Segment Reporting

12 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

The products of Altria Group, Inc.’s subsidiaries include smokeable products comprised of cigarettes manufactured and sold by PM USA and machine-made large cigars and pipe tobacco manufactured and sold by Middleton; smokeless products, substantially all of which are manufactured and sold by USSTC; and wine produced and/or distributed by Ste. Michelle. The products and services of these subsidiaries constitute Altria Group, Inc.’s reportable segments of smokeable products, smokeless products and wine. The financial services and the innovative tobacco products businesses are included in all other.

Altria Group, Inc.’s chief operating decision maker reviews operating companies income to evaluate the performance of, and allocate resources to, the segments. Operating companies income for the segments is defined as operating income before amortization of intangibles and general corporate expenses. Interest and other debt expense, net, and provision for income taxes are centrally managed at the corporate level and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by Altria Group, Inc.’s chief operating decision maker. Information about total assets by segment is not disclosed because such information is not reported to or used by Altria Group, Inc.’s chief operating decision maker. Segment goodwill and other intangible assets, net, are disclosed in Note 4. Goodwill and Other Intangible Assets, net. The accounting policies of the segments are the same as those described in Note 2. Summary of Significant Accounting Policies.

Segment data were as follows:

	For the Years Ended December 31,
(in millions)	2014			2013			2012
Net revenues:
Smokeable products	$	21,939		$	21,868		$	22,216
Smokeless products	1,809			1,778			1,691
Wine	643			609			561
All other	131			211			150
Net revenues	$	24,522		$	24,466		$	24,618
Earnings before income taxes:
Operating companies income (loss):
Smokeable products	$	6,873		$	7,063		$	6,239
Smokeless products	1,061			1,023			931
Wine	134			118			104
All other	(185		)	157			176
Amortization of intangibles	(20		)	(20		)	(20		)
General corporate expenses	(241		)	(235		)	(229		)
Changes to Mondelēz and PMI tax-related receivables/payables	(2		)	(22		)	52
Operating income	7,620			8,084			7,253
Interest and other debt expense, net	(808		)	(1,049		)	(1,126		)
Loss on early extinguishment of debt	(44		)	(1,084		)	(874		)
Earnings from equity investment in SABMiller	1,006			991			1,224
Earnings before income taxes	$	7,774		$	6,942		$	6,477

The smokeable products segment included net revenues of $21,363 million, $21,308 million and $21,615 million for the years ended December 31, 2014, 2013 and 2012, respectively, related to cigarettes and net revenues of $576 million, $560 million and $601 million for the years ended December 31, 2014, 2013 and 2012, respectively, related to cigars.

PM USA, USSTC and Middleton’s largest customer, McLane Company, Inc., accounted for approximately 27% of Altria Group, Inc.’s consolidated net revenues for each of the years ended December 31, 2014, 2013 and 2012. Substantially all of these net revenues were reported in the smokeable products and smokeless products segments. Sales to three distributors accounted for approximately 67% of net revenues for the wine segment for the year ended December 31, 2014 and 66% for each of the years ended December 31, 2013 and 2012.

Details of Altria Group, Inc.’s depreciation expense and capital expenditures were as follows:

	For the Years Ended December 31,
(in millions)	2014		2013		2012
Depreciation expense:
Smokeable products	$	112	$	113	$	125
Smokeless products	22		25		26
Wine	30		30		27
General corporate and other	24		24		27
Total depreciation expense	$	188	$	192	$	205
Capital expenditures:
Smokeable products	$	49	$	39	$	48
Smokeless products	40		32		36
Wine	46		42		30
General corporate and other	28		18		10
Total capital expenditures	$	163	$	131	$	124

The comparability of operating companies income for the reportable segments was affected by the following:

▪Non-Participating Manufacturer (“NPM”) Adjustment Items: For the years ended December 31, 2014 and 2013, pre-tax income for NPM adjustment items was recorded in Altria Group, Inc.’s consolidated statements of earnings as follows:

(in millions)	2014		2013
Smokeable products segment	$	43	$	664
Interest and other debt expense, net	47		—
Total	$	90	$	664

These adjustments resulted from the settlement of, and determinations made in connection with, disputes with certain states and territories related to the NPM adjustment provision under the 1998 Master Settlement Agreement (the “MSA”) for the years 2003-2012 (such settlements and determinations are referred to collectively as “NPM Adjustment Items” and are more fully described in Health Care Cost Recovery Litigation - NPM Adjustment Disputes in Note 18. Contingencies). The amounts shown in the table above for the smokeable products segment were recorded by PM USA as reductions to cost of sales, which increased operating companies income in the smokeable products segment.

▪Tobacco and Health Litigation Items: For the years ended December 31, 2014, 2013 and 2012, pre-tax charges related to certain tobacco and health litigation items were recorded in Altria Group, Inc.’s consolidated statements of earnings as follows:

(in millions)	2014		2013		2012
Smokeable products segment	$	27	$	18	$	4
General corporate	15		—		—
Interest and other debt expense, net	2		4		1
Total	$	44	$	22	$	5

During the second quarter of 2014, Altria Group, Inc. and PM USA recorded an aggregate pre-tax charge of $31 million in marketing, administration and research costs for the estimated costs of implementing the corrective communications remedy in connection with the federal government’s lawsuit against Altria Group, Inc. and PM USA. For further discussion, see Health Care Cost Recovery Litigation - Federal Government’s Lawsuit in Note 18. Contingencies.

▪Asset Impairment and Exit Costs: Asset impairment and exit costs for the years ended December 31, 2014, 2013 and 2012 were as follows:

(in millions)	2014			2013		2012
Smokeable products	$	(6	)	$	3	$	38
Smokeless products	5			3		22
General corporate and other	—			5		1
	$	(1	)	$	11	$	61

During 2014, PM USA sold its Cabarrus, North Carolina manufacturing facility for approximately $66 million in connection with the previously completed manufacturing optimization program associated with PM USA’s closure of the manufacturing facility in 2009. As a result, during 2014, PM USA recorded a pre-tax gain of $10 million.

The pre-tax asset impairment and exit costs for the year ended December 31, 2012 were due primarily to Altria Group, Inc.’s cost reduction program announced in 2011 (the “2011 Cost Reduction Program”).