Notes to Consolidated Financial Statements

(Continued)

Note 19.
Contingencies:

Legal proceedings covering a wide range of matters are pending or threatened in various United States and foreign jurisdictions against ALG, its subsidiaries and affiliates, including PM USA and PMI, as well as their respective indemnitees. Various types of claims are raised in these proceedings, including product liability, consumer protection, antitrust, tax, contraband shipments, patent infringement, employment matters, claims for contribution and claims of competitors and distributors.

Overview of Tobacco-Related Litigation

Types and Number of Cases: Pending claims related to tobacco products generally fall within the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs, (ii) smoking and health cases primarily alleging personal injury and purporting to be brought on behalf of a class of individual plaintiffs, including cases in which the aggregated claims of a number of individual plaintiffs are to be tried in a single proceeding, (iii) health care cost recovery cases brought by governmental (both domestic and foreign) and non-governmental plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits, and (iv) other tobacco-related litigation. Other tobacco-related litigation includes class action suits alleging that the use of the terms “Lights” and “Ultra Lights” constitutes deceptive and unfair trade practices, suits by foreign governments seeking to recover damages resulting from the allegedly illegal importation of cigarettes into various jurisdictions, suits by former asbestos manufacturers seeking contribution or reimbursement for amounts expended in connection with the defense and payment of asbestos claims that were allegedly caused in whole or in part by cigarette smoking, and various antitrust suits. Damages claimed in some of the tobacco-related litigation range into the billions of dollars. Plaintiffs’ theories of recovery and the defenses raised in the smoking and health and health care cost recovery cases are discussed below.

The table below lists the number of certain tobacco-related cases pending in the United States against PM USA and, in some instances, ALG or PMI, as of December 31, 2004, December 31, 2003 and December 31, 2002, and a page-reference to further discussions of each type of case.

There are also a number of other tobacco-related actions pending outside the United States against PMI and its affiliates and subsidiaries, including an estimated 121 smoking and health cases brought on behalf of individuals (Argentina (47), Australia, Brazil (47), Chile, Colombia, Israel (3), Italy (15), the Philippines, Poland, Scotland, Spain (2) and Venezuela), compared with approximately 99 such cases on December 31, 2003, and 86 such cases on December 31, 2002. The increase in cases at December 31, 2004 compared to prior periods is due primarily to cases filed in Brazil and Italy. As of December 31, 2004, 12 of the cases in Italy are pending in the Italian equivalent of small claims court.

In addition, as of December 31, 2004, there were three smoking and health putative class actions pending outside the United States (Brazil and Canada (2)) compared with six such cases on December 31, 2003, and eight such cases on December 31, 2002. Four health care cost recovery actions are pending in Israel, Canada, France and Spain against PMI or its affiliates, and two Lights/Ultra Lights class actions are pending in Israel.

Pending and Upcoming Trials: Trial is currently underway in the case brought by the United States government in which ALG and PM USA are defendants. For a discussion of this case, see “Health Care Cost Recovery Litigation—Federal Government’s Lawsuit” below. Trial is also currently underway in an individual smoking and health case in California (Reller v. Philip Morris Incorporated).

Certain cases against PM USA are scheduled for trial through the end of 2005, including a health care cost recovery case brought by the City of St Louis, Missouri and approximately 50 Missouri hospitals, in which ALG is also a defendant, a case in which cigarette distributors allege that PM USA’s Wholesale Leaders program violates antitrust laws, and a case brought by cigarette vending machine operators alleging that PM USA’s retail promotional and merchandising programs violate the Robinson-Patman Act. In addition, an estimated nine individual smoking and health cases are scheduled for trial through the end of 2005, including two cases scheduled for trial in February 2005 in California and New York. Cases against other tobacco companies are also scheduled for trial through the end of 2005. Trial dates are subject to change.