Finance Assets, net:

At September 30, 2012, finance assets, net, of $2,805 million were comprised of investments in finance leases of $2,889 million and an other receivable of $15 million, reduced by the allowance for losses of $99 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 management's assessment of the credit quality and size of PMCC's leasing portfolio. As a result, PMCC reduced its allowance for losses by $10 million, which was recorded as income during the nine months ended September 30, 2012. During the third quarter of 2011, PMCC determined that its allowance for losses exceeded the amount required based on management's assessment of the credit quality of the leasing portfolio at that time, including reductions in exposure to below investment grade lessees. As a result, PMCC reduced its allowance for losses by $35 million, which was recorded as income during the nine and three months ended September 30, 2011. PMCC believes that, as of September 30, 2012, the allowance for losses of $99 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 nine months ended September 30, 2012, and 2011 was as follows:



	For the Nine Months Ended September 30,
	2012			2011
	(in millions)
Balance at beginning of the year	$	227		$	202
Decrease to allowance	(10		)	(35		)
Amounts written-off	(118		)	—
Balance at September 30	$	99		$	167

PMCC had 28 aircraft on lease to 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. The debtholders subsequently foreclosed upon PMCC's interest in these nine aircraft. During the second quarter of 2012, as a result of the early termination of an additional American aircraft lease, PMCC wrote off $6 million against its allowance for losses. During the third quarter of 2012: (i) the bankruptcy court approved an agreement for American to purchase 10 aircraft, resulting in a $60 million write off against PMCC's allowance for losses; (ii) the bankruptcy court approved an agreement between PMCC and American to amend the eight remaining leases at reduced rent levels, resulting in a write off of $29 million against PMCC's allowance for losses; and (iii) PMCC sold the 10 aircraft, and bankruptcy claims related to these aircraft and to the eight remaining leases. As a result of the above activities, during the third quarter of 2012, deferred taxes of $22 million were accelerated and PMCC recorded $33 million of pre-tax income primarily related to recoveries from the sale of bankruptcy claims on, as well as the sale of aircraft under, its leases to American. The remaining investment in finance lease balance with American was $7 million at September 30, 2012.

All PMCC lessees, including American under its restructured leases, were current on their lease payment obligations as of September 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 September 30, 2012 and December 31, 2011 was as follows:



	September 30, 2012		December 31, 2011
	(in millions)
Credit Rating by Standard & Poor’s/Moody’s:
“AAA/Aaa” to “A-/A3”	$	1,137	$	1,570
“BBB+/Baa1” to “BBB-/Baa3”	978		1,080
“BB+/Ba1” and Lower	789		1,136
Total	$	2,904	$	3,786

During the second quarter of 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 2011 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 terms of the affected leases. The remaining portion of the charge ($312 million) primarily represented a permanent charge for interest on tax underpayments.

For the nine months ended, September 30, 2012 and 2011, the benefit/charge associated with PMCC's leveraged lease transactions was recorded in Altria Group, Inc.'s condensed consolidated statements of earnings as follows:



	For the Nine Months Ended September 30, 2012								For the Nine Months Ended September 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.