Summary
Altria Group, Inc. (MO) has reported on the conclusion of its IRS examination for the tax years 1996 through 1999. The company has agreed with most of the IRS's findings, leading to the reversal of approximately $1.0 billion in tax reserves. This non-cash benefit will be recorded in March 2006 and is expected to increase diluted earnings per share by approximately $0.45 for both the first quarter and full year 2006. However, Altria will reimburse Kraft Foods Inc. $337 million in cash for its portion of the tax benefit, plus $46 million in pre-tax interest. This tax reversal was not previously factored into Altria's earnings guidance.
Key Highlights
- 1IRS examination for 1996-1999 tax years concluded with a final Revenue Agent's Report (RAR) issued March 15, 2006.
- 2Altria agrees with most IRS conclusions, leading to a $1.0 billion non-cash tax benefit from reversing tax reserves.
- 3Expected EPS impact: approximately $0.45 increase to diluted EPS for Q1 and full year 2006.
- 4Cash impact: Altria will reimburse Kraft Foods Inc. $337 million for its share of the tax benefit and $46 million in pre-tax interest.
- 5The $1.0 billion tax benefit was not included in prior earnings guidance.
- 6Altria will contest approximately $170 million in taxes and interest related to Philip Morris Capital Corporation's (PMCC) leveraged lease transactions, which the IRS disallowed.
Frequently Asked Questions
The primary financial impact is a non-cash tax benefit of approximately $1.0 billion due to the reversal of tax reserves. This is expected to increase diluted earnings per share by about $0.45 for the first quarter and full year 2006. However, there is a cash outflow of $337 million to Kraft Foods Inc. for its portion of the benefit, plus $46 million in pre-tax interest.
No, the $1.0 billion tax benefit itself is non-cash. However, Altria will have a cash outflow of $337 million to reimburse Kraft Foods Inc. and $46 million for pre-tax interest related to this resolution.
The IRS disallowed tax benefits related to certain leveraged lease transactions of PMCC. Altria disagrees with the IRS's position and intends to contest approximately $170 million in taxes and interest assessed on these transactions.
The positive impact of this tax reversal on earnings per share was not included in Altria's previous earnings guidance, meaning the actual results for the relevant periods could be higher than initially forecast.