Finance Assets, net:

At June 30, 2012, finance assets, net, of $3,012 million were comprised of investments in finance leases of $3,171 million and an other receivable of $29 million, reduced by the allowance for losses of $188 million. At December 31, 2011, finance assets, net, of $3,559 million were comprised of investments in finance leases of $3,786 million, reduced by the allowance for losses of $227 million.

PMCC assesses the adequacy of its allowance for losses relative to the credit risk of its leasing portfolio on an ongoing basis. During the second quarter of 2012, PMCC determined that its allowance for losses exceeded the amount required based on its assessment of the credit quality and size of the leasing portfolio. As a result, the allowance for losses was reduced by $10 million, which was recorded as income during the second quarter of 2012. PMCC believes that, as of June 30, 2012, the allowance for losses of $188 million is adequate. PMCC continues to monitor economic and credit conditions and the individual situations of its lessees and their respective industries, and may have to increase its allowance for losses if such conditions worsen.

The activity in the allowance for losses on finance assets for the six months ended June 30, 2012, and 2011 was as follows:



	For the Six Months Ended June 30,
	2012			2011
	(in millions)
Balance at beginning of the year	$	227		$	202
Decrease to allowance	(10		)	—
Amounts written-off	(29		)	—
Balance at June 30	$	188		$	202

PMCC had 28 aircraft on lease to American Airlines, Inc. (“American”), on November 29, 2011 when American filed for bankruptcy. As of the date of the bankruptcy filing, PMCC stopped recording income on its $140 million investment in finance leases from American. In the first quarter of 2012, American filed a motion to reject the leases for nine of the 28 aircraft under lease, which resulted in a $23 million write-off of the related investment in finance lease balance against PMCC's allowance for losses. Deferred taxes of approximately $12 million is subject to acceleration upon foreclosure of the leases rejected in the first quarter of 2012. During the second quarter of 2012, as a result of the early termination of one aircraft lease, PMCC wrote-off an additional $6 million against PMCC's allowance for losses. On July 19, 2012, the bankruptcy court approved an agreement for PMCC to sell its interest in 10 aircraft leases back to American, which will result in a $60 million write-off of the related investment in finance lease balance against PMCC's allowance for losses in the third quarter of 2012. As a result of the sale of these leases, deferred taxes of $10 million will be accelerated in the third quarter of 2012. The remaining leases could be rejected or restructured, which would result in a write-off of the related investment in finance lease balance against PMCC's allowance for losses.

With the exception of American, all PMCC lessees were current on their lease payment obligations as of June 30, 2012.

The credit quality of PMCC’s investments in finance assets as assigned by Standard & Poor’s Ratings Services (“Standard & Poor’s”) and Moody’s Investors Service, Inc. (“Moody’s”) at June 30, 2012 and December 31, 2011 was as follows:



	June 30, 2012		December 31, 2011
	(in millions)
Credit Rating by Standard & Poor’s/Moody’s:
“AAA/Aaa” to “A-/A3”	$	1,283	$	1,570
“BBB+/Baa1” to “BBB-/Baa3”	985		1,080
“BB+/Ba1” and Lower	932		1,136
Total	$	3,200	$	3,786

On May 22, 2012, Altria Group, Inc. entered into the Closing Agreement with the IRS that conclusively resolved the federal income tax treatment for all prior and future tax years of certain leveraged lease transactions entered into by PMCC. As a result of the Closing Agreement, Altria Group, Inc. recorded a one-time net earnings benefit of $68 million during the second quarter of 2012 due primarily to lower than estimated interest on tax underpayments.

During the second quarter of 2011, Altria Group, Inc. recorded the PMCC Leveraged Lease Charge. Approximately 50% of the charge ($315 million) represented a reduction in cumulative lease earnings recorded to date that will be recaptured over the remainder of the affected lease terms. The remaining portion of the charge ($312 million) primarily represented a permanent charge for interest on tax underpayments.

For the six and three months ended, June 30, 2012 and 2011, the PMCC leveraged lease (benefit) charge was recorded in Altria Group, Inc.'s condensed consolidated statements of earnings as follows:



	For the Six and Three Months Ended June 30, 2012								For the Six and Three Months Ended June 30, 2011
	Net Revenues		Benefit for Income Taxes			Total			Net Revenues		(Benefit) Provision for Income Taxes			Total
	(in millions)
Reduction to cumulative lease earnings	$	7	$	(2	)	$	5		$	490	$	(175	)	$	315
Interest on tax underpayments	—		(73		)	(73		)	—		312			312
Total	$	7	$	(75	)	$	(68	)	$	490	$	137		$	627

See Note 10. Income Taxes and Note 11. Contingencies for a further discussion of the Closing Agreement and the PMCC leveraged lease benefit/charge.