US: Tobacco Firms to Recoup More Than $1.5 Billion in Credits

Source from:  Wall Street Journal‎ 12/19/2012

U.S. cigarette giants Altria Group Inc., Reynolds American Inc. and Lorillard Inc. said Tuesday they expect to recoup more than $1.5 billion in credits after reaching agreement with 17 states in a decade-old dispute over payments tied to a landmark tobacco settlement.

The deal spans less than half of the 46 states fighting over payments to the 1998 Master Settlement Agreement, under which tobacco companies agreed to pay more than $200 billion to cover health costs related to smoking. Tuesday's announced pact also requires final approval by an arbitration panel.
 
Still, it represents the first major sign of progress in freeing disputed payments for the years 2003 through 2012 that have languished in escrow accounts. The 17 states, which include California and New Jersey, would be able to collect their portion of more than $4 billion from escrow under the deal, according to Altria, maker of Marlboro cigarettes.
 
Under the 1998 agreement, manufacturers can reduce their annual payments based on market-share losses to companies that didn't join the settlement. Big tobacco companies have argued states haven't fully recognized such market-share losses. The latest pact changes how payments are calculated and would allow companies to receive credits against future payments over the next five years.
 
Reynolds, the No. 2 tobacco company by revenue in the U.S., said it expects its R.J. Reynolds unit will receive more than $1 billion in credits. The maker of Camel and Pall Mall cigarettes says it has paid more than $3 billion into escrow accounts.
 
Altria, the largest U.S. tobacco company, estimated credits to its Philip Morris USA unit will total $450 million and expects to record a corresponding increase in its reported pretax earnings.

Lorillard, the third-largest tobacco company and maker of Newport cigarettes, expects to receive credits of at least $198 million, the majority of it next April.
 
The tobacco companies said the pact includes a mechanism for other states to sign up. The District of Columbia and Puerto Rico already have joined the 17 states.
 
"We are hopeful more states will sign on," said David Howard, a Reynolds spokesman, adding that the company was optimistic the arbitration panel would approve the new agreement by early next year.
 
The National Association of Attorneys General declined to comment late Tuesday.
 
States have received more than $85 billion in tobacco company payments thus far under the 1998 agreement, according to Altria.
 
"While we fully anticipated an eventual resolution to this matter, clearly incremental clarity on the issue can be viewed as a positive for the industry," Christopher Growe, a tobacco industry analyst at Stifel Nicolaus, wrote in a note to investors late Tuesday.
 
The 17 states and two territories participating in the agreement represent 46% of industry volume, based on government data, according to Mr. Growe. Enditem