Finance Assets, net:

In 2003, PMCC ceased making new investments and began focusing exclusively on managing its portfolio of finance assets in order to maximize its operating results and cash flows from its existing lease portfolio activities and asset sales. Accordingly, PMCC’s operating companies income will fluctuate over time as investments mature or are sold.

At June 30, 2013, finance assets, net, of $2,345 million were comprised of investments in finance leases of $2,376 million and a receivable of $21 million, reduced by the allowance for losses of $52 million. At December 31, 2012, finance assets, net, of $2,581 million were comprised of investments in finance leases of $2,680 million, reduced by the allowance for losses of $99 million.

The activity in the allowance for losses on finance assets for the six months ended June 30, 2013 and 2012 was as follows:



	For the Six Months Ended June 30,
	2013			2012
	(in millions)
Balance at beginning of the year	$	99		$	227
Decrease to allowance	(47		)	(10		)
Amounts written-off	—			(29		)
Balance at June 30	$	52		$	188

PMCC assesses the adequacy of its allowance for losses relative to the credit risk of its leasing portfolio on an ongoing basis. During the six months ended June 30, 2013 and 2012, PMCC determined that its allowance for losses exceeded the amount required based on management’s assessment of the credit quality and size of PMCC’s leasing portfolio. As a result, PMCC reduced its allowance for losses by $47 million and $27 million for the six and three months ended June 30, 2013, respectively, and by $10 million for the six and three months ended June 30, 2012. These decreases to the allowance for losses were recorded as a reduction to marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statements of earnings.

In addition, as a result of developments related to the 2011 American Airlines, Inc. (“American”) bankruptcy filing, during the six months ended June 30, 2012, PMCC wrote off $29 million of the related investment in finance lease balance against its allowance for losses. During the first quarter of 2013, PMCC sold its remaining interest in the American aircraft leases.

All PMCC lessees were current on their lease payment obligations as of June 30, 2013.

PMCC believes that, as of June 30, 2013, the allowance for losses of $52 million was adequate. PMCC continues to monitor economic and credit conditions, and the individual situations of its lessees and their respective industries, and may increase or decrease its allowance for losses if such conditions change in the future.

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, 2013 and December 31, 2012 was as follows:



	June 30, 2013		December 31, 2012
	(in millions)
Credit Rating by Standard & Poor’s/Moody’s:
“AAA/Aaa” to “A-/A3”	$	760	$	961
“BBB+/Baa1” to “BBB-/Baa3”	911		938
“BB+/Ba1” and Lower	726		781
Total	$	2,397	$	2,680