Altria Reports 2012 Third-Quarter And Nine-Month Results; Reaffirms 2012 EPS Guidance; Expands Share Repurchase Program By $500 Million

Altria's 2012 third-quarter and nine-month reported effective tax rate and effective tax rate on operations both increased from the first half of 2012 primarily due to a reduction in certain consolidated tax benefits resulting from the debt tender offer. Excluding the impact of special tax items shown in Table 3, Altria's 2012 third-quarter and nine-month effective tax rates on operations were both 36.7%. Altria anticipates that its 2012 full-year effective tax rate on operations will be approximately 36.7%.

Table 3 - Altria's 2012 Tax Rates
				Third Quarter				Nine Months Ended September 30,
Reported effective tax rate*				37.0%				34.8%
Closure of IRS audit of 2004 - 2006 tax years				5.1				1.1
Mondelēz and PMI tax matters				(4.6)				(1.0)
Interest benefit on tax underpayments associated with PMCC leveraged lease transactions				—				1.6
Other tax items				(0.8)				0.2
Effective tax rate on operations				36.7%				36.7%

* Reported effective tax rate is calculated as "Provision for income taxes" divided by "Earnings before income taxes" from Schedules 1 and 3.

SMOKEABLE PRODUCTS

The smokeable products segment delivered solid adjusted OCI and adjusted OCI margin growth for the third quarter and first nine months of 2012 through higher list prices and effective cost management. PM USA continued to support Marlboro's new brand architecture with brand-building initiatives, which contributed to Marlboro's third-quarter and nine-month retail share performance.

The smokeable products segment's 2012 third-quarter net revenues increased 2.1% primarily due to higher list prices and higher reported shipment volume, partially offset by higher promotional investments to support Marlboro's new brand architecture and unfavorable mix due to L&M's volume growth in Discount. For the first nine months of 2012, the smokeable products segment's net revenues increased 0.7% primarily due to higher list prices, partially offset by higher promotional investments behind Marlboro's new brand architecture, lower reported shipment volume and unfavorable mix. 2012 third-quarter and nine-month revenues net of excise taxes increased 3.2% and 1.6%, respectively.

The smokeable products segment's 2012 third-quarter reported OCI increased 3.9% primarily due to higher list prices, effective cost management and higher reported shipment volume, partially offset by higher promotional investments behind Marlboro's new brand architecture, increased resolution expense and unfavorable mix due to L&M's volume growth. The smokeable products segment's 2012 nine-month reported OCI increased 4.2% primarily due to higher list prices, effective cost management and lower charges related to tobacco and health judgments, partially offset by higher promotional investments behind Marlboro's new brand architecture, increased resolution expense, unfavorable mix due to L&M's volume growth and lower reported shipment volume. Adjusted OCI, which is calculated excluding the special items identified in Table 4, grew 4.3% for the third quarter of 2012 and increased 3.7% for the first nine months of 2012.

Adjusted OCI margins for the smokeable products segment grew 0.4 percentage points to 42.4% for the third quarter of 2012 and increased 0.8 percentage points to 41.6% for the first nine months of 2012, driven by Marlboro. Revenues and OCI for the smokeable products segment are summarized in Table 4.

Table 4 - Smokeable Products: Revenues and OCI ($ in millions)
			Third Quarter																		Nine Months Ended September 30,
				2012					2011						Change							2012					2011						Change
Net revenues				$		5,613			$		5,499					2.1	%					$		16,616			$		16,500					0.7	%
Excise taxes				(1,742			)		(1,747			)										(5,239			)		(5,304			)
Revenues net of excise taxes				$		3,871			$		3,752					3.2	%					$		11,377			$		11,196					1.6	%
Reported OCI				$		1,637			$		1,575					3.9	%					$		4,716			$		4,527					4.2	%
Asset impairment, exit and implementation costs, net				2					—													13					3
Tobacco and health judgments				3					—													4					36
Adjusted OCI				$		1,642			$		1,575					4.3	%					$		4,733			$		4,566					3.7	%
Adjusted OCI margins*				42.4			%		42.0			%			0.4 pp							41.6			%		40.8			%			0.8 pp

*Adjusted OCI margins are calculated as adjusted OCI divided by revenues net of excise taxes.

PM USA's 2012 third-quarter reported domestic cigarettes shipment volume increased 1.2% primarily due to retail share gains and changes in trade inventories, partially offset by the industry's rate of decline and one less shipping day. PM USA believes that the trade depleted less inventory during the third quarter of 2012 versus the prior-year period, which benefited comparisons of its reported third-quarter shipments. After adjusting for changes in trade inventories and other factors, PM USA's 2012 third-quarter domestic cigarettes shipment volume was estimated to be down approximately 1%.

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