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Press release from Business Wire

Philip Morris USA Makes Master Settlement Agreement Payment of Approximately $3.5 Billion

Friday, April 15, 2011

Philip Morris USA Makes Master Settlement Agreement Payment of Approximately $3.5 Billion10:46 EDT Friday, April 15, 2011 RICHMOND, Va. (Business Wire) -- Philip Morris USA (PM USA) today made its annual Master Settlement Agreement (MSA) payment of approximately $3.5 billion. This amount includes approximately $267 million that PM USA disputes it owes as a result of the 2008 Non-Participating Manufacturer (NPM) Adjustment. As permitted by the terms of the MSA, PM USA paid the disputed amount into a Disputed Payments Account pending final resolution of the 2008 NPM Adjustment dispute. “We continue working towards a resolution of the Non-Participating Manufacturer Adjustment dispute for 2008 and prior years and look forward to doing so, either by settlement or through the arbitration process laid out in the Master Settlement Agreement,” said Denise Keane, Altria Group, Inc. executive vice president and general counsel, speaking on behalf of PM USA. “PM USA determined that the best decision at this time was to place the disputed money into an escrow account where it will be available, with earnings, to whoever prevails in the 2008 NPM Adjustment dispute.” Since 1997, PM USA has paid more than $55 billion to the states (MSA and Previously Settled States combined), which included payment of disputed amounts for the 2003-2007 NPM Adjustments that PM USA was entitled to withhold or pay into a disputed payments account under the MSA. The NPM Adjustment Proceedings Background The 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 2003-2006, an economic consulting firm appointed under the Master Settlement Agreement has rendered its final and non-appealable decision that disadvantages experienced as a result of the MSA were a "significant factor contributing to" the market share loss of the Participating Manufacturers for 2003-2006. For 2007, 2008 and 2009, the Participating Manufacturers and the States have agreed that the States will not contest that the disadvantages of the MSA were a significant factor contributing to the Market Share Loss. Thus, no significant factor determination will be necessary with respect to the Participating Manufacturer's collective loss of market share for 2007, 2008 and 2009. States that prove they have diligently enforced their qualifying escrow statutes during all of a particular year will be able to avoid any application of the Adjustment to their payments for that year. The MSA Independent Auditor recently determined that the participating manufacturers collectively lost market share for 2010. A proceeding before an economic consulting firm with respect to a “significant factor” determination for 2010 loss of market share cannot be commenced until April 2012. Arbitration Agreement for 2003 PM USA and approximately 25 other Participating Manufacturers have entered into an arbitration agreement with 45 MSA States concerning the 2003 NPM Adjustment, including the States' claims of diligent enforcement for 2003. The selection of the Arbitration Panel for the 2003 NPM Adjustment was completed in July 2010 and the arbitration is currently ongoing. Proceedings to determine state diligent enforcement claims for 2004-2009 have not yet been scheduled. The availability and precise amount of any NPM Adjustment for 2003-2009 will not be finally determined until 2012 or thereafter. ALCS Media Affairs804-484-8897