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Philip Morris USA Makes Master Settlement Agreement Payment of Approximately $4 billion
RICHMOND, VA (April 15, 2008) - Today, Philip Morris USA (PM USA) made its full annual Master Settlement Agreement (MSA) payment of approximately $4 billion. This amount includes approximately $156 million that PM USA disputes it owes as a result of the 2005 Non-Participating Manufacturer (NPM) Adjustment.
Since 1997, PM USA has paid more than $42 billion to the states (MSA and Previously Settled States combined).
As it did with respect to the 2003 and 2004 NPM Adjustments, PM USA elected to pay the disputed money to the states, although it had the right under the Master Settlement Agreement to put the disputed money into the Disputed Payments Account.
"We continue to work in good faith with the states to resolve the Non-Participating Manufacturer adjustment dispute, whether by settlement or by the arbitration process specified by the Master Settlement Agreement," said Denise Keane, executive vice president and general counsel, Altria Group, Inc., speaking on behalf of PM USA.
PM USA and the other Original Participating Manufacturers believe that the dispute over the NPM Adjustment, including the States' claims to have diligently enforced their qualifying escrow statutes, is subject to binding arbitration pursuant to the Master Settlement Agreement's arbitration clause.
States and territories have asserted that this dispute, including their diligent enforcement claims, should be determined by state courts. To date, more than 45 courts have agreed with PM USA's position that arbitration is the required forum for this dispute.
The NPM Adjustment Proceedings BackgroundThe Master Settlement Agreement is a contract between Participating Manufacturers and the Settling States that establishes certain rights and obligations for each of the parties.
The amount each Original Participating Manufacturer pays each year under the agreement is determined by a complex formula. One component of that formula is the Non-Participating Manufacturer adjustment, which is potentially available in the event that all of the Participating Manufacturers in the aggregate lose more than two percentage points of market share compared to 1997.
For the years 2003, 2004 and 2005, an economic consulting firm (The Brattle Group) appointed under the Master Settlement Agreement has rendered its final and non-appealable decision that the MSA was a "significant factor contributing to" the market share loss of the Participating Manufacturers for 2003, 2004 and 2005. As a result, the Original Participating Manufacturers are entitled to a Non-Participating Manufacturer Adjustment to their 2003, 2004 and 2005 payments. States that prove they have diligently enforced their qualifying escrow statutes during all of 2003, 2004 and 2005 will be able to avoid application of the Adjustment to their payments.
