Notes to Consolidated Financial Statements

(Continued)

Note 4.
Miller Brewing Company Transaction:

On July 9, 2002, Miller merged into SAB and SAB changed its name to SABMiller plc (“SABMiller”). At closing, ALG received 430 million shares of SABMiller valued at approximately $3.4 billion, based upon a share price of 5.12 British pounds per share, in exchange for Miller, which had $2.0 billion of existing debt. ALG’s ownership of SABMiller stock resulted in a 36% economic interest and a 24.9% voting interest in SABMiller. ALG has the contractual right to convert non-voting shares to voting shares in order to maintain its 24.9% voting interest in SABMiller. The transaction resulted in a pre-tax gain of $2.6 billion or $1.7 billion after-tax, which was recorded in the third quarter of 2002. Beginning with the third quarter of 2002, ALG’s ownership interest in SABMiller is being accounted for under the equity method. Accordingly, ALG’s investment in SABMiller of approximately $2.5 billion and $2.1 billion is included in other assets on the consolidated balance sheets at December 31, 2004 and 2003, respectively. During December 2004, ALG’s economic interest in SABMiller declined to 33.9%, as a result of the conversion of SABMiller convertible bonds into equity. ALG records its share of SABMiller’s net earnings, based on its economic ownership percentage, in minority interest in earnings from continuing operations, and equity earnings, net, on the consolidated statements of earnings.

Note 5.
Divestitures:

Discontinued Operations

On November 15, 2004, Kraft announced the sale of substantially all of its sugar confectionery business for approximately $1.5 billion. The proposed sale includes the Life Savers, Creme Savers, Altoids, Trolli and Sugus brands. The transaction, which is subject to regulatory approval, is expected to be completed in the second quarter of 2005. Altria Group, Inc. has reflected the results of Kraft’s sugar confectionery business as discontinued operations on the consolidated statements of earnings for all years presented. Pursuant to the sugar confectionery sale agreement, Kraft has agreed to provide certain transition and supply services to the buyer. These service arrangements are primarily for terms of one year or less, with the exception of one supply arrangement with a term of not more than three years. The expected cash flow from this supply arrangement is not significant.

Summary results of operations for the sugar confectionery business for the years ended December 31, 2004, 2003 and 2002, were as follows:

	(in millions)		2004				2003		2002
	Net revenues		$ 477				$512		$475
	Earnings before income taxes and
	minority interest		$ 103				$151		$153
	Impairment loss on assets of
	discontinued operations held
	for sale		(107	)
	Provision for income taxes						54		56
	Minority interest in earnings from
	discontinued operations, net						14		16
	(Loss) earnings from discontinued
	operations, net of income taxes
	and minority interest		$   (4	)			$ 83		$ 81

In addition, Kraft anticipates additional tax expense of $270 million to be recorded as a loss on sale of discontinued operations in 2005. In accordance with the provisions of SFAS No. 109, the tax expense will be recorded when the transaction is consummated.

The assets of the sugar confectionery business, which were reflected as assets of discontinued operations held for sale on the consolidated balance sheet at December 31, 2004, were as follows:

	(in millions)
	Inventories	$   65
	Property, plant and equipment, net	201
	Goodwill	814
	Other intangible assets, net	485
	Impairment loss on assets of discontinued operations held for sale	(107	)
	Assets of discontinued operations held for sale	$1,458

Other

During 2004, Kraft sold a Brazilian snack nuts business and trademarks associated with a candy business in Norway. The aggregate proceeds received from the sale of these businesses were $18 million, on which pre-tax losses of $3 million were recorded. In December 2004, Kraft announced the sale of its U.K. desserts business for approximately $135 million, which is expected to result in a gain. The transaction, which is subject to required approvals, is expected to close in the first quarter of 2005, following completion of necessary employee consultation requirements. In addition, in December 2004, Kraft announced the sale of its yogurt business for approximately $59 million, which is expected to result in an after-tax loss of approximately $12 million. The transaction, which is also subject to regulatory approval, is expected to be completed in the first quarter of 2005.

During 2003, Kraft sold a European rice business and a branded fresh cheese business in Italy. The aggregate proceeds received from the sales of businesses in 2003 were $96 million, on which pre-tax gains of $31 million were recorded.

During 2002, Kraft sold several small North American food businesses, most of which had been previously classified as businesses held for sale arising from the acquisition of Nabisco. The net revenues and operating results of the businesses held for sale, which were not significant, were excluded from Altria Group, Inc.’s consolidated statements of earnings and no gain or loss was recognized on these sales. In addition, Kraft sold a Latin American yeast and industrial bakery ingredients business for approximately $110 million and recorded a pre-tax gain of $69 million. The aggregate proceeds received from the sales of these businesses, as well as a small beer operation, were $221 million, resulting in pre-tax gains of $80 million.

The operating results of the other businesses sold, discussed above, were not material to Altria Group, Inc.’s consolidated financial position, operating results or cash flows in any of the periods presented.

Note 6.
Acquisitions:

During 2004, Kraft purchased a U.S.-based beverage business and PMI purchased a tobacco business in Finland. The total cost of acquisitions during 2004 was $179 million. In September 2004, PMI announced its intention to acquire Coltabaco, the largest tobacco company in Colombia, with a 48% market share, and expects to close the transaction in the beginning of 2005, for approximately $310 million.

During 2003, PMI purchased approximately 74.2% of a tobacco business in Serbia for a cost of $486 million and purchased 99% of a tobacco business in Greece for approximately $387 million. PMI also increased its ownership interest in its affiliate in Ecuador from less than 50% to approximately 98% for a cost of $70 million. In addition, Kraft acquired a biscuits business in Egypt and acquired trademarks associated with a small U.S.-based natural foods business. The total cost of acquisitions during 2003 was $1,041 million.

During 2002, Kraft acquired a snacks business in Turkey and a biscuits business in Australia. The total cost of these and other smaller acquisitions, including a PMI acquisition, was $147 million.

The effects of these acquisitions were not material to Altria Group, Inc.’s consolidated financial position, results of operations or cash flows in any of the periods presented.

Note 7.
Inventories:

The cost of approximately 35% and 38% of inventories in 2004 and 2003, respectively, was determined using the LIFO method. The stated LIFO amounts of inventories were approximately $0.8 billion and $0.7 billion lower than the current cost of inventories at December 31, 2004 and 2003, respectively.