Dear Shareholder
I am pleased to report that Altria had another successful year in 2005, and we enter 2006 confident in our ability to deliver the superior returns to our shareholders envisaged by our long-term plan.
Key accomplishments and developments last year included:
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Diluted earnings per share from continuing operations rose 11.6% to $5.10.
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Philip Morris USA (PM USA) and Philip Morris International (PMI) posted solid financial results, more than offsetting a weaker than expected performance at Kraft Foods (Kraft).
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Strategically, the highlights of 2005 were the acquisition by PMI of Sampoerna in Indonesia for $4.8 billion, followed by the announcement of a long-term alliance with the China National Tobacco Corporation (CNTC).
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In the Engle class action case, we are awaiting the Florida Supreme Court’s decision regarding the Third District Court of Appeal’s opinion, issued in May 2003, which reversed the trial court’s judgment, overturned the nearly $145 billion punitive damages award and ordered decertification of the class. Oral argument before the Florida Supreme Court occurred in November 2004.
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In the Price case, PM USA was gratified when, in December 2005, the Illinois Supreme Court reversed the trial court’s judgment of $10.1 billion for compensatory and punitive damages.
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In the United States Government case, the United States Court of Appeals for the District of Columbia ruled in February 2005 that disgorgement is not a remedy available in a civil RICO claim. In October 2005, the United States Supreme Court denied the government’s request for a review at that time. The trial concluded in June 2005 and post-trial briefing concluded in September. We are awaiting a decision by the federal district court judge.
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Altria increased its regular quarterly dividend by 9.6% to $0.80 per common share in August 2005, representing an annualized rate of $3.20 per common share.
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Total shareholder return for our stock was 27.7% in 2005, exceeding that of the Standard & Poor’s 500 Index and nearly all of Altria’s peers in the consumer packaged goods industry.
Potential Restructuring
Our solid financial performance, coupled with an improving litigation environment, has garnered the attention of the investment community and resulted in our strong stock price appreciation during 2005.
However, our stock price appreciation has trailed that of several other tobacco companies, and we continue to trade at a multiple discount to a number of them. While this has been a source of some frustration, it clearly demonstrates the significant upside potential that remains to reward our shareholders.
We have emphasized that any potential restructuring will proceed on our own timeline and that we will not act prematurely. We advanced our preparations during 2005 for a potential restructuring of the company into two, or possibly three, stand-alone entities. Continuing improvements in the entire litigation environment are a prerequisite to any restructuring. As I have previously said, the timing and chronology of events are uncertain.
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