Tobacco Documents Online

Teleconference/Analyst Comments 2077409572

! ! • PHILIP MORRIS GARY BLACK CONFERENCE CALL ON ROGERS VERDICT AUGUST 26, 1996 Gary: Thank you. I have with me today, Melissa Ronan, who is our legal consultant. Most of you probably enjoyed reading her accounts of the Rogers trial as it went along. What I'd like to do is talk about the verdict, what it means. I want to distinguish between Rogers and Carter. I want to talk about this notion of a settlement. And whether the one that's outlined in the Wall Street Journal today has any merit. A couple of minutes on the FDA. Go over the litigation calendar coming up. And leave most of it for questions and answers. On the Rogers verdict, obviously the industry won the case. The vote was 6 to nothing on strict liability, and 6 to nothing on negligence. We talked to one of the jurors, Julie Pitts, who was the cardiologist's wife. She said it was 6 to nothing from the outset. There was no disagreement about which way they should go. They got through the strict liability claim really quickly. And that's what is meant that 1

0 0 • domino effect:" When we talked to Julie Pitts, she said the same thing. She said, "That's a hypothetical question. I can't answer that." So I think that when the press is saying that things would have been different if the documents had been introduced, I think that's stretching it just a tad. The other thing that I would talk about is just this whole notion that Indiana was an easy State. Because if you find that the plaintiff was more than 50% to blame, you have to find for the defense. It's not an easy state per se, in the sense that 37 states are just like Indiana. The 13 states that are not like Indiana, what they call pure comparative fault states, which Florida is one of them, which we all know. Mississippi and Louisiana are the other two that you still see a lot of law suits in. A lot of the other comparative fault states are states like California and New York, where because of other wordings of strict liability, and other wordings of negligence, you just don't have a lot of law suits because the threshold is very high for plaintiffs to win. So I wanted to make that clear to people. Some of the big differences, I think, between Rogers and Carter...you know with Rogers you had, I thought, a pro-defendant judge, who at the margin made a lot of calls that I think favored the defense. You can't always count on that. For instance when they tried to introduce some of the Brown and Williamson 3

• • documents here he said they weren't relevant. He also, in his jury instructions made it very clear to people that if Richard Rogers knew of the dangers of smoking and ignored them that he had assumed the risk of the product. And he made it easier versus last year where as you know there was a hung jury. So I think that's different. I also think that if you had Brown and Williamson documents introduced, or Philip Morris documents introduced, and people don't know this, but there were a lot of Philip Morris documents introduced in this trial. And if people want to see them, we have a copy of them. I think one of the differences here versus in Carter, was that you saw Reynolds put somebody up on the stand. it's kind of like if O.J. Simpson is accused of murder, he gets up on his own behalf and testifies. Here you had David Townsend from RJR get up, and try to talk through some of the allegations about what the tobacco industry knew back in the fifties and sixties. And it was...he made a fool of himself in the cross examination because he ran back to his bosses, after it was all over, like a kid who wanted to know if he did good. But I think he made some points. He said, I work in a department that's got 550 people in it. Which by itself is a big size, that means there are a lot of people trying to improve tobacco, if you will. But he also talked about some of the things that they've done over the years to 4 a)

! • 0 try to make cigarettes safer. Like basically lowering the tar and nicotine by 2/3 over the last 30 years. Like improving the filter. Like improving the wrapping paper. And, again, if you were to run the Carter trial all over again, and you were to ask people, "What was the single biggest thing that Brown & Williamson should have done differently?" I think the first thing they should have done taas, in closing arguments say that Brown & Williamson and American Tobacco are not the same. But the second thing they should have done was put somebody up on their own behalf, to at least talk about the documents, rather than to say, the documents aren't important. They're musings, that's the word they used, by a lawyer. And they're not really significant so don't pay attention to them. So I think what you need to do is basically confront them straight-on. And in talking with both Philip Morris and Reynolds about it, they both agree that that is what they will do. They are basically taking the approach going forward that the documents will be introduced. They may not be Brown_ & Williamson documents, but they might be Philip Morris documents, they might_be_RJR documents. And what you really need to do is take your chances and put somebody up on the stand. And I think that was effective here. So the punch line to the verdicts, and there is not really that much more to tell, except in talking to the one 5

0 • • first night when they said they were making progress. They had already gotten_ through that one. They spent about 11 hours going through the jury instructions, according to Julie. And there was really never any debate about whether or not Richard Rogers really contributed either most or all of his own negligence. Now the Journal talks a little bit about how they wanted to have the press conference because they wanted to make it clear they were not condoning the tobacco industry's actions. That's not quite the way we heard it. What we heard is that they wanted to make a statement that in addition that they didn't condone the tobacco industry's actions. But they also wanted to make a statement to smokers that they really ought to quit. Which I think most people know. One of the things that I'd like to just focus on is that there was some talk in the paper today about if documents had been introduced, like the Brown and Williamson documents that the jury would have done something different. And that's not, again, what we heard when we talked to Julie Pitts. And it's not what we heard when you listen to the press conference. What we heard when they said, "If you had seen documents indicating the tobacco companies knew that cigarettes were dangerous, would that have changed your verdict?" And the actual response was, on the press conference was, °I don't know. It's all tied together. There's a 2

0 0 • basically have a settlement with a group of attorneys, and it really didn't preclude any of the op-outs. That's the worst thing is when you start having people op-out because the settlement is not good enough. That just invites more litigation. As far as the specific piece that's in the newspaper today. I did talk with some people in the industry about it this morning. And they say, well that's the plaintiff's view of things, and it's not anything that the industry would embrace. But, again, in talking to them, I think that people would love for there to be some legislated compromise. I think the sticky points is the amount of money. 6 billion a year, growing to 10 billion a year is just out of the question. Second of all, I don't- think they would go for something that just lasts for 15 years. But when you start going through the math, and you start saying, OK_, what does Philip Morris trade at versus where it would trade if it was looked at just on fundamentals. I mean you probably have about a 40 million dollar difference in Philip Morris alone. And that is, of course, on a present value basis. I think that you have to play with ..... Put it-another way, if , N you looked at all the businesses at Philip Morris, O 4 v except domestic tobacco, and then you back out the o co debt, which is about 16 billion dollars, we come up ~ with...the market is valuing Philip Morris, excluding 0 8

• • juror that we've been able to reach so far...they did spend about 11 hours reading instructions. It was unanimous from the get-go. There was not a single person who felt that the industry should be found liable under strict liability. And there is not a single person who felt that the industry should be found liable on the negligence claim. The reason they called the press_conference is_kind of unclear. In the press conference they said that they wanted to make it clear to people that the tobacco companies, you know, they were not condoning their actions. But we also heard that they wanted to, and this was also in the Indiana newspaper, that they wanted to make it clear to people that they should be aware that smoking causes cancer. So that's it on the verdicts. On the settlement. You know I think everybody would like there to be a settlement. I would like there to be a settlement. I think if you talk to the folks, the outside counsel for Philip Morris, they would like there to be a settlement. I think even if they admitted it, that the executives at Philip Morris would say they would love there to be a settlement, if it could be a legislated settlement. Now a lot of people say you should never settle because that's how the asbestos industry went bankrupt. The asbestos industry went bankrupt because they started settling one at a time. And once you start settling one at a 6

• • • arguments. Rather than take the approach that smoking does not cause cancer, which the industry has done, that's the model they've used for years. And actually in talking to Julie Pitts, she questioned it. Which is interesting. So maybe they did save one person by doing that. But I think rather than focusing so much on that, that smoking doesn't cause cancer, I think David Hardy's closing arguments, when you say, well does smoking cause cancer?_He says, we don't know. And I think that's a much better response. I think that is the type_of response you're going to get going forward. Because they can follow it up by saying, if you smoke, nine out of ten people who smoke don't get lung cancer. So to focus most of your efforts on the personal choice issue, and the addiction issue, that is pretty much what David Hardy's closing arguments, rather than trying to debate whether or not smoking causes lung cancer, because you lose a lot of credibility there. I'll open it up for questions right now. Operator: (Instructions) Mr. Patterson, you may ask your question. Patterson: Good morning, Gary. The Medicaid suits, and tying that into the settlement issue. I guess I'm not seeing anything pulled together there. 15

(Technical problem) • • I think that you'd want to do something like that if you were the industry. You'd want to base it on excise taxes rather than, you know, money that comes directly out of the P & L. You would have a consumption effect. Which, again, I think the FDA would like that, if you could raise the price of a pack of cigarettes from the FDA's perspective to three or four dollars, obviously, you know, that would definitely cut down on teen smoking one way or another. Patterson: OK. Thanks, Gary. Gary: Sure. Operator: Mr. Avery, you may ask your question. Avery: Gary, the award in the Carter case...what is the incentive for the plaintiff's attorneys to file for additional cases considering the time and the expense it requires to go through one of these cases? Gary: Wilner...it's a good question. Wilner, you know, he says he's got three people working full time on this tobacco litigation, including himself. And he started this effort about 18 months ago. So he's going to get $250,000, let's say, two or three years from now. Because the award is $750,000, and it will take two years before all the industry's appeals are exhausted. So let's say that's worth $200,000 or even less. $180,000 in_ present value dollars. And you've got 18