[Intl-tobacco] Camilleri talks about Philip Morris breakup

[robert weissman]

1. Dow Jones story
2. Camilleri remarks

Altria CEO: Litigation Environment Developing Favorably

Wednesday November 9, 2:23 PM EST

NEW YORK -(Dow Jones)- Altria Group Inc. (MO) (MO) Chairman and Chief
Executive Louis Camilleri Wednesday reiterated his desire to break up
the company as soon as tobacco litigation permits.

Tobacco industry analysts have focused on three key cases pending
against Altria's (MO) Philip Morris USA unit, which once resolved, may
clear a path for Altria (MO) to break up into two or three parts. Altria
(MO) is the parent of Philip Morris USA and Philip Morris International
(MO) and owns a majority stake in Kraft Foods Inc. (KFT) (KFT).

Speaking at a Morgan Stanley investors conference in New York Wednesday,
Camilleri discussed the legal developments that are contributing to his
belief that the litigation environment is developing favorably for the
company. However, he indicated he remained uncertain about when Altria
(MO) could move forward with its restructuring.

"While the precise timing of key decisions and their chronology remain
uncertain, we remain committed to its pursuit and we have dedicated much
attention to assuring executional readiness," Camilleri said.

During his speech, Camilleri provided updates on the three cases
analysts have focused on: the Department of Justice's racketeering suit
against the tobacco industry, the Engle personal injury class-action
case in Florida, and the Price "lights" class-action suit in Illinois.

He also discussed the broader outlook for other "lights" litigation
pending against Philip Morris USA in other states.

In considering the company's break-up, the Altria (MO) board "will
consider the whole legal environment," Camilleri said.

"Lights is a component of it," Camilleri said.

"We have said we need to get these three big cases behind us," he said,
referring to the Justice Department, Engle and Price cases. "I know you
are impatient. So am I, but we are just going to have to wait."

Decisions in Engle and Price cases could come at anytime. Judge Gladys
Kessler, who is presiding over the Justice Department case, could issue
a ruling as early as the end of this year.

(MORE TO FOLLOW) Dow Jones Newswires

11-09-05 1423ET
Despite the uncertain timing, Altria (MO) is moving ahead with the steps
needed to restructure the company, according to CEO Camilleri.

Altria (MO) has decentralized many corporate functions such as
information technology and trademark management. The company also has
reduced the headcount at its New York headquarters by about 400
positions and transferred some 100 employees to the offices of its
operating companies.

In the past, Camilleri has said the company's break-up is needed to
realize the full value of its business units.

On Wednesday, Camilleri said Altria's (MO) shares remain undervalued.

Altria (MO) shares were recently trading at $74.22, down 30 cents, or 0.4%.

According to Morgan Stanley analyst David Adelman, Altria (MO) shares
have risen more than 50%, or some $52 billion in market capitalization,
since Camilleri spoke at his firm's investment conference last year. It
was during that presentation that Camilleri first specified his desire
to split the company up into two or three parts.

Adelman and other industry analysts anticipate that once Altria's (MO)
board approves the move, the company will first look to spin off its
remaining interest in Kraft, the maker of Oreo cookies and Oscar Mayer
meats. Then, Altria (MO)would consider the spin-off of its international
cigarette brands.

(MORE TO FOLLOW) Dow Jones Newswires

11-09-05 1433ET
During his presentation, Altria's (MO) Camilleri said there have been
several " favorable" developments in tobacco litigation, which have
contributed to " greater clarity."

Among the examples he cited were some decisions in so-called lights
litigation, which have supported some of the arguments Philip Morris USA
has used in its defense in the Price case currently pending before the
Illinois Supreme Court.

Price was the first "lights" class-action case to go to trial. In the
case, a group of Illinois smokers sued Philip Morris for misleading them
into thinking Marlboro Lights and Cambridge Lights cigarettes were less
harmful than regular cigarettes when they weren't. A Madison County
Circuit Court judge supported the plaintiff's argument and awarded a $10
billion judgment to them.

There are currently 25 other "lights" cases pending, according to
Camilleri. Of those cases, six have been certified as class actions, of
which four are on appeal and two are subject to pretrial motions, he
said. The other cases are all in various pre-trial stages in trial
courts throughout the country, with decisions on class certification and
other issues yet to come.

Separately, Camilleri said the number of cases set for trial continues
to decline, as does the number of new case filings against the company.

"In fact, of the 61 new cases filed to date this year, 23 have already
been dismissed, bringing the total cases dismissed this year to 135," he
said.

Separately, there have been legislative developments that have helped
Altria's (MO)ability to help it stand up to legal challenges such as the
federal Class Action Fairness Act and bond-cap legislation in various
states.

As for the Justice Department and Engle cases, Camilleri said he
continues to believe there should be "no finding of liability" in the
government's case, and he is "optimistic" that an appellate court
decision overturning a multi-billion- dollar verdict in the Engle case
will be upheld by the Florida Supreme Court.

In addition, Camilleri said Altria (MO) remains on track to reach the
high-end of its forecast, which calls for earnings of $5.05 to $5.10 a
share from continuing operations.

-By Christina Cheddar Berk, Dow Jones Newswires; 201-938-5166;
christina.cheddar@dowjones.com

(END) Dow Jones Newswires

11-09-05 1520ET

-----



Remarks by Louis C. Camilleri, Chairman and Chief Executive Officer of
Altria Group, Inc.
New York
November 09, 2005

Introduction



Thank you and good afternoon everyone.  It is a pleasure to be here
today.  My remarks contain certain forward-looking statements and I
direct your attention to the Forward-Looking and Cautionary Statements
section in today=92s news release.



Last November, I stood before you at this conference and highlighted
Altria=92s key objectives, with a focus on four points.



First was the belief, shared by many, that our shares were significantly
undervalued by any measure.



Second was our cautious optimism with regard to the evolving litigation
environment and our continued conviction in the legal merits of our defense=
.



Third was our commitment to deliver superior returns to our
shareholders, including the pursuit of a potential breakup of the
company that would both enhance returns and be strategically compelling.
  Such a restructuring would only be pursued if the litigation
environment taken as a whole evolved as anticipated.



Finally, I addressed the strategies adopted to grow our businesses, both
organically and through acquisitions, to exploit their considerable
opportunities and to manage the inevitable challenges that they would
confront.



Today affords me an excellent opportunity to review:



* Altria=92s progress against each of these points and highlight where we
stand today versus a year ago, including the significant potential
upside we believe remains on Altria=92s valuation,



* Recent key litigation developments and the resulting clarity we
believe is emerging,



* The actions we are taking to assure execution readiness for a
potential restructuring,



* And the considerable growth opportunities that our businesses face.



Let me start by highlighting Altria=92s year-on-year shareholder returns
and current valuation.



Our 21.4% price appreciation has outperformed the broader equities
market by a considerable margin this year, as shown by our performance
versus the S&P 500 index.  We also substantially outperformed the market
over the past three and five years.



Altria=92s dividend yield has also consistently exceeded the yield of the
S&P 500, and today stands at an annualized yield of 4.3%.  Thus,
Altria=92s total shareholder return has outpaced the performance of the
S&P 500 by an even wider margin this year, and over the past three and
five years.



As a result, our current market capitalization of approximately $158
billion surpassed its previous record high of $142 billion that was
reached back in 1998.



While we are naturally gratified by this strong performance, we believe
that our shares remain undervalued in light of the growth prospects and
cash flow generating ability of each of our businesses, the improving
litigation environment and the strategic benefits arising from a
potential transformational change in our structure.



The entire tobacco sector has enjoyed the benefits of a positive
re-rating over the past two years.  In fact, our tobacco peers have
generated stronger price appreciation and we continue to trade at a
multiple discount to many of them.



This discount, let alone the one that prevails versus the broader
consumer products sector, demonstrates the significant potential for
enhanced returns going forward.



Key to this will be continued improvements in the litigation
environment.  Recent litigation and legislative developments have served
to reinforce our belief that the climate continues to evolve favorably
and that greater clarity is slowly but surely emerging.



We are particularly encouraged by developments this year in the =93Lights=
=94
cases.



In August, the U.S. Court of Appeals for the Eighth Circuit, in the
Watson case, affirmed removal of this =93Lights=94 case from state to
federal court, because the court found that Philip Morris USA (PM USA)
was acting under the direction and control of the Federal Trade
Commission (FTC) in relation to tar and nicotine testing, measurement
and disclosures.  While a petition for rehearing is pending, we believe
that this ruling has important ramifications going forward.



In October, a state court in Oregon in the Pearson case, also involving
PM USA, refused to certify this =93Lights=94 case as a class action.  As is
true in the vast majority of smoking and health personal injury class
actions, the court in Pearson found that individual issues predominate
over common ones, upholding a view we believe is fundamental to all
=93Lights=94 class actions, and renders class certification inappropriate.



In August and October, federal district courts in Louisiana and
Michigan, in =93Lights=94 cases called Sullivan and Flanagan, dismissed
plaintiffs=92 major claims based on those states=92 consumer protection
statutes, which exempt claims based on conduct in compliance with FTC
action.  Both courts found that plaintiffs=92 claims involved conduct
governed by the FTC=92s regulatory activity involving low tar and =93Lights=
=94
cigarettes, and thus fell within the statutory exemption.  This general
type of statutory exemption exists in most states, including Illinois.
In fact, just yesterday, plaintiffs voluntarily dismissed the remainder
of the Flanagan case.



In evaluating the litigation environment, we must, as I have said, look
at it in its entirety.  Part of that environment is the =93Lights=94 cases
pending against PM USA.



We believe PM USA has very strong legal and factual defenses in the
=93Lights=94 cases.  Individual issues such as whether there has been a
misrepresentation, reliance, causation and injury, make these cases
inappropriate for class certification, a view the court in Pearson
recently affirmed.  The decades=92 long involvement of the FTC in all
aspects governing tar and nicotine testing, disclosure and advertising,
provides a powerful legal basis for dismissal of these cases, as the
courts in Sullivan and Flanagan found.  And, the Federal Cigarette
Labeling and Advertising Act, as interpreted by the United States
Supreme Court in Cipollone and Reilly, adds yet another strong legal
basis for dismissal.



Of the 25 pending =93Lights=94 cases, six have been certified as class
actions, four of which are on appeal, with the remaining two subject to
pre-trial motions.  Of the remaining 19, including Schwab, a purported
nation-wide class action pending before Judge Jack Weinstein in the
Federal District Court for the Eastern District of New York, all are in
various pre-trial stages in the trial courts, with decisions on class
certification and other issues to come.



While we are pleased with the recent positive trend in these cases, and
are optimistic about the outcomes in Price and the other =93Lights=94 cases
on appeal, they remain a part of the evolving environment, as well as a
particular focus of our attention and resources.



This snapshot of PM USA=92s case count illustrates the significant
declines that continued this year versus the 10-year high for individual
cases, for class actions, including both certified classes and those
seeking certification, and for third-party payor reimbursement cases.



In addition, the number of cases set for trial continues to decline, as
well as the number of new case filings.  In fact, of the 61 new cases
filed to date this year, 23 have already been dismissed, bringing total
cases dismissed this year to 135.



Supporting the improvement in the litigation environment are legislative
developments at both the federal and state levels.  Of particular note
is the effect of the federal Class Action Fairness Act, which permits
the removal of most newly filed state class actions to federal court.
Indeed, testimony to the power of this Act is the fact that not a single
class action against PM USA or any other tobacco manufacturer has been
filed and remained in state court since its passage.



In addition, 38 states and Puerto Rico now have appeal bond caps in
place, or do not require an appeal bond.  Promoting state bond cap
legislation continues to be a high priority for PM USA, and we are
pleased that such caps now exist in jurisdictions representing 82% of
total domestic cigarette industry volume.



Let me now comment on the Department of Justice, Engle and Price cases.



The trial in the Department of Justice case concluded in June and
post-trial briefing concluded in September.  We continue to believe that
there should be no finding of liability and we are now awaiting a
decision by Judge Kessler.



Importantly, the United States Court of Appeals for the District of
Columbia held, in a decision in February of this year, that disgorgement
is not a remedy available to the government under the civil RICO
statute.  Equally important is the reason given by the court.  The court
found that, under the civil RICO statute, the remedies available to the
government are limited to forwarding-looking remedies that will =93prevent
and restrain=94 future RICO violations.  Thus, the court reasoned,
remedies, such as disgorgement, which are backward-looking, and focused
on remedying the effects of past conduct, are not available.



Last month, the United States Supreme Court, with no recusals, denied
the government=92s request for a review of that decision, at this time.



Thus, Judge Kessler=92s statements about the Court of Appeals disgorgement
decision take on special significance.  In an order following shortly
after that decision, Judge Kessler said that the decision had =93struck a
body blow to the government=92s case,=94 and that the government=92s argume=
nt
regarding the availability of non-disgorgement remedies =93reads as if the
Court of Appeals had never written its opinion.=94  Thus, in addition to
the compelling defenses we have to the government=92s liability claim, it
is our belief that many of the remedies the government is seeking are
simply not available to it.



In the Engle class action, a case filed over 11 years ago, PM USA is
patiently awaiting a decision from the Florida Supreme Court, following
an appeal by the plaintiffs and oral argument in November 2004.



There is strong legal precedent in PM USA=92s favor on both class
certification and punitive damages and we remain optimistic that the
intermediate appellate court=92s decision will be affirmed.



PM USA is also awaiting a decision in the Price =93Lights=94 class action
from the Illinois Supreme Court.



For many of the reasons I gave earlier in discussing other =93Lights=94
cases, we believe that PM USA has very strong arguments in its favor on
both the merits and the fact that the case should never have been
certified as a class action, based on the law in Illinois.



In Avery, a case decided in August of this year, over two years after it
had been argued before the Illinois Supreme Court, and involving some of
the same issues as in Price, the court decertified a class and vacated a
$1.2 billion judgment against State Farm.



To sum up, the litigation environment has continued to improve since I
last addressed you, and we are cautiously optimistic that it will
continue to improve as we await further developments.



As we await these developments, I urge you to have patience, remembering
that the legal system in the United States moves at a deliberate pace.
As I just mentioned, the Avery case took over two years from the oral
argument to the Illinois Supreme Court=92s decision.  I believe that our
litigation history teaches that patience and perseverance will
ultimately be amply rewarded.



Moving on to the potential restructuring of the company, while the
precise timing of key decisions and their chronology remain uncertain,
we remain committed to its pursuit and we have dedicated much attention
to assuring executional readiness.  This has involved a myriad of
activities and developments.  I will highlight a few of them.



The most time consuming task and arguably the most critical is to assure
organizational readiness.  We have a rigorous advancement planning
process in place and we have used it to match future organizational
requirements with the aspirations of our talented employees in terms of
both career development and ultimate location.



In addition, each of our operating companies has realigned its
organizational structure within the last few months.



We have also refined the role of Altria=92s corporate headquarters and
taken a number of steps to decentralize several functions.  Information
technology and trademark management are but two examples of such
decentralization.



In keeping with our resolve to constantly enhance our cost
effectiveness, by year-end we will have reduced the size of our
corporate headquarters by close to 400 positions, and transferred some
100 positions to the operating companies.



I am pleased with the progress achieved to date on this important front.



Another area of significant progress has been the consistent and rapid
strengthening of our balance sheet.



Consider that Altria=92s equity, excluding Kraft, is projected at nearly
$9 billion by the end of this year.



This excludes the surge in the market value of our 28.7% stake in
SABMiller.  While the pre-tax book value of this stake stood at $2.7
billion in September, our holding is currently valued on a pre-tax basis
at more than $8 billion.



Net debt has also evolved favorably.  In spite of the additional debt
that was incurred by Philip Morris International (PMI) to fund the
acquisition of Sampoerna in Indonesia, net debt stood at $5.9 billion in
September and, absent any further potential acquisitions, is projected
to reach a level of less than $2 billion by year-end 2006.



This has been achieved in parallel to the consistent increase in our
dividends, which will entail a cash outflow of close to $6.2 billion
this year, as well as the consistent funding of our global pensions to
the maximum penalty-free level permitted under current pension and tax
rules.  Indeed, Altria=92s U.S. pension accumulated benefit obligation
funding ratio has equaled or exceeded 100% since 2001.  Our projected
benefit obligation ratio has steadily improved since 2002, to reach a
level of approximately 106% in 2005.



These are just some of the examples of the progress to date to assure
executional readiness.



Let me now briefly review our year-to-date results, before dwelling on
the future prospects of each of our operating companies.



In the nine months through September 30, earnings from continuing
operations were up 12.8% to $8.4 billion and diluted earnings per share
from continuing operations advanced to $4.01, up 11.1% from the first
nine months of 2004.



Altria remains on track to deliver solid results this year.  Diluted
earnings per share from continuing operations are forecast to reach the
high end of a range of $5.05 to $5.10, representing growth of up to
11.6%.  This is despite the current strength of the U.S. dollar, which,
if sustained, will prove challenging in 2006.



This performance is primarily attributable to robust results from our
domestic and international tobacco businesses, partially offset by weak
results at Kraft.



Importantly, they reflect the rewards of our strategic consistency and
focus on building premium brand equity; driving innovation through
investments in R&D and marketing; managing price gaps; enhancing
productivity and cost competitiveness; and supplementing organic growth
with strategically compelling and financially attractive acquisitions.



Let me now turn to each of our consumer businesses, starting with Kraft.



Kraft Foods Inc. (Kraft)



It is undeniable that Kraft=92s year-to-date performance has been a source
of disappointment.  While revenues have improved, Kraft has regrettably
incurred margin erosion.  The culprit is evident -- the surge in
commodity costs has outpaced Kraft=92s deliberate pricing actions.  The
magnitude of these commodity cost increases has been unprecedented.
Consider that this year alone, the commodity headwind is estimated to
reach a level of $800 million, and that is on top of the $900 million of
commodity cost increases incurred in 2004.



In the steeplechase of life, one has to jump the fences and Kraft has
been doing precisely that by carefully balancing pricing actions while
preserving the health of the categories in which it competes.  It is a
delicate balance and, while we all would have preferred to avoid margin
erosion, the strategy adopted of deliberate pricing and sustained
marketing investment is the right one to enhance Kraft=92s long-term
competitiveness and growth prospects.



While Kraft=92s results have lagged expectations, they do mask significant
progress in a number of critical areas.  I will focus on three -- new
products, cost reduction and cash flow.



A key strategic imperative for Kraft is to transform its portfolio,
organically and through acquisitions and divestitures, both to improve
its growth profile and to render it less prone to commodity swings.



New products that meaningfully move the needle are critical and Kraft
has generated solid results in this area.  New product revenue is
projected to reach a record level of $1.5 billion in 2005.  The mantra
of fewer, bigger and better is working.  The top 10 new products, which
include the South Beach Diet line and Tassimo on-demand coffee
innovation, will together generate revenues of approximately $700
million this year.



Importantly, these products generate an average marginal contribution
per pound that is 60% higher than Kraft=92s aggregate margin per pound on
its top 25 categories.



In addition, they generate significantly more incremental revenues than
has been the case historically, with average cannibalization rates of
only 40%, a significant achievement given the breadth of Kraft=92s
portfolio, especially here in the U.S.



Kraft continues to aggressively pursue opportunities to reduce costs.
The restructuring program announced in early 2004 is on track and
cumulative annual cost savings of approximately $400 million will be
achieved by year-end 2006.  These cost savings will reflect the
elimination of 6,000 positions and the closure or sale of 20
manufacturing plants, and will require $600 million of cash costs.
Kraft estimates that it will achieve more than $250 million in
cumulative savings this year, and has announced the elimination of 5,200
positions and the closure or sale of 19 facilities to date.



Kraft continues to pursue further cost reduction opportunities worldwide
and is intensely focused on several areas, including supply chain
restructuring, systems harmonization and process simplification.  I
believe that Kraft management should be commended for these tough, but
necessary actions.



Cash flow performance has outpaced income statement results.  In spite
of significant outflows to support the restructuring program, cash flow
will increase this year and will be further enhanced with net
divestiture proceeds of $1.2 billion.



A key driver has been the reduction in the cash conversion cycle, which
has been significantly improved as a result of stock keeping unit
reductions, the adoption of consumption-based trade spending and the
restructuring of Kraft=92s distribution network.



While there has been progress in these and other areas, we fully
recognize that Kraft must sustain revenue momentum while enhancing
margins going forward.  The environment Kraft faces is both complex and
tough, and I need to remind you that Kraft is only 20 months into a
36-month program.



The strategies it has adopted are the correct ones.  I am confident that
Kraft has the ability to execute against these strategies, the capacity
to innovate and the discipline to invest in its brands for the long
term, and I believe that better results will come with time.



Philip Morris USA (PM USA)



Turning now to our domestic tobacco business, PM USA is delivering
excellent results within a background of solid improvement in the
cigarette industry=92s fundamental dynamics.



This is best exemplified by the deep discount segment=92s lack of vitality
since the fourth quarter of 2002, including the continued decline in the
volume of primarily discount-price cigarette imports.



Price gap management has undoubtedly played an important role, as have a
number of other favorable developments. These include an erosion in
sales over the Internet, historically a conduit for excise tax avoidance
and counterfeit cigarette products.



This erosion is the result of greater enforcement and the fact that
major credit card companies and major package delivery companies, such
as UPS and DHL, have agreed to take steps to prohibit the use of their
services for illegal Internet cigarette sales.



It also reflects actions PM USA has taken to protect its trademarks and
the numerous favorable legal rulings received to date, and a decline in
the incidence of counterfeit as both PM USA and PMI work with law
enforcement agencies worldwide to eradicate this plague.  The adoption
of complementary enforcement legislation and the allocable share
amendment help the Master Settlement Agreement and escrow statutes
operate as intended.  And finally, the anachronistic tobacco quota
system was eliminated.  As a result of the tobacco quota buyout, PM USA
has undertaken a number of initiatives to transition to a free market
system for domestic tobacco.



These undoubtedly favorable developments have been somewhat mitigated by
the continued competitive ferocity within the industry and further
increases in state excise taxes, with year-end average weighted state
excise taxes projected to increase by approximately 12% this year.



PM USA is well positioned to continue its leadership of the industry,
with total retail share reaching a record 50.1% in the third quarter of
this year, as measured by the IRI/Capstone Total Retail Panel.



Its four focus brands, Marlboro, Parliament, Virginia Slims and Basic,
together have shown steady retail share growth since the second quarter
of 2003 and achieved a total retail share of 48.4% in the third quarter
this year, driven primarily by the strength of Marlboro.



PM USA has achieved significant share growth for Marlboro by providing
adult smokers with a preferred value equation comprising product,
packaging, positioning and price.



A good example is Marlboro=92s performance within the important menthol
segment, which represents more than a quarter of total cigarette
consumption.  Marlboro=92s share of menthol continues to go from strength
to strength.



As we look to the future, PM USA is dedicating significant human and
financial resources to the development of innovative products which
might help address the harm caused by cigarettes.  Furthermore, PM USA
is exploring several adjacent categories within the tobacco industry to
supplement its future growth prospects.



To wrap up, I am confident that PM USA has the right people, strategies
and infrastructure to drive growth in a highly competitive environment.



Philip Morris International (PMI)



PMI is enjoying an outstanding year with solid momentum in volume,
market share and income buoyed by the return of Marlboro in Japan and
the acquisition of Sampoerna in Indonesia.



Its growth prospects continue to be attractive on the back of its
superior portfolio of brands, led by Marlboro and L&M, their strong
demographics and leadership of growth segments -- and unparalleled and
cost effective worldwide manufacturing, R&D, marketing, distribution and
sales infrastructure.



That is not to say that PMI does not face challenges, but I believe it
is not only well equipped to deal with these, but that the opportunities
that exist by far outweigh them.



Some in the investment community have expressed concern in the recent
past with what they perceive to be a slowing of PMI=92s organic growth
rate.  Let me address this topic.



Over the 2000 to 2005 period, PMI=92s volume is projected to increase at a
compound annual growth rate of 3.6%, from some 671 billion units to
approximately 802 billion units.



Excluding acquisitions, the annual organic volume growth rate declines
to 2.1%.  Much of this is attributable to the exceedingly difficult
environment that PMI has confronted in three key markets, namely France,
Italy and Germany.  Absent these three markets and the step up from
acquisitions, organic volume has grown at a solid compound annual growth
rate of 4.0%.



Net revenues excluding excise taxes have clearly increased at a faster
clip, reflecting PMI=92s ability to more than pass on excise tax increases
in most instances.  Net revenues have increased at a compound annual
growth rate of 8%, and excluding currency at a still robust 6.3%.



As we have witnessed in France, Italy and Germany, prohibitive excise
tax increases undoubtedly present PMI with its greatest challenge.  It
is not just a question of tax incidence that is at stake, but most
importantly tax structure.



Inappropriate tax structures from both a fiscal revenue and harm
reduction perspective cause an explosion in the growth of cheap and
marginally profitable cigarettes and can cause consumers to seek out
tax-advantaged substitute products, such as portions in Germany and
roll-your-own products in numerous developed and developing markets.



The good news is that PMI has had considerable success in advocating
fair tax structures, with many countries adopting either fully specific
tax structures, minimum excise tax levels or minimum reference prices.
In addition, we have witnessed some progress in equalizing the tax
burden across all tobacco products.



France and Italy both have a minimum reference price in place today, and
we hope that an equalization of the tax burden between cigarettes and
tobacco portions will be mandated in Germany in the near future by the
European Court of Justice.



It is regretful, however, that governments tend to act only once a
crisis is glaringly visible.  Spain is a case in point.  Here the deep
discount segment has exploded and is projected to reach 30% of total
consumption this year.  Thus, as was the case in both France and Italy,
temporary setbacks are often inevitable before appropriate tax reform is
implemented.



PMI=92s geographic volume mix is today well balanced, with some 49% of
volume coming from developing markets.  This is up from 34% in 2000.



Developed markets, defined for this purpose as OECD member countries,
represent approximately three quarters of PMI=92s income, a proportion
that has barely moved in the last five years.  This statistic highlights
the significant income growth opportunity that lies ahead, as consumers
in developing markets trade up to more premium brands and margins
increase over time.



An analysis of the world=92s top 30 markets, which account for more than
80% of world cigarette consumption excluding the U.S. domestic market
and approximately 80% of PMI=92s volume, highlights both PMI=92s strength
and the vast growth opportunities that remain.



Consider that in these top 30 markets, PMI=92s share is only 14.5%, and
even excluding the world=92s largest market, China, PMI=92s share is just
25.6%.  This leaves ample room for future growth.



In the world=92s top 30 markets, PMI is the undisputed market leader in 14
and No. 2 in six.  Importantly, PMI=92s presence in six of the world=92s to=
p
markets is essentially non-existent.  These markets, which include
China, India and Vietnam, represent total cigarette consumption of more
than 2.2 trillion cigarettes, or more than 40% of total international
cigarette consumption.  And this does not include the potential for
converting smokers to cigarettes from other tobacco products, such as
the estimated two trillion bidis consumed annually in India.



To emphasize the opportunity, it is interesting to note that less than
5% of PMI=92s income today is derived from markets that together account
for a total cigarette consumption of 3.1 trillion cigarettes.
Penetrating these markets is a key priority for PMI either organically
or through acquisitions.



Our recent acquisition of Sampoerna in Indonesia is a great example.  In
one fell swoop, this financially attractive acquisition enabled us to
meaningfully penetrate a 200 billion unit market.  I am pleased to
report that the business is faring well and we are ahead of plan in
terms of both volume and income, and PMI=92s share reached 27.3% in
September.  This is exemplified by the strong share momentum that we
currently enjoy in Indonesia driven by Dji Sam Soe, A Mild and A Hijau.



I trust that I have conveyed our confidence in PMI=92s long-term growth
prospects.  Yes, we may confront the occasional excise tax setback or
competitive price war, but these tend to be temporary phenomena that do
not impair PMI=92s longer-term momentum.



Conclusion



To conclude, I want to briefly summarize a few key points, including:



* Our belief that Altria shares continue to have significant upside
potential.



* The litigation environment continues to improve, and we believe that
additional positive developments are likely.  Again, I urge you to have
patience as these developments unfold.



* We remain committed to maximizing shareholder value, and have taken
appropriate and timely actions to assure executional readiness in
preparation for a potential restructuring.



* And our operating companies continue to successfully pursue strategies
for growth and exploit significant opportunities.



In closing, I would like to remind you of the power of Altria to
generate cash and reward shareholders.  Over the past five years, we
ranked No. 3 among S&P 500 companies by cumulative dividends and share
repurchases, despite the fact that we suspended our share repurchase
program two years ago.



Looking ahead, we project with Kraft on a cash basis, more than $54
billion in cumulative cash flow, before acquisitions and dividends, in
the five years through 2009 and remain committed to using that cash to
deliver superior returns to our shareholders.  Thank you.



Note: This presentation includes certain non-GAAP financial measures as
defined under SEC rules.  A reconciliation of those measures to the most
directly comparable GAAP measures can be found in the presentation
materials at www.altria.com.