Improving Litigation Environment

The positive trend in litigation that we have witnessed for several years continued in 2004, with favorable developments in numerous trial and appellate courts during the year. These included the Daniels class action and Whiteley individual case in California, the Hines “Lights” case in Florida, the Blankenship class action in West Virginia, the Blue Cross-Blue Shield reimbursement case in New York, and the pre-trial dismissal of individual cases in states across the country. For a more complete review of litigation, I refer you to Note 19 to the Consolidated Financial Statements in this report.

November 2004 was one of the most important months in tobacco litigation history, with arguments in the Florida Supreme Court on the Engle case, the Illinois Supreme Court on the Price case, and the United States Court of Appeals for the District of Columbia Circuit on the disgorgement issue in the Department of Justice case.

In the Department of Justice case, on February 4, 2005, the appellate court ruled that the civil Racketeer Influenced and Corrupt Organizations Act (RICO) does not permit the federal government to seek disgorgement of past revenues and profits as a remedy in its case against PM USA and other defendants. We are, of course, pleased with the court’s decision. We also remain confident that the law and facts support our defense in that case.

We are optimistic about both the Engle and Price cases. In the Engle case, there is strong legal precedent in PM USA’s favor on both class certification and punitive damages issues. In the Price case, 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. We hope that decisions in both Engle and Price will be issued by the middle of this year.

Other “Lights” litigation remains a particular focus of attention. As with Engle and Price, we believe that the predominance of individual issues over so-called common issues makes class certifications inappropriate. Many of these cases are in their early stages, and we are hopeful that, as they proceed, our legal position will be vindicated. We are also encouraged by the recent passage of a class action reform bill in the U.S.

Although there may be occasional negative headlines, we believe that the trend in tobacco litigation will continue to improve as 2005 unfolds and that the aggregate litigation risk will continue to decline.

Corporate Governance and Board Developments

All of our operating companies and corporate departments are governed by a strong, comprehensive set of explicit, enterprise-wide standards that make it clear that nothing is more important than compliance and integrity. We place great emphasis on the ethics, integrity and transparency of our financial statements, as well as our disciplined business policies and practices, which are overseen by your Board of Directors.

2004 was the first year that Altria and other publicly traded companies had to meet the new internal controls standards of Section 404 of the Sarbanes-Oxley Act. I am pleased to say that we met the requirements of the new law, although compliance required a substantial investment of staff time.

The 2005 proxy statement contains a comprehensive description of your Board and its committees, as well as the nominees for election to the Board at the 2005 Annual Meeting of Shareholders. I urge you to read the full statement and return your proxy card as soon as possible with your vote.

In late 2004, your Board expanded to 12 directors with the election of George Muñoz and Dr. Harold Brown, who returns to the Board. Both are exceptionally well qualified and, I believe, will be of great help to us as we work through the strategic issues ahead.

Outlook

2005 holds great promise for Altria, with the potential for resolution of several of our most difficult legal challenges and continued progress by our food and tobacco operating companies.

As I have noted in the past, we cannot achieve our potential without a talented and committed workforce. We are privileged to have outstanding people at all levels of the organization, and I especially want to thank each of them for their many valuable contributions and for their tireless efforts on behalf of the Altria family of companies.

Most importantly, our businesses are strong and we have the right strategies to deliver outstanding results in 2005 and solid growth over the long term.

Louis C. Camilleri
Chairman of the Board and Chief Executive Officer
March 3, 2005