Notes to Consolidated Financial Statements

(Continued)

Note 9.
Short-Term Borrowings and Borrowing Arrangements:

At December 31, 2007 and 2006, Altria Group, Inc.’s short-term borrowings and related average interest rates consisted of the following: 

                                                            
At December 31, 2007, $2,205 million of short-term borrowings that PMI expects to remain outstanding at December 31, 2008 were reclassified as long-term debt.

The short-term borrowings at December 31, 2007 were all related to PMI. The fair values of Altria Group, Inc.’s short-term borrowings at December 31, 2007 and 2006, based upon current market interest rates, approximate the amounts disclosed above.

At December 31, 2007, ALG’s debt ratings by major credit rating agencies were as follows:

As discussed in Note 5. Acquisitions, the purchase price of the Sampoerna acquisition was primarily financed through a euro 4.5 billion bank credit facility arranged for PMI and its subsidiaries in May 2005, consisting of a euro 2.5 billion three-year term loan facility (which, through repayments had been reduced to euro 1.5 billion) and a euro 2.0 billion five-year revolving credit facility. On December 4, 2007, PMI entered into new credit agreements consisting of a $3.0 billion five-year revolving credit facility, a $1.0 billion three-year revolving credit facility and a euro 1.5 billion 364-day term loan facility. In addition, on December 4, 2007, PMI borrowed euro 1.5 billion under the new term loan facility to repay the debt outstanding under its 2005 term loan facility. These facilities, which are not guaranteed by ALG, require PMI to maintain an earnings before interest, taxes, depreciation and amortization (“EBITDA”) to interest ratio of not less than 3.5 to 1.0. At December 31, 2007, PMI’s ratio calculated in accordance with the agreements was 44.6 to 1.0.

ALG has a 364-day revolving credit facility in the amount of $1.0 billion, which expires on March 27, 2008. In addition, ALG maintains a multi-year credit facility in the amount of $4.0 billion, which expires April 15, 2010. The ALG facilities require the maintenance of an earnings to fixed charges ratio, as defined by the agreements, of not less than 2.5 to 1.0. At December 31, 2007, the ratio calculated in accordance with the agreements was 19.6 to 1.0. After the effectiveness of the spin-off of PMI, ALG’s multi-year credit facility will be reduced from $4.0 billion to $3.5 billion and the earnings to fixed charges ratio will be replaced with a ratio of EBITDA to interest expense of not less than 4.0 to 1.0. In addition, the facility will then require the maintenance of a ratio of debt to EBITDA of not more than 2.5 to 1.0. If the PMI spin-off had occurred as of December 31, 2007, the ratio of EBITDA to interest expense would have been 15.6 to 1.0, and the ratio of debt to EBITDA would have been 0.9 to 1.0.

ALG and PMI expect to continue to meet their respective covenants. These facilities do not include any credit rating triggers or any provisions that could require the posting of collateral. The multi-year facilities enable the respective companies to reclassify short-term debt on a long-term basis.

At December 31, 2007, credit lines for ALG and PMI, and the related activity, were as follows:

In addition to the above, certain international subsidiaries of PMI maintain credit lines to meet their respective working capital needs. These credit lines, which amounted to approximately $2.6 billion are for the sole use of these international businesses. Borrowings on these lines amounted to approximately $0.6 billion and $0.4 billion at December 31, 2007 and 2006, respectively.

ALG does not guarantee the debt of Kraft or PMI.