeal, challenging the jurisdiction of the trial court to rule on the motion for attorneys’ fees.

Other Class Action Cases. In another Class Action Case pending against Lorillard Tobacco, Brown v. The American Tobacco Company, Inc., et al. (Superior Court, San Diego County, California, filed June 10, 1997), the California Supreme Court in 2009 vacated an order that had previously decertified a class and returned Brown to the trial court for further activity. The class in Brown is composed of residents of California who smoked at least one of defendants’ cigarettes between June 10, 1993 and April 23, 2001 and who were exposed to defendants’ marketing and advertising activities in California. The trial court has permitted plaintiffs to assert claims based on the alleged misrepresentation, concealment and fraudulent marketing of “light” or “ultra-light” cigarettes. In January 2012, defendants filed a motion for class decertification. The court has scheduled argument of this motion for May 2012. Trial is set for October 5, 2012. Lorillard, Inc. is not a defendant in Brown.

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“Lights” Class Action Cases. Neither Lorillard Tobacco nor Lorillard, Inc. is a defendant in another approximately 21 Class Action Cases in which plaintiffs’ claims are based on the allegedly fraudulent marketing of “light” or “ultra-light” cigarettes. Classes have been certified in some of these cases. In one of these cases, Craft v. Philip Morris USA (Circuit Court, City of St. Louis, Missouri, filed February 29, 2000), trial began in September 2011. During November 2011, the court ordered a mistrial when the jury was unable to reach a verdict. Retrial has been scheduled for January 2013. In another of the “lights” Class Action Cases, Good v. Altria Group, Inc., et al., the U.S. Supreme Court ruled in December 2008 that neither the Federal Cigarette Labeling and Advertising Act nor the Federal Trade Commission’s regulation of cigarettes’ tar and nicotine disclosures preempts (or bars) some of plaintiffs’ claims. In 2009, the Judicial Panel on Multidistrict Litigation consolidated various federal court “lights” Class Action Cases pending against Philip Morris USA or Altria Group and transferred those cases to the U.S. District Court of Maine (the “MDL cases”). The court denied plaintiffs’ motion for class certification filed in four of the MDL Cases, and a federal appellate court declined to review the class certification order. Following the appellate court’s ruling, plaintiffs dismissed thirteen of the MDL Cases, including Good v. Altria Group, Inc., et al. In April 2012, the Judicial Panel on Multidistrict Litigation entered an order transferring the four MDL cases that remained pending to the courts in which each originated.

Reimbursement Cases

U.S. Government Case. In August 2006, the U.S. District Court for the District of Columbia issued its final judgment and remedial order in the federal government’s reimbursement suit, United States of America v. Philip Morris USA, Inc., et al., (U.S. District Court, District of Columbia, filed September 22, 1999). The final judgment and remedial order concluded a bench trial that began in September 2004. Lorillard Tobacco, other cigarette manufacturers, two parent companies and two trade associations were defendants in this action during trial. Lorillard, Inc. is not a party to this case.

In its 2006 final judgment and remedial order, the court determined that the defendants, including Lorillard Tobacco, violated certain provisions of the RICO statute, that there was a likelihood of present and future RICO violations, and that equitable relief was warranted. The government was not awarded monetary damages. The equitable relief included permanent injunctions that prohibit the defendants, including Lorillard Tobacco, from engaging in any act of racketeering, as defined under RICO; from making any material false or deceptive statements concerning cigarettes; from making any express or implied statement about health on cigarette packaging or promotional materials (these prohibitions include a ban on using such descriptors as “low tar,” “light,” “ultra-light,” “mild” or “natural”); from making any statements that “low tar,” “light,” “ultra-light,” “mild” or “natural” or low-nicotine cigarettes may result in a reduced risk of disease; and from participating in the management or control of certain entities or their successors. The final judgment and remedial order also requires the defendants, including Lorillard Tobacco, to make corrective statements on their websites, in certain media, in point-of-sale advertisements, and on cigarette package “inserts” concerning: the health effects of smoking; the addictiveness of smoking; that there are no significant health benefits to be gained by smoking “low tar,” “light,” “ultra-light,” “mild” or “natural” cigarettes; that cigarette design has been manipulated to ensure optimum nicotine delivery to smokers; and that there are adverse effects from exposure to secondhand smoke. Lorillard Tobacco could incur costs in excess of $10 million to implement the final judgment and remedial order. The final judgment and remedial order also requires defendants, including Lorillard Tobacco, to make disclosures of disaggregated marketing data to the government, and to make document disclosures on a website and in a physical depository. The final judgment and remedial order prohibits each defendant that manufactures cigarettes, including Lorillard Tobacco, from selling any of its cigarette brands or certain elements of its business unless certain conditions are met.

The final judgment and remedial order has not yet been fully implemented. Following trial, the final judgment and remedial order was stayed because the defendants, the government and several intervenors noticed appeals to the Circuit Court of Appeals for the District of Columbia. In May 2009, a three judge panel upheld substantially all of the District Court’s final judgment and remedial order. In September 2009, the Court of Appeals denied defendants’ rehearing petitions as well as their motion to vacate those statements in the appellate ruling that address defendants’ marketing of “low tar” or “lights” cigarettes, to vacate those parts of the trial court’s judgment on that issue, and to remand the case with instructions to deny as moot the government’s allegations and requested relief regarding “lights” cigarettes. The Court of Appeals stayed its order that formally relinquished jurisdiction of defendants’

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appeal pending the disposition of the petitions for writ of certiorari to the U.S. Supreme Court that were noticed by the defendants, the government and the intervenors. In June 2010, the U.S. Supreme Court denied all of the petitions for writ of certiorari. The case has been returned to the trial court for implementation of the Court of Appeals’ directions in its 2009 ruling and for entry of an amended final judgment. As of April 23, 2012, the parties had submitted briefs regarding the issues that were remanded, and the court had not entered an amended final judgment. Following remand, the defendants filed a motion asserting that the 2009 Family Smoking Prevention and Tobacco Control Act had, in whole or in part, extinguished the court’s jurisdiction. In the alternative, defendants urged the court not to order any injunctive remedy in deference to the regulatory authority recently extended to the Food and Drug Administration. The trial court denied this motion in June 2011, and defendants have noticed an appeal to the U.S. Court of Appeals for the District of Columbia Circuit. The government filed a motion following remand requesting clarification of the extent of the defendants’ obligation to make disclosures of disaggregated marketing data and the use the government can make of that data. The trial court granted that motion in April, 2011, holding that the defendants must provide a broad range of data for the ten-year period beginning July 29, 2010, and that the Department of Justice may share that data with other governmental agencies, subject to the confidentiality requirements previously imposed by the trial court. The defendants have noticed an appeal from this order to the U.S. Court of Appeals for the District of Columbia Circuit. As of April 23, 2012, the Court of Appeals had not ruled on defendants’ appeals.

While trial was underway, the Court of Appeals ruled that plaintiff may not seek to recover profits earned by the defendants. Prior to trial, the government had claimed that it was entitled to approximately $280 billion from the defendants for its claim to recover profits earned by the defendants. The U.S. Supreme Court declined to address the decisions dismissing recovery of profits when it denied review of the government’s and the intervenors’ petitions, which effectively disposed of the claim to recover profits in this case.

Settlement of State Reimbursement Litigation. On November 23, 1998, Lorillard Tobacco, Philip Morris Incorporated, Brown & Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company (the “Original Participating Manufacturers”) entered into the Master Settlement Agreement (“MSA”) with 46 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and the Commonwealth of the Northern Mariana Islands to settle the asserted and unasserted health care cost recovery and certain other claims of those states. These settling entities are generally referred to as the “Settling States.” The Original Participating Manufacturers had previously settled similar claims brought by Mississippi, Florida, Texas and Minnesota, which together with the MSA are referred to as the “State Settlement Agreements.”

The State Settlement Agreements provide that the agreements are not admissions, concessions or evidence of any liability or wrongdoing on the part of any party, and were entered into by the Original Participating Manufacturers to avoid the further expense, inconvenience, burden and uncertainty of litigation. Lorillard recorded pretax charges for its obligations under the State Settlement Agreements of $337 million and $319 million for the three months ended March 31, 2012 and March 31, 2011, respectively. Lorillard’s portion of ongoing adjusted settlement payments and legal fees is based on its share of domestic cigarette shipments in the year preceding that in which the payment is due. Accordingly, Lorillard records its portions of ongoing adjusted settlement payments as part of cost of manufactured products sold as the related sales occur.

The State Settlement Agreements require that the domestic tobacco industry make annual payments of $10.4 billion, subject to adjustment for several factors, including inflation, market share and industry volume. In addition, the domestic tobacco industry is required to pay settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million, as well as an additional amount of up to $125 million in each year through 2008. These payment obligations are the several and not joint obligations of each settling defendant. The State Settlement Agreements also include provisions relating to significant advertising and marketing restrictions, public disclosure of certain industry documents, limitations on challenges to tobacco control and underage use laws, and other provisions.

Lorillard Tobacco, the other Original Participating Manufacturers and other subsequent participating manufacturers (collectively, the “Participating Manufacturers”) are seeking from the States an adjustment in the amount of payments made in 2003 and subsequent years pursuant to a provision in the MSA that permits such adjustment if the companies can prove that the MSA was a significant factor in their loss of market share to companies not participating in the MSA and that the States failed to diligently enforce certain statutes passed in connection with the MSA. If the Participating Manufacturers are ultimately successful, any recovery would be in the form of reimbursement of proceeds already paid or as a credit against future payments by the Participating Manufacturers.

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From time to time, lawsuits have been brought against Lorillard Tobacco and other participating manufacturers to the MSA, or against one or more of the states, challenging the validity of the MSA on certain grounds, including as a violation of the antitrust laws. See “MSA-Related Antitrust Suit” below.

In addition, in connection with the MSA, the Original Participating Manufacturers entered into an agreement to establish a $5.2 billion trust fund payable between 1999 and 2010 to compensate the tobacco growing communities in 14 states (the “Trust”). Payments to the Trust ended in 2005 as a result of an assessment imposed under a federal law, enacted in 2004, repealing the federal supply management program for tobacco growers. Under the law, tobacco quota holders and growers will be compensated with payments totaling $10.1 billion, funded by an assessment on tobacco manufacturers and importers. Payments under the law to qualifying tobacco quota holders and growers commenced in 2005.

Lorillard believes that the State Settlement Agreements will materially adversely affect its cash flows and operating income in future years. The degree of the adverse impact will depend, among other things, on the rates of decline in domestic cigarette sales in the premium price and discount price segments, Lorillard’s share of the domestic premium price and discount price cigarette segments, and the effect of any resulting cost advantage of manufacturers not subject to significant payment obligations under the State Settlement Agreements.

Filter Cases

In addition to the above, claims have been brought against Lorillard Tobacco and Lorillard, Inc. by individuals who seek damages resulting from their alleged exposure to asbestos fibers that were incorporated into filter material used in one brand of cigarettes manufactured by Lorillard Tobacco for a limited period of time ending more than 50 years ago. As of April 23, 2012, Lorillard Tobacco was a defendant in 32 Filter Cases, including two consolidated multi-plaintiff actions. Lorillard, Inc. was a defendant in five Filter Cases, including four that also name Lorillard Tobacco. Since January 1, 2011, Lorillard Tobacco has paid, or has reached agreement to pay, a total of approximately $11.2 million in settlements to finally resolve 42 claims, including the Lenney case, discussed below. The related expense was recorded in selling, general and administrative expenses on the consolidated statements of income. Since January 1, 2011, verdicts have been returned in the following two Filter Cases: Lenney v. Armstrong International, Inc., et al., tried in the Superior Court of California, San Francisco County, and McGuire v. Lorillard Tobacco Company and Hollingsworth & Vose Company, tried in the Circuit Court, Division Four, of Jefferson County, Kentucky. In the Lenney trial, the jury found in favor of the plaintiffs as to their claims for compensatory damages and damages for loss of consortium, but it determined that plaintiffs were not entitled to an award of punitive damages from Lorillard Tobacco or Hollingsworth & Vose. Pursuant to the terms of a 1952 agreement between P. Lorillard Company and H&V Specialties Co., Inc. (the manufacturer of the filter material), Lorillard Tobacco is required to indemnify Hollingsworth & Vose for legal fees, expenses, judgments and resolutions in cases and claims alleging injury from finished products sold by P. Lorillard Company that contained the filter material. The final judgment entered by the trial court awarded plaintiffs a total of approximately $1.1 million in compensatory damages, damages for loss of consortium and costs from Lorillard Tobacco and Hollingsworth & Vose. Lorillard Tobacco and Hollingsworth & Vose noticed an appeal to the California Court of Appeals. In 2012, Lorillard Tobacco reached agreement with the plaintiffs to resolve plaintiffs’ pending claims, and any claims they might assert in the future, for an amount that is included in the above total for settlements reached since January 1, 2011. The jury in the McGuire case returned a verdict for Lorillard Tobacco and Hollingsworth & Vose. As of April 23, 2012, the court has not entered final judgment; accordingly, the deadline for plaintiff to seek post-trial relief or to appeal has not expired. As of April 23, 2012, nine Filter Cases were scheduled for trial or have been placed on courts’ trial calendars. Trial dates are subject to change.

Tobacco-Related Antitrust Cases

Indirect Purchaser Suits

Approximately 30 antitrust suits were filed in 2000 and 2001 on behalf of putative classes of consumers in various state courts against cigarette manufacturers. The suits all alleged that the defendants entered into agreements to fix the wholesale prices of cigarettes in violation of state antitrust laws which permit indirect purchasers, such as retailers and consumers, to sue under price fixing or consumer fraud statutes. More than 20 states permit such suits. Lorillard Tobacco was a defendant in all but one of these indirect purchaser cases. Lorillard, Inc. was not

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named as a defendant in any of these cases. Four indirect purchaser suits, in New York, Florida, New Mexico and Michigan, thereafter were dismissed by courts in those states. The actions in all other states, except for Kansas, were either voluntarily dismissed or dismissed by the courts.

In the Kansas case, the District Court of Seward County certified a class of Kansas indirect purchasers in 2002. In July 2006, the Court issued an order confirming that fact discovery was closed, with the exception of privilege issues that the Court determined, based on a Special Master’s report, justified further fact discovery. In October 2007, the Court denied all of the defendants’ privilege claims, and the Kansas Supreme Court thereafter denied a petition seeking to overturn that ruling. All of the defendants have filed motions for summary judgment seeking dismissal of the Kansas suit, which motions were granted in full on March 23, 2012 by the District Court of Seward County. As of April 23, 2012, the time period for plaintiffs to file an appeal from the dismissal had not expired.

MSA-Related Antitrust Suit

In October 2008, Lorillard Tobacco was named as a defendant in an action filed in the Western District of Kentucky, Vibo Corporation, Inc. d/b/a/ General Tobacco v. Conway, et al. The suit alleges that the named defendants, which include 52 state and territorial attorneys general and 19 tobacco manufacturers, violated the federal Sherman Antitrust Act of 1890 (the “Sherman Act”) by entering into and participating in the MSA. The plaintiff alleges that MSA participants, such as itself, that were not in existence when the MSA was executed in 1998 but subsequently became participants, are unlawfully required to pay significantly more sums to the states than companies that joined the MSA within 90 days after its execution. In addition to the Sherman Act claim, plaintiff has raised a number of constitutional claims against the states. Plaintiff seeks a declaratory judgment in its favor on all claims, an injunction against the continued enforcement of the MSA, treble damages against the tobacco manufacturer defendants, including Lorillard Tobacco, and damages and injunctive relief against the states, including contract recession and restitution. In December 2008, the court dismissed the complaint against all defendants, including Lorillard Tobacco. The court entered its final judgment dismissing the suit in January 2010. Thereafter, the plaintiff appealed to the federal Court of Appeals for the Sixth Circuit. On February 22, 2012, the dismissal of the suit was affirmed by the Court of Appeals for the Sixth Circuit. As of April 23, 2012, the time period for plaintiffs to file a petition for certiorari with the U.S. Supreme Court had not expired.

Defenses

Each of Lorillard Tobacco and Lorillard, Inc. believes that it has valid defenses to the cases pending against it as well as valid bases for appeal should any adverse verdicts be returned against either of them. While Lorillard Tobacco and Lorillard, Inc. intend to defend vigorously all tobacco products liability litigation, it is not possible to predict the outcome of any of this litigation. Litigation is subject to many uncertainties. Plaintiffs have prevailed in several cases, as noted above. It is possible that one or more of the pending actions could be decided unfavorably as to Lorillard Tobacco, Lorillard, Inc. or the other defendants. Lorillard Tobacco and Lorillard, Inc. may enter into discussions in an attempt to settle particular cases if either believe it is appropriate to do so.

Neither Lorillard Tobacco nor Lorillard, Inc. can predict the outcome of pending litigation. Some plaintiffs have been awarded damages from cigarette manufacturers at trial. While some of these awards have been overturned or reduced, other damages awards have been paid after the manufacturers have exhausted their appeals. These awards and other litigation activities against cigarette manufacturers continue to receive media attention. In addition, health issues related to tobacco products also continue to receive media attention. It is possible, for example, that the 2006 verdict in United States of America v. Philip Morris USA, Inc., et al., which made many adverse findings regarding the conduct of the defendants, including Lorillard Tobacco, could form the basis of allegations by other plaintiffs or additional judicial findings against cigarette manufacturers. Any such developments could have an adverse effect on the ability of Lorillard Tobacco or Lorillard, Inc. to prevail in smoking and health litigation and could influence the filing of new suits against Lorillard Tobacco or Lorillard, Inc. Lorillard Tobacco and Lorillard, Inc. also cannot predict the type or extent of litigation that could be brought against either of them, or against other cigarette manufacturers, in the future.

Indemnification Obligations

In connection with the Separation, Lorillard entered into a separation agreement with Loews (the “Separation Agreement”) and agreed to indemnify Loews and its officers, directors, employees and agents against all costs and expenses arising out of third party claims (including, without limitation, attorneys’ fees, interest, penalties and costs of investigation or preparation for defense), judgments, fines, losses, claims, damages, liabilities, taxes, demands,

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assessments and amounts paid in settlement based on, arising out of or resulting from, among other things, Loews’s ownership of or the operation of Lorillard and its assets and properties, and its operation or conduct of its businesses at any time prior to or following the Separation (including with respect to any product liability claims).

Loews is a defendant in two pending product liability cases, both of which are purported Class Action Cases. Lorillard Tobacco also is a defendant in both of the product liability cases in which Loews is involved. Pursuant to the Separation Agreement, Lorillard is required to indemnify Loews for the amount of any losses and any legal or other fees with respect to such cases.

Other Litigation

Lorillard is also party to other litigation arising in the ordinary course of business. The outcome of this other litigation will not, in the opinion of management, materially affect Lorillard’s results of operations or equity.

16. Subsequent Event

On April 24, 2012, Lorillard, Inc., through its wholly owned subsidiary, Lorillard Holdings Company, Inc. (“LHCI”), formerly known as LRDHC, Inc., acquired blu ecigs^® and other assets used in the manufacture, distribution, development, research, marketing, advertising, sale and service of electronic cigarettes. The acquisition was made pursuant to an asset purchase agreement (the “Agreement”) with BLEC, LLC, Intermark Brands, LLC and QSN Technologies, LLC (the “Sellers”). The Agreement contains customary representations, warranties, covenants and indemnities by the Sellers and LHCI and the consideration paid was $135 million in cash.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our historical consolidated financial statements and the notes related to those financial statements included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 (the “Form 10-Q”). In addition to historical information, the following discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Investors are cautioned not to place undue reliance on these forward-looking statements. Statements preceded by, followed by or that otherwise include the words “believe,” “expect,” “anticipate,” “intend,” “project,” “estimate,” “plan,” “may increase,” “may fluctuate” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and are not historical facts. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011 (the “Form 10-K”) and those risk factors set forth in “Business Environment” below, in Part II, “Item 1A. Risk Factors” and elsewhere in this Form 10-Q. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

The terms “Lorillard,” “we,” “our” and “us” refer to Lorillard, Inc., a Delaware corporation, and its subsidiaries. The terms “Lorillard, Inc.” and the “Company” refer solely to the parent company and “Lorillard Tobacco” refers solely to Lorillard Tobacco Company, the principal subsidiary of Lorillard, Inc.

Overview

Lorillard, Inc. (NYSE: LO), through its Lorillard Tobacco Company subsidiary, is the third largest manufacturer of cigarettes in the United States. Founded in 1760, Lorillard is the oldest continuously operating tobacco company in the United States. Newport, our flagship menthol flavored premium cigarette brand, is the top selling menthol and second largest selling cigarette brand overall in the United States based on gross units sold in the first three months of 2012 and in the full year 2011. In addition to the Newport brand, our product line has four additional brand families marketed under the Kent, True, Maverick and Old Gold brand names. These five cigarette brands include 43 different product offerings which vary in price, taste, flavor, length and packaging. In the United States and certain U.S. possessions and territories, we shipped 9.4 billion cigarettes in the first three months of 2012 and 40.7 billion cigarettes for the full year 2011. We sold our major trademarks outside of the United States in 1977. We maintain our headquarters and manufacture all of our products at our Greensboro, North Carolina facilities.

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Critical Accounting Policies and Estimates

For a description of the critical accounting policies that require the use of significant judgments and estimates by management, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 21, 2012.

Business Environment

Participants in the U.S. tobacco industry, including us, face a number of issues that have adversely affected their results of operations and financial condition in the past and will continue to do so, including:

• A substantial volume of litigation seeking compensatory and punitive damages ranging into the billions of dollars, as well as equitable and injunctive relief, arising out of allegations of cancer and other health effects resulting from the use of cigarettes, addiction to smoking or exposure to environmental tobacco smoke, including claims for economic damages relating to alleged misrepresentation concerning the use of descriptors such as “lights,” as well as other alleged damages.

• Substantial annual payments continuing in perpetuity, and significant restrictions on marketing and advertising have been agreed to and are required under the terms of certain settlement agreements, including the Master Settlement Agreement among major tobacco manufacturers and 46 states and various other governments and jurisdictions (the “MSA”) that we entered into in 1998 along with Philip Morris Incorporated, Brown & Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company (the other “Original Participating Manufacturers”) to settle asserted and unasserted health care cost recovery and other claims. We and certain other U.S. tobacco product manufacturers previously settled similar claims brought by Mississippi, Florida, Texas and Minnesota (the “Initial State Settlements,” and together with the MSA, the “State Settlement Agreements”). The State Settlement Agreements impose a stream of future payment obligations on us and on the other major U.S. cigarette manufacturers as product is sold and place significant restrictions on our and their ability to market and sell cigarettes.

• The domestic cigarette market, in which we conduct our only significant business, continues to contract. As a result of price increases, restrictions on advertising, promotions and smoking in public and private facilities, increases in regulation and excise taxes, health concerns, a decline in the social acceptability of smoking, increased pressure from anti-tobacco groups and other factors, domestic cigarette shipments have decreased at a compound rate of approximately 3.8% from the twelve months ended March 31, 2002 through the twelve months ended March 31, 2012.

• Increases in cigarette prices since 1998 have led to an increase in the volume of discount and, specifically, deep discount cigarettes. Cigarette price increases have been driven by increases in federal, state and local excise taxes and by manufacturer price increases. Price increases have led, and continue to lead, to high levels of discounting and other promotional activities for premium brands. Deep discount brands have grown from an estimated domestic shipment share in 1998 of less than 2.0% to an estimated share of 13.6% for the three months ended March 31, 2012, and continue to be a significant competitive factor in the domestic cigarette market. We do not have sufficient empirical data to determine whether the increased price of cigarettes has deterred consumers from starting to smoke or encouraged them to quit smoking, but it is likely that increased prices may have had an adverse effect on consumption and may continue to do so.

• The tobacco industry is subject to substantial and increasing regulation. In June 2009, the U.S. Congress passed, and the President signed into law, the Family Smoking Prevention and Tobacco Control Act (the “FSPTCA”) granting the FDA authority to regulate tobacco products. Pursuant to the terms of the FSPTCA, the FDA established the Tobacco Products Scientific Advisory Committee (the “TPSAC”) to evaluate, among other things, the impact of the use of menthol in cigarettes on the public health. In March 2011, the TPSAC issued its report to the FDA stating that “removal of menthol cigarettes from the marketplace would benefit public health.” On July 21, 2011, TPSAC considered revisions to its report, and the voting members unanimously approved the final report for submission to the FDA with no change in its recommendation. The FDA could promulgate regulations that, among other things, could result in a ban on or restrict the use of menthol in cigarettes. The law imposes and will impose new restrictions on the manner in which cigarettes can be advertised and marketed, requires

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larger and more severe health warnings on cigarette packaging, permits restriction of the level of tar and nicotine contained in or yielded by cigarettes and may alter the way cigarette products are developed and manufactured.

• On June 27, 2011, the FDA provided a progress report on its review of the science related to menthol cigarettes. In its Menthol Update, the FDA stated that “[e]xperts within the FDA Center for Tobacco Products are conducting an independent review of the science related to the impact [of menthol] in cigarettes on public health …” The FDA also stated that it will submit its draft independent review of menthol science to an external peer review panel in July 2011, and that following the peer review period (originally announced as three and one-half months), the FDA will make available the results of the peer review and its preliminary scientific assessment for public comment. On January 26, 2012, the FDA stated that its report had been submitted to the peer review panel and comments had been received from the panel on the report. The FDA also indicated that its final report, including the peer review comments, will be released for public comment at a future date.

• In August 2009, we, along with RJR Tobacco, other tobacco manufacturers and a tobacco retailer, filed a lawsuit in the U.S. District Court for the Western District of Kentucky against the FDA challenging the constitutionality of certain restrictions on speech included in the FSPTCA. These restrictions on speech include, among others, bans on the use of color and graphics in certain tobacco product advertising, limits on the right to make truthful statements regarding modified risk tobacco products, a prohibition on making certain statements about the FDA’s regulation of tobacco products, restrictions on the placement of outdoor advertising, a ban on certain promotions offering gifts in consideration for the purchase of tobacco products, a ban on brand name sponsorship of events and the sale of brand name merchandise, and a ban on the distribution of product samples. The suit also challenges the law’s requirement for extensive graphic warning labels on all packaging and advertising. The complaint seeks a judgment (i) declaring that such provisions of the law violate the First and/or Fifth Amendments of the U.S. Constitution and (ii) enjoining the FDA from enforcing the unconstitutional provisions of the law. On January 4, 2010, the district court issued an order (a) striking down the provisions of the law that banned the use of color and graphics in certain tobacco product advertising and prohibited tobacco manufacturers from making certain statements about the FDA’s regulation of tobacco products and (b) upholding the remaining challenged advertising provisions. Both sides have appealed the district court’s ruling to the Sixth Circuit Court of Appeals, and the appeal has been fully briefed and argued. On March 19, 2012, the Sixth Circuit issued an opinion affirming the decision of the district court upholding certain of the FSPTCA’s restrictions on marketing tobacco products. The Sixth Circuit also affirmed the district court’s grant of summary judgment to tobacco companies on the Act’s restriction of tobacco advertising to black and white text. In addition, the court affirmed the lower court’s decision to uphold the constitutionality of the color graphic and non-graphic warning label requirements.

– In February 2011, we, along with RJR Tobacco, filed a lawsuit in the U.S. District Court for the District of Columbia against the FDA challenging the composition of the TPSAC because of the FDA’s appointment of certain voting members with significant financial conflicts of interest. We believe these members are financially biased because they regularly testify as expert witnesses against tobacco-product manufacturers, and because they are paid consultants for pharmaceutical companies that develop and market smoking-cessation products. The suit similarly challenges the presence of certain conflicted individuals on the Constituents Subcommittee of the TPSAC. The complaint seeks a judgment (i) declaring that, among other things, the appointment of the conflicted individuals to the TPSAC (and its Constituents Subcommittee) was arbitrary, capricious, an abuse of discretion, and otherwise not in compliance with the law because it prevented the TPSAC from preparing a report that was unbiased and untainted by conflicts of interest, and (ii) enjoining the FDA from, among other things, relying on the TPSAC’s report. The FDA has filed a motion to dismiss this action, the parties have briefed the issue and a hearing was held on February 14, 2012. As of April 23, 2012, the court has not yet ruled on the motion.

– In August 2011, we, along with RJR Tobacco and several other tobacco manufacturers, filed a lawsuit in the U.S. District Court for the District of Columbia against the FDA challenging the constitutionality of certain regulations requiring specific graphic warning labels on all packaging and advertising. The Complaint seeks a judgment (i) declaring that the regulations violate the First Amendment; (ii) declaring that the regulations violate various provisions of the Administrative Procedure Act; (iii) declaring that the textual and graphic warnings required under the FSPTCA shall become effective 15 months after the FDA issues regulations that are permissible

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under the U.S. Constitution and federal law; and (iv) preliminarily and permanently enjoining enforcement of the regulations. Plaintiffs moved for a preliminary injunction, and after full briefing and oral argument, the district court granted plaintiffs’ motion. Plaintiffs also moved in the district court for summary judgment in their favor and after full briefing and oral argument, the district court granted that motion too. The FDA appealed both decisions to the D.C. Circuit Court of Appeals, which consolidated the appeals and heard oral argument on April 10, 2012. As of April 23, 2012, the court has not yet ruled on the consolidated appeal.

• The federal government and many state and local governments and agencies, as well as private businesses, have adopted legislation, regulations or policies which prohibit, restrict or discourage smoking, including legislation, regulations or policies prohibiting or restricting smoking in public buildings and facilities, stores, restaurants and bars, on airline flights and in the workplace. Other similar laws and regulations are under consideration and may be enacted by federal, state and local governments in the future.

• Substantial federal, state and local excise taxes are reflected in the retail price of cigarettes. For the three months ended March 31, 2012, the federal excise tax was $1.0066 per pack and combined state and local excise taxes ranged from $0.17 to $5.85 per pack. For the three months ended March 31, 2012, there were no state excise tax increases implemented. On June 21, 2010, New York state legislature approved a $1.60 per pack state excise tax increase that was implemented on July 1, 2010. The federal excise tax on cigarettes increased by $0.6166 per pack to $1.0066 per pack, effective April 1, 2009, to finance health insurance for children. It is likely that increases in excise and similar taxes have had an adverse impact on sales of cigarettes and that the most recent increase and future increases, the extent of which cannot be predicted, could result in further volume declines for the cigarette industry, including us, and an increased sales shift toward deep discount cigarettes rather than premium brands. In addition, we and other cigarette manufacturers and importers are required to pay an assessment under a federal law designed to fund payments to tobacco quota holders and growers and are required to pay an annual user fee to the FDA.

The domestic market for cigarettes is highly competitive. Competition is primarily based on a brand’s taste; quality; price, including the level of discounting and other promotional activities; positioning; consumer loyalty; and retail display. Our principal competitors are the two other major U.S. cigarette manufacturers, Philip Morris USA and RJR Tobacco. We also compete with numerous other smaller manufacturers and importers of cigarettes, including deep discount cigarette manufacturers. We believe our ability to compete even more effectively has been restrained in some marketing areas as a result of retail merchandising contracts offered by Philip Morris USA and RJR Tobacco which limit the retail shelf space available to our brands. As a result, in some retail locations we are limited in competitively supporting our promotional programs, which may constrain sales.

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The following table presents selected Lorillard and industry shipment data for the three months ended March 31, 2012 and 2011.

Selected Industry Data (3)

	Three Months Ended March 31,
(Volume in billions)	2012	2011
Lorillard total domestic unit volume (1)	9.287	9.524
Industry total domestic unit volume (1)	66.847	69.611
Lorillard’s premium volume as a percentage of its total volume (2)	85.1%	86.5%
Newport’s share of Lorillard’s total volume (2)	84.2%	85.5%
Newport’s share of Lorillard’s net sales (2)	85.7%	84.0%

(1) Source: Management Science Associates, Inc. (“MSAI”), an independent third-party database management organization that collects wholesale shipment data from various cigarette manufacturers. MSAI divides the cigarette market into two price segments, the premium price segment and the discount or reduced price segment. MSAI’s information relating to unit sales volume of certain of the smaller, primarily deep discount, cigarette manufacturers is based on estimates derived by MSAI. Management believes that volume information for deep discount manufacturers may be understated.

(2) Source: Lorillard shipment reports.

(3) Domestic unit volume includes units sold as well as promotional units and excludes volumes for Puerto Rico and U.S. Possessions.

The following table presents selected Lorillard and industry retail market share data for the three months ended March 31, 2012 and 2011, based on Lorillard’s proprietary retail shipment data, EXCEL, which reflect shipments from wholesalers to retailers.

Selected Domestic Retail Market Share Data⁽¹⁾

	Three Months  Ended March 31,
	2012	2011
Lorillard’s share of the retail market	14.5%	14.1%
Lorillard’s share of the premium market	16.9%	16.7%
Lorillard’s share of the menthol market (2)	40.0%	39.0%
Newport’s share of the retail market	12.2%	12.0%
Newport’s share of the premium market	16.7%	16.5%
Newport’s share of the menthol market (2)	36.8%	36.3%
Total menthol segment market share for the industry (2)	31.1%	31.0%
Total discount segment market share for the industry	26.8%	27.3%

(1) Source: Lorillard’s proprietary retail shipment data, EXCEL, which reflect shipments from wholesalers to retailers.

(2) Lorillard has made certain adjustments to its propriety retail shipment data to reflect management’s judgment as to which brands are included in the menthol segment.

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Results of Operations

Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011

	Three Months Ended March 31,
	2012			2011
	(in millions)
Net sales (a)	$	1,526		$	1,535
Cost of sales (a) (b)		1,003			992
Gross profit		523			543
Selling, general and administrative		131			122
Operating income		392			421
Investment income		1			1
Interest expense		(39	)		(28	)
Income before income taxes		354			394
Income taxes		131			146
Net income	$	223		$	248

(a) Includes excise taxes of $467 and $479, respectively.

(b) Cost of sales includes:

- $337 and $319 to accrue obligations under the State Settlement Agreements, respectively.

- $28 and $30 to accrue obligations under the Federal Assessment for Tobacco Growers, respectively.

- $16 and $14 to accrue Food and Drug Administration user fees, respectively.

Net sales. Net sales decreased by $9 million, or 0.6%, from $1.535 billion for the three months ended March 31, 2011 to $1.526 billion for the three months ended March 31, 2012. Net sales decreased $49 million due to lower unit sales volume (including $12 million of federal excise tax) and $5 million due to higher sales promotion costs accounted for as a reduction of sales, partially offset by $45 million due to higher average unit prices reflecting price increases in July and December 2011.

Total Lorillard wholesale unit volume, which includes Puerto Rico and U.S. Possessions, decreased 2.7% for the three months ended March 31, 2012 compared to the corresponding period of 2011. Domestic unit volume, which excludes Puerto Rico and U.S. Possessions, decreased 2.5% for the three months ended March 31, 2012 compared to the corresponding period of 2011. Changes in wholesale inventory patterns are estimated to have negatively impacted year ago comparisons by approximately 400 million units, or 4.3 percentage points. Adjusting for this effect, Lorillard domestic wholesale shipments increased 1.8%. Total cigarette industry domestic wholesale shipments decreased an estimated 4.0% for the first quarter of 2012 compared to the first quarter of 2011. Changes in wholesale inventory patterns are also estimated to have negatively impacted year ago comparisons by approximately 2.7 percentage points for the industry.

Total unit volume for Newport, the Company’s flagship brand, decreased 4.2% for the three months ended March 31, 2012 and domestic Newport unit volume decreased 4.0% for the three months ended March 31, 2012 compared to the corresponding period of 2011. The impact on Newport of wholesale inventory pattern changes was a negative 4.5 percentage points. Adjusting for this effect, Newport domestic wholesale shipments were up 0.5%. Domestic wholesale shipments for Maverick, the Company’s leading discount brand, increased 9.6% for the three months ended March 31, 2012 compared to the corresponding period in 2011. The impact on Maverick of wholesale inventory pattern changes was a negative 2.9 percentage points. Adjusting for this effect, Maverick wholesale shipments were up 12.5%.

Based on our proprietary retail shipment data (“EXCEL”), which measures shipments from wholesale to retail and is unaffected by changes in wholesale inventory patterns, Lorillard’s domestic retail market share increased 0.4 share points in the first quarter of 2012 compared to the first quarter of 2011 to an all-time high of 14.5%. Newport’s domestic retail market share reached 12.2% during the first quarter of 2012, an increase of 0.2 share points compared to the first quarter of 2011. Total Lorillard domestic retail share of the menthol market reached 40.0% for the first quarter of 2012, an increase of 1.0 share point compared to the first quarter of 2011. The Company’s successful launch of Newport Non-Menthol, geographic expansion initiatives on Newport Menthol and continued retail shipment growth on Maverick accounted for the increase in volume and market share growth.

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Cost of sales. Cost of sales increased by $11 million, or 1.1%, from $992 million for the three months ended March 31, 2011 to $1.003 billion for the three months ended March 31, 2012. The increase in cost of sales is primarily due to higher expenses related to the State Settlement Agreements ($18 million), higher labor and materials cost ($8 million) and higher Food and Drug Administration fees ($2 million), partially offset by lower unit sales volume ($15 million, including $12 million of federal excise tax) and a decrease in the Federal Assessment for Tobacco Growers ($2 million). We recorded pre-tax charges for our obligations under the State Settlement Agreements of $337 million and $319 million for the three months ended March 31, 2012 and 2011, respectively, an increase of $18 million. The $18 million increase is due to the inflation adjustment ($9 million) and other adjustments ($12 million), partially offset by the impact of lower unit sales ($3 million). Other adjustments include the unfavorable impact on tobacco settlement expense of $7 million resulting from a competitor’s restatement in the first quarter of 2012 of certain historical components of the calculation of the industry volume adjustment offset under the State Settlement Agreements. Such adjustments related to the competitor’s operating income for 2001 – 2005. Tobacco settlement expenses are impacted by a number of factors including industry profits, as defined in the State Settlement Agreements, which were increased in the first quarter by these changes. If further prior year profit adjustments are reported by industry participants in the future, out costs related to the State Settlement Agreements could be affected, either up or down.

Selling, general and administrative Selling, general and administrative costs increased $9 million to $131 million in the three months ended March 31, 2012 compared to the three months ended March 31, 2011 primarily as a result of higher legal costs related to the Engle Progeny litigation.

Interest expense. Interest expense increased $11 million for the three months ended March 31, 2012, compared to the three months ended March 31, 2011, and reflects interest on the Senior Notes issued in the third quarter of 2011.

Income taxes. Income taxes decreased $15 million or 10.3% from $146 million for the three months ended March 31, 2011 to $131 million for the three months ended March 31, 2012. The change reflects a decrease in income before income taxes of $40 million, or 10.2%.

Liquidity and Capital Resources

Our cash and cash equivalents of $1.929 billion at March 31, 2012 were invested in prime money market funds.

Cash Flows

Cash flow from operating activities. The principal source of liquidity for our business and operating needs is internally generated funds from our operations. We generated net cash flow from operations of $690 million for the three months ended March 31, 2012 compared to $759 million for the three months ended March 31, 2011. The decreased cash flow in 2012 primarily reflects lower net income and higher leaf tobacco purchases in the three months ended March 31, 2012.

Cash flow from investing activities. Investing activities used cash of $16 million for the three months ended March 31, 2012 compared to $7 million for the three months ended March 31, 2011 for capital expenditures. The expenditures were primarily used for the modernization of manufacturing equipment. Our capital expenditures for the year ending December 31, 2012 are forecast to be between $70 million and $80 million.

On April 24, 2012, Lorillard, Inc., through its wholly owned subsidiary, Lorillard Holding Company, Inc., acquired blu ecigs and other assets used in the manufacture, distribution, development, research, marketing, advertising, sale and service of electronic cigarettes. The purchase price was $135 million paid in cash at closing.

Cash flow from financing activities. Our cash flow from operations has exceeded our working capital and capital expenditure requirements during the three months ended March 31, 2012. We paid cash dividends to our shareholders of $202 million on March 9, 2012, and $188 million on March 11, 2011. During the three months ended March 31, 2012 and 2011, we have repurchased shares totaling $188 million and $289 million, respectively.

In April 2010, Lorillard Tobacco issued $1 billion of unsecured senior notes in two tranches pursuant to an Indenture, dated June 23, 2009 (the “Indenture”), and the Second Supplemental Indenture, dated April 12, 2010 (the “Second Supplemental Indenture”). The first tranche was $750 million aggregate principal amount of 6.875% Notes due May 1, 2020 (the “2020 Notes”), and the second tranche was $250 million aggregate principal amount of 8.125% Notes due May 1, 2040 (the “2040 Notes”).

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In August 2011, Lorillard Tobacco issued $750 million of unsecured senior notes in two tranches pursuant to the Indenture and the Third Supplemental Indenture, dated August 4, 2011 (the “Third Supplemental Indenture”). The first tranche was $500 million aggregate principal amount of 3.500% Notes due August 4, 2016 (the “2016 Notes”) and the second tranche was $250 million aggregate principal amount of 7.000% Notes due August 4, 2041 (the “2041 Notes”). Lorillard Tobacco is the principal, wholly owned operating subsidiary of the Company and the 2016 Notes, 2019 Notes, 2020 Notes, 2040 Notes and 2041 Notes (the “Notes”) are unconditionally guaranteed on a senior unsecured basis by the Company. The net proceeds from the issuance were used for general corporate purposes, which included, among other things, the repurchase, redemption or retirement of securities including the Company’s common stock, additions to working capital and capital expenditures.

The interest rate payable on the 2019 Notes is subject to incremental increases from 0.25% to 2.00% in the event either Moody’s Investors Services, Inc. (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) or both Moody’s and S&P downgrade the 2019 Notes below investment grade (Baa3 and BBB- for Moody’s and S&P, respectively). As of March 31, 2012, our debt ratings were Baa2 and BBB- with Moody’s and S&P, respectively, both of which are investment grade.

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 Second and Third Supplemental Indentures) and the Notes cease to be rated investment grade by both Moody’s and S&P within 60 days 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.

As of February 24, 2012, the Company completed its $750 million share repurchase program that was announced in August 2011 by repurchasing 1.6 million shares at a cost of $188 million. Purchases by the Company under this program were made from time to time at prevailing market prices in open market purchases, privately negotiated transactions, block purchase techniques or otherwise, as determined by the Company’s management. The purchases are funded from existing cash balances, including proceeds from the issuance of the Notes. These programs do not obligate the Company to acquire any particular amount of its common stock. The timing, frequency and amount of repurchase activity will depend on a variety of factors such as levels of cash generation from operations, cash requirements for investment in the Company’s business, current stock price, market conditions and other factors.

Liquidity

We believe that cash flow from operating activities will be sufficient for the foreseeable future to enable us to meet our obligations under the State Settlement Agreements and to fund our working capital and capital expenditure requirements. We cannot predict our cash requirements related to any future settlements or judgments, including cash required to post bond for any appeals, if necessary, and can make no assurance that we will be able to meet all of those requirements.

State Settlement Agreements

The State Settlement Agreements require us and the other Original Participating Manufacturers (Philip Morris Incorporated, Brown & Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company) to make aggregate annual payments of $10.4 billion in perpetuity, subject to adjustment for several factors described below. In addition, the Original Participating Manufacturers are required to pay plaintiffs’ attorneys’ fees, subject to an aggregate annual cap of $500 million. These payment obligations are several and not joint obligations of each of the Original Participating Manufacturers. Our obligations under the State Settlement Agreements will materially adversely affect our cash flows and operating income in future years.

Both the aggregate payment obligations of the Original Participating Manufacturers, and our payment obligations, individually, under the State Settlement Agreements are subject to adjustment for several factors which include:

• inflation;

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• aggregate volume of Original Participating Manufacturers cigarette shipments;

• other Original Participating Manufacturers and our market share; and

• aggregate Original Participating Manufacturers operating income, allocated to such manufacturers that have operating income increases.

The inflation adjustment increases payments on a compounded annual basis by the greater of 3.0% or the actual total percentage change in the consumer price index for the preceding year. The inflation adjustment is measured starting with inflation for 1999. The volume adjustment increases or decreases payments based on the increase or decrease in the total number of cigarettes shipped in or to the 50 U.S. states, the District of Columbia and Puerto Rico by the Original Participating Manufacturers during the preceding year compared to the 1997 base year shipments. If volume has increased, the volume adjustment would increase the annual payment by the same percentage as the number of cigarettes shipped exceeds the 1997 base number. If volume has decreased, the volume adjustment would decrease the annual payment by 98.0% of the percentage reduction in volume. In addition, downward adjustments to the annual payments for changes in volume may, subject to specified conditions and exceptions, be reduced in the event of an increase in the Original Participating Manufacturers aggregate operating income from domestic sales of cigarettes over base year levels established in the State Settlement Agreements, adjusted for inflation. Any adjustments resulting from increases in operating income would be allocated among those Original Participating Manufacturers which have had increases.

In April 2012, we paid $1.108 billion under the State Settlement Agreements, primarily based on 2011 volume. The payment included $98 million deposited in an interest-bearing escrow account in accordance with procedures established in the MSA pending resolution of a claim by us and the other Original Participating Manufacturers that they are entitled to reduce their MSA payments based on a loss of market share to non-participating manufacturers. Most of the states that are parties to the MSA are disputing the availability of the reduction and we believe that this dispute will ultimately be resolved by judicial and arbitration proceedings. Our $98 million deposit in escrow is based upon the Original Participating Manufacturers collective loss of market share in 2009 that resulted in a reduction of $106 million, partially offset by unfavorable adjustments for years 2008 and 2007 of $3 million and $5 million, respectively. In April of 2011, 2010, 2009, 2008, 2007 and 2006, we had previously deposited $107 million, $88 million, $74 million, $72 million, $111 million and $109 million, respectively, in the same escrow account discussed above, which was based on a loss of market share in 2008, 2007, 2006, 2005, 2004 and 2003 to non-participating manufacturers. In February 2009, we directed the transfer of $72 million from this account to the non-disputed account, related to the loss of market share in 2005, pursuant to an Agreement Concerning Arbitration that we and the other Participating Manufacturers entered into with certain MSA states. This amount was then paid to the MSA states. We and the other Original Participating Manufacturers have the right to claim additional reductions of MSA payments in subsequent years under provisions of the MSA. In addition to the payments made in the three months ending March 31, 2012, we anticipate the additional amount payable in 2012 will be approximately $250 million to $300 million, primarily based on 2012 estimated volume.

Contractual Cash Payment Obligations

The following chart presents our contractual cash payment obligations as of March 31, 2012:

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(In millions)
Senior notes	$	2,500	$	—	$	—	$	500	$	2,000
Interest payments related to notes		2,014		168		503		307		1,036
Contractual purchase obligations		83		81		2		—		—
Operating lease obligations		3		1		2		—		—
Total	$	4,600	$	250	$	507	$	807	$	3,036

As of March 31, 2012, we do not believe that we will make any payments to various tax authorities in the next twelve months related to gross unrecognized tax benefits. We cannot make a reasonably reliable estimate of the amount of liabilities for unrecognized tax benefits that may result in cash settlements for periods beyond twelve months.

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As previously discussed, we have entered into the State Settlement Agreements, which impose a stream of future payment obligations on us and the other major U.S. cigarette manufacturers. Our portion of ongoing adjusted settlement payments, including fees to settling plaintiffs’ attorneys, is based on a number of factors which are described above. Our cash payments under the State Settlement Agreements in 2011 amounted to $1.219 billion and we estimate our cash payments in 2012 under the State Settlement Agreements will be between $1.3 billion and $1.4 billion, primarily based on 2011 estimated industry volume. Payment obligations are not incurred until the related sales occur and therefore are not reflected in the above table.

Off-Balance Sheet Arrangements

None.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market Risk

We invest in financial instruments that involve market risk. Our measure of market risk exposure represents an estimate of the change in fair value of our financial instruments. Market risk exposure is presented below for each class of financial instrument we held at March 31, 2012, assuming immediate adverse market movements of the magnitude described. We believe that the rate of adverse market movement represents a measure of exposure to loss under hypothetically assumed adverse conditions. The estimated market risk exposure represents the hypothetical loss to future earnings and does not represent the maximum possible loss nor any expected actual loss, even under adverse conditions, because actual adverse fluctuations would likely differ. In addition, since our investment portfolio is subject to change based on its portfolio management strategy as well as in response to changes in the market, these estimates are not necessarily indicative of the actual results which may occur. The market risk exposure represents the potential loss in carrying value and pretax impact to future earnings caused by the hypothetical change in price.

Exposure to market risk is managed and monitored by senior management. Senior management approves our overall investment strategy and has the responsibility to ensure that the investment positions are consistent with that strategy with an acceptable level of risk.

Interest rate risk. Our investments, which are included in cash and cash equivalents, consist of money market funds with major financial institutions. Those investments are exposed to fluctuations in interest rates. A sensitivity analysis, based on a hypothetical 1% increase or decrease in interest rates on our average 2012 investments, would cause an increase or decrease in pretax income of approximately $5 million for the three months ended March 31, 2012.

Our debt is denominated in US Dollars and has been issued at a fixed rate. In September 2009, we entered into interest rate swap agreements for a total notional amount of $750 million to hedge changes in fair value of the Notes due to changes in the designated benchmark interest rate. Changes in the fair value of the derivative are recorded in earnings along with offsetting adjustments to the carrying amount of the hedged debt. A sensitivity analysis, based on a hypothetical 1% change in LIBOR, would cause an increase or decrease in pretax income by approximately $2 million for the three months ended March 31, 2012.

Liquidity risk. We may be forced to cash settle all or a portion of our derivative contracts before the expiration date if our debt rating is downgraded below Baa2 by Moody’s or BBB- by S&P. This could have a negative impact on our cash position. Early cash settlement would result in the timing of our hedge settlement not being matched to the cash settlement of the debt. As of March 31, 2012, our debt ratings were Baa2 and BBB- with Moody’s and S&P, respectively, both of which are above the ratings at which settlement of our derivative contracts would be required. See Note 10 to the Consolidating Condensed Financial Statements for additional information on derivatives.

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a–15 under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of the end of the period covered by this Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures (as defined in Rule 13a–15(e) under the Exchange Act) are effective, in all material respects, to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rule 13a–15(f) under the Exchange Act) occurred during our most recent fiscal quarter that has materially affected, or is likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Information about legal proceedings is set forth in Note 15, “Legal Proceedings,” in the Notes to Consolidated Condensed Financial Statements included in “Item 1. Financial Statements” of this Form 10-Q. Such information is incorporated by reference as if fully set forth herein.

Item 1A. Risk Factors

With the exception of the following, there have been no other material changes in our risk factors from those disclosed in Part I, Item 1A of our Form 10-K:

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The regulation of cigarettes by the Food and Drug Administration may materially adversely affect our business.

In June 2009, the U.S. Congress passed, and the President signed into law, the Family Smoking Prevention and Tobacco Control Act that grants the FDA authority to regulate tobacco products. The legislation:

• established a Tobacco Products Scientific Advisory Committee to, among other things, evaluate the issues surrounding the use of menthol as a flavoring or ingredient in cigarettes and issue a nonbinding recommendation to the FDA regarding menthol by March 23, 2011;

• grants the FDA the regulatory authority to consider and impose broad additional restrictions through a rule making process, including a ban on the use of menthol in cigarettes;

• requires larger and more severe health warnings, including graphic images, on packs, cartons and advertising;

• bans the use of descriptors on tobacco products, such as “low tar” and “light”;

• requires the disclosure of ingredients, additives, and constituents to consumers;

• requires pre-market approval by the FDA of all new products, including substantially equivalent products;

• requires pre-market approval by the FDA for claims made with respect to reduced risk or reduced exposure products;

• allows the FDA to require the reduction of nicotine or any other compound in cigarettes;

• allows the FDA to mandate the use of reduced risk technologies in conventional cigarettes;

• allows the FDA to place more severe restrictions on the advertising, marketing and sales of cigarettes; and

• permits possible inconsistent state and local regulation of the advertising or promotion of cigarettes by providing an exception to certain federal preemption of such regulation.

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We believe that such regulation could have a material adverse effect on our business. For example, under the Act, we must file a report with the FDA substantiating that any cigarettes introduced or modified after February 15, 2007 are “substantially equivalent” to cigarettes on the market before that date to enable the agency to determine whether the new or modified products are “substantially equivalent” to specific predicate products already being sold. For any products introduced or modified between February 15, 2007 and March 22, 2011, initial reports were required to be filed with the FDA on or before March 22, 2011. The FDA announced that a product introduced or modified before March 22, 2011 may remain on the market pending the FDA’s review, provided a “substantially equivalent” report was filed with the FDA on or before March 22, 2011. We believe, based on the limited guidance issued by the FDA to date, that we were required to file, and have filed, reports for all of our cigarettes on or before March 22, 2011 since modifications had been made to our products since 2007. While all of our cigarettes may remain on the market pending the FDA’s review, they are subject to removal should the FDA determine any are not “substantially equivalent. “ In addition, products introduced on or after March 22, 2011 will require pre-market approval by the FDA which may be subject to similar or more restrictive procedures.

The legislation also permits the FDA to impose restrictions regarding the use of menthol in cigarettes, including a ban, if those restrictions would be appropriate for the public health. Any ban or material limitation on the use of menthol in cigarettes would materially adversely affect our results of operations, cash flows and financial condition. It is possible that such additional regulation, including regulation of menthol short of a ban thereof, could result in a decrease in cigarette sales in the United States (including sales of our brands), increased costs to us and/or the development of a significant black market for cigarettes, which may have a material adverse effect on our financial condition, results of operations, and cash flows.

As of April 23, 2012, Lorillard Tobacco is a defendant in approximately 8,561 tobacco-related lawsuits, including approximately 675 cases in which Lorillard, Inc. is a co-defendant. These cases, which are extremely costly to defend, could result in substantial judgments against Lorillard Tobacco and/or Lorillard, Inc.

Numerous legal actions, proceedings and claims arising out of the sale, distribution, manufacture, development, advertising, marketing and claimed health effects of cigarettes are pending against Lorillard Tobacco and Lorillard, Inc., and it is likely that similar claims will continue to be filed for the foreseeable future. In addition, several cases have been filed against Lorillard Tobacco and other tobacco companies challenging certain provisions of the MSA among major tobacco manufacturers and 46 states and various other governments and jurisdictions, and state statutes promulgated to carry out and enforce the MSA.

Punitive damages, often in amounts ranging into the billions of dollars, are specifically pleaded in a number of cases in addition to compensatory and other damages. It is possible that the outcome of these cases, individually or in the aggregate, could result in bankruptcy. It is also possible that Lorillard Tobacco and Lorillard, Inc. may be unable to post a surety bond in an amount sufficient to stay execution of a judgment in jurisdictions that require such bond pending an appeal on the merits of the case. Even if Lorillard Tobacco and Lorillard, Inc. are successful in defending some or all of these actions, these types of cases are very expensive to defend. A material increase in the number of pending claims could significantly increase defense costs and have an adverse effect on our results of operations and financial condition. Further, adverse decisions in litigations against other tobacco companies could have an adverse impact on the industry, including us.

Plaintiffs have been awarded damages, including punitive damages, from Lorillard Tobacco in a Conventional Product Liability Case.

In December 2010, a Massachusetts jury awarded damages, including punitive damages, from Lorillard Tobacco in a Conventional Product Liability Case, Evans v. Lorillard Tobacco Company (Superior Court, Suffolk County, Massachusetts). In September 2011, the court reduced the compensatory damages awarded to the estate of a deceased smoker to $25 million and reduced the award to the deceased smoker’s son to $10 million. The court declined to

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reduce the jury’s award of $81 million in punitive damages. In September 2011, the court entered a judgment that reflected the jury’s damages awards and the court’s reductions following trial. The judgment awarded plaintiffs interest on each of the three damages awards at the rate of 12% per year from the date the case was filed in 2004. Interest on the three awards will continue to accrue until either the judgment is paid or is vacated on appeal. The judgment permitted plaintiff’s counsel to request an award of attorneys’ fees and costs. In November 2011, the court granted in part plaintiff’s counsel’s application for attorneys’ fees and costs and has awarded approximately $2.4 million in fees and approximately $225,000 in costs. The court entered a final judgment that incorporated the amounts of the verdicts, as reduced by the trial court, the awards of interest, and the awards of attorneys’ fees and costs. Lorillard Tobacco has noticed an appeal from the final judgment to the Massachusetts Appeals Court. In March 2012, plaintiff’s application for direct appellate review was granted, transferring the appeal to the Massachusetts Supreme Judicial Court. Plaintiff has asked the court to enter a preliminary injunction that directs Lorillard Tobacco to set aside $272 million in cash or cash equivalents to secure the amounts awarded by the jury and the interest obligations plaintiff expects the court to order in a final judgment. As of April 23, 2012, the court had not ruled on plaintiff’s motion for preliminary injunction. It is possible that the verdict in this case could lead to additional litigation.

The Florida Supreme Court’s ruling in Engle has resulted in additional litigation against cigarette manufacturers, including us.

The case of Engle v. R.J. Reynolds Tobacco Co., et al. (Circuit Court, Dade County, Florida, filed May 5, 1994) was certified as a class action on behalf of Florida residents, and survivors of Florida residents, who were injured or died from medical conditions allegedly caused by addiction to smoking. The case was tried between 1998 and 2000 in a multi-phase trial that resulted in verdicts in favor of the class. In 2006, the Florida Supreme Court issued a ruling that, among other things, determined that the case could not proceed further as a class action. In February 2008, the trial court entered an order on remand from the Florida Supreme Court that formally decertified the class.

The 2006 ruling by the Florida Supreme Court in Engle also permitted members of the Engle class to file individual claims, including claims for punitive damages. The Florida Supreme Court held that these individual plaintiffs are entitled to rely on a number of the jury’s findings in favor of the plaintiffs in the first phase of the Engle trial. These findings included that smoking cigarettes causes a number of diseases; that cigarettes are addictive or dependence-producing; and that the defendants, including Lorillard Tobacco and Lorillard, Inc., were negligent, breached express and implied warranties, placed cigarettes on the market that were defective and unreasonably dangerous, and concealed or conspired to conceal the risks of smoking. Lorillard Tobacco is a defendant in approximately 5,902 cases pending in various state and federal courts in Florida that were filed by members of the Engle class (the “Engle Progeny Cases”), including 669 cases in which Lorillard, Inc. is a co-defendant.

As of April 23, 2012, trial was underway in one Engle Progeny Case in which Lorillard Tobacco is a defendant, the case of Calloway v. RJ Reynolds Tobacco Company, et al.(Circuit Court, Seventeenth Judicial Circuit, Broward County, Florida) Lorillard, Inc. is not a defendant in this trial. As of April 23, 2012, Lorillard Tobacco and Lorillard, Inc. are defendants in Engle Progeny Cases that have been placed on courts’ 2012 trial calendars or in which specific trial dates have been set. Trial schedules are subject to change and it is not possible to predict how many of the Engle Progeny Cases pending against Lorillard Tobacco or Lorillard, Inc. will be tried in 2012. It also is not possible to predict whether some courts will implement procedures that consolidate multiple Engle Progeny Cases for trial.

Trials of some of the Engle Progeny Cases have resulted in verdicts that have awarded damages from cigarette manufacturers, including us.

As of April 23, 2012, plaintiffs in seven Engle Progeny Cases were awarded compensatory damages from Lorillard Tobacco. In two of the seven cases, plaintiffs were awarded punitive damages from Lorillard Tobacco. In one of the cases, the court awarded damages to the plaintiff from the defendants, including Lorillard Tobacco, following trial. Lorillard, Inc. was not a defendant in any of these seven cases. The seven cases are listed below in the order in which the verdicts were returned:

• In Mrozek v. Lorillard Tobacco Company (Circuit Court, Fourth Judicial Circuit, Duval County, Florida), the jury awarded plaintiffs a total of $6 million in compensatory damages and $11.3 million in punitive

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damages. The jury apportioned 35% of the fault for the smoker’s injuries to the smoker and 65% to Lorillard Tobacco. The final judgment entered by the trial court reflected the jury’s verdict and awarded plaintiff $3,900,588 in compensatory damages and $11,300,000 in punitive damages plus 6% annual interest. Lorillard Tobacco has noticed an appeal to the Florida First District Court of Appeal. As of April 23, 2012, the trial court had not ruled on plaintiff’s motion for costs and attorneys’ fees.

• In Tullo v. R.J. Reynolds, et al. (Circuit Court, Palm Beach County, Florida), the jury awarded plaintiff a total of $4.5 million in compensatory damages. The jury assessed 45% of the fault to the smoker, 5% to Lorillard Tobacco and 50% to other defendants. The jury did not award punitive damages to the plaintiff. The court entered a final judgment that awarded plaintiff $225,000 in compensatory damages from Lorillard Tobacco plus 6% annual interest. Defendants noticed an appeal from the final judgment to the Florida Fourth District Court of Appeal. The trial court has granted plaintiff’s application for costs but it has not awarded an amount. As of April 23, 2012, the trial court had not ruled on plaintiff’s motion for costs.

• In Sulcer v. Lorillard Tobacco Company, et al. (Circuit Court, Escambia County, Florida), the jury awarded $225,000 in compensatory damages to the plaintiff and it assessed 95% of the fault for the smoker’s injuries to the smoker with 5% allocated to Lorillard Tobacco. The jury returned a verdict for Lorillard Tobacco as to whether plaintiff is entitled to punitive damages. The court entered a final judgment that incorporated the jury’s determination of the parties’ fault and awarded plaintiff $11,250 in compensatory damages. Lorillard Tobacco paid approximately $246,000 to resolve the damages verdict, costs and fees. Following this payment, Sulcer was concluded.

• In Jewett v. R.J. Reynolds Tobacco Co., et al. (Circuit Court, Duval County, Florida), the jury awarded the estate of the decedent $692,981 in compensatory damages and awarded the plaintiff $400,000 for loss of companionship. The jury assessed 70% of the responsibility for the decedent’s injuries to the decedent, 20% to R.J. Reynolds and 10% to Lorillard Tobacco. The jury determined that no punitive damages were warranted. The final judgment entered by the trial court reflected the jury’s verdict and awarded plaintiff a total of $109,298 from Lorillard Tobacco plus 6% annual interest. Defendants have noticed an appeal from the final judgment to the Florida First District Court of Appeal. As of April 23, 2012, the trial court had not ruled on plaintiff’s motion for costs and attorneys’ fees.

• In Weingart v. R.J. Reynolds Tobacco Company, et al. (Circuit Court, Palm Beach County, Florida), the jury determined that the decedent did not sustain any compensatory damages from the defendants, including Lorillard Tobacco, and it returned a verdict for the defendants that punitive damages were not warranted. The jury assessed 91% of the fault for the decedent’s injuries to the decedent, 3% to Lorillard Tobacco and 3% to each of the other two defendants. Following trial, the court granted in part a motion by the plaintiff to award damages, and it tentatively awarded plaintiff $150,000 in compensatory damages. The court entered a final judgment that applied the jury’s comparative fault determinations to the court’s award of compensatory damages. The final judgment awarded plaintiff $4,500 from Lorillard Tobacco. Defendants have noticed an appeal to the Florida Fourth District Court of Appeal from the order that awarded compensatory damages to the plaintiff and have amended their notice of appeal to address the final judgment. In March 2012, the court entered a judgment against the defendants for costs with Lorillard Tobacco’s share amounting to $43,081 plus 4.75% annual interest. Defendants have noticed an appeal from this cost judgment.

• In Sury v. R.J. Reynolds Tobacco Company, et al., (Circuit Court, Duval County, Florida), the jury awarded plaintiff $1,000,000 in compensatory damages and assessed 60% of the responsibility for the decedent’s injuries to the decedent, 20% to Lorillard Tobacco and 20% to R.J. Reynolds. The jury returned a verdict for the defendants regarding whether punitive damages were warranted. In March 2012, the court entered a final judgment against defendants in the amount of $1,000,000 plus 4.75% annual interest, declining to apply the jury’s comparative fault findings to causes of action alleging intentional conduct. Defendants have noticed an appeal to the Florida First District Court of Appeal from the final judgment that awarded compensatory damages to the plaintiff. The plaintiff has filed a motion for determination of entitlement to attorney’s fees and costs. As of April 23, 2012, the court had not ruled on this motion for attorney’s fees and costs.

• In Alexander v. Lorillard Tobacco Company, et al. (Circuit Court, Eleventh Judicial Circuit, Miami-Dade County, Florida) the jury awarded plaintiff $20,000,000 in compensatory damages and $25,000,000 in punitive damages. Lorillard Tobacco is the only defendant in this case. The jury apportioned

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20% of the fault for the smoker’s injuries to the smoker and 80% to Lorillard Tobacco. In March 2012, the court entered a final judgment that applied the jury’s comparative fault determination to the court’s award of compensatory damages, awarding the plaintiff $16,000,000 in compensatory damages and $25,000,000 in punitive damages from Lorillard Tobacco. Lorillard Tobacco has filed a number of post-trial motions challenging the verdict and the plaintiff has filed a post-trial motion for attorneys’ fees and costs. As of April 23, 2012, the trial court had not ruled on these post-trial motions.

As of April 23, 2012, verdicts have been returned in 55 Engle Progeny Cases in which neither Lorillard Tobacco nor Lorillard, Inc. were defendants since the Florida Supreme Court issued its 2006 ruling. Juries awarded compensatory damages and punitive damages in 21 of these trials. The punitive damages awards have totaled approximately $620 million and have ranged from $50,000 to $244 million. In 12 of the trials, juries awarded only compensatory damages. In the 21 other trials, juries found in favor of the defendants. In some of the trials decided in the defendants’ favor, plaintiffs have filed motions challenging the verdicts. It is not possible to predict the final outcome of this litigation.

Three Florida intermediate courts of appeal have affirmed verdicts awarding damages to the plaintiffs in ten Engle Progeny Cases as of April 23, 2012. The Florida Supreme Court denied review of four of these cases affirmed by the Florida First District Court of Appeals and the defendants’ petitions to the U.S. Supreme Court to review these four cases were denied in March 2012. The defendant in a case in which the verdict was affirmed by the Florida Fourth District Court of Appeals has sought review by the Florida Supreme Court. As of April 23, 2012 the Florida Supreme Court had not announced whether it would review the case. In February 2012, the Florida Fourth District Court of Appeals affirmed a second case. The defendant in that case is seeking review by the Florida Supreme Court. As of April 23, 2012, the Florida Supreme Court had not announced whether it would grant review of this case. In March 2012, a third intermediate state appellate court, the Florida Second District Court of Appeals affirmed the final judgment in another case, however the appeals court certified to the Florida Supreme Court the question of whether reliance on the findings in the first phase of the Engle trial violates the tobacco companies’ due process rights. As of April 23, 2012, the Florida Supreme Court had not announced whether it would grant review of this case. Neither Lorillard Tobacco nor Lorillard, Inc. is a defendant in any of the ten cases in which the three Florida intermediate appellate courts affirmed the verdicts awarding damages to the plaintiffs.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In the first quarter of 2012, the Company repurchased the following number of shares of its common stock:

(In millions, except for per share amounts)	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares  Purchased as Part of Publicly Announced  Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2012 — January 31, 2012		0.9	$	111.60		0.9	$	83.7
February 1, 2012 — February 29, 2012		0.7		119.16		0.7		—
March 1, 2012 — March 31, 2012		—		—		—		—
Total		1.6	$	114.85		1.6

The shares repurchased were acquired under a share repurchase program authorized by the Board of Directors on August 12, 2011 for a maximum of $750 million, which was completed on February 24, 2012. All repurchases were made in open market transactions. We record the repurchase of shares of Common Stock at cost based on the transaction date of the repurchase.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

On April 24, 2012, Lorillard, Inc., through its wholly owned subsidiary, Lorillard Holdings Company, Inc. (“LHCI”), formerly known as LRDHC, Inc., acquired blu ecigs^® and other assets used in the manufacture, distribution, development, research, marketing, advertising, sale and service of electronic cigarettes. The acquisition was made pursuant to an asset purchase agreement (the “Agreement”) with BLEC, LLC, Intermark Brands, LLC and QSN Technologies, LLC (the “Sellers”). The Agreement contains customary representations, warranties, covenants and indemnities by the Sellers and LHCI and the consideration paid was $135 million in cash. A copy of the Agreement is attached hereto as Exhibit 2.1.

Item 6. Exhibits

Exhibit Number	Description
2.1	Asset Purchase Agreement, dated April 24, 2012, among, Lorillard Holdings Company, Inc., formerly known as LRDHC, Inc., BLEC, LLC, Intermark Brands, LLC and QSN Technologies, LLC‡*
3.1	Amended and Restated Certificate of Incorporation of Lorillard, Inc., incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K (File No. 1-34097) filed on June 12, 2008
3.2	Amended and Restated Bylaws of Lorillard, Inc., as of July 28, 2011, incorporated herein by reference to Exhibit 3.2 to our Current Report on Form 8-K filed (File No. 1-34097) on July 29, 2011
3.3	Certificate of Amendment of Certificate of Incorporation of Lorillard Tobacco Company and Certificate of Incorporation of Lorillard Tobacco Company, incorporated herein by reference to Exhibit 3.3 to Lorillard, Inc.’s Registration Statement on Form S-3 (File No. 333-159902) filed on June 11, 2009

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3 .4	Bylaws of Lorillard Tobacco Company, incorporated herein by reference to Exhibit 3.4 to Lorillard, Inc.’s Registration Statement on Form S-3 (File No. 333-159902) filed on June 11, 2009
4 .1	Specimen certificate for shares of common stock of Lorillard, Inc., incorporated herein by reference to Exhibit 4.1 to our Amended Registration Statement on Form S-4 (File No. 333-149051) filed on May 9, 2008
4 .2	Indenture, dated June 23, 2009, among Lorillard Tobacco Company, Lorillard, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-34097) filed on June 23, 2009
4 .3	First Supplemental Indenture, dated June 23, 2009, among Lorillard Tobacco Company, Lorillard, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K (File No. 1-34097) filed on June 23, 2009
4 .4	Second Supplemental Indenture, dated April 12, 2010, among Lorillard Tobacco Company, Lorillard, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K (File No. 1-34097) filed on April 12, 2010
4 .5	Third Supplemental Indenture, dated August 4, 2011, among Lorillard Tobacco Company, Lorillard, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee, incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K (File No. 1-34097) filed on August 4, 2011
4 .6	Form of 8.125% Senior Note due 2019 of Lorillard Tobacco Company, incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K (File No. 1-34097) filed on June 23, 2009
4 .7	Form of 6.875% Senior Note due 2020 of Lorillard Tobacco Company, incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K (File No. 1-34097) filed on April 12, 2010
4 .8	Form of 8.125% Senior Note due 2040 of Lorillard Tobacco Company, incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K (File No. 1-34097) filed on April 12, 2010
4 .9	Form of 3.500% Senior Note due 2016 of Lorillard Tobacco Company, incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K (File No. 1-34097) filed on August 4, 2011
4 .10	Form of 7.000% Senior Note due 2041 of Lorillard Tobacco Company, incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K (File No. 1-34097) filed on August 4, 2011
4 .11	Form of Guarantee Agreement of Lorillard, Inc. for the 8.125% Senior Notes due 2019 of Lorillard Tobacco Company, incorporated by reference to Exhibit 4.4 to Lorillard, Inc.’s Current Report on Form 8-K filed on June 23, 2009
4 .12	Form of Guarantee Agreement of Lorillard, Inc. for the 6.875% Senior Notes due 2020 of Lorillard Tobacco Company, incorporated by reference to Exhibit 4.5 to our Current Report on Form 8-K (File No. 1-34097) filed on April 12, 2010
4 .13	Form of Guarantee Agreement of Lorillard, Inc. for the 8.125% Senior Notes due 2040 of Lorillard Tobacco Company, incorporated by reference to Exhibit 4.6 to our Current Report on Form 8-K (File No. 1-34097) filed on April 12, 2010
4 .14	Form of Guarantee Agreement of Lorillard, Inc. for the 3.500% Senior Notes due 2016 of Lorillard Tobacco Company, incorporated by reference to Exhibit 4.5 to our Current Report on Form 8-K (File No. 1-34097) filed on August 4, 2011
4 .15	Form of Guarantee Agreement of Lorillard, Inc. for the 7.000% Senior Notes due 2041 of Lorillard Tobacco Company, incorporated by reference to Exhibit 4.6 to our Current Report on Form 8-K (File No. 1-34097) filed on August 4, 2011

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10 .1	Separation Agreement between Loews Corporation and Lorillard, Inc., Lorillard Tobacco Company, Lorillard Licensing Company, LLC, One Park Media Services, Inc. and Plisa, S.A., incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 1-34097) filed on August 7, 2008
10 .2	Amended and Restated Employment Agreement between Lorillard, Inc. and Martin L. Orlowsky, dated December 19, 2008, incorporated by reference to Exhibit 10.2 to our Annual Report on Form 10-K (File No. 1-34097) filed on March 2, 2009†
10 .3	Comprehensive Settlement Agreement and Release with the State of Florida to settle and resolve with finality all present and future economic claims by the State and its subdivisions relating to the use of or exposure to tobacco products, incorporated herein by reference to Exhibit 10 to Loews’s Report on Form 8-K (File No. 1-6541) filed September 5, 1997
10 .4	Comprehensive Settlement Agreement and Release with the State of Texas to settle and resolve with finality all present and future economic claims by the State and its subdivisions relating to the use of or exposure to tobacco products, incorporated herein by reference to Exhibit 10 to Loews’s Report on Form 8-K (File No. 1-6541) filed February 3, 1998
10 .5	State of Minnesota Settlement Agreement and Stipulation for Entry of Consent Judgment to settle and resolve with finality all claims of the State of Minnesota relating to the subject matter of this action which have been or could have been asserted by the State, incorporated herein by reference to Exhibit 10.1 to Loews’s Report on Form 10-Q for the quarter ended March 31, 1998 (File No. 1-6541) filed May 15, 1998
10 .6	State of Minnesota Consent Judgment relating to the settlement of tobacco litigation, incorporated herein by reference to Exhibit 10.2 to Loews’s Report on Form 10-Q for the quarter ended March 31, 1998 (File No. 1-6541) filed May 15, 1998
10 .7	State of Minnesota Settlement Agreement and Release relating to the settlement of tobacco litigation, incorporated herein by reference to Exhibit 10.3 to Loews’s Report on Form 10-Q for the quarter ended March 31, 1998 (File No. 1-6541) filed May 15, 1998
10 .8	State of Minnesota State Escrow Agreement relating to the settlement of tobacco litigation, incorporated herein by reference to Exhibit 10.6 to Loews’s Report on Form 10-Q for the quarter ended March 31, 1998 (File No. 1-6541) filed May 15, 1998
10 .9	Stipulation of Amendment to Settlement Agreement and For Entry of Agreed Order, dated July 2, 1998, regarding the settlement of the State of Mississippi health care cost recovery action, incorporated herein by reference to Exhibit 10.1 to Loews’s Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-6541) filed August 14, 2008
10 .10	Mississippi Fee Payment Agreement, dated July 2, 1998, regarding the payment of attorneys’ fees, incorporated herein by reference to Exhibit 10.2 to Loews’s Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-6541) filed August 14, 2008
10 .11	Stipulation of Amendment to Settlement Agreement and For Entry of Consent Decree, dated July 24, 1998, regarding the settlement of the Texas health care cost recovery action, incorporated herein by reference to Exhibit 10.4 to Loews’s Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-6541) filed on August 14, 2008
10 .12	Texas Fee Payment Agreement, dated July 24, 1998, regarding the payment of attorneys’ fees, incorporated herein by reference to Exhibit 10.5 to Loews’s Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-6541) filed on August 14, 2008
10 .13	Stipulation of Amendment to Settlement Agreement and For Entry of Consent Decree, dated September 11, 1998, regarding the settlement of the Florida health care cost recovery action, incorporated herein by reference to Exhibit 10.1 to Loews’s Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 1-6541) filed November 17, 2008
10 .14	Florida Fee Payment Agreement, dated September 11, 1998, regarding the payment of attorneys’ fees, incorporated herein by reference to Exhibit 10.2 to Loews’s Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 1-6541) filed November 17, 2008
10 .15	Master Settlement Agreement with 46 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and the Northern Marianas to settle the asserted and unasserted health care cost recovery and certain other claims of those states, incorporated herein by reference to Exhibit 10 to Loews’s Current Report on Form 8-K (File No. 1-6541) filed November 25, 1998

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10 .16	Form of Assignment and Assumption of Services Agreement, dated as of April 1, 2008, by and between R.J. Reynolds Tobacco Company and R.J. Reynolds Global Products, Inc., with a joinder by Lorillard Tobacco Company, incorporated herein by reference to Exhibit 10.17 to our Amended Registration Statement on Form S-4 (File No. 333- 149051) filed on March 26, 2008
10 .17	Lorillard, Inc. 2008 Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (File No. 1-34097) filed on August 7, 2008†
10 .18	Form of Lorillard, Inc. indemnification agreement for directors and executive officers, incorporated herein by reference to Exhibit 10.19 to our Amended Registration Statement on Form S-4 (File No. 333-149051) filed on May 9, 2008†
10 .19	Form of Severance Agreement for named executive officers, incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K (File No. 1-34097) filed on July 10, 2008†
10 .20	Amendment to Supply Agreement for Reconstituted Tobacco, dated October 30, 2008, by and between R.J. Reynolds Tobacco Company and Lorillard Tobacco Company, incorporated herein by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-34097) filed on November 4, 2008 #
10 .21	Form of Stock Appreciation Rights Award Certificate, incorporated herein by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-34097) filed on November 4, 2008†
10 .22	Form of Stock Option Award Certificate, incorporated herein by reference to Exhibit 10.22 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 1-34097) filed on May 6, 2010†
10 .23	Form of Restricted Stock Award Certificate, incorporated herein by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (File No. 1-34097) filed on May 5, 2009†
10 .24	Form of Restricted Stock Unit Award Certificate, incorporated herein by reference to Exhibit 10.24 to our Annual Report on Form 10-K for the year ended December 31, 2011 (File No. 1-34097) filed on February 21, 2012†
10 .25	Credit Agreement, dated March 26, 2010, among Lorillard Tobacco Company, as borrower, Lorillard, Inc., as parent guarantor, the lenders referred to therein, and JPMorgan Chase Bank, N.A., as Administrative Agent, incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 1-34097) filed on March 26, 2010
10 .26	Consulting Agreement between Lorillard, Inc. and Martin L. Orlowsky, dated August 12, 2010, incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K (File No. 1-34097) filed on August 12, 2010†
10 .27	Offer Letter between Lorillard, Inc. and Murray S. Kessler, dated August 12, 2010, incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K (File No. 1-34097) filed on August 12, 2010†
10 .28	Severance Agreement between Lorillard, Inc. and Murray S. Kessler, dated October 11, 2010, incorporated herein by reference to Exhibit 10.26 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 1-34087) filed on October 27, 2010†
11 .1	Statement regarding computation of earnings per share. (See Note 11 to the consolidated financial statements.)*
31 .1	Certification by the Chief Executive Officer of Lorillard, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a)*
31 .2	Certification by the Chief Financial Officer of Lorillard, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a)*
32 .1	Certification by the Chief Executive Officer and Chief Financial Officer of Lorillard, Inc. pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002)*
101 .INS	XBRL Instance Document *
101 .SCH	XBRL Taxonomy Extension Schema Document *

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101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document *
101.LAB	XBRL Taxonomy Extension Label Linkbase Document *
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document *
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document *

* Filed herewith.

# Confidential treatment has been granted for certain portions of this exhibit pursuant to an order under the Exchange Act of 1934, as amended, which portions have been omitted and filed separately with the Securities and Exchange Commission.

† Management or compensatory plan or arrangement required to be filed pursuant to Item 601(b)(10) of Regulation S-K.

‡ Schedules and exhibits to Exhibit 2.1, the Asset Purchase Agreement, have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish supplemental copies of any omitted schedules upon request by the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 27, 2012

LORILLARD, INC.
By:	/s/ Murray S. Kessler
	Name:	Murray S. Kessler
	Title:	Chairman, President and Chief Executive Officer (Principal Executive Officer)
By:	/s/ David H. Taylor
	Name:	David H. Taylor
	Title:	Executive Vice President, Finance and
		Planning and Chief Financial Officer (Principal Financial Officer)

EX-2.1

EXECUTION COPY

ASSET PURCHASE AGREEMENT

among

LRDHC, INC.,

BLEC, LLC,

INTERMARK BRANDS, LLC

and

QSN TECHNOLOGIES, LLC

dated as of April 24, 2012

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS ARTICLE II PURCHASE AND SALE
Section 2.01	Purchase and Sale of Assets		9
Section 2.02	Excluded Assets		11
Section 2.03	Assumed Liabilities		11
Section 2.04	Excluded Liabilities		12
Section 2.05	Purchase Price		13
Section 2.06	Allocation of Purchase Price		14
Section 2.07	Third Party Consents		14
Section 2.08	The Buyers of Purchased Assets		14
ARTICLE III CLOSING
Section 3.01	Closing		15
Section 3.02	Closing Deliverables		15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Section 4.01	Organization and Qualification of the Sellers		16
Section 4.02	Authority of the Sellers		17
Section 4.03	No Conflicts; Consents		17
Section 4.04	Financial Statements		17
Section 4.05	Undisclosed Liabilities		18
Section 4.06	Absence of Certain Changes, Events and Conditions		18
Section 4.07	Material Contracts		19
Section 4.08	Title to Purchased Assets		22
Section 4.09	Condition and Sufficiency of Assets; Operations		22
Section 4.10	Real Property		22
Section 4.11	Intellectual Property		23
Section 4.12	Inventory		24
Section 4.13	Accounts Receivable		24
Section 4.14	Customers and Suppliers		24
Section 4.15	Insurance		25
Section 4.16	Legal Proceedings; Governmental Orders		25
Section 4.17	Compliance with Laws; Permits		25
Section 4.18	Regulatory Matters		26
Section 4.19	Tobacco Matters		27
Section 4.20	Environmental Matters		27
Section 4.21	Employee Benefit Matters		27
Section 4.22	Employment Matters		28
Section 4.23	Taxes		29
Section 4.24	Financial Advisors		30

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		Page
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYERS
Section 5.01	Organization of the Buyers		30
Section 5.02	Authority of the Buyers		30
Section 5.03	No Conflicts; Consents		30
Section 5.04	Legal Proceedings		31
Section 5.05	Financial Advisors		31
ARTICLE VI COVENANTS
Section 6.01	Confidentiality		31
Section 6.02	Non-competition; Non-solicitation		31
Section 6.03	Post-Closing Cooperation		33
Section 6.04	Public Announcements		33
Section 6.05	Bulk Sales Laws		33
Section 6.06	Receivables		33
Section 6.07	Certain Tax Matters		33
Section 6.08	Further Assurances		34
Section 6.09	Insurance		34
ARTICLE VII INDEMNIFICATION
Section 7.01	Survival		34
Section 7.02	Indemnification by the Sellers		35
Section 7.03	Indemnification by the Buyers		35
Section 7.04	Certain Limitations		36
Section 7.05	Indemnification Procedures; Third Party Claims		36
Section 7.06	Payment of Claims		36
Section 7.07	Tax Treatment for Indemnification Payments		37
Section 7.08	Exclusivity		37
ARTICLE VIII MISCELLANEOUS
Section 8.01	Expenses		37
Section 8.02	Notices		38
Section 8.03	Interpretation		39
Section 8.04	Headings		39
Section 8.05	Severability		39
Section 8.06	Entire Agreement		39
Section 8.07	Successors and Assigns		39
Section 8.08	No Third-party Beneficiaries		39
Section 8.09	Amendment and Modification; Waiver		40
Section 8.10	Governing Law; Submission to Jurisdiction; Waiver of Jury Trial		40
Section 8.11	Specific Performance		41
Section 8.12	Counterparts		41

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		Page
EXHIBITS
Exhibit A	Escrow Agreement
Exhibit B	Employee to Execute Non-Competition Agreement
Exhibit C	Financial Statements

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) dated as of April 24, 2012, among LRDHC, INC., a Delaware corporation (“LRDHC” and together any of the LRDHC Subsidiaries designated by LRDHC in its sole discretion, from time to time as the case may be, collectively the “Buyers” and each, a “Buyer”), BLEC, LLC, a Nevada limited liability company (“BLEC”), INTERMARK BRANDS, LLC, a Nevada limited liability company (“Intermark”) and QSN TECHNOLOGIES, LLC, a Nevada limited liability company (“QSN”, and together with BLEC and Intermark, the “Sellers,” and each, a “Seller”).

RECITALS

WHEREAS, the Sellers are engaged, in whole or in part, in (or hold assets that are used, held for use or intended for use in) the manufacture, distribution, development, research, marketing, advertising, sale and service relating to electronic cigarettes, any component parts of electronic cigarettes or the packaging of electronic cigarettes and any electronic cigarette accessories (the “Business”);

WHEREAS, the Purchased Assets comprise substantially all of the properties and assets of the Sellers used, held for use or intended to be used in the Business; and

WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, each Seller desires to transfer, sell, convey, assign and deliver to the Buyers, and the Buyers desire to purchase, acquire and accept, the Purchased Assets, under the terms hereof.

AGREEMENT

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and subject to the conditions set forth in this Agreement, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

The following terms have the meanings specified or referred to in this Article I:

“$” means the lawful currency of the United States.

“Accounts Receivable” has the meaning set forth in Section 2.01(b).

“Action” means any claim or notice of claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, (whether civil, criminal, administrative, judicial, investigative, regulatory or otherwise, whether at law or in equity, whether formal or informal, whether public or private).

“Administrative Services” has the meaning set forth in Section 3.02(a)(vi).

“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the preamble.

“Allocation Schedule” has the meaning set forth in Section 2.06.

“Assigned Contracts” has the meaning set forth in Section 2.01(d).

“Assumed Liabilities” has the meaning set forth in Section 2.03.

“Balance Sheet” has the meaning set forth in Section 4.04.

“Balance Sheet Date” has the meaning set forth in Section 4.04.

“Benefit Plan” means any pension, benefit, retirement, compensation, profit-sharing, deferred compensation, bonus, incentive, performance award, phantom equity, equity option, stock or stock-based, restricted equity, equity appreciation right, equity purchase, equity ownership, change in control, retention, severance, transaction bonus, vacation, excess benefit, supplemental unemployment, post-retirement medical or life insurance, welfare or incentive plan, or sick leave, long-term disability, medical, hospitalization, life insurance, other insurance plan, paid time off, fringe benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not tax qualified and whether or not subject to ERISA, which is or has been maintained, sponsored, contributed to, or required to be contributed to by any Seller or its subsidiaries for the benefit of any current or former employee, officer, director or retiree of any Seller or its subsidiaries or any spouse or dependent of such individual, or under which any Seller or its subsidiaries has or may have any Liability.

“Bill of Sale and Assignment and Assumption Agreement” has the meaning set forth in Section 3.02(a)(ii).

“BLEC” has the meaning set forth in the preamble.

“Books and Records” has the meaning set forth in Section 2.01(m).

“Business” has the meaning set forth in the recitals.

“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in the City of New York are authorized or required by Law to be closed for business.

“Buyer” or “Buyers” has the meaning set forth in the preamble.

“Buyer Indemnified Parties” has the meaning set forth in Section 7.02(a).

“Buyer Insurance Policies” has the meaning set forth in Section 6.09.

“BWW” means Blu Worldwide, Inc., a Panamanian corporation.

“CBP” has the meaning set forth in Section 4.18(a).

“Claim” has the meaning set forth in Section 7.05(a).

“Closing” has the meaning set forth in Section 3.01.

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“COBRA” means Section 4980B of the Code.

“Code” means the Internal Revenue Code of 1986, as amended.

“Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral.

“DataTech” means DataTech Systems, LLC, a North Carolina limited liability company and an Affiliate of the Sellers.

“DataTech Services Assets” has the meaning set forth in Section 2.02(e).

“DOC” has the meaning set forth in Section 4.18(a).

“Disclosure Schedules” means the Disclosure Schedules delivered by the Sellers and the Buyers concurrently with the execution and delivery of this Agreement, which shall be arranged in numbered and lettered Sections and subsections corresponding to the numbered and lettered Sections and subsections contained in this Agreement.

“Encumbrance” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

“Environmental Claim” means any Action, Governmental Order, lien, fine, penalty, or, as to each, any settlement or judgment arising therefrom, by or from any Person alleging liability of whatever kind or nature (including liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on or resulting from: (a) the presence, Release of, or exposure to, any Hazardous Materials; or (b) any actual or alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.

“Environmental Law” means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air (indoor or outdoor), soil, drinking water, surface water or groundwater, land surface or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, Release, transportation, processing, production, disposal or remediation of any Hazardous Materials.

“Environmental Notice” means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit.

“Environmental Permit” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, authorized by or made pursuant to Environmental Law.

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“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

“ERISA Affiliate” means, with respect to any Person, any other Person that, together with such first Person, would be treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.

“Escrow Account” has the meaning set forth in Section 2.05(b).

“Escrow Agent” means the entity designated to serve as escrow agent under the Escrow Agreement.

“Escrow Agreement” means the Escrow Agreement among the Buyers, the Sellers and the Escrow Agent, to be executed and delivered at the Closing in the form attached hereto as Exhibit A.

“Escrow Amount” means the sum of $10,000,000 to be deposited with the Escrow Agent and held in escrow pursuant to the Escrow Agreement, which Escrow Amount shall change from time to time based on payments or disbursements made from the Escrow Account pursuant to the terms hereof and thereof.

“Excess Liability Policy” has the meaning set forth in Section 6.09(a).

“Excluded Assets” has the meaning set forth in Section 2.02.

“Excluded Contracts” has the meaning set forth in Section 2.02(a).

“Excluded Liabilities” has the meaning set forth in Section 2.04.

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations promulgated thereunder or any successor statute or statutes thereto.

“FDA” has the meaning set forth in Section 4.18(a).

“Final Allocation” has the meaning set forth in Section 2.06.

“Financial Books and Records” has the meaning set forth in Section 2.01(m).

“Financial Statements” has the meaning set forth in Section 4.04.

“FIRPTA Certificates” has the meaning set forth in Section 3.02(a)(v).

“FTC” has the meaning set forth in Section 4.18(a).

“Funds Flow” has the meaning set forth in Section 3.02(c).

“GAAP” means United States generally accepted accounting principles in effect from time to time.

“General Liability Insurance Policy” has the meaning set forth in Section 6.09(a).

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“Governing Documents” means, with respect to any Person, (a) if a corporation, the memorandum and articles of association, articles or certificate of incorporation and the bylaws or similar documents; (b) if a general partnership or limited liability partnership, the partnership agreement and any statement of partnership; (c) if a limited partnership, the limited partnership agreement and the certificate of limited partnership; (d) if a limited liability company, the certificate of formation and limited liability company agreement or operating agreement; (e) if another type of Person, any charter or similar document adopted or filed in connection with the creation, formation or organization of the Person; (f) all equityholders’ agreements, voting agreements, voting trust agreements or other similar agreements or documents relating to the organization, management or operation of such entity; and (g) any amendment or supplement to any of the foregoing.

“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

“Hazardous Materials” means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation and polychlorinated biphenyls.

“Health Claims” has the meaning set forth in Section 4.19(b).

“HHS” has the meaning set forth in Section 4.18(a).

“Indebtedness” means, with respect to any Person, any obligations of such Person (a) for borrowed money, (b) evidenced by notes, bonds, debentures or similar instruments, (c) for the deferred purchase price of goods or services (other than payables or accruals incurred in the ordinary course of business), (d) under capital leases, (e) any other indebtedness (other than trade accounts payables or operating accruals incurred in the ordinary course of business), or (f) in the nature of guarantees of obligations of the type described in clauses (a) through (e) above of any other Person, including by providing collateral or credit support of any kind for the obligations of another Person.

“Indemnified Party” has the meaning set forth in Section 7.05(a).

“Indemnifying Party” has the meaning set forth in Section 7.05(a).

“Intellectual Property” means all of the following and similar intangible property and related proprietary rights, interests and protections, however arising, pursuant to the Laws of any jurisdiction throughout the world: (a) trademarks, service marks, trade names, brand names, logos, trade dress and other proprietary indicia of goods and services, whether registered, unregistered or arising by Law, and all registrations and applications for registration of such trademarks, including intent-to-use applications, and all issuances, extensions and renewals of such registrations and applications; (b) internet domain names, whether or not trademarks, registered in any generic top level domain by any authorized private registrar or Governmental Authority; (c) original works of authorship in any medium of expression, whether or not published, all copyrights (whether registered, unregistered or arising by Law), all registrations and applications for registration of such copyrights, and all issuances, extensions and renewals of such registrations and applications; (d) confidential information, formulas, designs, devices, technology, know-how,

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research and development, inventions, methods, processes, compositions and other trade secrets, whether or not patentable; (e) patented and patentable designs and inventions, all design, plant and utility patents, letters patent, utility models, pending patent applications and provisional applications and all issuances, divisions, continuations, continuations-in-part, reissues, extensions, reexaminations and renewals of such patents and applications; and (f) social media accounts, whether corporate branded, corporate celebrity, employee affiliate or co-branded, including microblogging accounts (e.g., Twitter^®), social networking accounts (e.g., LinkedIn^®, Facebook^®), social bookmarking accounts (e.g., Del.icio.ous^®, StumbleUpon^®), social news accounts (e.g., Digg^®, Reddit^®) and multimedia accounts (e.g., Flickr^®, YouTube^®), and the contents and information contained therein.

“Intellectual Property Assets” means all Intellectual Property that is owned by the Sellers, individually or collectively, and used in or necessary for the conduct of the Business as conducted on the date hereof, including the Intellectual Property set forth in Section 2.01(e) of the Disclosure Schedules.

“Intellectual Property Assignments” has the meaning set forth in Section 3.02(a)(iii).

“Intellectual Property Licenses” means all licenses, sublicenses and other agreements by or through which other Persons, including each Seller’s respective Affiliates, grant any Seller exclusive or non-exclusive rights or interests in or to any Intellectual Property that is used in or necessary for the conduct of the Business as currently conducted.

“Intellectual Property Registrations” means all Intellectual Property Assets that are subject to any issuance, registration, application or other filing by, to or with any Governmental Authority or authorized private registrar in any jurisdiction, including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.

“Interim Balance Sheet” has the meaning set forth in Section 4.04.

“Interim Balance Sheet Date” has the meaning set forth in Section 4.04.

“Interim Financial Statements” has the meaning set forth in Section 4.04.

“Intermark” has the meaning set forth in the preamble.

“Inventory” has the meaning set forth in Section 2.01(c).

“Knowledge of the Sellers” or any other similar knowledge qualification, means as to any matter, circumstance or event, the knowledge of the individuals listed on Section 1.01(a) of the Disclosure Schedules of such matter, circumstance or event; provided that, in each case, such individual shall be deemed to have knowledge if (a) he or she has actual knowledge or (b) a prudent individual in the same or similar position would acquire actual knowledge in the course of a reasonable investigation including an inquiry of employees, managers, members, directors, officers, agents or professional advisors (past and present) of the Sellers regarding such matter, circumstance or event.

“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, administrative announcement, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

“LRDHC” has the meaning set forth in the preamble.

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“LRDHC Subsidiaries” means the direct and indirect subsidiaries of LRDHC set forth in Section 1.01(b) of the Disclosure Schedules, each of which is wholly owned, directly or indirectly, by LRDHC free and clear of any Encumbrances.

“Leased Real Property” has the meaning set forth in Section 4.10(b).

“Leases” has the meaning set forth in Section 4.10(b).

“Liabilities” means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.

“Lorillard” means Lorillard, Inc., a Delaware corporation.

“Losses” means losses, damages (including incidental, consequential, special, punitive, exemplary or indirect damages), Liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys’ fees and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers; provided, however, for purposes of this Agreement, the term “Losses” shall not include any loss of profits, diminution in value or any type of multiple, whether based on statute, contract, tort or otherwise.

“Material Adverse Effect” means any event, occurrence, fact, condition or change that is or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, capitalization, prospects, condition (financial or otherwise) or assets of the Business, (b) the value of the Purchased Assets, or (c) the ability of each Seller to consummate the transactions contemplated hereby on a timely basis; provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition, or change, directly or indirectly, arising out of or attributable to: (i) any changes, conditions or effects in the United States or foreign economies or securities or financial markets in general; (ii) any change, effect or circumstance resulting from an action required or permitted by this Agreement; or (iii) conditions caused by acts of terrorism or war (whether or not declared); provided further, however, that any event, occurrence, fact, condition, or change referred to in clauses (i) or (iii) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred or could reasonably be expected to occur to the extent that such event, occurrence, fact, condition, or change has a disproportionate effect on the Business compared to other participants in the industries in which the Business operates.

“Material Contracts” has the meaning set forth in Section 4.07(a).

“Material Customers” has the meaning set forth in Section 4.14(a).

“Material Suppliers” has the meaning set forth in Section 4.14(b).

“Nontransferable Assets” has the meaning set forth in Section 2.07.

“Non-Competition Agreement” means the non-competition agreement dated as of the date of this Agreement, by and between the applicable Buyer and the individual listed on Exhibit B hereto, duly executed by such Buyer and the individual listed on Exhibit B hereto.

“Other Books and Records” has the meaning set forth in Section 2.01(m).

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“Payoff Amount” means the aggregate of the amounts of the Payoff Liabilities set forth in Section 4.05(c) of the Disclosure Schedules.

“Payoff Liabilities” means the Indebtedness or other liability listed in Section 4.05(c) of the Disclosure Schedules that will be discharged in connection with the Closing.

“Permits” means all permits, licenses, consents, orders, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.

“Permitted Encumbrances” has the meaning set forth in Section 4.08.

“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

“Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal or administrative) commenced, brought, conducted, or heard by or before any Governmental Authority or arbitrator.

“Property Insurance Policy” has the meaning set forth in Section 6.09(a).

“Purchase Price” has the meaning set forth in Section 2.05.

“Purchased Assets” has the meaning set forth in Section 2.01.

“QSN” has the meaning set forth in the preamble.

“Recall Insurance Policy” has the meaning set forth in Section 6.09(a).

“Related Party” means any director, officer, manager, member, direct or indirect owner or employee of any Seller or any Affiliate or member of the immediate family of any such director, officer, direct or indirect owner, manager, member or employee.

“Release” means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including ambient air (indoor or outdoor), drinking water, surface water, groundwater, land surface or subsurface strata or within, from or into any building, structure, facility or fixture).

“Representative” means, with respect to any Person, any and all directors, officers, employees, managers, members, consultants, financial advisors, counsel, accountants, auditors and agents of such Person.

“Restricted Period” has the meaning set forth in Section 6.02(a).

“Seller Insurance Policies” has the meaning set forth in Section 4.15.

“Seller” or “Sellers” has the meaning set forth in the preamble.

“Seller Indemnified Parties” has the meaning set forth in Section 7.03(a).

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“Taxes” means (a) all U.S. federal, state, local or non-U.S. taxes, charges, fees, duties, imposts, levies or other assessments, including all income, corporation, alternative minimum, gross receipts, capital, sales, use, production, ad valorem, value added, transfer, documentary, franchise, registration, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, escheat obligations, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits and estimated taxes, customs duties or other taxes of any kind whatsoever; (b) all interest, penalties, fines, additions to tax or other additional amounts imposed by any taxing authority in connection with any item described in clause (a); and (c) all transferee, successor, joint and several, contractual or other liability (including liability pursuant to Treasury Regulation Section 1.1502-6 (or any similar state, local or foreign provisions)) in respect of any items described in clause (a) or (b).

“Tax Return” means any return, declaration, report, estimates, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Third Party Claim” has the meaning set forth in Section 7.05(b).

“Tobacco Laws” means all Laws, statutes, rules, regulations and ordinances related to (a) the research, development, manufacture, advertising, marketing, distribution, sale, or use (including without limitation, any related health effects) of, (b) the exposure to, or (c) warnings regarding, any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product, and any electronic cigarette product, including any component, part, or accessory of an electronic cigarette, whether or not the electronic cigarette product is made or derived from tobacco.

“Transaction Documents” means this Agreement, the Escrow Agreement, the Bill of Sale and Assignment and Assumption Agreement, Intellectual Property Assignments, the Non-Competition Agreement, the Transition Services Agreement and the other agreements, instruments and documents required to be delivered at the Closing.

“Transfer Taxes” has the meaning set forth in Section 6.07(a).

“Transition Services Agreement” has the meaning set forth in Section 3.02(a)(vii).

“TTB” has the meaning set forth in Section 4.18(a).

“Union” has the meaning set forth in Section 4.22(c).

“Year-End Financial Statements” has the meaning set forth in Section 4.04.

ARTICLE II

PURCHASE AND SALE

Section 2.01    Purchase and Sale of Assets. Subject to Section 2.02 and the terms and conditions set forth herein, on the date of this Agreement, each of the Sellers shall sell, assign, transfer, convey and deliver to the Buyers, and the Buyers shall purchase from the Sellers, free and clear of any Encumbrances other than Permitted Encumbrances, all of the Sellers’ right, title and interest in, to and under the assets, properties and rights wherever located (including, in transit or in the possession of any third party) that are used, held for use or intended to be used in, or arise from or relate to the Business (collectively, the “Purchased Assets”), including the following:

(a)    cash and cash equivalents held for use in or arising from the Business;

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(b)    in each case arising from or relating to the Business (i) all trade and credit card accounts receivable and other rights to payment held by the Sellers, and the full benefit of all security for such accounts or rights to payment, including all trade and credit card accounts receivable representing amounts receivable in respect of goods shipped or products sold or services rendered to customers of the Sellers, (ii) all other accounts or notes receivable held by the Sellers and the full benefit of all security for such accounts or notes and (iii) any claim, remedy or other right related to any of the foregoing (collectively, the “Accounts Receivable”);

(c)    all inventories, finished goods, raw materials, work in progress, packaging, supplies, parts, packaging materials and other inventories, including all inventories on consignment, bailment or other arrangement (whether located at any retail store, transload shipment site, consignment warehouse, or other offsite location or in transit in any railcar, truck, boat, airplane or other mode of transportation) (“Inventory”) held in connection with the Business;

(d)    all Contracts and Intellectual Property Licenses set forth in Section 2.01(d) of the Disclosure Schedules (the “Assigned Contracts”);

(e)    all Intellectual Property Assets including the Intellectual Property set forth in Section 2.01(e) of the Disclosure Schedules;

(f)    all furniture, furnishings, fixtures, equipment, machinery, tools, vehicles, office equipment, software, models, supplies, computers, telephones, molds/tooling and other tangible personal property set forth in Section 2.01(f) of the Disclosure Schedules;

(g)    all of the Sellers’ leasehold interests in the Leased Real Property;

(h)    all Permits that are held by the Sellers and required for the conduct of the Business as conducted on the date hereof or for the ownership and use of the Purchased Assets, including those listed in Section 4.17(b) of the Disclosure Schedules (to the extent such Permits can be transferred to the Buyers pursuant to their terms and any applicable Laws);

(i)    all rights to any Actions of any nature available to or being pursued by the Sellers to the extent relating to the Business, the Purchased Assets or the Assumed Liabilities, whether arising by way of counterclaim or otherwise, including those listed in Section 2.01(i) of the Disclosure Schedules;

(j)    all prepaid expenses, credits, advance payments, fees (including processing fees), claims, security, refunds, rebates, promotional allowances, discounts, costs (including prepaid website and software costs), rights of recovery, rights of set-off, rights of recoupment, deposits (including deposits and prepayments on Inventory purchases), charges and sums arising from or relating to the Business;

(k)    all of the Sellers’ rights under warranties, indemnities and all similar rights in favor of any Seller in respect of any Purchased Assets or any Assumed Liability;

(l)    all insurance benefits, including rights and proceeds, arising from or relating to the Business, the Purchased Assets or the Assumed Liabilities;

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(m)    to the extent relating to the Business, originals, copies or digital media of all books and records, including (i) books of account, ledgers and general, financial and accounting records (the “Financial Records”) and (ii) employee records, machinery and equipment maintenance files, customer lists, customer purchasing histories, price lists, distribution lists, supplier lists, production data, quality control records and procedures, customer complaints and inquiry files, research and development files (including all protocols, investigations, brochures, reports, safety reports, safety data, raw data, source documents, files and summaries), records and data (including all correspondence with any Governmental Authority), written notes, standard operating procedures, logs, studies, sales material and records (including pricing history, total sales, terms and conditions of sale, sales and pricing policies and practices), strategic plans, internal financial statements, marketing and promotional surveys, material and research and intellectual property files relating to the Intellectual Property Assets and the Intellectual Property Licenses, manuals, product drawings, blueprints and schematics, and all other general business, technical, financial and technical files, invoices, documents (including market research reports, commercial plans and strategic assessments and, in all cases, in any form or medium) (the “Other Books and Records” and together with the Financial Records, the “Books and Records”); provided that the Sellers shall be permitted to retain copies of the Financial Records; and

(n)    all goodwill and the going concern value of the Business.

Section 2.02    Excluded Assets. Notwithstanding the foregoing, the Purchased Assets shall not include the following assets (collectively, the “Excluded Assets”):

(a)    Contracts, including Intellectual Property Licenses, that are not Assigned Contracts and which are set forth in Section 2.02(a) of the Disclosure Schedules (the “Excluded Contracts”);

(b)    the Governing Documents, minute books, membership interest books, books of account or other records having to do with the formation of the Sellers to the extent not included in the Books and Records;

(c)    all Benefit Plans and assets attributable thereto;

(d)    the assets, properties and rights specifically set forth in Section 2.02(d) of the Disclosure Schedules;

(e)    any assets necessary for the performance under the Transition Services Agreement (the “DataTech Services Assets”).

(f)    the rights that accrue or will accrue to the Sellers under the Transaction Documents; and

(g)    any rights to payment associated with intercompany accounts, receivables, or accruals between any Seller and any present or former Affiliate or Related Party of any Seller, including those listed in Section 2.02(g) of the Disclosure Schedules.

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Section 2.03    Assumed Liabilities. Subject to Section 2.04 and the terms and conditions set forth herein, on the date of this Agreement, the Buyers shall assume and agree to pay, perform and discharge only the following Liabilities of the Sellers (collectively, the “Assumed Liabilities”), and no other Liabilities:

(a)    all trade accounts payable and accrued expenses (other than in respect of Taxes) of the Sellers to third parties in connection with the Business that (i) remain unpaid and are generally within the payment terms of such obligations as of the date of this Agreement and (ii) that are either reflected on the Interim Balance Sheet or arose in the ordinary course of business since the Interim Balance Sheet Date;

(b)    all Liabilities in respect of the Assigned Contracts to the extent that such Liabilities do not relate to any failure to perform, improper performance, breach of warranty or other breach, default or violation of such Contract by the Sellers prior to the date of this Agreement;

(c)    any Liabilities with respect to any Action arising out of, relating to or otherwise in respect of the operation of the Business or the Purchased Assets to the extent such Action relates to such operation on or after the date of this Agreement;

(d)    any Liabilities for Transfer Taxes of the Sellers for which the Buyers are responsible pursuant to Section 6.07(a);

(e)    any Liabilities with respect to any voluntary recall by the Buyers relating to or arising from any products manufactured or any service performed by the Buyers or their Affiliates on or after the date of this Agreement; and

(f)    all Liabilities listed in Section 2.03(f) of the Disclosure Schedules.

Section 2.04    Excluded Liabilities. Notwithstanding the provisions of Section 2.03 or any other provision in this Agreement to the contrary, the Buyers shall not assume and shall not be responsible to pay, perform or discharge any Liabilities of the Sellers or any of their respective Affiliates of any kind or nature whatsoever other than the Assumed Liabilities (the “Excluded Liabilities”). The Sellers shall, and shall cause each of their respective Affiliates to, pay, discharge and satisfy in due course all Excluded Liabilities. Without limiting the generality of the foregoing, the Excluded Liabilities shall include the following:

(a)    any Liabilities of the Sellers arising or incurred in connection with the negotiation, preparation, investigation and performance of this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby, including fees and expenses of counsel, accountants, consultants, advisers and others;

(b)    any Liabilities arising out of or with respect to any Taxes of any Seller, other than any Transfer Taxes for which the Buyers are responsible pursuant to Section 6.07(a).

(c)    any Liabilities relating to or arising out of the Excluded Assets or Excluded Contracts;

(d)    any Liabilities arising under or in connection with any Benefit Plan;

(e)    any Liabilities with respect to any Action arising out of, relating to or otherwise in respect of the operation of the Business or the Purchased Assets to the extent such Action relates to such operation by the Sellers prior to the date of this Agreement, including any product liability or similar claim for injury to a Person or property which arises out of or is based upon any express or implied representation, warranty, agreement or guaranty made by the Sellers, or by reason of the improper performance or malfunctioning of a product, improper design or manufacture, failure to adequately package, label or warn of hazards or other related product defects of any products at any time manufactured or sold or any service performed by the Sellers;

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(f)    any Liabilities with respect to any recall, other than voluntary recalls by the Buyers, relating to or arising from any products manufactured, including any products included in the Purchased Assets, or sold by or for any service performed by the Sellers before the date of this Agreement;

(g)    any Liabilities arising prior to the date of this Agreement in respect of any present or former employees, officers, directors, members, managers, retirees, independent contractors or consultants of the Sellers or any of their Affiliates, including any Liabilities associated with any claims for wages or other benefits, bonuses, accrued vacation, workers’ compensation, severance, retention, termination or other payments;

(h)    any trade accounts payable of the Sellers to third parties that (i) constitute Payoff Liabilities or (ii) are not reflected on the Interim Balance Sheet or arose outside the ordinary course of business since the Interim Balance Sheet Date;

(i)    any Liabilities to indemnify, reimburse or advance amounts to any present or former Affiliate, officer, director, member, manager, or agent of the Sellers (including with respect to any breach of fiduciary obligations by same), except for indemnification of same pursuant to Section 7.03 as Seller Indemnified Parties;

(j)    any Liabilities under any other Contracts, including Intellectual Property Licenses, to the extent such Liabilities arise out of or relate to a breach by the Sellers of such Contracts prior to the date of this Agreement;

(k)    any Liabilities associated with Indebtedness of the Sellers and/or the Business owing to financial institutions;

(l)    all Liabilities associated with (i) intercompany accounts, payables, accruals or loans between any Seller and any present or former Affiliate or Related Party of any Seller, including accounts payable for purchases made from BWW or (ii) any Indebtedness owing by the Sellers to any present or former Affiliate or Related Party of any Seller, including those listed in Section 2.04(l) of the Disclosure Schedules; and

(m)    all Liabilities listed in Section 2.04(m) of the Disclosure Schedules.

Section 2.05    Purchase Price. The aggregate purchase price for the Purchased Assets shall be $135,000,000 (the “Purchase Price”), plus the assumption of the Assumed Liabilities. The Purchase Price shall be paid on the date of this Agreement as follows:

(a)    The Buyers shall deliver an amount in immediately available funds equal to the Purchase Price less the sum of (A) the Escrow Amount and (B) the Payoff Amount, by wire transfer of immediately available funds to an account designated in writing by the Sellers to LRDHC;

(b)    The Buyers shall deposit the Escrow Amount by wire transfer of immediately available funds into an escrow account designated by the Escrow Agent (the “Escrow Account”), which Escrow Amount shall be held and distributed in accordance with the terms of the Escrow Agreement to satisfy (i) all premiums under the General Liability Insurance Policy and the Excess ii) Liability Policy pursuant to Section 6.09(b) and (ii) any and all claims made by the Buyers or any other Buyer Indemnified Party against any Seller pursuant to Article VII; and

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(c)    The Buyers shall deliver an amount equal to each of the payoff amounts with respect to each Payoff Liability by wire transfer of immediately available funds to the creditors identified in the Funds Flow, the aggregate of such amounts not to exceed the Payoff Amount

Section 2.06    Allocation of Purchase Price. The Sellers and the Buyers agree that the Purchase Price and all other relevant items shall be allocated among the Purchased Assets for all purposes (including Tax and financial accounting purposes) in accordance with the principles set forth in Section 2.06 of the Disclosure Schedules. The Buyers shall prepare a draft purchase price allocation schedule that is consistent with the principles set forth in Section 2.06 of the Disclosure Schedules (the “Allocation Schedule”) and a draft IRS Form 8594 to the Sellers within one hundred eighty (180) days after the date of this Agreement, each of which shall be subject to the consent of the Sellers not to be unreasonably withheld, conditioned or delayed (such allocation, as agreed by the parties, the “Final Allocation”). If the Sellers notify the Buyers in writing that the Sellers object to one or more items reflected in the Allocation Schedule, the Sellers and the Buyers shall negotiate in good faith to resolve such dispute. The Buyers and the Sellers shall file all Tax Returns (including IRS Form 8894) in a manner consistent with the Final Allocation, and, unless otherwise required by Law, shall not take any position inconsistent therewith for any Tax purpose.

Section 2.07    Third Party Consents. To the extent that there are certain Purchased Assets (including Permits or Contracts) that are not assignable or transferable without the consent or approval of Persons other than the Sellers, including the consents listed in Section 4.03 of the Disclosure Schedules (“Nontransferable Assets”), and such consents or approvals are not obtained as of the date of this Agreement, this Agreement shall not constitute an assignment or agreement to assign or transfer such assets without such consent or approval. The Sellers shall use their commercially reasonable efforts to obtain such consents and approvals as promptly as practicable, and the Buyers shall use their commercially reasonable efforts to assist the Sellers in obtaining such consents and approvals. Until such consent or approval is obtained through such efforts, the Sellers and the Buyers shall cooperate with one another (at their own expense) in any lawful and reasonable arrangement designed to give the Buyers the rights, benefits and economic claims of such Nontransferable Assets, through subcontracting, sublicensing, subleasing or otherwise; provided, however, that to the extent the Buyers are able to receive the rights, benefits and economic claims under such Purchased Asset (including Permits or Contracts), the Buyers shall be responsible for any liabilities or obligations, if any, arising under such Purchased Asset. To the extent, and only the extent, such consent or approval shall be obtained, as between the parties thereto, such Purchased Assets (including Permits or Contracts) shall be deemed to have been a Purchased Asset as of the date of this Agreement without the payment of any further consideration.

Section 2.08    The Buyers of Purchased Assets. For all purposes of this Agreement, the parties hereto agree to treat (i) LQ, Inc. as the Buyer of all of the Intellectual Property Assets listed in Section 2.08(i) of the Disclosure Schedules, (ii) LRDT, Inc. as the Buyer of all Intellectual Property Assets other than those listed in Section 2.08(i) of the Disclosure Schedules, (iii) LRDHC as the Buyer of the Purchased Assets listed in Section 2.08(iii) of the Disclosure Schedules and (iv) LB, Inc. as the Buyer of all of the other Purchased Assets. In this regard, the parties hereto further agree that to the extent that any consideration for any Purchased Assets is paid by a Buyer other than the Buyer of such Purchased Assets as stated in this Section 2.08, such Buyer shall be treated as paying such consideration as an agent acting on behalf of the Buyer of such Purchased Assets as stated in this Section 2.08.

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ARTICLE III

CLOSING

Section 3.01    Closing. Concurrently with the execution of this Agreement, the consummation of the transactions contemplated by this Agreement (the “Closing”) is being held at the offices of Cahill Gordon & Reindel LLP, 80 Pine Street, New York, New York 10005, at 9:00 a.m., local time.

Section 3.02    Closing Deliverables.

(a)    Concurrently with the execution and delivery of this Agreement, each of the following is being delivered to the Buyers, in each case dated as of the date of this Agreement (unless otherwise indicated);

(i)    the Escrow Agreement duly executed by the Sellers;

(ii)    the bill of sale and assignment and assumption agreements in form and substance satisfactory to the Buyers (individually, a “Bill of Sale and Assignment and Assumption Agreement”) and duly executed by the applicable Seller, transferring the tangible personal property described in Section 2.01(f) of the Disclosure Schedules included in the Purchased Assets to the applicable Buyer, in accordance with Section 2.08, and effecting the assignment to and assumption by the applicable Buyer of the Purchased Assets and the Assumed Liabilities (other than the Purchased Assets assigned and transferred pursuant to the Intellectual Property Assignments);

(iii)    assignments in form and substance satisfactory to the Buyers (the “Intellectual Property Assignments”) and duly executed by the applicable Seller, effecting the assignment and transfer of all of such Seller’s right, title and interest in and to the Intellectual Property Assets and the Intellectual Property Licenses to the applicable Buyers in accordance with Section 2.08;

(iv)    the Non-Competition Agreement, in form and substance satisfactory to the Buyers and duly executed by the applicable individual party thereto;

(v)    a duly executed FIRPTA Certificate pursuant to Treasury Regulations Section 1.1445-2(b) (the “FIRPTA Certificates”) that Intermark is not and no Seller is a foreign person within the meaning of Section 1445 of the Code and an IRS Form W-9 from Intermark and the other Sellers certifying that Intermark is and the other Sellers are exempt from U.S. federal backup withholding;

(vi)    the Transition Services Agreement, in form and substance satisfactory to the Buyers and duly executed by DataTech (the “Transition Services Agreement”) pursuant to which DataTech shall provide the services specified therein (the “Administrative Services”) to the Buyers;

(vii)    evidence, to the satisfaction of the Buyers, of the discharge of all Payoff Liabilities;

(viii)    evidence, to the satisfaction of the Buyers, that the Sellers have cancelled the coverage under the Seller Insurance Policies;

(ix)    the deliverables listed in Section 3.02(a) to the Disclosure Schedules, in each case, to the satisfaction of the Buyers;

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(x)    such other customary instruments of transfer, assumption, filings, documents in form and substance reasonably satisfactory to the Buyers, as may be required to give effect to this Agreement; and

(xi)    the written consent of each Seller authorizing such Seller to enter into the Transaction Documents and to take any other related action necessary to effectuate the sale of the Purchased Assets.

(b)    Concurrently with the execution and delivery of this Agreement and the delivery of the items specified in Section 3.02(a) each of the following is being delivered to the Sellers, in each case dated as of the date of this Agreement (unless otherwise indicated):

(i)    the Purchase Price, less the Payoff Liabilities, less the Escrow Amount;

(ii)    the Escrow Agreement duly executed by the applicable Buyer;

(iii)    a certificate that any Inventory being sold to the Buyers will be exempt from applicable sales tax as a sale for resale;

(iv)    the Bill of Sale and Assignment and Assumption Agreement duly executed by the applicable Buyer party thereto in accordance with Section 2.08;

(v)    the Intellectual Property Assignments duly executed by the applicable Buyer party thereto in accordance with Section 2.08;

(vi)    the Non-Competition Agreement duly executed by the applicable Buyer party thereto; and

(vii)    the Transition Services Agreement duly executed by the applicable Buyer party thereto.

(c)    Concurrently with the execution and delivery of the Agreement, the Buyers shall deliver (i) the Escrow Amount to the Escrow Agent pursuant to the Escrow Agreement and (ii) the Payoff Liabilities as instructed in the Funds Flow attached hereto as Section 3.02(c) of the Disclosure Schedules (the “Funds Flow”).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE SELLERS

Each Seller hereby jointly and severally represents and warrants to the Buyers that the statements contained in this Article IV are true and correct as of the date of this Agreement, except as set forth in the correspondingly numbered Section of the Disclosure Schedules.

Section 4.01    Organization and Qualification of the Sellers.

(a)    Each Seller is a validly existing, limited liability company in good standing under the Laws of the State of Nevada and has full limited liability company power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on the Business as conducted on the date hereof. Each Seller is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the ownership of the Purchased Assets or the operation of the Business as currently conducted makes such licensing or qualification necessary. Section 4.01(a) of the Disclosure Schedules sets forth the jurisdictions in which each Seller is licensed or qualified to do business.

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(b)    The limited liability company interests of each Seller and the name of each Person who owns of record any of such limited liability company interests is, as of the date hereof, set forth in Section 4.01(b) of the Disclosure Schedules and no other Persons, other than those listed in Section 4.01(b) of the Disclosure Schedules, have any equity or profits interest in any of the Sellers or the Business.

(c)    Other than QSN and BLEC, Intermark does not own, directly or indirectly, of record or beneficially, any capital stock, voting securities or other equity interests in or control any corporation, limited liability company, partnership, trust, joint venture or other entity. QSN and BLEC do not own, directly or indirectly, of record or beneficially, any capital stock, voting or securities or other equity interests in or control any corporation, limited liability company, partnership, trust, joint venture or other entity.

Section 4.02    Authority of the Sellers. Each Seller has full limited liability company power and authority to enter into this Agreement and the other Transaction Documents to which each of them is a party, to carry out their obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by each Seller of this Agreement and any other Transaction Document to which each of them is, or is specified to be, a party, the performance by each Seller of its obligations hereunder and thereunder and the consummation by each Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of each Seller. This Agreement has been duly executed and delivered by each Seller, and (assuming due authorization, execution and delivery by the Buyers) this Agreement constitutes a legal, valid and binding obligation of each Seller enforceable against each Seller in accordance with its terms. When each other Transaction Document to which each Seller is or will be a party has been duly executed and delivered by each Seller (assuming due authorization, execution and delivery by each other party thereto), such Transaction Document will constitute a legal and binding obligation of such Seller enforceable against it in accordance with its terms.

Section 4.03    No Conflicts; Consents. Except as set forth in Section 4.03 of the Disclosure Schedules, the execution, delivery and performance by each Seller of this Agreement and the other Transaction Documents to which each of them is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the Governing Documents of such Seller; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to any Seller, the Business or any Purchased Asset; (c) require the consent, approval, Permit, Governmental Order, declaration or filing with, or notice to any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under or give rise to the right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under any material Contract or material Permit to which any Seller is a party or by which any Seller is bound, or any Contract or Permit by which the Business is bound in connection with the Business or to which any of the Purchased Assets are subject; or (d) result in the creation or imposition of any Encumbrance other than Permitted Encumbrances on any Purchased Asset.

Section 4.04    Financial Statements. Complete copies of the unaudited financial statements consisting of the balance sheet of the Business as at December 31 in each of the years 2009, 2010 and 2011 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the years then ended (excluding statements of retained earnings, stockholders’ equity and cash flow in each of the years ended 2009 and 2010) (the “Year-End Financial Statements”), and unaudited financial statements

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consisting of the balance sheet of the Business at and for the two (2) month period ended February 29, 2012 and the related statements of income for the two (2) month period then ended (the “Interim Financial Statements” and together with the Year-End Financial Statements, the “Financial Statements”) are attached hereto as Exhibit C. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved, subject, in the case of the Interim Financial Statements, to normal and recurring year-end adjustments and the absence of notes. The Financial Statements are based on the Books and Records of the Business, and fairly present the financial condition, position, assets and liabilities and results of operations of the Business. The balance sheet of the Business as of December 31, 2011 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the balance sheet of the Business at and for the two (2) month period ended February 29, 2012 is referred to herein as the “Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet Date.”

Section 4.05    Undisclosed Liabilities. Except as set forth in Section 4.05(a) of the Disclosure Schedules, no Seller has any Liabilities with respect to the Business, except (a) those set forth on the Balance Sheet, (b) those incurred in the ordinary course of business since the Balance Sheet Date, or (c) such Payoff Liabilities of a Seller set forth in Section 4.05(c) of the Disclosure Schedules that will be discharged in connection with the Closing.

Section 4.06    Absence of Certain Changes, Events and Conditions.

(a)    Except as set forth in Section 4.06(a) of the Disclosure Schedules, since the Balance Sheet Date, there has not been prior to the effective time of the Closing, with respect to any Seller any:

(i)    state of facts, change, effect, condition, development, event or occurrence that has had, or could have, individually or in the aggregate, a Material Adverse Effect;

(ii)    declaration or payment of any dividends or distributions on or in respect of any equity interests of any Seller or redemption, purchase or acquisition of the equity interests of any Seller;

(iii)    material change in any financial or Tax method of accounting or accounting practice for the Business, except as required by GAAP or applicable Tax Law or as disclosed in the notes to the Financial Statements;

(iv)    material change in cash management practices and policies, practices and procedures with respect to collection of Accounts Receivable, establishment of reserves for uncollectible Accounts Receivable, accrual of Accounts Receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;

(v)    incurrence, assumption or guarantee of any Indebtedness in connection with the Business except unsecured current obligations and Liabilities incurred in the ordinary course of business consistent with past practice;

(vi)    transfer, assignment, sale or other disposition of any item that would otherwise be a Purchased Asset, except for in the ordinary course of business;

(vii)    cancellation of any debts or claims or material amendment, termination or waiver of any rights constituting any Purchased Assets;

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(viii)    transfer, assignment or grant of any license or sublicense of any material rights under or with respect to any Intellectual Property Assets or Intellectual Property Licenses;

(ix)    damage, destruction or loss for which the aggregate cost and expense exceeded $25,000, or any material interruption in use, of any Purchased Assets, whether or not covered by insurance;

(x)    acceleration, termination or cancellation of any Assigned Contract or Permit;

(xi)    material capital expenditures which would constitute an Assumed Liability;

(xii)    imposition of any Encumbrance, other than Permitted Encumbrances, upon any of the Purchased Assets;

(xiii)    entry into any transaction or Contract relating to the Business with any directors, officers, employees, members, managers, independent contractors, consultants, agents or Affiliates of the Business for which the Buyers would be financially responsible;

(xiv)    adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law;

(xv)    purchase, lease or other acquisition of the right to own, use or lease any property or assets in connection with the Business for an amount in excess of $10,000, individually (in the case of a lease, per annum) or $50,000 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of Inventory or supplies in the ordinary course of business consistent with past practice; or

(xvi)    any Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.

(b)    Except as set forth in Section 4.06(b) of the Disclosure Schedules, since the Balance Sheet Date, the Sellers have caused the Business to be conducted in the usual, regular and ordinary course and in substantially the same manner as previously conducted (including with respect to research and development efforts, capital expenditures and inventory levels) and have made all commercially reasonable efforts to keep intact the Business, keep available the services of the employees of the Business and preserve the relationships of the Business with the customers, suppliers, licensors, licensees, distributors and others with whom the Business deals.

Section 4.07 Material Contracts.

(a)    Section 4.07(a) of the Disclosure Schedules lists each of the following Contracts (x) by which any of the Purchased Assets are bound or affected (other than the DataTech Services Assets) or (y) to which any Seller is a party or by which it is bound in connection with the Business or the Purchased Assets (such Contracts, together with all Contracts used by the Business relating to Intellectual Property set forth in Section 4.11(c) and Section 4.11(e) of the Disclosure Schedules, being “Material Contracts”):

(i)    all Contracts (A) involving aggregate consideration in excess of $50,000 or (B) providing for future performance by the Business or any Seller in consideration of amounts in excess of $25,000 previously paid to the Business or any Seller, or which has resulted in deferred revenue under GAAP of more than $25,000, other than purchase orders issued by the Sellers in the ordinary course of business and other than with respect to sales made pursuant to one or more purchase orders in the ordinary course of business;

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(ii)    all Contracts containing a covenant not to compete or not to engage in any activity or business, or pursuant to which any benefit is required to be given or lost as a result of so competing or engaging;

(iii)    any Contract that is a lease, sublease or similar Contract with any Person under which (A) any Seller is lessee of, or holds or uses or any other tangible personal property owned by any Person that is used in the conduct of and material to the Business or (B) any Seller is a lessor or sublessor of, or makes available for use by any Person, any tangible personal property owned or leased by any Seller or any of its subsidiaries that is used in the conduct of and material to the Business, in each case providing for payments in excess of $25,000 per year;

(iv)    any Contract granting an Encumbrance (other than a Permitted Encumbrance) upon any Purchased Asset;

(v)    all broker, dealer, distributor, manufacturer, franchise, agency, sales promotion, market research, marketing, consulting and advertising Contracts;

(vi)    all Contracts relating to Indebtedness;

(vii)    all powers of attorney with respect to the Business or any Purchased Asset;

(viii)    any Contracts providing for indemnification of any Person with respect to any Liabilities (including those relating to Intellectual Property) relating to any current or former business of any Seller or any predecessor Person or Affiliate;

(ix)    any Contract (including consulting and services agreements) which provides for “exclusivity” or any similar requirement in favor of any Person other than the Sellers or that requires or obligates any Seller to purchase specified minimum amounts of any product;

(x)    any Contract not made in the ordinary course of the Business;

(xi)    any Contract with any member, manager or Affiliate of a Seller or with any member, manager or employee of any Affiliate of a Seller which would be an Assigned Contract;

(xii)    any nondisclosure agreement, confidentiality agreement or similar Contract entered into outside of the ordinary course of the Business;

(xiii)    any Contract granting consignment rights with respect to any Purchased Asset with a value in excess of $25,000;

(xiv)    any Contract with a Governmental Authority;

(xv)    any Contract relating to any completed, pending or proposed (A) joint venture or partnership, (B) acquisition or divestiture of any Person, business or division or (C) merger or reorganization;

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(xvi)    any Contract granting the other party to such Contract or a third party “most favored nation” or similar status;

(xvii)    any Contract that prohibits the hiring or solicitation for employment of employees of another person;

(xviii)    any currency exchange, interest rate exchange, commodity exchange or similar Contract;

(xix)    any Contract entered into in connection with the settlement or other resolution of any Action pursuant to which any Seller has any ongoing performance obligations;

(xx)    any Contract that would restrict or that would require (for the benefit of any third party after such Contract is assigned to the Buyers or their Affiliates) the Buyers or any of their Affiliates to perform or conduct research, development, commercialization, distribution, sale, supply, marketing or manufacturing of any product (including products under development) for any indication in any product market or geographic area);

(xxi)    any Contract which relates to research, development, commercialization, distribution, sale, supply, license, marketing, packaging, co-promotion or manufacturing by third parties of products (including products under development) that are or will be owned, used, licensed or sold in connection with the Business;

(xxii)    any Contract pursuant to which a Seller has granted an option or a right of first refusal, right of first negotiation or right of first offer in favor of any third party; or

(xxiii)    any Contract containing any provisions (A) dealing with a “change of control” or similar event with respect to a Seller or the Business, (B) prohibiting or imposing any restrictions on the assignment of all or any portion of such Contract by a Seller or any other Person or (C) having the effect of providing that the consummation of the transactions contemplated by this Agreement or the execution, delivery or effectiveness of this Agreement or the Transaction Documents will require the consent of the other party or parties thereto or will conflict with, result in a violation of, or constitute a default under (with or without notice or lapse of time, or both), such Contract or give rise under such Contract to any right of termination, right of first refusal, amendment, revocation, cancellation or acceleration, or loss of material benefit under, or the creation of any Encumbrance (other than a Permitted Encumbrance) in or upon or transfer of any of the properties or assets of a Seller, or to any increased, guaranteed, accelerated or additional rights or entitlements of any Person or any other material changes in the terms thereof.

(b)    Except as set forth in Section 4.07(b) of the Disclosure Schedules, with respect to each Seller, each Material Contract is valid and binding in accordance with its terms and is in full force and effect. To the Knowledge of the Sellers, no other party to any Material Contract is (with or without the lapse of time of the giving of notice, or both) in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of any intention to terminate, any Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract or would result in a termination of a Material Contract or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all written modifications, amendments and supplements thereto) have been made available to the Buyers.

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Section 4.08    Title to Purchased Assets. The Sellers, taken together, have good and valid title to, or a valid leasehold interest in, all of the Purchased Assets or have the right to transfer the Purchased Assets to the Buyers. All such Purchased Assets (including leasehold interests) are free and clear of Encumbrances except for the following (collectively referred to as “Permitted Encumbrances”):

(a)    liens for ad valorem Taxes not yet due and payable;

(b)    mechanics’, carriers’, workmen’s, repairmen’s or other like liens arising or incurred by operation of law;

(c)    easements, rights of way, zoning ordinances and other similar encumbrances affecting Leased Real Property which do not prohibit or materially interfere with the current operation of the Business;

(d)    liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business;

(e)    Encumbrances that do not, individually or in the aggregate, materially interfere with the present use of the Purchased Assets or materially detract from their value; or

(f)    Encumbrances listed in Section 4.08(f) of the Disclosure Schedules that will be released as of the date of this Agreement.

Section 4.09    Condition and Sufficiency of Assets; Operations. The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property included in the Purchased Assets are in good operating condition and repair, are free from material defects and have been maintained in accordance with normal industry practice. The Purchased Assets, the Excluded Assets (including the DataTech Services Assets) and the Nontransferable Assets are sufficient for the conduct of the Business as currently conducted.

Section 4.10 Real Property.

(a)    No Seller owns, nor has any Seller ever owned, any real property.

(b)    Section 4.10(b) of the Disclosure Schedules sets forth each parcel of real property leased by each Seller, which is included as a Purchased Asset (together with all rights, title and interest of each Seller in and to leasehold improvements relating thereto, including security deposits, reserves or prepaid rents paid in connection therewith, collectively, the “Leased Real Property”), and a true and complete list of all leases, subleases, licenses, concessions and other agreements (whether written or oral), including all amendments, extensions renewals, guaranties and other agreements with respect thereto, pursuant to which each Seller holds any Leased Real Property, which is included as a Purchased Asset (collectively, the “Leases”). The Sellers have delivered to the Buyers a true and complete copy of each Lease. With respect to each Lease:

(i)    such Lease is valid, binding, enforceable and in full force and effect, and the applicable Seller enjoys peaceful and undisturbed possession of the Leased Real Property;

(ii)    no Seller is in breach or default (including with respect to the payment of all rents due and payable) under such Lease, and no event has occurred or circumstance exists which, with the delivery of notice, passage of time or both, would constitute such a breach or default;

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(iii)    no Seller has received or given any written notice of any default or event that with notice or lapse of time, or both, would constitute a default by any Seller under any of the Leases and, to the Knowledge of the Sellers, no other party is in default thereof, and no party to any Lease has exercised any termination rights with respect thereto;

(iv)    no Seller has subleased, assigned or otherwise granted to any Person the right to use or occupy such Leased Real Property or any portion thereof; and

(v)    no Seller has pledged, mortgaged or otherwise granted an Encumbrance (other than a Permitted Encumbrance) on its leasehold interest in any Leased Real Property.

(c)    No Seller has received any written notice of (i) violations of building codes and/or zoning ordinances or other governmental or regulatory Laws affecting the Real Property, (ii) existing, pending or threatened condemnation proceedings affecting the Real Property, or (iii) existing, pending or threatened zoning, building code or other moratorium proceedings, or similar matters which could reasonably be expected to adversely affect the ability to operate the Real Property as currently operated. Neither the whole nor any material portion of any Real Property has been damaged or destroyed by fire or other casualty.

Section 4.11 Intellectual Property.

(a)    Section 4.11(a) of the Disclosure Schedules lists all (i) Intellectual Property Registrations and (ii) Intellectual Property Assets that are not registered but that are material to the operation of the Business. All required filings and fees related to the Intellectual Property Registrations have been timely filed with and paid to the relevant Governmental Authorities and authorized registrars, and all Intellectual Property Registrations are otherwise in good standing except with respect to Intellectual Property Registrations intentionally allowed to expire or abandon in the ordinary course of business.

(b)    The Sellers own, individually or collectively, all right, title and interest in and to the Intellectual Property Assets, free and clear of Encumbrances. Without limiting the generality of the foregoing, Affiliates of the Sellers have entered into binding, written agreements with (i) each current and former employee of such Affiliates of the Sellers retained by such Affiliates of the Sellers who have been involved in the design, research or development of any technology on behalf of the Sellers, whereby such employees assign to the Sellers any ownership interest and right they may have in such technology, and (ii) the only current or former independent contractor or technical consultant retained by such Affiliates who has been involved in the design, research or development of any technology on behalf of the Sellers, which such Person is listed on and is a party to the Contract listed on Section 4.11(b) of the Disclosure Schedules. The Sellers have provided the Buyers with true and complete copies of all such agreements, including the Contract listed on Section 4.11(b) of the Disclosure Schedules. The Sellers are in full compliance with all legal requirements applicable to the Intellectual Property Assets and the Sellers’ ownership and use thereof.

(c)    Section 4.11(c) of the Disclosure Schedules lists all Intellectual Property Licenses. To the Knowledge of the Sellers, (i) all such Intellectual Property Licenses are valid, binding and enforceable between any Seller and the other parties thereto, and (ii) any Seller is in full compliance with the terms and conditions of such Intellectual Property Licenses.

(d)    To the Knowledge of the Sellers, the Intellectual Property Assets and Intellectual Property Licenses as currently or formerly owned, licensed or used by the Sellers or proposed to be used by the Buyers, and the conduct of the Business as currently and formerly conducted by the Sellers and proposed to be conducted by the Buyers have not, do not and will not infringe, violate or misappropriate the Intellectual Property of any Person. Except as set forth in Section 4.11(d) of the Disclosure Schedules, no

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Seller has received any communication, and no Action has been instituted, settled or, to the Knowledge of the Sellers, threatened that alleges any such infringement, violation or misappropriation, and to the Knowledge of the Sellers, none of the Intellectual Property are subject to any outstanding Governmental Order.

(e)    Section 4.11(e) of the Disclosure Schedules lists all licenses, sublicenses and other agreements pursuant to which the applicable Seller grants rights or authority to any Person with respect to any Intellectual Property Assets or Intellectual Property Licenses. To the Knowledge of the Sellers, all such agreements are valid, binding and enforceable between the applicable Seller and the other parties thereto, and the applicable Seller and such other parties are in full compliance with the terms and conditions of such agreements. To the Knowledge of the Sellers, no Person has infringed, violated or misappropriated, or is infringing, violating or misappropriating, any Intellectual Property Assets.

(f)    (i) The representations and warranties made by the applicable Sellers in the agreement specified in Section 4.11(f) of the Disclosure Schedules are true, complete and correct in all respects to the same extent as if they were set forth verbatim herein; and (ii) the Sellers have duly performed and complied in all respects with the covenants, conditions and agreements required to be performed or complied with pursuant to the agreement specified in Section 4.11(f) of the Disclosure Schedules.

Section 4.12    Inventory. All Inventory, whether or not reflected in the Balance Sheet, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established. Except as set forth in Section 4.12 of the Disclosure Schedules, all Inventory is owned by the Sellers free and clear of all Encumbrances (other than Permitted Encumbrances), and no Inventory is held on a consignment basis. Except as set forth in Section 4.12 of the Disclosure Schedules, all Inventory is located at a location owned or leased by the Sellers or in transit thereto or therefrom.

Section 4.13    Accounts Receivable. The Accounts Receivable are reflected on the Interim Balance Sheet and the Accounts Receivable have arisen from bona fide transactions in the ordinary course of business consistent with past practice and are not subject to any loan agreements or other financing contracts entered into by the Sellers and providing for the sale, factoring, pledge or other transfer of such Accounts Receivable by the Sellers to any other Person (other than such loans or financial contracts that are terminated and such security interest would be released as of the close of business on the date of this Agreement). All Accounts Receivable are reflected properly on the Books and Records, and to the Knowledge of the Sellers, are valid undisputed receivables subject to no setoffs, other deficiencies or counterclaims.

Section 4.14    Customers and Suppliers.

(a)    Section 4.14(a) of the Disclosure Schedules sets forth with respect to the Business (i) each customer who has paid aggregate consideration to any Seller for goods or services rendered in an amount greater than or equal to $1,000,000 in the last twelve months for either of the two most recent fiscal years (collectively, the “Material Customers”); and (ii) the amount of consideration paid by each Material Customer during such periods. No Seller has received any notice, and has no reason to believe, that any of the Material Customers has ceased, or intends to cease before or after the date of this Agreement, to purchase the goods or services of the Business or to otherwise terminate, cancel, materially limit or adversely modify its relationship with the Business.

(b)    Section 4.14(b) of the Disclosure Schedules sets forth with respect to the Business (i) each supplier to whom any Seller has paid consideration for goods or services rendered in an amount greater than or equal to $500,000 in the last twelve months for either of the two most recent fiscal years

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(collectively, the “Material Suppliers”); and (ii) the amount of purchases from each Material Supplier during such periods. No Seller has received any notice, and has no reason to believe, that any of the Material Suppliers has ceased, or intends to cease, before or after the date of this Agreement, to supply goods or services to the Business or to otherwise terminate, cancel, materially limit or adversely modify its relationship with the Business.

Section 4.15    Insurance. Section 4.15 of the Disclosure Schedules sets forth (a) a true and complete list of all current policies or binders of fire, liability, product liability, umbrella liability, real and personal property, workers’ compensation, vehicular, fiduciary liability and other casualty and property insurance maintained by the Sellers or their respective Affiliates and relating to the Business, the Purchased Assets or the Assumed Liabilities (collectively, the “Seller Insurance Policies”); and (b) with respect to the Business, the Purchased Assets or the Assumed Liabilities, a list of all pending insurance claims and the claims history for each Seller since their date of organization. There are no insurance claims related to the Business, the Purchased Assets or the Assumed Liabilities pending under any such Seller Insurance Policies as to which coverage has been denied or disputed or in respect of which there is an outstanding reservation of rights. Neither the Sellers nor any of their respective members, managers or Affiliates has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Seller Insurance Policies. All such Seller Insurance Policies (a) are in full force and effect and enforceable in accordance with their terms; (b) to the Knowledge of the Sellers, are provided by carriers who are financially solvent; and (c) have not been subject to any lapse in coverage. The Sellers are not in default under, or have otherwise failed to comply with, in any material respect, any provision contained in any such Seller Insurance Policy. True and complete copies of the Seller Insurance Policies have been made available to the Buyers.

Section 4.16    Legal Proceedings; Governmental Orders.

(a)    Except as set forth in Section 4.16(a) of the Disclosure Schedules, there are no Actions pending or, to Knowledge of the Sellers, threatened against or by any Seller (a) relating to or affecting the Business, the Purchased Assets or the Assumed Liabilities; or (b) that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement.

(b)    Except for those items disclosed in Section 4.16(a) of the Disclosure Schedules, there are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against, relating to or affecting the Business. Each Seller is in compliance with the terms of each Governmental Order set forth in Section 4.16(b) of the Disclosure Schedules. No event has occurred or circumstances exist that is reasonably likely to constitute or result in (with or without notice or lapse of time) a violation of any such Governmental Order.

(c)    There are no Actions or claims by the Sellers or any of their respective Affiliates pending against any other Person arising out of the operation or conduct of the Business.

Section 4.17    Compliance with Laws; Permits.

(a)    Each Seller has complied, and is now complying, with all Laws, applicable to the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets. Neither the Sellers nor any of their respective Affiliates have directly or indirectly received any written communication during the past three years from a Governmental Authority or any other Person that alleges that the Business is not in compliance in any material respect with any Law.

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(b)    All material Permits required for the Sellers to conduct the Business as currently conducted or for the ownership and use of the Purchased Assets have been obtained by the Sellers and are valid and in full force and effect. Section 4.17(b) of the Disclosure Schedules lists all current Permits issued to the Sellers which are related to the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets, including the names and subjects of the Permits and their respective dates of issuance and expiration. No event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse or limitation of any Permit set forth in Section 4.17(b) of the Disclosure Schedules.

Section 4.18    Regulatory Matters.

(a)    There are no lawsuits, arbitrations, legal or administrative or regulatory proceedings, charges, complaints or investigations by the U.S. Food and Drug Administration (the “FDA”), the U.S. Department of Health and Human Services (the “HHS”), the U.S. Department of Justice, the U.S. Federal Trade Commission (the “FTC”), the U.S. Alcohol and Tobacco Tax and Trade Bureau (the “TTB”), the Department of Commerce (“DOC”), U.S. Customs and Border Protection (“CBP”) or any state, local or non-U.S. regulatory agency or any other Governmental Authority pending or, to the Knowledge of the Sellers, threatened against or relating to, directly or indirectly, the Sellers, the Business or the Purchased Assets.

(b)    Neither the Sellers nor any of their respective Affiliates or Related Parties or Representatives has made an untrue statement of material fact or fraudulent statement to the FDA, the HHS, the FTC, the TTB or other applicable regulatory agencies or any Governmental Authority or to the Knowledge of the Sellers failed to disclose a material fact required to be disclosed to such regulatory agency or any Governmental Authority or committed an act, made or failed to make a statement that could reasonably be expected to provide a basis for any of them to invoke the policy respecting “Fraud, Untrue Statements of Material Facts, Bribery and Illegal Gratuities” set forth in 56 Fed. Reg. 46191 (September 10, 1991) or equivalent regulations.

(c)    There are no unresolved reports, warning letters or other notifications or documents received from or issued by the FDA, the HHS, the FTC, the TTB, the DOC, CBP or other Governmental Authority or applicable regulatory agencies that (1) indicate or suggest material lack of compliance with applicable regulatory requirements by the Sellers or any Person providing services for the benefit of the Sellers or any of their respective Affiliates, Related Parties or Representatives in connection with the Business, or (2) commence or threaten to initiate any action to withdraw any Permit applicable to any of the Sellers activities or any studies being or planned to be conducted by it in connection with the Business.

(d)    Neither the Sellers nor, to the Knowledge of the Sellers, any of their respective Affiliates, Related Parties, Representatives or other Persons providing services for their benefit in connection with the Business has been debarred, or convicted of any crime or engaged in any conduct for which debarment is mandated by 21 U.S.C. Section 335(a) or authorized by 21 U.S.C. Section 335a(b) or for which suspension is mandated by 21 U.S.C. Section 335(g) or temporary denial of approval is authorized by 21 U.S.C. Section 335(f) or any other applicable standards of any Governmental Authority.

(e)    To the Knowledge of the Sellers, no Seller has taken any action that would result in a violation by such Seller of the FCPA or any other applicable anti-corruption laws, to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office in contravention of the FCPA or any other applicable anti-corruption laws.

(f)    To the Knowledge of the Sellers, no Seller or any of their respective Affiliates, Related Parties or Representatives: (a) are included on any “Specially Designated Nationals list” maintained by the Office of Foreign Assets Control of the United States Department of Treasury or any other list of restricted

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Persons promulgated by the United States Government; or (b) are doing business in countries or with any Person subject to trade restrictions, prohibitions, sanctions, or embargoes by the United States Government; or (c) are in breach of or subject to any action or investigation under any other trade restriction, sanctions, embargoes, or antiterrorism laws enforced by the United States Government or similar Laws.

(g)    The Sellers have not performed pre-clinical and clinical testing.

(h)    Neither the Sellers nor any of their Affiliates has obtained any export license and, to the Knowledge of the Sellers, no export license is required from any Governmental Authority in connection with the export from the United States of any product, ingredient, or technical data exported by the Sellers or their Affiliates in connection with the manufacture and sale of the Purchased Assets, as currently conducted.

Section 4.19    Tobacco Matters.

(a)    To the Knowledge of the Sellers, the Permits constitute all of the permits, licenses, consents, orders, franchises, approvals, authorizations, registrations, certificates, vacancies and similar rights that are required under the Tobacco Laws as of the date of this Agreement to permit the Sellers to conduct the Business, as currently conducted, except as would not reasonably be expected to have a Material Adverse Effect.

(b)    Except as set forth in Section 4.19(b) of the Disclosure Schedules, the Sellers have not made and not disclosed to the public any written Health Claims in or on any packaging, label, marketing or promotional materials used or held for use by the Sellers in marketing of their products. For the purposes of this Section 4.19, the terms “Health Claims” means any claims that products may be used as smoking cessation products, have therapeutic or medicinal uses, or that using the products marketed by the Sellers relating to the Business is less injurious to human health or less addictive than the smoking of traditional cigarettes or using other forms of tobacco products.

Section 4.20    Environmental Matters.

(a)    The operations of the Sellers with respect to the Business and the Purchased Assets are currently and have been in material compliance with all Environmental Laws. No Seller has received from any Person, with respect to the Business or the Purchased Assets, any: (i) Environmental Notice or Environmental Claim; or (ii) written request for information pursuant to Environmental Law, which, in each case, either remains pending or unresolved, or is the source of ongoing obligations or requirements as of the date of this Agreement.

(b)    No Seller has retained or assumed, by contract or operation of Law, any Liabilities or obligations of third parties under Environmental Law.

Section 4.21    Employee Benefit Matters.

(a)    There are no Benefit Plans and no Benefit Plans have ever existed.

(b)    Neither the Sellers nor any of their ERISA Affiliates contributes, has ever contributed or ever had an obligation to contribute to any “employee pension benefit plan” (as defined in Section 3(2) of ERISA) that is subject to Title IV of ERISA or Section 412 of the Code.

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(c)    Neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional or subsequent events): (i) entitle any current or former director, officer, employee, independent contractor or consultant of the Sellers or any of their subsidiaries to severance pay, unemployment compensation or termination benefits or any other payment; (ii) accelerate the time of payment, funding or vesting of, or increase the amount of compensation due to any such individual; or (iii) result in “excess parachute payments” within the meaning of Section 280G of the Code.

Section 4.22    Employment Matters.

(a)    Section 4.22(a) of the Disclosure Schedules contains a list of all persons who are employees, independent contractors or consultants of the Business as of the date hereof, and sets forth for each such individual the following: (i) name; (ii) title or position (including whether full or part time); (iii) hire date; (iv) current annual base compensation rate; and (v) commission, bonus or other incentive-based compensation. All compensation, including wages, commissions and bonuses payable to employees, independent contractors or consultants of the Business for services performed on or prior to the date hereof have been paid in full and there are no outstanding agreements, understandings or commitments of any Seller with respect to any compensation, commissions or bonuses for which the Buyers will be responsible after the date hereof.

(b)    Neither any Seller nor any of their subsidiaries has or ever has had any employees, independent contractors or consultants.

(c)    Neither any Seller nor any Affiliate is or ever has been a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “Union”) in connection with the Business, and there is not any Union representing or purporting to represent any employee of the Business, and to the Knowledge of the Sellers, no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining. To the Knowledge of the Sellers, there is not any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting any employees of the Business. No Seller or any Affiliate has any duty to bargain with any Union.

(d)    Each Seller and its respective Affiliates are and have been since inception in compliance with all applicable Laws pertaining to employment and employment practices to the extent they relate to employees of the Business, including all Laws relating to labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, hours of work, meal and break periods, privacy, health and safety, workers’ compensation, employee scheduling, occupational safety and health, family and medical leave, leaves of absence and unemployment insurance. All individuals characterized and treated by the Business as consultants or independent contractors of the Business are properly treated as independent contractors under all applicable Laws. All employees of the Business classified as exempt under the Fair Labor Standards Act and state and local wage and hour laws are properly classified. There are no Actions against any Seller or any Affiliate of any Seller by the employees of the Business, pending, or to the Knowledge of the Sellers, threatened to be brought or filed, by or with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of the Business, including, without limitation, any claim relating to unfair labor practices, employment discrimination, wrongful discharge, harassment, retaliation, equal pay, wages and hours or any other employment related matter arising under applicable Laws. There are no Actions against any Seller or any of their Affiliates pending, or to the Knowledge of the Sellers, threatened to be brought or filed, any claim, suit, action or investigation by any

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Governmental Authority, in respect of which any director, officer, employee or agent of any Seller or any Affiliate of any Seller is or may be entitled to claim indemnification from any of the Sellers or their Affiliates. No Seller has received written notice of any pending claim against any Seller or any Affiliate of any Seller by any employees of the Business under workers’ compensation Laws that has not been fully resolved or discharged.

(e)    The Sellers and their ERISA Affiliates have complied in all material respects with the “COBRA” notice and continuation requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA.

Section 4.23    Taxes. Except as set forth in Section 4.23 of the Disclosure Schedules:

(a)    All income Tax Returns and all other material Tax Returns required to have been filed by each Seller have been timely filed, each such Tax Return is true, complete and correct in all material respects and all material Taxes due and owing by each Seller (whether or not shown on any Tax Return) have been timely paid.

(b)    (i) Each Seller has withheld and timely paid each material Tax required to have been withheld and paid in connection with amounts paid or owing to, or allocations of income or distributions to, any employee, independent contractor, creditor, customer, equity owner or other party, and complied with all information reporting and backup withholding provisions of applicable Law and (ii) DataTech has withheld and timely paid each material Tax required to have been withheld and paid in connection with amounts paid or owing to any employee or independent contractor of DataTech with respect to any services provided to any Seller, and complied with all related information reporting and backup withholding provisions of applicable Law.

(c)    No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of any Seller.

(d)    There are no current, pending, or, to the Knowledge of the Sellers, proposed Tax audits, examinations, assessment or other claims or proceedings with respect to any Seller.

(e)    BLEC was a partnership for U.S. federal income Tax purposes from its inception on March 18, 2009 through February 15, 2011. At all times from February 15, 2011 through and including the date of this Agreement, BLEC has been and will be a disregarded entity owned by Intermark for U.S. federal income Tax purposes. At all times from its inception on November 9, 2010 through and including the date of this Agreement, QSN has been and will be a disregarded entity owned by Intermark for U.S. federal income Tax purposes. At all times from its inception on May 18, 2010 through and including the date of this Agreement, Intermark has been and will be a partnership for U.S. federal income Tax purposes.

(f)    There are no Encumbrances for Taxes upon any of the Purchased Assets other than Permitted Encumbrances.

(g)    No Seller is a “foreign person” as that term is used in Treasury Regulations Section 1.1445-2.

(h)    No Seller has been a party to, or a promoter of, any “listed transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011-4(b).

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(i)    None of the Purchased Assets is property that any Seller is required to treat as being owned by any other person pursuant to the so-called “safe harbor lease” provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, as in effect immediately prior to the Tax Reform Act of 1986.

(j)    None of the Purchased Assets is tax-exempt use property within the meaning of Section 168(h) of the Code.

(k)    None of the Purchased Assets directly or indirectly secures any indebtedness, the interest of which is tax-exempt under Section 103(a) of the Code, and no Seller is directly or indirectly an obligor or a guarantor with respect to any such Indebtedness.

(l)    Each Seller has provided the Buyers with a complete and accurate copy of each Tax Return filed by such Seller since its inception.

Section 4.24    Financial Advisors. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf of any Seller.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE BUYERS

Each Buyer hereby jointly and severally represents and warrants to the Sellers that the statements contained in this Article V are true and correct as of the date of this Agreement, except as set forth in the correspondingly numbered Section of the Disclosure Schedules.

Section 5.01    Organization of the Buyers. Each Buyer is duly organized, validly existing and in good standing under the Laws of the state of Delaware. Lorillard owns, beneficially and of record, all of the issued and outstanding voting securities of LRDHC, free from Encumbrances of any kind.

Section 5.02    Authority of the Buyers. Each Buyer has full corporate power and authority to enter into this Agreement and the other Transaction Documents to which such Buyer is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the Buyers of this Agreement and any other Transaction Document to which such Buyer is a party, the performance by such Buyer of its obligations hereunder and thereunder and the consummation by the Buyer of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of such Buyer. This Agreement has been duly executed and delivered by each Buyer, and (assuming due authorization, execution and delivery by the Sellers) this Agreement constitutes a legal, valid and binding obligation of each Buyer enforceable against such Buyer in accordance with its terms. When each other Transaction Document to which each Buyer is or will be a party has been duly executed and delivered by such Buyer (assuming due authorization, execution and delivery by each other party thereto), such Transaction Document will constitute a legal and binding obligation of such Buyer enforceable against it in accordance with its terms.

Section 5.03    No Conflicts; Consents. The execution, delivery and performance by the Buyers of this Agreement and the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the Governing Documents of such Buyer; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to such Buyer; or (c) require the consent, notice or other action by any Person under any Contract to

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which such Buyer is a party, except, in the case of (b) or (c), as would not have a Material Adverse Effect. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to such Buyer in connection with the execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby.

Section 5.04    Legal Proceedings. There are no Actions pending or, to the Buyers’ knowledge, threatened against or by any Buyer or any Affiliate of the Buyers that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement.

Section 5.05    Financial Advisors. Except as set forth in Section 5.05 of the Disclosure Schedules, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf of the Buyers or their respective Affiliates.

ARTICLE VI

COVENANTS

Section 6.01    Confidentiality. The parties hereto acknowledge that the information being provided to it in connection with the consummation of the transactions contemplated by this Agreement and by the Transaction Documents is subject to the terms of the confidentiality agreement between BLEC and Lorillard agreed to as of January 17, 2012 (and assumed and agreed to by QSN as of March 7, 2012), the terms of which are incorporated herein by reference. From and after the date of this Agreement, the Sellers shall, and shall cause their Affiliates to, hold, and shall use their reasonable best efforts to cause their respective Representatives and Related Parties to hold, in confidence any and all information, whether written or oral, concerning the Business, except to the extent that any Seller can show that such information (a) is generally available to and known by the public through no fault of the Sellers, any of their respective Affiliates or their respective Representatives and Related Parties; or (b) is lawfully acquired by the Sellers, any of their respective Affiliates or their respective Representatives and Related Parties from and after the date of this Agreement from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If any Seller or any of their respective Affiliates or their respective Representatives and Related Parties are compelled to disclose any information by judicial or administrative process or by other requirements of Law, such Seller shall promptly notify Lorillard in writing and shall disclose only that portion of such information which such Seller is advised by its counsel in writing is legally required to be disclosed; provided that such Seller shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.

Section 6.02    Non-competition; Non-solicitation.

(a)    For a period of three years commencing on the date of this Agreement (the “Restricted Period”), the Sellers shall not, and shall not permit the Persons listed in Section 6.02 of the Disclosure Schedules to, directly or indirectly, (i) engage in or assist others in engaging in the Business; (ii) take any action that is designed, intended or reasonably likely to have the effect of discouraging any customer, supplier, vendor, licensor, lessor, agent, employee, consultant and other Person under contract or otherwise associated or doing business with the Business or the Buyers and any of their respective Affiliates from maintaining the same business relationships with the Business or the Buyers and any of their respective Affiliates after the date of this Agreement as it maintained with the Business or the Buyers and any of their respective Affiliates prior to the date of this Agreement; (iii) cause, induce or encourage any actual or prospective client, customer, supplier or licensor of the Business (including any existing or former client or customer of any Seller and any Person that becomes a client or customer of the Business after the

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date of this Agreement), or any other Person who has a business relationship with the Business, to terminate or modify any such actual or prospective relationship; or (iv) own (excluding the ownership of less than five percent (5%) of the securities of any Person traded on any national securities exchange if such ownership does not coincide with any board of directors or management position with, or any other relationship affecting the management, control or operation or management of, such Person), manage, control or participate in the ownership, management or control of any business, or engage in developing, selling, manufacturing, distributing or marketing any product or service, that would be in competition with or engages, directly or indirectly, with the Business, whether as an employer, proprietor, partner, stockholder, trustee, beneficiary, independent contractor, employee, consultant, agent, lender, adviser or sales representative.

(b)    During the Restricted Period, the Sellers shall not and shall not permit the Persons listed in Section 6.02 of the Disclosure Schedules, without the express written consent of the Buyers, to directly or indirectly, solicit any employees, officers, directors, managers or members of the Buyers or any of their respective Affiliates or any person who is was employed in the Business during the Restricted Period to leave the employment of the Buyers or any such Affiliate for employment with any Seller or any of its respective Affiliates or Related Parties, or violate the terms of their employment contracts, or any employment arrangements, with the Buyers or any such Affiliate or Related Party. Notwithstanding anything contained herein to the contrary, the Sellers and their respective Affiliates and Related Parties shall also be prohibited from offering employment to and employing any employee, officer, director, manager or members of the Buyers or any of their respective Affiliates who was employed by the Buyers or any of their respective Affiliates within the twelve months prior to the earlier of (x) the offer of employment to such individual or (y) the commencement of such individual’s employment with such Seller or applicable Affiliate.

(c)    The Sellers acknowledge that a breach or threatened breach of this Section 6.02 would give rise to irreparable harm to the Buyers, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by a Seller of any such obligations, the Buyers shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond).

(d)    Each Seller agrees not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow DataTech or any of the Sellers’ Affiliates or Related Parties (whom any Seller controls), to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of, or the intended benefits to the Buyers under, any of the provisions of this Section 6.02) (including adversely affecting the rights or ability of the Buyers to successfully enforce this Section 6.02).

(e)    Each Seller acknowledges that the restrictions contained in this Section 6.02 are reasonable and necessary to protect the legitimate interests of the Buyers and constitute a material inducement to the Buyers to enter into this Agreement and consummate the transactions contemplated by this Agreement. In the event that any covenant contained in this Section 6.02 should ever be adjudicated to exceed the time, geographic, product or service or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service or other limitations permitted by applicable Law. The covenants contained in this Section 6.02 and each provision hereof are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.

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Section 6.03    Post-Closing Cooperation.

(a)    Each Seller and each Buyer shall cooperate with each other, and shall cause their officers, employees, managers, members, agents, auditors and other Representatives to cooperate with each other to ensure the orderly transition of the Business from the Sellers to the Buyers and to minimize any disruption to the Business and the other respective businesses of the Buyers that might result from the transactions contemplated hereby. In addition, the Sellers shall or shall cause their Affiliates to provide the Administrative Services in accordance with the terms of the Transition Services Agreement. After the date of this Agreement, upon reasonable written notice, the Buyers and each Seller shall furnish or cause to be furnished to each other and their employees, counsel, auditors and other Representatives access, during normal business hours, to such information and assistance relating to the Business, including any Books and Records (to the extent within the control of such party) as is reasonably necessary for financial reporting, business support, compliance and accounting matters (subject to any applicable confidentiality obligations).

(b)    Each party shall provide the other with any cooperation reasonably requested by the other party in connection with the preparation of Tax Returns and any tax audits or controversies or other tax matters relating to this Agreement.

(c)    No party hereto shall be required by this Section 6.03 to take any action that would unreasonably interfere with the conduct of its business or unreasonably disrupt its normal operations.

Section 6.04    Public Announcements. Unless otherwise required by applicable Law or stock exchange requirements (based upon the reasonable advice of counsel), no party to this Agreement shall make any public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed), and the parties shall cooperate as to the timing and contents of any such announcement.

Section 6.05    Bulk Sales Laws. The parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar Laws (including those related to Taxes) of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to the Buyers; it being understood that any Liabilities arising out of the failure of any party to comply with the requirements and provisions of any bulk sales, bulk transfer or similar Laws of any jurisdiction which would not otherwise constitute Assumed Liabilities shall be treated as Excluded Liabilities.

Section 6.06    Receivables. From and after the date of this Agreement, if the Sellers or any of their respective Affiliates receives or collects any funds relating to any Accounts Receivable or any other Purchased Asset, such Seller or such Affiliate shall promptly remit such funds to the Buyers. From and after the date of this Agreement, if the Buyers or their respective Affiliate receives or collects any funds relating to any Excluded Asset, the Buyers or their respective Affiliate shall promptly remit any such funds to such Seller.

Section 6.07    Certain Tax Matters.

(a)    All transfer, real estate transfer, documentary, sales, use, stamp and other similar Taxes (including any penalties, interest and additions to Taxes) imposed on the sale of the Purchased Assets (“Transfer Taxes”) shall be borne and paid one half by the Buyers and one half by the Sellers when due. The Sellers shall, at their own expense, timely file any Tax Returns with respect to such Taxes (and the Buyers shall cooperate with respect thereto as reasonably requested by any Seller).

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(b)    Any ad valorem property tax attributable to the Purchased Assets shall be pro-rated (on a daily basis) as of the date of this Agreement.

(c)    The Sellers and the Buyers agree that they shall follow the “standard procedure” set forth in IRS Revenue Procedure 2004-53 with respect to all applicable matters addressed therein.

Section 6.08    Further Assurances. At any time from and after the date of this Agreement, (a) as and when requested by any party, each party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions, as such other party may reasonably deem necessary or desirable to more effectively transfer, convey or assign to the Buyers, and to confirm the Buyers’ right to, title in and ownership of, the Purchased Assets and to place the Buyers in actual possession and operating control thereof, including executing and delivering to the Buyers such assignments, deeds, bills of sale, consents and other instruments, as the Buyers or their counsel may reasonably request as necessary or appropriate for such purposes and (b) the Buyers shall promptly provide the Sellers written notice of any Proceeding brought by a third party in connection with any Excluded Asset and/or Excluded Liability.

Section 6.09    Insurance.

(a)    Effective as of the date of this Agreement, the coverage under the Seller Insurance Policies shall be cancelled. The Buyers shall arrange for, obtain or carry in full force and effect for the eighteen (18) month period following the date of this Agreement: (i) the insurance policy listed in Section 6.09(a)(i) of the Disclosure Schedules relating to general liability coverage with respect to the Business the “General Liability Insurance Policy”); (ii) the insurance policy listed in Section 6.09(a)(ii) of the Disclosure Schedules relating to product liability recall coverage with respect to the Business (the “Recall Insurance Policy”), (iii) the insurance policy listed in Section 6.09(a)(iii) of the Disclosure Schedules relating to commercial property coverage with respect to the Business (the “Property Insurance Policy”) and (iv) the insurance policy listed in Section 6.09(a)(iv) of the Disclosure Schedules relating to excess liability coverage with respect to the Business (the “Excess Liability Policy”, and together with the Property Insurance Policy, the Recall Insurance Policy and the General Liability Insurance Policy, the “Buyer Insurance Policies”). The Buyers shall include the Sellers as additional named insureds on the Buyer Insurance Policies.

(b)    The premiums due with respect to the General Liability Insurance Policy and the Excess Liability Policy shall be paid out of the Escrow Account in accordance with the terms of the Escrow Agreement.

ARTICLE VII

INDEMNIFICATION

Section 7.01    Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is eighteen (18) months from the date of this Agreement; provided, that the representations and warranties in Section 4.01, Section 4.02, Section 4.24, Section 5.01, Section 5.02 and Section 5.05 shall survive indefinitely and the representations and warranties in Section 4.21 and Section 4.23 shall survive until 90 days after the expiration of the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof). All covenants and agreements of the parties contained herein shall survive the Closing indefinitely or for the period explicitly specified

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therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.

Section 7.02    Indemnification by the Sellers.

(a)    Subject to the other terms and conditions of this Article VII, each Seller shall, jointly and severally, indemnify and defend each of the Buyers and their respective Affiliates and their respective Representatives (collectively, the “Buyer Indemnified Parties”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, any of the Buyer Indemnified Parties based upon, arising out of, relating to or attributable to:

(i)    any breach of any of the representations or warranties of a Seller contained in this Agreement, the other Transaction Documents or in any certificate or instrument delivered by or on behalf of a Seller pursuant to this Agreement, as of the date of this Agreement (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date); or

(ii)    any breach of any covenant, agreement or obligation to be performed by each Seller pursuant to this Agreement; or

(iii)    any Excluded Liability.

(b)    The Sellers’ indemnification obligations pursuant to this Section 7.02 shall be determined without giving effect to any qualification or exception with respect to “Knowledge,” “material,” “materiality,” “materially,” “Material Adverse Effect” or similar language with respect to materiality contained in any representation or warranty of the Sellers set forth in Article IV.

Section 7.03    Indemnification by the Buyers.

(a)    Subject to the other terms and conditions of this Article VII, the Buyers shall indemnify and defend each Seller and its Affiliates and their respective Representatives (collectively, the “Seller Indemnified Parties”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Seller Indemnified Parties based upon, arising out of, with respect to or by reason of:

(i)    any breach of any of the representations or warranties of the Buyers contained in this Agreement, or in any certificate or instrument delivered by or on behalf of any Buyers pursuant to this Agreement, as of the date of this Agreement (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);

(ii)    any breach of any covenant, agreement or obligation to be performed by the Buyers pursuant to this Agreement.

(b)    The Buyers’ indemnification obligations pursuant to this Section 7.03 shall be determined without giving effect to any qualification or exception with respect to “Knowledge,” “material,” “materiality,” “materially,” “Material Adverse Effect” or similar language with respect to materiality contained in any representation or warranty of the Buyers set forth in Article V.

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Section 7.04    Certain Limitations. The indemnification provided for in Section 7.02 and Section 7.03 shall be subject to the following limitations:

(a)    Notwithstanding anything in this Agreement to the contrary, (i) the Sellers shall not be liable to the Buyer Indemnified Parties for indemnification under Section 7.02(a) until the aggregate amount of all Losses in respect of indemnification under Section 7.02(a) exceeds $135,000, in which event the Sellers shall be required to pay or be liable for all such Losses in excess of $135,000 and (ii) the aggregate liability of the Sellers in respect of claims for indemnification pursuant to Section 7.02(a) will not exceed the Escrow Amount, and the Escrow Amount shall be the sole source of the payment for any Losses with respect to any claim under this Article VII; provided, however, that this Section 7.04(a) shall not apply to any claims for fraud or intentional misrepresentation.

(b)    Notwithstanding anything in this Agreement to the contrary, (i) the Buyers shall not be liable to the Seller Indemnified Parties for indemnification under Section 7.03(a), until the aggregate amount of all Losses in respect of indemnification under Section 7.03(a) exceeds $135,000, in which event the Buyers shall be required to pay or be liable for all such Losses in excess of $135,000 and (ii) the aggregate liability of the Sellers in respect of claims for indemnification pursuant to Section 7.03(a) will not exceed the Escrow Amount, and the Escrow Amount shall be the sole source of the payment for any Losses with respect to any claim under this Article VII; provided, however, that this Section 7.04(b) shall not apply to any claims for fraud or intentional misrepresentation.

Section 7.05    Indemnification Procedures; Third Party Claims.

(a)    Any party seeking indemnification (the “Indemnified Party”) from any other party (the “Indemnifying Party”) with respect to any claim, demand, Proceeding or other matter pursuant to this Article VII (a “Claim”) shall promptly notify the Indemnifying Party of the existence of the Claim, setting forth in reasonable detail the facts and circumstances pertaining thereto and the basis for the Indemnified Party’s right to indemnification; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent that) the Indemnifying Party thereby is materially prejudiced by such failure to give notice or any delay in giving such notice.

(b)    If any third party shall notify any Indemnified Party with respect to any matter that may give rise to a Claim for indemnification against the Indemnifying Party under this Agreement (a “Third Party Claim”), then the Indemnified Party shall reasonably and promptly notify the Indemnifying Party. The Indemnified Party shall thereafter keep the Indemnifying Party informed of the progress of the Third Party Claim and shall inform the Indemnifying Party of all material developments in respect of the Third Party Claim. The Indemnified Party shall have absolute discretion in relation to the conduct, defense and settlement of such Third Party Claim.

Section 7.06    Payment of Claims.

(a)    Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this Article VII, then the Losses resulting from such Claim pursuant to this Article VII shall be paid from the Escrow Account pursuant to the terms of the Escrow Agreement. In connection therewith, promptly following such agreement or final adjudication, the Indemnifying Party shall execute and deliver, or cause to be executed and delivered, all notices and instruments and shall take, or cause to be taken, all such other actions necessary under and pursuant to the Escrow Agreement to authorize the Escrow Agent to distribute and release the amount of such agreed or finally adjudicated Losses to the applicable Indemnified Party.

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(b)    The amount of any Losses subject to indemnification under this Article VII shall be net any amounts actually recovered by the Indemnified Party under applicable insurance policies or from any other Person alleged to be responsible therefor. If the Indemnified Party receives any amounts under applicable insurance policies, or from any other Person alleged to be responsible for any Losses, subsequent to an indemnification payment by the Indemnifying Party, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification payment up to the amount received by the Indemnified Party, net of any expenses or costs incurred by such Indemnified Party by reason of making such Claim or collecting such amount (including any increase in future insurance premiums suffered by the Indemnified Party directly as a result of obtaining such recovery from the insurance carrier. Each Indemnified Party shall use commercially reasonable efforts to collect any amounts available under insurance coverage, or from any other Person alleged to be responsible, for any Losses payable under this Article VII.

(c)    EXCEPT AS SET FORTH IN SECTION 7.06(D), IN NO EVENT SHALL THE INDEMNIFICATION OBLIGATIONS UNDER THIS AGREEMENT (INCLUDING UNDER THIS ARTICLE VII) OR THE TERM “LOSSES” (EXCEPT IN THE CASE OF FRAUD OR INTENTIONAL MISREPRESENTATION) COVER OR INCLUDE LOSS OF PROFITS, DIMINUTION IN VALUE OR ANY DAMAGES BASED ON ANY TYPE OF MULTIPLE, WHETHER BASED ON STATUTE, CONTRACT, TORT OR OTHERWISE, AND WHETHER OR NOT ARISING FROM THE INDEMNIFYING PARTY’S SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT (OTHER THAN ANY LOSSES COVERING OR INCLUDING DIMINUTION IN VALUE OR LOSS OF PROFITS OBTAINED IN A PROCEEDING BY A THIRD PARTY FROM A BUYER INDEMNIFIED PARTY).

(d)    For the avoidance of doubt, in the event a third party obtains Losses which cover or include diminution in value or loss of profits from a Buyer Indemnified Party, such Losses which cover or include diminution in value or loss of profits shall, to the extent they would otherwise be indemnifiable under this Agreement but for the fact that they are Losses which cover or include diminution in value or loss of profits, be indemnifiable direct Losses to such Buyer Indemnified Party for purposes of this Agreement.

Section 7.07    Tax Treatment for Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.

Section 7.08    Exclusivity. Except with respect to Claims, Liabilities or Losses arising out of fraud, intentional misrepresentation or willful misconduct, the enforcement specifically of any covenant requiring performance following the Closing or Claims for equitable relief, this Article VII will provide the exclusive remedy for any Indemnified Party for any misrepresentation, breach of warranty, covenant or other agreement or other Claim arising out of this Agreement, the Transaction Documents or the transactions contemplated by this Agreement.

ARTICLE VIII

MISCELLANEOUS

Section 8.01    Expenses. Except as otherwise expressly provided herein, all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.

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Section 8.02    Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 8.02):

If to the Sellers:	BLEC, LLC 401 N. Tryon Street, Suite 1080 10th Floor Charlotte, NC 28202 Facsimile:  (704) 998-5859 E-mail:  William.Raines@intermarkbrands.com Attention:  CEO INTERMARK BRANDS, LLC 401 N. Tryon Street, Suite 1080 10th Floor Charlotte, NC 28202 Facsimile:  (704) 998-5859 E-mail:  William.Raines@intermarkbrands.com Attention:  CEO QSN TECHNOLOGIES, LLC 401 N. Tryon Street, Suite 1080 10th Floor Charlotte, NC 28202 Facsimile:  (704) 998-5859 E-mail:  William.Raines@intermarkbrands.com Attention:  CEO
with a copy to:	McGuireWoods LLP 201 North Tryon Street Charlotte, NC 28202 Facsimile:  (704) 353-6204 E-mail:  pporter@mcguirewoods.com Attention:  Paul Porter	(704) 373-8993 wdonaldson@mcguirewoods.com Tom Donaldson
If to the Buyers:	LRDHC, Inc. 714 Green Valley Road Greensboro, NC 27408 Facsimile:  (336) 335-7707 E-mail:  CWhitford@lortobco.com Attention:  Assistant Secretary
with a copy to:	Cahill Gordon & Reindel LLP 80 Pine Street 17th Floor New York, NY 10005 Facsimile:  (212) 378–2298 E-mail:  jmark@cahill.com Attention:  Jonathan I. Mark	(212) 378-2164 hbanks@cahill.com Helene R. Banks

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Section 8.03    Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Schedules, Disclosure Schedules and Exhibits mean the Articles and Sections of, Schedules, Disclosure Schedules and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Schedules, Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

Section 8.04    Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

Section 8.05    Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Except as provided in Section 6.02(d), upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

Section 8.06    Entire Agreement. This Agreement and the other Transaction Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter, including that certain Letter of Intent between the Sellers and Lorillard, Inc., dated as of March 7, 2012. In the event of any inconsistency between the statements in the body of this Agreement and those in the other Transaction Documents, the Exhibits and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.

Section 8.07    Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. No assignment shall relieve the assigning party of any of its obligations hereunder.

Section 8.08    No Third-party Beneficiaries. Except as provided in Article VII, this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

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Section 8.09    Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

Section 8.10    Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

(a)    This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of Delaware.

(b)    ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF DELAWARE IN EACH CASE LOCATED IN THE CITY OF WILMINGTON, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

(c)    EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (ii) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.10(c).

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Section 8.11    Specific Performance. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall, subject to Section 7.08, be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.

Section 8.12    Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

BLEC, LLC
By:	/s/ William F. Raines, III
	Name:    William F. Raines, III Title:      CEO and CFO

INTERMARK BRANDS, LLC
By:	/s/ William F. Raines, III
	Name:    William F. Raines, III Title:      CEO and CFO

QSN TECHNOLOGIES, LLC
By:	/s/ William F. Raines, III
	Name:    William F. Raines, III Title:      CEO and CFO

LRDHC, INC.
By:	/s/ David H. Taylor
	Name:    David H. Taylor Title:      Treasurer and Chief Financial Officer

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Murray S. Kessler, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2012 of Lorillard, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 27, 2012

By:	/s/ Murray S. Kessler
	Murray S. Kessler
	Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, David H. Taylor, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2012 of Lorillard, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 27, 2012

By:	/s/ David H. Taylor
	David H. Taylor
	Executive Vice President, Finance and Planning and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Lorillard, Inc. (the “Company”) for the quarter ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Murray S. Kessler, as Chief Executive Officer of the Company, and David H. Taylor, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Murray S. Kessler
Name:	Murray S. Kessler
Title:	Chairman, President and Chief Executive Officer
	(Principal Executive Officer)
Date: April 27, 2012
/s/ David H. Taylor
Name:	David H. Taylor
Title:	Executive Vice President, Finance and Planning and Chief Financial Officer
	(Principal Financial Officer)
Date: April 27, 2012

This certification shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified as being incorporated therein by reference.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Lorillard, Inc. and will be retained by Lorillard, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Legal Proceedings (Tables)

3 Months Ended

Mar. 31, 2012

Commitments and Legal Proceedings [Abstract]

Number of Cases Pending

Type of Case	Total Number of  Cases Pending against Lorillard as of April 23, 2012
Conventional Product Liability Cases		32
Engle Progeny Cases		5,902
West Virginia Individual Personal Injury Cases		38
Flight Attendant Cases		2,585
Class Action Cases		3
Reimbursement Cases		1
Filter Cases		33
Tobacco-Related Antitrust Cases		2

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Share Repurchase Program (Details Textual) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended			1 Months Ended			3 Months Ended				1 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011	Feb. 29, 2012 Share Repurchase Program July 2009 [Member]	Jul. 27, 2009 Share Repurchase Program July 2009 [Member]	Feb. 25, 2010 Share Repurchase Program Feb 2010 [Member]	Mar. 31, 2012 Share Repurchase Program Aug 2010 [Member]	May 31, 2011 Share Repurchase Program Aug 2010 [Member]	May 19, 2011 Share Repurchase Program Aug 2010 [Member]	Aug. 20, 2010 Share Repurchase Program Aug 2010 [Member]	Feb. 29, 2012 Share Repurchase Program Aug 2011 [Member]	Jan. 31, 2012 Share Repurchase Program Aug 2011 [Member]	Dec. 31, 2012 Share Repurchase Program Aug 2011 [Member]	Feb. 24, 2012 Share Repurchase Program Aug 2011 [Member]	Aug. 31, 2011 Share Repurchase Program Aug 2011 [Member]
Share Repurchase Program (Textual) [Abstract]
Authorized amount for repurchase of outstanding common stock	$ 3,800				$ 750	$ 250		$ 1,400	$ 1,400	$ 1,000				$ 750	$ 750
Authorized amount for additional repurchase of outstanding common stock								400
Repurchase of common stock, shares	44.0		43.0				15.0						1.6	6.7
Average per share price of repurchase of common stock							$ 93.05				$ 111.87	$ 114.85
Payments for Repurchase of Common Stock	$ 188	$ 289		$ 188			$ 1,400

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Long-Term Debt (Details Textual) (USD $) In Millions, unless otherwise specified	0 Months Ended		3 Months Ended		0 Months Ended	1 Months Ended	0 Months Ended
	Aug. 04, 2011	Apr. 12, 2010	Mar. 31, 2012	Dec. 31, 2011	Aug. 04, 2011 2016 Notes [Member]	Jun. 23, 2009 2019 Notes [Member]	Apr. 12, 2010 2020 Notes [Member]	Apr. 12, 2010 2040 Notes [Member]	Aug. 04, 2011 2041 Notes [Member]
Debt Instrument [Line Items]
Issuance of unsecured senior notes	$ 750	$ 1,000			$ 500	$ 750	$ 750	$ 250	$ 250
Unsecured senior debt stated interest rate in %					3.50%	8.125%	6.875%	8.125%	7.00%
Minimum incremental increase in interest rate on the notes						0.25%
Maximum incremental increase in interest rate on the notes						2.00%
Long-Term Debt (Textual) [Abstract]
Offer to repurchase the notes upon control triggering event			101.00%
Number of days ceased to be rated investment grade for becoming change of control triggering event			60 days
Carrying value of the notes			2,586	2,595
Estimated fair value of the notes			$ 2,905	$ 2,801

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Consolidating Financial Information (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012		Dec. 31, 2011	Mar. 31, 2011	Dec. 31, 2010
Assets:
Cash and cash equivalents	$ 1,929		$ 1,634	$ 2,338	$ 2,063
Accounts receivable, less allowances of $2 and $2	10		10
Other receivables	67		83
Inventories	342		277
Deferred income taxes	534		535
Other current assets	28		25
Total current assets	2,910		2,564
Plant and equipment, net	268		262
Deferred income taxes	52		54
Other assets	121		128
Total assets	3,351		3,008
Liabilities and Shareholders' Equity (Deficit):
Accounts and drafts payable	27		32
Accrued liabilities	366		296
Settlement costs	1,488		1,151
Income taxes	110		6
Total current liabilities	1,991		1,485
Long-term debt	2,586		2,595
Postretirement pension, medical and life insurance benefits	383		388
Other liabilities	57		53
Total liabilities	5,017		4,521
Shareholders' Equity Deficit:
Common stock	2		2
Additional paid-in capital	276		266
Retained earnings	2,080		2,059
Accumulated other comprehensive loss	(224)		(228)
Treasury stock at cost, 44 million and 43 million shares	(3,800)		(3,612)
Total shareholders' equity (deficit)	(1,666)		(1,513)	(449)	(225)
Total liabilities and shareholders' equity (deficit)	3,351		3,008
Parent [Member]
Assets:
Cash and cash equivalents	31		235	373	163
Other current assets	1
Total current assets	32		235
Investment in subsidiaries	(1,310)		(1,347)
Total assets	(1,278)		(1,112)
Liabilities and Shareholders' Equity (Deficit):
Accrued liabilities	1		14
Total current liabilities	1		14
Other liabilities	387		387
Total liabilities	388		401
Shareholders' Equity Deficit:
Common stock	2		2
Additional paid-in capital	276		266
Retained earnings	2,080		2,059
Accumulated other comprehensive loss	(224)		(228)
Treasury stock at cost, 44 million and 43 million shares	(3,800)		(3,612)
Total shareholders' equity (deficit)	(1,666)		(1,513)
Total liabilities and shareholders' equity (deficit)	(1,278)		(1,112)
Issuer [Member]
Assets:
Cash and cash equivalents	1,727		582	1,584	1,181
Accounts receivable, less allowances of $2 and $2	10		10
Other receivables	66		956
Inventories	342		277
Deferred income taxes	534		535
Other current assets	27		25
Total current assets	2,706		2,385
Investment in subsidiaries	375		219
Plant and equipment, net	268		262
Deferred income taxes	47		50
Other assets	295		302
Total assets	3,691		3,218
Liabilities and Shareholders' Equity (Deficit):
Accounts and drafts payable	27	[1]	32
Accrued liabilities	453		354
Settlement costs	1,488		1,151
Income taxes	22		6
Total current liabilities	1,990		1,543
Long-term debt	2,586		2,595
Postretirement pension, medical and life insurance benefits	383		388
Other liabilities	42		39
Total liabilities	5,001		4,565
Shareholders' Equity Deficit:
Additional paid-in capital	65		55
Retained earnings	(1,151)		(1,174)
Accumulated other comprehensive loss	(224)		(228)
Total shareholders' equity (deficit)	(1,310)		(1,347)
Total liabilities and shareholders' equity (deficit)	3,691		3,218
All Other Subsidiaries [Member]
Assets:
Cash and cash equivalents	171		817	381	719
Other receivables	1		2
Total current assets	172		819
Deferred income taxes	5	[1]	4
Other assets	213		213
Total assets	390		1,036
Liabilities and Shareholders' Equity (Deficit):
Accrued liabilities	(88)		803
Income taxes	88
Total current liabilities			803
Other liabilities	15		14
Total liabilities	15		817
Shareholders' Equity Deficit:
Additional paid-in capital	214		214
Retained earnings	161		5
Total shareholders' equity (deficit)	375		219
Total liabilities and shareholders' equity (deficit)	390		1,036
Total Consolidating Adjustments [Member]
Assets:
Other receivables			(875)
Total current assets			(875)
Investment in subsidiaries	935		1,128
Other assets	(387)		(387)
Total assets	548		(134)
Liabilities and Shareholders' Equity (Deficit):
Accrued liabilities			(875)
Total current liabilities			(875)
Other liabilities	(387)		(387)
Total liabilities	(387)		(1,262)
Shareholders' Equity Deficit:
Additional paid-in capital	(279)		(269)
Retained earnings	990		1,169
Accumulated other comprehensive loss	224		228
Total shareholders' equity (deficit)	935		1,128
Total liabilities and shareholders' equity (deficit)	$ 548		$ (134)

[1] Includes intercompany royalties between Issuer and other subsidiaries of a corresponding amount.

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Credit Agreement (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 26, 2010
Credit Agreement (Textual) [Abstract]
Revolving Credit Facility		$ 185
Revolving Credit Facility, Initiation Date	2010-03-26
Revolving Credit Facility, Expiration Date	2013-03-26
Ratio of Debt to EBITDA to be maintained as per Revolver requirement	not more than 2.25 to 1
Ratio of EBITDA to interest expense to be maintained as per Revolver requirement	not less than 3.0 to 1
Maximum ratio of debt to EBITDA	2.25%
Minimum ratio of EBITDA	3.00%
Borrowings under the facility	$ 0

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Fair Value (Tables)

3 Months Ended

Mar. 31, 2012

Fair Value [Abstract]

Assets and liabilities measured at fair value on recurring basis

	Level 1		Level 2		Level 3		Total
	(In millions)
Cash and Cash Equivalents:
Prime money market funds	$	1,929	$	—	$	—	$	1,929
Total cash and cash equivalents	$	1,929	$	—	$	—	$	1,929
Derivative Asset:
Interest rate swaps — fixed to floating rate	$	—	$	86	$	—	$	86
Total derivative asset	$	—	$	86	$	—	$	86

Assets and liabilities measured at fair value on a recurring basis at December 31, 2011 were as follows:

	Level 1		Level 2		Level 3		Total
	(In millions)
Cash and Cash Equivalents:
Prime money market funds	$	1,634	$	—	$	—	$	1,634
Total cash and cash equivalents	$	1,634	$	—	$	—	$	1,634
Derivative Asset:
Interest rate swaps — fixed to floating rate	$	—	$	95	$	—	$	95
Total derivative asset	$	—	$	95	$	—	$	95

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Consolidating Financial Information (Details 2) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Net income	$ 223	$ 248
Other comprehensive income, net of tax:
Defined benefit retirement plan gains, net of tax expense of $2 and $1	4	1
Other comprehensive income	4	1
Comprehensive income	227	249
Parent [Member]
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Net income	223	248
Other comprehensive income, net of tax:
Comprehensive income	223	248
Issuer [Member]
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Net income	223	248
Other comprehensive income, net of tax:
Defined benefit retirement plan gains, net of tax expense of $2 and $1	4	1
Other comprehensive income	4	1
Comprehensive income	227	249
All Other Subsidiaries [Member]
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Net income	156	156
Other comprehensive income, net of tax:
Comprehensive income	156	156
Total Consolidating Adjustments [Member]
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Net income	(379)	(404)
Other comprehensive income, net of tax:
Comprehensive income	$ (379)	$ (404)

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Legal Proceedings

3 Months Ended

Mar. 31, 2012

Commitments and Legal Proceedings [Abstract]

Legal Proceedings

15. Legal Proceedings

Overview

As of April 23, 2012, 9,488 product liability cases are pending against cigarette manufacturers in the United States. Lorillard Tobacco is a defendant in 8,561 of these cases. Lorillard, Inc. is a co-defendant in 675 pending cases. A total of 5,902 of these lawsuits are Engle Progeny Cases, described below. In addition to the product liability cases, Lorillard Tobacco and, in some instances, Lorillard, Inc., are defendants in Filter Cases and Tobacco-Related Antitrust Cases.

Pending cases against Lorillard are those in which Lorillard Tobacco or Lorillard, Inc. have been joined to the litigation by either receipt of service of process, or execution of a waiver thereof, and a dismissal order has not been entered with respect to Lorillard Tobacco or Lorillard, Inc. The table below lists the number of certain tobacco-related cases pending against Lorillard as of the dates listed. A description of each type of case follows the table.

Type of Case	Total Number of  Cases Pending against Lorillard as of April 23, 2012
Conventional Product Liability Cases		32
Engle Progeny Cases		5,902
West Virginia Individual Personal Injury Cases		38
Flight Attendant Cases		2,585
Class Action Cases		3
Reimbursement Cases		1
Filter Cases		33
Tobacco-Related Antitrust Cases		2

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. Lorillard Tobacco is a defendant in each of the Conventional Product Liability cases listed in the table above, and Lorillard, Inc. is a co-defendant in five of the Conventional Product Liability 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 each of the Engle Progeny Cases listed in the above table and Lorillard, Inc. is a co-defendant in 669 Engle Progeny Cases. The time period for filing Engle Progeny Cases expired in January 2008 and no additional cases may be filed. Some of the Engle Progeny Cases were filed on behalf of multiple class members. Some of the courts hearing the cases filed by multiple class members have severed these suits into separate individual cases. It is possible the remaining suits filed by multiple class members may also be severed into separate individual cases.

West Virginia Individual Personal Injury Cases. In a 1999 administrative order, the West Virginia Supreme Court of Appeals transferred a group of cases brought by individuals who allege cancer or other health effects caused by smoking cigarettes, by smoking cigars, or by using smokeless tobacco products, to a single West Virginia court (the “West Virginia Individual Personal Injury Cases”). The plaintiffs’ claims alleging injury from smoking cigarettes have been consolidated for trial. The plaintiffs’ claims alleging injury from the use of other tobacco products have been severed from the consolidated cigarette claims and have not been consolidated for trial. Lorillard Tobacco is a defendant in each of the West Virginia Personal Injury Cases listed in the above table. Lorillard, Inc. is not a defendant in any of the West Virginia Individual Personal Injury Cases. The time for filing a case that could be consolidated for trial with the West Virginia Personal Injury Cases expired in 2000.

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 January 15, 1997. Lorillard Tobacco is a defendant in each of the Flight Attendant Cases listed in the above table. Lorillard, Inc. is not a defendant in any of the Flight Attendant Cases. The time for filing Flight Attendant Cases expired in 2000 and no additional cases in this category may be filed.

Class Action Cases. Class Action Cases are purported to be brought on behalf of large numbers of individuals for damages allegedly caused by smoking. Lorillard Tobacco is a defendant in each of the Class Action Cases listed in the above table, and Lorillard, Inc. is a co-defendant in one of the Class Action Cases. Neither Lorillard Tobacco nor Lorillard, Inc. is a defendant in additional Class Action Cases that are pending against other cigarette manufacturers, including approximately 21 “lights” Class Action Cases and two Class Action Cases that are based primarily on medical monitoring.

Reimbursement Cases. Reimbursement Cases are brought by or on behalf of entities seeking equitable relief and reimbursement of expenses incurred in providing health care to individuals who allegedly were injured by smoking. Plaintiffs in these cases have included the U.S. federal government, U.S. state and local governments, foreign governmental entities, hospitals or hospital districts, American Indian tribes, labor unions, private companies and private citizens.

Included in this category is the suit filed by the federal government, United States of America v. Philip Morris USA, Inc. (“Phillip Morris”), et al., that sought to recover profits earned by the defendants and other equitable relief. In August 2006, the trial court issued its final judgment and remedial order and granted injunctive and other equitable relief. The final judgment did not award monetary damages. In May 2009, the final judgment was largely affirmed by an appellate court. In June 2010, the U.S. Supreme Court denied review of the case. See “Reimbursement Cases” below.

Filter Cases. Filter Cases are brought by individuals, including former employees of Lorillard Tobacco, who seek damages resulting from their alleged exposure to asbestos fibers that were incorporated into filter material used in one brand of cigarettes manufactured by Lorillard Tobacco for a limited period of time ending more than 50 years ago. Lorillard Tobacco is a defendant in 32 of the 33 Filter Cases listed in the above table. Lorillard, Inc. is a co-defendant in five of the 32 Filter Cases that are pending against Lorillard Tobacco. Lorillard, Inc. is also a defendant in one additional Filter Case in which Lorillard Tobacco is not a defendant. In January 2012, a jury returned a verdict for the defendants in the case of McGuire v. Lorillard Tobacco Company and Hollingsworth & Vose Company (Circuit Court, Division Four, Jefferson County, Kentucky).

Tobacco-Related Antitrust Cases. Lorillard Tobacco is a defendant in two Tobacco-Related Antitrust Cases as set forth in the table above. Lorillard, Inc. is not a defendant in either case. In 2000 and 2001, a number of cases were brought against cigarette manufacturers, including Lorillard Tobacco, alleging that defendants conspired to set the price of cigarettes in violation of federal and state antitrust and unfair business practices statutes. Plaintiffs sought class certification on behalf of persons who purchased cigarettes directly or indirectly from one or more of the defendant cigarette manufacturers. All of the cases have been either successfully defended or voluntarily dismissed. The other case in this category was brought by a small cigarette manufacturer against a number of states and the cigarette manufacturers, including Lorillard Tobacco, that signed the Master Settlement Agreement (as described herein) with 46 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and the Commonwealth of the Northern Mariana Islands. It was alleged that certain provisions of the Master Settlement Agreement violate the antitrust laws. On February 22, 2012, the Court of Appeals for the Sixth Circuit affirmed the judgment of the District Court dismissing the case. As of April 23, 2012, the time period for plaintiff to file a petition for certiorari with the U.S. Supreme Court had not expired.

Loss Accrual and Disclosure Policy

Lorillard establishes accruals in accordance with Accounting Standards Codification Topic 450, Contingencies (“ASC 450”), when a material litigation liability is both probable and can be reasonably estimated. There are a number of factors impacting Lorillard’s ability to estimate the possible loss or a range of loss, including the specific facts of each matter; the legal theories proffered by plaintiffs and legal defenses available to Lorillard Tobacco and Lorillard, Inc.; the wide-ranging outcomes reached in similar cases; differing procedural and substantive laws in the various jurisdictions in which lawsuits have been filed, including whether punitive damages may be pursued or are permissible; the degree of specificity in a plaintiff’s complaint; the history of the case and whether discovery has been completed; plaintiffs’ history of use of Lorillard Tobacco’s cigarettes relative to those of the other defendants; the attribution of damages, if any, among multiple defendants; the application of contributory and/or comparative negligence to the allocation of damage awards among plaintiffs and defendants; the likelihood of settlements for de minimus amounts prior to trial; the likelihood of success at trial; the likelihood of success on appeal; and the impact of current and pending state and federal appellate decisions. It has been Lorillard’s experience and is its continued expectation that the above complexities and uncertainties will not be clarified until the late stages of litigation. For those reasonably possible loss contingencies for which an estimate of the possible loss or range of loss cannot be made, Lorillard discloses the nature of the litigation and any developments as appropriate.

Lorillard monitors the status of all outstanding litigation on an ongoing basis in order to determine the probability of loss and assess whether an estimate of the possible loss or range of loss can be determined. In evaluating litigation, Lorillard considers, among other things, the nature of the claims; the jurisdiction in which the claims have been filed and the law and case law developed in that jurisdiction; the experience of plaintiffs’ counsel in this type of litigation; the parties’ respective litigation strategies; the stage of the proceedings; the outcome of the matters at trial or on appeal; the type and amount of damages claimed by plaintiffs; the outcomes and damage awards, if any, for similar matters brought against Lorillard and/or the tobacco industry; and the possibility and likelihood of success on appeal. Lorillard’s assessment of a possible loss or range of loss is based on its assessment of the final outcome of the litigation upon the conclusion of all appeals.

Lorillard records provisions in the consolidated financial statements for pending litigation when it determines that it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. Except for the impact of the State Settlement Agreements as described below, while it is reasonably possible that a loss has been incurred, (i) management has concluded that it is not probable that a loss has been incurred in any material pending litigation against Lorillard, (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome in any material pending litigation due to the many variables, uncertainties and complexities described above, and (iii) accordingly, management has not provided any amounts in the consolidated financial statements for possible losses related to material pending litigation. It is possible that Lorillard’s results of operations or cash flows in a particular quarterly or annual period or its financial position could be materially adversely affected by an unfavorable outcome or settlement of certain pending or future litigation or an inability to secure bonds where required to stay the execution of judgments on appeal.

Tobacco-Related Product Liability Litigation

Conventional Product Liability Cases

Since January 1, 2010, verdicts have been returned in eight Conventional Product Liability Cases against cigarette manufacturers. Lorillard Tobacco was the only defendant in one of these eight trials, Evans v. Lorillard Tobacco Company (Superior Court, Suffolk County, Massachusetts). In December 2010, the jury in Evans awarded $50 million in compensatory damages to the estate of a deceased smoker, $21 million in damages to the deceased smoker’s son, and $81 million in punitive damages. In September 2011, the court granted in part Lorillard Tobacco’s motion to reduce the jury’s damages awards and reduced the verdicts to the deceased smoker to $25 million and to the deceased smoker’s son to $10 million. The court did not reduce the punitive damages verdict, and it denied the other motions Lorillard Tobacco filed following trial that contested the jury’s verdict. In September 2011, the court also issued an order that addressed the single claim that was not submitted to the jury. While the court made certain findings that were favorable to the plaintiffs, it did not award additional damages to the plaintiffs on this final claim. The court has denied the various motions filed by Lorillard Tobacco following the entry of the order on the claim that was not submitted to the jury. In September 2011, the court entered a judgment that reflected the jury’s damages awards and the court’s reductions following trial. The judgment awarded plaintiffs interest on each of the three damages awards at the rate of 12% per year from the date the case was filed in 2004. Interest on the three awards will continue to accrue until either the judgment is paid or is vacated on appeal. The judgment permitted plaintiff’s counsel to request an award of attorneys’ fees and costs. In November 2011, the court granted in part plaintiff’s counsel’s application for attorneys’ fees and costs and has awarded approximately $2.4 million in fees and approximately $225,000 in costs. The court entered a final judgment that incorporated the amounts of the verdicts, as reduced by the trial court, the awards of interest, and the awards of attorneys’ fees and costs. Lorillard Tobacco has noticed an appeal from the final judgment to the Massachusetts Appeals Court. In March 2012, plaintiff’s application for direct appellate review was granted, transferring the appeal to the Massachusetts Supreme Judicial Court. As of April 23, 2012, the court had not ruled on plaintiff’s motion for preliminary injunction.

Neither Lorillard Tobacco nor Lorillard, Inc. was a defendant in the seven other trials since January 1, 2010. Juries found in favor of the plaintiffs and awarded compensatory damages in two of these trials. Plaintiff in one of the two cases was awarded $4.0 million in punitive damages. Defendants’ appeals of these verdicts are pending. The plaintiff in another case was awarded $25 million in punitive damages in a retrial ordered by an appellate court in which the jury was permitted to consider only the amount of punitive damages to award. Juries found in favor of the defendants in the four other trials. Two of these four cases have concluded because the plaintiffs did not pursue appeals. Plaintiff in the third case has noticed an appeal, and the plaintiff in the fourth case has filed a post-trial motion for a new trial. As of April 23, 2012, the trial court has not ruled on this motion.

In rulings addressing cases tried in earlier years, some appellate courts have reversed verdicts returned in favor of the plaintiffs while other judgments that awarded damages to smokers have been affirmed on appeal. Manufacturers have exhausted their appeals and have been required to pay damages to plaintiffs in thirteen individual cases since 2001. Punitive damages were paid to the smokers in six of these cases. Neither Lorillard Tobacco nor Lorillard, Inc. was a party to any of these matters.

Some cases are scheduled for trial in 2012. As of April 23, 2012, neither Lorillard Tobacco nor Lorillard Inc. is a defendant in any of the Conventional Product Liability Cases that are scheduled for trial in 2012. Trial dates are subject to change.

Engle Progeny Cases

In 2006, the Florida Supreme Court issued a ruling in Engle v. R.J. Reynolds Tobacco Co., et al., that had been certified as a class action on behalf of Florida residents, and survivors of Florida residents, who were injured or died from medical conditions allegedly caused by addiction to smoking. During a three-phase trial, a Florida jury awarded compensatory damages to three individuals and approximately $145 billion in punitive damages to the certified class. In its 2006 decision, the Florida Supreme Court vacated the punitive damages award, determined that the case could not proceed further as a class action and ordered decertification of the class. The Florida Supreme Court also reinstated the compensatory damages awards to two of the three individuals whose claims were heard during the first phase of the Engle trial. These two awards totaled $7 million, and both verdicts were paid in February 2008. Lorillard Tobacco’s payment to these two individuals, including interest, totaled approximately $3 million.

The Florida Supreme Court’s 2006 ruling also permitted Engle class members to file individual actions, including claims for punitive damages. The court further held that these individuals are entitled to rely on a number of the jury’s findings in favor of the plaintiffs in the first phase of the Engle trial. The time period for filing Engle Progeny Cases expired in January 2008 and no additional cases may be filed. In 2009, the Florida Supreme Court rejected a petition that sought to extend the time for purported class members to file an additional lawsuit.

The pending Engle Progeny Cases are before various Florida state and federal courts. Some of the Engle Progeny Cases were filed on behalf of multiple plaintiffs. Various courts have entered orders severing the cases filed by multiple plaintiffs into separate actions. In 2009, one Florida federal court entered orders that severed the claims of approximately 4,400 Engle Progeny plaintiffs, initially asserted in a small number of multi-plaintiff actions, into separate lawsuits. In some cases, spouses or children of alleged former class members have also brought derivative claims.

Various Engle Progeny Cases have been dismissed. Beginning in 2010 and through April 23, 2012, the United States District Court for the Middle District of Florida entered orders that dismissed approximately 1,210 cases for various reasons. In some instances, the plaintiffs whose cases were dismissed also were pursuing cases pending in other courts. In other instances, the attorneys who represented the plaintiffs asked the court to enter dismissal orders because they were no longer able to contact their clients. In addition, other courts, including state courts, entered orders dismissing additional cases. The United States District Court for the Middle District of Florida also entered other orders in 2011 that addressed approximately 500 cases filed by family members of alleged former class members. These 500 cases were among the 4,400 cases that were severed into separate lawsuits in 2009. In the 2011 orders, the court combined each one of these approximately 500 cases with the cases filed by the smoker from which the family members’ claims purportedly derived.

Various intermediate Florida appellate courts have issued rulings that address whether plaintiffs in the Engle Progeny Cases are entitled to rely on a number of the jury’s findings in favor of the plaintiffs in the first phase of the Engle trial. In December 2010, the Florida First District Court of Appeal ruled that the trial court correctly construed the Florida Supreme Court’s 2006 decision and that it properly instructed the jury on the preclusive effect of certain of the Engle jury’s findings in an appeal from a verdict in which the plaintiff was awarded damages. Since that decision, the Florida First District Court of Appeal has affirmed six other verdicts in which the plaintiff was awarded damages, three in 2011 and three in 2012. Defendants in the first four of these cases were denied review by the Florida Supreme Court in July 2011 and subsequent petitions for review by the U.S. Supreme Court were denied in March 2012. The Florida Fourth District Court of Appeals has affirmed judgments entered in favor of the plaintiffs in two cases, one in 2011 and one in 2012, but it had a different interpretation of the effect of the 2006 decision on plaintiffs’ claims. Defendants in both of these cases are seeking review by the Florida Supreme Court. As of April 23, 2012, the Florida Supreme Court had not announced whether it would grant review of these cases. In March 2012, the Florida Second District Court of Appeal affirmed the final judgment in another case, however the appeals court certified to the Florida Supreme Court the question of whether reliance on the findings in the first phase of the Engle trial violates the tobacco companies’ due process rights. As of April 23, 2012, the Florida Supreme Court had not announced whether it would grant review of this case.

Cigarette manufacturers, including Lorillard Tobacco, asked the U.S. District Court for the Middle District of Florida to certify for appeal to the U.S. Court of Appeals for the Eleventh Circuit an order that addressed the application of the Florida Supreme Court’s Engle ruling on plaintiffs’ claims. The order that prompted defendants’ application addressed whether the Due Process Clause of the United States Constitution permits use of the Engle jury’s Phase I findings to establish the wrongful conduct elements of plaintiffs’ claims. Defendants acknowledged that the district court is bound by two rulings issued by Florida intermediate courts of appeal, but contended that these two decisions are inconsistent with federal due process. During February 2012, the U.S. District Court for the Middle District of Florida denied defendants’ motion to certify the order for appellate review.

Various courts, including appellate courts, have issued rulings that have addressed the conduct of the cases prior to trial. One intermediate state appellate court ruled in 2011 that plaintiffs are permitted to assert a claim against a cigarette manufacturer even if the smoker did not smoke a brand sold by that manufacturer. The defendants are seeking review of this decision by the Florida Supreme Court. In March 2012, another intermediate state appellate court agreed with the 2011 ruling and reversed dismissals in a group of cases. Defendants in these cases are also seeking review by the Florida Supreme Court. The Florida Supreme Court has announced that it is deferring decision on whether to accept review of these cases until it decides whether to review the 2011 decision. These rulings may limit the ability of the defendants, including Lorillard Tobacco and Lorillard, Inc., to be dismissed from cases in which smokers did not use a cigarette manufactured by Lorillard Tobacco.

Lorillard Tobacco and Lorillard, Inc. are defendants in Engle Progeny Cases that have been placed on courts’ 2012 trial calendars or in which specific trial dates have been set. Trial schedules are subject to change and it is not possible to predict how many of the cases pending against Lorillard Tobacco or Lorillard, Inc. will be tried in 2012. It also is not possible to predict whether some courts will implement procedures that consolidate multiple Engle Progeny Cases for trial.

As of April 23, 2012, trial was underway in one Engle Progeny case in which Lorillard Tobacco is a defendant, the case of Calloway v. RJ Reynolds Tobacco Company, et al. (Circuit Court, Seventeenth Judicial Circuit, Broward County, Florida) Lorillard, Inc. is not a defendant in this trial.

As of April 23, 2012, verdicts had been returned in eight Engle Progeny Cases in which Lorillard Tobacco was a defendant. Lorillard, Inc. was not a defendant in any of these eight cases. Juries awarded compensatory damages to the plaintiffs in six of these cases. In two of the six cases in which juries awarded compensatory damages, plaintiffs were awarded punitive damages from Lorillard Tobacco. In one of the cases, the court entered an order following trial that awarded plaintiff compensatory damages. The eight cases are listed below in the order in which the verdicts were returned:

• In Rohr v. R.J. Reynolds Tobacco Company, et al. (Circuit Court, Broward County, Florida), a jury returned a verdict in favor of the defendants, including Lorillard Tobacco. Plaintiff in Rohr did not pursue an appeal and the case is concluded.

• In Mrozek v. Lorillard Tobacco Company (Circuit Court, Fourth Judicial Circuit, Duval County, Florida), the jury awarded plaintiffs a total of $6 million in compensatory damages and $11.3 million in punitive damages. The jury apportioned 35% of the fault for the smoker’s injuries to the smoker and 65% to Lorillard Tobacco. The final judgment entered by the trial court reflected the jury’s verdict and awarded plaintiff $3,900,588 in compensatory damages and $11,300,000 in punitive damages plus 6% annual interest. Lorillard Tobacco has noticed an appeal to the Florida First District Court of Appeal. As of April 23, 2012, the trial court had not ruled on plaintiff’s motion for costs and attorneys’ fees.

• In Tullo v. R.J. Reynolds, et al. (Circuit Court, Palm Beach County, Florida), the jury awarded plaintiff a total of $4.5 million in compensatory damages. The jury assessed 45% of the fault to the smoker, 5% to Lorillard Tobacco and 50% to other defendants. The jury did not award punitive damages to the plaintiff. The court entered a final judgment that awarded plaintiff $225,000 in compensatory damages from Lorillard Tobacco plus 6% annual interest. Defendants noticed an appeal from the final judgment to the Florida Fourth District Court of Appeal. The trial court has granted plaintiff’s application for costs but it has not awarded an amount. As of April 23, 2012, the trial court had not ruled on plaintiff’s motion for costs.

• In Sulcer v. Lorillard Tobacco Company, et al. (Circuit Court, Escambia County, Florida), the jury awarded $225,000 in compensatory damages to the plaintiff and it assessed 95% of the fault for the smoker’s injuries to the smoker with 5% allocated to Lorillard Tobacco. The jury returned a verdict for Lorillard Tobacco as to whether plaintiff is entitled to punitive damages. The court entered a final judgment that incorporated the jury’s determination of the parties’ fault and awarded plaintiff $11,250 in compensatory damages. Lorillard Tobacco paid approximately $246,000 to resolve the verdict, costs and fees, as well as all post-trial motions and any potential appeal by the plaintiff. Following this payment, Sulcer was concluded.

• In Jewett v. R.J. Reynolds Tobacco Co., et al. (Circuit Court, Duval County, Florida), the jury awarded the estate of the decedent $692,981 in compensatory damages and awarded the plaintiff $400,000 for loss of companionship. The jury assessed 70% of the responsibility for the decedent’s injuries to the decedent, 20% to R.J. Reynolds and 10% to Lorillard Tobacco. The jury returned a verdict for the defendants regarding whether punitive damages were warranted. The final judgment entered by the trial court reflected the jury’s verdict and awarded plaintiff a total of $109,298 from Lorillard Tobacco plus 6% annual interest. Defendants have noticed an appeal from the final judgment to the Florida First District Court of Appeal. As of April 23, 2012, the trial court had not ruled on plaintiff’s motion for costs and attorneys’ fees.

• In Weingart v. R.J. Reynolds Tobacco Company, et al. (Circuit Court, Palm Beach County, Florida), the jury determined that the decedent did not sustain any compensatory damages from the defendants, including Lorillard Tobacco, and it returned a verdict for the defendants that punitive damages were not warranted. The jury assessed 91% of the fault for the decedent’s injuries to the decedent, 3% to Lorillard Tobacco and 3% to each of the other two defendants. Following trial, the court granted in part a motion filed by the plaintiff to award damages and it tentatively awarded plaintiff $150,000 in compensatory damages. The court entered a final judgment that applied the jury’s comparative fault determinations to the court’s award of compensatory damages. The final judgment awarded plaintiff $4,500 from Lorillard Tobacco. Defendants have noticed an appeal to the Florida Fourth District Court of Appeal from the order that awarded compensatory damages to the plaintiff and have amended their notice of appeal to address the final judgment. In March 2012, the court entered a judgment against the defendants for costs with Lorillard Tobacco’s share amounting to $43,081 plus 4.75% annual interest. Defendants have noticed an appeal from this cost judgment.

• In Sury v. R.J. Reynolds Tobacco Company, et al., (Circuit Court, Duval County, Florida), the jury awarded plaintiff $1,000,000 in compensatory damages and assessed 60% of the responsibility for the decedent’s injuries to the decedent, 20% to Lorillard Tobacco and 20% to R.J. Reynolds. The jury returned a verdict for the defendants regarding whether punitive damages were warranted. In March 2012, the court entered a final judgment against defendants in the amount of $1,000,000 plus 4.75% annual interest, declining to apply the jury’s comparative fault findings to causes of action alleging intentional conduct. Defendants have noticed an appeal to the Florida First District Court of Appeal from the final judgment that awarded compensatory damages to the plaintiff. The plaintiff has filed a motion for determination of entitlement to attorney’s fees and costs. As of April 23, 2012, the court had not ruled on this motion for attorney’s fees and costs

• In Alexander v. Lorillard Tobacco Company, et al. (Circuit Court, Eleventh Judicial Circuit, Miami-Dade County, Florida) the jury awarded plaintiff $20,000,000 in compensatory damages and $25,000,000 in punitive damages. Lorillard Tobacco is the only defendant in this case. The jury apportioned 20% of the fault for the smoker’s injuries to the smoker and 80% to Lorillard Tobacco. In March 2012, the court entered a final judgment that applied the jury’s comparative fault determination to the court’s award of compensatory damages, awarding the plaintiff $16,000,000 in compensatory damages and $25,000,000 in punitive damages from Lorillard Tobacco. Lorillard Tobacco has filed a number of post-trial motions challenging the verdict and the plaintiff has filed a post-trial motion for attorneys’ fees and costs. As of April 23, 2012, the trial court had not ruled on these post-trial motions.

As of April 23, 2012, trial was not underway in any Engle Progeny Cases involving defendants other than Lorillard Tobacco or Lorillard, Inc.

As of April 23, 2012, verdicts have been returned in 55 Engle Progeny Cases since the Florida Supreme Court issued its 2006 ruling that permitted members of the Engle class to bring individual lawsuits in which neither Lorillard Tobacco nor Lorillard, Inc. was a defendant at trial. Juries awarded compensatory damages and punitive damages in 21 of the trials. The 21 punitive damages awards have totaled approximately $620 million and have ranged from $50,000 to $244 million. In 13 of the trials, juries’ awards were limited to compensatory damages. In the 21 remaining trials, juries found in favor of the defendants.

With the exception of the Sulcer case discussed above, defendants had filed, or were expected to file, challenges to each of the verdicts in which plaintiffs were awarded damages as of April 23, 2012. These challenges were pending before various courts and were in various stages as of April 23, 2012. In some of the trials decided in defendants’ favor, plaintiffs have filed motions challenging the verdicts. As of April 23, 2012, none of these motions had resulted in rulings in favor of the plaintiffs.

In a case tried prior to the Florida Supreme Court’s 2006 decision permitting members of the Engle class to bring individual lawsuits, one Florida court allowed the plaintiff to rely at trial on certain of the Engle jury’s findings. That trial resulted in a verdict for the plaintiffs in which they were awarded approximately $25 million in compensatory damages. Neither Lorillard Tobacco nor Lorillard, Inc. was a party to this case. In March 2010, a Florida appellate court affirmed the jury’s verdict. The court denied defendants’ petitions for rehearing in May 2010, and the defendants have satisfied the judgment by paying the damages award.

In June 2009, Florida amended the security requirements for a stay of execution of any judgment during the pendency of appeal in Engle Progeny Cases. The amended statute provides for the amount of security for individual Engle Progeny Cases to vary within prescribed limits based on the number of adverse judgments that are pending on appeal at a given time. The required security decreases as the number of appeals increases to ensure that the total security posted or deposited does not exceed $200 million in the aggregate. This amended statute applies to all judgments entered on or after June 16, 2009. The plaintiffs in some of the cases have challenged the constitutionality of the amended statute. As of April 23, 2012, none of these motions had been granted and courts either denied these challenges or rulings have not been issued. In January 2012, the Florida Supreme Court agreed to review one of the orders denying a challenge to the amended statute.

West Virginia Individual Personal Injury Cases

The West Virginia Individual Personal Injury Cases (the “IPIC Cases”) are brought by individuals who allege cancer or other health effects caused by smoking cigarettes, by smoking cigars, or by using smokeless tobacco products in a single West Virginia court. Approximately 600 IPIC Cases are pending. Most of the pending cases have been consolidated for trial. The order that consolidated the cases for trial, among other things, also limited the consolidation to those cases that were filed by September 2000. No additional IPIC Cases may be consolidated for trial with this group. The court has entered a trial plan for the IPIC Cases that calls for a multi-phase trial. The first phase of trial began in October 2011 but the court ordered a mistrial in November 2011. As of April 23, 2012, a new date for trial had not been scheduled.

In September 2000, there were approximately 1,250 IPIC Cases, and Lorillard Tobacco was named in all but a few of them. Plaintiffs in most of the cases alleged injuries from smoking cigarettes, and the claims alleging injury from smoking cigarettes have been consolidated for a multi-phase trial. Approximately 645 IPIC Cases have been dismissed in their entirety. Lorillard Tobacco has been dismissed from approximately 565 additional IPIC Cases because those plaintiffs did not submit evidence that they used a Lorillard Tobacco product. These additional IPIC Cases remain pending against other cigarette manufacturers and some or all of the dismissals of Lorillard Tobacco could be contested in subsequent appeals. As of April 23, 2012, Lorillard Tobacco is a defendant in 31 of the pending IPIC Cases. Lorillard, Inc. was not a defendant in any of the IPIC Cases.

The court has severed from the IPIC Cases those claims alleging injury from the use of tobacco products other than cigarettes, including smokeless tobacco and cigars (the “Severed IPIC Claims”). The Severed IPIC Claims involve 30 plaintiffs. Twenty-eight of these plaintiffs have asserted both claims alleging that their injuries were caused by smoking cigarettes as well as claims alleging that their injuries were caused by using other tobacco products. The former claims will be considered during the consolidated trial of the IPIC Cases, while the latter claims are among the Severed IPIC Claims. Lorillard Tobacco is a defendant in seven of the Severed IPIC Claims. Lorillard, Inc. is not a defendant in any of the Severed IPIC Claims. Two plaintiffs have asserted only claims alleging that injuries were caused by using tobacco products other than cigarettes, and no part of their cases will be considered in the consolidated trial of the IPIC Cases (the “Severed IPIC Cases”). Neither Lorillard Tobacco nor Lorillard, Inc. is a defendant in either of the Severed IPIC Cases.

As of April 23, 2012, the Severed IPIC Claims and the Severed IPIC Cases were not subject to a trial plan. None of the Severed IPIC Claims or the Severed IPIC Cases was scheduled for trial as of April 23, 2012. Trial dates are subject to change.

Flight Attendant Cases

Lorillard Tobacco and three other cigarette manufacturers are the defendants in each of the pending Flight Attendant Cases. Lorillard, Inc. is not a defendant in any of these cases. These suits were filed as a result of a settlement agreement by the parties, including Lorillard Tobacco, in Broin v. Philip Morris Companies, Inc., et al. (Circuit Court, Miami-Dade County, Florida, filed October 31, 1991), a class action brought on behalf of flight attendants claiming injury as a result of exposure to environmental tobacco smoke. The settlement agreement, among other things, permitted the plaintiff class members to file these individual suits. These individuals may not seek punitive damages for injuries that arose prior to January 15, 1997. The period for filing Flight Attendant Cases expired in 2000 and no additional cases in this category may be filed.

The judges who have presided over the cases that have been tried have relied upon an order entered in October 2000 by the Circuit Court of Miami-Dade County, Florida. The October 2000 order has been construed by these judges as holding that the flight attendants are not required to prove the substantive liability elements of their claims for negligence, strict liability and breach of implied warranty in order to recover damages. The court further ruled that the trials of these suits are to address whether the plaintiffs’ alleged injuries were caused by their exposure to environmental tobacco smoke and, if so, the amount of damages to be awarded.

Lorillard Tobacco was a defendant in each of the eight Flight Attendant Cases in which verdicts have been returned. Defendants have prevailed in seven of the eight trials. In one of the seven cases in which a defense verdict was returned, the court granted plaintiff’s motion for a new trial and, following appeal, the case has been returned to the trial court for a second trial. The six remaining cases in which defense verdicts were returned are concluded. In the single trial decided for the plaintiff, French v. Philip Morris Incorporated, et al., the jury awarded $5.5 million in damages. The court, however, reduced this award to $500,000. This verdict, as reduced by the trial court, was affirmed on appeal and the defendants have paid the award. Lorillard Tobacco’s share of the judgment in this matter, including interest, was approximately $60,000.

As of April 23, 2012, none of the Flight Attendant Cases were scheduled for trial. Trial dates are subject to change.

In 2010, some of the attorneys who represent the plaintiffs in the Flight Attendant Cases filed a motion for sanctions against the defendants, including Lorillard Tobacco, in which plaintiffs alleged that the defendants engaged in certain conduct. In the motion for sanctions, as amended, plaintiffs contended that Philip Morris USA, R.J. Reynolds Tobacco Company and Brown & Williamson Tobacco Corporation tortuously interfered with negotiations the plaintiffs in the Flight Attendant Cases initiated with Lorillard Tobacco and caused Lorillard Tobacco to reject plaintiffs’ offers of judgment. Plaintiffs in all of the Flight Attendant Cases submitted offers of judgment to Lorillard Tobacco during 2000 that proposed to resolve plaintiffs’ claims against Lorillard Tobacco in each of the pending Flight Attendant Cases in which plaintiffs allege lung cancer for $15,000 and to resolve all remaining Flight Attendant Cases for $2,650 each. Plaintiffs contended in the motion for sanctions that Lorillard Tobacco’s subsequent rejection of the offers of judgment was prompted by an agreement it reached with Philip Morris USA, R.J. Reynolds Tobacco Company and Brown & Williamson Tobacco Corporation to partially indemnify Lorillard Tobacco should it be required to satisfy any judgment for attorneys’ fees returned against it in the Flight Attendant Cases. Plaintiffs contended this agreement constituted misconduct and that it violated the Broin settlement agreement. Plaintiffs sought $30 million in sanctions, plus interest of 9% from the date of the anticipated acceptance of the offers of judgment, on behalf of all of the plaintiffs in the Flight Attendant Cases. In June 2011, the Circuit Court of Miami-Dade County, Florida, denied the motion for sanctions, and plaintiffs filed a petition for writ of certiorari to the Florida Third District Court of Appeal. In January 2012, the Court of Appeal denied review of plaintiffs’ petition. Plaintiffs then filed a petition for rehearing or certification to the Florida Supreme Court and this petition was subsequently denied by the Court of Appeal.

Class Action Cases

Lorillard Tobacco is a defendant in three pending Class Action Cases. Lorillard, Inc. is a co-defendant in one of these cases. In most of the pending cases, plaintiffs seek class certification on behalf of groups of cigarette smokers, or the estates of deceased cigarette smokers, who reside in the state in which the case was filed.

Cigarette manufacturers, including Lorillard Tobacco, have defeated motions for class certification in a total of 36 cases, 13 of which were in state court and 23 of which were in federal court. Motions for class certification have also been ruled upon in some of the “lights” cases or in other class actions to which neither Lorillard Tobacco nor Lorillard, Inc. was a party. In some of these cases, courts have denied class certification to the plaintiffs, while classes have been certified in other matters.

The Scott Case. In one Class Action Case against Lorillard Tobacco, Scott v. The American Tobacco Company, et al. (District Court, Orleans Parish, Louisiana, filed May 24, 1996), a Louisiana jury awarded damages to the certified class in 2004. The jury’s award was reduced on two separate occasions in response to defendants’ appeals, but defendants exhausted their appeals and have paid the final judgment. In August 2011, Lorillard Tobacco paid approximately $69.7 million, or one-fourth of the award, to satisfy its portion of the final judgment and the interest that accrued while appeals were pending.

In 1997, Scott was certified a class action on behalf of certain cigarette smokers resident in the State of Louisiana who desire to participate in medical monitoring or smoking cessation programs and who began smoking prior to September 1, 1988, or who began smoking prior to May 24, 1996 and allege that defendants undermined compliance with the warnings on cigarette packages.

In the fourth quarter of 2007, Lorillard, Inc. recorded a pretax provision of approximately $66 million for this matter which was included in selling, general and administrative expenses on the consolidated statements of income and was reclassified from other liabilities to accrued liabilities in the second quarter of 2010 on the consolidated balance sheets.

Counsel for the certified class has filed a motion for attorneys’ fees, for costs and expenses, and for an award to the class representatives. Plaintiffs’ counsel contends they incurred approximately $59.0 million in attorneys’ fees, and further contend that the value of those fees, given the age of the case, is approximately $92.0 million. Plaintiffs’ counsel request that a multiplier as high as seven be applied to any award ordered by the court. Plaintiffs’ counsel ask the court to order defendants to pay an award in excess of $300.0 million, but request in the alternative that they be awarded, from the fund awarded to the class, 33%-40% of the amount of that fund. In addition, plaintiffs’ counsel seeks approximately $13.4 million in costs and expenses. Plaintiffs’ counsel further request that the court order a “substantial” award of an unspecified amount to the two class representatives for their services. As of April 23, 2012, the court had not ruled on plaintiffs’ counsels’ applications. The defendants have filed an application for review with the Louisiana Fourth Circuit Court of Appeal, challenging the jurisdiction of the trial court to rule on the motion for attorneys’ fees.

Other Class Action Cases. In another Class Action Case pending against Lorillard Tobacco, Brown v. The American Tobacco Company, Inc., et al. (Superior Court, San Diego County, California, filed June 10, 1997), the California Supreme Court in 2009 vacated an order that had previously decertified a class and returned Brown to the trial court for further activity. The class in Brown is composed of residents of California who smoked at least one of defendants’ cigarettes between June 10, 1993 and April 23, 2001 and who were exposed to defendants’ marketing and advertising activities in California. The trial court has permitted plaintiffs to assert claims based on the alleged misrepresentation, concealment and fraudulent marketing of “light” or “ultra-light” cigarettes. In January 2012, defendants filed a motion for class decertification. The court has scheduled argument of this motion for May 2012. Trial is set for October 5, 2012. Lorillard, Inc. is not a defendant in Brown.

“Lights” Class Action Cases. Neither Lorillard Tobacco nor Lorillard, Inc. is a defendant in another approximately 21 Class Action Cases in which plaintiffs’ claims are based on the allegedly fraudulent marketing of “light” or “ultra-light” cigarettes. Classes have been certified in some of these cases. In one of these cases, Craft v. Philip Morris USA (Circuit Court, City of St. Louis, Missouri, filed February 29, 2000), trial began in September 2011. During November 2011, the court ordered a mistrial when the jury was unable to reach a verdict. Retrial has been scheduled for January 2013. In another of the “lights” Class Action Cases, Good v. Altria Group, Inc., et al., the U.S. Supreme Court ruled in December 2008 that neither the Federal Cigarette Labeling and Advertising Act nor the Federal Trade Commission’s regulation of cigarettes’ tar and nicotine disclosures preempts (or bars) some of plaintiffs’ claims. In 2009, the Judicial Panel on Multidistrict Litigation consolidated various federal court “lights” Class Action Cases pending against Philip Morris USA or Altria Group and transferred those cases to the U.S. District Court of Maine (the “MDL cases”). The court denied plaintiffs’ motion for class certification filed in four of the MDL Cases, and a federal appellate court declined to review the class certification order. Following the appellate court’s ruling, plaintiffs dismissed thirteen of the MDL Cases, including Good v. Altria Group, Inc., et al. In April 2012, the Judicial Panel on Multidistrict Litigation entered an order transferring the four MDL cases that remained pending to the courts in which each originated.

Reimbursement Cases

U.S. Government Case. In August 2006, the U.S. District Court for the District of Columbia issued its final judgment and remedial order in the federal government’s reimbursement suit, United States of America v. Philip Morris USA, Inc., et al., (U.S. District Court, District of Columbia, filed September 22, 1999). The final judgment and remedial order concluded a bench trial that began in September 2004. Lorillard Tobacco, other cigarette manufacturers, two parent companies and two trade associations were defendants in this action during trial. Lorillard, Inc. is not a party to this case.

In its 2006 final judgment and remedial order, the court determined that the defendants, including Lorillard Tobacco, violated certain provisions of the RICO statute, that there was a likelihood of present and future RICO violations, and that equitable relief was warranted. The government was not awarded monetary damages. The equitable relief included permanent injunctions that prohibit the defendants, including Lorillard Tobacco, from engaging in any act of racketeering, as defined under RICO; from making any material false or deceptive statements concerning cigarettes; from making any express or implied statement about health on cigarette packaging or promotional materials (these prohibitions include a ban on using such descriptors as “low tar,” “light,” “ultra-light,” “mild” or “natural”); from making any statements that “low tar,” “light,” “ultra-light,” “mild” or “natural” or low-nicotine cigarettes may result in a reduced risk of disease; and from participating in the management or control of certain entities or their successors. The final judgment and remedial order also requires the defendants, including Lorillard Tobacco, to make corrective statements on their websites, in certain media, in point-of-sale advertisements, and on cigarette package “inserts” concerning: the health effects of smoking; the addictiveness of smoking; that there are no significant health benefits to be gained by smoking “low tar,” “light,” “ultra-light,” “mild” or “natural” cigarettes; that cigarette design has been manipulated to ensure optimum nicotine delivery to smokers; and that there are adverse effects from exposure to secondhand smoke. Lorillard Tobacco could incur costs in excess of $10 million to implement the final judgment and remedial order. The final judgment and remedial order also requires defendants, including Lorillard Tobacco, to make disclosures of disaggregated marketing data to the government, and to make document disclosures on a website and in a physical depository. The final judgment and remedial order prohibits each defendant that manufactures cigarettes, including Lorillard Tobacco, from selling any of its cigarette brands or certain elements of its business unless certain conditions are met.

The final judgment and remedial order has not yet been fully implemented. Following trial, the final judgment and remedial order was stayed because the defendants, the government and several intervenors noticed appeals to the Circuit Court of Appeals for the District of Columbia. In May 2009, a three judge panel upheld substantially all of the District Court’s final judgment and remedial order. In September 2009, the Court of Appeals denied defendants’ rehearing petitions as well as their motion to vacate those statements in the appellate ruling that address defendants’ marketing of “low tar” or “lights” cigarettes, to vacate those parts of the trial court’s judgment on that issue, and to remand the case with instructions to deny as moot the government’s allegations and requested relief regarding “lights” cigarettes. The Court of Appeals stayed its order that formally relinquished jurisdiction of defendants’ appeal pending the disposition of the petitions for writ of certiorari to the U.S. Supreme Court that were noticed by the defendants, the government and the intervenors. In June 2010, the U.S. Supreme Court denied all of the petitions for writ of certiorari. The case has been returned to the trial court for implementation of the Court of Appeals’ directions in its 2009 ruling and for entry of an amended final judgment. As of April 23, 2012, the parties had submitted briefs regarding the issues that were remanded, and the court had not entered an amended final judgment. Following remand, the defendants filed a motion asserting that the 2009 Family Smoking Prevention and Tobacco Control Act had, in whole or in part, extinguished the court’s jurisdiction. In the alternative, defendants urged the court not to order any injunctive remedy in deference to the regulatory authority recently extended to the Food and Drug Administration. The trial court denied this motion in June 2011, and defendants have noticed an appeal to the U.S. Court of Appeals for the District of Columbia Circuit. The government filed a motion following remand requesting clarification of the extent of the defendants’ obligation to make disclosures of disaggregated marketing data and the use the government can make of that data. The trial court granted that motion in April, 2011, holding that the defendants must provide a broad range of data for the ten-year period beginning July 29, 2010, and that the Department of Justice may share that data with other governmental agencies, subject to the confidentiality requirements previously imposed by the trial court. The defendants have noticed an appeal from this order to the U.S. Court of Appeals for the District of Columbia Circuit. As of April 23, 2012, the Court of Appeals had not ruled on defendants’ appeals.

While trial was underway, the Court of Appeals ruled that plaintiff may not seek to recover profits earned by the defendants. Prior to trial, the government had claimed that it was entitled to approximately $280 billion from the defendants for its claim to recover profits earned by the defendants. The U.S. Supreme Court declined to address the decisions dismissing recovery of profits when it denied review of the government’s and the intervenors’ petitions, which effectively disposed of the claim to recover profits in this case.

Settlement of State Reimbursement Litigation. On November 23, 1998, Lorillard Tobacco, Philip Morris Incorporated, Brown & Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company (the “Original Participating Manufacturers”) entered into the Master Settlement Agreement (“MSA”) with 46 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and the Commonwealth of the Northern Mariana Islands to settle the asserted and unasserted health care cost recovery and certain other claims of those states. These settling entities are generally referred to as the “Settling States.” The Original Participating Manufacturers had previously settled similar claims brought by Mississippi, Florida, Texas and Minnesota, which together with the MSA are referred to as the “State Settlement Agreements.”

The State Settlement Agreements provide that the agreements are not admissions, concessions or evidence of any liability or wrongdoing on the part of any party, and were entered into by the Original Participating Manufacturers to avoid the further expense, inconvenience, burden and uncertainty of litigation. Lorillard recorded pretax charges for its obligations under the State Settlement Agreements of $337 million and $319 million for the three months ended March 31, 2012 and March 31, 2011, respectively. Lorillard’s portion of ongoing adjusted settlement payments and legal fees is based on its share of domestic cigarette shipments in the year preceding that in which the payment is due. Accordingly, Lorillard records its portions of ongoing adjusted settlement payments as part of cost of manufactured products sold as the related sales occur.

The State Settlement Agreements require that the domestic tobacco industry make annual payments of $10.4 billion, subject to adjustment for several factors, including inflation, market share and industry volume. In addition, the domestic tobacco industry is required to pay settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million, as well as an additional amount of up to $125 million in each year through 2008. These payment obligations are the several and not joint obligations of each settling defendant. The State Settlement Agreements also include provisions relating to significant advertising and marketing restrictions, public disclosure of certain industry documents, limitations on challenges to tobacco control and underage use laws, and other provisions.

Lorillard Tobacco, the other Original Participating Manufacturers and other subsequent participating manufacturers (collectively, the “Participating Manufacturers”) are seeking from the States an adjustment in the amount of payments made in 2003 and subsequent years pursuant to a provision in the MSA that permits such adjustment if the companies can prove that the MSA was a significant factor in their loss of market share to companies not participating in the MSA and that the States failed to diligently enforce certain statutes passed in connection with the MSA. If the Participating Manufacturers are ultimately successful, any recovery would be in the form of reimbursement of proceeds already paid or as a credit against future payments by the Participating Manufacturers.

From time to time, lawsuits have been brought against Lorillard Tobacco and other participating manufacturers to the MSA, or against one or more of the states, challenging the validity of the MSA on certain grounds, including as a violation of the antitrust laws. See “MSA-Related Antitrust Suit” below.

In addition, in connection with the MSA, the Original Participating Manufacturers entered into an agreement to establish a $5.2 billion trust fund payable between 1999 and 2010 to compensate the tobacco growing communities in 14 states (the “Trust”). Payments to the Trust ended in 2005 as a result of an assessment imposed under a federal law, enacted in 2004, repealing the federal supply management program for tobacco growers. Under the law, tobacco quota holders and growers will be compensated with payments totaling $10.1 billion, funded by an assessment on tobacco manufacturers and importers. Payments under the law to qualifying tobacco quota holders and growers commenced in 2005.

Lorillard believes that the State Settlement Agreements will materially adversely affect its cash flows and operating income in future years. The degree of the adverse impact will depend, among other things, on the rates of decline in domestic cigarette sales in the premium price and discount price segments, Lorillard’s share of the domestic premium price and discount price cigarette segments, and the effect of any resulting cost advantage of manufacturers not subject to significant payment obligations under the State Settlement Agreements.

Filter Cases

In addition to the above, claims have been brought against Lorillard Tobacco and Lorillard, Inc. by individuals who seek damages resulting from their alleged exposure to asbestos fibers that were incorporated into filter material used in one brand of cigarettes manufactured by Lorillard Tobacco for a limited period of time ending more than 50 years ago. As of April 23, 2012, Lorillard Tobacco was a defendant in 32 Filter Cases, including two consolidated multi-plaintiff actions. Lorillard, Inc. was a defendant in five Filter Cases, including four that also name Lorillard Tobacco. Since January 1, 2011, Lorillard Tobacco has paid, or has reached agreement to pay, a total of approximately $11.2 million in settlements to finally resolve 42 claims, including the Lenney case, discussed below. The related expense was recorded in selling, general and administrative expenses on the consolidated statements of income. Since January 1, 2011, verdicts have been returned in the following two Filter Cases: Lenney v. Armstrong International, Inc., et al., tried in the Superior Court of California, San Francisco County, and McGuire v. Lorillard Tobacco Company and Hollingsworth & Vose Company, tried in the Circuit Court, Division Four, of Jefferson County, Kentucky. In the Lenney trial, the jury found in favor of the plaintiffs as to their claims for compensatory damages and damages for loss of consortium, but it determined that plaintiffs were not entitled to an award of punitive damages from Lorillard Tobacco or Hollingsworth & Vose. Pursuant to the terms of a 1952 agreement between P. Lorillard Company and H&V Specialties Co., Inc. (the manufacturer of the filter material), Lorillard Tobacco is required to indemnify Hollingsworth & Vose for legal fees, expenses, judgments and resolutions in cases and claims alleging injury from finished products sold by P. Lorillard Company that contained the filter material. The final judgment entered by the trial court awarded plaintiffs a total of approximately $1.1 million in compensatory damages, damages for loss of consortium and costs from Lorillard Tobacco and Hollingsworth & Vose. Lorillard Tobacco and Hollingsworth & Vose noticed an appeal to the California Court of Appeals. In 2012, Lorillard Tobacco reached agreement with the plaintiffs to resolve plaintiffs’ pending claims, and any claims they might assert in the future, for an amount that is included in the above total for settlements reached since January 1, 2011. The jury in the McGuire case returned a verdict for Lorillard Tobacco and Hollingsworth & Vose. As of April 23, 2012, the court has not entered final judgment; accordingly, the deadline for plaintiff to seek post-trial relief or to appeal has not expired. As of April 23, 2012, nine Filter Cases were scheduled for trial or have been placed on courts’ trial calendars. Trial dates are subject to change.

Tobacco-Related Antitrust Cases

Indirect Purchaser Suits

Approximately 30 antitrust suits were filed in 2000 and 2001 on behalf of putative classes of consumers in various state courts against cigarette manufacturers. The suits all alleged that the defendants entered into agreements to fix the wholesale prices of cigarettes in violation of state antitrust laws which permit indirect purchasers, such as retailers and consumers, to sue under price fixing or consumer fraud statutes. More than 20 states permit such suits. Lorillard Tobacco was a defendant in all but one of these indirect purchaser cases. Lorillard, Inc. was not named as a defendant in any of these cases. Four indirect purchaser suits, in New York, Florida, New Mexico and Michigan, thereafter were dismissed by courts in those states. The actions in all other states, except for Kansas, were either voluntarily dismissed or dismissed by the courts.

In the Kansas case, the District Court of Seward County certified a class of Kansas indirect purchasers in 2002. In July 2006, the Court issued an order confirming that fact discovery was closed, with the exception of privilege issues that the Court determined, based on a Special Master’s report, justified further fact discovery. In October 2007, the Court denied all of the defendants’ privilege claims, and the Kansas Supreme Court thereafter denied a petition seeking to overturn that ruling. All of the defendants have filed motions for summary judgment seeking dismissal of the Kansas suit, which motions were granted in full on March 23, 2012 by the District Court of Seward County. As of April 23, 2012, the time period for plaintiffs to file an appeal from the dismissal had not expired.

MSA-Related Antitrust Suit

In October 2008, Lorillard Tobacco was named as a defendant in an action filed in the Western District of Kentucky, Vibo Corporation, Inc. d/b/a/ General Tobacco v. Conway, et al. The suit alleges that the named defendants, which include 52 state and territorial attorneys general and 19 tobacco manufacturers, violated the federal Sherman Antitrust Act of 1890 (the “Sherman Act”) by entering into and participating in the MSA. The plaintiff alleges that MSA participants, such as itself, that were not in existence when the MSA was executed in 1998 but subsequently became participants, are unlawfully required to pay significantly more sums to the states than companies that joined the MSA within 90 days after its execution. In addition to the Sherman Act claim, plaintiff has raised a number of constitutional claims against the states. Plaintiff seeks a declaratory judgment in its favor on all claims, an injunction against the continued enforcement of the MSA, treble damages against the tobacco manufacturer defendants, including Lorillard Tobacco, and damages and injunctive relief against the states, including contract recession and restitution. In December 2008, the court dismissed the complaint against all defendants, including Lorillard Tobacco. The court entered its final judgment dismissing the suit in January 2010. Thereafter, the plaintiff appealed to the federal Court of Appeals for the Sixth Circuit. On February 22, 2012, the dismissal of the suit was affirmed by the Court of Appeals for the Sixth Circuit. As of April 23, 2012, the time period for plaintiffs to file a petition for certiorari with the U.S. Supreme Court had not expired.

Defenses

Each of Lorillard Tobacco and Lorillard, Inc. believes that it has valid defenses to the cases pending against it as well as valid bases for appeal should any adverse verdicts be returned against either of them. While Lorillard Tobacco and Lorillard, Inc. intend to defend vigorously all tobacco products liability litigation, it is not possible to predict the outcome of any of this litigation. Litigation is subject to many uncertainties. Plaintiffs have prevailed in several cases, as noted above. It is possible that one or more of the pending actions could be decided unfavorably as to Lorillard Tobacco, Lorillard, Inc. or the other defendants. Lorillard Tobacco and Lorillard, Inc. may enter into discussions in an attempt to settle particular cases if either believe it is appropriate to do so.

Neither Lorillard Tobacco nor Lorillard, Inc. can predict the outcome of pending litigation. Some plaintiffs have been awarded damages from cigarette manufacturers at trial. While some of these awards have been overturned or reduced, other damages awards have been paid after the manufacturers have exhausted their appeals. These awards and other litigation activities against cigarette manufacturers continue to receive media attention. In addition, health issues related to tobacco products also continue to receive media attention. It is possible, for example, that the 2006 verdict in United States of America v. Philip Morris USA, Inc., et al., which made many adverse findings regarding the conduct of the defendants, including Lorillard Tobacco, could form the basis of allegations by other plaintiffs or additional judicial findings against cigarette manufacturers. Any such developments could have an adverse effect on the ability of Lorillard Tobacco or Lorillard, Inc. to prevail in smoking and health litigation and could influence the filing of new suits against Lorillard Tobacco or Lorillard, Inc. Lorillard Tobacco and Lorillard, Inc. also cannot predict the type or extent of litigation that could be brought against either of them, or against other cigarette manufacturers, in the future.

Indemnification Obligations

In connection with the Separation, Lorillard entered into a separation agreement with Loews (the “Separation Agreement”) and agreed to indemnify Loews and its officers, directors, employees and agents against all costs and expenses arising out of third party claims (including, without limitation, attorneys’ fees, interest, penalties and costs of investigation or preparation for defense), judgments, fines, losses, claims, damages, liabilities, taxes, demands, assessments and amounts paid in settlement based on, arising out of or resulting from, among other things, Loews’s ownership of or the operation of Lorillard and its assets and properties, and its operation or conduct of its businesses at any time prior to or following the Separation (including with respect to any product liability claims).

Loews is a defendant in two pending product liability cases, both of which are purported Class Action Cases. Lorillard Tobacco also is a defendant in both of the product liability cases in which Loews is involved. Pursuant to the Separation Agreement, Lorillard is required to indemnify Loews for the amount of any losses and any legal or other fees with respect to such cases.

Other Litigation

Lorillard is also party to other litigation arising in the ordinary course of business. The outcome of this other litigation will not, in the opinion of management, materially affect Lorillard’s results of operations or equity.

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Earnings Per Share (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Numerator:
Net income, as reported	$ 223	$ 248
Less: Net income attributable to participating securities	(1)	(1)
Net income available to common shareholders	$ 222	$ 247
Denominator:
Basic EPS- weighted average shares	130.48	144.80
Effect of dilutive securities:
Stock Options and SARS	0.32	0.14
Diluted EPS- adjusted weighted average shares and assumed conversions	130.80	144.94
Earning Per Share:
Basic	$ 1.71	$ 1.71
Diluted	$ 1.70	$ 1.71
Earnings Per Share (Textual) [Abstract]
Common stock excluded from the diluted earnings per share	0.2	0.6

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Plant and Equipment, Net (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Plant and equipment
Land	$ 3	$ 3
Buildings	90	90
Equipment	609	597
Total	702	690
Accumulated depreciation	(434)	(428)
Plant and equipment, net	$ 268	$ 262

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Share Repurchase Programs (Tables)

3 Months Ended

Mar. 31, 2012

Share Repurchase Programs [Abstract]

Share Repurchase Program

Program	Amount   Authorized		Number of Shares   Repurchased
	(In millions)		(In millions)
July 2008 – October 2008	$	400		5.9
May 2009 – July 2009		250		3.7
July 2009 – January 2010		750		9.7
February 2010 – May 2010		250		3.3
August 2010 * - August 2011		1,400		15.0
August 2011 – February 2012		750		6.7
Total	$	3,800		44.3

* As amended on May 19, 2011

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Retirement Plans (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012
Pension Benefits [Member]
Retirement Plans (Textual) [Abstract]
Expected contributions to plan	$ 31
Contributions to plan	6
Other Postretirement Benefits [Member]
Retirement Plans (Textual) [Abstract]
Expected contributions to plan	15
Contributions to plan	$ 4

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Legal Proceedings (Details Textual) (USD $)	3 Months Ended							1 Months Ended	3 Months Ended	12 Months Ended							1 Months Ended								3 Months Ended	12 Months Ended			1 Months Ended	3 Months Ended				3 Months Ended
	Mar. 31, 2012 case	Apr. 23, 2012 LegalMatter	Nov. 30, 2011	Dec. 31, 2009 Trial LegalMatter	Mar. 31, 2012 Indemnification Obligations [Member] LegalMatter	Apr. 23, 2012 Tobacco Related Antitrust Cases [Member] States	Mar. 31, 2012 Tobacco Related Antitrust Cases [Member] States LegalMatter	Feb. 28, 2008 Engle Progeny Cases [Member] LegalMatter	Mar. 31, 2012 Engle Progeny Cases [Member] case Plaintiffs LegalMatter	Dec. 31, 2006 Engle Progeny Cases [Member] Employee LegalMatter	Apr. 23, 2012 Engle Progeny Cases [Member] Trial LegalMatter	Feb. 09, 2012 Engle Progeny Cases [Member] Trial case	Dec. 31, 2011 Engle Progeny Cases [Member] LegalMatter	Oct. 21, 2011 Engle Progeny Cases [Member] Trial	Mar. 31, 2011 Engle Progeny Cases [Member] Plaintiffs	Dec. 31, 2009 Engle Progeny Cases [Member] Claims	Dec. 31, 2010 Conventional Product Liability Cases [Member]	Apr. 23, 2012 Conventional Product Liability Cases [Member] LegalMatter Trial	Oct. 21, 2011 Conventional Product Liability Cases [Member] Trial	Sep. 30, 2011 Conventional Product Liability Cases [Member]	Dec. 31, 2009 Conventional Product Liability Cases [Member] LegalMatter Trial	Apr. 23, 2012 West Virginia Individual Personal Injury Cases [Member] Trial LegalMatter Plaintiffs	Oct. 21, 2011 West Virginia Individual Personal Injury Cases [Member] LegalMatter	Sep. 30, 2000 West Virginia Individual Personal Injury Cases [Member] case	Mar. 31, 2012 Flight Attendant Cases [Member]	Dec. 31, 2010 Flight Attendant Cases [Member]	Apr. 23, 2012 Flight Attendant Cases [Member] Trial	Oct. 21, 2011 Flight Attendant Cases [Member] Plaintiffs case LegalMatter	Aug. 31, 2011 Class Action Cases [Member]	Mar. 31, 2012 Class Action Cases [Member] LegalMatter	Dec. 31, 2007 Class Action Cases [Member]	Apr. 23, 2012 Class Action Cases [Member] case LegalMatter	Oct. 21, 2011 Class Action Cases [Member]	Mar. 31, 2012 Class Action Cases [Member] Maximum [Member]	Mar. 31, 2012 Class Action Cases [Member] Minimum [Member]	Mar. 31, 2012 Reimbursement Cases [Member] States	Mar. 31, 2011 Reimbursement Cases [Member]	Nov. 23, 1998 Reimbursement Cases [Member] States	Apr. 23, 2012 Filter Cases [Member] LegalMatter Trial	Apr. 23, 2012 Mrozek V. Lorillard Tobacco Company [Member] Engle Progeny Cases [Member]	Apr. 23, 2012 Tullo V. R.J. Reynolds [Member] Engle Progeny Cases [Member]	Apr. 23, 2012 Sulcer V. Lorillard Tobacco Company [Member] Engle Progeny Cases [Member]	Apr. 23, 2012 Jewett V. R.J. Reynolds [Member] Engle Progeny Cases [Member]	Apr. 23, 2012 Weingart V. R.J. Reynolds [Member]	Mar. 31, 2012 Weingart V. R.J. Reynolds [Member]	Apr. 23, 2012 Weingart V. R.J. Reynolds [Member] Engle Progeny Cases [Member]	Apr. 23, 2012 Sury v. R.J. Reynolds [Member] Engle Progeny Cases [Member]	Mar. 31, 2012 Sury v. R.J. Reynolds [Member] Engle Progeny Cases [Member]	Apr. 23, 2012 Alexander v. Lorillard Tobacco Company [Member] Engle Progeny Cases [Member]	Mar. 31, 2012 Alexander v. Lorillard Tobacco Company [Member] Engle Progeny Cases [Member]	Dec. 31, 2009 First Phase [Member]
Legal Proceedings (Textual) [Abstract]
Cases pending against cigarette manufacturers		9,488																					600
Lorillard Tobacco as defendant		8,561																				31										3							32
Number of years for which the defendants must provide data																																				10 years
Lorillard Inc. as co-defendant		675									669							5				0						0				1							5
Trials Underway											0										1																		1
Number of additional filter cases in which parent is defendant but which subsidiary is not defendant																																							1
Lights cases pending against other manufacturers, excluding Lorillard																																21
Medical Monitoring Class Action cases																																2
Cases scheduled for trial																						0					0												9
Cases where punitive damages were paid excluding subsidiary or parent company																					8
Verdict returned against other cigarette manufacturers		8									55										8
Compensatory damages awarded											$ 25,000,000						$ 50,000,000
Damages paid to deceased smoker's son																	21,000,000
Punitive damages awarded								7,000,000		145,000,000,000							81,000,000
Trials resulted in verdicts and awarded the plaintiffs																																																			25,000,000
Trials in which jury founded in favor of defendants.				4
Application fees			2,400,000
Number of Remaining Trails				7
Additional cases to be filed																												0
Trials for other cigarette manufacturers in which jury founded in favor of plaintiffs																			2
Damages awarded									3						3						1
Cases filed by family members													500
Number of cases where actual damages awarded at Florida Supreme Court								2
Actual and punitive damages were paid in Engle Progeny Cases											21
Punitive damages award in cases against other cigarette manufacturers											620,000,000
Minimum punitive damages award in one of the twelve cases against other cigarette manufacturers											50,000
Maximum punitive damages award in one of the cases against other cigarette manufacturers											244,000,000
Contested verdicts without final resolution											13
Actual damages reinstated by the Florida Supreme Court											21,000,000
Maximum security deposit for Engle Progeny cases											200,000,000
Cases denied plaintiffs challenges											0
Prescribed limits of security posted or deposited based on the number of judgments pending on appeal											Does not exceed $200 million
Actual damages paid										3
Cases re-trials ordered by appellate courts																					2
Amount awarded in punitive damages																			4,000,000
Number of Cases where Lorillard Tobacco paid to resolve claims																																							76
Reinstated the compensatory damages awards by Florida Supreme Court										2
Percentage of Interest on Damages Awarded																				12.00%
Cases consolidated for trial																								1,250
Lorillard Tobacco has been dismissed from cases in lack of evidence against them																								565
Number of plaintiffs involved in Severed IPIC claims																						30
Lorillard Tobacco's share								3,000,000																	60,000
Number of plaintiffs asserting both claims																						28
Defendant Prevailed																												7
Court granted plaintiff's motion for a new trial																												1
Damages awarded to plaintiff for French v. Philip Morris Incorporated																												5,500,000
Damages reduced by trial court for French v. Philip Morris Incorporated																									500,000
Number of cases in which Lorillard Inc. is a co-defendant																																1
Cigarette manufacturers defeated motions for class certification in cases																																36
Class action cases defeated in state court																																13
Class action cases defeated in federal court																																23
Trial Court order to pay to fund a court supervised cessation program																													69,700,000
Pretax provision for appeal in Scott case																															66,000,000
Number of cases of fraudulent marketing where company or subsidiary not defendant																														21
Attorneys fees claimed by plaintiff counsel																																	59,000,000
Cigarette Manufacturers companies and Trade associations as defendants																												3
The cost of compliance to Lorillard Tobacco																																				10,000,000
Amount claimed to recover profits earned by defendants																																				280,000,000,000
Number of states involved in Master Settlement Agreement						46																																46
Pretax charges for obligations under state settlement agreements																																				337,000,000	319,000,000,000
Annual payment by domestic tobacco industry																																				10,400,000,000
Cap on plaintiffs attorneys fees paid by domestic tobacco industry																																				500,000,000
Additional amount paid for plaintiffs attorneys fees																																				125,000,000
Trust fund payable to compensate tobacco growing communities																																				5,200,000,000
Number of states having tobacco growing communities to be compensated by "Trust"																																				14
Compensation to tobacco quota holders and tobacco growers																																				10,100,000,000
Number of cases in which Lorillard Tobacco or Lorillard Inc is a defendant																																							32
Number of multidistrict litigation cases dismissed by plaintiffs	13
Number of multidistrict litigation cases pending dismissed by plaintiffs	4
Lorillard Inc. as Defendant																																							5
Offers of judgment for pending cases																										15,000
Offers of judgment for other cases																										2,650
Amount sought in sanctions																										30,000,000
Payment made in settlement																																							11,200,000
Percentage of interest rate in sanctions																										9.00%
Verdicts returned																												8											2
Compensatory damages and damages for loss of consortium																																							1,100,000
Manufacturers violated the Federal Sherman Antitrust Act							19
Number of states involved in Tobacco-Related Antitrust Indirect Purchasers Suits							20
Loews as co-defendant					2
Indirect purchaser suits dismissed by courts							4
Number of state and territorial attorneys general involved in MSA-Related Antitrust Suit							52
Days to Execute MSA							90 days
Lorillard Tobacco as a defendant in Severed IPIC Claims																						10
Cases are concluded																												6
Indirect purchaser suits							30
Number of plaintiffs involved in Severed IPIC claims using only other tobacco products in which neither Lorillard Inc nor Lorillard Tobacco are Defendants																						3
Number of claims severed into separate lawsuits																4,400
Cases dismissed																								645
Total no of individuals whose claims were heard during the first phase of the Engle trial										3
Reduce in jury's damages awards and reduce in verdicts to deceased smoker																				25,000,000
Reduce in jury's damages awards and reduce in verdicts to deceased smoker's son																				10,000,000
Litigation cost and fees to company																																										246,000
Attorney costs awarded by Court			225,000
Number of trails concluded																					2
Damages paid to plaintiffs in individual cases by manufacturers																		13
Punitive damages paid to smokers																		6
Number of cases dismissed									1,210
Number of verdicts in which plaintiffs were awarded damages												6
Number of cases reviewed by Florida Supreme Court												4
Number of verdicts returned														6
Number of compensatory damages awarded														2
Jury apportion of fault for smoker's injuries to smokers																																								35.00%	45.00%	95.00%	70.00%			91.00%	60.00%		20.00%
Percentage of fault of company for injuries																																								65.00%	5.00%	5.00%	10.00%			3.00%	20.00%		80.00%
Punitive damages awarded to plaintiff in final judgment																																								11,300,000										25,000,000
Compensatory damages awarded to plaintiff in final judgment																																								3,900,588	225,000	11,250	109,298		43,081
Final judgment of annual interest																																								6.00%			6.00%		4.75%			4.75%
Jury apportion of fault for smoker's injuries to other defendants																																											20.00%			3.00%	20.00%
Percentage of fault of other defendants for injuries																																									50.00%
Damages awarded to plaintiffs for loss of companionship																																											400,000
Compensatory Damages Awarded To Plaintiff																																								6,000,000	4,500,000	225,000	692,981	4,500		150,000	1,000,000	1,000,000	20,000,000	16,000,000
Compensatory damages awarded in punitive																																								11,300,000									25,000,000
Annual interest rate on damages awarded in final judgment																																									6.00%
Description of additional portion of award paid in final judgment																													one-fourth of the award
Attorneys fees value on basis of age of case claimed by counsel																														92,000,000
Multiplier description requested by plaintiff counsel																																a multiplier as high as seven be applied to any award ordered by the court
Damages award claimed by plaintiff counsel minimum																														300,000,000
Plaintiff's counsel cost and expenses																														$ 13,400,000
Percentage of damages award from fund claimed by plaintiff counsel																																		40.00%	33.00%

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Long-Term Debt (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Long-Term Debt
Long-term debt	$ 2,586	$ 2,595
2016 Notes [Member]
Long-Term Debt
Senior Long Term Notes	500	500
2019 Notes [Member]
Long-Term Debt
Senior Long Term Notes	836	845
2020 Notes [Member]
Long-Term Debt
Senior Long Term Notes	750	750
2040 Notes [Member]
Long-Term Debt
Senior Long Term Notes	250	250
2041 Notes [Member]
Long-Term Debt
Senior Long Term Notes	$ 250	$ 250

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Consolidated Condensed Statements of Shareholders' Equity (Deficit) (Unaudited) (Parenthetical) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Tax benefit/expense from other comprehensive gains (loss), pension liability	$ 2	$ 1
Dividends paid per share	$ 1.55	$ 1.30
Retained Earnings
Dividends paid per share	$ 1.55	$ 1.30
Accumulated Other Comprehensive Loss
Tax benefit/expense from other comprehensive gains (loss), pension liability	$ 2	$ 1

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Subsequent Event (Details) (Acquisition [Member], USD $) In Millions, unless otherwise specified	Apr. 24, 2012
Acquisition [Member]
Subsequent Event [Line Items]
Consideration paid	$ 135

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Other Assets (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Other assets
Debt issuance costs	$ 23	$ 24
Interest rate swap	86	95
Other prepaid assets	12	9
Total	$ 121	$ 128

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Other Current Assets (Tables)

3 Months Ended

Mar. 31, 2012

Other Current Assets [Abstract]

Other current assets

	March 31, 2012		December 31, 2011
	(In millions)
Prepaid income taxes	$	8	$	—
Restricted cash		13		13
Appeal bonds		7		7
Other current assets		—		5
Total	$	28	$	25

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Inventories (Tables)

3 Months Ended

Mar. 31, 2012

Inventories [Abstract]

Inventories

	March 31, 2012		December 31, 2011
	(In millions)
Leaf tobacco	$	246	$	230
Manufactured stock		91		43
Material and supplies		5		4
	$	342	$	277

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Consolidating Financial Information (Details 1) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Condensed Consolidating Statements of Income (Unaudited)
Net sales (including excise taxes of $467 and $479, respectively)	$ 1,526	$ 1,535
Cost of sales	1,003	992
Gross profit	523	543
Selling, general and administrative	131	122
Operating income	392	421
Investment income	1	1
Interest expense	(39)	(28)
Income before taxes	354	394
Income taxes	131	146
Net income	223	248
Parent [Member]
Condensed Consolidating Statements of Income (Unaudited)
Interest expense	(1)
Income before taxes	(1)
Income taxes	(1)
Equity in earnings of subsidiaries	223	248
Net income	223	248
Issuer [Member]
Condensed Consolidating Statements of Income (Unaudited)
Net sales (including excise taxes of $467 and $479, respectively)	1,526	1,535
Cost of sales	1,003	992
Gross profit	523	543
Selling, general and administrative	376	365
Operating income	147	178
Investment income	1	1
Interest expense	(38)	(28)
Income before taxes	110	151
Income taxes	43	59
Equity in earnings of subsidiaries	156	156
Net income	223	248
All Other Subsidiaries [Member]
Condensed Consolidating Statements of Income (Unaudited)
Selling, general and administrative	(245)	(243)
Operating income	245	243	[1]
Income before taxes	245	243
Income taxes	89	87
Net income	156	156
Total Consolidating Adjustments [Member]
Condensed Consolidating Statements of Income (Unaudited)
Equity in earnings of subsidiaries	(379)	(404)
Net income	$ (379)	$ (404)

[1] Includes intercompany royalties between Issuer and other subsidiaries of a corresponding amount.

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Accrued Liabilities (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Accrued liabilities
Legal fees	$ 47	$ 28
Salaries and other compensation	25	20
Medical and other employee benefit plans	31	31
Consumer rebates	53	60
Sales promotion	20	23
Accrued vendor charges	29	7
Excise and other taxes	87	52
Accrued bond interest	52	27
Other accrued liabilities	22	48
Total	$ 366	$ 296

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Plant and Equipment, Net (Tables)

3 Months Ended

Mar. 31, 2012

Plant and Equipment, Net [Abstract]

Plant and equipment

	March 31, 2012			December 31, 2011
	(In millions)
Land	$	3		$	3
Buildings		90			90
Equipment		609			597
Total		702			690
Accumulated depreciation		(434	)		(428	)
Plant and equipment, net	$	268		$	262

XML

Other Assets (Tables)

3 Months Ended

Mar. 31, 2012

Other Current Assets [Abstract]

Other assets

	March 31, 2012		December 31, 2011
	(In millions)
Debt issuance costs	$	23	$	24
Interest rate swap		86		95
Other prepaid assets		12		9
Total	$	121	$	128

XML

Consolidated Condensed Statements of Shareholders' Equity (Deficit) (Unaudited) (USD $) In Millions	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Treasury Shares
Beginning Balance at Dec. 31, 2010	$ (225)	$ 2	$ 242	$ 1,666	$ (109)	$ (2,026)
Net income	248			248
Other comprehensive gains, net of tax expense	1				1
Dividends paid	(188)			(188)
Shares repurchased	(289)					(289)
Share-based compensation	4		4
Ending Balance at Mar. 31, 2011	(449)	2	246	1,726	(108)	(2,315)
Beginning Balance at Dec. 31, 2011	(1,513)	2	266	2,059	(228)	(3,612)
Net income	223			223
Other comprehensive gains, net of tax expense	4				4
Dividends paid	(202)			(202)
Shares repurchased	(188)					(188)
Share-based compensation	10		10
Ending Balance at Mar. 31, 2012	$ (1,666)	$ 2	$ 276	$ 2,080	$ (224)	$ (3,800)

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Accrued Liabilities (Tables)

3 Months Ended

Mar. 31, 2012

Accrued Liabilities [Abstract]

Accrued liabilities

	March 31, 2012		December 31, 2011
	(In millions)
Legal fees	$	47	$	28
Salaries and other compensation		25		20
Medical and other employee benefit plans		31		31
Consumer rebates		53		60
Sales promotion		20		23
Accrued vendor charges		29		7
Excise and other taxes		87		52
Accrued bond interest		52		27
Other accrued liabilities		22		48
Total	$	366	$	296

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Inventories (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Inventories
Leaf tobacco	$ 246	$ 230
Manufactured stock	91	43
Materials and supplies	5	4
Inventories	342	277
Inventories (Textual) [Abstract]
Excess of average cost over stated value of inventories	$ 229	$ 223

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Share Repurchase Programs (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended			2 Months Ended		6 Months Ended		3 Months Ended		12 Months Ended				1 Months Ended
	Mar. 31, 2012	Oct. 31, 2008 Share Repurchase Program July 2008 [Member]	Jul. 31, 2008 Share Repurchase Program July 2008 [Member]	Jul. 31, 2009 Share Repurchase Program May 2009 [Member]	May 31, 2009 Share Repurchase Program May 2009 [Member]	Jan. 31, 2010 Share Repurchase Program July 2009 [Member]	Jul. 27, 2009 Share Repurchase Program July 2009 [Member]	May 21, 2010 Share Repurchase Program Feb 2010 [Member]	Feb. 25, 2010 Share Repurchase Program Feb 2010 [Member]	Aug. 31, 2011 Share Repurchase Program Aug 2010 [Member]	May 31, 2011 Share Repurchase Program Aug 2010 [Member]	May 19, 2011 Share Repurchase Program Aug 2010 [Member]	Aug. 20, 2010 Share Repurchase Program Aug 2010 [Member]	Aug. 31, 2011 Share Repurchase Program Aug 2011 [Member]	Feb. 24, 2012 Share Repurchase Program Aug 2011 [Member]
Share Repurchase Program
Share repurchase program periods		July 2008 - October 2008		May 2009 - July 2009		July 2009 - January 2010		February 2010 - May 2010		August 2010 - August 2011				August 2011- February 2012
Amount authorized	$ 3,800		$ 400		$ 250		$ 750		$ 250		$ 1,400	$ 1,400	$ 1,000	$ 750	$ 750
Number of shares repurchased	44.3	5.9		3.7		9.7		3.3		15.0				6.7

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Consolidated Condensed Balance Sheets (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Assets:
Cash and cash equivalents	$ 1,929	$ 1,634
Accounts receivable, less allowances of $2 and $2	10	10
Other receivables	67	83
Inventories	342	277
Deferred income taxes	534	535
Other current assets	28	25
Total current assets	2,910	2,564
Plant and equipment, net	268	262
Deferred income taxes	52	54
Other assets	121	128
Total assets	3,351	3,008
Liabilities and Shareholders' Deficit:
Accounts and drafts payable	27	32
Accrued liabilities	366	296
Settlement costs	1,488	1,151
Income taxes	110	6
Total current liabilities	1,991	1,485
Long-term debt	2,586	2,595
Postretirement pension, medical and life insurance benefits	383	388
Other liabilities	57	53
Total liabilities	5,017	4,521
Commitments and Contingent Liabilities
Shareholders' Deficit:
Preferred stock, $0.01 par value, authorized 10 million shares
Common stock:
Authorized-600 million shares; par value $0.01 per share Issued-175 million and 175 million shares (outstanding 131 million and 132 million shares)	2	2
Additional paid-in capital	276	266
Retained earnings	2,080	2,059
Accumulated other comprehensive loss	(224)	(228)
Treasury stock at cost, 44 million and 43 million shares	(3,800)	(3,612)
Total shareholders' deficit	(1,666)	(1,513)
Total liabilities and shareholders' deficit	$ 3,351	$ 3,008

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Fair Value (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011	Mar. 31, 2011	Dec. 31, 2010
Cash and Cash Equivalents:
Total cash and cash equivalents	$ 1,929	$ 1,634	$ 2,338	$ 2,063
Fair value measurements, Recurring [Member]
Cash and Cash Equivalents:
Prime money market funds	1,929	1,634
Total cash and cash equivalents	1,929	1,634
Derivative Asset:
Total derivative instruments	86	95
Fair value measurements, Recurring [Member] | Level 1 [Member]
Cash and Cash Equivalents:
Prime money market funds	1,929	1,634
Total cash and cash equivalents	1,929	1,634
Derivative Asset:
Total derivative instruments
Fair value measurements, Recurring [Member] | Level 2 [Member]
Cash and Cash Equivalents:
Prime money market funds
Total cash and cash equivalents
Derivative Asset:
Total derivative instruments	86	95
Fair value measurements, Recurring [Member] | Level 3 [Member]
Cash and Cash Equivalents:
Prime money market funds
Total cash and cash equivalents
Derivative Asset:
Total derivative instruments
Interest rate swaps - fixed to floating rate [Member] | Fair value measurements, Recurring [Member]
Derivative Asset:
Total derivative instruments	86	95
Interest rate swaps - fixed to floating rate [Member] | Fair value measurements, Recurring [Member] | Level 1 [Member]
Derivative Asset:
Total derivative instruments
Interest rate swaps - fixed to floating rate [Member] | Fair value measurements, Recurring [Member] | Level 2 [Member]
Derivative Asset:
Total derivative instruments	86	95
Interest rate swaps - fixed to floating rate [Member] | Fair value measurements, Recurring [Member] | Level 3 [Member]
Derivative Asset:
Total derivative instruments

XML

Consolidated Condensed Statements of Comprehensive Income (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Condensed Statements of Comprehensive Income [Abstract]
Net income	$ 223	$ 248
Other comprehensive income, net of tax:
Defined benefit retirement plan gains, net of tax expense of $2 and $1	4	1
Other comprehensive income	4	1
Comprehensive income	$ 227	$ 249

XML

Consolidating Financial Information (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011
Consolidating Financial Information (Textual) [Abstract]
Allowances, accounts receivable	$ 2		$ 2
Excise taxes	467	479
Tax benefit/expense from other comprehensive gains (loss), pension liability	$ 2	$ 1

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2012

Earnings Per Share [Abstract]

Earnings per share

	Three Months Ended March 31,
	2012			2011
Numerator:
Net income, as reported	$	223		$	248
Less: Net income attributable to participating securities		(1	)		(1	)
Net income available to common shareholders	$	222		$	247
Denominator:
Basic EPS- weighted average shares		130.48			144.80
Effect of dilutive securities:
Stock Options and SARS		0.32			0.14
Diluted EPS- adjusted weighted average shares and assumed conversions		130.80			144.94
Earnings Per Share:
Basic	$	1.71		$	1.71
Diluted	$	1.70		$	1.71

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Retirement Plans

3 Months Ended

Mar. 31, 2012

Retirement Plans [Abstract]

Retirement Plans

12. Retirement Plans

Lorillard has defined benefit pension, postretirement benefits, profit sharing and savings plans for eligible employees.

Net periodic benefit cost components were as follows:

	Three Months Ended March 31,
Pension Benefits	2012			2011
Service cost	$	6		$	6
Interest cost		14			14
Expected return on plan assets		(18	)		(18	)
Amortization of net loss		5			2
Amortization of prior service cost		1			1
Net periodic benefit cost	$	8		$	5

	Three Months Ended March 31,
Other Postretirement Benefits	2012		2011
Service cost	$	1	$	1
Interest cost		3		3
Amortization of net loss		—		(1	)
Net periodic benefit cost	$	4	$	3

Lorillard expects to contribute $31 million to its pension plans and $15 million to its other postretirement benefit plans in 2012, of which $6 million and $4 million had been contributed to the pension and postretirement benefit plans, respectively, as of March 31, 2012.

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Retirement Plans (Tables)

3 Months Ended

Mar. 31, 2012

Retirement Plans [Abstract]

Net periodic benefit cost components

	Three Months Ended March 31,
Pension Benefits	2012			2011
Service cost	$	6		$	6
Interest cost		14			14
Expected return on plan assets		(18	)		(18	)
Amortization of net loss		5			2
Amortization of prior service cost		1			1
Net periodic benefit cost	$	8		$	5

	Three Months Ended March 31,
Other Postretirement Benefits	2012		2011
Service cost	$	1	$	1
Interest cost		3		3
Amortization of net loss		—		(1	)
Net periodic benefit cost	$	4	$	3

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Consolidating Financial Information

3 Months Ended

Mar. 31, 2012

Consolidating Financial Information [Abstract]

Consolidating Financial Information

14. Consolidating Financial Information

In June 2009, April 2010 and August 2011, Lorillard Tobacco, as primarily obligor, issued Notes, which are unconditionally guaranteed by the Company for the payment and performance of Lorillard Tobacco’s obligation in connection therewith.

The following sets forth the condensed consolidating balance sheets as of March 31, 2012 and December 31, 2011, condensed consolidating statements of income for the three months ended March 31, 2012 and 2011, and condensed consolidating statements of cash flows for the three months ended March 31, 2012 and 2011 for the Company as parent guarantor (herein referred to as “Parent”), Lorillard Tobacco (herein referred to as “Issuer”) and all other non-guarantor subsidiaries of the Company and Lorillard Tobacco. These condensed consolidating financial statements were prepared in accordance with Rule 3-10 of SEC Regulation S-X, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” Lorillard accounts for investments in these subsidiaries under the equity method of accounting.

Condensed Consolidating Balance Sheets

March 31, 2012

(In millions)

(Unaudited)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Assets:
Cash and cash equivalents	$	31		$	1,727		$	171		$	—		$	1,929
Accounts receivable, less allowances of $2		—			10			—			—			10
Other receivables					66			1			—			67
Inventories		—			342			—			—			342
Deferred income taxes		—			534			—			—			534
Other current assets		1			27			—			—			28
Total current assets		32			2,706			172			—			2,910
Investment in subsidiaries		(1,310	)		375			—			935			—
Plant and equipment, net		—			268			—			—			268
Deferred income taxes		—			47			5			—			52
Other assets		—			295			213			(387	)		121
Total assets	$	(1,278	)	$	3,691		$	390		$	548		$	3,351
Liabilities and Shareholders’ Equity (Deficit):
Accounts and drafts payable	$	—		$	27		$	—		$	—		$	27
Accrued liabilities (1)		1			453			(88	)		—			366
Settlement costs		—			1,488			—			—			1,488
Income taxes		—			22			88			—			110
Total current liabilities		1			1,990			—			—			1,991
Long-term debt		—			2,586			—			—			2,586
Postretirement pension, medical and life insurance benefits		—			383			—			—			383
Other liabilities		387			42			15			(387	)		57
Total liabilities		388			5,001			15			(387	)		5,017
Shareholders’ Equity (Deficit):
Common stock		2			—			—			—			2
Additional paid-in capital		276			65			214			(279	)		276
Retained earnings		2,080			(1,151	)		161			990			2,080
Accumulated other comprehensive loss		(224	)		(224	)		—			224			(224	)
Treasury stock		(3,800	)		—			—			—			(3,800	)
Total shareholders’ equity (deficit)		(1,666	)		(1,310	)		375			935			(1,666	)
Total liabilities and shareholders’ equity (deficit)	$	(1,278	)	$	3,691		$	390		$	548		$	3,351

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

Condensed Consolidating Balance Sheets

December 31, 2011

(In millions)

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

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

Condensed Consolidating Statements of Income

For the Three Months Ended March 31, 2012

(In millions)

(Unaudited)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Net sales (including excise taxes of $467)	$	—		$	1,526		$	—		$	—		$	1,526
Cost of sales		—			1,003			—			—			1,003
Gross profit		—			523			—			—			523
Selling, general and administrative (1)		—			376			(245	)		—			131
Operating income		—			147			245			—			392
Investment income		—			1			—			—			1
Interest expense		(1	)		(38	)					—			(39	)
Income before taxes		(1	)		110			245			—			354
Income taxes		(1	)		43			89			—			131
Equity in earnings of subsidiaries		223			156			—			(379	)		—
Net income	$	223		$	223		$	156		$	(379	)	$	223

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

Condensed Consolidating Statements of Income

For the Three Months Ended March 31, 2011

(In millions)

(Unaudited)

	Parent		Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Net sales (including excise taxes of $479)	$	—	$	1,535		$	—		$	—		$	1,535
Cost of sales		—		992			—			—			992
Gross profit		—		543			—			—			543
Selling, general and administrative (1)		—		365			(243	)		—			122
Operating income		—		178			243			—			421
Investment income		—		1			—			—			1
Interest expense		—		(28	)					—			(28	)
Income before taxes		—		151			243			—			394
Income taxes		—		59			87			—			146
Equity in earnings of subsidiaries		248		156			—			(404	)		—
Net income	$	248	$	248		$	156		$	(404	)	$	248

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

Condensed Consolidating Statements of Comprehensive Income

For the Three Months Ended March 31, 2012

(Unaudited)

(In millions)	Parent		Issuer		All Other Subsidiaries		Total Consolidating Adjustments			Consolidated
Net income	$	223	$	223	$	156	$	(379	)	$	223
Other comprehensive income, net of tax: Defined benefit retirement plan gains, net of tax expense of $2		—		4		—		—			4
Other comprehensive income		—		4		—		—			4
Comprehensive income	$	223	$	227	$	156	$	(379	)	$	227

Condensed Consolidating Statements of Comprehensive Income

For the Three Months Ended March 31, 2011

(Unaudited)

(In millions)	Parent		Issuer		All Other Subsidiaries		Total Consolidating Adjustments			Consolidated
Net income	$	248	$	248	$	156	$	(404	)	$	248
Other comprehensive income, net of tax: Defined benefit retirement plan gains, net of tax expense of $1		—		1		—		—			1
Other comprehensive income		—		1		—		—			1
Comprehensive income	$	248	$	249	$	156	$	(404	)	$	249

Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2012

(In millions)

(Unaudited)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	223		$	223		$	156		$	(379	)	$	223
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries		(223	)		(156	)		—			379			—
Depreciation and amortization		—			10			—			—			10
Pension, health and life insurance contributions		—			(10	)		—			—			(10	)
Pension, health and life insurance benefits expense		—			12			—			—			12
Deferred income taxes		—			1			(1	)		—			—
Share-based compensation		—			4			—			—			4
Excess tax benefits from share-based arrangements		—			(5	)		—			—			(5	)
Changes in operating assets and liabilities:
Accounts and other receivables		—			872			1			(875	)		(2	)
Inventories		—			(65	)		—			—			(65	)
Accounts payable and accrued liabilities		(13	)		94			(891	)		875			65
Settlement costs		—			337			—			—			337
Income taxes		(1	)		30			89			—			118
Other current assets		—			5			—			—			5
Other assets		—			(2	)		—			—			(2	)
Return on investment in subsidiaries		200			—			—			(200	)		—
Net cash provided by (used in) operating activities		186			1,350			(646	)		(200	)		690
Cash flows from investing activities:
Additions to plant and equipment		—			(16	)		—			—			(16	)
Cash flows from financing activities:
Shares repurchased		(188	)		—			—			—			(188	)
Dividends paid		(202	)		(200	)		—			200			(202	)
Proceeds from exercise of stock options		—			6			—			—			6
Excess tax benefits from share-based arrangements		—			5			—			—			5
Net cash (used in) provided by financing activities		(390	)		(189	)		—			200			(379	)
Change in cash and cash equivalents		(204	)		1,145			(646	)		—			295
Cash and cash equivalents, beginning of year		235			582			817			—			1,634
Cash and cash equivalents, end of period	$	31		$	1,727		$	171		$	—		$	1,929

Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2011

(In millions)

(Unaudited)

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	248		$	248		$	156		$	(404	)	$	248
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries		(248	)		(156	)		—			404			—
Depreciation and amortization		—			10			—			—			10
Pension, health and life insurance contributions		—			(8	)		—			—			(8	)
Pension, health and life insurance benefits expense		—			8			—			—			8
Deferred income taxes		—			(4	)					—			(4	)
Share-based compensation		1			3			—			—			4
Changes in operating assets and liabilities:
Accounts and other receivables		(1	)		(3	)		—			—			(4	)
Inventories		—			(31	)		—			—			(31	)
Accounts payable and accrued liabilities		(2	)		107			(28	)		—			77
Settlement costs		—			321			—			—			321
Income taxes		—			52			84			—			136
Other		—			2			—			—			2
Return on investment in subsidiaries		689			550			—			(1,239	)		—
Net cash provided by (used in) operating activities		687			1,099			212			(1,239	)		759
Cash flows from investing activities:
Additions to plant and equipment		—			(7	)		—			—			(7	)
Cash flows from financing activities:
Shares repurchased		(289	)		—			—			—			(289	)
Dividends paid		(188	)		(689	)		(550	)		1,239			(188	)
Net cash provided by (used in) financing activities		(477	)		(689	)		(550	)		1,239			(477	)
Change in cash and cash equivalents		210			403			(338	)		—			275
Cash and cash equivalents, beginning of year		163			1,181			719			—			2,063
Cash and cash equivalents, end of period	$	373		$	1,584		$	381		$	—		$	2,338

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Consolidated Condensed Statements of Comprehensive Income (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Condensed Statements of Comprehensive Income [Abstract]
Tax benefit/expense from other comprehensive gains (loss), pension liability	$ 2	$ 1

XML

Consolidated Condensed Balance Sheets (Parenthetical) (USD $) In Millions, except Per Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Consolidated Condensed Balance Sheets [Abstract]
Allowances, accounts receivable	$ 2	$ 2
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	10	10
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	600	600
Common stock, shares issued	175	175
Common stock, shares outstanding	131	132
Treasury stock at cost, shares	44	43

XML

Fair Value

3 Months Ended

Mar. 31, 2012

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 Level 1, as these are the most transparent or reliable:

• Level 1 — Quoted prices for identical instruments in active markets.

• Level 2 — 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.

• Level 3 — 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 estimating 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 as of March 31, 2012, were as follows:

	Level 1		Level 2		Level 3		Total
	(In millions)
Cash and Cash Equivalents:
Prime money market funds	$	1,929	$	—	$	—	$	1,929
Total cash and cash equivalents	$	1,929	$	—	$	—	$	1,929
Derivative Asset:
Interest rate swaps — fixed to floating rate	$	—	$	86	$	—	$	86
Total derivative asset	$	—	$	86	$	—	$	86

Assets and liabilities measured at fair value on a recurring basis at December 31, 2011 were as follows:

	Level 1		Level 2		Level 3		Total
	(In millions)
Cash and Cash Equivalents:
Prime money market funds	$	1,634	$	—	$	—	$	1,634
Total cash and cash equivalents	$	1,634	$	—	$	—	$	1,634
Derivative Asset:
Interest rate swaps — fixed to floating rate	$	—	$	95	$	—	$	95
Total derivative asset	$	—	$	95	$	—	$	95

There were no transfers between levels within the fair value hierarchy or Level 3 purchases, sales, issuances or settlements for the three months ended March 31, 2012 or the twelve months ended December 31, 2011.

The fair value of the money market funds, classified as Level 1, utilized quoted prices in active markets.

The fair value of the interest rate swaps, classified as Level 2, utilized a market approach model using the notional amount of the interest rate swap and observable inputs of time to maturity and market interest rates. See Note 10 for additional information on the interest rate swaps.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2012	Apr. 25, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	LORILLARD, INC.
Entity Central Index Key	0001424847
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Company Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock Shares Outstanding		130,516,763

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Credit Agreement

3 Months Ended

Mar. 31, 2012

Credit Agreement/Long-Term Debt [Abstract]

Credit Agreement

8. Credit Agreement

In March 2010, Lorillard Tobacco, the principal, wholly owned operating subsidiary of the Company, entered into a $185 million revolving credit facility that expires March 26, 2013 (the “Revolver”) and is guaranteed by the Company. Proceeds from the Revolver may be used for general corporate and working capital purposes. The interest rates on borrowings under the Revolver are based on prevailing interest rates and, in part, upon the credit rating applicable to the Company’s senior unsecured long-term debt.

The Revolver requires that the Company maintain a ratio of debt to net income plus income taxes, interest expense, depreciation and amortization expense, any extraordinary losses, any non-cash expenses or losses and any losses on sales of assets outside of the ordinary course of business (“EBITDA”) of not more than 2.25 to 1 and a ratio of EBITDA to interest expense of not less than 3.0 to 1. EBITDA is determined based on the trailing 12-months’ results of operations. In addition, the Revolver contains customary affirmative and negative covenants, including restrictions on liens and sale and leaseback transactions subject to a limited exception. The Revolver contains customary events of default, including upon a change in control that could result in the acceleration of all amounts and cancellation of all commitments outstanding, if any, under the Revolver.

As of March 31, 2012, Lorillard was in compliance with all financial covenants and there were no borrowings under the Revolver.

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Consolidated Condensed Statements of Income (Unaudited) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Condensed Statements of Income [Abstract]
Net sales (including excise taxes of $467 and $479, respectively)	$ 1,526	$ 1,535
Cost of sales	1,003	992
Gross profit	523	543
Selling, general and administrative	131	122
Operating income	392	421
Investment income	1	1
Interest expense	(39)	(28)
Income before income taxes	354	394
Income taxes	131	146
Net income	$ 223	$ 248
Earnings per share:
Basic	$ 1.71	$ 1.71
Diluted	$ 1.70	$ 1.71
Weighted average number of shares outstanding:
Basic	130.48	144.80
Diluted	130.80	144.94

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Inventories

3 Months Ended

Mar. 31, 2012

Inventories [Abstract]

Inventories

2. Inventories

Inventories are valued at the lower of cost, determined on a last-in, first-out (“LIFO”) basis, or market and consisted of the following:

	March 31, 2012		December 31, 2011
	(In millions)
Leaf tobacco	$	246	$	230
Manufactured stock		91		43
Material and supplies		5		4
	$	342	$	277

If the average cost method of accounting was used, inventories would be greater by approximately $229 and $223 million at March 31, 2012 and December 31, 2011, respectively.

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Basis of Presentation

3 Months Ended

Mar. 31, 2012

Basis of Presentation [Abstract]

Basis of Presentation

1. Basis of Presentation

Overview. 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 condensed 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 reportable segment through its principal subsidiary, Lorillard Tobacco Company (“Lorillard Tobacco” or “Issuer”).

Basis of Presentation. The accompanying unaudited consolidated condensed financial statements reflect all adjustments necessary to present fairly the financial position as of March 31, 2012 and December 31, 2011 and the consolidated income, shareholders’ deficit and cash flows for the three months ended March 31, 2012 and 2011.

Results of operations for the three months for each of the years reported herein are not necessarily indicative of results of operations of the entire year.

These consolidated condensed financial statements should be read in conjunction with the Consolidated Financial Statements and related Notes to Consolidated Financial Statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 21, 2012.

Recently adopted accounting pronouncements. Lorillard adopted FASB ASU 2010-09 “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.” ASU 2010-09 amends Topic 855 for SEC filers to eliminate the disclosure of the date through which subsequent events have been reviewed. The effective date was February 24, 2010. ASU 2010-09 did not have a material impact on Lorillard’s financial position or results of operations.

Lorillard adopted FASB ASU 2010-06 “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 establishes additional disclosures related to fair value. Transfers in and out of Level 1 and Level 2 and the reasons for the transfers must be disclosed. Level 3 purchases, sales, issuances and settlements should be presented separately rather than net. In addition, the level of disaggregation and input and valuation techniques need to be disclosed. The effective dates are periods beginning after December 15, 2010 for the Level 3 purchases, sales, issuances and settlements disclosure, and periods beginning after December 15, 2009 for all other provisions. ASU 2010-06 did not have a material impact on Lorillard’s financial position or results of operations.

Lorillard adopted FASB ASU 2010-09 “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.” ASU 2010-09 amends Topic 855 for SEC filers to eliminate the disclosure of the date through which subsequent events have been reviewed. The effective date was February 24, 2010. ASU 2010-09 did not have a material impact on Lorillard’s financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” ASU 2011-04 clarifies certain areas of the fair value guidance, including application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, and quantitative information about unobservable inputs used in a Level 3 fair value measurement. Additionally, ASU 2011-04 contains guidance on measuring the fair value of instruments that are managed within a portfolio, application of premiums and discounts in a fair value measurement, and requires additional disclosures about fair value measurements. The amendments contained in ASU 2011-04 are to be applied prospectively, and ASU 2011-04 is effective for public companies for interim and annual periods beginning after December 15, 2011. ASU 2011-04 did not have a material impact on Lorillard’s financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 requires presentation of comprehensive income in either a single statement of comprehensive income or two separate but consecutive statements. ASU 2011-05 does not change the definitions or the components of net income and other comprehensive income (OCI), when an item must be reclassified from OCI to net income, or the calculation or presentation of earnings per share. The entity still has the choice to either present OCI components before tax with one line amount for tax, or net of taxes. Disclosure of the tax impact for each OCI component is still required. ASU 2011-05 is effective for public companies for reporting periods beginning after December 15, 2011 and must be applied retrospectively. ASU 2011-05 did not have any impact on Lorillard’s financial position or results of operations, but resulted in the presentation of a separate statement of other comprehensive income.

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Share Repurchase Programs

3 Months Ended

Mar. 31, 2012

Share Repurchase Programs [Abstract]

Share Repurchase Programs

13. Share Repurchase Programs

As of August 9, 2011, the Company completed its $1.4 billion share repurchase program. The program was announced in August 2010 and authorized the Company to repurchase in the aggregate up to $1 billion of its outstanding common stock. The Board of Directors amended this program in May 2011, authorizing an additional $400 million in repurchases for a total of $1.4 billion under this program. The Company repurchased 15.0 million shares at an average price of $93.05 per share under this program.

As of February 24, 2012, the Company completed its $750 million share repurchase program that was announced in August 2011, after repurchasing an additional 1.6 million shares in January and February 2012 for $188 million at an average purchase price of $114.85. The Company repurchased a total of 6.7 million shares at an average price of $111.87 per share under this program.

As of March 31, 2012, total shares repurchased under share repurchase programs authorized by the Board since the Separation were as follows:

Program	Amount   Authorized		Number of Shares   Repurchased
	(In millions)		(In millions)
July 2008 – October 2008	$	400		5.9
May 2009 – July 2009		250		3.7
July 2009 – January 2010		750		9.7
February 2010 – May 2010		250		3.3
August 2010 * - August 2011		1,400		15.0
August 2011 – February 2012		750		6.7
Total	$	3,800		44.3

* As amended on May 19, 2011

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Long-Term Debt

3 Months Ended

Mar. 31, 2012

Credit Agreement/Long-Term Debt [Abstract]

Long-Term Debt

9. Long-Term Debt

Long-term debt, net of interest rate swaps, consisted of the following:

	March 31, 2012		December 31, 2011
	(In millions)
2016 Notes – 3.500% Notes due 2016	$	500	$	500
2019 Notes – 8.125% Notes due 2019		836		845
2020 Notes – 6.875% Notes due 2020		750		750
2040 Notes – 8.125% Notes due 2040		250		250
2041 Notes – 7.000% Notes due 2041		250		250
Total long-term debt	$	2,586	$	2,595

In June 2009, Lorillard Tobacco issued $750 million aggregate principal amount of 8.125% unsecured senior notes due June 23, 2019 (the “2019 Notes”) pursuant to an Indenture, dated June 23, 2009 (the “Indenture”), and First Supplemental Indenture, dated June 23, 2009 (the “First Supplemental Indenture”).

In April 2010, Lorillard Tobacco issued $1 billion of unsecured senior notes in two tranches pursuant to the Indenture and the Second Supplemental Indenture, dated April 12, 2010 (the “Second Supplemental Indenture”). The first tranche was $750 million aggregate principal amount of 6.875% Notes due May 1, 2020 (the “2020 Notes”), and the second tranche was $250 million aggregate principal amount of 8.125% Notes due May 1, 2040 (the “2040 Notes”).

In August 2011, Lorillard Tobacco issued $750 million of unsecured senior notes in two tranches pursuant to the Indenture and the Third Supplemental Indenture, dated August 4, 2011 (the “Third Supplemental Indenture”). The first tranche was $500 million aggregate principal amount of 3.500% Notes due August 4, 2016 (the “2016 Notes”) and the second tranche was $250 million aggregate principal amount of 7.000% Notes due August 4, 2041 (the “2041 Notes”). The net proceeds from the issuance will be used for general corporate purposes, which may include, among other things, the repurchase, redemption or retirement of securities including the Company’s common stock, acquisitions, additions to working capital and capital expenditures.

Lorillard Tobacco is the principal, wholly owned operating subsidiary of the Company, and the 2016 Notes, 2019 Notes, 2020 Notes, 2040 Notes and 2041 Notes (together, the “Notes”) are unconditionally guaranteed on a senior unsecured basis by the Company.

The interest rate payable on the 2019 Notes is subject to incremental increases from 0.25% to 2.00% in the event either Moody’s Investors Services, Inc. (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) or both Moody’s and S&P downgrade the 2019 Notes below investment grade (Baa3 and BBB- for Moody’s and S&P, respectively). As of March 31, 2012, our debt ratings were Baa2 and BBB- with Moody’s and S&P, respectively, both of which are investment grade.

Upon the occurrence of a change of control triggering event, Lorillard Tobacco would 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 Indentures) and the Notes cease to be rated investment grade by both Moody’s and S&P within 60 days 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 March 31, 2012 and December 31, 2011, the carrying value of the Notes was $2.586 billion and $2.595 billion, respectively, and the estimated fair value was $2.905 billion and $2.801 billion, respectively. The fair value of the Notes, classified as Level 1, utilized quoted prices in active markets.

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Other Assets

3 Months Ended

Mar. 31, 2012

Other Current Assets [Abstract]

Other Assets

5. Other Assets

Other assets were as follows:

	March 31, 2012		December 31, 2011
	(In millions)
Debt issuance costs	$	23	$	24
Interest rate swap		86		95
Other prepaid assets		12		9
Total	$	121	$	128

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Legal Proceedings (Details)	Apr. 23, 2012 LegalMatter
Conventional Product Liability Cases [Member]
Number of Cases Pending
Lorillard Tobacco or Lorillard Inc as defendant	32
Engle Progeny Cases [Member]
Number of Cases Pending
Lorillard Tobacco or Lorillard Inc as defendant	5,902
West Virginia Individual Personal Injury Cases [Member]
Number of Cases Pending
Lorillard Tobacco or Lorillard Inc as defendant	38
Flight Attendant Cases [Member]
Number of Cases Pending
Lorillard Tobacco or Lorillard Inc as defendant	2,585
Class Action Cases [Member]
Number of Cases Pending
Lorillard Tobacco or Lorillard Inc as defendant	3
Reimbursement Cases [Member]
Number of Cases Pending
Lorillard Tobacco or Lorillard Inc as defendant	1
Filter Cases [Member]
Number of Cases Pending
Lorillard Tobacco or Lorillard Inc as defendant	33
Tobacco Related Antitrust Cases [Member]
Number of Cases Pending
Lorillard Tobacco or Lorillard Inc as defendant	2

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Other Current Assets

3 Months Ended

Mar. 31, 2012

Other Current Assets [Abstract]

Other Current Assets

3. Other Current Assets

Other current assets were as follows:

	March 31, 2012		December 31, 2011
	(In millions)
Prepaid income taxes	$	8	$	—
Restricted cash		13		13
Appeal bonds		7		7
Other current assets		—		5
Total	$	28	$	25

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Plant and Equipment, Net

3 Months Ended

Mar. 31, 2012

Plant and Equipment, Net [Abstract]

Plant and Equipment, Net

4. Plant and Equipment, Net

Plant and equipment is stated at cost and consisted of the following:

	March 31, 2012			December 31, 2011
	(In millions)
Land	$	3		$	3
Buildings		90			90
Equipment		609			597
Total		702			690
Accumulated depreciation		(434	)		(428	)
Plant and equipment, net	$	268		$	262

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Accrued Liabilities

3 Months Ended

Mar. 31, 2012

Accrued Liabilities [Abstract]

Accrued Liabilities

6. Accrued Liabilities

Accrued liabilities were as follows:

	March 31, 2012		December 31, 2011
	(In millions)
Legal fees	$	47	$	28
Salaries and other compensation		25		20
Medical and other employee benefit plans		31		31
Consumer rebates		53		60
Sales promotion		20		23
Accrued vendor charges		29		7
Excise and other taxes		87		52
Accrued bond interest		52		27
Other accrued liabilities		22		48
Total	$	366	$	296

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2012

Credit Agreement/Long-Term Debt [Abstract]

Long-term debt

	March 31, 2012		December 31, 2011
	(In millions)
2016 Notes – 3.500% Notes due 2016	$	500	$	500
2019 Notes – 8.125% Notes due 2019		836		845
2020 Notes – 6.875% Notes due 2020		750		750
2040 Notes – 8.125% Notes due 2040		250		250
2041 Notes – 7.000% Notes due 2041		250		250
Total long-term debt	$	2,586	$	2,595

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Retirement Plans (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Pension Benefits [Member]
Net periodic benefit cost components
Service cost	$ 6	$ 6
Interest cost	14	14
Expected return on plan assets	(18)	(18)
Amortization of net loss	5	2
Amortization of prior service cost	1	1
Net periodic benefit cost	8	5
Other Postretirement Benefits [Member]
Net periodic benefit cost components
Service cost	1	1
Interest cost	3	3
Amortization of net loss		(1)
Net periodic benefit cost	$ 4	$ 3

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Earnings Per Share

3 Months Ended

Mar. 31, 2012

Earnings Per Share [Abstract]

Earnings Per Share

11. Earnings Per Share

Basic and diluted earnings per share (“EPS”) were calculated using the following:

	Three Months Ended March 31,
	2012			2011
Numerator:
Net income, as reported	$	223		$	248
Less: Net income attributable to participating securities		(1	)		(1	)
Net income available to common shareholders	$	222		$	247
Denominator:
Basic EPS- weighted average shares		130.48			144.80
Effect of dilutive securities:
Stock Options and SARS		0.32			0.14
Diluted EPS- adjusted weighted average shares and assumed conversions		130.80			144.94
Earnings Per Share:
Basic	$	1.71		$	1.71
Diluted	$	1.70		$	1.71

Options to purchase 0.2 million and 0.6 million shares of common stock were excluded from the diluted earnings per share calculation because their effect would be anti-dilutive for the quarters ended March 31, 2012 and March 31, 2011, respectively.

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Subsequent Event

3 Months Ended

Mar. 31, 2012

Subsequent Event [Abstract]

Subsequent Event

16. Subsequent Event

On April 24, 2012, Lorillard, Inc., through its wholly owned subsidiary, Lorillard Holdings Company, Inc. (“LHCI”), formerly known as LRDHC, Inc., acquired blu ecigs^® and other assets used in the manufacture, distribution, development, research, marketing, advertising, sale and service of electronic cigarettes. The acquisition was made pursuant to an asset purchase agreement (the “Agreement”) with BLEC, LLC, Intermark Brands, LLC and QSN Technologies, LLC (the “Sellers”). The Agreement contains customary representations, warranties, covenants and indemnities by the Sellers and LHCI and the consideration paid was $135 million in cash.

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Derivative Instruments (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011	Sep. 30, 2009
Derivative Instruments (Textual) [Abstract]
Notional amount of interest rate swap				$ 750
Fixed interest rate under interest rate swap agreement				8.125%
Spread on variable rate based on one month LIBOR				4.625%
Variable interest rate	4.869%		4.896%
Reduction in interest expense	6	6
Other Assets [Member]
Derivatives, Fair Value [Line Items]
Fair value of the interest rate swaps	86		95
2019 Notes [Member]
Debt Instrument [Line Items]
Adjusted carrying amounts of the hedged debt outstanding	$ 836		845

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Other Current Assets (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Other Current Assets [Abstract]
Prepaid income taxes	$ 8
Restricted cash	13	13
Appeal bonds	7	7
Other current assets		5
Total	$ 28	$ 25

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Consolidated Condensed Statements of Income (Unaudited) (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Condensed Statements of Income [Abstract]
Excise taxes	$ 467	$ 479

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Consolidated Condensed Statements of Cash Flows (Unaudited) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Cash flows from operating activities:
Net income	$ 223	$ 248
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization	10	10
Pension, health and life insurance contributions	(10)	(8)
Pension, health and life insurance benefits expense	12	8
Deferred income taxes	0	(4)
Share-based compensation	4	4
Excess tax benefits from share-based payment arrangements	(5)
Changes in operating assets and liabilities:
Accounts and other receivables	(2)	(4)
Inventories	(65)	(31)
Accounts payable and accrued liabilities	65	77
Settlement costs	337	321
Income taxes	118	136
Other current assets	5	2
Other assets	(2)
Net cash provided by operating activities	690	759
Cash flows from investing activities:
Additions to plant and equipment	(16)	(7)
Cash flows from financing activities:
Shares repurchased	(188)	(289)
Dividends paid	(202)	(188)
Proceeds from exercise of stock options	6
Excess tax benefits from share-based payment arrangements	5
Net cash used in financing activities	(379)	(477)
Change in cash and cash equivalents	295	275
Cash and cash equivalents, beginning of year	1,634	2,063
Cash and cash equivalents, end of period	1,929	2,338
Cash paid for income taxes	10	13
Cash paid for interest	$ 18

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Consolidating Financial Information (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Cash flows from operating activities:
Net income	$ 223	$ 248
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	10	10
Pension, health and life insurance contributions	(10)	(8)
Pension, health and life insurance benefits expense	12	8
Deferred income taxes	0	(4)
Share-based compensation	4	4
Excess tax benefits from share-based payment arrangements	(5)
Changes in operating assets and liabilities:
Accounts and other receivables	(2)	(4)
Inventories	(65)	(31)
Accounts payable and accrued liabilities	65	77
Settlement costs	337	321
Income taxes	118	136
Other current assets	5	2
Other assets	(2)
Other		2
Net cash provided by (used in) operating activities	690	759
Cash flows from investing activities:
Additions to plant and equipment	(16)	(7)
Cash flows from financing activities:
Shares repurchased	(188)	(289)
Dividends paid	(202)	(188)
Proceeds from exercise of stock options	6
Excess tax benefits from share-based payment arrangements	5
Net cash (used in) provided by financing activities	(379)	(477)
Change in cash and cash equivalents	295	275
Cash and cash equivalents, beginning of year	1,634	2,063
Cash and cash equivalents, end of period	1,929	2,338
Parent [Member]
Cash flows from operating activities:
Net income	223	248
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries	(223)	(248)
Share-based compensation		1
Changes in operating assets and liabilities:
Accounts and other receivables		(1)
Accounts payable and accrued liabilities	(13)	(2)
Income taxes	(1)
Return on investment in subsidiaries	200	689
Net cash provided by (used in) operating activities	186	687
Cash flows from financing activities:
Shares repurchased	(188)	(289)
Dividends paid	(202)	(188)
Net cash (used in) provided by financing activities	(390)	(477)
Change in cash and cash equivalents	(204)	210
Cash and cash equivalents, beginning of year	235	163
Cash and cash equivalents, end of period	31	373
Issuer [Member]
Cash flows from operating activities:
Net income	223	248
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries	(156)	(156)
Depreciation and amortization	10	10
Pension, health and life insurance contributions	(10)	(8)
Pension, health and life insurance benefits expense	12	8
Deferred income taxes	1	(4)
Share-based compensation	4	3
Excess tax benefits from share-based payment arrangements	(5)
Changes in operating assets and liabilities:
Accounts and other receivables	872	(3)
Inventories	(65)	(31)
Accounts payable and accrued liabilities	94	107
Settlement costs	337	321
Income taxes	30	52
Other current assets	5
Other assets	(2)
Other		2
Return on investment in subsidiaries		550
Net cash provided by (used in) operating activities	1,350	1,099
Cash flows from investing activities:
Additions to plant and equipment	(16)	(7)
Cash flows from financing activities:
Dividends paid	(200)	(689)
Proceeds from exercise of stock options	6
Excess tax benefits from share-based payment arrangements	5
Net cash (used in) provided by financing activities	(189)	(689)
Change in cash and cash equivalents	1,145	403
Cash and cash equivalents, beginning of year	582	1,181
Cash and cash equivalents, end of period	1,727	1,584
All Other Subsidiaries [Member]
Cash flows from operating activities:
Net income	156	156
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income taxes	(1)
Changes in operating assets and liabilities:
Accounts and other receivables	1
Accounts payable and accrued liabilities	(891)	(28)
Income taxes	89	84
Net cash provided by (used in) operating activities	(646)	212
Cash flows from financing activities:
Dividends paid		(550)
Net cash (used in) provided by financing activities		(550)
Change in cash and cash equivalents	(646)	(338)
Cash and cash equivalents, beginning of year	817	719
Cash and cash equivalents, end of period	171	381
Total Consolidating Adjustments [Member]
Cash flows from operating activities:
Net income	(379)	(404)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries	379	404
Changes in operating assets and liabilities:
Accounts and other receivables	(875)
Accounts payable and accrued liabilities	875
Return on investment in subsidiaries	(200)	(1,239)
Net cash provided by (used in) operating activities	(200)	(1,239)
Cash flows from financing activities:
Dividends paid	200	1,239
Net cash (used in) provided by financing activities	$ 200	$ 1,239

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2012

Basis of Presentation [Abstract]

FASB ASU 2010-09

Recently adopted accounting pronouncements. Lorillard adopted FASB ASU 2010-09 “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.” ASU 2010-09 amends Topic 855 for SEC filers to eliminate the disclosure of the date through which subsequent events have been reviewed. The effective date was February 24, 2010. ASU 2010-09 did not have a material impact on Lorillard’s financial position or results of operations.

FASB ASU 2010-06

Lorillard adopted FASB ASU 2010-06 “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 establishes additional disclosures related to fair value. Transfers in and out of Level 1 and Level 2 and the reasons for the transfers must be disclosed. Level 3 purchases, sales, issuances and settlements should be presented separately rather than net. In addition, the level of disaggregation and input and valuation techniques need to be disclosed. The effective dates are periods beginning after December 15, 2010 for the Level 3 purchases, sales, issuances and settlements disclosure, and periods beginning after December 15, 2009 for all other provisions. ASU 2010-06 did not have a material impact on Lorillard’s financial position or results of operations.

FASB ASU 2011-04

In May 2011, the FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” ASU 2011-04 clarifies certain areas of the fair value guidance, including application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, and quantitative information about unobservable inputs used in a Level 3 fair value measurement. Additionally, ASU 2011-04 contains guidance on measuring the fair value of instruments that are managed within a portfolio, application of premiums and discounts in a fair value measurement, and requires additional disclosures about fair value measurements. The amendments contained in ASU 2011-04 are to be applied prospectively, and ASU 2011-04 is effective for public companies for interim and annual periods beginning after December 15, 2011. ASU 2011-04 did not have a material impact on Lorillard’s financial position or results of operations.

FASB ASU 2011-05

In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 requires presentation of comprehensive income in either a single statement of comprehensive income or two separate but consecutive statements. ASU 2011-05 does not change the definitions or the components of net income and other comprehensive income (OCI), when an item must be reclassified from OCI to net income, or the calculation or presentation of earnings per share. The entity still has the choice to either present OCI components before tax with one line amount for tax, or net of taxes. Disclosure of the tax impact for each OCI component is still required. ASU 2011-05 is effective for public companies for reporting periods beginning after December 15, 2011 and must be applied retrospectively. ASU 2011-05 did not have any impact on Lorillard’s financial position or results of operations, but resulted in the presentation of a separate statement of other comprehensive income.

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Consolidating Financial Information (Tables)

3 Months Ended

Mar. 31, 2012

Consolidating Financial Information [Abstract]

Condensed Consolidating Balance Sheets

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Assets:
Cash and cash equivalents	$	31		$	1,727		$	171		$	—		$	1,929
Accounts receivable, less allowances of $2		—			10			—			—			10
Other receivables					66			1			—			67
Inventories		—			342			—			—			342
Deferred income taxes		—			534			—			—			534
Other current assets		1			27			—			—			28
Total current assets		32			2,706			172			—			2,910
Investment in subsidiaries		(1,310	)		375			—			935			—
Plant and equipment, net		—			268			—			—			268
Deferred income taxes		—			47			5			—			52
Other assets		—			295			213			(387	)		121
Total assets	$	(1,278	)	$	3,691		$	390		$	548		$	3,351
Liabilities and Shareholders’ Equity (Deficit):
Accounts and drafts payable	$	—		$	27		$	—		$	—		$	27
Accrued liabilities (1)		1			453			(88	)		—			366
Settlement costs		—			1,488			—			—			1,488
Income taxes		—			22			88			—			110
Total current liabilities		1			1,990			—			—			1,991
Long-term debt		—			2,586			—			—			2,586
Postretirement pension, medical and life insurance benefits		—			383			—			—			383
Other liabilities		387			42			15			(387	)		57
Total liabilities		388			5,001			15			(387	)		5,017
Shareholders’ Equity (Deficit):
Common stock		2			—			—			—			2
Additional paid-in capital		276			65			214			(279	)		276
Retained earnings		2,080			(1,151	)		161			990			2,080
Accumulated other comprehensive loss		(224	)		(224	)		—			224			(224	)
Treasury stock		(3,800	)		—			—			—			(3,800	)
Total shareholders’ equity (deficit)		(1,666	)		(1,310	)		375			935			(1,666	)
Total liabilities and shareholders’ equity (deficit)	$	(1,278	)	$	3,691		$	390		$	548		$	3,351

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

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

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

Condensed Consolidating Statements of Income

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Net sales (including excise taxes of $467)	$	—		$	1,526		$	—		$	—		$	1,526
Cost of sales		—			1,003			—			—			1,003
Gross profit		—			523			—			—			523
Selling, general and administrative (1)		—			376			(245	)		—			131
Operating income		—			147			245			—			392
Investment income		—			1			—			—			1
Interest expense		(1	)		(38	)					—			(39	)
Income before taxes		(1	)		110			245			—			354
Income taxes		(1	)		43			89			—			131
Equity in earnings of subsidiaries		223			156			—			(379	)		—
Net income	$	223		$	223		$	156		$	(379	)	$	223

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

	Parent		Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Net sales (including excise taxes of $479)	$	—	$	1,535		$	—		$	—		$	1,535
Cost of sales		—		992			—			—			992
Gross profit		—		543			—			—			543
Selling, general and administrative (1)		—		365			(243	)		—			122
Operating income		—		178			243			—			421
Investment income		—		1			—			—			1
Interest expense		—		(28	)					—			(28	)
Income before taxes		—		151			243			—			394
Income taxes		—		59			87			—			146
Equity in earnings of subsidiaries		248		156			—			(404	)		—
Net income	$	248	$	248		$	156		$	(404	)	$	248

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

Condensed Consolidating Statements of Cash Flows

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	223		$	223		$	156		$	(379	)	$	223
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries		(223	)		(156	)		—			379			—
Depreciation and amortization		—			10			—			—			10
Pension, health and life insurance contributions		—			(10	)		—			—			(10	)
Pension, health and life insurance benefits expense		—			12			—			—			12
Deferred income taxes		—			1			(1	)		—			—
Share-based compensation		—			4			—			—			4
Excess tax benefits from share-based arrangements		—			(5	)		—			—			(5	)
Changes in operating assets and liabilities:
Accounts and other receivables		—			872			1			(875	)		(2	)
Inventories		—			(65	)		—			—			(65	)
Accounts payable and accrued liabilities		(13	)		94			(891	)		875			65
Settlement costs		—			337			—			—			337
Income taxes		(1	)		30			89			—			118
Other current assets		—			5			—			—			5
Other assets		—			(2	)		—			—			(2	)
Return on investment in subsidiaries		200			—			—			(200	)		—
Net cash provided by (used in) operating activities		186			1,350			(646	)		(200	)		690
Cash flows from investing activities:
Additions to plant and equipment		—			(16	)		—			—			(16	)
Cash flows from financing activities:
Shares repurchased		(188	)		—			—			—			(188	)
Dividends paid		(202	)		(200	)		—			200			(202	)
Proceeds from exercise of stock options		—			6			—			—			6
Excess tax benefits from share-based arrangements		—			5			—			—			5
Net cash (used in) provided by financing activities		(390	)		(189	)		—			200			(379	)
Change in cash and cash equivalents		(204	)		1,145			(646	)		—			295
Cash and cash equivalents, beginning of year		235			582			817			—			1,634
Cash and cash equivalents, end of period	$	31		$	1,727		$	171		$	—		$	1,929

	Parent			Issuer			All Other Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income	$	248		$	248		$	156		$	(404	)	$	248
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity income from subsidiaries		(248	)		(156	)		—			404			—
Depreciation and amortization		—			10			—			—			10
Pension, health and life insurance contributions		—			(8	)		—			—			(8	)
Pension, health and life insurance benefits expense		—			8			—			—			8
Deferred income taxes		—			(4	)					—			(4	)
Share-based compensation		1			3			—			—			4
Changes in operating assets and liabilities:
Accounts and other receivables		(1	)		(3	)		—			—			(4	)
Inventories		—			(31	)		—			—			(31	)
Accounts payable and accrued liabilities		(2	)		107			(28	)		—			77
Settlement costs		—			321			—			—			321
Income taxes		—			52			84			—			136
Other		—			2			—			—			2
Return on investment in subsidiaries		689			550			—			(1,239	)		—
Net cash provided by (used in) operating activities		687			1,099			212			(1,239	)		759
Cash flows from investing activities:
Additions to plant and equipment		—			(7	)		—			—			(7	)
Cash flows from financing activities:
Shares repurchased		(289	)		—			—			—			(289	)
Dividends paid		(188	)		(689	)		(550	)		1,239			(188	)
Net cash provided by (used in) financing activities		(477	)		(689	)		(550	)		1,239			(477	)
Change in cash and cash equivalents		210			403			(338	)		—			275
Cash and cash equivalents, beginning of year		163			1,181			719			—			2,063
Cash and cash equivalents, end of period	$	373		$	1,584		$	381		$	—		$	2,338

Condensed Consolidating Statements of Comprehensive Income

(In millions)	Parent		Issuer		All Other Subsidiaries		Total Consolidating Adjustments			Consolidated
Net income	$	223	$	223	$	156	$	(379	)	$	223
Other comprehensive income, net of tax: Defined benefit retirement plan gains, net of tax expense of $2		—		4		—		—			4
Other comprehensive income		—		4		—		—			4
Comprehensive income	$	223	$	227	$	156	$	(379	)	$	227

(In millions)	Parent		Issuer		All Other Subsidiaries		Total Consolidating Adjustments			Consolidated
Net income	$	248	$	248	$	156	$	(404	)	$	248
Other comprehensive income, net of tax: Defined benefit retirement plan gains, net of tax expense of $1		—		1		—		—			1
Other comprehensive income		—		1		—		—			1
Comprehensive income	$	248	$	249	$	156	$	(404	)	$	249

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Derivative Instruments

3 Months Ended

Mar. 31, 2012

Derivative Instruments [Abstract]

Derivative Instruments

10. Derivative Instruments

In September 2009, Lorillard Tobacco entered into interest rate swap agreements, which the Company guaranteed, with a total notional amount of $750 million to modify its exposure to interest rate risk by effectively converting the interest rate payable on the 2019 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%. The variable rates were 4.869% and 4.896% as of March 31, 2012 and December 31, 2011, respectively. 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 $6 million for the three months ended March 31, 2012 and 2011.

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 March 31, 2012 and December 31, 2011, the adjusted carrying amounts of the hedged debt outstanding were $836 million and $845 million, respectively and the amounts included in other assets were $86 million and $95 million, respectively.

If our debt rating is downgraded below Baa3 by Moody’s or BBB- by S&P, the swap agreements will terminate and we will be required to cash settle them before their expiration date. As of March 31, 2012, our debt ratings were Baa2 and BBB- with Moody’s and S&P, respectively, both of which are above the ratings at which settlement of our derivative contracts would be required.