8-KRegulation FDOther EventsExhibits & Filings

ALTRIA GROUP, INC. 8-K Report, Regulation FD Disclosure (May 22, 2012)

Filed May 22, 2012For Securities:MO

Summary

This 8-K filing from Altria Group, Inc. (MO) announces the execution of a closing agreement with the Internal Revenue Service (IRS) to resolve federal income tax treatment for leveraged lease transactions (LILO and SILO) conducted by its subsidiary, Philip Morris Capital Corporation (PMCC). This agreement, pending court approval, covers tax years 1996 through 2009 and confirms that Altria will not claim tax benefits from these transactions in 2010, 2011, or future years. While a prior charge of $627 million ($0.30 per share) was recorded in 2011 related to assumptions about this settlement, the final agreement is expected to result in a one-time net earnings benefit of approximately $68 million ($0.03 per share) in the second quarter of 2012, primarily due to lower-than-anticipated interest expenses on tax underpayments. This resolution significantly clarifies a long-standing tax issue for Altria, removing uncertainty for investors. The $0.03 per share benefit from this agreement is incorporated into Altria's updated 2012 full-year reported diluted EPS guidance, raising it to a range of $2.28 to $2.34 from the previous $2.25 to $2.31. The company also reaffirmed its commitment to adjusted diluted EPS growth of 6% to 9% for the full year, excluding certain non-operational items. Investors should note the distinction between reported and adjusted EPS, with the latter excluding items like the PMCC leveraged lease benefit.

Key Highlights

  • 1Altria reached a closing agreement with the IRS to resolve tax treatment of LILO/SILO transactions for its subsidiary PMCC.
  • 2The agreement covers tax years 1996-2009 and requires court approval.
  • 3A one-time net earnings benefit of approximately $68 million ($0.03 per share) is expected in Q2 2012 due to lower interest expense on tax underpayments.
  • 4This benefit improves Altria's 2012 full-year reported diluted EPS guidance by $0.03 per share, to a new range of $2.28 - $2.34.
  • 5Altria will not claim tax benefits from these transactions in 2010, 2011, or future tax years.
  • 6The company reaffirms its 2012 full-year adjusted diluted EPS growth guidance of 6%-9%.

Frequently Asked Questions

The closing agreement with the IRS resolves a significant tax dispute regarding leveraged lease transactions (LILO/SILO) entered into by Altria's subsidiary, PMCC. This agreement removes uncertainty for investors about the potential financial impact of these past transactions, which had been a point of scrutiny in previous SEC filings.

The agreement is expected to result in a one-time net earnings benefit of approximately $0.03 per share in the second quarter of 2012. This benefit is primarily due to lower than previously estimated interest expenses on tax underpayments. As a result, Altria has raised its full-year 2012 reported diluted EPS guidance by $0.03 per share, to a new range of $2.28 to $2.34.

Reported EPS reflects all financial activities, including one-time items like the LILO/SILO tax settlement benefit. Adjusted EPS, a non-GAAP measure, excludes certain items management believes are not indicative of underlying operations, such as this LILO/SILO benefit. Altria's management uses adjusted EPS to assess ongoing business performance and provides it for a more meaningful comparison of year-over-year results. The company is still guiding for 6%-9% adjusted diluted EPS growth for 2012.

Yes, under the terms of the agreement, Altria will not claim tax benefits related to PMCC's LILO and SILO transactions for the 2010 and 2011 tax years, and will not claim such benefits in future tax years. This provides clarity and finality to this specific tax matter.