Altria Reports 2008 Third-Quarter Results

Altria Group, Inc. (Altria) (NYSE: MO) today announced third-quarter reported diluted earnings per share (EPS) from continuing operations of $0.42 versus $0.43 in the third quarter of 2007, down 2.3% versus the prior-year period. This quarter’s reported results reflect lower SABMiller equity earnings due to a charge resulting from intangible asset impairments, a higher income tax rate, and an increased allowance for losses at Philip Morris Capital Corporation (PMCC). These factors were partially offset by strong operating companies income (OCI) performance by Philip Morris USA (PM USA) and John Middleton Co. (Middleton), and lower general corporate expenses. Adjusted diluted EPS from continuing operations increased 15.0% to $0.46 versus $0.40 in the prior-year period.

“In the third quarter, Altria’s cigarette business delivered strong financial results,” said Michael E. Szymanczyk, Chairman and Chief Executive Officer of Altria. “PM USA’s adjusted operating companies income increased 6.3% and its operating margins continued to expand.”

“In September, Altria announced that it had agreed to acquire UST, the world’s leading moist smokeless tobacco manufacturer,” Mr. Szymanczyk said. “This acquisition is both strategically compelling and financially attractive as it enhances Altria’s ability to deliver superior shareholder value. UST provides Altria with the leading premium brands, Copenhagen and Skoal, in the highly profitable moist smokeless tobacco category. We are very pleased that the transaction has passed federal antitrust review.”

Conference Call

A conference call with members of the investment community and news media will be webcast on October 23, 2008 at 9:00 a.m. Eastern Time. Access to the webcast is available at www.altria.com.

2008 Full-Year Forecast

Altria reaffirms its 2008 EPS guidance. Altria forecasts that 2008 adjusted full-year diluted EPS from continuing operations is expected to be in the range of $1.63 to $1.67. This range represents a 9% to 11% growth rate in EPS from an adjusted base of $1.50 per share in 2007. Altria continues to expect full-year operating companies income growth from continuing operations in the mid-single digits on both a reported and adjusted basis. The factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections.

2008 Third-Quarter Results Excluding Special Items

Adjusted for the items shown in Table 1 below, third-quarter adjusted diluted EPS from continuing operations increased 15.0% versus the prior-year period to $0.46.

Adjusted for the items shown in Table 2 below, adjusted diluted EPS from continuing operations increased 11.3% in the first nine months of 2008 versus the prior-year period to $1.28.

Dividend Increase

On August 28, 2008, Altria announced that it had increased its regular quarterly dividend by 10.3% to $0.32 per common share, representing an annualized rate of $1.28 per common share.

Altria Agrees to Acquire UST

On September 8, 2008, Altria and UST Inc. (UST) announced that the companies had entered into a definitive agreement for Altria to acquire all outstanding shares of UST, the world’s leading moist smokeless tobacco manufacturer. Under the terms of the agreement, UST’s shareholders will receive $69.50 in cash for each share of common stock held. The transaction is valued at approximately $11.7 billion, which includes the assumption of approximately $1.3 billion in debt.

On October 2, 2008, the companies agreed to extend, at Altria’s option, the closing date of the transaction in the event conditions for closing are met prior to the end of 2008. On October 16, 2008, the companies announced that Altria’s proposed acquisition of UST passed federal antitrust review. Completion of the transaction remains subject to UST shareholder approval and certain other customary closing conditions. If approved and all other conditions to closing are satisfied, Altria expects the transaction to close during the first full week of January 2009 and no later than January 7th.

Altria has fully committed financing to complete the transaction. Once the transaction closes, Altria plans to focus on integrating UST and its subsidiaries into the Altria family of companies to deliver the shareholder and consumer value it expects from this financially and strategically compelling acquisition. However, given the conditions in the public debt markets until Altria completes its long-term financing for the transaction, it will be difficult to predict if the UST acquisition will be accretive to Altria’s adjusted diluted earnings per share within twelve months of closing as was initially anticipated.

ALTRIA GROUP, INC.

As described in “Note 15. Segment Reporting” of Altria’s 2007 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 Consolidated Statements of Earnings contained in this release. Altria’s reporting segments are Cigarettes and other tobacco products; Cigars; and Financial services. All references in this news release are to continuing operations, unless otherwise noted.

2008 Third-Quarter Results

Net revenues increased 5.0% to $5.2 billion. Operating income increased 8.8% to $1.3 billion, primarily driven by higher operating companies income and lower general corporate expenses. Earnings from continuing operations decreased 3.7% to $867 million due primarily to lower SABMiller equity earnings resulting from a charge of $85 million for intangible asset impairments required under accounting principles generally accepted in the United States of America (U.S. GAAP), and a higher income tax rate versus the prior-year period which included a benefit from the reversal of tax reserves no longer required.

CIGARETTES and OTHER TOBACCO PRODUCTS

2008 Third-Quarter Results

PM USA’s net revenues increased 2.8% to $5.1 billion. Revenues net of excise taxes increased 4.6% to $4.2 billion, primarily driven by lower wholesale promotional allowance rates, partially offset by lower volume. Following the Philip Morris International Inc. (PMI) spin-off in March 2008, PM USA began reporting revenues and costs of sales for contract volume manufactured for PMI consistent with all other sales to third parties. PM USA’s third-quarter revenues included $97 million from contract volume manufactured for PMI under an agreement that is expected to terminate before the end of 2008. As shown in Table 3 below, PM USA’s adjusted revenues net of excise taxes and contract volume manufactured for PMI increased 2.2% to $4.1 billion.

PM USA’s reported operating companies income increased 5.7% versus the prior-year period to approximately $1.4 billion, due to lower wholesale promotional allowance rates and lower selling, general and administrative (SG&A) spending, partially offset by lower volume, increased resolution expenses, higher leaf costs, costs related to the reduction of contract volume manufactured for PMI and higher charges for the previously announced closure of the Cabarrus, North Carolina manufacturing facility. Adjusted for costs related to the Cabarrus facility closure, PM USA’s third-quarter 2008 operating companies income increased by 6.3% versus the prior-year period to $1.4 billion as shown in Table 4 below.

* Adjusted OCI margins are calculated as adjusted operating companies income, divided by adjusted PM USA revenues net of excise taxes and contract volume manufactured for PMI.

PM USA’s domestic cigarette shipment volume of 44.9 billion units was 4.8% lower than the prior-year period, but was estimated to be down approximately 4% when adjusted for changes in trade inventories and calendar differences. For the first nine months of 2008, PM USA’s domestic cigarette volume of 128.6 billion units was 3.6% lower than the prior-year period, but was estimated to be down approximately 3.5% to 4% when adjusted for changes in trade inventories and calendar differences. As the cigarette industry environment continues to evolve, PM USA believes that it can no longer accurately predict estimated future cigarette industry decline rates and PM USA is no longer providing this guidance.

PM USA’s cigarette volume performance by brand is summarized in Table 5 below.

* Unit volume includes units sold as well as promotional units, and excludes Puerto Rico, U.S. Territories Overseas Military, Philip Morris Duty Free Inc. and contract manufacturing for PMI.

** Calculation based on millions of units.

Marlboro achieved strong quarterly retail cigarette share results, gaining 0.5 share points versus the prior-year period to 41.6% as shown in Table 6 below. PM USA’s retail cigarette share declined 0.1 point in the third-quarter versus the prior-year period. For the first nine months of 2008, PM USA’s and Marlboro’s retail cigarette share increased 0.3 points and 0.6 points, respectively, versus the prior-year period.

* Retail share performance is based on data from the Information Resources, Inc. (IRI)/Capstone Total Retail Panel, which is a tracking service that uses a sample of stores to project market share performance in retail stores selling cigarettes. The panel was not designed to capture sales through other channels, including the Internet and direct mail.

PM USA continues to test market Marlboro Snus, which is a spit-free, smokeless tobacco pouch product designed especially for adult smokers, in Dallas, Texas and Indianapolis, Indiana. In addition, PM USA continues to test market Marlboro Moist Smokeless Tobacco in the greater Atlanta, Georgia area.

CIGARS

2008 Third-Quarter Results

Middleton’s third-quarter net revenues were $98 million and revenues net of excise taxes were $84 million. Reported operating companies income in the third quarter was $37 million, which includes a $9 million charge for integration costs. Middleton’s third-quarter cigar shipment volume grew 2.3% versus the prior-year period to 329 million units. In the third quarter, cigar shipment volume was impacted by the timing of promotional shipments. For the first nine months of 2008, Middleton’s cigar shipment volume increased 7.1% versus the prior-year period.

Middleton’s third-quarter retail share increased 1.9 share points versus the prior-year period to 30.0% of the machine-made large cigar segment, driven by Black & Mild1. Third-quarter retail share for Black & Mild increased 2.2 share points versus the prior-year period to 29.2% of the machine-made large cigar segment.

Earlier this year, PM USA’s sales force began representing Middleton’s brands at retail. PM USA’s sales force efforts continue to increase Black & Mild’s retail distribution and visibility, which have contributed to Middleton’s strong retail share gains.

1 Retail share performance is based on the 12-week periods ending August 31, 2008 and September 2, 2007 from the IRI Cigar Database for Food, Drug, Mass Merchandise and Convenience trade classes, which was created to specifically track cigar market share performance.

FINANCIAL SERVICES

2008 Third-Quarter Results

PMCC’s reported operating companies income declined $52 million versus the prior-year period for a loss of $7 million. PMCC’s third quarter of 2008 results reflect an increase in the allowance for losses of $50 million. In the third quarter of 2007, PMCC reported operating companies income of $45 million.

PMCC remains focused on managing its portfolio of leased assets to maximize gains and cash flows from income generating assets, as well as asset sales and related activities. PMCC is not making new investments and expects that its operating companies income will vary over time as investments mature or are sold.

Altria Profile

As of September 30, 2008, Altria owned 100% of each of PM USA, Middleton and PMCC. In addition, Altria held a 28.5% economic and voting interest in SABMiller plc.

The brand portfolio of Altria’s tobacco operating companies includes such well-known names as Marlboro, Parliament, Virginia Slims, Basic and Black & Mild. Trademarks and service marks referenced in this release are the property of, or licensed by, Altria Group, Inc. or its subsidiaries. More information is available about Altria at www.altria.com.

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 forward-looking statements in this press release include, without limitation, expectations with respect to the proposed acquisition of UST. Important factors that may cause actual results and outcomes to differ materially from those contained in such forward-looking statements include, without limitation, the parties’ ability to consummate the transaction as expected; the possibility that one or more of the conditions to the consummation of the transaction may not be satisfied; the possibility that regulatory and/or shareholder approvals required for the transaction may not be obtained in a timely manner, if at all; the parties’ ability to meet expectations regarding the timing, completion, and other matters relating to the transaction; and any event that could give rise to the termination of the merger agreement. Other important factors include the possibility that the expected synergies will not be realized or will not be realized within the expected time period and the risk that the integration of UST will not be successful, in each case due to, among other things, changes in the tobacco industry; prevailing economic, market, and business conditions affecting the parties; risks that the transaction disrupts the parties’ current plans and operations; and the other factors detailed in the publicly filed documents, including the Annual Report on Form 10-K for the year ended December 31, 2007 and the Quarterly Report on Form 10-Q for the period ended June 30, 2008.

Other factors as well could cause actual results and outcomes to differ materially from those contained in the projections and forward-looking statements included in this press release. By way of example, Altria’s tobacco subsidiaries (PM USA and Middleton) are subject to intense price competition; changes in consumer preferences and demand for their products; fluctuations in raw material availability, quality and cost; fluctuations in levels of customer inventories; the effects of global, national and local economic and market conditions; changes to income tax laws; legislation, including actual and potential excise tax increases; 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. 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; and to improve productivity.

Altria’s subsidiaries continue to be subject to litigation, including risks associated with adverse jury and judicial determinations, courts reaching conclusions at variance with the companies’ understanding of applicable law and bonding requirements in the limited number of jurisdictions that do not limit the dollar amount of appeal bonds.

Altria 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. All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters and attributable to Altria or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements referenced above.

Other Information

This communication may be deemed to be solicitation material in respect of the proposed acquisition of UST by Altria. In connection with the proposed acquisition, UST filed a preliminary proxy statement and intends to file relevant materials with the SEC, including a definitive proxy statement on Schedule 14A.

INVESTORS AND SHAREHOLDERS ARE URGED TO READ UST’S PROXY STATEMENT AND ALL RELEVANT DOCUMENTS FILED WITH THE SEC (AS THEY BECOME AVAILABLE) BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.

Investors and shareholders will be able to obtain the documents free of charge through the website maintained by the SEC at www.sec.gov. A free copy of the definitive proxy statement and other relevant documents, when they become available, also may be obtained from UST Inc., 6 High Ridge Park, Building A, Stamford, Connecticut 06905-1323, Attn: Investor Relations. Investors and security holders may access copies of the documents filed with the U.S. Securities and Exchange Commission by UST on its website at www.ustinc.com. Such documents are not currently available.

Altria and UST and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from UST’s shareholders in connection with the merger. Information about Altria’s directors and executive officers is set forth in Altria’s proxy statement on Schedule 14A filed with the SEC on April 24, 2008 and Altria’s Annual Report on Form 10-K filed on February 28, 2008. Information about UST’s directors and executive officers is set forth in UST’s proxy statement on Schedule 14A filed with the SEC on March 24, 2008 and UST’s Annual Report on Form 10-K filed on February 22, 2008. Additional information regarding the interests of participants in the solicitation of proxies in connection with the merger will be included in the definitive proxy statement that UST intends to file with the SEC.

Contacts:

Altria Group, Inc.
Clifford B. Fleet, 804-484-8222
Vice President, Investor Relations

Daniel R. Murphy, 804-484-8222
Director, Investor Relations