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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission File Number 1-8940
ALTRIA GROUP, INC.
(Exact name of registrant as specified in its charter)
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Virginia
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13-3260245 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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120 Park Avenue,
New York, N.Y.
(Address of principal executive offices) |
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10017
(Zip Code) |
Registrants telephone number, including area code:
917-663-4000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class |
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Name of Each Exchange on Which Registered |
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Common Stock,
$0.331/3
par value
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New York Stock Exchange |
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 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 o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Securities Exchange
Act of
1934). Yes þ No o
The aggregate market value of the shares of Common Stock held by
non-affiliates of the registrant, computed by reference to the
closing price of such stock on June 30, 2004, was
approximately $103 billion. As of February 28, 2004,
there were 2,068,300,741 shares of the registrants
Common Stock outstanding.
Documents Incorporated by Reference
Portions of the registrants annual report to shareholders
for the year ended December 31, 2004 (the 2004 Annual
Report), are incorporated in Part I, Part II and
Part IV hereof and made a part hereof. Portions of the
registrants definitive proxy statement for use in
connection with its annual meeting of shareholders to be held on
April 28, 2005, filed with the Securities and Exchange
Commission on March 14, 2005, are incorporated in
Part III hereof and made a part hereof.
TABLE OF CONTENTS
PART I
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(a) |
General Development of Business |
General
As used herein, unless the context indicates otherwise,
Altria Group, Inc. refers to the consolidated
financial position, results of operations and cash flows of the
Altria family of companies and the term ALG refers
solely to the parent company. ALGs wholly-owned
subsidiaries, Philip Morris USA Inc. (PM USA) and
Philip Morris International Inc. (PMI) are engaged
in the manufacture and sale of cigarettes and tobacco products.
ALGs majority owned (85.4% ownership with approximately
98% voting power) subsidiary Kraft Foods Inc.
(Kraft) is engaged in the manufacture and sale of
branded foods and beverages. Philip Morris Capital Corporation
(PMCC), another wholly-owned subsidiary, maintains a
portfolio of leveraged and direct finance leases. During 2003,
PMCC shifted its strategic focus from an emphasis on the growth
of its portfolio of finance leases through new investments to
one of maximizing investment gains and generating cash flows
from its existing portfolio of finance assets. Miller Brewing
Company (Miller), engaged in the manufacture and
sale of various beer products, was ALGs wholly-owned
subsidiary prior to the merger of Miller into South African
Breweries plc (SAB) on July 9, 2002.
In November 2004, ALG announced that, for significant business
reasons, the Board of Directors is looking at a number of
restructuring alternatives, including the possibility of
separating Altria Group, Inc. into two, or potentially three,
independent entities. Continuing improvements in the entire
litigation environment are a prerequisite to such action by the
Board of Directors, and the timing and chronology of events are
uncertain.
PM USA is the largest cigarette company in the United States.
PMI is a holding company whose subsidiaries and affiliates and
their licensees are engaged primarily in the manufacture and
sale of tobacco products (mainly cigarettes) internationally.
Marlboro, the principal cigarette brand of these
companies, has been the worlds largest-selling cigarette
brand since 1972.
Kraft is engaged in the manufacture and sale of branded foods
and beverages in the United States, Canada, Europe, the Middle
East and Africa, Latin America and Asia Pacific. Kraft manages
and reports operating results through two units, Kraft North
America Commercial (KNAC) and Kraft International
Commercial (KIC). Kraft has operations in 68
countries and sells its products in more than 155 countries.
On November 15, 2004, Kraft announced the sale of
substantially all of its sugar confectionery business for
approximately $1.5 billion. 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 Krafts sugar confectionery business as
discontinued operations on the consolidated statements of
earnings for all years presented. The assets related to the
sugar confectionery business were reflected as assets of
discontinued operations held for sale on the consolidated
balance sheet at December 31, 2004. Accordingly, historical
statements of earnings amounts included in this annual report on
Form 10-K have been restated to reflect the discontinued
operation.
In January 2004, Kraft announced a multi-year restructuring
program with the objectives of leveraging Krafts global
scale, realigning and lowering its cost structure, and
optimizing capacity utilization. As part of this program, Kraft
anticipates the closing or sale of up to 20 plants and the
elimination of approximately 6,000 positions. From 2004 through
2006, Kraft expects to incur up to $1.2 billion in pre-tax
charges for the program, reflecting asset disposals, severance
and other implementation costs, including $641 million
incurred in 2004. Approximately one-half of the pre-tax charges
are expected to require cash payments.
In addition, Kraft expects to incur approximately
$140 million in capital expenditures from 2004 through 2006
to implement the restructuring program, including
$46 million spent in 2004. Cost savings as a result of the
restructuring program were approximately $127 million in
2004, are expected to increase by an incremental amount of
between $120 million and $140 million in 2005, and are
anticipated to reach
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annualized cost savings of approximately $400 million by
2006, all of which are expected to be used in support of
brand-building initiatives.
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. ALGs 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.
During December 2004, ALGs economic interest in SABMiller
declined to 33.9%, as a result of the conversion of SABMiller
convertible bonds into equity.
Certain prior years amounts have been reclassified to
conform with the current years presentation, due primarily
to the new global organization structure at Kraft and the
classification of Krafts sugar confectionery business as
discontinued operations.
Source of Funds Dividends
Because ALG is a holding company, its principal sources of funds
are from the payment of dividends and repayment of debt from its
subsidiaries. Except for minimum net worth requirements,
ALGs principal wholly-owned and majority-owned
subsidiaries currently are not limited by long-term debt or
other agreements in their ability to pay cash dividends or make
other distributions with respect to their common stock.
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(b) |
Financial Information About Segments |
Altria Group, Inc.s reportable segments are domestic
tobacco, international tobacco, North American food,
international food, beer (prior to July 9, 2002) and
financial services. Net revenues and operating companies income*
(together with a reconciliation to operating income)
attributable to each such segment for each of the last three
years (along with total assets for each of tobacco, food and
financial services at December 31, 2004, 2003 and 2002) are
set forth in Note 15 to Altria Group, Inc.s
consolidated financial statements (Note 15),
which is incorporated herein by reference to the 2004 Annual
Report.
The relative percentages of operating companies income
attributable to each reportable segment were as follows:
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2004 | |
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2003 | |
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2002 | |
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Domestic tobacco
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27.7 |
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23.5 |
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29.2 |
% |
International tobacco
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41.2 |
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38.0 |
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33.1 |
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North American food
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24.3 |
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28.2 |
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27.2 |
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International food
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5.9 |
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8.4 |
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8.6 |
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Beer
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1.6 |
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Financial services
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0.9 |
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1.9 |
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0.3 |
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100.0 |
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100.0 |
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100.0 |
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* 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. The
accounting policies of the segments are the same as those
described in Note 2 to Altria Group, Inc.s
consolidated financial statements and are incorporated herein by
reference to the 2004 Annual Report.
3
Changes in the relative percentages above reflect the following:
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In 2003, PM USA took steps to narrow price gaps in the intensely
competitive United States cigarette industry. In 2004, domestic
tobacco results reflect savings from changes that PM USA made to
its trade programs. |
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In 2004, North American and international food results reflect
charges incurred as part of Krafts multi-year
restructuring program, increased promotional spending and higher
commodity and benefit costs. |
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Results for the beer segment reflect the 2002 merger of Miller
into SABMiller and the subsequent change to equity accounting
for the investment. |
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Financial services results include charges taken for leveraged
lease exposure to the troubled United States airline industry of
$140 million in 2004 and $290 million in 2002. |
(c) Narrative Description of
Business
Tobacco Products
PM USA manufactures, markets and sells cigarettes in the United
States and its territories, and contract manufactures cigarettes
for PMI. Subsidiaries and affiliates of PMI and their licensees
manufacture, market and sell tobacco products outside the United
States.
Acquisitions
On March 12, 2005, a subsidiary of PMI entered into
agreements to acquire 40% of the outstanding shares of PT HM
Sampoerna Tbk from its principal shareholders. For a discussion
of this transaction, see Item 9B. Other Information.
During 2004, PMI purchased a tobacco business in Finland for a
cost of approximately $42 million. Also during 2004, PMI
reached an agreement to acquire Coltabaco, the largest tobacco
company in Colombia, with a 48% market share. PMI expects to
close the transaction in the beginning of 2005, for
approximately $310 million. In October 2004, a subsidiary
of PMI purchased a 20% stake in a tobacco company in Pakistan
for $60 million, bringing the subsidiarys aggregate
share ownership of the Pakistani company to 40%. During 2003,
PMI purchased approximately 74.2% of a tobacco business in
Serbia for a cost of approximately $486 million, and in
2004, increased its ownership interest to 85.2%. During 2003,
PMI also purchased 99% of a tobacco business in Greece for
approximately $387 million and increased its ownership
interest in its affiliate in Ecuador from less than 50% to
approximately 98% for a cost of $70 million. During 2002,
PMI acquired a sales promotion company in Japan for
$25 million.
Domestic Tobacco Products
PM USA is the largest tobacco company in the United States, with
total cigarette shipments in the United States of
187.1 billion units in 2004, a decrease of 0.1% from 2003.
PM USAs major premium brands are Marlboro,
Virginia Slims and Parliament. Its principal
discount brand is Basic. All of its brands are marketed
to take into account differing preferences of adult smokers.
Marlboro is the largest-selling cigarette brand in the
United States, with shipments of 150.4 billion units in
2004 (up 1.7% over 2003).
In the premium segment, PM USAs 2004 shipment volume
increased 0.1% over 2003, and its shipment volume in the
discount segment decreased 1.9%. Shipments of premium cigarettes
accounted for 91.4% of PM USAs total 2004 volume, up from
91.3% in 2003.
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The following table summarizes PM USAs retail share
performance, based on data from the IRI/ Capstone Total Retail
Panel, which was developed to measure market share in retail
stores selling cigarettes, but was not designed to capture
Internet or direct mail sales:
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For the Years | |
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Ended | |
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December 31, | |
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2004 | |
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Marlboro
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39.5 |
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38.0 |
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Parliament
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1.7 |
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1.7 |
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Virginia Slims
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2.4 |
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2.4 |
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Basic
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4.2 |
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4.2 |
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Focus on Four Brands
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47.8 |
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46.3 |
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Other PM USA
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2.0 |
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2.4 |
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Total PM USA
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49.8 |
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48.7 |
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PM USA cannot predict future changes or rates of change in
domestic tobacco industry volume, the relative sizes of the
premium and discount segments or in PM USAs shipments or
retail market share; however, it believes that PM USAs
results may be materially adversely affected by price increases
related to increased excise taxes and tobacco litigation
settlements, as well as by the other items discussed below and
in the section captioned Cautionary Factors That May
Affect Future Results.
As discussed in Note 19 to Altria Group, Inc.s
consolidated financial statements (Note 19),
which is incorporated herein by reference to the 2004 Annual
Report, in connection with obtaining a stay of execution in the
Price case, PM USA placed a pre-existing 7.0%,
$6 billion long-term note from ALG to PM USA into an escrow
account with an Illinois financial institution. Since this note
is the result of an intercompany financing arrangement, it does
not appear on the consolidated balance sheet of Altria Group,
Inc. In addition, PM USA agreed to make cash deposits with the
clerk of the Madison County Circuit Court in the following
amounts: beginning October 1, 2003, an amount equal to the
interest earned by PM USA on the ALG note ($210 million
every six months), an additional $800 million in four equal
quarterly installments between September 2003 and June 2004 and
the payments of the principal of the note which are due in equal
installments in April 2008, 2009 and 2010. Through
December 31, 2004, PM USA made $1.4 billion of the
cash deposits due under the judges order. Cash deposits
into the account are included in other assets on the
consolidated balance sheet. If PM USA prevails on appeal, the
escrowed note and all cash deposited with the court will be
returned to PM USA, with accrued interest less administrative
fees payable to the court.
International Tobacco Products
PMIs total cigarette shipments increased 3.5% in 2004 to
761.4 billion units. PMI estimates that its share of the
international cigarette market (which is defined as worldwide
cigarette volume excluding the United States and duty-free
shipments) was approximately 14.5% in 2004 and 2003. PMI
estimates that international cigarette market shipments were
approximately 5.1 trillion units in 2004, a 1.5% increase over
2003. PMIs leading brands Marlboro,
L&M, Philip Morris, Bond Street,
Chesterfield, Parliament, Lark, Merit
and Virginia Slims collectively accounted
for approximately 11.0% of the international cigarette market in
2004 and 2003. Shipments of PMIs principal brand,
Marlboro, decreased 1.3% in 2004, and represented
approximately 5.8% and 6.0%, respectively, of the international
cigarette market in 2004 and 2003.
PMI has a cigarette market share of at least 15%, and in a
number of instances substantially more than 15%, in more than 70
markets, including Argentina, Australia, Austria, Belgium, the
Czech Republic, Finland, France, Germany, Greece, Hong Kong,
Hungary, Italy, Japan, Kazakhstan, Mexico, the Netherlands, the
Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia,
Serbia, Singapore, Spain, Sweden, Switzerland, Turkey and
Ukraine.
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In 2004, PMI continued to invest in and expand its international
manufacturing base, including significant investments in
facilities located in Germany, the Philippines, Poland, Russia,
Serbia, Turkey and Ukraine.
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Distribution, Competition and Raw Materials |
PM USA sells its tobacco products principally to wholesalers
(including distributors), large retail organizations, including
chain stores, and the armed services. Subsidiaries and
affiliates of PMI and their licensees sell their tobacco
products worldwide to distributors, wholesalers, retailers,
state-owned enterprises and other customers.
The market for tobacco products is highly competitive,
characterized by brand recognition and loyalty, with product
quality, price, marketing and packaging constituting the
significant methods of competition. Promotional activities
include, in certain instances and where permitted by law,
allowances, the distribution of incentive items, price
promotions and other discounts. The tobacco products of
ALGs subsidiaries, affiliates and their licensees are
advertised and promoted through various media, although
television and radio advertising of cigarettes is prohibited in
the United States and is prohibited or restricted in many other
countries. In addition, as discussed below in Item 3.
Legal Proceedings, PM USA and other domestic tobacco
manufacturers have agreed to other marketing restrictions in the
United States as part of the settlements of state health care
cost recovery actions.
During 2003 and 2002, weak economic conditions with resultant
consumer frugality and higher state excise taxes resulted in
intense price competition in the United States cigarette
industry. These factors significantly affected shipments of PM
USAs products, which compete predominantly in the premium
category. To address these issues, in 2003, PM USA took actions
to significantly lower the price gap between its products and
its competitors products. PM USA believes that its
enhanced sales and promotion programs are having their intended
effect, as measured by the improvement in its retail share.
In the United States, under a contract growing program known as
the Tobacco Farmers Partnering Program, PM USA purchases burley
and flue-cured leaf tobaccos of various grades and styles
directly from tobacco growers. Under the terms of this program,
PM USA agrees to purchase all of the tobacco that participating
growers may sell without penalty under the federal tobacco
program. PM USA also purchases its United States tobacco
requirements through other sources. In 2003, in connection with
the settlement of a suit filed on behalf of a purported class of
tobacco growers and quota-holders against certain manufacturers,
including PM USA, and leaf dealers, PM USA and certain other
defendants reached an agreement with plaintiffs to settle the
lawsuit. The agreement includes a commitment by each settling
manufacturer defendant, including PM USA, to purchase a certain
percentage of its leaf requirements from U.S. tobacco
growers over a period of at least ten years. These quantities
are subject to adjustment in accordance with the terms of the
settlement agreement.
Tobacco production in the United States is subject to government
controls, including the tobacco-price support and production
control programs administered by the United States Department of
Agriculture (the USDA). In October 2004, the Fair
and Equitable Tobacco Reform Act of 2004 (FETRA) was
signed into law. FETRA provides for the elimination of the
federal tobacco quota and price support program through an
industry funded buy-out of tobacco growers and quota-holders.
The cost of the buy-out is approximately $9.6 billion and
will be paid over 10 years by manufacturers and importers
of all tobacco products. The cost will be allocated based on the
relative market shares of manufacturers and importers of all
tobacco products. PM USA expects that its quota buy-out payments
will offset already scheduled payments to the National Tobacco
Grower Settlement Trust (the NTGST). See
Item 3. Legal Proceedings, Health Care Cost Recovery
Litigation Settlements of Health Care Cost Recovery
Litigation, for a discussion of the NTGST. Manufacturers and
importers of tobacco products are also obligated to cover any
losses (up to $500 million) that the government may incur
on the disposition of pool stock tobacco accumulated under the
previous tobacco price support program. PM USAs share of
tobacco pool stock losses cannot currently be determined, as the
calculation of any such losses will depend on a number of
factors, including the extent to which the government can sell
such pool tobacco and thereby mitigate or avoid losses. Altria
Group, Inc. does not
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anticipate that the quota buy-out will have a material adverse
impact on its consolidated results in 2005 and beyond.
In addition, oriental, flue-cured and burley tobaccos are
purchased outside the United States. Tobacco production outside
the United States is subject to a variety of controls and
external factors, which may include tobacco subsidies and
tobacco production control programs. All of those controls and
programs may substantially affect market prices for tobacco.
PM USA and PMI believe there is an adequate supply of tobacco in
the world markets to satisfy their current and anticipated
production requirements.
Portions of the information called for by this Item are hereby
incorporated by reference to the paragraphs captioned
Managements Discussion and Analysis of Financial
Condition and Results of Operations Operating
Results by Business Segment Tobacco Business
Environment on pages 23 to 26 of the 2004 Annual
Report and made a part hereof.
Food Products
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Acquisitions and Divestitures |
During 2004, Kraft acquired a U.S.-based beverage business for a
total cost of $137 million. During 2003, Kraft acquired
trademarks associated with a small U.S.-based natural foods
business and also acquired a biscuits business in Egypt. The
total cost of these and other smaller businesses purchased by
Kraft during 2003 was $98 million. During 2002, Kraft
acquired a snacks business in Turkey and a biscuits business in
Australia. The total cost of these and smaller businesses
purchased by Kraft during 2002 was $122 million.
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 Krafts sugar confectionery business as
discontinued operations on the consolidated statements of
earnings for all years presented. The assets related to the
sugar confectionery business were reflected as assets of
discontinued operations held for sale on the consolidated
balance sheet at December 31, 2004. In addition, Kraft
anticipates that an additional tax expense of $270 million
will be recorded as a loss on sale of discontinued operations in
2005. In accordance with the provisions of Statement of
Financial Accounting Standards No. 109, the tax expense
will be recorded when the transaction is consummated. 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.
During 2004, Kraft sold a Brazilian snack nuts business and
trademarks associated with a candy business in Norway. The
aggregate proceeds received from the sales 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 were previously classified as businesses held for sale
arising from the acquisition of Nabisco Holdings Corp. In
addition, Kraft sold a Latin American yeast and industrial
bakery ingredients business for
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approximately $110 million and recorded a pre-tax gain of
$69 million. The aggregate proceeds received from sales of
businesses during 2002 were $219 million, on which pre-tax
gains of $80 million were recorded.
The impact of acquisitions and divestitures, excluding
Krafts sugar confectionery business, were not material to
Altria Group, Inc.s consolidated financial position,
results of operations or cash flows in any of the years
presented.
North American Food
KNACs principal brands span five consumer sectors and
include the following:
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Snacks: Oreo, Chips Ahoy!,
Newtons, Peak Freans, Nilla, Nutter
Butter, Stella DOro and SnackWells
cookies; Ritz, Premium, Triscuit,
Wheat Thins, Cheese Nips, Better Cheddars,
Honey Maid Grahams and Teddy Grahams crackers;
Planters nuts and salted snacks; Terrys and
Toblerone chocolate confectionery products;
Handi-Snacks two-compartment snacks; Fruit Snacks
sugar confectionery products; and Balance nutrition and
energy snacks. |
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Beverages: Maxwell House, General Foods
International Coffees, Starbucks (under license),
Yuban, Seattles Best (under license),
Sanka, Nabob and Gevalia coffees; Capri
Sun (under license), Tang, Kool-Aid and
Crystal Light aseptic juice drinks; Kool-Aid,
Tang, Crystal Light and Country Time
powdered beverages; Veryfine juices; Tazo teas
(under license); and Fruit2O water. |
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Cheese: Kraft and Cracker Barrel
natural cheeses; Philadelphia cream cheese; Kraft
and Velveeta process cheeses; Kraft grated
cheeses; Cheez Whiz process cheese sauce; and Knudsen
and Breakstones cottage cheese and sour cream. |
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Grocery: Cool Whip frozen whipped topping;
Back to Nature products; Post ready-to-eat
cereals; Cream of Wheat and Cream of Rice hot
cereals; Kraft peanut butter; Kraft and Miracle
Whip spoonable dressings; Kraft salad dressings;
A.1. steak sauce; Kraft and Bulls-Eye
barbecue sauces; Grey Poupon premium mustards;
Shake N Bake coatings; Jell-O dry packaged
desserts and refrigerated gelatin and pudding snacks;
Handi-Snacks shelf-stable pudding snacks; and
Milk-Bone pet snacks. |
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Convenient Meals: DiGiorno,
Tombstone, Jacks, California Pizza
Kitchen (under license) and Delissio frozen pizzas;
Kraft macaroni & cheese dinners; Taco Bell
Home Originals meal kits (under license); Lunchables
lunch combinations; Oscar Mayer and Louis Rich
cold cuts, hot dogs and bacon; Boca soy-based meat
alternatives; Stove Top stuffing mix; and Minute
rice. |
International Food
KICs principal brands within the five consumer sectors
include the following:
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Snacks: Milka, Suchard, Côte
dOr, Marabou, Toblerone, Freia,
Terrys, Daim, Figaro, Korona,
Poiana, Prince Polo, Alpen Gold,
Siesta, Pokrov, Lacta and Gallito
chocolate confectionery products; Estrella,
Maarud, Cipso and Lux salted snacks; and
Oreo, Chips Ahoy!, Ritz, Terrabusi,
Club Social, Cerealitas, Trakinas and
Lucky biscuits. |
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Beverages: Jacobs, Gevalia, Carte
Noire, Jacques Vabre, Kaffee HAG,
Grand Mère, Kenco, Saimaza,
Maxim, Maxwell House, Dadak, Onko,
Samar, Tassimo and Nova Brasilia coffees;
Suchard Express, OBoy, and Kaba
chocolate drinks; Tang, Clight, Kool-Aid,
Royal, Verao, Fresh, Frisco,
Q-Refres-Ko and Ki-Suco powdered beverages;
Maguary juice concentrate and ready-to-drink beverages;
and Capri Sun aseptic juice drinks (under license). |
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Cheese: Philadelphia cream cheese;
Sottilette, Kraft, Dairylea, Osella
and El Caserío cheeses; Kraft and Eden
process cheeses; and Cheez Whiz process cheese spread. |
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Grocery: Kraft spoonable and pourable salad
dressings; Miracel Whip spoonable dressings; Royal
dry packaged desserts; Kraft and ETA peanut
butters; and Vegemite yeast spread. |
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Convenient Meals: Lunchables lunch
combinations; Kraft macaroni & cheese dinners;
Kraft and Mirácoli pasta dinners and sauces;
and Simmenthal canned meats. |
Distribution, Competition and Raw Materials
KNACs products are generally sold to supermarket chains,
wholesalers, supercenters, club stores, mass merchandisers,
distributors, convenience stores, gasoline stations, drug
stores, value stores and other retail food outlets. In general,
the retail trade for food products is consolidating. Food
products are distributed through distribution centers, satellite
warehouses, company-operated and public cold-storage facilities,
depots and other facilities. Most distribution in North America
is in the form of warehouse delivery, but biscuits and frozen
pizza are distributed through two direct-store delivery systems.
Kraft supports its selling efforts through three principal sets
of activities: consumer advertising in broadcast, print and
outdoor media; consumer promotions such as coupons and contests;
and trade promotions to support price features, displays and
other merchandising of products by customers. Subsidiaries and
affiliates of KIC sell their food products primarily in the same
manner and also engage the services of independent sales offices
and agents.
Kraft is subject to competitive conditions in all aspects of its
business. Competitors include large national and international
companies and numerous local and regional companies. Some
competitors may have different profit objectives and some
competitors may be more or less susceptible to currency exchange
rates. In addition, certain international competitors benefit
from government subsidies. Krafts food products also
compete with generic products and private-label products of food
retailers, wholesalers and cooperatives. Kraft competes
primarily on the basis of product quality, brand recognition,
brand loyalty, service, marketing, advertising and price.
Substantial advertising and promotional expenditures are
required to maintain or improve a brands market position
or to introduce a new product.
Kraft is a major purchaser of milk, cheese, nuts, green coffee
beans, cocoa, corn products, wheat, rice, pork, poultry, beef,
vegetable oil, and sugar and other sweeteners. It also uses
significant quantities of glass, plastic and cardboard to
package its products. Kraft continuously monitors worldwide
supply and cost trends of these commodities to enable it to take
appropriate action to obtain ingredients and packaging needed
for production.
Kraft purchases a substantial portion of its dairy raw material
requirements, including milk and cheese, from independent third
parties such as agricultural cooperatives and individual
processors. The prices for milk and other dairy product
purchases are substantially influenced by government programs,
as well as by market supply and demand. Dairy commodity costs on
average were higher in 2004 than in 2003. Dairy costs rose to
historical highs during the first half of 2004, but moderated
during the second half of 2004.
The most significant cost item in coffee products is green
coffee beans, which are purchased on world markets. Green coffee
bean prices are affected by the quality and availability of
supply, trade agreements among producing and consuming nations,
the unilateral policies of the producing nations, changes in the
value of the United States dollar in relation to certain other
currencies and consumer demand for coffee products. Coffee bean
costs on average during 2004 were higher than in 2003.
A significant cost item in chocolate confectionery products is
cocoa, which is purchased on world markets, and the price of
which is affected by the quality and availability of supply and
changes in the value of the British pound sterling and the
United States dollar relative to certain other currencies. Cocoa
bean costs on average during 2004 were lower than in 2003.
The prices paid for raw materials and agricultural materials
used in Krafts food products generally reflect external
factors such as weather conditions, commodity market
fluctuations, currency fluctuations and the effects of
governmental agricultural programs. Although the prices of the
principal raw materials can be expected to fluctuate as a result
of these factors, Kraft believes such raw materials to be in
adequate supply and generally available from numerous sources.
Kraft uses hedging techniques to minimize the impact of price
fluctuations in its principal raw materials. However, Kraft does
not fully hedge against changes in commodity prices and these
strategies may not protect Kraft from increases in specific raw
material costs.
9
For 2004, Kraft had a negative pre-tax earnings impact from all
commodities of approximately $930 million as compared with
2003.
Regulation
All of KNACs United States food products and packaging
materials are subject to regulations administered by the Food
and Drug Administration (the FDA) or, with respect
to products containing meat and poultry, the USDA. Among other
things, these agencies enforce statutory prohibitions against
misbranded and adulterated foods, establish safety standards for
food processing, establish ingredients and manufacturing
procedures for certain foods, establish standards of identity
for certain foods, determine the safety of food additives, and
establish labeling standards and nutrition labeling requirements
for food products.
In addition, various states regulate the business of KNACs
operating units by licensing dairy plants, enforcing federal and
state standards of identity for selected food products, grading
food products, inspecting plants, regulating certain trade
practices in connection with the sale of dairy products and
imposing their own labeling requirements on food products.
Many of the food commodities on which KNACs United States
businesses rely are subject to governmental agricultural
programs. These programs have substantial effects on prices and
supplies, and are subject to Congressional and administrative
review.
Almost all of the activities of Krafts operations outside
of the United States are subject to local and national
regulations similar to those applicable to KNACs United
States businesses and, in some cases, international regulatory
provisions, such as those of the European Union (the
EU) relating to labeling, packaging, food content,
pricing, marketing and advertising, and related areas.
The EU and certain individual countries require that food
products containing genetically modified organisms or classes of
ingredients derived from them be labeled accordingly. Other
countries may adopt similar regulations. The FDA has concluded
that there is no basis for similar mandatory labeling under
current United States law.
Business Environment
Portions of the information called for by this Item are hereby
incorporated by reference to the paragraphs captioned
Managements Discussion and Analysis of Financial
Condition and Results of Operations Operating
Results by Business Segment Food Business
Environment on pages 28 to 29 of the 2004 Annual Report
and made a part hereof.
Financial Services
PMCC maintains a portfolio of leveraged and direct finance
leases. Total assets of PMCC were $7.8 billion at
December 31, 2004, down from $8.5 billion at
December 31, 2003, reflecting a decrease in finance assets,
net, due to asset sales. During 2003, PMCC shifted its strategic
focus from an emphasis on the growth of its portfolio of finance
leases through new investments to one of maximizing investment
gains and generating cash flows from its existing portfolio of
finance assets. Accordingly, PMCCs operating companies
income will decrease over time, although there may be
fluctuations year to year, as lease investments mature or are
sold. PMCCs finance asset portfolio includes leases in the
following investment categories: aircraft, electrical power,
real estate, manufacturing, surface transportation and energy
industries. Finance assets, net, are comprised of total lease
payments receivable and the residual value of assets under
lease, reduced by third-party nonrecourse debt and unearned
income. The payment of the nonrecourse debt is collateralized
only by lease payments receivable and the leased property, and
is nonrecourse to all other assets of PMCC or Altria Group, Inc.
As required by accounting standards generally accepted in the
United States of America (U.S. GAAP), the
third-party nonrecourse debt has been offset against the related
rentals receivable and has been presented on a net basis, within
finance assets, net, in Altria Group, Inc.s consolidated
balance sheets.
10
During 2004 and 2003, PMCC received proceeds from asset sales
and maturities of $644 million and $507 million,
respectively, and recorded gains of $112 million and
$45 million, respectively, in operating companies income.
Among its leasing activities, PMCC leases a number of aircraft,
predominantly to major United States carriers. At
December 31, 2004, approximately 27%, or $2.2 billion
of PMCCs finance asset balance, related to aircraft. Two
of PMCCs lessees, United Air Lines, Inc. (UAL)
and US Airways Group, Inc. (US Airways) are
currently under bankruptcy protection and therefore PMCC has
ceased recording income on these leases.
PMCC leases 24 Boeing 757 aircraft to UAL with an aggregate
finance asset balance of $569 million at December 31,
2004. PMCC has entered into an agreement with UAL to amend 18
direct finance leases subject to UALs successful emergence
from bankruptcy and assumption of the leases. UAL remains
current on lease payments due to PMCC on these 18 amended
leases. PMCC continues to monitor the situation at UAL with
respect to the six remaining aircraft financed under leveraged
leases, in which PMCC has an aggregate finance asset balance of
$92 million. PMCC has no amended agreement relative to
these leases since its interests are subordinate to those of
public debt holders associated with the leveraged leases.
Accordingly, since UAL has declared bankruptcy, PMCC has
received no lease payments relative to these six aircraft and
remains at risk of foreclosure on these aircraft by the senior
lenders under the leveraged leases.
In addition, PMCC leases 16 Airbus A-319 aircraft to US Airways
financed under leveraged leases with an aggregate finance asset
balance of $150 million at December 31, 2004. US
Airways filed for bankruptcy protection in September 2004.
Previously, US Airways emerged from Chapter 11 bankruptcy
in March 2003, at which time PMCCs leveraged leases were
assumed pursuant to an agreement with US Airways. Since entering
bankruptcy in September 2004, US Airways has entered into
agreements with respect to all 16 PMCC aircraft which require US
Airways to honor its lease obligations on a going forward basis
until it either assumes or rejects the leases. If US Airways
rejects the leases on these aircraft, PMCC is at risk of having
its interest in these aircraft foreclosed upon by the senior
lenders under the leveraged leases.
PMCC has an aggregate finance asset balance of $258 million
at December 31, 2004, relating to six Boeing 757, nine
Boeing 767 and four McDonnell Douglas (MD-88) aircraft leased to
Delta Air Lines, Inc. (Delta) under long-term
leveraged leases. PMCC and many other aircraft financiers
entered into restructuring agreements with Delta in November
2004. As a result of its agreement, PMCC recorded a charge to
the allowance for losses of $40 million. Delta remains
current under its lease obligations to PMCC.
In recognition of ongoing concerns within its airline portfolio,
PMCC recorded a provision for losses of $140 million in the
fourth quarter of 2004. Previously, PMCC had recorded a
provision for losses of $290 million in the fourth quarter
of 2002 for its airline industry exposure. It is possible that
further adverse developments in the airline industry may require
PMCC to increase its allowance for losses, which was
$497 million at December 31, 2004.
Business Environment
Portions of the information called for by this Item are hereby
incorporated by reference to the paragraphs captioned
Managements Discussion and Analysis of Financial
Condition and Results of Operations Operating
Results by Business Segment Financial Services
on page 31 of the 2004 Annual Report and made a part hereof.
Other Matters
Customers
None of the business segments of the Altria family of companies
is dependent upon a single customer or a few customers, the loss
of which would have a material adverse effect on Altria Group,
Inc.s consolidated results of operations. However,
Krafts ten largest customers accounted for approximately
38% of its net
11
revenues in 2004 and 2003. One of Krafts customers,
Wal-Mart Stores, Inc. accounted for approximately 14% and 12% of
Krafts net revenues in 2004 and 2003, respectively.
Employees
At December 31, 2004, ALG and its subsidiaries employed
approximately 156,000 people worldwide. In January 2004, Kraft
announced a three-year restructuring program that is expected to
eliminate approximately 6,000 positions. Specific programs
announced during 2004, as part of the overall restructuring
program, will result in the elimination of approximately 3,500
positions.
Trademarks
Trademarks are of material importance to ALGs consumer
products subsidiaries and are protected by registration or
otherwise in the United States and most other markets where the
related products are sold.
Environmental Regulation
ALG and its subsidiaries are subject to various federal, state,
local and foreign laws and regulations concerning the discharge
of materials into the environment, or otherwise related to
environmental protection, including the Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act and the
Comprehensive Environmental Response, Compensation and Liability
Act (commonly known as Superfund), which can impose
joint and several liability on each responsible party. In 2004,
subsidiaries (or former subsidiaries) of ALG were involved in
approximately 94 active matters subjecting them to potential
remediation costs under Superfund or otherwise. ALGs
subsidiaries expect to continue to make capital and other
expenditures in connection with environmental laws and
regulations. Although it is not possible to predict precise
levels of environmental-related expenditures, compliance with
such laws and regulations, including the payment of any
remediation costs and the making of such expenditures, has not
had, and is not expected to have, a material adverse effect on
Altria Group, Inc.s consolidated results of operations,
capital expenditures, financial position, earnings or
competitive position.
Cautionary Factors That May Affect Future Results
Forward-Looking and Cautionary Statements
We* may from time to time make written or oral forward-looking
statements, including statements contained in filings with the
SEC, in reports to stockholders and in press releases and
investor webcasts. You can identify these forward-looking
statements by use of words such as strategy,
expects, continues, plans,
anticipates, believes, will,
estimates, intends,
projects, goals, targets and
other words of similar meaning. You can also identify them by
the fact that they do not relate strictly to historical or
current facts.
We cannot guarantee that any forward-looking statement will be
realized, although we believe we have been prudent in our plans
and assumptions. Achievement of future results is subject to
risks, uncertainties and inaccurate assumptions. Should known or
unknown risks or uncertainties materialize, or should underlying
assumptions prove inaccurate, actual results could vary
materially from those anticipated, estimated or projected.
Investors should bear this in mind as they consider
forward-looking statements and whether to invest in or remain
invested in Altria Group, Inc.s securities. In connection
with the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, we are identifying
important factors that, individually or in the aggregate, could
cause actual results and outcomes to differ materially from
those contained in any forward-looking statements made by us;
any such statement is qualified by reference to the following
cautionary statements. We elaborate on these and other risks we
face throughout this document, particularly
* This section uses the terms we,
our and us when it is not necessary to
distinguish among ALG and its various operating subsidiaries or
when any distinction is clear from the context.
12
in the Business Environment sections preceding our
discussion of operating results of our subsidiaries
businesses. You should understand that it is not possible to
predict or identify all risk factors. Consequently, you should
not consider the following to be a complete discussion of all
potential risks or uncertainties. We do not undertake to update
any forward-looking statement that we may make from time to time.
Tobacco-Related Litigation. There is substantial
litigation related to tobacco products in the United States and
certain foreign jurisdictions. We anticipate that new cases will
continue to be filed. Damages claimed in some of the
tobacco-related litigation range into the billions of dollars.
There are presently 13 cases on appeal in which verdicts were
returned against PM USA, including a compensatory and punitive
damages verdict totaling approximately $10.1 billion in the
Price case in Illinois. Generally, in order to prevent a
plaintiff from seeking to collect a judgment while the verdict
is being appealed, the defendant must post an appeal bond,
frequently in the amount of the judgment or more, or negotiate
an alternative arrangement with plaintiffs. In the event of
future losses at trial, we may not always be able to obtain the
required bond or to negotiate an acceptable alternative
arrangement.
The present litigation environment is substantially uncertain,
and it is possible that our business, volume, results of
operations, cash flows or financial position could be materially
affected by an unfavorable outcome of pending litigation,
including certain of the verdicts against us that are on appeal.
We intend to continue vigorously defending all tobacco-related
litigation, although we may enter into settlement discussions in
particular cases if we believe it is in the best interest of our
stockholders to do so. The entire litigation environment may not
improve sufficiently to enable the Board of Directors to
implement any contemplated restructuring alternatives. Please
see Note 19 for a discussion of pending tobacco-related
litigation.
Anti-Tobacco Action in the Public and Private Sectors.
Our tobacco subsidiaries face significant governmental action
aimed at reducing the incidence of smoking and seeking to hold
us responsible for the adverse health effects associated with
both smoking and exposure to environmental tobacco smoke.
Governmental actions, combined with the diminishing social
acceptance of smoking and private actions to restrict smoking,
have resulted in reduced industry volume, and we expect this
decline to continue.
Excise Taxes. Cigarettes are subject to substantial
excise taxes in the United States and to substantial taxation
abroad. Significant increases in cigarette-related taxes have
been proposed or enacted and are likely to continue to be
proposed or enacted within the United States, the EU and in
other foreign jurisdictions. In addition, in certain
jurisdictions, PMIs products are subject to discriminatory
tax structures, and inconsistent rulings and interpretations on
complex methodologies to determine excise and other tax burdens.
These tax increases are expected to continue to have an adverse
impact on sales of cigarettes by our tobacco subsidiaries, due
to lower consumption levels and to a shift in consumer purchases
from the premium to the non-premium or discount segments or to
other low-priced tobacco products or to counterfeit or
contraband products.
Increased Competition in the Domestic Tobacco Market.
Settlements of certain tobacco litigation in the United States
have resulted in substantial cigarette price increases. PM USA
faces increased competition from lowest priced brands sold by
certain domestic and foreign manufacturers that have cost
advantages because they are not parties to these settlements.
These manufacturers may fail to comply with related state escrow
legislation or may take advantage of certain provisions in the
legislation that permit the non-settling manufacturers to
concentrate their sales in a limited number of states and
thereby avoid escrow deposit obligations on the majority of
their sales. Additional competition has resulted from diversion
into the United States market of cigarettes intended for sale
outside the United States, the sale of counterfeit cigarettes by
third parties, the sale of cigarettes by third parties over the
Internet and by other means designed to avoid collection of
applicable taxes and increased imports of foreign lowest priced
brands.
Governmental Investigations. From time to time, ALG and
its tobacco subsidiaries are subject to governmental
investigations on a range of matters. Ongoing investigations
include allegations of contraband shipments of cigarettes,
allegations of unlawful pricing activities within certain
international markets and allegations of false and misleading
usage of descriptors, such as Lights and Ultra
Lights. We cannot predict the outcome of those
investigations or whether additional investigations may be
commenced, and it is
13
possible that our business could be materially affected by an
unfavorable outcome of pending or future investigations.
New Tobacco Product Technologies. Our tobacco
subsidiaries continue to seek ways to develop and to
commercialize new product technologies that have the objective
of reducing the risk of smoking. Their goal is to reduce
constituents in tobacco smoke identified by public health
authorities as harmful while continuing to offer adult smokers
products that meet their taste expectations. We cannot guarantee
that our tobacco subsidiaries will succeed in these efforts. If
they do not succeed, but one or more of their competitors do,
our tobacco subsidiaries may be at a competitive disadvantage.
Foreign Currency. Our international food and tobacco
subsidiaries conduct their businesses in local currency and, for
purposes of financial reporting, their results are translated
into U.S. dollars based on average exchange rates
prevailing during a reporting period. During times of a
strengthening U.S. dollar, our reported net revenues and
operating income will be reduced because the local currency will
translate into fewer U.S. dollars.
Competition and Economic Downturns. Each of our consumer
products subsidiaries is subject to intense competition, changes
in consumer preferences and local economic conditions. To be
successful, they must continue to:
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promote brand equity successfully; |
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anticipate and respond to new consumer trends; |
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develop new products and markets and to broaden brand portfolios
in order to compete effectively with lower priced products; |
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improve productivity; and |
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respond effectively to changing prices for their raw materials. |
The willingness of consumers to purchase premium cigarette
brands and premium food and beverage brands depends in part on
local economic conditions. In periods of economic uncertainty,
consumers tend to purchase more private label and other economy
brands and the volume of our consumer products subsidiaries
could suffer accordingly.
Our finance subsidiary, PMCC, holds investments in finance
leases, principally in transportation (including aircraft),
power generation and manufacturing equipment and facilities. Its
lessees are also subject to intense competition and economic
conditions. If counterparties to PMCCs leases fail to
manage through difficult economic and competitive conditions,
PMCC may have to increase its allowance for losses, which would
adversely affect our profitability.
Grocery Trade Consolidation. As the retail grocery trade
continues to consolidate and retailers grow larger and become
more sophisticated, they demand lower pricing and increased
promotional programs. Further, these customers are reducing
their inventories and increasing their emphasis on private label
products. If Kraft fails to use its scale, marketing expertise,
branded products and category leadership positions to respond to
these trends, its volume growth could slow or it may need to
lower prices or increase promotional support of its products,
any of which would adversely affect our profitability.
Continued Need to Add Food and Beverage Products in Faster
Growing and More Profitable Categories. The food and
beverage industrys growth potential is constrained by
population growth. Krafts success depends in part on its
ability to grow its business faster than populations are growing
in the markets that it serves. One way to achieve that growth is
to enhance its portfolio by adding products that are in faster
growing and more profitable categories. If Kraft does not
succeed in making these enhancements, its volume growth may
slow, which would adversely affect our profitability.
Strengthening Brand Portfolios Through Acquisitions and
Divestitures. One element of the growth strategy of our
consumer product subsidiaries is to strengthen their brand
portfolios through active programs of selective acquisitions and
divestitures. These subsidiaries are constantly investigating
potential acquisition
14
candidates and from time to time Kraft sells businesses that are
outside its core categories or that do not meet its growth or
profitability targets. Acquisition opportunities are limited and
acquisitions present risks of failing to achieve efficient and
effective integration, strategic objectives and anticipated
revenue improvements and cost savings. There can be no assurance
that we will be able to continue to acquire attractive
businesses on favorable terms or that all future acquisitions
will be quickly accretive to earnings.
Food Raw Material Prices. The raw materials used by our
food businesses are largely commodities that experience price
volatility caused by external conditions, commodity market
fluctuations, currency fluctuations and changes in governmental
agricultural programs. Commodity price changes may result in
unexpected increases in raw material and packaging costs, and
our operating subsidiaries may be unable to increase their
prices to offset these increased costs without suffering reduced
volume, net revenue and operating companies income. We do not
fully hedge against changes in commodity prices and our hedging
strategies may not work as planned.
Food Safety, Quality and Health Concerns. We could be
adversely affected if consumers in Krafts principal
markets lose confidence in the safety and quality of certain
food products. Adverse publicity about these types of concerns,
whether or not valid, may discourage consumers from buying
Krafts products or cause production and delivery
disruptions. Recent publicity concerning the health implications
of obesity and trans-fatty acids could also reduce consumption
of certain of Krafts products. In addition, Kraft may need
to recall some of its products if they become adulterated or
misbranded. Kraft may also be liable if the consumption of any
of its products causes injury. A widespread product recall or a
significant product liability judgment could cause products to
be unavailable for a period of time and a loss of consumer
confidence in Krafts food products and could have a
material adverse effect on Krafts business and results.
Limited Access to Commercial Paper Market. As a result of
actions by credit rating agencies during 2003, ALG currently has
limited access to the commercial paper market, and may have to
rely on its revolving credit facility.
Asset Impairment. We periodically calculate the fair
value of our goodwill and intangible assets to test for
impairment. This calculation may be affected by the market
conditions noted above, as well as interest rates and general
economic conditions. If an impairment is determined to exist, we
will incur impairment losses, which will reduce our earnings.
(d) Financial Information
About Geographic Areas
The amounts of net revenues and long-lived assets attributable
to each of Altria Group, Inc.s geographic segments and the
amount of export sales from the United States for each of the
last three fiscal years are set forth in Note 15.
Subsidiaries of ALG export tobacco and tobacco-related products,
coffee products, grocery products, cheese and processed meats.
In 2004, the value of all exports from the United States by
these subsidiaries amounted to approximately $3 billion.
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(e) |
Available Information |
ALG is required to file annual, quarterly and special reports,
proxy statements and other information with the SEC. Investors
may read and copy any document that ALG files, including this
Annual Report on Form 10-K, at the SECs Public
Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Investors may obtain information on
the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet site
at http://www.sec.gov that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC, from which investors can
electronically access ALGs SEC filings.
ALG makes available free of charge on or through its web site
(www.altria.com), its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as
15
amended, as soon as reasonably practicable after ALG
electronically files such material with, or furnishes it to, the
SEC. Investors can access ALGs filings with the SEC by
visiting www.altria.com/secfilings.
The information on ALGs web site is not, and shall not be
deemed to be, a part of this report or incorporated into any
other filings ALG makes with the SEC.
Tobacco Products
PM USA owns and operates four tobacco manufacturing and
processing facilities three in the Richmond,
Virginia area and one in Cabarrus County, North Carolina.
Subsidiaries and affiliates of PMI own, lease or have an
interest in 51 cigarette or component manufacturing facilities
in 32 countries outside the United States, including cigarette
manufacturing facilities in Bergen Op Zoom, the Netherlands;
Berlin, Germany; and St. Petersburg, Russia.
Food Products
Kraft has 192 manufacturing and processing facilities, 67 of
which are located in the United States. Outside the United
States, Kraft has 125 manufacturing and processing facilities
located in 45 countries. Kraft owns 181 and leases 11 of these
facilities. In addition, Kraft has 356 distribution centers and
depots, of which 51 are located outside the United States. Kraft
owns 54 distribution centers and depots, with the remainder
being leased.
Included in the facilities above are sugar confectionery
manufacturing facilities in Creston, Iowa; Chattanooga,
Tennessee; Brasov, Romania; and Bridgend, United Kingdom that
are part of the sale of the sugar confectionery business that is
expected to be completed in the second quarter of 2005.
In January 2004, Kraft announced a multi-year restructuring
program. As part of this program, Kraft anticipates the closing
or sale of up to 20 plants. During 2004, Kraft announced the
closing of 13 plants under the restructuring program.
General
The plants and properties owned and operated by ALGs
subsidiaries are maintained in good condition and are believed
to be suitable and adequate for present needs.
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Item 3. |
Legal Proceedings. |
Legal proceedings covering a wide range of matters are pending
or threatened in various United States and foreign jurisdictions
against ALG, its subsidiaries and affiliates, including PM USA
and PMI, as well as their respective indemnitees. Various types
of claims are raised in these proceedings, including product
liability, consumer protection, antitrust, tax, contraband
shipments, patent infringement, employment matters, claims for
contribution and claims of competitors and distributors.
Overview of Tobacco-Related Litigation
Types and Number of Cases
Pending claims related to tobacco products generally fall within
the following categories: (i) smoking and health cases
alleging personal injury brought on behalf of individual
plaintiffs, (ii) smoking and health cases primarily
alleging personal injury and purporting to be brought on behalf
of a class of individual plaintiffs, including cases in which
the aggregated claims of a number of individual plaintiffs are
to be tried in a single proceeding, (iii) health care cost
recovery cases brought by governmental (both domestic and
foreign) and non-governmental plaintiffs seeking reimbursement
for health care expenditures allegedly caused by cigarette
smoking and/or disgorgement of profits, and (iv) other
tobacco-related litigation. Other tobacco-related litigation
includes class action suits alleging that the use of the terms
Lights and Ultra Lights constitutes
16
deceptive and unfair trade practices, suits by foreign
governments seeking to recover damages resulting from the
allegedly illegal importation of cigarettes into various
jurisdictions, suits by former asbestos manufacturers seeking
contribution or reimbursement for amounts expended in connection
with the defense and payment of asbestos claims that were
allegedly caused in whole or in part by cigarette smoking, and
various antitrust suits. Damages claimed in some of the
tobacco-related litigation range into the billions of dollars.
Plaintiffs theories of recovery and the defenses raised in
the smoking and health and health care cost recovery cases are
discussed below.
The table below lists the number of certain tobacco-related
cases pending in the United States against PM USA and, in some
instances, ALG or PMI, as of February 15, 2005,
December 31, 2003 and December 31, 2002, and a
page-reference to further discussions of each type of case.
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Number of Cases | |
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Number of Cases | |
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Number of Cases | |
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Pending as of | |
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Pending as of | |
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Pending as of | |
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Page | |
Type of Case |
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February 15, 2005 | |
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December 31, 2003 | |
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December 31, 2002 | |
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References | |
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Individual Smoking and Health Cases(1)
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228 |
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423 |
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250 |
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22; Exhibit 99.1, page 1 |
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Smoking and Health Class Actions and Aggregated Claims
Litigation(2)
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7 |
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12 |
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41 |
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22-23; Exhibit 99.1, pages 2-3 |
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Health Care Cost Recovery Actions(3)
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8 |
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13 |
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41 |
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23-26; Exhibit 99.1, pages 3-5 |
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Lights/ Ultra Lights Class Actions
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22 |
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21 |
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11 |
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26; Exhibit 99.1, pages 5-7 |
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Tobacco Price Cases
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2 |
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28 |
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39 |
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26; Exhibit 99.1, page 7 |
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Cigarette Contraband Cases
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2 |
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5 |
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5 |
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28; Exhibit 99.1, page 8 |
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(1) |
Does not include 2,662 cases brought by flight attendants
seeking compensatory damages for personal injuries allegedly
caused by exposure to environmental tobacco smoke
(ETS). The flight attendants allege that they are
members of an ETS smoking and health class action, which was
settled in 1997. The terms of the court-approved settlement in
that case allow class members to file individual lawsuits
seeking compensatory damages, but prohibit them from seeking
punitive damages. See the discussion of these cases in
Exhibit 99.1 Flight Attendant
Litigation. |
|
(2) |
Includes as one case the aggregated claims of 983 individuals
that are proposed to be tried in a single proceeding in West
Virginia. |
|
(3) |
Includes a health care cost recovery case that was dismissed on
February 28, 2005. |
There are also a number of other tobacco-related actions pending
outside the United States against PMI and its affiliates and
subsidiaries, including an estimated 112 individual smoking and
health cases (Argentina (47), Australia (2), Brazil (47), Chile,
Colombia, Ireland, Israel (3), Italy (4), the Philippines,
Poland, Scotland, Spain (2) and Venezuela), compared with
approximately 99 such cases on December 31, 2003, and 86
such cases on December 31, 2002. The increase in cases at
February 15, 2005, compared to prior periods is due
primarily to cases filed in Brazil. In addition, in Italy,
eleven cases are pending in the Italian equivalent of small
claims court where damages are limited to
2,000 per case.
In addition, as of February 15, 2005, there was one smoking
and health putative class action pending outside the United
States against PMI (Brazil) compared with four such cases on
December 31, 2003, and six such cases on December 31,
2002. Four health care cost recovery actions are pending in
Israel, Canada, France and Spain against PMI or its affiliates,
and two Lights/ Ultra Lights class actions are pending in
Israel. In February 2005, a Polish social organization
filed a representative action against the PMIs Polish
affiliate and six other Polish tobacco companies; this complaint
has not yet been served on PMIs affiliate.
17
Pending and Upcoming Trials
Trial is currently underway in the case brought by the United
States government in which ALG and PM USA are defendants. For a
discussion of this case, see Health Care Cost Recovery
Litigation Federal Governments Lawsuit
below. Trials are also underway in New York and California in
two individual smoking and health cases in which PM USA is a
defendant.
Certain cases against PM USA are scheduled for trial through the
end of 2005, including a case in which cigarette distributors
allege that PM USAs Wholesale Leaders program violates
antitrust laws, a case brought by cigarette vending machine
operators alleging that PM USAs retail promotional and
merchandising programs violate the Robinson-Patman Act, and
Lights/Ultra Lights action in which PM USA and ALG are
defendants. In addition, an estimated five individual smoking
and health cases are scheduled for trial through the end of
2005, including two cases scheduled for trial in April 2005 in
Florida and Louisiana. In addition, trial is scheduled for April
2005 in a case brought by a flight attendant seeking
compensatory damages for personal injuries allegedly caused by
exposure to ETS. Cases against other tobacco companies are also
scheduled for trial through the end of 2005. Trial dates are
subject to change.
Recent Trial Results
Since January 1999, verdicts have been returned in 39 smoking
and health, Lights/ Ultra Lights and health care cost recovery
cases in which PM USA was a defendant. Verdicts in favor of PM
USA and other defendants were returned in 24 of the 39 cases.
These 24 cases were tried in California (3), Florida (7),
Mississippi, Missouri, New Hampshire, New Jersey, New York (3),
Ohio (2), Pennsylvania, Rhode Island, Tennessee (2) and
West Virginia. Plaintiffs appeals or post-trial motions
challenging the verdicts are pending in California, Florida,
Missouri, and Pennsylvania. A motion for a new trial has been
granted in one of the cases in Florida. In addition, in December
2002, a court dismissed an individual smoking and health case in
California at the end of trial.
Of the fifteen cases in which verdicts were returned in favor of
plaintiffs, two have reached final resolution. A
$17.8 million verdict against defendants in a health care
cost recovery case (including $6.8 million against PM USA)
was reversed, and all claims were dismissed with prejudice in
February 2005 (Blue Cross/ Blue Shield). In October 2004,
after exhausting all appeals, PM USA paid $3.7 million in
an individual smoking and health case in Florida
(Eastman).
The chart below lists the verdict and post-trial developments in
the remaining 13 pending cases that have gone to trial since
January 1999 in which verdicts were returned in favor of
plaintiffs.
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Verdict |
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Post-Trial Developments |
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October 2004
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Florida/ Arnitz |
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Individual Smoking and Health |
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$240,000 against PM USA. |
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In January 2005, PM USAs post- trial motions challenging
the verdict were denied. PM USAs appeal is pending. |
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May 2004
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Louisiana/ Scott |
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Smoking and Health Class Action |
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Approximately $590 million, against all defendants jointly
and severally, to fund a 10-year smoking cessation program. |
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In June 2004, the court entered judgment in the amount of the
verdict of $590 million, plus prejudgment interest accruing
from the date the suit commenced. As of February 15, 2005,
the amount of prejudgment interest was approximately
$359 million. PM USAs share of the verdict and
prejudgment interest has not been allocated. Defendants,
including PM USA, have appealed. See Scott Class Action
below. |
18
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of Plaintiff |
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Verdict |
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Post-Trial Developments |
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November 2003
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Missouri/ Thompson |
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Individual Smoking and Health |
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$2.1 million in compensatory damages against all
defendants, including $837,403 against PM USA. |
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In March 2004, the court denied defendants post-trial
motions challenging the verdict. PM USA has appealed. |
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March 2003
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Illinois/Price |
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Lights/Ultra Lights Class Action |
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$7.1005 billion in compensatory damages and $3 billion
in punitive damages against PM USA. |
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In November 2004, the Illinois Supreme Court heard arguments on
PM USAs appeal. See the discussion of the Price
case under the heading Certain Other Tobacco-Related
Litigation Lights/ Ultra Lights Cases. |
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October 2002
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California/ Bullock |
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Individual Smoking and Health |
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$850,000 in compensatory damages and $28 billion in
punitive damages against PM USA. |
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In December 2002, the trial court reduced the punitive damages
award to $28 million; PM USA and plaintiff have appealed. |
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June 2002
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Florida/ French |
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Flight Attendant ETS Litigation |
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$5.5 million in compensatory damages against all
defendants, including PM USA. |
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In September 2002, the trial court reduced the damages award to
$500,000. In December 2004, the Florida Third District Court of
Appeal affirmed the judgment awarding plaintiff $500,000, and
directed the trial court to hold defendants jointly and
severally liable. Defendants motion for rehearing is
pending. |
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June 2002
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Florida/ Lukacs |
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Individual Smoking and Health |
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$37.5 million in compensatory damages against all
defendants, including PM USA. |
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In March 2003, the trial court reduced the damages award to
$24.86 million. PM USAs share of the damages award is
approximately $6 million. The court has not yet entered the
judgment on the jury verdict. If a judgment is entered in this
case, PM USA intends to appeal. |
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March 2002
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Oregon/ Schwarz |
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Individual Smoking and Health |
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$168,500 in compensatory damages and $150 million in
punitive damages against PM USA. |
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In May 2002, the trial court reduced the punitive damages award
to $100 million; PM USA and plaintiff have appealed. |
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June 2001
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California/ Boeken |
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Individual Smoking and Health |
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$5.5 million in compensatory damages and $3 billion in
punitive damages against PM USA. |
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In August 2001, the trial court reduced the punitive damages
award to $100 million. In September 2004, the California
Second District Court of Appeal reduced the punitive damages
award to $50 million but otherwise affirmed the judgment
entered in the case. Plaintiff and PM USA each sought rehearing,
and in October 2004, the Court of Appeal granted the
parties motions for rehearing, and heard arguments in
February 2005. |
19
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July 2000
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Florida/ Engle |
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Smoking and Health Class Action |
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$145 billion in punitive damages against all defendants,
including $74 billion against PM USA. |
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In May 2003, the Florida Third District Court of Appeal reversed
the judgment entered by the trial court and instructed the trial
court to order the decertification of the class.
Plaintiffs motion for reconsideration was denied in
September 2003, and plaintiffs petitioned the Florida Supreme
Court for further review. In May 2004, the Florida Supreme Court
agreed to review the case, and the Supreme Court heard oral
arguments in November 2004. See Engle
Class Action below. |
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March 2000
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California/ Whiteley |
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Individual Smoking and Health |
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$1.72 million in compensatory damages against PM USA and
another defendant, and $10 million in punitive damages
against each of PM USA and the other defendant. |
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In April 2004, the California First District Court of Appeal
entered judgment in favor of defendants on plaintiffs
negligent design claims, and reversed and remanded for a new
trial on plaintiffs fraud-related claims. |
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March 1999
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Oregon/ Williams |
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Individual Smoking and Health |
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$800,000 in compensatory damages, $21,500 in medical expenses
and $79.5 million in punitive damages against PM USA. |
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The trial court reduced the punitive damages award to
$32 million, and PM USA and plaintiff appealed. In June
2002, the Oregon Court of Appeals reinstated the
$79.5 million punitive damages award. Following the Oregon
Supreme Courts refusal to hear PM USAs appeal, PM
USA recorded a provision of $32 million in marketing,
administration and research costs on the 2002 consolidated
statement of earnings as its best estimate of the probable loss
in this case and petitioned the United States Supreme Court for
further review. In October 2003, the United States Supreme Court
set aside the Oregon appellate courts ruling, and directed
the Oregon court to reconsider the case in light of the 2003
State Farm decision by the United States Supreme Court,
which limited punitive damages. In June 2004, the Oregon Court
of Appeals reinstated the punitive damages award. In December
2004, the Oregon Supreme Court granted PM USAs petition
for review of the case. |
20
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February 1999
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California/ Henley |
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Individual Smoking and Health |
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$1.5 million in compensatory damages and $50 million
in punitive damages against PM USA. |
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The trial court reduced the punitive damages award to
$25 million and PM USA and plaintiff appealed. In September
2003, a California Court of Appeal, citing the State Farm
decision, reduced the punitive damages award to
$9 million, but otherwise affirmed the judgment for
compensatory damages, and PM USA appealed to the California
Supreme Court. In September 2004, the California Supreme Court
dismissed PM USAs appeal. In October 2004, the California
Court of Appeal issued an order allowing the execution of the
judgment. PM USA has recorded a provision of $16 million
(including interest) in connection with this case. On
October 10, 2004, PM USA filed in the United States
Supreme Court an application for a stay pending the filing of,
and ruling upon, PM USAs petition for certiorari. On
October 27, 2004, the Supreme Court granted the stay,
which will remain in effect until the Supreme Court either
denies PM USAs petition for certiorari or issues its
mandate. In December 2004, PM USA filed its petition for
certiorari. |
In addition to the cases discussed above, in October 2003, a
three-judge panel of an appellate court in Brazil reversed a
lower courts dismissal of an individual smoking and health
case and ordered PMIs Brazilian affiliate to pay plaintiff
approximately $256,000 and other unspecified damages. PMIs
Brazilian affiliate appealed. In December 2004, the three-judge
panels decision was vacated by an en banc panel of
the appellate court, which upheld the trial courts
dismissal of the case.
With respect to certain adverse verdicts currently on appeal,
excluding amounts relating to the Engle and Price
cases, as of February 15, 2005, PM USA has posted
various forms of security totaling approximately
$360 million, the majority of which have been
collateralized with cash deposits, to obtain stays of judgments
pending appeals. The cash deposits are included in other assets
on the consolidated balance sheets.
Engle Class Action
In July 2000, in the second phase of the Engle smoking
and health class action in Florida, a jury returned a verdict
assessing punitive damages totaling approximately
$145 billion against various defendants, including
$74 billion against PM USA. Following entry of judgment, PM
USA posted a bond in the amount of $100 million and
appealed.
In May 2001, the trial court approved a stipulation providing
that execution of the punitive damages component of the Engle
judgment will remain stayed against PM USA and the other
participating defendants through the completion of all judicial
review. As a result of the stipulation, PM USA placed
$500 million into
21
a separate interest-bearing escrow account that, regardless of
the outcome of the appeal, will be paid to the court and the
court will determine how to allocate or distribute it consistent
with Florida Rules of Civil Procedure. In July 2001, PM USA also
placed $1.2 billion into an interest-bearing escrow
account, which will be returned to PM USA should it prevail in
its appeal of the case. (The $1.2 billion escrow account is
included in the December 31, 2004 and December 31,
2003 consolidated balance sheets as other assets. Interest
income on the $1.2 billion escrow account is paid to PM USA
quarterly and is being recorded as earned, in interest and other
debt expense, net, in the consolidated statements of earnings.)
In connection with the stipulation, PM USA recorded a
$500 million pre-tax charge in its consolidated statement
of earnings for the quarter ended March 31, 2001. In May
2003, the Florida Third District Court of Appeal reversed the
judgment entered by the trial court and instructed the trial
court to order the decertification of the class. Plaintiffs
petitioned the Florida Supreme Court for further review and, in
May 2004, the Florida Supreme Court agreed to review the case.
Oral arguments were heard in November 2004.
Scott Class Action
In July 2003, following the first phase of the trial in the
Scott class action, in which plaintiffs sought creation
of funds to pay for medical monitoring and smoking cessation
programs, a Louisiana jury returned a verdict in favor of
defendants, including PM USA, in connection with
plaintiffs medical monitoring claims, but also found that
plaintiffs could benefit from smoking cessation assistance. The
jury also found that cigarettes as designed are not defective
but that the defendants failed to disclose all they knew about
smoking and diseases and marketed their products to minors. In
May 2004, in the second phase of the trial, the jury awarded
plaintiffs approximately $590 million, against all
defendants jointly and severally, to fund a 10-year smoking
cessation program. In June 2004, the court entered judgment,
which awarded plaintiffs the approximately $590 million
jury award plus prejudgment interest accruing from the date the
suit commenced. As of February 15, 2005, the amount of
prejudgment interest was approximately $359 million. PM
USAs share of the jury award and pre-judgment interest has
not been allocated. Defendants, including PM USA, have appealed.
Pursuant to a stipulation of the parties, the trial court
entered an order setting the amount of the bond at
$50 million for all defendants in accordance with an
article of the Louisiana Code of Civil Procedure, and a
Louisiana statute (the bond cap law) fixing the
amount of security in civil cases involving a signatory to the
MSA (as defined below). Under the terms of the stipulation,
plaintiffs reserve the right to contest, at a later date, the
sufficiency or amount of the bond on any grounds including the
applicability or constitutionality of the bond cap law. In
September 2004, defendants collectively posted a bond in the
amount of $50 million.
Smoking and Health Litigation
Overview
Plaintiffs allegations of liability in smoking and health
cases are based on various theories of recovery, including
negligence, gross negligence, strict liability, fraud,
misrepresentation, design defect, failure to warn, breach of
express and implied warranties, breach of special duty,
conspiracy, concert of action, violations of deceptive trade
practice laws and consumer protection statutes, and claims under
the federal and state anti-racketeering statutes. In certain of
these cases, plaintiffs claim that cigarette smoking exacerbated
the injuries caused by their exposure to asbestos. Plaintiffs in
the smoking and health actions seek various forms of relief,
including compensatory and punitive damages, treble/multiple
damages and other statutory damages and penalties, creation of
medical monitoring and smoking cessation funds, disgorgement of
profits, and injunctive and equitable relief. Defenses raised in
these cases include lack of proximate cause, assumption of the
risk, comparative fault and/or contributory negligence, statutes
of limitations and preemption by the Federal Cigarette Labeling
and Advertising Act.
Smoking and Health Class Actions
Since the dismissal in May 1996 of a purported nationwide class
action brought on behalf of addicted smokers,
plaintiffs have filed numerous putative smoking and health class
action suits in various state and
22
federal courts. In general, these cases purport to be brought on
behalf of residents of a particular state or states (although a
few cases purport to be nationwide in scope) and raise addiction
claims and, in many cases, claims of physical injury as well.
Class certification has been denied or reversed by courts in 56
smoking and health class actions involving PM USA in Arkansas,
the District of Columbia (2), Florida (the Engle case),
Illinois (2), Iowa, Kansas, Louisiana, Maryland, Michigan,
Minnesota, Nevada (29), New Jersey (6), New York (2), Ohio,
Oklahoma, Pennsylvania, Puerto Rico, South Carolina, Texas and
Wisconsin. A class remains certified in the Scott class
action discussed above.
Health Care Cost Recovery Litigation
Overview
In health care cost recovery litigation, domestic and foreign
governmental entities and non-governmental plaintiffs seek
reimbursement of health care cost expenditures allegedly caused
by tobacco products and, in some cases, of future expenditures
and damages as well. Relief sought by some but not all
plaintiffs includes punitive damages, multiple damages and other
statutory damages and penalties, injunctions prohibiting alleged
marketing and sales to minors, disclosure of research,
disgorgement of profits, funding of anti-smoking programs,
additional disclosure of nicotine yields, and payment of
attorney and expert witness fees.
The claims asserted include the claim that cigarette
manufacturers were unjustly enriched by
plaintiffs payment of health care costs allegedly
attributable to smoking, as well as claims of indemnity,
negligence, strict liability, breach of express and implied
warranty, violation of a voluntary undertaking or special duty,
fraud, negligent misrepresentation, conspiracy, public nuisance,
claims under federal and state statutes governing consumer
fraud, antitrust, deceptive trade practices and false
advertising, and claims under federal and state
anti-racketeering statutes.
Defenses raised include lack of proximate cause, remoteness of
injury, failure to state a valid claim, lack of benefit,
adequate remedy at law, unclean hands (namely, that
plaintiffs cannot obtain equitable relief because they
participated in, and benefited from, the sale of cigarettes),
lack of antitrust standing and injury, federal preemption, lack
of statutory authority to bring suit, and statutes of
limitations. In addition, defendants argue that they should be
entitled to set off any alleged damages to the
extent the plaintiff benefits economically from the sale of
cigarettes through the receipt of excise taxes or otherwise.
Defendants also argue that these cases are improper because
plaintiffs must proceed under principles of subrogation and
assignment. Under traditional theories of recovery, a payor of
medical costs (such as an insurer) can seek recovery of health
care costs from a third party solely by standing in the
shoes of the injured party. Defendants argue that
plaintiffs should be required to bring any actions as subrogees
of individual health care recipients and should be subject to
all defenses available against the injured party.
Although there have been some decisions to the contrary, most
judicial decisions have dismissed all or most health care cost
recovery claims against cigarette manufacturers. Nine federal
circuit courts of appeals and six state appellate courts,
relying primarily on grounds that plaintiffs claims were
too remote, have ordered or affirmed dismissals of health care
cost recovery actions. The United States Supreme Court has
refused to consider plaintiffs appeals from the cases
decided by five circuit courts of appeals.
A number of foreign governmental entities have filed health care
cost recovery actions in the United States. Such suits have been
brought in the United States by 13 countries, a Canadian
province, 11 Brazilian states and 11 Brazilian cities.
Thirty-three of the cases have been dismissed, and three remain
pending. In addition to the cases brought in the United States,
health care cost recovery actions have also been brought in
Israel, the Marshall Islands (dismissed), Canada, France and
Spain, and other entities have stated that they are considering
filing such actions. In September 2003, the case pending in
France was dismissed, and plaintiff has appealed. In May 2004,
the case in Spain was dismissed, and plaintiff has appealed.
In March 1999, in the first health care cost recovery case to go
to trial, an Ohio jury returned a verdict in favor of defendants
on all counts. In June 2001, a New York jury returned a verdict
awarding $6.83 million in
23
compensatory damages against PM USA and a total of
$11 million against four other defendants in a health care
cost recovery action brought by a Blue Cross and Blue Shield
plan, and defendants, including PM USA, appealed. In December
2004, the United States Court of Appeals for the Second Circuit
vacated the damages award and an accompanying award of
attorneys fees, reversed the judgment and remanded the
case with instructions to the trial court to dismiss
plaintiffs claims. In February 2005, the trial court
dismissed all of plaintiffs claims with prejudice. Trial
in the health care cost recovery case brought by the City of
St. Louis, Missouri and approximately 50 Missouri
hospitals, in which PM USA and ALG are defendants, is scheduled
for January 2006.
Settlements of Health Care Cost Recovery Litigation
In November 1998, PM USA and certain other United States tobacco
product manufacturers entered into the Master Settlement
Agreement (the MSA) with 46 states, the
District of Columbia, Puerto Rico, Guam, the United States
Virgin Islands, American Samoa and the Northern Marianas to
settle asserted and unasserted health care cost recovery and
other claims. PM USA and certain other United States tobacco
product manufacturers had previously settled similar claims
brought by Mississippi, Florida, Texas and Minnesota (together
with the MSA, the State Settlement Agreements). The
State Settlement Agreements require that the domestic tobacco
industry make substantial annual payments in the following
amounts (excluding future annual payments contemplated by the
agreement with tobacco growers discussed below), subject to
adjustments for several factors, including inflation, market
share and industry volume: 2005 through 2007, $8.4 billion
each year; and thereafter, $9.4 billion each year. In
addition, the domestic tobacco industry is required to pay
settling plaintiffs attorneys fees, subject to an
annual cap of $500 million.
The State Settlement Agreements also include provisions relating
to advertising and marketing restrictions, public disclosure of
certain industry documents, limitations on challenges to certain
tobacco control and underage use laws, restrictions on lobbying
activities and other provisions.
As part of the MSA, the settling defendants committed to work
cooperatively with the tobacco-growing states to address
concerns about the potential adverse economic impact of the MSA
on tobacco growers and quota-holders. To that end, in 1999, four
of the major domestic tobacco product manufacturers, including
PM USA, and the grower states, established the NTGST, a trust
fund to provide aid to tobacco growers and quota-holders. The
trust was to be funded by these four manufacturers over
12 years with payments, prior to application of various
adjustments, scheduled to total $5.15 billion. Remaining
industry payments (2005 through 2008, $500 million each
year; 2009 and 2010, $295 million each year) are subject to
adjustment for several factors, including inflation, United
States cigarette volume and certain contingent events, and, in
general are to be allocated based on each manufacturers
relative market share. Provisions of the NTGST allow for offsets
to the extent that payments are made to growers as part of a
legislated end to the federal tobacco quota and price support
program.
In October 2004, the Fair and Equitable Tobacco Reform Act of
2004 (FETRA) was signed into law. FETRA provides for
the elimination of the federal tobacco quota and price support
program through an industry-funded buy-out of tobacco growers
and quota holders. The cost of the buy-out is approximately
$9.6 billion and will be paid over 10 years by
manufacturers and importers of all tobacco products. The cost
will be allocated based on the relative market shares of
manufacturers and importers of all tobacco products. PM USA
expects that its quota buy-out payments will offset already
scheduled payments to the NTGST. Manufacturers and importers of
tobacco products are also obligated to cover any losses (up to
$500 million) that the government may incur on the
disposition of pool stock tobacco accumulated under the previous
tobacco price support program. PM USAs share of tobacco
pool stock losses cannot currently be determined, as the
calculation of any such losses will depend on a number of
factors, including the extent to which the government can sell
such pool tobacco and thereby mitigate or avoid losses. Altria
Group, Inc. does not anticipate that the quota buy-out will have
a material adverse impact on its consolidated results in 2005
and beyond.
Following the enactment of FETRA, the trustee of the NTGST and
the state entities conveying NTGST payments to tobacco growers
and quota holders sued tobacco product manufacturers alleging
that the offset
24
provisions do not apply to payments due in 2004. In December
2004, a North Carolina court ruled that the tobacco companies,
including PM USA, are entitled to receive a refund of amounts
paid to the NTGST during the first three quarters of 2004 and
are not required to make the payments that would otherwise have
been due during the fourth quarter of 2004. Plaintiffs have
appealed. If the trial courts ruling is upheld, PM USA
would reverse accruals and receive reimbursements totaling
$232 million.
The State Settlement Agreements have materially adversely
affected the volumes of PM USA, and ALG believes that they may
also materially adversely affect the results of operations, cash
flows or financial position of PM USA and Altria Group, Inc. in
future periods. The degree of the adverse impact will depend on,
among other things, the rate of decline in United States
cigarette sales in the premium and discount segments, PM
USAs share of the domestic premium and discount cigarette
segments, and the effect of any resulting cost advantage of
manufacturers not subject to the MSA and the other State
Settlement Agreements.
In April 2004, a lawsuit was filed in state court in Los
Angeles, California, on behalf of all California residents who
purchased cigarettes in California from April 2000 to the
present, alleging that the MSA enabled the defendants, including
PM USA and ALG, to engage in unlawful price fixing and market
sharing agreements. The complaint sought damages and also sought
to enjoin defendants from continuing to operate under those
provisions of the MSA that allegedly violate California law. In
June, plaintiffs dismissed this case and refiled a substantially
similar complaint in federal court in San Francisco,
California. The new complaint is brought on behalf of the same
purported class but differs in that it covers purchases from
June 2000 to the present, names the Attorney General of
California as a defendant, and does not name ALG as a defendant.
PM USAs motion to dismiss the case is pending.
There is a suit pending against New York state officials, in
which importers of cigarettes allege that the MSA and certain
New York statutes enacted in connection with the MSA violate
federal antitrust law. Neither ALG nor PM USA is a defendant in
this case. In September 2004, the court denied plaintiffs
motion to preliminarily enjoin the MSA and certain related New
York statutes, but the court issued a preliminary injunction
against an amendment repealing the allocable share
provision of the New York Escrow Statute. Plaintiffs have
appealed the trial courts September 2004 order to the
extent that it denied their request for a preliminary
injunction. In addition, a similar putative class action has
been brought in the Commonwealth of Kentucky challenging the
repeal of certain implementing legislation that had been enacted
in Kentucky subsequent to the MSA. Neither ALG nor PM USA is a
defendant in the case in Kentucky.
Federal Governments Lawsuit
In 1999, the United States government filed a lawsuit in the
United States District Court for the District of Columbia
against various cigarette manufacturers, including PM USA, and
others, including ALG, asserting claims under three federal
statutes, the Medical Care Recovery Act (MCRA), the
Medicare Secondary Payer (MSP) provisions of the
Social Security Act and the Racketeer Influenced and Corrupt
Organizations Act (RICO). Trial of the case is
currently underway. The lawsuit seeks to recover an unspecified
amount of health care costs for tobacco-related illnesses
allegedly caused by defendants fraudulent and tortious
conduct and paid for by the government under various federal
health care programs, including Medicare, military and
veterans health benefits programs, and the Federal
Employees Health Benefits Program. The complaint alleges that
such costs total more than $20 billion annually. It also
seeks what it alleges to be equitable and declaratory relief,
including disgorgement of profits which arose from
defendants allegedly tortious conduct, an injunction
prohibiting certain actions by the defendants, and a declaration
that the defendants are liable for the federal governments
future costs of providing health care resulting from
defendants alleged past tortious and wrongful conduct. In
September 2000, the trial court dismissed the governments
MCRA and MSP claims, but permitted discovery to proceed on the
governments claims for relief under RICO. The government
alleges that disgorgement by defendants of approximately
$280 billion is an appropriate remedy. In May 2004, the
trial court issued an order denying defendants motion for
partial summary judgment limiting the disgorgement remedy. In
February 2005, a panel of the United States Court of Appeals for
the District of Columbia Circuit held that disgorgement is not a
remedy available to the government under RICO and entered
summary judgment in favor of defendants, with respect to the
disgorgement claim. The governments motion for rehearing
is pending. In July 2004, the trial court found that
25
PM USA had inadequately complied with a document preservation
order and ordered that persons who failed to comply with PM
USAs document retention program will not be permitted to
testify at trial and PM USA and ALG jointly pay $2,750,000 to
the court by September 1, 2004. This amount was paid to the
court in September 2004. PM USA and ALG have sought rehearing of
the judges ruling.
Certain Other Tobacco-Related Litigation
Lights/ Ultra Lights Cases: These class actions
have been brought against PM USA and, in certain instances, ALG
and PMI or its subsidiaries, on behalf of individuals who
purchased and consumed various brands of cigarettes, including
Marlboro Lights, Marlboro Ultra Lights, Virginia Slims Lights
and Superslims, Merit Lights and Cambridge
Lights. Plaintiffs in these class actions allege, among
other things, that the use of the terms Lights
and/or Ultra Lights constitutes deceptive and unfair
trade practices, and seek injunctive and equitable relief,
including restitution and, in certain cases, punitive damages.
Cases are pending in Arkansas (2), Delaware, Florida, Georgia,
Illinois (2), Louisiana, Massachusetts, Michigan, Minnesota,
Missouri, New Hampshire, New Jersey, New York, Ohio (2), Oregon,
Tennessee, Washington, and West Virginia (2). In addition, there
are two cases pending in Israel, and other entities have stated
that they are considering filing such actions. To date, a trial
court in Arizona has refused to certify a class, and an
appellate court in Florida has overturned class certification by
a trial court. Plaintiffs in the Florida case have petitioned
the Florida Supreme Court for further review, and the Supreme
Court has stayed further proceedings pending its decision in the
Engle case discussed above. Trial courts have certified
classes against PM USA in the Price case in Illinois and
in Massachusetts (Aspinall), Minnesota, Missouri and Ohio
(2). PM USA has appealed or otherwise challenged these class
certification orders. In August 2004, Massachusetts
highest court affirmed the class certification order in the
Aspinall case. In September 2004, an appellate court
affirmed the class certification orders in the cases in Ohio,
and PM USA sought review by the Ohio Supreme Court. In February
2005, the Ohio Supreme Court accepted the cases for review to
determine whether a prior determination has been made by the
State of Ohio that the conduct at issue is deceptive such that
plaintiffs may pursue private claims. Trial of the case pending
in New York is scheduled for November 2005.
With respect to the Price case, trial commenced in
January 2003, and in March 2003, the judge found in favor of the
plaintiff class and awarded approximately $7.1 billion in
compensatory damages and $3 billion in punitive damages
against PM USA. In April 2003, the judge reduced the amount of
the appeal bond that PM USA must provide and ordered PM USA to
place a pre-existing 7.0%, $6 billion long-term note from
ALG to PM USA in an escrow account with an Illinois financial
institution. (Since this note is the result of an intercompany
financing arrangement, it does not appear on the consolidated
balance sheets of Altria Group, Inc.) The judges order
also requires PM USA to make cash deposits with the clerk of the
Madison County Circuit Court in the following amounts: beginning
October 1, 2003, an amount equal to the interest earned by
PM USA on the ALG note ($210 million every six months), an
additional $800 million in four equal quarterly
installments between September 2003 and June 2004 and the
payments of principal of the note, which are due in April 2008,
2009 and 2010. Through December 31, 2004, PM USA paid
$1.4 billion of the cash payments due under the
judges order. (Cash payments into the account are included
in other assets on Altria Group, Inc.s consolidated
balance sheets at December 31, 2004 and 2003.) If PM USA
prevails on appeal, the escrowed note and all cash deposited
with the court will be returned to PM USA, with accrued interest
less administrative fees payable to the court. Plaintiffs
appealed the judges order reducing the bond. In July 2003,
the Illinois Fifth District Court of Appeals ruled that the
trial court had exceeded its authority in reducing the bond. In
September 2003, the Illinois Supreme Court upheld the reduced
bond set by the trial court and announced it would hear PM
USAs appeal on the merits without the need for
intermediate appellate court review. PM USA believes that the
Price case should not have been certified as a class
action and that the judgment should ultimately be set aside on
any of a number of legal and factual grounds that it is pursuing
on appeal. Oral arguments on PM USAs appeal were heard in
November 2004.
Tobacco Price Cases: As of February 15, 2005,
two cases were pending in Kansas and New Mexico in which
plaintiffs allege that defendants, including PM USA, conspired
to fix cigarette prices in violation of antitrust laws. ALG and
PMI are defendants in the case in Kansas. Plaintiffs
motions for class certification have been granted in both cases.
In February 2005, the New Mexico Court of Appeals affirmed the
class certification decision.
26
Wholesale Leaders Cases: In June 2003, certain
wholesale distributors of cigarettes filed suit against PM USA
seeking to enjoin the PM USA 2003 Wholesale Leaders
(WL) program that became available to wholesalers in
June 2003. The complaint alleges that the WL program constitutes
unlawful price discrimination and is an attempt to monopolize.
In addition to an injunction, plaintiffs seek unspecified
monetary damages, attorneys fees, costs and interest. The
states of Tennessee and Mississippi intervened as plaintiffs in
this litigation. In January 2004, Tennessee filed a motion to
dismiss its complaint, and the complaint was dismissed without
prejudice in March 2004. In August 2003, the trial court issued
a preliminary injunction, subject to plaintiffs posting a
bond in the amount of $1 million, enjoining PM USA from
implementing certain discount terms with respect to the sixteen
wholesale distributor plaintiffs, and PM USA appealed. In
September 2003, the United States Court of Appeals for the Sixth
Circuit granted PM USAs motion to stay the injunction
pending PM USAs expedited appeal. Trial is currently
scheduled for July 2005. In December 2003, a tobacco
manufacturer filed a similar lawsuit against PM USA in Michigan
seeking unspecified monetary damages in which it alleges that
the WL program constitutes unlawful price discrimination and is
an attempt to monopolize. Plaintiff voluntarily dismissed its
claims alleging price discrimination, and in July 2004, the
court granted defendants motion to dismiss the
attempt-to-monopolize claim. Plaintiff has appealed.
Consolidated Putative Punitive Damages Cases: In
September 2000, a putative class action was filed in the federal
district court in the Eastern District of New York that
purported to consolidate punitive damages claims in ten
tobacco-related actions then pending in federal district courts
in New York and Pennsylvania. In July 2002, plaintiffs filed an
amended complaint and a motion seeking certification of a
punitive damages class of persons residing in the United States
who smoke or smoked defendants cigarettes, and who have
been diagnosed by a physician with an enumerated disease from
April 1993 through the date notice of the certification of this
class is disseminated. The following persons are excluded from
the class: (1) those who have obtained judgments or
settlements against any defendants; (2) those against whom
any defendant has obtained judgment; (3) persons who are
part of the Engle class; (4) persons who should have
reasonably realized that they had an enumerated disease prior to
April 9, 1993; and (5) those whose diagnosis or
reasonable basis for knowledge predates their use of tobacco. In
September 2002, the court granted plaintiffs motion for
class certification. Defendants petitioned the United States
Court of Appeals for the Second Circuit for review of the trial
courts ruling, and the Second Circuit agreed to hear
defendants petition. The parties are awaiting the Second
Circuits decision. Trial of the case has been stayed
pending resolution of defendants petition.
Cases Under the California Business and Professions
Code: In June 1997 and July 1998, two suits were filed
in California state court alleging that domestic cigarette
manufacturers, including PM USA and others, have violated
California Business and Professions Code Sections 17200 and
17500 regarding unfair, unlawful and fraudulent business
practices. Class certification was granted in both cases as to
plaintiffs claims that class members are entitled to
reimbursement of the costs of cigarettes purchased during the
class periods and injunctive relief. In September 2002, the
court granted defendants motion for summary judgment as to
all claims in one of the cases, and plaintiffs appealed. In
October 2004, the California Fourth District Court of Appeal
affirmed the trial courts ruling, and also denied
plaintiffs motion for rehearing. In February 2005, the
California Supreme Court agreed to hear plaintiffs appeal.
In September 2004, the trial court in the other case granted
defendants motion for summary judgment as to
plaintiffs claims attacking defendants cigarette
advertising and promotion and denied defendants motion for
summary judgment on plaintiffs claims based on allegedly
false affirmative statements. Plaintiffs motion for
rehearing is pending. In March 2005, the court granted
defendants motion to decertify the class based on a recent
change in California law.
In May 2004, a lawsuit was filed in California state court on
behalf of a purported class of all California residents who
purchased the Merit brand of cigarettes since July 2000
to the present alleging that defendants, including PM USA and
ALG, violated Californias Business and Professions Code
Sections 17200 and 17500 regarding unfair, unlawful and
fraudulent business practices, including false and misleading
advertising. The complaint also alleges violations of
Californias Consumer Legal Remedies Act. Plaintiffs seek
injunctive relief, disgorgement, restitution, and
attorneys fees. In July 2004, plaintiffs voluntarily
dismissed ALG from the case. PM USAs motion to dismiss the
case is pending.
27
Asbestos Contribution Cases: These cases, which
have been brought on behalf of former asbestos manufacturers and
affiliated entities against PM USA and other cigarette
manufacturers, seek, among other things, contribution or
reimbursement for amounts expended in connection with the
defense and payment of asbestos claims that were allegedly
caused in whole or in part by cigarette smoking. In January
2005, one case was dismissed; currently, one case remains
pending.
Cigarette Contraband Cases: In May 2000 and August
2001, various departments of Colombia and the European Community
and ten member states filed suits in the United States against
ALG and certain of its subsidiaries, including PM USA and PMI,
and other cigarette manufacturers and their affiliates, alleging
that defendants sold to distributors cigarettes that would be
illegally imported into various jurisdictions. The claims
asserted in these cases include negligence, negligent
misrepresentation, fraud, unjust enrichment, violations of RICO
and its state-law equivalents and conspiracy. Plaintiffs in
these cases seek actual damages, treble damages and unspecified
injunctive relief. In February 2002, the trial court granted
defendants motions to dismiss the actions. Plaintiffs in
each case appealed. In January 2004, the United States Court of
Appeals for the Second Circuit affirmed the dismissals of the
cases. In April 2004, plaintiffs petitioned the United States
Supreme Court for further review. The European Community and the
10 member states moved to dismiss their petition in July 2004
following the agreement entered into among PMI, the European
Commission and 10 member states of the European Community. The
terms of this cooperation agreement provide for broad
cooperation with European law enforcement agencies on
anti-contraband and anti-counterfeit efforts and resolve all
disputes between the parties on these issues. It is possible
that future litigation related to cigarette contraband issues
may be brought.
Vending Machine Case: Plaintiffs, who began their
case as a purported nationwide class of cigarette vending
machine operators, allege that PM USA has violated the
Robinson-Patman Act in connection with its promotional and
merchandising programs available to retail stores and not
available to cigarette vending machine operators. The initial
complaint was amended to bring the total number of plaintiffs to
211 but, by stipulated orders, all claims were stayed, except
those of ten plaintiffs that proceeded to pre-trial discovery.
Plaintiffs request actual damages, treble damages, injunctive
relief, attorneys fees and costs, and other unspecified
relief. In June 1999, the court denied plaintiffs motion
for a preliminary injunction. Plaintiffs have withdrawn their
request for class action status. In August 2001, the court
granted PM USAs motion for summary judgment and dismissed,
with prejudice, the claims of the ten plaintiffs. In October
2001, the court certified its decision for appeal to the United
States Court of Appeals for the Sixth Circuit following the
stipulation of all plaintiffs that the district courts
dismissal would, if affirmed, be binding on all plaintiffs. In
January 2004, the Sixth Circuit reversed the lower courts
grant of summary judgment with respect to plaintiffs claim
that PM USA violated Robinson-Patman Act provisions regarding
promotional services and with respect to the discriminatory
pricing claim of plaintiffs who bought cigarettes directly from
PM USA. In October 2004, the United States Supreme Court denied
PM USAs petition for further review. Trial is scheduled
for July 2005.
Certain Other Actions
Italian Tax Matters: In recent years,
approximately two hundred tax assessments alleging nonpayment of
taxes in Italy were served upon certain affiliates of PMI. All
of these assessments were resolved in 2003 and the second
quarter of 2004, with the exception of certain assessments which
were duplicative of other assessments. Legal proceedings
continue in order to resolve these duplicative assessments.
Italian Antitrust Case: During 2001, the
competition authority in Italy initiated an investigation into
the pricing activities by participants in that cigarette market.
In March 2003, the authority issued its findings, and imposed
fines totaling 50 million euro on certain affiliates of
PMI. PMIs affiliates appealed to the administrative court,
which rejected the appeal in July 2003. PMI believes that its
affiliates have numerous grounds for appeal, and in February
2004, its affiliates appealed to the supreme administrative
court. However, under Italian law, if fines are not paid within
certain specified time periods, interest and eventually
penalties will be applied to the fines. Accordingly, in December
2003, pending final resolution of the case, PMIs
affiliates paid 51 million euro representing the fines and
any applicable interest to the date of payment. The
28
51 million euro will be returned to PMIs affiliates
if they prevail on appeal. Accordingly, the payment has been
included in other assets on Altria Group, Inc.s
consolidated balance sheets.
PMCC Federal Income Tax Matter: The IRS is examining the
consolidated tax returns for Altria Group, Inc., which include
PMCC for years 1996 through 1999. Recently, the IRS has
challenged some, and in the future may challenge several more of
PMCCs leveraged leases based on recent Revenue Rulings and
a recent IRS Notice addressing specific types of leveraged
leases (lease in/lease out transactions, qualified technological
equipment transactions, and sale in/lease out transactions).
PMCC believes that the position and supporting case law
described in the Revenue Rulings and the IRS Notice are
incorrectly applied to PMCCs transactions and that its
leveraged leases are factually and legally distinguishable in
material respects from the IRSs position. PMCC and its
parent, ALG, intend vigorously to defend against any challenges
based on that position through administrative appeals and
litigation, if necessary, and ALG believes that the ultimate
outcome of such challenges will not have a material adverse
impact on Altria Group, Inc.s consolidated results of
operations, cash flows or financial position.
It is not possible to predict the outcome of the litigation
pending against ALG and its subsidiaries. Litigation is subject
to many uncertainties. As discussed above under Recent
Trial Results, unfavorable verdicts awarding substantial
damages against PM USA have been returned in 15 cases since
1999. Of the fifteen cases in which verdicts were returned in
favor of plaintiffs, two have reached final resolution. A
verdict against defendants in a health care cost recovery case
has been reversed and all claims were dismissed with prejudice,
and after exhausting all appeals, PM USA paid $3.7 million
in an individual smoking and health case in Florida. The
remaining 13 cases are in various post-trial stages. It is
possible that there could be further adverse developments in
these cases and that additional cases could be decided
unfavorably. In the event of an adverse trial result in certain
pending litigation, the defendant may not be able to obtain a
required bond or obtain relief from bonding requirements in
order to prevent a plaintiff from seeking to collect a judgment
while an adverse verdict is being appealed. An unfavorable
outcome or settlement of pending tobacco-related litigation
could encourage the commencement of additional litigation. There
have also been a number of adverse legislative, regulatory,
political and other developments concerning cigarette smoking
and the tobacco industry that have received widespread media
attention. These developments may negatively affect the
perception of judges and jurors with respect to the tobacco
industry, possibly to the detriment of certain pending
litigation, and may prompt the commencement of additional
similar litigation.
ALG and its subsidiaries record provisions in the consolidated
financial statements for pending litigation when they determine
that an unfavorable outcome is probable and the amount of the
loss can be reasonably estimated. Except as discussed elsewhere
in this Item 3. Legal Proceedings: (i) management has
not concluded that it is probable that a loss has been incurred
in any of the pending tobacco-related litigation;
(ii) management is unable to make a meaningful estimate of
the amount or range of loss that could result from an
unfavorable outcome of pending tobacco-related litigation; and
(iii) accordingly, management has not provided any amounts
in the consolidated financial statements for unfavorable
outcomes, if any.
The present legislative and litigation environment is
substantially uncertain, and it is possible that the business
and volume of ALGs subsidiaries, as well as Altria Group,
Inc.s consolidated results of operations, cash flows or
financial position could be materially affected by an
unfavorable outcome or settlement of certain pending litigation
or by the enactment of federal or state tobacco legislation. ALG
and each of its subsidiaries named as a defendant believe, and
each has been so advised by counsel handling the respective
cases, that it has a number of valid defenses to the litigation
pending against it, as well as valid bases for appeal of adverse
verdicts against it. All such cases are, and will continue to
be, vigorously defended. However, ALG and its subsidiaries may
enter into settlement discussions in particular cases if they
believe it is in the best interests of ALGs stockholders
to do so.
Reference is made to Note 19 for a description of certain
pending legal proceedings. Reference is also made to
Exhibit 99.1 to this Form 10-K for a list of pending
smoking and health class actions, health care cost recovery
actions, and certain other actions, and for a description of
certain developments in such proceedings; and Exhibit 99.2
for a schedule of the smoking and health class action, health
care cost recovery action, and individual smoking and health
cases, which are currently scheduled for trial through the end
of 2005. Copies of
29
Note 19 and Exhibits 99.1 and 99.2 are available upon
written request to the Corporate Secretary, Altria Group, Inc.,
120 Park Avenue, New York, NY 10017.
|
|
Item 4. |
Submission of Matters to a Vote of Security
Holders. |
None.
PART II
|
|
Item 5. |
Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities. |
ALGs share repurchase activity for each of the three
months ended December 31, 2004, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of | |
|
Approximate Dollar | |
|
|
|
|
|
|
Shares Purchased as | |
|
Value of Shares that | |
|
|
Total Number of | |
|
|
|
Part of Publicly | |
|
May Yet be | |
|
|
Shares | |
|
Average Price Paid | |
|
Announced Plans or | |
|
Purchased Under the | |
Period |
|
Repurchased(1) | |
|
per Share | |
|
Programs | |
|
Plans or Programs | |
|
|
| |
|
| |
|
| |
|
| |
October 1, 2004 October 31, 2004
|
|
|
91,780 |
|
|
$ |
47.55 |
|
|
|
|
|
|
|
|
|
November 1, 2004 November 30, 2004
|
|
|
217,033 |
|
|
$ |
55.61 |
|
|
|
|
|
|
|
|
|
December 1, 2004 December 31, 2004
|
|
|
110,821 |
|
|
$ |
59.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended December 31, 2004
|
|
|
419,634 |
|
|
$ |
54.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The shares repurchased during the periods presented above
represent shares tendered to ALG by employees who exercised
stock options and used previously owned shares to pay all, or a
portion of, the option exercise price and related taxes. |
The other information called for by this Item is hereby
incorporated by reference to the paragraph captioned
Quarterly Financial Data (Unaudited) on pages 74 to
75 of the 2004 Annual Report and made a part hereof.
|
|
Item 6. |
Selected Financial Data. |
The information called for by this Item is hereby incorporated
by reference to the information with respect to 2000-2004
appearing under the caption Selected Financial Data
on page 39 of the 2004 Annual Report and made a part hereof.
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operation. |
The information called for by this Item is hereby incorporated
by reference to the paragraphs captioned Managements
Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) on pages 17 to 38
of the 2004 Annual Report and made a part hereof.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk. |
The information called for by this Item is hereby incorporated
by reference to the paragraphs in the MD&A captioned
Market Risk and Value at Risk on
pages 35 to 36 of the 2004 Annual Report and made a part
hereof.
30
|
|
Item 8. |
Financial Statements and Supplementary Data. |
The information called for by this Item is hereby incorporated
by reference to the 2004 Annual Report as set forth under the
caption Quarterly Financial Data (Unaudited) on
pages 74 to 75 and in the Index to Consolidated Financial
Statements and Schedules (see Item 15) and made a part
hereof.
|
|
Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. |
None.
|
|
Item 9A. |
Controls and Procedures. |
Altria Group, Inc. carried out an evaluation, with the
participation of Altria Group, Inc.s management, including
ALGs Chief Executive Officer and Chief Financial Officer,
of the effectiveness of Altria Group, Inc.s disclosure
controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end
of the period covered by this report. Based upon that
evaluation, ALGs Chief Executive Officer and Chief
Financial Officer concluded that Altria Group, Inc.s
disclosure controls and procedures are effective.
See Exhibit 13 for the Report of Management on Internal
Control over Financial Reporting and the Report of Independent
Registered Public Accounting Firm containing an attestation
thereto.
|
|
Item 9B. |
Other Information. |
On March 12, 2005, PT Philip Morris Indonesia
(PM Indonesia), a subsidiary of PMI, entered
into agreements to acquire 40% of the outstanding shares of PT
HM Sampoerna Tbk (Sampoerna) from a number of
Sampoernas principal shareholders. PM Indonesia also
will proceed with a public tender offer for all of the remaining
shares at a price per share of IDR 10,600
(U.S. $1.13 per share), the price per share to be paid
to the principal shareholders. Assuming all shares are acquired,
the total cost of the transaction will be approximately
$5.2 billion (based on an exchange rate of IDR 9,365 to
U.S. $1.00), including Sampoernas net debt of the
U.S.$ equivalent of approximately $160 million.
Sampoernas shares are listed in Indonesia on the Jakarta
and Surabaya exchanges.
Sampoerna is Indonesias third-largest tobacco company,
with estimated domestic tobacco volume of 41 billion units
in 2004. Sampoerna acts as PMIs exclusive distributor in
Indonesia. Sampoernas kretek cigarette brands held an
estimated 19.4% share of the market in 2004. Kreteks are
cigarettes made with both tobacco and cloves, and represent 92%
of the total Indonesian cigarette market, which is estimated at
more than 200 billion units annually.
Subject to customary regulatory approvals, PMI anticipates
completing the transaction within approximately 90 days.
The purchase price will be financed through a bank credit
facility to be arranged for PMI and its subsidiaries. Following
announcement of the transaction, Moodys,
Standard & Poors and Fitch Rating Services each
affirmed ALGs credit ratings and outlook.
31
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant. |
Executive Officers as of February 28, 2005:
|
|
|
|
|
|
|
Name |
|
Office |
|
Age | |
|
|
|
|
| |
André Calantzopoulos
|
|
President and Chief Executive Officer of Philip Morris
International Inc. |
|
|
48 |
|
Louis C. Camilleri
|
|
Chairman of the Board and Chief Executive Officer |
|
|
50 |
|
Nancy J. De Lisi
|
|
Senior Vice President, Mergers and Acquisitions |
|
|
54 |
|
Roger K. Deromedi
|
|
Chief Executive Officer of Kraft Foods Inc. |
|
|
51 |
|
Dinyar S. Devitre
|
|
Senior Vice President and Chief Financial Officer |
|
|
57 |
|
Amy J. Engel
|
|
Vice President and Treasurer |
|
|
48 |
|
David I. Greenberg
|
|
Senior Vice President and Chief Compliance Officer |
|
|
50 |
|
G. Penn Holsenbeck
|
|
Vice President, Associate General Counsel and Corporate Secretary |
|
|
58 |
|
Kenneth F. Murphy
|
|
Senior Vice President, Human Resources and Administration |
|
|
49 |
|
Steven C. Parrish
|
|
Senior Vice President, Corporate Affairs |
|
|
54 |
|
Walter V. Smith
|
|
Vice President, Taxes |
|
|
61 |
|
Michael E. Szymanczyk
|
|
Chairman and Chief Executive Officer of Philip Morris USA Inc. |
|
|
56 |
|
Joseph A. Tiesi
|
|
Vice President and Controller |
|
|
46 |
|
Charles R. Wall
|
|
Senior Vice President and General Counsel |
|
|
59 |
|
With the exception of Dinyar S. Devitre, all of the
above-mentioned officers have been employed by Altria Group,
Inc. in various capacities during the past five years. Dinyar S.
Devitre was appointed Senior Vice President and Chief Financial
Officer effective April 25, 2002. From April 2001 to March
2002, he was a private business consultant. From January 1998 to
March 2001, Mr. Devitre was Executive Vice President at
Citigroup Inc. in Europe. Prior to 1998, Mr. Devitre had
been employed by ALG or its subsidiaries in various capacities
since 1970.
Codes of Conduct and Corporate Governance
ALG has adopted the Altria Code of Conduct for Compliance and
Integrity, which complies with requirements set forth in
Item 406 of Regulation S-K, and this Code of Conduct
applies to all of its employees, including its principal
executive officer, principal financial officer, principal
accounting officer or controller, and persons performing similar
functions. ALG has also adopted a code of business conduct and
ethics that applies to the members of its Board of Directors.
These documents are available free of charge on ALGs web
site at www.altria.com and will be provided free of charge to
any stockholder requesting a copy by writing to: Corporate
Secretary, Altria Group, Inc., 120 Park Avenue, New York, NY
10017.
In addition, ALG has adopted corporate governance guidelines and
charters for its Audit, Compensation and Nominating and
Corporate Governance Committees and the other committees of the
board of directors. All of these documents are available free of
charge on ALGs web site at www.altria.com, are included in
ALGs definitive proxy statement, and will be provided free
of charge to any stockholder requesting a copy by writing to:
Corporate Secretary, Altria Group, Inc., 120 Park Avenue, New
York, NY 10017.
The information on ALGs web site is not, and shall not be
deemed to be, a part of this Report or incorporated into any
other filings made with the SEC.
32
|
|
Item 11. |
Executive Compensation. |
Except for the information relating to the executive officers
set forth above in Item 10 and the information relating to
equity compensation plans set forth in Item 12, the
information called for by Items 10-14 is hereby
incorporated by reference to ALGs definitive proxy
statement for use in connection with its annual meeting of
stockholders to be held on April 28, 2005, filed with the
SEC on March 14, 2005, and, except as indicated therein,
made a part hereof.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management. |
The number of shares to be issued upon exercise or vesting and
the number of shares remaining available for future issuance
under ALGs equity compensation plans at December 31,
2004, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
|
|
|
|
|
to be Issued upon | |
|
|
|
Number of Shares | |
|
|
Exercise of Outstanding | |
|
Weighted Average | |
|
Remaining Available for | |
|
|
Options and Vesting of | |
|
Exercise Price of | |
|
Future Issuance Under | |
|
|
Restricted Stock | |
|
Outstanding Options | |
|
Equity Compensation Plans | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by stockholders
|
|
|
77,601,050 |
|
|
$ |
39.93 |
|
|
|
86,775,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 13. |
Certain Relationships and Related Transactions. |
See Item 11.
|
|
Item 14. |
Principal Accounting Fees and Services. |
See Item 11.
33
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules. |
(a) Index to Consolidated Financial Statements and Schedules
|
|
|
|
|
|
|
|
|
|
|
|
Reference | |
|
|
| |
|
|
Form 10-K | |
|
2004 | |
|
|
Annual Report | |
|
Annual Report | |
|
|
Page | |
|
Page | |
|
|
| |
|
| |
Data incorporated by reference to Altria Group, Inc.s 2004
Annual Report:
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets at December 31, 2004 and 2003
|
|
|
|
|
|
|
40-41 |
|
|
Consolidated Statements of Earnings for the years ended
December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
42 |
|
|
Consolidated Statements of Stockholders Equity for the
years ended December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
43 |
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
44-45 |
|
|
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
46-75 |
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
76 |
|
Data submitted herewith:
|
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
|
|
|
S-1 |
|
|
|
|
|
|
Financial Statement Schedule Valuation and
Qualifying Accounts
|
|
|
S-2 |
|
|
|
|
|
Schedules other than those listed above have been omitted either
because such schedules are not required or are not applicable.
(b) The following exhibits are filed as part of this Report:
|
|
|
|
|
|
|
|
3 |
.1 |
|
|
|
Articles of Amendment to the Restated Articles of Incorporation
of ALG and Restated Articles of Incorporation of ALG.(22) |
|
|
3 |
.2 |
|
|
|
By-Laws, as amended, of ALG.(23) |
|
|
4 |
.1 |
|
|
|
Indenture dated as of August 1, 1990, between ALG and
JPMorgan Chase Bank, Trustee.(1) |
|
|
4 |
.2 |
|
|
|
First Supplemental Indenture dated as of February 1, 1991,
to Indenture dated as of August 1, 1990, between ALG and
JPMorgan Chase Bank (formerly known as Chemical Bank),
Trustee.(2) |
|
|
4 |
.3 |
|
|
|
Second Supplemental Indenture dated as of January 21, 1992,
to Indenture dated as of August 1, 1990, between ALG and
JPMorgan Chase Bank (formerly known as Chemical Bank),
Trustee.(3) |
|
|
4 |
.4 |
|
|
|
Indenture dated as of December 2, 1996, between ALG and
JPMorgan Chase Bank, Trustee.(4) |
|
|
4 |
.5 |
|
|
|
Indenture dated as of October 17, 2001, between Kraft Foods
Inc. and JPMorgan Chase Bank, Trustee.(19) |
|
|
4 |
.6 |
|
|
|
5-Year Revolving Credit Agreement dated as of July 24,
2001, among Altria Group, Inc., the Initial Lenders named
therein, JPMorgan Chase Bank (formerly known as The Chase
Manhattan Bank), and Citibank, N.A. as Administrative Agents,
Credit Suisse First Boston and Deutsche Bank AG New York Branch
and/or Cayman Islands Branch as Syndication Agents, ABN AMRO
Bank N.V., BNP Paribas, Dresdner Bank AG, New York and Grand
Cayman Branches and HSBC Bank USA as Arrangers and Documentation
Agents.(21) |
|
|
4 |
.7 |
|
|
|
The Registrant agrees to furnish copies of any instruments
defining the rights of holders of long-term debt of the
Registrant and its consolidated subsidiaries that does not
exceed 10 percent of the total assets of the Registrant and
its consolidated subsidiaries to the Commission upon request. |
|
|
10 |
.1 |
|
|
|
Financial Counseling Program.(5) |
|
|
10 |
.2 |
|
|
|
Benefit Equalization Plan, as amended.(6) |
|
|
10 |
.3 |
|
|
|
Form of Employee Grantor Trust Enrollment Agreement.(7) |
34
|
|
|
|
|
|
|
|
|
10 |
.4 |
|
|
|
Automobile Policy.(5) |
|
|
10 |
.5 |
|
|
|
Form of Employment Agreement between ALG and its executive
officers.(8) |
|
|
10 |
.6 |
|
|
|
Supplemental Management Employees Retirement Plan of ALG,
as amended.(5) |
|
|
10 |
.7 |
|
|
|
1992 Incentive Compensation and Stock Option Plan.(5) |
|
|
10 |
.8 |
|
|
|
1992 Compensation Plan for Non-Employee Directors, as amended.(9) |
|
|
10 |
.9 |
|
|
|
Unit Plan for Incumbent Non-Employee Directors, effective
January 1, 1996.(7) |
|
|
10 |
.10 |
|
|
|
Form of Executive Master Trust between ALG, JPMorgan Chase Bank
and Handy Associates.(8) |
|
|
10 |
.11 |
|
|
|
1997 Performance Incentive Plan.(10) |
|
|
10 |
.12 |
|
|
|
Long-Term Disability Benefit Equalization Plan, as amended.(5) |
|
|
10 |
.13 |
|
|
|
Survivor Income Benefit Equalization Plan, as amended.(5) |
|
|
10 |
.14 |
|
|
|
2000 Performance Incentive Plan.(17) |
|
|
10 |
.15 |
|
|
|
2000 Stock Compensation Plan for Non-Employee Directors, as
amended.(22) |
|
|
10 |
.16 |
|
|
|
Comprehensive Settlement Agreement and Release dated
October 17, 1997, related to settlement of Mississippi
health care cost recovery action.(5) |
|
|
10 |
.17 |
|
|
|
Settlement Agreement dated August 25, 1997, related to
settlement of Florida health care cost recovery action.(11) |
|
|
10 |
.18 |
|
|
|
Comprehensive Settlement Agreement and Release dated
January 16, 1998, related to settlement of Texas health
care cost recovery action.(12) |
|
|
10 |
.19 |
|
|
|
Settlement Agreement and Stipulation for Entry of Judgment,
dated May 8, 1998, regarding the claims of the State of
Minnesota.(13) |
|
|
10 |
.20 |
|
|
|
Settlement Agreement and Release, dated May 8, 1998,
regarding the claims of Blue Cross and Blue Shield of
Minnesota.(13) |
|
|
10 |
.21 |
|
|
|
Stipulation of Amendment to Settlement Agreement and For Entry
of Agreed Order, dated July 2, 1998, regarding the
settlement of the Mississippi health care cost recovery
action.(14) |
|
|
10 |
.22 |
|
|
|
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.(14) |
|
|
10 |
.23 |
|
|
|
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.(15) |
|
|
10 |
.24 |
|
|
|
Master Settlement Agreement relating to state health care cost
recovery and other claims.(16) |
|
|
10 |
.25 |
|
|
|
Stipulation and Agreed Order Regarding Stay of Execution Pending
Review and Related Matters.(18) |
|
|
10 |
.26 |
|
|
|
Agreement among ALG, PM USA and Michael E. Szymanczyk.(20) |
|
|
10 |
.27 |
|
|
|
Description of Agreement with Roger K. Deromedi.(24) |
|
|
10 |
.28 |
|
|
|
Anti-Contraband and Anti-Counterfeit Agreement and General
Release dated July 9, 2004 and Appendixes.(25) |
|
|
10 |
.29 |
|
|
|
Form of Restricted Stock Agreement.(26) |
|
|
10 |
.30 |
|
|
|
Description of Agreement with Louis C. Camilleri. |
|
|
10 |
.31 |
|
|
|
Agreement for the Sale and Purchase of 1,377,525,000 shares
in PT HM Sampoerna Tbk dated March 12, 2005, between
Dubuis Holding Limited and PT Philip Morris Indonesia
(PT Philip Morris Indonesia entered into agreements with a
number of other principal shareholders on terms substantially
identical in all material respects). |
|
|
12 |
|
|
|
|
Statements re: computation of ratios. |
|
|
13 |
|
|
|
|
Pages 16 to 77 of the 2004 Annual Report, but only to the
extent set forth in Items 1, 3, 5-8, and 15 hereof.
With the exception of the aforementioned information
incorporated by reference in this Annual Report on
Form 10-K, the 2004 Annual Report is not to be deemed
filed as part of this Report. |
|
|
21 |
|
|
|
|
Subsidiaries of ALG. |
|
|
23 |
|
|
|
|
Consent of independent auditors. |
35
|
|
|
|
|
|
|
|
|
24 |
|
|
|
|
Powers of attorney. |
|
|
31 |
.1 |
|
|
|
Certifications of the Registrants Chief Executive Officer
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31 |
.2 |
|
|
|
Certifications of the Registrants Chief Financial Officer
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32 |
.1 |
|
|
|
Certification of the Registrants Chief Executive Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32 |
.2 |
|
|
|
Certification of the Registrants Chief Financial Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
99 |
.1 |
|
|
|
Certain Pending Litigation Matters and Recent Developments. |
|
|
99 |
.2 |
|
|
|
Trial Schedule. |
|
|
|
|
(1) |
Incorporated by reference to ALGs Registration Statement
on Form S-3 (No. 33-36450) dated August 22, 1990
(File No. 1-08940). |
|
|
(2) |
Incorporated by reference to ALGs Registration Statement
on Form S-3 (No. 33-39059) dated February 21,
1991 (File No. 1-08940). |
|
|
(3) |
Incorporated by reference to ALGs Registration Statement
on Form S-3 (No. 33-45210) dated January 22, 1992
(File No. 1-08940). |
|
|
(4) |
Incorporated by reference to ALGs Registration Statement
on Form S-3/ A (No. 333-35143) dated January 29,
1998 (File No. 1-08940). |
|
|
(5) |
Incorporated by reference to ALGs Annual Report on
Form 10-K for the year ended December 31, 1997 (File
No. 1-08940). |
|
|
(6) |
Incorporated by reference to ALGs Annual Report on
Form 10-K for the year ended December 31, 1996 (File
No. 1-08940). |
|
|
(7) |
Incorporated by reference to ALGs Annual Report on
Form 10-K for the year ended December 31, 1995 (File
No. 1-08940). |
|
|
(8) |
Incorporated by reference to ALGs Annual Report on
Form 10-K for the year ended December 31, 1994 (File
No. 1-08940). |
|
|
(9) |
Incorporated by reference to ALGs Quarterly Report on
Form 10-Q for the period ended June 30, 1997 (File
No. 1-08940). |
|
|
(10) |
Incorporated by reference to ALGs proxy statement dated
March 10, 1997 (File No. 1-08940). |
|
(11) |
Incorporated by reference to ALGs Current Report on
Form 8-K dated September 3, 1997 (File
No. 1-08940). |
|
(12) |
Incorporated by reference to ALGs Current Report on
Form 8-K dated January 28, 1998 (File
No. 1-08940). |
|
(13) |
Incorporated by reference to ALGs Quarterly Report on
Form 10-Q for the period ended March 31, 1998 (File
No. 1-08940). |
|
(14) |
Incorporated by reference to ALGs Quarterly Report on
Form 10-Q for the period ended June 30, 1998 (File
No. 1-08940). |
|
(15) |
Incorporated by reference to ALGs Quarterly Report on
Form 10-Q for the period ended September 30, 1998
(File No. 1-08940). |
|
(16) |
Incorporated by reference to ALGs Current Report on
Form 8-K dated November 25, 1998, as amended by
Form 8-K/ A dated December 24, 1998 (File
No. 1-08940). |
|
(17) |
Incorporated by reference to ALGs proxy statement dated
March 10, 2000 (File No. 1-08940). |
|
(18) |
Incorporated by reference to ALGs Current Report on
Form 8-K dated May 8, 2001. |
36
|
|
(19) |
Incorporated by reference to Kraft Foods Inc.s
Registration Statement on Form S-3 (No. 333-67770)
dated August 16, 2001. |
|
(20) |
Incorporated by reference to ALGs Quarterly Report on
Form 10-Q for the period ended June 30, 2002. |
|
(21) |
Incorporated by reference to ALGs Quarterly Report on
Form 10-Q for the period ended March 31, 2003. |
|
(22) |
Incorporated by reference to ALGs Annual Report on
Form 10-K for the year ended December 31, 2002. |
|
(23) |
Incorporated by reference to ALGs Current Report on
Form 8-K dated December 17, 2004. |
|
(24) |
Incorporated by reference to ALGs Annual Report on
Form 10-K for the year ended December 31, 2003. |
|
(25) |
Incorporated by reference to ALGs Current Report on
Form 8-K dated July 9, 2004 (portions of which have
been omitted pursuant to a request for confidential treatment
filed with the Securities and Exchange Commission). |
|
(26) |
Incorporated by reference to ALGs Current Report on
Form 8-K dated January 28, 2005. |
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
By: |
/s/ Louis C.
Camilleri |
|
|
|
|
|
(Louis C. Camilleri |
|
Chairman of the Board and |
|
Chief Executive Officer) |
Date: March 15, 2005
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Louis C. Camilleri
(Louis
C. Camilleri) |
|
Director, Chairman of the Board and Chief Executive Officer |
|
March 15, 2005 |
|
/s/ Dinyar S. Devitre
(Dinyar
S. Devitre) |
|
Senior Vice President and Chief Financial Officer |
|
March 15, 2005 |
|
/s/ Joseph A. Tiesi
(Joseph
A. Tiesi) |
|
Vice President and Controller |
|
March 15, 2005 |
|
*ELIZABETH E. BAILEY, HAROLD
BROWN, MATHIS
CABIALLAVETTA, J. DUDLEY
FISHBURN, ROBERT E. R.
HUNTLEY, THOMAS W.
JONES, GEORGE
MUÑOZ, LUCIO A.
NOTO, JOHN S.
REED, CARLOS SLIM
HELÚ, STEPHEN M. WOLF |
|
Directors |
|
|
|
*By: |
|
/s/ Louis C. Camilleri
(Louis
C. Camilleri
Attorney-in-fact) |
|
|
|
March 15, 2005 |
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
ALTRIA GROUP, INC.:
Our audits of the consolidated financial statements, of
managements assessment of internal control over financial
reporting and of the effectiveness of internal control over
financial reporting referred to in our report dated
February 2, 2005 appearing in the 2004 Annual Report to
Shareholders of Altria Group, Inc. (which report, consolidated
financial statements and assessment are incorporated by
reference in this Annual Report on Form 10-K) also included
an audit of the financial statement schedule listed in
Item 15(a) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/
PricewaterhouseCoopers
LLP
New York, New York
February 2, 2005
S-1
ALTRIA GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2004, 2003 and 2002
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. A |
|
Col. B | |
|
Col. C | |
|
Col. D | |
|
Col. E | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Additions | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Balance at | |
|
Charged to | |
|
Charged to | |
|
|
|
Balance at | |
|
|
Beginning | |
|
Costs and | |
|
Other | |
|
|
|
End of | |
Description |
|
of Period | |
|
Expenses | |
|
Accounts | |
|
Deductions | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(a) | |
|
(b) | |
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSUMER PRODUCTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discounts
|
|
$ |
14 |
|
|
$ |
563 |
|
|
$ |
|
|
|
$ |
565 |
|
|
$ |
12 |
|
|
Allowance for doubtful accounts
|
|
|
150 |
|
|
|
29 |
|
|
|
8 |
|
|
|
32 |
|
|
|
155 |
|
|
Allowance for returned goods
|
|
|
21 |
|
|
|
14 |
|
|
|
|
|
|
|
21 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
185 |
|
|
$ |
606 |
|
|
$ |
8 |
|
|
$ |
618 |
|
|
$ |
181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses
|
|
$ |
396 |
|
|
$ |
140 |
|
|
$ |
|
|
|
$ |
39 |
|
|
$ |
497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSUMER PRODUCTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discounts
|
|
$ |
12 |
|
|
$ |
802 |
|
|
$ |
|
|
|
$ |
800 |
|
|
$ |
14 |
|
|
Allowance for doubtful accounts
|
|
|
156 |
|
|
|
17 |
|
|
|
|
|
|
|
23 |
|
|
|
150 |
|
|
Allowance for returned goods
|
|
|
16 |
|
|
|
176 |
|
|
|
|
|
|
|
171 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
184 |
|
|
$ |
995 |
|
|
$ |
|
|
|
$ |
994 |
|
|
$ |
185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses
|
|
$ |
444 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
48 |
|
|
$ |
396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSUMER PRODUCTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discounts
|
|
$ |
13 |
|
|
$ |
710 |
|
|
$ |
2 |
|
|
$ |
713 |
|
|
$ |
12 |
|
|
Allowance for doubtful accounts
|
|
|
207 |
|
|
|
32 |
|
|
|
(51 |
) |
|
|
32 |
|
|
|
156 |
|
|
Allowance for returned goods
|
|
|
7 |
|
|
|
166 |
|
|
|
|
|
|
|
157 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
227 |
|
|
$ |
908 |
|
|
$ |
(49 |
) |
|
$ |
902 |
|
|
$ |
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses
|
|
$ |
132 |
|
|
$ |
324 |
|
|
$ |
|
|
|
$ |
12 |
|
|
$ |
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
(a) |
Primarily related to divestitures, acquisitions and currency
translation. |
|
|
|
(b) |
|
Represents charges for which allowances were created. |
S-2