Notes to Consolidated Financial Statements
(Continued)
Note 15.
Segment Reporting:
The products of ALG’s subsidiaries include cigarettes, food (consisting principally of a wide variety of snacks, beverages, cheese, grocery products and convenient meals) and beer, prior to the merger of Miller into SAB on July 9, 2002. Another subsidiary of ALG, PMCC, maintains a portfolio of leveraged and direct finance leases. The products and services of these subsidiaries constitute Altria Group, Inc.’s reportable segments of domestic tobacco, international tobacco, North American food, international food, beer (prior to July 9, 2002) and financial services. During January 2004, Kraft announced a new global organization structure. Beginning in 2004, results for Kraft’s Mexico and Puerto Rico businesses, which were previously included in the North American food segment, are included in the international food segment, and historical amounts have been restated.
Altria Group, Inc.’s management reviews operating companies income to evaluate segment performance and allocate resources. Operating companies income for the segments excludes general corporate expenses and amortization of intangibles. Interest and other debt expense, net (consumer products), and provision for income taxes are centrally managed at the ALG level and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by Altria Group, Inc.’s management. Altria Group, Inc.’s assets are managed on a worldwide basis by major products and, accordingly, asset information is reported for the tobacco, food and financial services segments. Intangible assets and related amortization are principally attributable to the food businesses. Other assets consist primarily of cash and cash equivalents and the investment in SABMiller. The accounting policies of the segments are the same as those described in Note 2. Summary of Significant Accounting Policies.
Segment data were as follows:
|
(in millions) |
|
|
 |
|
|
|
For the Years Ended December 31, |
|
2004 |
|
|
|
2003 |
|
|
2002 |
|
|
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
Domestic tobacco |
|
$17,511 |
|
|
|
$17,001 |
|
|
$18,877 |
|
|
International tobacco |
|
39,536 |
|
|
|
33,389 |
|
|
28,672 |
|
|
North American food |
|
22,060 |
|
|
|
20,937 |
|
|
20,489 |
|
|
International food |
|
10,108 |
|
|
|
9,561 |
|
|
8,759 |
|
|
Beer |
|
|
|
|
|
|
|
|
2,641 |
|
|
Financial services |
|
395 |
|
|
|
432 |
|
|
495 |
|
|
|
Net revenues |
|
$89,610 |
|
|
|
$81,320 |
|
|
$79,933 |
|
|
|
Earnings from continuing |
|
|
|
|
|
|
|
|
|
|
|
operations before income |
|
|
|
|
|
|
|
|
|
|
|
taxes and minority interest: |
|
|
|
|
|
|
|
|
|
|
|
Operating companies income: |
|
|
|
|
|
|
|
|
|
|
|
Domestic tobacco |
|
$ 4,405 |
|
|
|
$ 3,889 |
|
|
$ 5,011 |
|
|
International tobacco |
|
6,566 |
|
|
|
6,286 |
|
|
5,666 |
|
|
North American food |
|
3,870 |
|
|
|
4,658 |
|
|
4,664 |
|
|
International food |
|
933 |
|
|
|
1,393 |
|
|
1,466 |
|
|
Beer |
|
|
|
|
|
|
|
|
276 |
|
|
Financial services |
|
144 |
|
|
|
313 |
|
|
55 |
|
|
Amortization of intangibles |
|
(17 |
) |
|
|
(9 |
) |
|
(7 |
) |
|
General corporate expenses |
|
(721 |
) |
|
|
(771 |
) |
|
(683 |
) |
|
|
Operating income |
|
15,180 |
|
|
|
(15,759 |
) |
|
16,448 |
|
|
Gain on Miller transaction |
|
|
|
|
|
|
|
|
2,631 |
|
|
Interest and other debt |
|
|
|
|
|
|
|
|
|
|
|
expense, net |
|
(1,176 |
) |
|
|
(1,150 |
) |
|
(1,134 |
) |
|
|
Earnings from continuing |
|
|
|
|
|
operations before income |
|
|
|
|
|
taxes and minority interest |
|
$14,004 |
|
|
|
$14,609 |
|
|
$17,945 |
|
|
Items affecting the comparability of results from continuing operations were as follows:
 Domestic Tobacco Headquarters Relocation Charges—PM USA has substantially completed the move of its corporate headquarters from New York City to Richmond, Virginia. PM USA estimates that the total cost of the relocation will be approximately $110 million, including compensation to those employees who did not relocate. Pre-tax charges of $31 million and $69 million were recorded in the operating companies income of the domestic tobacco segment for the years ended December 31, 2004 and 2003, respectively. Cash payments of approximately $55 million were made during 2004, while total cash payments related to the relocation were $85 million through December 31, 2004. At December 31, 2004, a liability of $15 million remains on the consolidated balance sheet.
International Tobacco E.C. Agreement—On July 9, 2004, PMI entered into an agreement with the European Commission (“E.C.”) and 10 member states of the European Union that provides for broad cooperation with European law enforcement agencies on anti-contraband and anti-counterfeit efforts. The agreement resolves all disputes between the parties relating to these issues. Under the terms of the agreement, PMI will make 13 payments over 12 years, including an initial payment of $250 million, which was recorded as a pre-tax charge against its earnings in 2004. The agreement calls for additional payments of approximately $150 million on the first anniversary of the agreement, approximately $100 million on the second anniversary and approximately $75 million each year thereafter for 10 years, each of which is to be adjusted based on certain variables, including PMI’s market share in the European Union in the year preceding payment. Because future additional payments are subject to these variables, PMI will record charges for them as an expense in cost of sales when product is shipped. During the third quarter of 2004, PMI began accruing for payments due on the first anniversary of the agreement.
Asset Impairment and Exit Costs—See Note 3. Asset Impairment and Exit Costs for a breakdown of asset impairment and exit costs by segment.
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|