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Key Accomplishments and Developments
We took numerous steps in 2007 and early 2008 to restructure Altria, in order to better equip its component parts to more effectively and successfully grow their respective operations and enhance shareholder value in today’s complex and fast-changing economic, regulatory and competitive environment.
Let me share a few of the highlights:
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The successful execution of the Kraft spin-off in March 2007, followed by the distribution of PMI shares on March 28, 2008. Highlights of the PMI spin-off are listed on the inside front cover of this report, and additional details of the transaction were made available in the Information Statement mailed to shareholders in March 2008;
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Announcement of two-year share repurchase programs of $7.5 billion at Altria and $13.0 billion at PMI, reflecting more efficient capital structures and the prudent use of Altria’s and PMI’s strong balance sheets to support further enhancement of shareholder value while preserving financial flexibility;
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Establishment of dividend policies and initial dividend rates for Altria and PMI, which together with the share repurchase programs mentioned above represent a combined cash outflow to shareholders of more than $33 billion over the next two years;
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Altria is expected to pay a dividend at the initial annualized rate of $1.16 per common share, while PMI is expected to pay a dividend at the initial annualized rate of $1.84 per share. Thus, Altria shareholders who retain their PMI shares will receive, in the aggregate, the same dividend amount of $3.00 per share that existed before the spin-off;
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Identification of the initial Boards of Directors of Altria and PMI as separately traded public companies, and the management teams leading those businesses;
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Business development initiatives that extend the capabilities of both our U.S. and international tobacco businesses, including the acquisition of 100% of privately held cigar manufacturer John Middleton, Inc. (Middleton); the acquisition of an additional 30% stake in PMI’s Mexican tobacco business from Grupo Carso; and the acquisition by PMI of an additional stake in Lakson Tobacco Company in Pakistan, bringing its total ownership interest to approximately 98%;
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Cost-reduction programs across all businesses and at Altria’s corporate headquarters, which has been significantly downsized and relocated to Richmond, Virginia, complemented by plans to optimize PMI and PM USA’s manufacturing infrastructures;
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Continued advances on societal alignment initiatives, litigation and compliance and integrity initiatives;
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Strong performance of our 28.6% ownership stake in SABMiller, which had a market value on a pre-tax basis of approximately $9 billion on February 29, 2008; and
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Total shareholder return for the year ended December 31, 2007, of 22.2%, exceeding that of the S&P 500 for the sixth consecutive year.
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With the completion of the PMI spin-off in 2008 and the Kraft spin-off in 2007, I believe that Altria has fulfilled the corporate restructuring objectives first outlined more than three years ago.
The PMI spin-off created two powerful tobacco companies, PMI and PM USA, with significant scale, industry leading positions, experienced management teams, strong cash flows and financial wherewithal, and a wide array of opportunities to increase their respective growth profiles.
Notably, PMI in its own right is now the world’s most profitable publicly-traded tobacco company, while PM USA is the world’s third-most-profitable such company in the global tobacco industry, and significantly ahead of its direct competitors in the U.S.
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