Philip Morris’ Assets Limited, Jurors Told

Big Tobacco has less treasure in its coffers than commonly imagined, the head of Philip Morris’ U.S. cigarette business Tuesday told jurors weighing massive court damages against cigarette makers.

Testifying for a second day in the Engle class-action case brought by Florida’s sick smokers, Chief Executive Michael Szymanczyk said Philip Morris USA already was saddled with paying billions of dollars a year to state governments and was laying off 2,000 workers as fewer cigarettes are sold in the United States.

Philip Morris USA, the maker of Marlboros, the world’s best-selling cigarette, would be hard-pressed to even raise $6.4 billion, its net worth at year-end 1999, because few buyers would line up for its plants, brands and other assets, he said.

A plaintiffs’ witness testifying earlier in the current punitive damages phase of the Miami trial put Philip Morris USA’s value at$75 billion. Punitive damages may be based in part on a defendant’s ability to pay, lawyers said.

Philip Morris USA is a sister to Miller Brewing and Kraft Foods, all part of Philip Morris Cos., whose worldwide revenue in 1999 was just shy of $79 billion.

Six Miami jurors, hearing evidence since 1998, will within weeks decide on punitive damages for an estimated 500,000 or more sick smokers, a figure that could total hundreds of billions of dollars.

The same jurors last year found Philip Morris, R.J. Reynolds Tobacco and others liable for conspiracy, fraud and selling harmful products. In April, they awarded a record $12.7 million for actual injuries to three smokers with lung cancer and other ailments.

Szymanczyk, who testified he has steered all Philip Morris USA’s marketing techniques away from teenagers since becoming CEO in 1997, said the worth of Philip Morris USA had been savaged by lawsuits now totaling more than 1,000.

“Right now, Philip Morris USA has no borrowing capability,” he said.

Despite holding more than 50% of the U.S. cigarette market with its Basic, Parliament and other brands, “there is no bank in the world that would lend us money pending resolution of this case and the ones lined up behind it.”

No buyer in the consolidating world tobacco business has approached Philip Morris USA since 1994, when the first lawsuits by state governments were filed, he said. Big Tobacco in 1997 and 1998 agreed to pay an estimated $254 billion over 25 years to the governments to settle the claims for treating ill smokers.

Szymanczyk, under questioning by Philip Morris lawyer Dan Webb, said Philip Morris USA was spending $100 million annually on anti-smoking campaigns aimed at teenagers and was developing cigarette technologies that may be safer.

One such product called Accord heats rather than burns stubby cigarettes held in a thumb-size device and is said to reduce or eliminate many dangerous components of cigarette smoke, he said. Accord is being tested and may be available next year in the United States, he said.

Other top tobacco CEOs were expected to testify in coming weeks in the Engle case, named for an ailing Miami Beach pediatrician and the first sick-smokers class-action to come to a verdict.