Philip Morris USA and Other Manufacturers Prevail in Decade-Long Settlement Payment Dispute

  Philip Morris USA and Other Manufacturers Prevail in Decade-Long Settlement
  Payment Dispute

Business Wire

RICHMOND, Va. -- September 11, 2013

An arbitration panel has determined that 6 out of 15 states failed in 2003 to
diligently enforce laws that require escrow payments from the cigarette
manufacturers that have not signed the Master Settlement Agreement (MSA). The
states enacted these Non-Participating Manufacturer (NPM) escrow laws after
the MSA was signed in 1998. Manufacturers that participate in the MSA, such as
Philip Morris USA (PM USA), receive downward adjustments in their MSA payments
if, among other things, states fail to diligently enforce NPM escrow laws.

As a result, Philip Morris USA expects to receive a credit of approximately
$145 million, plus interest, against next year’s MSA payment. This was the
full remaining amount available to PM USA in the 2003 arbitration.

“Today’s decision sends a strong message about the importance of diligently
enforcing the laws that apply to non-participating manufacturers,” said Denise
Keane, executive vice president and general counsel of Altria Group, speaking
on behalf of PM USA.

The panel’s decision does not affect the 22 states and jurisdictions that
joined a December 2012 settlement of the NPM adjustment disputes. “The
non-diligent states could have avoided today’s result altogether had they
either diligently enforced their escrow statutes or joined December’s
settlement of these issues,” said Ms. Keane.

States that joined this settlement received more than $1 billion in net
additional cash payments from the release of their portion of disputed MSA
funds that had been set aside in a separate account. In addition, these states
are protected from any further downward adjustments in their MSA payments
based on NPM adjustment disputes for the years 2003 through 2012. States that
did not join the December 2012 settlement still face NPM adjustment disputes
for years 2004 through 2012.

Ms. Keane added, “We are fully prepared to move forward with the arbitration
for the 2004 dispute, and for all of the remaining years as well. That being
said, we remain open to resolving these disputes in a way that makes sense for
us and the states that did not join the settlement.”

Although the panel found that nine contested states did diligently enforce
their NPM escrow statutes in 2003, that finding is limited to 2003. Because
the MSA reallocates the diligent states’ share of the adjustment amount to
non-diligent states, the participating manufacturers will receive the full
amount remaining in dispute for 2003 as a result of the panel's decision.

Some states may seek to challenge today’s decision in court. In addition, a
number of states have already filed motions in state court challenging the
panel’s decision allowing the settlement to proceed and seeking a more
favorable judgment reduction method. PM USA can give no assurance whether any
such challenges will be resolved in a favorable manner.

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Contact:

Philip Morris USA
Media Relations, 804-484-8897
 
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