A post-settlement environment might have led to some turnover in the chief financial officer posts, says Black, since it would have required a different skill set to lead the companies into the future. But it would have also given relatively new CFOs, such as Louis C. Camilleri at Philip Morris and David B. Rickard at RJR Nabisco, an opportunity to become better business partners, adds Black. Already at RJR, the finance department has laid the foundation for such a future with a strategic plan called Finance 2000, which contains some 70 initiatives and outlines how finance can contribute value to the overall company.
Could CFOs have done anything to steer the tobacco industry away from the quicksand in which it now finds itself? Given the companies' alleged intent to subvert the truth about nicotine, CFOs "would have needed an awfully strong backbone to stand up to the weight [of internal policy]," says Peter Crist, president of Crist Partners, a Chicago- based, senior-level executive search firm. "No magical tinkering with the balance sheet could have corrected this." But Black says CFOs could have been more persuasive about their companies' need to "empty the drawers" before going into settlement negotiations with the government. "You don't want to negotiate with Congress when you have $2 billion in cash like Philip Morris, $90 billion in equity, and $11 billion in debt," he says.
For Luc Jobin, who has been a tobacco finance chief only since mid-March, the perils faced by his counterparts in the United States offer valuable lessons. "Trying to maintain the profitability of the organization while dealing with the uncertainty of revenues and costs certainly makes it more challenging," he says. "I don't want to put down anyone who was a CFO in the past, but what's going on in the U.S. tests the very fabric of this profession."
----------------------------------------------- --------------------------------- Supply-Side Strangulation
It's tough enough to be the cfo of a tobacco company in the current environment. It's worse to handle the finances of a supply company that depends entirely on the tobacco industry. "We're captive to whatever happens to our major customer, and our major customer is the cigarette industry," says Paul Roberts, CFO and treasurer of Schweitzer-Mauduit International Inc., a $460 million producer of cigarette paper. Since the announcement of the now-defunct McCain bill, Schweitzer-Mauduit's stock price has plunged from $44 per share last summer to $33 in May.
Dimon Inc., a Danville, Virginia-based tobacco processor, also has inherited its customers' financial woes. "Our stock price has fallen from $24 in January to about $14 today," says Brian Harker, the company's CFO and executive vice president. "We have cautioned the markets that there is so much uncertainty right now we cannot possibly have an outlook of growth. And the reality is that there is very little we can do."
John Kasprzak, an analyst with Richmond, Virginia-based brokerage Scott & Stringfellow, says suppliers are doing their best to weather the storm. "They're trying not to extend themselves, and are looking for growth opportunities overseas that don't take up a lot of cash and where the earnings value can be realized in the fairly near term," he says. Schweitzer-Mauduit, for example, made two acquisitions this year. In February it bought Ingefico SA, a small French tobacco paper manufacturer with $35 million in annual sales. The same month, it acquired Campanhia Industrial de Papel Pirahy, a Brazilian paper supplier with $75 million in annual sales.
Dimon has been less active on the acquisition front, but it is looking to sell its small cut- flower business. "We're looking at what makes the most sense in terms of maximizing shareholder value," Harker says. "Fortunately, flowers are not under intense government and judicial scrutiny."
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