From: Reuters
Published April 15, 2008 12:08 PM

Philip Morris pays up, Reynolds withholds some

CHICAGO (Reuters) - Cigarette maker Philip Morris USA said on Tuesday it made its full payment of about $4 billion to U.S. states as required under a 1998 settlement agreement, while rival R.J. Reynolds put some of its payment into an escrow account.

The payment choices by the two largest U.S. cigarette makers represent different ways of dealing with amounts they argue should not be paid because they have lost market share to tobacco companies that are not part of the settlement agreement.

R.J. Reynolds, a unit of Reynolds American Inc <RAI.N>, agreed to pay $2.25 billion to the states under the Master Settlement Agreement. The funds are intended to help cover the medical bills of ailing smokers.

But Reynolds also put $431 million in an escrow account

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for "disputed payments."

On the other hand, Philip Morris, a unit of Altria Group Inc <MO.N>, included in its payment about $156 million it disputes it owes.

"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.

But 47 of 48 state trial courts have determined conflicts over the settlement agreement should be decided by binding arbitration, according to Reynolds spokesman David Howard. A number of states had wanted to fight the matter in state court.

(Reporting by Brad Dorfman; editing by Jeffrey Benkoe and Gunna Dickson)

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