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Altria Sees $25M Gain From Accounting Rule

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WASHINGTON (AP) _ Altria Group Inc. said it expects a reduction in post-retirement health-care costs and an increase in net earnings of $25 million in the second half of 2004 after the adoption of an accounting rule related to the new Medicare law for prescription drugs.

According to its quarterly report filed Friday with the Securities and Exchange Commission, the New York-based parent company of Kraft Foods Inc. and Philip Morris has elected to adopt in the third quarter ending Sept. 30 the Financial Accounting Standard Board's accounting rule related to the new Medicare prescription drug law.

In December 2003, President Bush signed into law the Medicare Prescription Drug Improvement and Modernization Act of 2003, which introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health-care plans that provide a benefit that is at least actuarially equivalent to Medicare.

Altria said in the quarterly report that about $20 million of the expected $25 million increase in net earnings from the Medicare accounting rule is related to Kraft Foods.

Also, the company said in the third quarter its Philip Morris International unit will begin accruing payments due on the first anniversary of the 12-year cooperation agreement it signed with the European Commission and 10 member states of the European Union related to fighting the smuggling of cigarettes worldwide.

Dow Jones Newswires reported July 9 that Philip Morris International will pay up to half of the $1.25 billion it has pledged to the E.U. within three years of the agreement. The company has agreed to pay the full amount over the next 12 years.

Altria said Friday that under the agreement, the unit made an initial payment of $250 million, which was recorded as a pretax charge in its second quarter.

The company said the agreement calls for additional payments of $150 million on the first anniversary of the agreement, $100 million on the second anniversary and $75 million each year for 10 years, each of which is to be adjusted based on certain variables, including the unit's market share in the E.U. in the year preceding payment.

Also in the quarterly report, Altria said its Philip Morris USA Inc. unit expects the total costs of relocating its corporate headquarters will be about $110 million, including compensation to employees who didn't relocate. The unit moved to Richmond, Va., from New York.

Altria said it recorded pretax charges of $10 million in its second quarter and $20 million for its six months ended June 30 related to the unit's relocation.

The company said to date, $89 million of relocation charges have been recorded. Altria said the relocation will require cash payments of about $60

Altria is the parent company of Kraft Foods, Philip Morris USA, Philip Morris International and Philip Morris Capital Corp. The units make a variety of packaged including Marlboro cigarettes, Ritz crackers, Kraft macaroni, Oscar Mayer cold cuts and Oreo cookies.
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