Altria Group, Inc. Reports 2006 Third-Quarter Results
Altria Group, Inc. (NYSE: MO) today announced third-quarter 2006 reported diluted earnings per share of $1.36, including items detailed on the attached Schedule 7, versus $1.38 in the year-ago period. Comparison of results for the third quarter of 2006 versus the same period a year ago was impacted by a number of items in both years. Absent those items, diluted earnings per share were up 1.5% to $1.39, as detailed in the table below.
“Our third-quarter results were in line with our internal expectations and we remain on track to meet our earnings target for the full year,” said Louis C. Camilleri, chairman and chief executive officer of Altria Group, Inc. “Our income performance during the third quarter was adversely affected by Philip Morris International’s continued challenges in Spain and the anticipated inventory depletion in Japan following the July 2006 price increase.”
“In our domestic tobacco business, Marlboro continued to gain share of both the total cigarette market and the growing premium segment,” Mr. Camilleri said.
“Kraft posted solid earnings gains. However, achieving its goals for stronger top-line growth and sustainable earnings momentum will require continued investment in innovation and brand-building initiatives,” Mr. Camilleri said.
The 1.5% increase in diluted earnings per share to $1.39, after excluding the items shown in the table below, was due primarily to favorable operating results at Philip Morris USA (PM USA) and Kraft, as well as favorable net interest expense and better results from Philip Morris Capital Corporation (PMCC). These were partially offset by lower operating results at Philip Morris International (PMI) and a higher tax rate.
Q3 2006
Q3 2005
Change
Reported diluted EPS from continuing operations
$
1.36Â
$
1.38Â
(1.4)%
Â
(Gain) on redemption of United Biscuits
investment, net of minority interest impact
(0.06)
–Â
Â
Loss on sales of businesses,
net of minority interest impact
(0.02)
–Â
Â
Asset impairment and exit costs,
net of minority interest impact
0.06Â
0.02Â
Â
Net charges for loss on U.S. tobacco
pool and tobacco quota buy-out
–Â
0.01Â
Â
Provision for airline industry exposure
–Â
0.06Â
Â
Tax items, net of minority interest impact
0.01Â
(0.10)
Â
Diluted EPS, excluding above items
$
1.39Â
$
1.37Â
1.5%
As shown on Schedule 7, the 1.4% decline in reported diluted earnings per share was due primarily to lower results from international tobacco operations and higher Kraft restructuring charges for the third quarter of 2006 versus 2005, which were partially offset by Kraft’s gain on the redemption of its interest in United Biscuits (UB) described below. The year-ago period included $204 million in tax benefits, primarily related to the American Jobs Creation Act (AJCA), offset by an increase of $200 million ($129 million after tax) in the provision for airline industry exposure at PMCC and $23 million in net charges ($15 million after tax) at PM USA related to tobacco quota buy-out legislation.
Acquisitions and Divestitures
In July 2006, Kraft announced an agreement with United Biscuits to acquire the Spanish and Portuguese operations of UB, and rights to all Nabisco trademarks in the European Union, Eastern Europe, the Middle East and Africa for a total cost of $1.07 billion. The acquisition was financed by Kraft’s assumption of $541 million of debt issued by the acquired business immediately prior to the acquisition, as well as $530 million of value for the redemption of Kraft’s outstanding investment in UB. The redemption of Kraft’s interest in UB resulted in a $251 million pre-tax gain on closing, benefiting Altria Group, Inc. by $0.06 per diluted share.
Kraft also completed the sale of its Milk Bone pet snacks brand and assets in July 2006 for $580 million and recorded additional taxes of $59 million related to the sale. This sale and the additional taxes were recorded in the third quarter of 2006.
In addition, on July 27, Kraft announced that it had agreed to sell its Minute Rice brand and related assets for approximately $280 million. The transaction, which is expected to close in the fourth quarter, will result in a gain to Altria Group, Inc. of approximately $140 million or $0.07 per diluted share, after taxes and minority interest.
2006 Full-Year Forecast
Altria projects 2006 full-year diluted earnings per share from continuing operations in a range of $5.48 to $5.53, versus a previously disclosed range of $5.40 to $5.50. The company’s revised forecast includes Kraft’s gain on the Minute Rice sale (positively impacting Altria by approximately $0.07 per share). It also reflects revisions for Kraft’s gain on the redemption of its interest in UB (positively impacting Altria by approximately $0.06 per share versus $0.09 per share in previous guidance). It does not include the impact of any potential future acquisitions or divestitures. The factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to this projection.
Debt Rating Upgrade
On October 24, 2006, Moody’s Investors Service upgraded the long-term senior unsecured debt rating of Altria Group, Inc. and subsidiaries to Baa1 from Baa2 and affirmed the company’s short-term commercial paper rating of Prime-2.
Conference Call
A conference call with members of the investment community and news media will be Webcast at 2:00 p.m. Eastern Time on October 25, 2006. Access is available at www.altria.com.
ALTRIA GROUP, INC.
As described in “Note 15. Segment Reporting” of Altria Group, Inc.’s 2005 Annual Report, management reviews operating companies income, which is defined as operating income before corporate expenses and amortization of intangibles, to evaluate segment performance and allocate resources. Management believes it is appropriate to disclose this measure to help investors analyze business performance and trends. For a reconciliation of operating companies income to operating income, see the Condensed Statements of Earnings contained in this release.
All references in this news release are to continuing operations, unless otherwise noted.
References to international tobacco market share are PMI estimates based on a number of industry sources.
2006 Third-Quarter Results
Net revenues for the third quarter of 2006 increased 3.7% versus 2005 to $25.9 billion, including favorable currency of $281 million.
Operating income increased 9.2% to $4.7 billion, reflecting the items described in the attached reconciliation on Schedule 3, including Kraft’s $251 million gain on the redemption of its interest in UB, favorable currency of $25 million and higher results from operations of $73 million, partially offset by charges for asset impairment, exit and implementation costs, which were $139 million higher in the third quarter of 2006 versus the year-earlier period, primarily at Kraft. The operating income comparison also benefited from charges recorded in the year-ago period for airline industry exposure at PMCC and net charges at PM USA related to tobacco quota buy-out legislation.
Net earnings decreased 0.3% to $2.9 billion, reflecting the factors mentioned above and favorable tax items in the third quarter of 2005 of $204 million, or $0.10 per share, due primarily to the repatriation of earnings under provisions of the AJCA. The company’s effective tax rate was 35.4% in the third quarter of 2006, compared to 27.4% for the same period in 2005.
Diluted earnings per share, as detailed on Schedule 1, decreased 1.4% to $1.36, driven by the factors mentioned above.
During the third quarter of 2006, Altria Group, Inc. increased its regular quarterly dividend by 7.5% to $0.86 per common share, which represents an annualized rate of $3.44 per common share.
DOMESTIC TOBACCO
2006 Third-Quarter Results
For the third quarter of 2006, Philip Morris USA (PM USA), Altria Group, Inc.’s domestic tobacco business, delivered strong share performance, driven by Marlboro.
Operating companies income increased 5.7% to $1.3 billion, primarily driven by lower wholesale promotional allowance rates and a favorable comparison with items in the third quarter of 2005, partially offset by lower volume and spending for various excise tax ballot initiatives. Results for the third quarter of 2005 included the previously mentioned net charges at PM USA related to tobacco quota buy-out legislation and a pre-tax provision of $56 million for the Boeken individual smoking case.
Shipment volume of 47.6 billion units was down 0.6% from the previous year, reflecting changes in wholesale and retail trade inventory levels, the timing of 4th of July trade purchases and one less shipping day versus the year-ago period. Adjusting for those factors, PM USA estimates that shipment volume declined approximately 2% in the third quarter of 2006 versus the year-ago period, and was down approximately 1.5% for the first nine months of 2006 versus the same period in 2005. Premium mix for PM USA increased by 0.3 percentage points to 92.0% in the third quarter of 2006.
As shown in the following table, PM USA’s total retail share increased to 50.4% in the third quarter of 2006, driven by Marlboro.
Philip Morris USA Quarterly Retail Share*
Q3 2006
Q3 2005
Change
Marlboro
40.6%
40.1%
0.5 ppÂ
Parliament
1.8%
1.8%
0.0 ppÂ
Virginia Slims
2.3%
2.3%
0.0 ppÂ
Basic
4.2%
4.2%
0.0 ppÂ
Focus Brands
48.9%
48.4%
0.5 ppÂ
Other PM USA
1.5%
1.7%
-0.2 ppÂ
Total PM USA
50.4%
50.1%
0.3 ppÂ
* IRI/Capstone Total Retail Panel was developed to measure market share in retail stores selling cigarettes. It is not designed to capture Internet or direct mail sales.
PM USA’s share of the premium category was down 0.1 share point versus the year-earlier period to 62.1%, as the gain by Marlboro was more than offset by segment share losses incurred by other PM USA non-focus premium brands. PM USA’s share of the discount category grew 0.1 share point to 16.3%. The total industry’s premium category share increased 0.7 points to 74.3% in the third quarter of 2006, while the discount category share correspondingly declined to 25.7%. Within the discount category, share of the deep discount segment (which includes both major manufacturers’ private label brands and all other manufacturers’ discount brands) declined 0.2 points to 11.7% versus the year-ago period.
INTERNATIONAL TOBACCO
2006 Third-Quarter Results
At Philip Morris International (PMI), Altria Group, Inc.’s international tobacco business, results in the third quarter of 2006 were adversely impacted by performance in Japan and Spain. However, PMI projects that it will achieve strong growth in the fourth quarter of 2006.
In the third quarter of 2006, cigarette shipment volume for PMI declined 0.5% to 215.9 billion units. Continuing challenges in Spain, lower volume in Turkey, Portugal and Romania and trade inventory depletion in Japan after the July 2006 price increase were largely offset by gains in Indonesia, Italy, Poland, Russia, Ukraine, Mexico and Argentina. PMI’s total tobacco volume, which included 2.3 billion cigarette equivalent units of other tobacco products (OTPs), declined 0.4% to 218.2 billion units.
Operating companies income was down 3.8% to $2.1 billion, and down 2.3% excluding asset impairment and exit costs. The decline was due primarily to unfavorable volume/mix in Japan and lower pricing in Spain, partially offset by higher pricing elsewhere in PMI. Spain and Japan together contributed approximately eight percentage points to the decline in third-quarter 2006 operating companies income.
PMI’s market share in the third quarter of 2006 advanced in many countries, with gains in Argentina, Austria, Belgium, Egypt, Finland, France, Hungary, Indonesia, Italy, Japan, Korea, Lithuania, Mexico, Netherlands, the Philippines, Poland, Serbia and Ukraine.
Total Marlboro cigarette shipments of 80.5 billion units were down 2.1%, due mainly to Germany, Argentina and Japan. However, Marlboro market shares were up in Belgium, France, Italy, Japan, Korea, Mexico, Netherlands, the Philippines, Poland, Romania, Russia, Saudi Arabia, Serbia and Ukraine.
In the European Union (EU) region, PMI’s cigarette shipments were down 0.9%, as declines in Spain, Germany and Portugal were partially offset by gains in Italy, Poland and Hungary. PMI’s cigarette market share in the EU region was flat at 39.6%. Importantly, PMI’s share of total tobacco consumption (cigarettes and OTPs) in the EU was up 0.4 points to 35.9%.
In Germany, total tobacco consumption declined 9.5%. However, adjusted for one less selling day in the quarter this year, consumption was down 8.1%, mainly attributable to a significant decline in tobacco portions, with inventories of these products now essentially exhausted. PMI’s total tobacco shipments were down 0.6%, but its share of total tobacco consumption increased 2.8 points to 31.5%. The total cigarette market declined 1.8%, while PMI’s cigarette volume and market share declined by 2.2% and 0.1 points to 36.5%, respectively.
In Italy, the total cigarette market rose 0.7%. PMI’s shipment volume was up 4.2% and market share rose 1.2 points to 54.1%. Marlboro share increased 0.5 points to 23.0%, while share for Diana was also higher, up 0.5 points to 13.6%.
In France, the total market was essentially unchanged versus the prior-year quarter. PMI’s shipments were down 2.0% due to timing of trade purchases. Market share continued to grow, rising 0.8 points to 42.5% on the strength of Marlboro and the Philip Morris brand.
In Spain, the total cigarette market declined 7.9%, due mainly to an unfavorable comparison with the third quarter of 2005, which benefited from trade purchases as a result of an anticipated industry price increase that did not occur, as well as the tobacco legislation in force since January 1, 2006. PMI’s cigarette shipments were down 12.4% in the third quarter of 2006 versus the year-ago period, and market share declined 3.1 points to 32.2%, primarily due to L&M and Chesterfield. Sequentially, PMI’s market share was up 0.6 points versus the second quarter of 2006 and share for Marlboro was up 0.7 points to 17.4% in the third quarter of 2006 versus the previous quarter, demonstrating its continued resilience.
In Eastern Europe, the Middle East and Africa, PMI’s shipments declined 0.7% due to Turkey and Romania, largely offset by strong gains in Russia, Ukraine, Israel and Egypt. In Turkey, shipments were down 12.2%, due mainly to the decline of low-price Bond Street, partially offset by gains of higher-margin brands Parliament and Muratti. Market share in Turkey declined 0.7 points to 41.9%. However, overall mix continued to improve, driven by gains of Parliament. In Romania, shipments were down 31.4% and share declined 2.5 points to 31.0%, mainly due to L&M. However, Marlboro share was up 2.0 points to 12.2%. In Russia, shipments rose 3.3%, driven by Marlboro, Muratti and Parliament. Although share was down 0.5 points, this primarily reflected declines of PMI’s low-price brands and L&M. Combined market share in Russia for PMI’s higher-margin brands, including Marlboro and Parliament, was up 0.4 points versus the prior-year period. In Ukraine, shipments grew 8.8% and share advanced 1.2 points to 33.4% as consumers continued to trade up to higher priced Marlboro, Parliament and Chesterfield.
In Asia, volume was down 1.5%, due primarily to a difficult comparison with the prior-year quarter in Japan, partially offset by gains in Indonesia, Korea and Thailand.
In Japan, PMI’s shipments were down 1.8 billion units or 10.4%, due mainly to a 22.7% total market decline, partially offset by the favorable timing of shipments. The industry contraction in the third quarter reflects trade inventory depletion after the tax-driven price increase on July 1, 2006. PMI’s in-market sales were down 22.5% and market share was up 0.1 points to 25.0%. Marlboro’s share rose 0.3 points to 10.2%.
In Indonesia, PMI’s shipment volume rose 9.1% and market share increased 1.5 points to 28.2%, demonstrating the continued strength of its brand portfolio, led by A Hijau, A Mild and Dji Sam Soe.
PMI’s volume in Latin America increased 4.4%, due mainly to gains in Argentina and Mexico, partially offset by Colombia, which was negatively impacted by the timing of shipments. The total market in Argentina was up 7.8%, while PMI’s shipments grew 18.2% and share was up 5.9 points to 66.9%, due primarily to the continued growth of the Philip Morris brand. In Mexico, PMI shipments advanced 5.8% and market share rose 1.9 points to 63.8%, reflecting the continued momentum of Marlboro, which rose 2.2 share points to 48.1%.
FOOD
2006 Third-Quarter Results
Kraft Foods Inc. (Kraft) reported 2006 third-quarter results on October 23, 2006. Kraft’s net revenues were up 2.3% to $8.2 billion, driven by North American convenient meals, cheese, snacks, cereals and powdered beverages, as well as Latin America and Eastern Europe and favorable currency of $125 million, partially offset by the impact of divestitures.
Ongoing volume declined 1.9%, due primarily to the impact of product item pruning and the discontinuation of select product lines, primarily in the North American Foodservice and Canadian ready-to-drink beverage businesses, as well as weakness in several beverage and grocery franchises. Partially offsetting those factors were strong gains achieved across numerous products, including Oscar Mayer meats, Post cereals, Kraft natural cheese, DiGiorno pizza and Wheat Thins snack crackers.
Operating income increased 18.2% to $1.4 billion for the third quarter, benefiting from the gain on the redemption of Kraft’s interest in UB and also from lower dairy costs, improved product mix and ongoing manufacturing efficiencies and cost savings, partially offset by higher marketing spending to support brand equity, higher asset impairment, exit and implementation costs, and higher energy and packaging costs. Excluding the asset impairment, exit and implementation costs and gains/losses on the sale of businesses, operating income increased 5.6% and the resulting operating income margin increased to 15.2% from 14.8% recorded in the corresponding prior-year period.
NORTH AMERICAN FOOD
2006 Third-Quarter Results
For the third quarter 2006, Kraft North America Commercial (KNAC) net revenues were up 0.7% to $5.6 billion versus the prior-year quarter, reflecting increases in Beverages, Convenient Meals and Snacks & Cereals and favorable currency of $52 million, partially offset by declines in Cheese & Foodservice and Grocery. Ongoing volume decreased 2.1% due to decreases in Beverages, Cheese & Foodservice and Grocery, partially offset by increases in Convenient Meals and Snacks & Cereals. Operating companies income decreased 1.9% to $930 million, with higher asset impairment, exit and implementation costs only partially offset by productivity and restructuring savings, positive mix, and favorable currency of $12 million.
INTERNATIONAL FOOD
2006 Third-Quarter Results
For the third quarter 2006, net revenues for Kraft International Commercial (KIC) increased 5.8% to $2.7 billion versus the prior-year quarter, reflecting increases in the European Union and Developing Markets, Oceania & North Asia, and favorable currency of $73 million. Ongoing volume was down 1.4%, due primarily to declines in grocery and cheese. Operating companies income increased 86.1% to $469 million, due primarily to a $251 million gain on redemption of Kraft’s interest in UB, as well as positive mix, price increases and favorable currency of $8 million, partially offset by lower volume and higher asset impairment, exit and implementation costs.
FINANCIAL SERVICES
2006 Third-Quarter Results
Philip Morris Capital Corporation (PMCC) reported operating companies income of $101 million for the third quarter of 2006, versus an operating companies loss of $121 million for the third quarter of 2005. Results for the third quarter of 2006 were significantly above the comparable period in 2005 due to gains from asset sales and a $200 million loss provision taken in the third quarter of 2005 related to the airline industry.
Consistent with its strategic shift in 2003, PMCC is focused on managing its existing portfolio of finance assets in order to maximize gains and generate cash flow from asset sales and related activities. PMCC is no longer making new investments and expects that its operating companies income will fluctuate over time as investments mature or are sold.
Altria Group, Inc. Profile
As of September 30, 2006, Altria Group, Inc. owned approximately 88.6% of the outstanding common shares of Kraft Foods Inc. and 100% of the outstanding common shares of Philip Morris International Inc., Philip Morris USA Inc. and Philip Morris Capital Corporation. In addition, Altria Group, Inc. owned approximately 28.7% of SABMiller plc. The brand portfolio of Altria Group, Inc.’s consumer packaged goods companies includes such well-known names as Kraft, Jacobs, L&M, Marlboro, Maxwell House, Nabisco, Oreo, Oscar Mayer, Parliament, Philadelphia, Post and Virginia Slims. Altria Group, Inc. recorded 2005 net revenues of $97.9 billion.
Trademarks and service marks mentioned in this release are the registered property of, or licensed by, the subsidiaries of Altria Group, Inc.
Forward-Looking and Cautionary Statements
This press release contains projections of future results and other forward-looking statements that involve a number of risks and uncertainties and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The following important factors could cause actual results and outcomes to differ materially from those contained in such forward-looking statements.
Altria Group, Inc.’s consumer products subsidiaries are subject to changing prices for raw materials; intense price competition; changes in consumer preferences and demand for their products; fluctuations in levels of customer inventories; the effects of foreign economies and local economic and market conditions; unfavorable currency movements and changes to income tax laws. Their results are dependent upon their continued ability to promote brand equity successfully; to anticipate and respond to new consumer trends; to develop new products and markets and to broaden brand portfolios in order to compete effectively with lower-priced products; to improve productivity; and to respond effectively to changing prices for raw materials.
Altria Group, Inc.’s tobacco subsidiaries (Philip Morris USA and Philip Morris International) continue to be subject to litigation, including risks associated with adverse jury and judicial determinations, and courts reaching conclusions at variance with the company’s understanding of applicable law and bonding requirements in the limited number of jurisdictions that do not limit the dollar amount of appeal bonds; legislation, including actual and potential excise tax increases; discriminatory excise tax structures; increasing marketing and regulatory restrictions; the effects of price increases related to excise tax increases and concluded tobacco litigation settlements on consumption rates and consumer preferences within price segments; health concerns relating to the use of tobacco products and exposure to environmental tobacco smoke; governmental regulation; privately imposed smoking restrictions; and governmental and grand jury investigations.
Altria Group, Inc. and its subsidiaries are subject to other risks detailed from time to time in its publicly filed documents, including its Quarterly Report on Form 10-Q for the period ended June 30, 2006. Altria Group, Inc. cautions that the foregoing list of important factors is not complete and does not undertake to update any forward-looking statements that it may make.
ALTRIA GROUP, INC.
Schedule 1
and Subsidiaries
Condensed Statements of Earnings
For the Quarters Ended September 30,
(in millions, except per share data)
(Unaudited)
Â
2006Â
Â
2005Â
% ChangeÂ
Net revenues
$
25,885Â
$
24,962Â
3.7%
Cost of sales
9,265Â
9,082Â
2.0%
Excise taxes on products (*)
Â
8,229Â
Â
Â
7,656Â
7.5%
Gross profit
8,391Â
8,224Â
2.0%
Marketing, administration and research costs
3,560Â
3,459Â
Domestic tobacco loss on U.S. tobacco pool
-Â
138Â
Domestic tobacco quota buy-out
-Â
(115)
Asset impairment and exit costs
190Â
59Â
Gain on redemption of United Biscuits investment
(251)
-Â
(Gains) losses on sales of businesses, net
3Â
-Â
Provision for airline industry exposure
Â
-Â
Â
Â
200Â
Operating companies income
4,889Â
4,483Â
9.1%
Amortization of intangibles
7Â
6Â
General corporate expenses
166Â
160Â
Asset impairment and exit costs
Â
3Â
Â
Â
2Â
Operating income
4,713Â
4,315Â
9.2%
Interest and other debt expense, net
Â
193Â
Â
Â
306Â
Earnings before income taxes, minority interest, and equity
earnings, net
4,520Â
4,009Â
12.7%
Provision for income taxes
Â
1,598Â
Â
Â
1,098Â
45.5%
Earnings before minority interest, and equity earnings, net
2,922Â
2,911Â
0.4%
Minority interest in earnings, and equity earnings, net
Â
47Â
Â
Â
28Â
Net earnings
$
2,875Â
Â
$
2,883Â
(0.3)%
Â
Per share data(**):
Basic earnings per share
$
1.38Â
Â
$
1.39Â
(0.7)%
Diluted earnings per share
$
1.36Â
Â
$
1.38Â
(1.4)%
Weighted average number of
shares outstanding – Basic
2,090Â
2,072Â
0.9%
– Diluted
2,107Â
2,092Â
0.7%
Â
(*) The detail of excise taxes on products sold is as follows:
Â
2006Â
Â
Â
2005Â
Domestic tobacco
$
938Â
$
945Â
International tobacco
Â
7,291Â
Â
Â
6,711Â
Total excise taxes
$
8,229Â
Â
$
7,656Â
Â
(**) Basic and diluted earnings per share are computed for each of the periods presented. Accordingly, the sum of the quarterly earnings per share amounts may not agree to the year-to-date amounts.
ALTRIA GROUP, INC.
Schedule 2
and Subsidiaries
Selected Financial Data by Business Segment
For the Quarters Ended September 30,
(in millions)
(Unaudited)
Â
Domestic tobacco
Â
International tobacco
Â
North American food
Â
International food
2006 Net Revenues
$
4,830Â
$
12,703Â
$
5,591Â
$
2,652Â
2005 Net Revenues
4,731Â
12,075Â
5,551Â
2,506Â
% ChangeÂ
2.1%
5.2%
0.7%
5.8%
Â
Reconciliation:
2005 Net Revenues
$
4,731Â
$
12,075Â
$
5,551Â
$
2,506Â
Divested businesses – 2005
-Â
-Â
(106)
(5)
Divested businesses – 2006
-Â
-Â
-Â
-Â
Implementation – 2006
-Â
-Â
-Â
-Â
Acquired businesses
-Â
-Â
-Â
-Â
Currency
-Â
156Â
52Â
73Â
Operations
Â
99Â
Â
Â
472Â
Â
Â
94Â
Â
Â
78Â
2006 Net Revenues
$
4,830Â
Â
$
12,703Â
Â
$
5,591Â
Â
$
2,652Â
Â
Â
Financial services
Â
Total
2006 Net Revenues
$
109Â
$
25,885Â
2005 Net Revenues
99Â
24,962Â
% ChangeÂ
10.1%
3.7%
Â
Reconciliation:
2005 Net Revenues
$
99Â
$
24,962Â
Divested businesses – 2005
-Â
(111)
Divested businesses – 2006
-Â
-Â
Implementation – 2006
-Â
-Â
Acquired businesses
-Â
-Â
Currency
-Â
281Â
Operations
Â
10Â
Â
Â
753Â
2006 Net Revenues
$
109Â
Â
$
25,885Â
Â
Â
Note: The detail of excise taxes on products sold is as follows:
Â
2006Â
Â
Â
2005Â
Domestic tobacco
$
938Â
$
945Â
International tobacco
Â
7,291Â
Â
Â
6,711Â
Total excise taxes
$
8,229Â
Â
$
7,656Â
Currency increased international tobacco excise taxes by $96 million.
ALTRIA GROUP, INC.
Schedule 3
and Subsidiaries
Selected Financial Data by Business Segment
For the Quarters Ended September 30,
(in millions)
(Unaudited)
Â
Domestic tobacco
Â
International tobacco
Â
North American food
Â
International food
2006 Operating Companies Income
$ 1,270Â
$ 2,119Â
$ 930Â
$ 469Â
2005 Operating Companies Income
1,202Â
2,202Â
948Â
252Â
% ChangeÂ
5.7%
(3.8)%
(1.9)%
86.1%
Â
Reconciliation:
2005 Operating Companies Income
$ 1,202Â
$ 2,202Â
$ 948Â
$ 252Â
Â
Divested businesses – 2005
-Â
-Â
(25)
-Â
Domestic tobacco loss on U.S. tobacco pool – 2005
138Â
-Â
-Â
-Â
Domestic tobacco quota buy-out – 2005
(115)
-Â
-Â
-Â
Asset impairment and exit costs – 2005
-Â
33Â
2Â
24Â
Implementation costs – 2005
-Â
-Â
11Â
5Â
Provision for airline industry exposure – 2005
-Â
Â
-Â
Â
-Â
Â
-Â
23Â
Â
33Â
Â
(12)
Â
29Â
Â
Divested businesses – 2006
-Â
-Â
-Â
-Â
Asset impairment and exit costs – 2006
-Â
(65)
(62)
(63)
Gain on redemption of United Biscuits investment – 2006
-Â
-Â
-Â
251Â
(Losses) gains on sales of businesses – 2006
-Â
-Â
(3)
-Â
Implementation costs – 2006
-Â
Â
-Â
Â
(21)
Â
(2)
-Â
Â
(65)
Â
(86)
Â
186Â
Â
Acquired businesses
-Â
-Â
-Â
-Â
Currency
-Â
5Â
12Â
8Â
Operations
45Â
Â
(56)
Â
68Â
Â
(6)
2006 Operating Companies Income
$ 1,270Â
Â
$ 2,119Â
Â
$ 930Â
Â
$ 469Â
Â
Financial services
Â
Total
2006 Operating Companies Income
$ 101Â
$ 4,889Â
2005 Operating Companies Income
(121)
4,483Â
% ChangeÂ
NA
9.1%
Â
Reconciliation:
2005 Operating Companies Income
$ (121)
$ 4,483Â
Â
Divested businesses – 2005
-Â
(25)
Domestic tobacco loss on U.S. tobacco pool – 2005
-Â
138Â
Domestic tobacco quota buy-out – 2005
-Â
(115)
Asset impairment and exit costs – 2005
-Â
59Â
Implementation costs – 2005
-Â
16Â
Provision for airline industry exposure – 2005
200Â
Â
200Â
200Â
Â
273Â
Â
Divested businesses – 2006
-Â
-Â
Asset impairment and exit costs – 2006
-Â
(190)
Gain on redemption of United Biscuits investment – 2006
-Â
251Â
(Losses) gains on sales of businesses – 2006
-Â
(3)
Implementation costs – 2006
-Â
Â
(23)
-Â
Â
35Â
Â
Acquired businesses
-Â
-Â
Currency
-Â
25Â
Operations
22Â
Â
73Â
2006 Operating Companies Income
$ 101Â
Â
$ 4,889Â
ALTRIA GROUP, INC.
Schedule 4
and Subsidiaries
Condensed Statements of Earnings
For the Nine Months Ended September 30,
(in millions, except per share data)
(Unaudited)
Â
Â
2006Â
Â
Â
2005Â
Â
% ChangeÂ
Â
Net revenues
$
76,009Â
$
73,364Â
3.6%
Cost of sales
27,573Â
26,887Â
2.6%
Excise taxes on products (*)
Â
23,670Â
Â
Â
22,271Â
6.3%
Gross profit
24,766Â
24,206Â
2.3%
Marketing, administration and research costs
10,463Â
10,333Â
Domestic tobacco headquarters relocation charges
-Â
3Â
Domestic tobacco loss on U.S. tobacco pool
-Â
138Â
Domestic tobacco quota buy-out
-Â
(115)
Italian antitrust charge
61Â
-Â
Asset impairment and exit costs
641Â
262Â
Gain on redemption of United Biscuits investment
(251)
-Â
(Gains) losses on sales of businesses, net
14Â
(115)
Provision for airline industry exposure
Â
103Â
Â
Â
200Â
Operating companies income
13,735Â
13,500Â
1.7%
Amortization of intangibles
23Â
14Â
General corporate expenses
482Â
484Â
Asset impairment and exit costs
Â
35Â
Â
Â
40Â
Operating income
13,195Â
12,962Â
1.8%
Interest and other debt expense, net
Â
702Â
Â
Â
907Â
Earnings from continuing operations before income taxes, minority interest, and equity earnings, net
12,493Â
12,055Â
3.6%
Provision for income taxes
Â
3,275Â
Â
Â
3,581Â
(8.5)%
Earnings from continuing operations before minority interest, and equity earnings, net
9,218Â
8,474Â
8.8%
Minority interest in earnings from continuing operations, and equity earnings, net
Â
155Â
Â
Â
95Â
Earnings from continuing operations
9,063Â
8,379Â
8.2%
Loss from discontinued operations, net of
income taxes and minority interest(**)
Â
-Â
Â
Â
(233)
Net earnings
$
9,063Â
Â
$
8,146Â
11.3%
Â
Per share data (***):
Basic earnings per share from continuing operations
$
4.34Â
$
4.05Â
7.2%
Basic earnings per share from discontinued operations
$
-Â
Â
$
(0.11)
Basic earnings per share
$
4.34Â
Â
$
3.94Â
10.2%
Â
Diluted earnings per share from continuing operations
$
4.31Â
$
4.01Â
7.5%
Diluted earnings per share from discontinued operations
$
-Â
Â
$
(0.11)
Diluted earnings per share
$
4.31Â
Â
$
3.90Â
10.5%
Weighted average number of
shares outstanding – Basic
2,086Â
2,067Â
0.9%
– Diluted
2,104Â
2,087Â
0.8%
Â
(*) The detail of excise taxes on products sold is as follows:
Â
2006Â
Â
Â
2005Â
Domestic tobacco
$
2,724Â
$
2,761Â
International tobacco
Â
20,946Â
Â
Â
19,510Â
Total excise taxes
$
23,670Â
Â
$
22,271Â
(**) Discontinued operations in 2005 includes $(255) from loss on sale and $22 of earnings, net of minority interest impact
(***) Basic and diluted earnings per share are computed for each of the periods presented. Accordingly, the sum of the quarterly earnings per share amounts may not agree to the year-to-date amounts.
Â
ALTRIA GROUP, INC.
Schedule 5
and Subsidiaries
Selected Financial Data by Business Segment
For the Nine Months Ended September 30,
(in millions)
(Unaudited)
Domestic tobacco
Â
International tobacco
Â
North American food
Â
International food
2006 Net Revenues
$
13,938Â
$
36,814Â
$
17,179Â
$
7,806Â
2005 Net Revenues
13,667Â
34,985Â
16,855Â
7,595Â
% ChangeÂ
2.0%
5.2%
1.9%
2.8%
Â
Reconciliation:
2005 Net Revenues
$
13,667Â
$
34,985Â
$
16,855Â
$
7,595Â
Divested businesses – 2005
-Â
-Â
(402)
(27)
Divested businesses – 2006
-Â
-Â
105Â
-Â
Implementation – 2005
-Â
-Â
1Â
-Â
Implementation – 2006
-Â
-Â
-Â
-Â
Acquired businesses
-Â
1,192Â
-Â
-Â
Currency
-Â
(916)
124Â
(126)
Operations
Â
271Â
Â
Â
1,553Â
Â
Â
496Â
Â
Â
364Â
2006 Net Revenues
$
13,938Â
Â
$
36,814Â
Â
$
17,179Â
Â
$
7,806Â
Â
Financial services
Â
Total
2006 Net Revenues
$
272Â
$
76,009Â
2005 Net Revenues
262Â
73,364Â
% ChangeÂ
3.8%
3.6%
Â
Reconciliation:
2005 Net Revenues
$
262Â
$
73,364Â
Divested businesses – 2005
-Â
(429)
Divested businesses – 2006
-Â
105Â
Implementation – 2005
-Â
1Â
Implementation – 2006
-Â
-Â
Acquired businesses
-Â
1,192Â
Currency
-Â
(918)
Operations
Â
10Â
Â
Â
2,694Â
2006 Net Revenues
$
272Â
Â
$
76,009Â
Â
Note: The detail of excise taxes on products sold is as follows:
2006Â
Â
2005Â
Domestic tobacco
$
2,724Â
$
2,761Â
International tobacco
Â
20,946Â
Â
Â
19,510Â
Total excise taxes
$
23,670Â
Â
$
22,271Â
Currency decreased international tobacco excise taxes by $493 million.
ALTRIA GROUP, INC.
Schedule 6
and Subsidiaries
Selected Financial Data by Business Segment
For the Nine Months Ended September 30,
(in millions)
(Unaudited)
Domestic tobacco
Â
International tobacco
Â
North American food
Â
International food
2006 Operating Companies Income
$
3,687Â
$
6,225Â
$
2,868Â
$
817Â
2005 Operating Companies Income
3,501Â
6,301Â
2,916Â
792Â
% ChangeÂ
5.3%
(1.2)%
(1.6)%
3.2%
Â
Reconciliation:
2005 Operating Companies Income
$
3,501Â
$
6,301Â
$
2,916Â
$
792Â
Â
Divested businesses – 2005
-Â
-Â
(63)
(3)
Domestic tobacco headquarters relocation charges – 2005
3Â
-Â
-Â
-Â
Domestic tobacco loss on U.S. tobacco pool – 2005
138Â
-Â
-Â
-Â
Domestic tobacco quota buy-out – 2005
(115)
-Â
-Â
-Â
Asset impairment and exit costs – 2005
-Â
57Â
124Â
81Â
Losses (gains) on sales of businesses – 2005
-Â
-Â
1Â
(116)
Implementation costs – 2005
-Â
-Â
43Â
18Â
Provision for airline industry exposure – 2005
Â
-Â
Â
Â
-Â
Â
Â
-Â
Â
Â
-Â
Â
26Â
Â
Â
57Â
Â
Â
105Â
Â
Â
(20)
Â
Divested businesses – 2006
-Â
-Â
34Â
-Â
Italian antitrust charge – 2006
-Â
(61)
-Â
-Â
Asset impairment and exit costs – 2006
-Â
(88)
(316)
(237)
Gain on redemption of United Biscuits investment – 2006
-Â
-Â
-Â
251Â
(Losses) gains on sales of businesses – 2006
-Â
-Â
(14)
-Â
Implementation costs – 2006
-Â
-Â
(38)
(15)
Provision for airline industry exposure – 2006
Â
-Â
Â
Â
-Â
Â
Â
-Â
Â
Â
-Â
Â
-Â
Â
Â
(149)
Â
Â
(334)
Â
Â
(1)
Â
Acquired businesses
-Â
227Â
-Â
-Â
Currency
-Â
(219)
25Â
(11)
Operations
Â
160Â
Â
Â
8Â
Â
Â
156Â
Â
Â
57Â
2006 Operating Companies Income
$
3,687Â
Â
$
6,225Â
Â
$
2,868Â
Â
$
817Â
Â
Financial services
Â
Total
2006 Operating Companies Income
$
138Â
$
13,735Â
2005 Operating Companies Income
(10)
13,500Â
% ChangeÂ
NA
1.7%
Â
Reconciliation:
2005 Operating Companies Income
$
(10)
$
13,500Â
Â
Divested businesses – 2005
-Â
(66)
Domestic tobacco headquarters relocation charges – 2005
-Â
3Â
Domestic tobacco loss on U.S. tobacco pool – 2005
-Â
138Â
Domestic tobacco quota buy-out – 2005
-Â
(115)
Asset impairment and exit costs – 2005
-Â
262Â
Losses (gains) on sales of businesses – 2005
-Â
(115)
Implementation costs – 2005
-Â
61Â
Provision for airline industry exposure – 2005
Â
200Â
Â
Â
200Â
Â
200Â
Â
Â
368Â
Â
Divested businesses – 2006
-Â
34Â
Italian antitrust charge – 2006
-Â
(61)
Asset impairment and exit costs – 2006
-Â
(641)
Gain on redemption of United Biscuits investment – 2006
-Â
251Â
(Losses) gains on sales of businesses – 2006
-Â
(14)
Implementation costs – 2006
-Â
(53)
Provision for airline industry exposure – 2006
Â
(103)
Â
Â
(103)
Â
(103)
Â
Â
(587)
Â
Acquired businesses
-Â
227Â
Currency
-Â
(205)
Operations
Â
51Â
Â
Â
432Â
2006 Operating Companies Income
$
138Â
Â
$
13,735Â
ALTRIA GROUP, INC.
Schedule 7
and Subsidiaries
Net Earnings and Diluted Earnings Per Share
For the Quarters Ended September 30,
($ in millions, except per share data)
(Unaudited)
Diluted
Net Earnings
E.P.S.
(*)
Â
2006 Net Earnings
$ 2,875Â
$ 1.36Â
2005 Net Earnings
$ 2,883Â
$ 1.38Â
% ChangeÂ
(0.3)
%
(1.4)
%
Â
Reconciliation:
2005 Net Earnings
$ 2,883Â
$ 1.38Â
Â
2005 Domestic tobacco loss on U.S. tobacco pool
87Â
0.04Â
2005 Domestic tobacco quota buy-out
(72)
(0.03)
2005 Asset impairment, exit and implementation costs, net of minority interest impact
51Â
0.02Â
2005 Corporate asset impairment and exit costs
2Â
-Â
2005 Provision for airline industry exposure
129Â
0.06Â
2005 Tax items, net of minority interest impact
(204)
Â
(0.10)
(7)
Â
(0.01)
Â
2006 Asset impairment, exit and implementation costs, net of minority interest impact
(125)
(0.06)
2006 Gain on redemption of United Biscuits investment, net of minority interest impact
131Â
0.06Â
2006 Gains (losses) on sales of businesses, net of minority interest impact
(53)
(0.02)
2006 Corporate asset impairment and exit costs
(2)
-Â
2006 Tax items, net of minority interest impact
(11)
Â
(0.01)
(60)
Â
(0.03)
Â
Currency
17Â
0.01Â
Change in shares
-Â
(0.01)
Change in tax rate
(40)
(0.02)
Operations
82Â
Â
0.04Â
2006 Net Earnings
$ 2,875Â
Â
$ 1.36Â
Â
(*) Basic and diluted earnings per share are computed for each of the periods presented. Accordingly, the sum of the quarterly earnings per share amounts may not agree to the year-to-date amounts.
ALTRIA GROUP, INC.
Schedule 8
and Subsidiaries
Net Earnings and Diluted Earnings Per Share
For the Nine Months Ended September 30,
($ in millions, except per share data)
(Unaudited)
Diluted
Net Earnings
Â
E.P.S.
(*)
Â
2006 Continuing Earnings
$
9,063Â
$
4.31Â
2005 Continuing Earnings
$
8,379Â
$
4.01Â
% ChangeÂ
8.2Â
%
7.5Â
%
Â
Reconciliation:
2005 Continuing Earnings
$
8,379Â
$
4.01Â
Â
2005 Domestic tobacco headquarters relocation charges
2Â
-Â
2005 Domestic tobacco loss on U.S. tobacco pool
87Â
0.04Â
2005 Domestic tobacco quota buy-out
(72)
(0.03)
2005 Asset impairment, exit and implementation costs, net of minority interest impact
195Â
0.11Â
2005 Gains on sales of businesses, net of minority interest impact
(64)
(0.03)
2005 Corporate asset impairment and exit costs
27Â
0.01Â
2005 Provision for airline industry exposure
129Â
0.06Â
2005 Tax items, net of minority interest impact
Â
(470)
Â
Â
(0.23)
Â
(166)
Â
Â
(0.07)
Â
2006 Italian antitrust charge
(61)
(0.03)
2006 Asset impairment, exit and implementation costs, net of minority interest impact
(409)
(0.19)
2006 Gain on redemption of United Biscuits investment, net of minority interest impact
131Â
0.06Â
2006 Gains (losses) on sales of businesses, net of minority interest impact
(59)
(0.03)
2006 Corporate asset impairment and exit costs
(23)
(0.01)
2006 Provision for airline industry exposure
(66)
(0.03)
2006 Tax items, net of minority interest impact
Â
954Â
Â
Â
0.45Â
Â
467Â
Â
Â
0.22Â
Â
Currency
(134)
(0.07)
Change in shares
-Â
(0.03)
Change in tax rate
27Â
0.01Â
Operations
Â
490Â
Â
Â
0.24Â
2006 Continuing Earnings
$
9,063Â
$
4.31Â
2006 Discontinued Earnings
$
-Â
Â
$
-Â
2006 Net Earnings
$
9,063Â
Â
$
4.31Â
Â
Â
(*) Basic and diluted earnings per share are computed for each of the periods presented. Accordingly, the sum of the quarterly earnings per share amounts may not agree to the year-to-date amounts.
ALTRIA GROUP, INC.
Schedule 9
and Subsidiaries
Condensed Balance Sheets
(in millions, except ratios)
(Unaudited)
Â
September 30,
December 31,
Â
2006Â
Â
2005Â
Assets
Cash and cash equivalents
$
5,695Â
$
6,258Â
All other current assets
20,504Â
19,523Â
Property, plant and equipment, net
17,043Â
16,678Â
Goodwill
33,142Â
31,219Â
Other intangible assets, net
11,868Â
12,196Â
Other assets
Â
12,768Â
Â
14,667Â
Total consumer products assets
101,020Â
100,541Â
Total financial services assets
Â
6,759Â
Â
7,408Â
Total assets
$
107,779Â
$
107,949Â
Â
Liabilities and Stockholders’ Equity
Short-term borrowings
$
3,172Â
$
2,836Â
Current portion of long-term debt
3,243Â
3,430Â
Accrued settlement charges
3,351Â
3,503Â
All other current liabilities
17,555Â
16,389Â
Long-term debt
12,117Â
15,653Â
Deferred income taxes
7,618Â
8,492Â
Other long-term liabilities
Â
12,717Â
Â
13,813Â
Total consumer products liabilities
59,773Â
64,116Â
Total financial services liabilities
Â
6,816Â
Â
8,126Â
Total liabilities
66,589Â
72,242Â
Total stockholders’ equity
Â
41,190Â
Â
35,707Â
Total liabilities and
stockholders’ equity
$
107,779Â
$
107,949Â
Â
Total consumer products debt
$
18,532Â
$
21,919Â
Debt/equity ratio – consumer products
0.45Â
0.61Â
Total debt
$
19,636Â
$
23,933Â
Total debt/equity ratio
0.48Â
0.67Â