Notes to Consolidated Financial Statements

(Continued)

Note 8.
Short-Term Borrowings and Borrowing Arrangements:

At December 31, 2003 and 2002, Altria Group, Inc.’s short-term borrowings and related average interest rates consisted of the following:

				2003					2002
	(in millions)			Amount Outstanding		Average Year-End Rate			Amount Outstanding		Average Year-End Rate
	Consumer products:
	Bank loans			$   915		4.6%			$   443		7.1%
	Commercial paper			2,700		1.5			3,562		1.4
	Amount reclassified
	as long-term debt			(1,900)					(3,598)
				$ 1,715					$   407

The fair values of Altria Group, Inc.’s short-term borrowings at December 31, 2003 and 2002, based upon current market interest rates, approximate the amounts disclosed above.

Following a $10.1 billion judgment on March 21, 2003, against PM USA in the Price litigation, which is discussed in Note 18. Contingencies, the three major credit rating agencies took a series of ratings actions resulting in the lowering of ALG’s short-term and long-term debt ratings. During 2003, Moody’s lowered ALG’s short-term debt rating from “P-1” to “P-3” and its long-term debt rating from “A2” to “Baa2.” Standard & Poor’s lowered ALG’s short-term debt rating from “A-1” to “A-2” and its long-term debt rating from “A-” to “BBB.” Fitch Rating Services lowered ALG’s short-term debt rating from “F-1” to “F-2” and its long-term debt rating from “A” to “BBB.”

While Kraft is not a party to, and has no exposure to, this litigation, its credit ratings were also lowered, but to a lesser degree. As a result of the rating agencies’ actions, borrowing costs for ALG and Kraft have increased.  None of ALG’s or Kraft’s debt agreements require accelerated repayment as a result of a decrease in credit ratings.

ALG and Kraft each maintain separate revolving credit facilities that they have historically used to support the issuance of commercial paper.  However, as a result of the rating agencies’ actions discussed above, ALG’s and Kraft’s access to the commercial paper market was eliminated. Subsequently, in April 2003, ALG and Kraft began to borrow against existing credit facilities to repay maturing commercial paper and to fund normal working capital needs. By the end of May 2003, Kraft regained its access to the commercial paper market, and in November 2003, ALG regained limited access to the commercial paper market.

At December 31, 2003, credit lines for ALG and Kraft, and the related activity, were as follows:

ALG
	Type (in billions of dollars)			Credit Lines		Amount Drawn			Commercial Paper Outstanding		Lines Available
	364-day			$1.3		$  —			$  —		$1.3
	Multi-year			5.0		0.5			0.5		4.0
				$6.3		$0.5			$0.5		$5.3

Kraft
	Type (in billions of dollars)			Credit Lines		Amount Drawn			Commercial Paper Outstanding		Lines Available
	364-day			$2.5		$  —			$0.3		$2.2
	Multi-year			2.0					1.9		0.1
				$4.5		$  —			$2.2		$2.3

The ALG multi-year revolving credit facility requires the maintenance of a fixed charges coverage ratio. The Kraft multi-year revolving credit facility, which is for the sole use of Kraft, requires the maintenance of a minimum net worth. ALG and Kraft met their respective covenants at December 31, 2003, and expect to continue to meet their respective covenants. The multi-year facilities both expire in July 2006 and enable Altria Group, Inc. to reclassify short-term debt on a long-term basis. The ALG 364-day revolving credit facility expires in July 2004. It requires the maintenance of a fixed charges coverage ratio and prohibits ALG from repurchasing its common stock while borrowings are outstanding against either ALG’s 364-day or multi-year facility. In addition, the size of the 364-day facility will be reduced by 50% of the amount of any long-term capital markets transactions completed by ALG. As a result of ALG’s issuance of $1.5 billion of long-term debt in November 2003, the ALG 364-day revolving credit facility was reduced from $2.0 billion to $1.3 billion. The Kraft 364-day revolving credit facility also expires in July 2004. It requires the maintenance of a minimum net worth. Neither of these facilities, nor the multi-year facilities, includes any additional financial tests, any credit rating triggers or any provisions that could require the posting of collateral.

In addition to the above, certain international subsidiaries of ALG and Kraft maintain uncommitted credit lines to meet their respective working capital needs. These credit lines, which amounted to approximately $1.4 billion for ALG subsidiaries (other than Kraft) and approximately $0.7 billion for Kraft subsidiaries, are for the sole use of these international businesses. Borrowings on these lines amounted to approximately $0.4 billion at December 31, 2003 and 2002.