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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 16, 1998
Philip Morris Companies Inc.
(Exact name of registrant as specified in its charter)
Virginia 1-8940 13-3260245
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
120 Park Avenue, New York, New York 10017-5592
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 880-5000
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
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Texas Settlement
On January 16, 1998, together with other companies in the United States
tobacco industry, Philip Morris Incorporated ("PM Inc."), the Company's domestic
tobacco subsidiary, entered into a Comprehensive Settlement Agreement and
Release (the "Settlement Agreement") with the State of Texas to settle and
resolve with finality all present and future economic claims by the State and
its subdivisions relating to the use of or exposure to tobacco products.
The Settlement Agreement is attached as Exhibit 10 and the following
summary of the Settlement Agreement is qualified by reference thereto.
Under the Settlement Agreement, the settling defendants agreed to pay Texas
an up-front payment of $725 million in 1998, representing the State's estimate
of its share of the $10 billion initial payment under the proposed federal
resolution (the "Resolution") described in the Company's Current Report on Form
8-K, dated July 2, 1997. The settling defendants also agreed to reimburse Texas
and its private counsel for expenses in the estimated amount of $45 million. The
settling defendants also agreed to pay Texas $264 million to support a pilot
program aimed at reducing the use of tobacco by persons under the age of
eighteen. PM Inc.'s share of all of the foregoing payments, approximately $645
million, was charged to expense in the fourth quarter of 1997.
Beginning in November and December 1998, and on December 31 of each
subsequent year, the settling defendants will pay Texas 7.25% of the annual
industry payments contemplated to be paid to the states under the proposed
Resolution. These payments, which (except for payments in 1998) will be
adjusted as provided in the proposed Resolution, will be in the following
estimated amounts; 1998: $290 million; 1999: $326 million; 2000: $363 million;
2001: $471 million; 2002: $471 million; and 2003 and thereafter: $580 million.
These payments will be allocated among the settling defendants in accordance
with their relative unit volume of domestic tobacco product sales.
The settling defendants also agreed to pay reasonable attorneys' fees to
Texas's private counsel. The amount of such fees will be set by a panel of
independent arbitrators but in no event will the industry be required under the
Settlement Agreement to pay more than $500 million per year towards fee awards
for all attorneys nationwide in connection with smoking and health cases. Each
of these payments would be allocated among the settling defendants in accordance
with their relative unit volume of domestic tobacco product sales.
The settling defendants also agreed to discontinue all tobacco product
billboards and transit advertisements in the State. The settling defendants
also agreed not to challenge existing or proposed legislative and administrative
initiatives to prohibit the sale of cigarettes in vending machines, except in
adult-only facilities, and to strengthen civil penalties for sales of tobacco
products to minors and for possession of tobacco products by minors.
If legislation implementing the proposed Resolution or its substantial
equivalent is enacted, the Settlement Agreement will remain in place, but the
terms of the federal legislation
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will supersede the Settlement Agreement (except for the terms of the pilot
program and payments thereunder, the up-front payment, and the payments
with respect to 1998) and the other payments described above will be adjusted so
that the State would receive the same payments as it would receive under such
legislation.
The Settlement Agreement also provides that if federal legislation
implementing the Resolution or its substantial equivalent is enacted, the
parties contemplate that Texas and any other similar state which has made an
exceptional contribution to secure resolution of these matters may apply to a
panel of independent arbitrators for reasonable compensation for its efforts in
securing the Resolution. The settling defendants have agreed not to oppose an
application of $329.5 million by Texas. The parties have agreed to a nationwide
annual cap for all such payments of $100 million.
The Settlement Agreement also provides that if the settling defendants
enter into any future pre-verdict settlement agreement with a non-federal
governmental plaintiff on more favorable terms (after due consideration of
relevant differences in population or other appropriate factors), Texas will
obtain treatment at least as relatively favorable as such governmental
plaintiff.
The Settlement Agreement provides that it is not an admission or concession
or evidence of any liability or wrongdoing on the part of any party, and is
entered into by the settling defendants solely to avoid the further expense,
inconvenience, burden and uncertainty of litigation.
Item 7. Exhibits.
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10. Comprehensive Settlement Agreement and Release dated January 16, 1998.
99. Press Release dated January 16, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHILIP MORRIS COMPANIES INC.
BY /s/ G. PENN HOLSENBECK
Vice President - Associate
General Counsel and Corporate
Secretary
DATE January 28, 1998
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