MSA Arbitration Panel Upholds NPM Adjustment Settlement Agreement

  MSA Arbitration Panel Upholds NPM Adjustment Settlement Agreement

Business Wire

RICHMOND, Va. -- March 13, 2013

Philip Morris USA (PM USA) announced today that the arbitration panel in the
pending Non-Participating Manufacturer (NPM) adjustment proceeding has issued
a Stipulated Partial Settlement and Award, which will allow the settlement
agreement reached in December to proceed. PMUSA and other cigarette
manufacturers reached the agreement with seventeen states, the District of
Columbia and Puerto Rico to resolve long-standing disputes related to the NPM
adjustment provisions of the Master Settlement Agreement (MSA) for the years
2003 to 2012.

PM USA believes this agreement resolves the disputes with the signatory states
on financial terms that are fair to the parties and in a way that will lead to
a better method of resolving these issues in the future. Now that the panel
has upheld this agreement, PM USA hopes that more states will join in the

The agreement includes a release to the signatory states of their portion of
more than $4 billion from disputed payment accounts. In return, the
manufacturers will receive credits against the signatory states’ portion of
future MSA payments in settlement of their 2003-2012 NPM adjustment claims
against those states. For the signatory states, the settlement is net cash
positive and also removes the risk of substantial reductions of MSA revenues
for the years in dispute, 2003-2012.

For those states that do not join, PM USA intends to continue to pursue the
disputed NPM adjustments for 2003 and beyond. As part of the award, the
arbitration panel also ruled that the 2003 NPM adjustment claim against the
non-signatory states would be reduced pro rata in light of the settlement with
the signatory states. A number of the non-signatory states raised objections
concerning the settlement agreement with the arbitration panel, and some of
these states have indicated that they may seek relief in state court to
prevent the settlement from proceeding or for other measures with respect to
the settlement. PM USA intends to contest any such efforts in state court.

PM USA’s credit is estimated to total approximately $450 million based on the
current signatory states. This estimate is subject to change depending on a
variety of factors related to the calculation of the credit. If the agreement
proceeds, PM USA expects to record a corresponding increase in its reported
pre-tax earnings.

The jurisdictions that have agreed to join the settlement to date are Alabama,
Arizona, Arkansas, California, District of Columbia, Georgia, Kansas,
Louisiana, Michigan, Nebraska, Nevada, New Hampshire, New Jersey, North
Carolina, Puerto Rico, Tennessee, Virginia, West Virginia, and Wyoming.


Philip Morris USA
Media Relations, 804-484-8897
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