(FORTUNE Magazine) – Who on earth would want Geoff Bible's job? The man is marked--as the most powerful CEO in the most censured industry. He is bound--to hand over at least $4.5 billion of his company's annual cash flow to the states that sued Big Tobacco in the late 1990s. And he is gagged--from talking to the press, by his own damn lawyers, again. This time, though, the Philip Morris boss isn't ducking because of bad news. On the contrary: Bible has a terrific story to tell. Profits have rebounded. Philip Morris shares have more than doubled in the past year, making it the best-performing stock on the Dow. And Bible is cooking up a megadeal: the IPO of Kraft, his company's $35-billion-a-year food unit. That is what explains his silence; until Kraft stock gets served to investors this summer, Bible is restricted by the SEC's quiet period. If he could talk, he would surely point out that Kraft will be one of the largest IPOs ever. Indeed, if Philip Morris weren't holding on to a majority stake in the company, Kraft would instantly join the upper ranks of the FORTUNE 500.

All of which is pretty amazing when you think about it. Not that long ago, Philip Morris was widely perceived as a giant in irreversible decline, with sputtering sales, dwindling profits--and severe litigation problems that just kept getting worse, as the anti-tobacco forces seemed finally to have gained the upper hand in their decades-long struggle against the cigarette companies. In February 2000, as the industry anticipated a big defeat in a Florida class-action suit, Philip Morris' stock sank to $19 a share, its P/E a pathetic six. (A few months later, the Florida jury awarded an almost unimaginable $145 billion in punitive damages.)

Not that investors were paying much attention to Philip Morris back then--why would they, with tech stocks still in the stratosphere? But while no one was looking, Bible was figuring out how to play the hand he'd been dealt. Which is why, now that tech is in its own version of a death spiral, Philip Morris is what's smokin', with record profits ($8.5 billion last year, on $80.4 billion in revenues), increasing market share in its key businesses--except for long-suffering Miller beer--and a $47 stock. It has 15--count 'em, 15--brands that each generate over $1 billion a year in sales, including Marlboro, Maxwell House, and Oscar Mayer. It has become not only the largest but also the most profitable consumer packaged-goods company in the world. That has happened, in no small part, because Bible has forced Philip Morris to make huge changes in the way it goes about its business, and even in the way it thinks about itself. As he put it in a speech this March, "Philip Morris defines itself not as a tobacco company, but as a consumer products company, with particular expertise in products intended for adult consumers."

For now, at least, tobacco remains the core of Philip Morris, supplying two-thirds of its operating income. Rolled up in that fact is a big surprise: For all the problems associated with cigarettes, its tobacco operation just had its best year ever, with $10.6 billion in operating profits. In fact, Philip Morris has managed this feat despite being on the hook for half of the staggering $254 billion (over 25 years) that the industry is handing over to the states to settle its legal battle. It turns out that Philip Morris has been able to cover its settlement costs (and then some) with hefty price increases--due not so much to marketing magic but to the fact that cigarettes are so addictive that many customers can't quit. Second, though U.S. cigarette consumption is clearly declining, Philip Morris has stayed on top by grabbing market share. Marlboro alone has a record 37% of the market--up from 22% in 1993 (just before Marlboro Friday, the infamous day when Philip Morris slashed cigarette prices and ravaged its stock). And after a couple of rough years, international tobacco is back on track, with operating income up 5% in 2000.

What's more, despite last year's Florida verdict, the regulatory and litigation clouds are lifting. The Supreme Court ruled last year that the Food and Drug Administration has no jurisdiction over tobacco, a big victory for the industry. The states, now hooked on tobacco money, have little incentive to further punish Big Tobacco. As for that whopping verdict in Florida, many legal experts predict that an appeals court will dismantle the case and toss out the punitive damages. Says Salomon Smith Barney's Martin Feldman, the tobacco industry's top-ranked analyst: "There's a lot more clarity on the litigation front than two years ago."

Truth is, none of this would have happened had Bible--and his company--not undergone a remarkable transformation. During his seven years as CEO, Bible has metamorphosed from Big Tobacco's No. 1 defender to its chief compromiser. A wily Australian, Bible was cocky and combative when he stepped into the job: "We shall fight, fight, fight" tobacco's enemies, he vowed early in his tenure. Over time, though, Bible began to realize that Philip Morris was getting beaten by its own belligerence. Says Steve Parrish, who was Philip Morris USA's general counsel before Bible appointed him to head worldwide public affairs: "We had a classic bunker mentality. It was fortress Philip Morris." In 1995, at Bible's urging, Parrish proposed a new approach: "Instead of always being defensive--we're right and you're wrong--we need to align ourselves with society," he told the board. "Compromises may be good."

That's what Bible set about doing. After the state lawsuits were filed, he made it clear to the attorneys general that Philip Morris wanted to negotiate a settlement. "We were in disbelief that they were interested in settling," recalls Washington State attorney general Christine Gregoire, who led the negotiations. "At our first meeting Bible said that Philip Morris wanted to change its culture and be good citizens, and that we would come to acknowledge that. And we did." In fact, at one point, when the negotiations had all but collapsed and rival tobacco chiefs left the table, Bible stayed. "Philip Morris broke ranks," says Gregoire. "That's the only thing that made the settlement happen."

Today even its opponents view Philip Morris as a changed company. "They're abiding by the law. Philip Morris and R.J. Reynolds are like night and day," says Gregoire, who along with attorneys general in four other states recently sued RJR for breaking the rules of the settlement. To be sure, Philip Morris still gets blasted by tobacco critics. "Their advertising that suggests they've changed is a charade," complains Matt Myers, who runs the Campaign for Tobacco-Free Kids. "Philip Morris continues to make Marlboro the most popular brand among children." But in general Philip Morris has exceeded its obligations. It has stopped running ads on the back covers of magazines, and no longer places ads in 50 magazines--among them Rolling Stone, Vogue, People, and Sports Illustrated (the latter two owned by FORTUNE's publisher)--that have heavy teen readership. Bible, for his part, insists that Philip Morris is serious about keeping cigarettes away from kids--despite the obvious implications for the future of the business. "If tobacco consumption declines significantly," he said in that March speech, "so be it."

Needless to say, this is where the food business comes in. With age-old brands like Maxwell House, Oscar Mayer, and Jell-O, Philip Morris' Kraft unit used to be the plodding behemoth of the food trade. Not anymore. Thanks to highly creative marketers and their innovations such as Lunchables and Di Giorno pizza, Kraft today is the envy of other giants, such as Procter & Gamble and Coca-Cola, that have lost their way. Last year the Philip Morris food unit delivered a heaping serving of operating profits, which were up 12%.

Now it's poised for even greater growth. This past December, Philip Morris swallowed one of Kraft's top-performing rivals, Nabisco, in a $19 billion gulp. Just like that, Kraft became a close challenge to Nestle as the world's most profitable food company. There is very little overlap between the Nabisco and Kraft brands, and Philip Morris is convinced that the Kraft-Nabisco combination will help turbocharge earnings growth. Wall Street apparently agrees: "We expect Kraft to become the bellwether of the food industry," says analyst Marc Cohen of Goldman Sachs. "The Nabisco deal puts Kraft in a position where operating income will grow 9% to 10% in the next few years, up from an average 6% to 7% in the years before the deal."

After the Nabisco purchase, Philip Morris announced that it would sell shares of Kraft to the public. The IPO is expected to raise some $5 billion, even though Philip Morris is selling no more than 15% of Kraft to the public while retaining control of the other 85%. The company plans to use the proceeds to pay down debt. That, in turn, will free up more of Philip Morris' prodigious cash flow, enabling the company to continue to buy back its own stock and increase its fat dividend, something it's done 33 times in the past 31 years. (The dividend is now $2.12.)

Bible's biggest problem these days is holding on to his executives. Many, especially inside Kraft, leave rather than move up the ladder. Says Peter Crist, vice chairman of recruiter Korn/Ferry: "Don't underestimate the issue of working for a tobacco company. Some Kraft executives can't get their heads around the idea of a transfer to Philip Morris tobacco or corporate." That aversion, and the fact that Kraft has a reputation for developing first-rate executives, are the primary reasons Philip Morris has lost a multitude of stars to FORTUNE 500 CEO jobs. The Kraft alum club includes Mattel's Bob Eckert, Gillette's Jim Kilts, Sears' Alan Lacy, and Quaker Oats' Bob Morrison.

Now 63, Bible has one more burning priority: finding a successor. He's due to retire in August 2002, and no one knows who will replace him. The two top candidates couldn't be more different. Louis Camilleri, 46, Philip Morris' CFO since 1996, is reserved--"devoid of personality," says one alum--and close to Bible. His career mirrors the boss': He's focused on finance and international operations and started at Philip Morris 23 years ago. Tobacco is in his blood.

The other contender is Mike Szymanczyk, CEO of Philip Morris USA. At 6-foot-5, Szymanczyk, 52, is nearly a foot taller than Camilleri--and acts a lot bigger too. Tough and gregarious, he has earned high marks from Bible for fortifying the domestic business--and from Big Tobacco's critics for compromising. Some people say Szymanczyk isn't sure he wants to be CEO of Philip Morris. Transplanted from Kraft--and P&G before that--he and his family have never been completely at ease in tobaccoland. It didn't help this year when an anonymous threat came into Philip Morris: "You will pay..." Police parked outside Szymanczyk's home (as well as Bible's and Parrish's) until the time passed without incident.

Not surprisingly, the Philip Morris board hasn't ruled out looking outside for a successor. Wouldn't that be a monster challenge, recruiting for what some call America's killer CEO job, daunting to anyone who dares take it on? Yet here's a remarkable fact to consider: Philip Morris is the rare FORTUNE 500 company that has six CEOs still alive and kicking. Count 'em: Joe Cullman, George Weissman, Hamish Maxwell, Mike Miles, Bill Murray, and Geoff Bible. Perhaps this says something about the top job at Philip Morris: It doesn't kill you, it just makes you stronger.

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