Altria Group, formerly known as Philip Morris Companies, is a major manufacturer and distributor of consumer products. It has a history of steady growth in sales, earnings, and cash flows. In recent years Altria has diversified with acquisitions of Miller Brewing and General Foods. In Year 8, Altria acted to further diversify by announcing an unsolicited cash tender offer for all the 124 million outstanding shares of Kraft at $90 per share. After negotiation, Kraft accepts a $106 per share all-cash offer from Altria. Assume you are an analyst with Investment Services, and that soon after the cash tender offer you are requested by your supervisor to review the potential acquisition of Kraft and assess its impact on Altria’s credit standing. You assemble various information using the following projected Year 8 and Year 9 financial data:

ALTRIA GROUP, INC. continue

Required:
a. You arrange a visit with Altria management. Given the information you have assembled above, identify and discuss five major industry considerations you should pursue when questioning management.
b. Additional information is collected showing median ratio values along with their bond rating category for three financial ratios. Using this information reported in the excerpt below along with the projections above:
(1) Calculate these same three ratios for Altria for Year 9 using:
(a) Amounts before accounting for the Kraft acquisition.
(b) Consolidated amounts after the Kraft acquisition.
(2) Discuss and interpret the two sets of ratios from 1 compared to the median values for each bond rating category. Determine and support your recommendation on a rating category for Altria after the Kraftacquisition.

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ALTRIA GROUP, INC Projected Financial Data (S millions) YEAR 9 ESTIMATE Year 8 Estimate Excluding Kraft Before Kraft Kraft Only Adjustments Consolidated Selected Income Statement Data Sales 8,300 8,930 8,800 11,600 8,930 8,800 11,600 11,610 3,750 44,690 Domestic tobacco International tobacco General Foods 8,000 10,750 $11,610 3,750 3,400 30,450 Beer Total sales 33,080 11,610 Operating income 3,080 3,520 940 870 $ 35 3,555 Domestic tobacco International tobacco General Foods 800 810 940 870 1,100 205 125 1,050 50 190 Beer Other Goodwill amortization 205 125 (295) (210) (110) 4,875 16.0% (575) (200) 1,050 6,390 14.3% (1,600) (365) Total operating income. ····· 5,550 9.0% (75) (100) Percent of sales 16.8% Interest expense Corporate expense Other expense 1,025) (40) (225) Year 8 Estimate YEAR 9 ESTIMATE Pretax income Percent of sales. Income taxes Tax rate Net income Excluding Kraft Before Kraft Kraft Only Adjustments Consolidated 875 (349) 526 4,820 (1,740)(2,000) $2,355 2,820 4,095 (1,275) 493 (782) 4,420 13.4% 14.6% 7.5% 9.9% 1,856) 42.5% 41.5% 40.0% 42.0% 2,564 Selected Year-End Balance Sheet Data Short-term debt Long-term debt. Stockholders' equity Other Selected Financial Data 1,125 1,100 4,757 8,141 683 895 2,150 1,783 15,778 9,675 3,883 9,931 $11,000 (2,406) Deferred taxes Equity in undistributed earnings of 720 100 750 100 295 280 1,235 390 10 unconsolidated subsidiaries 125 125