In a compromise one-year deal, Millwood will get $11 million. By reaching agreement, the two sides avoided arbitration. The team had offered $10 million and Millwood had sought $12.5 million.
"We are pleased that we were able to get the case settled," said General Manager Ed Wade. "It's our hope that we can continue to have an open dialogue with Kevin regarding him being a Phillie for a long time."
Millwood, 29, had a 14-12 record last season and pitched a 1-0 no-hitter against San Francisco.
He filed for free agency in the fall and then accepted salary arbitration, binding him to the Phillies for 2004.
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