Segment Reporting

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

As discussed in Note 17. Benefit Plans, on January 1, 2018, Altria adopted ASU 2017-07, which resulted in a change to prior-period operating income. As a result, certain immaterial prior-period operating companies income (loss) data has been restated.

Altria’s chief operating decision maker (the “CODM”) 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 general corporate expenses and amortization of intangibles. Interest and other debt expense, net, net periodic benefit cost/income, excluding service cost, 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 the CODM. Information about total assets by segment is not disclosed because such information is not reported to or used by the CODM. Substantially all of Altria’s long-lived assets are located in the United States. 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)	2018			2017			2016
Net revenues:
Smokeable products	$	22,297		$	22,636		$	22,851
Smokeless products	2,262			2,155			2,051
Wine	691			698			746
All other	114			87			96
Net revenues	$	25,364		$	25,576		$	25,744
Earnings before income taxes:
Operating companies income (loss):
Smokeable products	$	8,408		$	8,426		$	7,766
Smokeless products	1,431			1,306			1,172
Wine	50			146			164
All other	(421		)	(51		)	(98		)
Amortization of intangibles	(38		)	(21		)	(21		)
General corporate expenses	(315		)	(213		)	(217		)
Corporate asset impairment and exit costs	—			—			(5		)
Operating income	9,115			9,593			8,761
Interest and other debt expense, net	(665		)	(705		)	(747		)
Loss on early extinguishment of debt	—			—			(823		)
Net periodic benefit income (cost), excluding service cost	34			(37		)	1
Earnings from equity investment in AB InBev/SABMiller	890			532			795
(Loss) gain on AB InBev/SABMiller business combination	(33		)	445			13,865
Earnings before income taxes	$	9,341		$	9,828		$	21,852

The smokeable products segment included net revenues of $21,506 million, $21,900 million and $22,199 million for the years ended December 31, 2018, 2017 and 2016, respectively, related to cigarettes and net revenues of $791 million, $736 million and $652 million for the years ended December 31, 2018, 2017 and 2016, respectively, related to cigars.

Substantially all of Altria’s net revenues are from sales generated in the United States for the years ended December 31, 2018, 2017 and 2016. PM USA, USSTC, Middleton and Nat Sherman’s largest customer, McLane Company, Inc., accounted for approximately 27%, 26% and 25% of Altria’s consolidated net revenues for the years ended December 31, 2018, 2017 and 2016, respectively. In addition, Core-Mark Holding Company, Inc. accounted for approximately 14% of Altria’s consolidated net revenues for each of the years ended December 31, 2018, 2017 and 2016. Substantially all of these net revenues were reported in the smokeable products and smokeless products segments. Sales to two distributors accounted for approximately 64% of net revenues for the wine segment for the year ended December 31, 2018. Sales to three distributors accounted for approximately 67% and 69% of net revenues for the wine segment for the years ended December 31, 2017 and 2016, respectively.

Details of Altria’s depreciation expense and capital expenditures were as follows:



	For the Years Ended December 31,
(in millions)	2018		2017		2016
Depreciation expense:
Smokeable products	$	90	$	93	$	93
Smokeless products	28		29		26
Wine	40		40		36
General corporate and other	31		26		28
Total depreciation expense	$	189	$	188	$	183
Capital expenditures:
Smokeable products	$	81	$	39	$	55
Smokeless products	73		61		52
Wine	40		53		59
General corporate and other	44		46		23
Total capital expenditures	$	238	$	199	$	189

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, 2018, 2017 and 2016, pre-tax (income) expense for NPM adjustment items was recorded in Altria’s consolidated statements of earnings as follows:



(in millions)	2018			2017			2016
Smokeable products segment	$	(145	)	$	(5	)	$	12
Interest and other debt expense, net	—			9			6
Total	$	(145	)	$	4		$	18

NPM adjustment items result from the resolutions of certain disputes with states and territories related to the NPM adjustment provision under the 1998 Master Settlement Agreement (such dispute resolutions are referred to as “NPM Adjustment Items” and are more fully described in Health Care Cost Recovery Litigation - NPM Adjustment Disputes in Note 19. Contingencies). The amounts shown in the table above for the smokeable products segment were recorded by PM USA as (reductions) increases to cost of sales, which (increased) decreased operating companies income in the smokeable products segment.

▪Tobacco and Health Litigation Items: For the years ended December 31, 2018, 2017 and 2016, pre-tax charges related to certain tobacco and health litigation items were recorded in Altria’s consolidated statements of earnings as follows:



(in millions)	2018		2017		2016
Smokeable products segment	$	103	$	72	$	88
Smokeless products segment	10		—		—
Interest and other debt expense, net	18		8		17
Total	$	131	$	80	$	105

The amounts shown in the table above for the smokeable and smokeless products segments were recorded in marketing, administration and research costs. For further discussion, see Note 19. Contingencies.

▪Smokeless Products Recall: During 2017, USSTC voluntarily recalled certain smokeless tobacco products manufactured at its Franklin Park, Illinois facility due to a product tampering incident (the “Recall”). USSTC estimated that the Recall reduced smokeless products segment operating companies income by approximately $60 million in 2017.

▪Asset Impairment, Exit and Implementation Costs: See Note 5. Asset Impairment, Exit and Implementation Costs for a breakdown of these costs by segment.