Notes to Consolidated Financial Statements

(Continued)

Note 18.
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 against PM USA and, in some instances, ALG or PMI, as of December 31, 2003, December 31, 2002 and December 31, 2001, and a page reference to further discussions of each type of case.

Type of Case	Number of Cases Pending as of December 31, 2003	Number of Cases Pending as of December 31, 2002	Number of Cases Pending as of December 31, 2001	Page References
Individual Smoking and Health Cases (1)(2)	423	250	250	45
Smoking and Health Class    Actions and Aggregated    Claims Litigation (3)	12	41	37	46
Health Care Cost Recovery    Actions	13	41	45	47
Lights/Ultra Lights Class    Actions	21	11	10	48
Tobacco Price Cases(4)	28	39	36	48
Cigarette Contraband Cases (5)	5	5	5	48
Asbestos Contribution Cases	7	8	13	48

(1)	The increase in cases at December 31, 2003 compared to prior periods is due primarily to new cases being filed in Maryland and to the reclassification as individual cases of purported class actions filed in Nevada, following the denials of plaintiffs’ motions for class certification.
(2)	Does not include 2,740 cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action, which was settled in 1997. The terms of the court-approved settlement in that case allow class members to file individual lawsuits seeking compensatory damages, but prohibit them from seeking punitive damages.
(3)	Includes as one case the aggregated claims of 1,026 individuals that are proposed to be tried in a single proceeding in West Virginia.
(4)	Includes 26 cases that were dismissed in January 2004 on plaintiffs’ motions.
(5)	Includes three cases in which dismissals became final in January 2004, following the United States Supreme Court’s refusal to grant further review of these cases.

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 99 smoking and health cases brought on behalf of individuals (Argentina (45), Australia (2), Brazil (35), Czech Republic (2), Israel (2), Italy (7), the Philippines, Poland, Scotland, Spain (2) and Venezuela), compared with approximately 86 such cases on December 31, 2002, and 64 such cases on December 31, 2001. In addition, as of December 31, 2003, there were six smoking and health putative class actions pending outside the United States (Brazil, Canada (4) and Spain), compared with eight such cases on December 31, 2002, and 11 such cases on December 31, 2001. In addition, four health care cost recovery actions are pending in Israel, Canada, France and Spain against PMI or its affiliates.

Pending and Upcoming Trials: Certain cases against PM USA and, in some instances, ALG, are scheduled for trial through the end of 2004, including the second phase of the trial in the Scott, et al. v. The American Tobacco Company, Inc. et al. medical monitoring class action (discussed below) and the health care cost recovery case brought by the United States government (discussed below) and an estimated 11 individual smoking and health cases. In addition, four cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by ETS are scheduled for trial through the end of 2004, including one trial scheduled to begin during the next three months. Cases against other tobacco companies are also scheduled for trial through the end of 2004. Trial dates are subject to change.