Altria’s Contingent Liabilities

Altria Group is the parent of Philip Morris USA Inc. and John Middleton, Inc. , which produces and address cigarettes and other tobacco products. Altria also owns Philip Morris Capital Corp, which maintains a portfolio of finance leases.On March 30, 2007, Altria Group distri anded all of its remaining interest in kraft Foods Inc. to its stockholders. It also completed the spin-off of its subsidiary Philip Morris International Inc. As of Dec. 31, Altria tell $57,211,000,000 in total assets, and debts of $38,657,000,000. A mounts owed by Altrias consumer products units total $33,054,000,000, with $17,782,000,000 constituting as stream debts.Accordign to its relaxation sheet, Altrias liabilities include short-term borrowings accumulated liabilities for marketing, taxes, employment costs, and gag law charges dividends payable, accrued pension and healthcare costs, and long-term debt. It is Altrias obligation to report all liabilities in its symmetricalness sheet in accordance with the flyering principles generally judge in the United States (U. S. GAAP). For example, if Philip Morris obtains a EUR1. 5 billion, 364-day term loan, expiring Dec. 2, 2008, from Bank of America, it is judge to list in its balance sheet that it has debts of EUR1.5 billion on account of the term loan. If Bank of America asserts that an additional EUR500 million is collect on the term loan due to Philip Morris violations of its covenant that Philip Morris should limit allowed debt expenditures, but Phillip Morris disputes the take over, Philip Morris need not include BofAs claim in its balance sheet. BofAs claim impart still be subject to arbitration or litigation, and courts whitethorn rule in favour of Philip Morris. Hence, Altria does not disclose these types of events in its balance sheet.Altria, however, has fiduciary duties to disclose to shareholders all emf liabilities that whitethorn become true(a) liabilities in the future. These include liabilities that are conting ent, disputed or un-liquidated. For Atrias case, some of these liabilities will likely include unfinished lawsuits filed against the company. Pending lawsuits are subject to trial, whitethorn be sent to appeal after a ruling is served, may result to settlement between parties, may end up be dismissed, or may end up with monetary judgment, either veridical sums or de minimis amounts, against the defendant.Because of the varied possible outcomes, Atria maybe unable to provide conjectural estimates on the debts they may incur as a result of these lawsuits. Regardless, shareholders squander to be aware of the potential losses they may incur as a result of these contingencies. Investors also have to be aware of potential risks the company is facing. Hence, contingencies and other potential liabilities are listed as footnotes to financial statements. In its Annual Report, Altria discussed contingencies to its financial statements.It stated that legal proceedings are pending or threat ened in various U. S. and foreign jurisdictions against Altria and its subsidiaries on account of tobacco-related issues. However, it admitted that its management is unable to estimate the possible loss that could arise from an invidious outcome of any of these cases. Accordingly, Altria has not provided any amounts in its financial statements for disapproving outcomes of pending litigations.For tobacco-related lawsuits that have been resolved through settlements, Altria included these items in its balance sheet because its liabilities on account of those disputes have already been determined. For example, Altria has stated settlement payments it owes on account of the Master Settlement Agreement reached by PM USA with 46 states and other governments for health care cost retrieval and other claims. REFERENCES 2007 Annual Report. Altria Group, Inc. http//www. altria. com/download/pdf/investors_AltriaGroupInc_2007_AnnualRpt. pdf