What were the main business segments of Altria Group, Inc. in 2002?

Altria Group's reportable segments in 2002 were domestic tobacco, international tobacco, North American food, international food, beer (prior to its merger in July 2002), and financial services.

What impact did the Nabisco acquisition have on Kraft Foods and Altria?

The integration of Nabisco into Kraft continued throughout 2002, involving facility closures and restructuring charges. Kraft achieved annualized net cost synergy savings of $425 million through 2002 and expected further synergies, contributing to Kraft's overall performance within Altria's portfolio.

What were the key risks and uncertainties facing Altria in 2002, as highlighted in the filing?

Key risks included substantial tobacco-related litigation with significant potential financial exposure, increasing excise taxes on cigarettes, intense competition in the domestic tobacco market, ongoing governmental investigations, regulatory changes affecting tobacco products, and economic downturns impacting consumer spending across its segments. The financial services segment also faced risks from airline bankruptcies.

How did the company address the decline in domestic cigarette volumes?

PM USA experienced lower volumes due to weak economic conditions and increased excise taxes. The company planned significant promotional activities for 2003 to address these issues, though these were expected to reduce operating companies income for PM USA in the short term.

MO 10-K FY2002 Annual Report — Revenue, Net Income, EPS

Summary

Altria Group, Inc.'s 2002 Form 10-K reveals a company undergoing significant structural changes and facing substantial legal and regulatory challenges, primarily within its tobacco segment. The company officially changed its name from Philip Morris Companies Inc. to Altria Group, Inc. in January 2003, reflecting its broader portfolio. A major event was the merger of its Miller Brewing Company subsidiary into South African Breweries plc (SAB), resulting in a significant pre-tax gain and a retained stake in the new entity, SABMiller plc. The core domestic tobacco business, Philip Morris USA (PM USA), experienced a decline in shipment volume and market share, attributed to increased excise taxes, weak economic conditions, and intense price competition, particularly from deep-discount brands. Despite these challenges, the international tobacco business (PMI) showed growth in shipments and market share, driven by the iconic Marlboro brand. Kraft Foods, Altria's significant food and beverage subsidiary, continued its integration of the Nabisco acquisition, realizing cost synergies and pursuing strategic acquisitions and divestitures. However, the company's financial services segment, particularly its aircraft leasing portfolio, was impacted by airline industry bankruptcies, necessitating a substantial allowance for losses. Investors should be aware of the significant ongoing tobacco-related litigation, including substantial jury verdicts, and the ever-present regulatory and legislative risks that could materially affect future results.

Key Highlights

1The company officially changed its name from Philip Morris Companies Inc. to Altria Group, Inc. (effective January 27, 2003), signaling a broader corporate identity beyond tobacco.

2Philip Morris USA (PM USA), the domestic tobacco unit, saw a 7.5% decrease in cigarette shipments in 2002, and its market share dropped to 48.9% due to economic pressures and competition from discount brands.

3Philip Morris International (PMI) demonstrated resilience, with cigarette shipments increasing by 3.5% in 2002 and its estimated international market share growing to 14.7%.

4The significant integration of the Nabisco acquisition into Kraft Foods continued, with substantial cost synergies realized and further savings expected, alongside strategic smaller acquisitions and divestitures.

5A notable event was the merger of Miller Brewing Company into SABMiller plc, which generated a pre-tax gain of approximately $2.6 billion for Altria and resulted in a 36% economic interest in the combined entity.

6The financial services segment (PMCC) incurred a significant $290 million provision for losses related to the airline industry's downturn, impacting its financial performance.

7Altria faces substantial and ongoing tobacco-related litigation, including significant jury verdicts, with potential for material adverse effects on future financial results, although the company intends to vigorously defend these cases.

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