SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_][ ]
Check the appropriate box:
[_][ ] Preliminary Proxy Statement
[_][ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_][ ] Definitive Additional Materials
[_][ ] Soliciting Material Pursuant to SectionSec. 240.14a-11(c) or SectionSec. 240.14a-12
Philip Morris Companies Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_][ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_][ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactiontransactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_][ ] Fee paid previously with preliminary materials.
[_][ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
LOGO[LOGO]
PHILIP MORRIS
COMPANIES INC.
GEOFFREY C. BIBLE 120 PARK AVENUE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER NEW YORK, NY 10017
March 13, 199511, 1996
DEAR STOCKHOLDER:
You are cordially invited to attend the 19951996 Annual Meeting of Stockholders of
Philip Morris Companies Inc. The meeting will be held at 9:00 a.m. on Thursday,
April 27, 1995,25, 1996, at the Philip Morris Manufacturing Center, 3601 Commerce Road,
Richmond, Virginia.
At the meeting, we will elect fourteen directors and act upon the selection of
auditors. If presented, we will also vote on sixfour stockholder proposals. There
will also be a report on the Company's business, and stockholders will have an
opportunity to ask questions.
We anticipate that a large number of stockholders will attend the meeting. As
seating is limited, we suggest you arrive by 8:30 a.m., when the auditorium will
be opened. If the auditorium is filled, there will be additional seating outside
the auditorium from which the proceedings may be viewed. Those needing special
assistance at the meeting are requested to write the Corporate Secre-
tarySecretary at 120
Park Avenue, New York, NYNew York 10017. If you plan to attend the meeting
and your shares are held in the name of a broker or other nominee, please bring
a proxy or letter from the broker or nominee confirming your ownership of
shares.IF YOU ARE A REGISTERED STOCKHOLDER AND
PLAN TO ATTEND THE MEETING, PLEASE DETACH AND RETAIN THE ADMISSION TICKET AND
MAP THAT IS ATTACHED TO THE PROXY CARD. IF YOUR SHARES ARE HELD IN THE NAME OF A
BROKER OR OTHER NOMINEE AND YOU DO NOT HAVE AN ADMISSION TICKET, PLEASE BRING
PROOF OF YOUR SHARE OWNERSHIP TO THE MEETING.
The vote of each stockholder is important. I urge you to sign, date and return
the enclosed proxy card as promptly as possible. In this way, you can be sure
your shares will be voted, and you will spare your Company the expense of a
follow-up mailing.
Sincerely,
/s/ Geoffrey C. Bible
-------------------------------------------------
FOR FURTHER INFORMATION ABOUT THE ANNUAL MEETING,
PLEASE CALL 1-800-367-5415
-------------------------------------------------
PHILIP MORRIS COMPANIES INC.
120 Park Avenue
New York, New York 10017
-----------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, APRIL 27, 199525, 1996
To the Stockholders of
PHILIP MORRIS COMPANIES INC.:
The annual meeting of stockholders of Philip Morris Companies Inc. will be held
on Thursday, April 27, 1995,25, 1996, at the Philip Morris Manufacturing Center, 3601
Commerce Road, Richmond, Virginia, at 9:00 a.m. to:
(1) Elect fourteen directors;
(2) Act upon the selection of auditors for the fiscal year ending December
31, 1995;1996;
(3) Act upon sixfour stockholder proposals if presented by their proponents;
and
(4) Transact such other business as may properly come before the meeting.
Only holders of record of Common Stock, $1 par value, at the close of business
on March 7, 1995,5, 1996, will be entitled to vote at the meeting.
G. Penn Holsenbeck
Vice President and Secretary
March 13, 199511, 1996
PROXY STATEMENT
SOLICITATION OF PROXIES
This proxy statement is furnished by the Board of Directors (the "Board") of
Philip Morris Companies Inc., 120 Park Avenue, New York, New York 10017, in
connection with its solicitation of proxies for use at the annual meeting of
stockholders to be held on Thursday, April 27, 1995,25, 1996, at 9:00 a.m., at the Philip
Morris Manufacturing Center, 3601 Commerce Road, Richmond, Virginia, and at any
and all adjournments thereof. Mailing of the proxy statement will com-
mencecommence on or
about March 13, 1995.11, 1996. Holders of record of Common Stock, $1 par value (the
"Common Stock"), at the close of business on March 7, 19955, 1996, will be entitled to
one vote for each share held on all matters to come before the meeting. On
February 28, 1995,26, 1996, there were outstanding 849,346,156829,738,022 shares of Common Stock.
A proxy on the enclosed form may be revoked at any time before it has been
ex-
ercised.exercised. Unless the proxy is revoked or there is a direction to abstain on one
or more proposals, it will be voted on each proposal and, if a choice is made
with respect to any matter to be acted upon, in accordance with such choice. If
no choice is specified, the proxy will be voted as recommended by the Board. The
proxy will also serve to instruct the administrator of the Company's divi-
dend reinvestmentDividend
Reinvestment and voluntary cash payment planVoluntary Cash Payment Plan and the trustee of each de-
fineddefined
contribution plan sponsored by the Company how to vote the plan shares of a
participating stockholder or employee.
VOTING AT THE MEETING
A majority of the votes entitled to be cast on matters to be considered at the
meeting constitutes a quorum. If a share is represented for any purpose at the
meeting, it is deemed to be present for all other matters. Abstentions and
shares held of record by a broker or its nominee ("Broker Shares") that are
voted on any matter are included in determining the number of votes present.
Broker Shares that are not voted on any matter at the meeting will not be
in-
cludedincluded in determining whether a quorum is present.
The election of each nominee for director requires a plurality of the votes
cast. In order to be approved, the votes cast for the selection of auditors and
for each stockholder proposal must exceed the votes cast against such matters.
Abstentions and Broker Shares that are not voted on the matter will not be
in-
cludedincluded in determining the number of votes cast.
Stockholders' proxies are received by the Company's independent proxy process-
ingprocessing
agent, and the vote is certified by independent inspectors of election. Proxies
and ballots that identify the vote of individual stockholders will be kept
confidential, except as necessary to meet legal requirements, in cases where
stockholders write comments on their proxy cards or in a contested proxy
solicitation. During the proxy solicitation period, the Company will receive
vote tallies from time to time from the inspectors, but such tallies will
pro-
videprovide aggregate figures rather than names of stockholders. The independent
in-
spectorsinspectors will notify the Company if a stockholder has failed to vote so that
he or she may be reminded and requested to do so.
-----------------------------------
As used herein, the term "Company" or "Philip Morris" includes Philip Morris
Companies Inc. from July 1, 1985, and Philip Morris Incorporated prior to July
1, 1985, and, where appropriate, their subsidiaries.
1
ELECTION OF DIRECTORS
GENERAL INFORMATION
The Board has the responsibility for establishing broad corporate policies and for
the overall performance of the Company, although it is not involved in
day-
to-dayday-to-day operations. Members of the Board are kept informed of the Company's
businesses by various reports and documents sent to them each
1
month as well as
by operating and financial reports made at Board and committee meetings by the
Chairman of the Board and other officers. In addition, the Board hasholds an annual
two or three-day meeting to review the Company's Five-Year Plan.
Regular meetings of the Board are held each month, except July. The
organiza-
tionalorganizational meeting follows immediately after the annual meeting of
stockholders. The Board held eleven regular monthly meetings in 1994 and one special meeting.
----------------1995.
-------------------
COMMITTEES OF THE BOARD
Various committees of the Board have been established by the Board to assist it in the
dis-
chargedischarge of its responsibilities. Certain of theseThose committees are described be-
low.below. The
biographical information on the nominees for director set forth in this proxy
statement includes committee memberships currently held by each nom-
inee.nominee.
The AUDIT COMMITTEE meets with management, the Company's independent accoun-
tantsaccountants
and its internal auditors to consider the adequacy of the Company's in-
ternalinternal
controls and other financial reporting matters. The Audit Committee rec-
ommendsrecommends
to the Board the engagement of the Company's independent accountants, discusses
with the independent accountants their audit procedures, including the proposed
scope of the audit, the audit results and the accompanying manage-
mentmanagement letters
and, in connection with determining their independence, reviews the services
performed by the independent accountants. This committee, which also monitors
compliance with the Company's Business Conduct Policy, consists of six
non-employee directors and met four times in 1994.1995.
The COMMITTEE ON PUBLIC AFFAIRS AND SOCIAL RESPONSIBILITY reviews and monitors
the Company's policies, practices and programs with respect to public issues of
importance to stockholders, the Company and the general public, to the extent
those matters are not the responsibility of other committees of the Board. This
committee consists of eleven directors and met twicefour times in 1994.1995.
The COMPENSATION COMMITTEE consisting of six non-employee directors, held
seven meetings in 1994. This committee determines cashis responsible for administering the Company's
compensation programs and remuneration arrange-
mentsarrangements for its highest-paid
executives, including the chief executive officer, and for reviewing the
succession plan for the highest paid executiveschief executive officer and administers the Company's stock op-
tion and incentive compensation plans. See theother senior executives. The
Committee's Report of the Compensation Com-
mittee on Executive Compensation which appears elsewhere in this proxy
state-
ment.statement. The Compensation Committee consists of six non-employee directors and
met seven times in 1995.
The CORPORATE EMPLOYEE PLANS INVESTMENT COMMITTEE, consisting of five direc-
tors,six directors,
held sixten meetings in 1994.1995. This committee oversees the investment of cer-
taincertain
employee benefit plan assets.
The EXECUTIVE COMMITTEE, consisting of six directors, has authority to act for
the Board on most matters during intervals between Board meetings. This
committee did not meet in 1995.
The FINANCE COMMITTEE consists of eight directors and met four times in 1994.1995. It
monitors the financial condition of the Company and advises the Board with
respect to financing needs, dividend policy, share repurchase programs and other
financial matters.
The NOMINATING AND CORPORATE GOVERNANCE COMMITTEE consists of sixseven non-employee
directors and met three times in 1994.1995. This committee reviews the qualifica-
tionsqualifications
of candidates for director suggested by Board members, management, stockholders
and other sources, considers
2
the performance of incumbent directors in determining whether to nominate them
for reelection and recommends to the Board a slate of nominees for election as
directors. It advises the Board on all matters con-
cerningconcerning corporate governance
to the extent these matters are not the responsi-
bilityresponsibility of other committees,
assesses the Board's performance and makes recom-
mendationsrecommendations to the Board on the
retirement policies for non-employee directors, the functions and duties of the
committees of the Board, general Board prac-
ticespractices and the Company's relations
with its shareholders.
----------------
2
stockholders.
-------------------
THE NOMINEES
It is proposed that fourteen directors be elected to hold office until the next
annual meeting of stockholders and until their successors have been elected. The
Nominating and Corporate Governance Committee has recommended to the Board and
the Board has approved the persons named below as management's nominees and,
unless other-
wiseotherwise marked, a proxy will be voted for such persons. Messrs. Paul W. Douglas
and Hamish Maxwell are not eligible for reelection. Each of the
nominees cur-
rentlycurrently serves as a director and was elected by the stockholders at
the 1994
annual meeting, except1995 Annual Meeting. It is anticipated that Hans G. Storr, who will attain
age 65 in October 1996, the mandatory retirement age for Geoffrey C. Bible, who was elected bythe Company's executive
officers, will retire from the Board on
May 25, 1994.before the 1997 Annual Meeting. All
nominees attended at least 75% of the aggregate number of meetings of the Board
and all committees of the Board on which they served during 1994.1995, except Mr.
Murdoch.
Although management does not anticipate that any of the persons named below will
be unable or unwilling to stand for election, a proxy, in the event of such an
occurrence, may be voted for a substitute designated by the Board. However, in
lieu of designating a substitute, the Board may amend the By-Laws to reduce the
number of directors.
Photo of ELIZABETH E. Dr. Bailey assumed her present position on
Elizabeth BAILEY July 1, 1991, having served from July 1990
E. Bailey John C. Hower to June 1991 as a professor of industrial
Professor of administration at Carnegie-Mellon Univer-
Public Policy & sity and as a visiting scholar at the Yale
Management, The School of Organization and Management. From
Wharton School of 1983 to 1990, she was dean of the Graduate
the University of School of Industrial Administration of Car-
Pennsylvania, negie-Mellon University. Dr. Bailey serves
Philadelphia, PA as a director of the College Retirement Eq-
uities Fund, CSX Corporation, Honeywell
Director since Inc. and National Westminster Bancorp Inc.
1989 and as a trustee of the Brookings Institu-
tion and the National Bureau of Economic
Age: 56 Research. She is a member of the Audit and
Public Affairs and Social Responsibility
Committees.
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Photo of GEOFFREY C. BIBLE Employed by the Company continuously since
Geoffrey C. Chairman of the 1976, Mr. Bible served Philip Morris Inter-
Bible Board and Chief national in various executive capacities
Executive Officer from 1976 to 1990, becoming its president
and chief executive officer in 1987. He
Director since served as president and chief administra-
May 25, 1994 tive officer of Kraft Foods, Inc. ("Kraft
Foods") from 1990 to 1991, Executive Vice
Age: 57 President International of the Company from
1991 to April 1993 and Executive Vice Pres-
ident Worldwide Tobacco from April 1993 to
June 1994 (during which time he was Vice
Chairman from May 25 to June 18) when he
became President and Chief Executive Offi-
cer. He assumed his present position on
February 1, 1995. He is a director of Brit-
ish Sky Broadcasting Group plc and a member
of the Board of Trustees of Thunderbird
(American Graduate School of International
Management). Mr. Bible is a member of the
Executive, Finance and Public Affairs and
Social Responsibility Committees.
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Photo of MURRAY H. BRING First employed by the Company in 1988, Mr.
Murray H. Executive Vice Bring had been a partner in Arnold & Por-
Bring President, ter, Washington, DC, from 1967 to 1988. He
External Affairs became Associate General Counsel of the
and General Company on January 1, 1988, Senior Vice
Counsel President and General Counsel on July 1,
1988 and assumed his present position on
Director since December 16, 1994. He is a director of the
1988 Whitney Museum of American Art, the New
York University Law Center Foundation, The
Age: 60 New York City Opera and The Legal Aid Soci-
ety. Mr. Bring is an ex-officio member of
the Committee on Public Affairs and Social
Responsibility.
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ELIZABETH E. BAILEY Dr. Bailey assumed her present position in July
[Photo] John C. Hower Professor 1991, having served from July 1990 to June 1991 as a
of Public Policy & Man- professor of industrial administration at
agement, The Wharton Carnegie-Mellon University and as a visiting scholar
School of the University at the Yale School of Organization and Management.
of Pennsylvania, From 1983 to 1990, she was dean of the Graduate
Philadelphia, PA School of Industrial Administration of
Carnegie-Mellon University. Dr. Bailey serves as a
Director since 1989 director of the College Retirement Equities Fund,
CSX Corporation, Honeywell Inc. and National
Age: 57 Westminster Bancorp Inc., and as a trustee of the
Brookings Institution and the National Bureau of
Economic Research. She is a member of the Audit,
Executive, Nominating and Corporate Governance and
Public Affairs and Social Responsibility Committees.
__________________________________________________________________________________________________
GEOFFREY C. BIBLE Employed by the Company continuously since 1976, Mr.
[Photo] Chairman of the Board and Bible served Philip Morris International Inc. in
Chief Executive Officer various executive capacities from 1976 to 1990,
becoming its President and Chief Executive Officer
Director since 1994 in 1987. He served as President and Chief
Administrative Officer of Kraft Foods, Inc. ("Kraft
Age: 58 Foods"), from 1990 to 1991, Executive Vice
President, International of the Company from 1991 to
April 1993 and Executive Vice President, Worldwide
Tobacco, from April 1993 to June 1994, when he
became President and Chief Executive Officer. He
assumed his present position in February 1995. He is
a director of British Sky Broadcasting Group plc,
the New York Stock Exchange, Inc., Lincoln Center
for the Performing Arts, Inc., the International
Tennis Hall of Fame, the Health Care Chaplaincy and
a member of the Board of Trustees of Thunderbird
(American Graduate School of International
Management). Mr. Bible is chairman of the Executive
Committee and a member of the Finance and Public
Affairs and Social Responsibility Committees.
__________________________________________________________________________________________________
3
Photo of HAROLD BROWN Dr. Brown assumed his present position at
Harold Counselor, Center the Center for Strategic and International
Brown for Strategic and Studies on July 1, 1992. Prior thereto and
International from 1984, he was chairman of the Foreign
Studies, Policy Institute of the School of Advanced
Washington, DC; International Studies, The Johns Hopkins
Partner, Warburg University. Dr. Brown has been a partner of
Pincus & Co., New Warburg Pincus & Co. since 1990. Dr. Brown
York, NY, venture is a director of Alumax Inc., CBS Inc.,
capital Cummins Engine Co. Inc., Evergreen Hold-
ings, Inc., International Business Machines
Director since Corporation and Mattel, Inc. Dr. Brown is
1983 chairman of the Nominating and Corporate
Governance Committee and a member of the
Age: 67 Compensation, Corporate Employee Plans In-
vestment, Finance and Public Affairs and
Social Responsibility Committees.
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Photo of WILLIAM H. Mr. Donaldson assumed his present position
William H. DONALDSON in 1991. Prior thereto and from 1980, he
Donaldson Chairman and was chairman and chief executive officer of
Chief Executive Donaldson Enterprises Incorporated. He
Officer of the serves as a director of Aetna Life and Ca-
New York Stock sualty Co., Honeywell Inc., the Carnegie
Exchange, Inc., Endowment for World Peace, the Committee
New York, NY for Economic Development, Lincoln Center
for the Performing Arts, Inc., the New York
Director since City Partnership and the Business Council
1979 of New York State and as a trustee of the
Marine Corps Command & Staff College Foun-
Age: 63 dation. Mr. Donaldson is chairman of the
Corporate Employee Plans Investment Commit-
tee and a member of the Audit, Executive,
Finance and Nominating and Corporate Gover-
nance Committees.
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Photo of JANE EVANS Ms. Evans assumed her present position in
Jane Evans Vice President April 1991. From 1987 to 1989, she was a
and General general partner of Montgomery Securities
Manager, Home & and from 1989 until 1991 president and
Personal Services chief executive officer of the InterPacific
Division, U.S. Retail Group. Ms. Evans serves as a direc-
West tor of BancOne-Arizona Corp., Edison Broth-
Communications, ers Stores, Inc., Georgia-Pacific Corpora-
Inc., Phoenix, AZ tion, Kaufman and Broad Home Corporation,
The Heard Museum, the Ladies Professional
Director since Golf Association and the Phoenix United
1981 Way. She is chair of the Public Affairs and
Social Responsibility Committee and a mem-
Age: 50 ber of the Nominating and Corporate Gover-
nance Committee.
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Photo of ROBERT E. R. Mr. Huntley became counsel to the firm of
Robert E. HUNTLEY Hunton & Williams in 1988, having served as
R. Huntley Counsel, Hunton & chairman, president and chief executive of-
Williams, ficer of Best Products Co., Inc. from 1987
Richmond, VA, to November 1988. Mr. Huntley serves as a
attorneys director of Sprint Corp. He is chairman of
the Audit Committee and a member of the
Director since Compensation, Finance and Public Affairs
1976 and Social Responsibility Committees.
Age: 65
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Photo of RUPERT MURDOCH Mr. Murdoch became publisher of News Lim-
Rupert Chairman and ited of Australia in 1954 and in 1959 as-
Murdoch Chief Executive sumed the position of chief executive of
of The News the subsequently formed parent company, The
Corporation News Corporation Limited, the interests of
Limited, New which include TV Guide and Fox Broadcasting
York, NY, Company in the United States and The Times
publishing, and Sunday Times in the United Kingdom. He
motion pictures is a director of British Sky Broadcasting
and television Group plc. Mr. Murdoch is a member of the
Compensation and Public Affairs and Social
Director since Responsibility Committees.
1989
Age: 64
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MURRAY H. BRING First employed by the Company in 1988, Mr. Bring had
[Photo] Executive Vice President, been a partner in Arnold & Porter, Washington, DC,
External Affairs and Gen- since 1967. He became Associate General Counsel of
eral Counsel the Company in January 1988, Senior Vice President
and General Counsel in July 1988 and assumed his
Director since 1988 present position in December 1994. He is a director
of the Whitney Museum of American Art, the New York
Age: 61 University Law Center Foundation, The William J.
Brennan Center for Justice, The New York City Opera
and The Legal Aid Society. Mr. Bring is a member of
the Committee on Public Affairs and Social
Responsibility.
__________________________________________________________________________________________________
HAROLD BROWN Dr. Brown assumed his present position at the Center
[Photo] Counselor, Center for for Strategic and International Studies in July
Strategic and 1992. Previously and from 1984, he was chairman of
International Studies, the Foreign Policy Institute of the School of
Washington, DC; Partner, Advanced International Studies, The Johns Hopkins
Warburg Pincus & Co., New University. Dr. Brown has been a partner of Warburg
York, NY, venture capital Pincus & Co. since 1990. Dr. Brown is a director of
Alumax Inc., Cummins Engine Company, Inc., Evergreen
Director since 1983 Holdings, Inc., International Business Machines
Corporation and Mattel, Inc. Dr. Brown is chairman
Age: 68 of the Nominating and Corporate Governance Committee
and a member of the Compensation, Corporate Employee
Plans Investment, Finance and Public Affairs and
Social Responsibility Committees.
__________________________________________________________________________________________________
WILLIAM H. DONALDSON Mr. Donaldson assumed his present position with
[Photo] Co-founder and Senior Donaldson, Lufkin & Jenrette in October 1995. He has
Advisor, Donaldson, been chairman of Donaldson Enterprises, Inc., since
Lufkin & Jenrette, New June 1995. Previously and from 1991, he was chairman
York, NY, investment and chief executive officer of the New York Stock
banking firm; Chairman, Exchange, Inc., and from 1980 until 1991, he was
Donaldson chairman and chief executive officer of Donaldson
Enterprises, Inc., Enterprises Incorporated. He serves as a director of
New York, NY, private Aetna Life and Casualty Company, Honeywell Inc., the
investment firm Carnegie Endowment for World Peace, the Committee
for Economic Development, Lincoln Center for the
Director since 1979 Performing Arts, Inc., the New York City Partnership
and the Business Council of New York State, and as a
Age: 64 trustee of the Marine Corps Command & Staff College
Foundation. Mr. Donaldson is chairman of the
Corporate Employee Plans Investment Committee and a
member of the Audit, Executive, Finance and
Nominating and Corporate Governance Committees.
__________________________________________________________________________________________________
JANE EVANS Ms. Evans assumed her present position in June 1995,
[Photo] President and Chief having served as vice president and general manager,
Operating Officer, Home & Personal Services Division of U.S. West
SmartTV, Burbank, CA, Communications, Inc., from 1991 to 1995. From 1989
portable interactivity until 1991, she was president and chief executive
and electronic commerce officer of the InterPacific Retail Group. Ms. Evans
serves as a director of BancOne-Arizona Corp.,
Director since 1981 Edison Brothers Stores, Inc., Georgia-Pacific
Corporation, Kaufman and Broad Home Corporation and
Age: 51 the Ladies Professional Golf Association. She is
chair of the Public Affairs and Social
Responsibility Committee and a member of the
Corporate Employee Plans Investment and Nominating
and Corporate Governance Committees.
__________________________________________________________________________________________________
4
Photo of JOHN D. NICHOLS Mr. Nichols has been chief executive offi-
John D. Chairman and cer of Illinois Tool Works since 1982. He
Nichols Chief Executive serves as a director of Household Interna-
Officer, Illinois tional Corporation, Rockwell International
Tool Works, Corporation, Stone Container Corporation,
Glenview, IL the Art Institute of Chicago, Junior
Achievement of Chicago, the Lyric Opera of
Director since Chicago and the Museum of Science and In-
1992 dustry, as a member of the Board of Overse-
ers for Harvard University and as a trustee
Age: 64 of the Chicago Symphony Orchestra. He is a
member of the Finance, Nominating and Cor-
porate Governance and Public Affairs and
Social Responsibility Committees.
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Photo of RICHARD D. Mr. Parsons assumed his present position on
Richard D. PARSONS February 1, 1995. Prior thereto he had been
Parsons President, Time chief executive officer of Dime Bancorp,
Warner Inc., New Inc. (formerly The Dime Savings Bank of New
York, NY, media York, FSB) from July 1990, having served as
and entertainment president and chief operating officer from
July 1988. He became chairman in 1991. From
Director since 1979 to July 1988, he had been a partner in
1990 the law firm of Patterson, Belknap, Webb &
Tyler. Mr. Parsons also serves as a direc-
Age: 46 tor of Dime Bancorp, Inc., the Federal Na-
tional Mortgage Association, Time Warner
Inc., the Metropolitan Museum of Art and
the Rockefeller Brothers Fund and as a
trustee of Howard University. He is a mem-
ber of the Audit, Executive, Nominating and
Corporate Governance and Public Affairs and
Social Responsibility Committees.
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Photo of ROGER S. PENSKE Mr. Penske has been president of Penske
Roger S. President, Penske Corporation since 1969. He is also chief
Penske Corporation, executive officer of Detroit Diesel Corpo-
transportation ration and Penske Truck Leasing Corpora-
service, and tion. Mr. Penske serves as a director of
Chief Executive American Express Company, General Electric
Officer, Penske Company and Gulfstream Aerospace Corpora-
Truck Leasing tion and as a trustee of the Henry Ford Mu-
Corporation and seum and Greenfield Village. He is a member
Detroit Diesel of the Finance and Public Affairs and So-
Corporation, cial Responsibility Committees.
Detroit, MI
Director since
1991
Age: 57
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Photo of JOHN S. REED Mr. Reed assumed his present positions with
John S. Chairman of Citicorp and Citibank, N.A. in 1984. He
Reed Citicorp and also serves as a director of Monsanto Com-
Citibank, N.A., pany, as a member of the Corporation, Mas-
New York, NY sachusetts Institute of Technology, and as
a trustee of the Rand Corporation, the
Director since Spencer Foundation and Memorial Sloan-
1975 Kettering Cancer Center. He is chairman of
the Compensation Committee and a member of
Age: 56 the Audit, Corporate Employee Plans Invest-
ment, Executive, Finance and Nominating and
Corporate Governance Committees.
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Photo of HANS G. STORR First employed by the Company in 1955, Mr.
Hans G. Executive Vice Storr was named its Chief Financial Officer
Storr President and in 1979. He was named Senior Vice President
Chief Financial in 1987 and Executive Vice President in
Officer and 1991. Since the formation of Philip Morris
Chairman and Capital Corporation in 1982, he has served
Chief Executive as its Chief Executive Officer. Mr. Storr
Officer of Philip is a member of the American Institute of
Morris Capital Certified Public Accountants and a director
Corporation and treasurer of the International Tennis
Hall of Fame. He is chairman of the Finance
Director since Committee and is a member of the Corporate
1983 Employee Plans Investment Committee.
Age: 63
- -------------------------------------------------------------------------------
ROBERT E.R. HUNTLEY Mr. Huntley retired as counsel to the law firm of
[Photo] Retired; formerly counsel Hunton & Williams in December 1995, a position he
to the law firm of Hunton had held since December 1988. Previously, Mr.
& Williams, Richmond, VA Huntley had served as chairman, president and chief
executive officer of Best Products Co., Inc.,
Director since 1976 professor of law at Washington and Lee School of Law
and president of Washington and Lee University. Mr.
Age: 66 Huntley serves as a director of Sprint Corporation.
He is chairman of the Audit Committee and a member
of the Compensation, Finance and Public Affairs and
Social Responsibility Committees.
__________________________________________________________________________________________________
RUPERT MURDOCH Mr. Murdoch became publisher of News Limited of
[Photo] Chairman and Chief Exec- Australia in 1954 and in 1959 assumed the position
utive of The News Corpo- of chief executive of the subsequently formed parent
ration Limited, New York, company, The News Corporation Limited, the interests
NY, publishing, motion of which include TV Guide and Fox Broadcasting
pictures and television Company in the United States and The Times and
Sunday Times in the United Kingdom. He is a director
Director since 1989 of MCI Communications Corporation and British Sky
Broadcasting Group plc. Mr. Murdoch is a member of
Age: 65 the Compensation, Executive and Public Affairs and
Social Responsibility Committees.
__________________________________________________________________________________________________
JOHN D. NICHOLS Mr. Nichols is retiring as chairman of Illinois Tool
[Photo] Chairman, Illinois Tool Works Inc. in May 1996, a position he has held since
Works Inc., Glenview, IL, 1986. He had been chief executive officer from 1982
engineered components and to September 1995. He serves as a director of
industrial systems and Household International Corporation, Rockwell Inter-
consumables national Corporation, Stone Container Corporation,
the Art Institute of Chicago, Junior Achievement of
Director since 1992 Chicago, the Lyric Opera of Chicago and the Museum
of Science and Industry, as a member of the Board of
Age: 65 Overseers for Harvard University and as a trustee of
the Chicago Symphony Orchestra. He is a member of
the Finance, Nominating and Corporate Governance and
Public Affairs and Social Responsibility Committees.
__________________________________________________________________________________________________
RICHARD D. PARSONS Mr. Parsons assumed his present position in February
[Photo] President, Time Warner 1995. Previously, he had been chief executive
Inc., New York, NY, media officer of Dime Bancorp, Inc. (formerly The Dime
and entertainment Savings Bank of New York, FSB), from July 1990,
having served as president and chief operating
Director since 1990 officer from July 1988. He became chairman in 1991.
From 1979 to July 1988, he had been a partner in the
Age: 47 law firm of Patterson, Belknap, Webb & Tyler. Mr.
Parsons also serves as a director of the Federal
National Mortgage Association, Time Warner Inc., the
Metropolitan Museum of Art, Lincoln Center for the
Performing Arts, Inc., and the Rockefeller Brothers
Fund, and as a trustee of Howard University. He is a
member of the Audit, Compensation, Executive,
Nominating and Corporate Governance and Public
Affairs and Social Responsibility Committees.
__________________________________________________________________________________________________
5
Photo of STEPHEN M. Mr. Wolf assumed his present position in
Stephen WOLF August 1994. Prior thereto and from 1987,
M. Wolf Senior Advisor, he was chairman and chief executive officer
Lazard Freres New of UAL Corporation and United Air Lines,
York, NY, Inc. He serves as a director of R.R.
investment Donnelley & Sons Company and as a trustee
banking of the Art Institute of Chicago, The Con-
ference Board, Northwestern University and
Director since the Rush-Presbyterian-St. Luke's Medical
1993 Center. He is a member of the Compensation
and Public Affairs and Social Responsibil-
Age: 53 ity Committees.
- -------------------------------------------------------------------------------
ROGER S. PENSKE Mr. Penske has been president of Penske Corporation
[Photo] President, Penske Corpo- since 1969. He is also chairman and chief executive
ration, transportation officer of Detroit Diesel Corporation and Penske
service, and Chief Truck Leasing Corporation. Mr. Penske serves as a
Executive Officer, Penske director of General Electric Company and Gulfstream
Truck Leasing Corporation Aerospace Corporation, and as a trustee of the Henry
and Detroit Diesel Ford Museum and Greenfield Village. He is a member
Corporation, Detroit, MI of the Finance and Public Affairs and Social
Responsibility Committees.
Director since 1991
Age: 58
__________________________________________________________________________________________________
JOHN S. REED Mr. Reed assumed his present positions with Citicorp
[Photo] Chairman of Citicorp and and Citibank, N.A. in 1984. He also serves as a
Citibank, N.A., New York, director of Monsanto Company, as a member of the
NY Corporation, Massachusetts Institute of Technology,
and as a trustee of the Rand Corporation, the
Director since 1975 Spencer Foundation and Memorial Sloan-Kettering
Cancer Center. He is chairman of the Compensation
Age: 57 Committee and a member of the Audit, Corporate
Employee Plans Investment, Executive, Finance and
Nominating and Corporate Governance Committees.
__________________________________________________________________________________________________
HANS G. STORR First employed by the Company in 1955, Mr. Storr was
[Photo] Executive Vice President named its Chief Financial Officer in 1979. He was
and Chief Financial named Senior Vice President in 1987 and Executive
Officer and Chairman and Vice President in 1991. Since the formation of
Chief Executive Officer Philip Morris Capital Corporation in 1982, he has
of Philip Morris Capital served as its Chief Executive Officer. Mr. Storr is
Corporation a member of the American Institute of Certified
Public Accountants and a director and treasurer of
Director since 1983 the International Tennis Hall of Fame. He is
chairman of the Finance Committee and is a member of
Age: 64 the Corporate Employee Plans Investment Committee.
__________________________________________________________________________________________________
STEPHEN M. WOLF Mr. Wolf assumed his present position in January
[Photo] Chairman and Chief Exec- 1996. Previously and from August 1994, he was senior
utive Officer of USAir advisor in the investment banking firm of Lazard
Inc., Arlington, VA Freres & Co. Previously and from 1987, he was
chairman and chief executive officer of UAL Corpo-
Director since 1993 ration and United Air Lines, Inc. He serves as a
director of R.R. Donnelley & Sons Company and as a
Age: 54 trustee of Northwestern University and the
Rush-Presbyterian-St. Luke's Medical Center. He is a
member of the Audit, Compensation, Corporate
Employee Plans Investment and Public Affairs and
Social Responsibility Committees.
__________________________________________________________________________________________________
6
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, Mr. Huntley (who is a member of the Compensation Committee) iswas
counsel to Hun-
tonHunton & Williams, which firm acts as counsel to the Company. In
1994,1995, the Com-
panyCompany paid Hunton & Williams fees of $8,011,977.approximately $9,300,000. Mr.
Huntley retired as counsel to Hunton & Williams in December, 1995. Messrs.
Brown, Douglas, Mur-
doch,Murdoch, Parsons, Reed and Wolf were the other members of the
Compensation Committee dur-
ing 1994.
SECTION 16(A) REPORTING
The sale by Michael A. Miles of 12,970 shares of Common Stock in August 1994,
after he had resigned from all of his positions with the Company, was inadver-
tently not reported under Section 16(a) of the Securities Exchange Act of
1934, as amended, until December 1994.during 1995.
COMPENSATION OF DIRECTORS
Directors who are full-time employees of the Company receive no additional
compensation for services as a director. In 1994,1995, non-employee directors
re-
ceivedreceived an annual retainer of $26,000 and fees of $1,000 for each Board meeting
attended, $1,000 ($2,000 for the chairman) for each meeting attended of the
Audit, Compensation, Corporate Employee Plans Investment, Executive, Finance,
Nominating and Corporate Governance and Public Affairs and Social Responsibil-
ityResponsibility
Committees and $500 ($1,000 for the chairman) for each other committee meeting
attended. In 1994, theThe chairman of the Compensation Committee received
$30,000, and the other membersalso receives $10,000, for
additional services rendered in connection with certain of the Committee $5,000, for additional servic-
es.Company's
compensation plans.
Each director who is not employed by the Company, and was not so employed on
January 1, 1990, receives annually, on May 1, a share distribution equal to the
lesser of (i) 400 shares or (ii) that number of shares of Common Stock having an
aggregate fair market value equal to 100% of the cash retainer fee paid during
the preceding twelve12 months. On May 1, 1994,1995, each eligible direc-
tordirector received 400379
shares of Common Stock.
The 1992 Compensation Plan for Non-Employee Directors permits aA non-employee director may elect to defer meeting fees and all or a part of the
retainer fee.retainer. Deferred amounts are "credited" to an unfunded account and may be
"invested" by a director in fourseven "investment choices," including a Common Stock
equivalent account. These "investment choices" which areparallel the same as thoseinvestment options
offered to employees under the Philip Morris Deferred Profit-Sharing Plan and
which are used to determine the "earnings" that are credited for bookkeeping purposes.purposes to a
director's account. Subject to certain restrictions, the direc-
tora director is permitted to
take cash distributions, in whole or in part, from his or her account either
prior to or following termination of service.
UnderEffective January 1, 1996, the Board terminated the Company's Pension Plan for
Directors,Non-Employee Directors. In liquidation of benefits that would have been payable
under the terminated plan, each current non-employee director received 3,150
Common Stock equivalent units ("stock units") and was allowed a one-time
election to have 50% of the stock units credited to unfunded deferred
compensation accounts that are deemed to be invested in fixed income and equity
index funds. When a director retires from the Board, the then value of the stock
units and the deferred compensation accounts will be paid in cash. Prior to
payment, the number of stock units will be increased to reflect assumed payment
and reinvestment of dividends that are paid on Common Stock.
Under the terminated Pension Plan, any non-employee director who was not an employee ofretired at the Company, who ceases to be a director at his or her
normal retirement date and who hashad completed five years of accredited service iswas entitled until death
to ana
lifetime post-retirement annual pension (payable monthly) equal to the annual cash retainer in
effect on his or herfor
directors at the time of retirement date plus 25% of attendance fees for up to
twenty-four Board
meetings earned during the two years before retirement. A qualifying director
retiring before his or her normal retirement date, but af-
terafter age 60, and after completingwho served for five
years, of accredited service, iswas entitled to payments for a post-retirement period equal to his or her accredited service to monthly pension pay-
ments. In the eventterm
of a change in control, a retiring director, not otherwise
eligible for a pension benefit, will receive monthly payments for a period
equal to his or her accredited service.
6
The Company has entered into employment agreements with each of its
officer-di-
rectorsofficer-directors as described below under "Executive Compensation--Employment
Contracts, Termination of Employment and Change of Control Arrangements."
OWNERSHIP OF EQUITY SECURITIES
The following table sets forth information, as of February 1, 1995, as to the
beneficial ownership of Common Stock of the Company, including shares of Common
Stock as to which a right to acquire ownership within sixty days exists (for
example, through the exercise of stock options or through various trust ar-
rangements), of each director, each nominee for director, each executive offi-
cer named in the Summary Compensation Table and of the directors and executive
officers of the Company as a group. The beneficial ownership of each director,
nominee and officer and of the group is less than 1% of outstanding shares.
SOLE VOTING
AND INVESTMENT AGGREGATE
NAME POWER (1) OTHER (2) TOTAL
---- -------------- --------- ---------
Elizabeth E. Bailey....................... 4,735 4,735
Geoffrey C. Bible......................... 322,688 83,512 406,200
Murray H. Bring........................... 137,640 56,322 193,962
Harold Brown.............................. 2,735 1,200 3,935
William H. Donaldson...................... 11,135 932 12,067
Paul W. Douglas........................... 9,935 9,935
Jane Evans................................ 3,493 3,493
Robert E.R. Huntley....................... 7,835 1,200 9,035
James M. Kilts............................ 154,974 37,323 192,297
Hamish Maxwell............................ 238,700 210,300 449,000
Michael A. Miles.......................... 898,500 898,500
Rupert Murdoch............................ 2,035 100 2,135
William Murray............................ 526,827 50,000 576,827
John D. Nichols........................... 1,500 800 2,300
Richard D. Parsons........................ 2,235 2,235
Roger S. Penske........................... 2,435 2,435
John S. Reed.............................. 13,534 13,534
Hans G. Storr............................. 411,776 44,904 456,680
Stephen M. Wolf........................... 1,400 1,400
Group..................................... 3,656,870 650,953 4,307,823
- --------
(1) Includes maximum number of shares subject to purchase before April 1, 1995
upon the exercise of stock options as follows: G.C. Bible, 310,720; M.H.
Bring, 137,640; J.M. Kilts, 149,980; M.A. Miles, 897,200; W. Murray,
147,220; H.G. Storr, 131,940; and group, 2,358,074.
(2) Includes shares held in certain fiduciary capacities (including such hold-
ings by a spouse), shares owned by spouses, minor children and other rela-
tives sharing the home of the nominee, director or officer and 23,790
shares subject to purchase before April 1, 1995 upon exercise of stock op-
tions. Beneficial ownership of these shares is disclaimed. Also includes
shares held jointly with spouse and shares of restricted stock.
7
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
TO OUR STOCKHOLDERS:
The Compensation Committee is responsible for administering total compensation
programs whichthat are designed to enable the Company to:
. Hire, reward, motivate and retainSupport the highest quality managers possible;Company's efforts to develop world class leaders;
. Match the Company's compensation plans to its business strategies, as well
as the external business environment;
. Emphasize the relationship between pay and performance by placing a
sig-
nificantsignificant portion of compensation at risk and subject to the achievement
of financial goals and objectives;
. Maximize profitability through growth and efficiency, balancing
appropri-
atelyappropriately the short-term and long-term goals of the Company; and
. Align the interests of managers with those of stockholders through the use
of equity-based incentive awards to link a significant portion of
compensation to stockholder value.
Five majorThe following factors affected the actions of the Committee in 1994:1995:
. On June 17, 1994, Michael A. Miles resigned as ChairmanThe overall financial performance of the BoardCompany, as measured by five-year
total stockholder return, one-year earnings per share growth and Chief Executive Officer;one-year
return on equity, was evaluated in determining the Company's competitive
compensation objectives, the annual awards to certain executive officers
and Mr. Bible's compensation.
. On June 20, 1994,The significant improvement in stockholder value during the Board elected William Murray as Chairmanyear of 64.5%
versus 43.2% for the peer group of companies that are listed on page 12
(the "Peer Group") was a factor in evaluating Mr. Bible's compensation.
. The successful repositioning of the Boardbusiness units, including the
aggressive divestiture of non-strategic businesses, resulted in increased
market shares, streamlined operations and Geoffrey C. Bible as President and Chief Executive Officer;improved productivity. This
restructuring within the business units has been complemented by the
implementation of a new, long-term incentive plan award cycle that focuses
attention on business unit results.
. On December 14, 1994, having met the objectives established with the
Board on June 20, 1994, Mr. Murray submitted his resignation and elected
to take early retirement, both effective February 1, 1995, and Mr. Bible
was elected Chairman of the Board and Chief Executive Officer;
. IncreasingThe continuing legal, legislative, and regulatory challenges facing the
United States tobacco industry led the Committee to the conclusion that it was
criticalcontinue to reinforce theaddress
issues of employee retention elements of the Company's compensa-
tion program; and . The disparate impact of uncontrollable, external factors on the Company's
United States tobacco business also led the Committee to conclude that it
was critical to align long-term incentive awards more closely with indi-
vidual business unit performance over which executives have greater con-
trol.retirement security.
The Committee believes that the actions undertaken in 19941995 with respect to the
Company's compensation program, as discussed below, meetmet its objectives.
COMPONENTS OF COMPENSATION.
The Committee relates total compensation levels for the Company's executive
officers to the compensation paid to executives of the peer group of companies set forth on page 12 (the "Peer Group").Peer Group. All elements
of compensation are valued when making comparisons to the Peer Group. In
addi-
tion,addition, the Committee takes into account both the performance and size of the
Company relative to the performance and size of the companies in the Peer Group.
The Committee believes that compensation for executive officers should be linked
to performance, as evaluated for incentive plan purposes. Accordingly, total
compensation is targeted for the upper, or fourth, quartile of compensa-
tioncompensation paid
to executives of the Peer Group when Company performance exceeds the median of
the Peer Group. When Company performance is at or near the median of the Peer
Group, total compensation is targeted at or near the median of the Peer Group.
8
Based on the most recent information available, overall total compensation for the
executive officer group ranked in the upper, or fourth, quartile relative to the
com-
pensationcompensation paid by the Peer Group. The Company's financial performance
relative to the Peer Group ranked in the third quartile for five-year total
shareholderstockholder return, and in the upperfourth quartile for one-year return on equity and in
the third quartile for one-year earnings per share growth.
To achieve a further correlation between executive compensation and perfor-
mance,performance,
approximately two-thirds60% of the compensation awarded to the executive officer group in
19941995 was variableat-risk incentive compensation consistingdirectly related to the performance of
the Company and its business units. This includes annual cash bonuses and stock
and long-term incentive plan awards. By design, approximately one-half of
executive officers' variable at-risk compensation consists of stock-basedequity-based compensation.
BASE SALARY. Base salary, which is designed to comprise approximately one-third30% of
total compensation, is based on a qualitative evaluation of a variety of
factors, including level of responsibility, time in position, prior experience
and individual performance, and a quantitative comparison ofto salaries paid
within the Peer Group. Based on these factors, the executive officers of the
Company, on average, received base salary merit increases of 5.8%5.2% in 1994.1995.
ANNUAL INCENTIVES. Annual cash bonuses are provided to senior executives and
middle managementmiddle-management employees. Early in 1994,1995, the Committee approved a formula
based on earnings per share to establish the maximum annual incentive awards for
those officers (the "covered officers") whose compensation may be subject to the
Company's six highest-paid executive officers employed asdeductibility limits of Section 162(m) of the end ofInternal Revenue Code ("IRC")
(including those named in the year.Summary Compensation Table).
The annual incentive payments for 19941995 for the remaining participants were based
upon a qualitative evaluation of corporate and business unit performance.
Specific weights were not assigned to the factors considered. At the corporate
level, the performance factors were revenues,total stockholder return, cash flow, return
on equity, net earnings, and earnings per share as measured against the financial results of the previ-
ousprior
year as well as against the strategic business plan. Comparisons to the Peer
Group and certain strategic measures, such as portfolio management, response to
the regulatory and litigation environment and management development, were also
considered. At the business unit level, volume, revenues,return on assets, cash flow and
operating income were measured against the prior year and the strategic business
plan.
In 1994,1995, awards to the six highest-paid executivecovered officers employed as of the
end of the year were based upon the Company's exceeding
the formula target and achieving 90%95% of the formula maximum and the Committee's
subjective assessment of each of these executive's individual con-
tributions.contribution. For the other
participants, corporate performance exceeded the tar-
gettarget level in 19941995, and
bonuses were awarded accordingly. Performance varied across the individual
business units, and bonuses were awarded at, above or be-
lowbelow target levels
accordingly.
LONG-TERM INCENTIVES. The Company's 1992 Incentive Compensation and Stock Option
Plan (the "Incentive Plan") provides that stock options, restricted stock and
long-term performance awards may be granted to key executives who contribute to
the management, growth and profitability of the Company.
. STOCK OPTIONS. The Company did not makeresumed its customary annual stock option grants under the Incentive Plangrant cycle in
1994. Rather, as discussed below, re-
stricted stock was awarded to each participant who would have been enti-
tled to receive a1995. The Committee periodically evaluates its stock option grant.
. RESTRICTED STOCK. The Committee elected to grant restricted stock in lieu
of stock options to retain the Company's most talented managers and to
motivate these individuals, in the face of external political and busi-
ness pressures, to focus on the Company's long-term success.award
guidelines. In most in-
stances, the restricted shares will vest only after the participant's
continued employment with the Company for a three-year period following
the date of grant. The restricted shares granted to those officers (the
"covered officers") with respect to whom it is anticipated the deduct-
ibility limitation of Section 162(m) of the Internal Revenue Code may ap-
ply will vest only during the year of retirement at age 65, unless other-
wise determined by the Committee.
9
Although stock options have generally been used as the primary long-term
incentive vehicle,1995, the Committee has granted restricted stock in the past
and may do so in the future. Such a determination is made based on a
careful evaluation of the facts and circumstances, including the overall
business and economic environment, and the specific needs of the Company.
The amount of restricted stock awarded was based on a competitive analy-
sis generally targeted its awards at the 55th65th
percentile of the Peer Group. However,Group based on the following factors: the overall
financial performance of the Company relative to the Peer Group; the
desire to strengthen a focus on long-term incentives, particularly
stock-based compensation; and an evaluation of the Company's historical
stockholder return versus the economic value of the stock option program.
The size of the restrictedactual stock option awards was adjusted upward or downward
based on a subjective evaluation of individual contribution and poten-
tial.potential.
9
. RESTRICTED STOCK. The Committee granted restricted stock, on a selective
basis, to 30 individuals, five of whom are executive officers. The
decision to grant restricted stock was made to recognize and reward
individuals with high potential and to address specific retention issues.
The amount of restricted stock awarded was based on a competitive analysis
generally targeted at the 65th percentile of the Peer Group.
In most instances, the restricted shares vest only after the participant's
continued employment with the Company for a five-year period following the
date of grant. The restricted shares granted to covered officers vest only
at retirement at age 65 unless the Committee determines that continuation
of the vesting period will no longer be necessary to assure deductibility.
. LONG-TERM PERFORMANCE AWARDS. In 1994,A new three-year long-term performance awards were
earned undercycle
began January 1, 1995. The purpose of the Incentive Planplan is twofold: to reward
financial and strategic achievements that contribute to the long-term
business success of the business units, resulting in increased value for
stockholders; and to strengthen senior executives' incentive to contribute
to the Company's long-term success by rewarding them for results within
their control.
Except for the three-year performance cycle that
would have normally ended December 31, 1995. The awards focused on both
overall corporate and business unit performance. The Committee decided to
terminate this cycle as of December 31, 1994 because awards for all units
were being impacted by external factors affecting the performance of the
Company's United States tobacco business. The Committee concluded that
the motivational value of the awards will be enhanced if directly related
to matters within a participant's control and has approved a plan which
accomplishes this goal for all units, including the United States tobacco
unit. Accordingly, beginning January 1, 1995, a new three-year cycle com-
menced for which awards will be based solely upon individual business
unit performance.
In determiningcovered officers, the amount of the award for the cycle that was terminated
effective December 31, 1994, corporate andawards earned will be
based on a qualitative evaluation of individual business unit performance were
weighted equally for participants in business units. At the corporate
level, the amount of the award earned by each participant was based en-
tirely upon corporate performance.
Performance was evaluated based upon a subjective evaluation of quantita-
tive and qualitative performance objectives linked to seven key strategic
initiatives and upon consideration of Company performance
relative to the Peer Group. Adjustments were also made to reflectstrategic plan and on an assessment of individual
performance. The seven keyperformance factors vary by business unit and include
quantitative financial measures such as income from operations, cash flow,
volume and return on assets, and strategic initiatives were:
measures such as market share,
portfolio management and management development. When appropriate,
comparisons may be made against select industry peers. No specific weights
are assigned to the factors considered; however, the individual
performance factor is limited to an adjustment of plus or minus 25%.
Generating volume increases;
. Optimizing product/price value to meet consumer expectations;
. Excelling in advertising and marketing;
. Maximizing productivity and synergy;
. Building management depth (succession planning);
. Addressing legal, legislative and regulatory challenges; and
. SimplifyingThe awards for the organization structure.
Payments were prorated to reflect the shortened performance period. For covered officers paymentsare based on a formula tied to the
achievement of cumulative net income during the performance cycle once an
adjusted earnings per share hurdle has been exceeded.
. PREMIUM-PRICED STOCK OPTIONS. On January 30, 1996, the Committee awarded
premium-priced stock options to 51 senior executives. The purpose of the
award was to focus the senior management team on delivering superior
stockholder value. The options were deferredgranted at an exercise price of $120
per share, which was approximately 28% above the fair market value of the
Common Stock on the date of grant; therefore, the recipients will not be
able to realize value from the options until retirement.the price of the Common Stock
exceeds $120 per share. The size of the individual option awards was based
on the Committee's subjective assessment of individual potential and
contribution. The awards vest ratably over a five-year period and expire
seven years from the date of grant.
COMPENSATION OF THE CHAIRMAN OF THE BOARD AND THE PRESIDENT AND CHIEF EXECUTIVE OFFICER. Immediately following the resignationEffective
July 1, 1995, Mr. Bible's salary was increased to $1,250,000. This determination
was based on a qualitative evaluation of Mr. Miles, the Board elected
Mr. Murray as Chairman of the Boardcompetitive practice and Mr. Bible as PresidentBible's
performance in increasing total stockholder value and Chief
Executive Officer. Acknowledgingguiding the significant responsibilitiesCompany during
a period of each
position, the Committee established initial base salaries of $1,000,000 for
each of them.
These salaries represent an 11% increase from Mr. Murray's 1993 base salary and
a 33% increase from Mr. Bible's 1993 base salary.strategic repositioning. As a result their increasedof this increase, Mr. Bible's
base salaries approximatedsalary ranks in the mediantop quartile of base salaries paid to the chief execu-
tiveexecutive
officers ofin the Peer Group.
10
In addition to base salary, Messrs. Murray andMr. Bible earned an annual incentive bonus for 19941995
based on the Company's exceeding its earnings per share goal and the Committee's
assessment of theirhis individual performance. Their bonuses ap-
proximateMr. Bible's bonus ranks in the 75th percentilethird
quartile of bonuses paid to the chief executive officers of the Peer Group.
Similar to10
At the grants madesame time as options were granted to other participants in the Incentive
Plan, Messrs.
Murray and Bible each received 75,000 shares of restricted stock. Thethe Committee determined the size of the awards after an evaluation of the increased respon-
sibilities of these two individuals.
In recognition of his promotiongranted to President and Chief Executive Officer in
June of 1994, Mr. Bible was granted a ten-year, non-qualifiednonqualified stock option
for 250,000140,000 shares of Common Stock, with an exercise price approximately 25% aboveequal to the stock's fair
market value on the date of grant. In DecemberThe factors considered in determining the
size of 1994, Mr. Bible was granted a ten-year non-qualifiedBible's award were the stock option guidelines established for 250,000 shares with
an exercise price approximately 29% aboveall
participants and Mr. Bible's performance and contribution to the stock's fair market value on the
date of grantincrease in
recognition of his promotion to Chairman of the Board.
As a result of the restricted stock, stock option and long-term performance
awards, Mr. Murray's andstockholder value.
Mr. Bible's long-term incentive compensation awards rank in the upper quartile
of awards made to chief executive officers of the Peer Group. The amount of theirhis
total compensation also places themhim in the up-
perupper quartile relative to the Peer Group.
Mr. Miles' severance arrangement is described elsewhere in the proxy statement
under the caption "Employment Contracts, Termination of Employment and Change
of Control Arrangements." The payments made or to be made were determined by
the Committee based on a number of factors, including a recognition of Mr.
Miles' contributions to the Company, the rights which Mr. Miles had accrued un-
der an existing employment agreement and under various Company plans, and the
Company's practices with respect to other key executives as well as the prac-
tices of the companies in the Peer
Group.
POLICY WITH RESPECT TO QUALIFYING COMPENSATION FOR DEDUCTIBILITY.DEDUCTIBILITY AND OTHER
MATTERS. Section 162(m) of the Internal Revenue CodeIRC generally limits to $1,000,000 the annual tax
deductible compensation paid to the Chief Executive Officer and the four
highest-paid executive officers who are employed as executive officers on the
last day of the year.a covered officer. However, the limitation does
not apply to performance-
basedperformance-based compensation, provided certain conditions are
satisfied.
The Company's policy is generally to preserve the Federal income tax deduct-
ibility of compensation paid, to the extent feasible. The Committee believes
that the annual incentive and long-term performance awards earned for the year
1994, the shares of restricted stock (including, in most instances, the divi-
dends thereon) which generally vest during the year of retirement at age 65 for
covered officers and compensation arising from exercise of stock options
granted in 1994 will be deductible by the Company.
Notwithstanding the Company's general policy to preserve the Federalfederal income tax
deductibility of compensation paid. Accordingly, the Company has taken, to the
extent it believes feasible, appropriate actions to preserve the deductibility
of annual incentive, long-term performance, restricted stock and stock option
awards. However, notwithstanding the Company's general policy, the Committee
retains the authority to authorize payments under certain circumstances,that may not be deductible if it
believes that is in the best interests of the Company and its stockholders.
Certain other elements of annual compensation, such as perquisites, dividends
paid in cash on re-
strictedrestricted stock, tax reimbursements and income resulting from
payments made pursuant to plans that do not discriminate in favor of executive
officers, may also cause an executive of-
ficer'sa covered officer's income to exceed deductible limits.
In addition,1995, the Committee retainsdetermined, after an analysis of competitive practice and
a thorough review of alternatives, it was appropriate to pay Mr. Bible a base
salary in excess of $1,000,000. This action will cause a portion of his
compensation to exceed the authority$1,000,000 deductibility limit.
From time to authorizetime, the Committee also reviews the funding of retirement benefits
for the Company's executive officers. As the federal tax laws have placed
increasingly restrictive limits on benefits payable from funded tax-qualified
plans, the portion of retirement benefits payable to executive officers from
unfunded nonqualified plans had grown by year end 1994 to represent as much as
80% of the total retirement benefits promised certain executives. During 1995,
the Committee determined that it was appropriate to reduce this unfunded portion
by providing funding for individual trusts for covered officers and certain
other payments, including salary and bonuses, that
may not be deductible, if that isindividuals, thus increasing funding levels for these individuals to
levels somewhat more comparable to those of Company executives generally. These
retirement benefits constitute a relatively small portion of total compensation,
compared with the covered officers' equity interests in the best interestsCompany in the form
of stock, restricted stock and options. The amounts held in these individual
trusts will offset amounts that would otherwise be payable by the Company, and
its
stockholders.are not intended to increase the total amount of benefits payable to these
executives. These actions will cause a portion of some covered officers'
compensation to exceed the $1,000,000 deductibility limit.
COMPENSATION COMMITTEE
John S. Reed, Chairman
Harold Brown
Paul W. Douglas
Robert E. R.E.R. Huntley
Rupert Murdoch
Richard D. Parsons
Stephen M. Wolf
11
COMPARISON OF FIVE-YEAR CUMULATIVE STOCKHOLDER TOTAL RETURN(/1/)
(CHART)RETURN(1)
[GRAPH]
1989
1990 1991 1992 1993 1994 - --------------------------------------------------------------------1995
PHILIP MORRIS $100.0 $128.59 $204.83 $202.86 $153.67 $167.75
- --------------------------------------------------------------------$100.00 $159.29 $157.76 $119.51 $130.45 $214.53
PEER GROUP(2) 100.00 129.24 125.32 130.99 142.84 204.48
S&P 500 100.0 96.89 126.28 135.88 149.52 151.55
- --------------------------------------------------------------------
PEER GROUP 100.0 111.81 144.51 140.12 146.46 159.71
- --------------------------------------------------------------------100.00 130.34 140.25 154.32 156.42 214.99
S&P FOOD/BEV/TOBACCO 100.0 109.34 155.07 154.36 141.89 156.14TOBACCO(3) 100.00 140.32 140.77 133.46 146.58 186.40
Assumes $100 invested on December 31, 19891990, in Philip Morris Common Stock, Peer
Group, S&P 500 Index Peer Group(/2/) and S&P 500 Foods, S&P 500 Beverages (Alcoholic), S&P 500 Foods and S&P
500 Tobacco Indices(/3/).Indices.
- -----------------
(1) Total return assumes reinvestment of dividends on a quarterly basis.
(2) The Peer Group consists of the following companies, selected on the basis of
size, complexity and return to stockholders: American Brands, Inc., American
Home Products Corporation, Amoco Corporation, Anheuser-Busch Companies, Inc.,
ARCO, The Boeing Company, Bristol-Myers Squibb Company, Chevron Corporation, The
Coca-Cola Company, ConAgra, Inc., CPC International, Inc., E.I. du Pont de
Nemours and Company, Exxon Corporation, General Electric Company, General Mills,
Inc., H.J. Heinz Company, International Business Machines Corporation, Johnson &
Johnson, Merck & Co.,Company, Inc., Mobil Corporation, PepsiCo, Inc., Pfizer, Inc.,
The Procter & Gamble Company, RJR Nabisco, Inc., Sara Lee Corporation and
Texaco, Inc.
(3) No standardized industry index is considered a comparable peer group. The
following companies constitute the S&P 500 Beverages (Alcoholic), S&P 500 Foods
and S&P 500 Tobacco Indices: Adolph Coors Company, American Brands, Inc.,
Anheuser-Busch Companies, Inc., Archer-Daniels-Midland Company, Borden, Inc.,
Brown-Forman
Corporation, Campbell Soup Company, ConAgra, Inc., CPC Interna-
tionalInternational, Inc.,
General Mills, Inc., H.J. Heinz Company, Hershey Foods Corpora-
tion,Corporation, Kellogg
Company, Pet Incorporated, The Quaker Oats Company, Ralston Purina Company, Sara Lee Corporation,
The Seagram Company Ltd., Unilever N.V., UST Inc., and Wm. Wrigley Jr. Company.
Although the Company is a component of the S&P 500 To-
baccoTobacco Index, it has been
excluded for the purpose of this presentation.
12
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERMLONG-TERM COMPENSATION
--------------------------- ---------------------------------------------------------------------- -----------------------------------
AWARDS PAYOUTS
---------------------OTHER ----------------------- ---------
OTHER ALL
ANNUAL RESTRICTED SECURITIES OTHER
COMPEN- RESTRICTED UNDERLYING COMPEN-
NAME AND PRINCIPAL COMPEN- STOCK UNDERLYING COMPEN-
POSITION YEAR SALARY BONUS SATION STOCK(1)VALUE(1) OPTIONS LTIP(2) SATION(3)LTIP SATION(2)
- ------------------------------------------------- ---- --------- --------- --------------- ---------- ---------- --------- ----------------
$ $ $ $ SHS. $ $
William Murray........... 1994 950,000 1,200,000 118 4,312,500 -0- 1,750,000 123,673
Chairman, President & 1993 900,000 284,000 -0- -0- 92,350 -0- 135,000
Chief Operating 1992 857,500 750,000 -0- -0- 54,870 2,264,541 128,625
Officer, Vice Chairman
Geoffrey C. Bible........Bible..... 1995 1,125,000 1,350,000 21,929 -0- 140,000 -0- 157,657
Chairman of the Board 1994 875,000 1,000,000 29,472 4,312,5003,900,000 500,000 1,660,000 113,909
President and Chief Executive 1993 725,000 580,000 18,402 -0- 91,720 -0- 108,750
Executive Officer
1992 637,500 550,000 24,817James M. Kilts........ 1995 725,000 615,000 129,120(3) 1,639,000 65,000 -0- 36,400 1,672,539 95,625101,601
Executive Vice Presi-
dent, Vice Chairman,
Worldwide Tobacco,
Executive Vice
President,
International
James M. Kilts........... 1994 603,077 575,000 3,057 1,380,0001,248,000 -0- 1,139,939 34,630
Executive Vice Presi-President, 1993 538,846 409,500 -0- -0- 42,500 -0- 27,466
dent, Worldwide Food
1992 498,846 293,448Murray H. Bring....... 1995 650,000 650,000 1,380 -0- 60,000 -0- 91,090
Executive Vice 1994 535,962 600,000 1,601 2,600,000 0 707,785 69,772
President, External 1993 492,500 141,000 -0- -0- 26,080 858,590 22,897
Group President,
Kraft USA39,030 -0- 73,875
Affairs and General
Counsel
Hans G. Storr............Storr......... 1995 640,500 615,000 1,510 -0- 45,000 -0- 89,759
Executive Vice 1994 600,000 600,000 7,893 1,437,500 -0-1,300,000 0 773,200 78,109
Executive Vice President and Chief 1993 565,000 168,000 -0- -0- 44,620 -0- 84,750
Financial Officer
William H. Webb....... 1995 575,000 600,000 -0- 1,490,000 60,000 -0- 80,903
President and Chief Financial 1992 525,000 495,0001994 504,807 500,000 -0- 1,144,000 0 993,890 65,416
Executive Officer, 1993 429,416 335,000 -0- -0- 28,520 1,082,555 78,750
Officer
Murray H. Bring.......... 1994 535,962 600,000 1,601 2,875,00040,760 -0- 707,785 69,772
Executive Vice Presi- 1993 492,500 141,000 -0- -0- 39,030 -0- 73,875
dent, External Affairs 1992 460,000 385,000 -0- -0- 26,080 875,841 69,000
and General Counsel,
Sr. Vice President and
General Counsel
Michael A. Miles......... 1994 583,333 900,000 14,628 -0- -0- 1,622,500 2,630,347
Chairman of the Board 1993 1,000,000 345,000 9,558 -0- 125,000 -0- 150,000
and Chief Executive 1992 950,000 900,000 12,117 -0- 575,000 2,191,104 142,500
Officer64,413
Philip Morris
International Inc.
- -----------------
(1) Dollar values of awards are based on the closing price of Common Stock on
the date of grant. The restricted stock awards reflected in the table, together
with shares resulting from the reinvestment of dividends thereon, will vest in
the year of retirement at age 65 unless otherwise determined by the Compensation
Committee. Dividends on the restricted stock awards, otherwise payable in cash
to the covered officers, are paid in additional shares of restricted stock. At
December 31, 1994,1995, each of the named executive officers held shares of
restricted stock, with a value at such date as follows: W. Murray, 92,014
shares, $5,290,862; G.C. Bible, 83,51287,142
shares, $4,801,940;$7,864,566; J.M. Kilts, 32,34656,005 shares, $1,859,895;$5,054,451; M.H. Bring, 58,710
shares, $5,298,578; H.G. Storr, 36,90438,114 shares, $2,121,980; and M.H. Bring,
56,322$3,439,789; W.H. Webb, 43,502
shares, $3,238,515. The shares of restricted stock awarded in 1994, to-
gether with shares issued as dividends thereon (the "1994 Restricted Stock")
will vest in the year of retirement at age 65 unless otherwise determined by
the Compensation Committee. In the case of Mr. Murray, who retired on February
1, 1995, his 1994 Restricted Stock aggregated 76,014 shares; 26,014 shares
(including 1,014 shares issued as a dividend) vested on February 1, 1995 and
50,000 shares will vest on February 1, 1998, assuming compliance with a non-
competition agreement and his assistance to the Chairman of the Board regard-
ing business matters as required. The remaining 16,000 shares of restricted
stock vested on February 1, 1995. Dividends are paid on the restricted shares
in the same amount and at the same time dividends are paid to all common
stockholders. For 1994 Restricted Stock, dividends, otherwise payable in cash
to the named executive officers, are, for the most part, paid in additional
shares of restricted stock.$3,926,056.
(2) The 1993-1995 performance cycle of the Incentive Plan was terminated on De-
cember 31, 1994. Awards were pro-rated accordingly. Payment was deferred until
retirement in the case of the covered officers. A new three year performance
cycle began January 1, 1995.
(3) Except for Mr. Miles, the amounts in this column consist of allocations to defined contribution
plans.
For Mr. Miles,The Company provides funding for individual trusts for the covered officers
and certain other employees with vested accrued benefits under nonqualified
supplemental retirement plans. During 1995, the following amounts, representless
applicable tax withholding, were deposited in individual trusts for the company
contributionnamed
executive officers to aprovide funding for allocations to Philip Morris and Kraft
Foods supplemental defined contribution plan, $75,939,plans for prior years (previously
reported as All Other Compensation), and $2,554,408 in sever-
ance payments, encompassing salary, $2,000,000; vacation pay, $83,400; assumed
deferred profit-sharing contributions, $260,000; financial counseling,
$30,000; car allowance, $100,000; legal expenses, $56,914;for earnings credited through the end
of 1995 on such allocations: Mr. Bible, $534,220; Mr. Kilts, $404,702;
Mr. Bring, $253,785; Mr. Storr, $483,379; Mr. Webb, $124,286. The funding of
these amounts is not intended to increase total promised benefits.
(3) This amount includes $60,482 for termination of an executive club membership
program and $24,094 for of-
fice and secretarial expenses. These severance amounts are the equivalentrelated taxes of what would typically be paid over two years.$55,317.
13
19941995 OPTION GRANTS
In 1994, the only named executive officer granted stock options was Mr. Bible,
who received two awards of 250,000 shares each in recognition of his additional
duties, first as President and Chief Executive Officer and then as Chairman and
Chief Executive Officer. In each case, the option price was in excess of the
fair market value of the Common Stock on the date of grant.
%NUMBER OF
SHARES GRANT
UNDERLYING PERCENT OF TOTAL NO. OF SHARES FOR
SHARES WHICH GRANT
UNDERLYING OPTIONS DATE
OPTIONS OPTIONS GRANTED TO EXERCISE EXPIRATION PRESENT
NAME GRANTED TO EMPLOYEES PRICE DATE (1)DATE(1) VALUE(2)
- ---------------------------------- ---------- -------------------------- -------- ---------- ---------
$ $----------
Geoffrey C. Bible......... 250,000 100% 65(/3/)Bible............. 140,000 1.76% $74.8125 6/25/04 1,920,000
250,000 100% 75(/4/) 12/13/04 2,482,50024/05 $2,143,400
James M. Kilts................ 65,000 .82 74.8125 6/24/05 995,150
Murray H. Bring............... 60,000 .76 74.8125 6/24/05 918,600
Hans G. Storr................. 45,000 .57 74.8125 6/24/05 688,950
William H. Webb............... 60,000 .76 74.8125 6/24/05 918,600
- -----------------
(1) Options are not exercisable until one year after the date of grant. However,
in the case of death, permanent disability or retirement, the Compensation
Com-
mitteeCommittee has the discretion to accelerate vesting.
(2) GrantIn accordance with the Securities and Exchange Commission rules, grant date
present value is determined using the Black-Scholes Model. The Black-Scholes
Model is a complicated mathematical formula widely used to value exchange-traded
options. However, stock options granted by the Company differ
from exchange-traded options in three key respects: options granted by the Com-
pany are long-term,
non-transferable and subject to vesting restrictions, while exchange-traded
options are short-term and can be exercised or sold immediately in a liquid
market. The Black-Scholes Model relies on several key assumptions to estimate
the present value of options, including the volatility of and divi-
denddividend yield on
the security underlying the option, the risk-free rate of return on the date of
grant and the term of the option. In calculating the grant date present values
set forth in the table: for the first grant,table, a factor of 26.57%19.91% was assigned to the volatility of the
Common Stock, the yield on the Common Stock was set at 6.35%4.41% and the risk-free
rate of return was fixed at 7.10%; for
the second grant, 25.76% was assigned to the volatility of the Common Stock;
yield was set at 5.69% and the risk-free rate of return was fixed at 7.81%6.17%. In
each case, volatilityVolatility was based on the daily stock
market quotations for the five
yearsone year preceding the grant date, of grant, yield was based on
thean annual dividend rate of $3.30 per share, for 1994, the risk freerisk-free rate of return was
fixed at the rate for a ten yearten-year U.S. Treasury Note for the month of grant as
reported in the Federal Reserve Statistical Release H.15(519)H.15(159), and the actual
option term of ten years was used. Consequently, the grant date present values
set forth in the table are only theoretical values and may not accurately
determine present val-
ue.value. The actual value, if any, an optionee will realize will
depend on the ex-
cessexcess of the market value of the Common Stock over the exercise price
on the date the option is exercised.
(3) 125% of the fair market value of the Common Stock on the date of grant.
(4) 129% of the fair market value of the Common Stock on the date of grant.
19941995 OPTION EXERCISES AND YEAR-END VALUEVALUES
NUMBER OF TOTAL NUMBER OF SHARES SHARES UNDERLYING TOTAL VALUE OF UNEXERCISED
SHARES SHARES UNDERLYING IN-THE-MONEY OPTIONS HELD
ACQUIRED ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS HELD AT
NAME EXERCISE REALIZED HELD AT DECEMBER 31, 19941995 DECEMBER 31, 1994(1)1995 (1)
- ---------------------- ----------- -------- ------------------------- -------------------------------------- ----------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
William Murray.......... -0- $-0- 147,220Geoffrey C. Bible. -0- $ 779,203 $-0-
Geoffrey C. Bible....... -0- -0- 310,720 500,000 4,265,200 -0-810,720 140,000 $23,734,305 $2,161,250
James M. Kilts..........Kilts.... -0- -0- 149,980 -0- 1,107,247 -0-65,000 5,407,977 1,003,438
Murray H. Bring... 30,000 1,181,719 107,640 60,000 3,575,802 926,250
Hans G. Storr...........Storr..... -0- -0- 131,940 -0- 672,231 -0-
Murray45,000 4,342,806 694,688
William H. Bring......... -0- -0- 137,640 -0- 1,224,034 -0-
Michael A. Miles........ -0- -0- 897,200 -0- 3,246,375 -0-Webb... 33,300 1,484,750 66,390 60,000 2,241,542 926,250
- -----------------
(1) Based on the closing price of the Common Stock of $90.25 on December 30, 1994,
$57.50.29,
1995.
14
LONG-TERM INCENTIVE PLAN--AWARDS IN 1995
PERFORMANCE
PERIOD
NUMBER OF UNTIL
NAME UNITS(1) MATURATION ESTIMATED FUTURE PAYOUTS(2)(3)
- -------------------------------- --------- ----------- -------------------------------------
THRESHOLD TARGET MAXIMUM
--------- ---------- ----------
Geoffrey C. Bible............... -0- 3 yrs. $-0- $3,712,500 $6,682,500
James M. Kilts.................. -0- 3 yrs. -0- 2,010,000 3,618,000
Murray H. Bring................. -0- 3 yrs. -0- 1,950,000 3,510,000
Hans G. Storr................... -0- 3 yrs. -0- 1,506,600 2,711,880
William H. Webb................. -0- 3 yrs. -0- 1,762,500 3,172,500
- ---------
(1) Participants are not awarded a number of units. Rather, awards are expressed
as a percentage of aggregate salary and annual bonus earned by the participants
during the three-year performance cycle commencing January 1, 1995, and ending
December 31, 1997.
(2) Estimated future payouts ("earned awards") are predicated upon the
achievement of 1995-1997 cumulative net income once an adjusted cumulative
earnings per share hurdle has been exceeded. Actual payments to covered officers
will be made from a performance pool, on a pre-set percentage distribution
basis. The Chairman and Chief Executive Officer will be eligible to receive up
to 33.3% of the pool and each of the remaining covered officers will be eligible
to receive up to 16.67% of the pool. Because future payments are based on
three-year total cash compensation, the amount of the target award is not
presently determinable. However, an estimate is provided based on the assumption
that the amount of salary and annual bonus earned in 1995 is earned in each year
of the three-year performance cycle. The target award opportunities expressed as
a percentage of total cash compensation range from 40% to 50%, based on the
executive's position in the Company.
(3) A participant's earned award can range from 0% to 180% of the target award
opportunity.
PENSION PLAN TABLE--PHILIP MORRIS RETIREMENT PLAN
FIVE-YEAR
AVERAGE YEARS OF SERVICE (1)
AVERAGE -------------------------------------------------------------ANNUAL ----------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- ------------ -------- -------- ---------- ---------- ---------- ------------------- --------- ----------- ----------- ----------- -----------
$ 500,000 $130,084 $173,445$130,009 $173,345 $ 216,806216,682 $ 260,167260,018 $ 303,528303,355 $ 346,890346,691
750,000 195,709 260,945 326,181 391,417 456,653 521,890195,634 260,845 326,057 391,268 456,480 521,691
1,000,000 261,334 348,445 435,556 522,667 609,778 696,890261,259 348,345 435,432 522,518 609,605 696,691
1,250,000 326,959 435,945 544,931 653,917 762,903 871,890326,884 435,845 544,807 653,768 762,730 871,691
1,500,000 392,584 523,445 654,306 785,167 916,028 1,046,890392,509 523,345 654,182 785,018 915,855 1,046,691
1,750,000 458,209 610,945 763,681 916,417 1,069,153 1,221,890458,134 610,845 763,557 916,268 1,068,980 1,221,691
2,000,000 523,834 698,445 873,056 1,047,667 1,222,278 1,396,890523,759 698,345 872,932 1,047,518 1,222,105 1,396,691
2,500,000 655,084 873,445 1,091,806 1,310,167 1,528,528 1,746,890655,009 873,345 1,091,682 1,310,018 1,528,355 1,746,691
- -----------------
(1) At February 1, 1995,1996, Messrs. Bible, Kilts, Bring, Storr and BringWebb had
accredited service of 11, 0, 4012, 1, 17, 41 and 1430 years, respectively.
Messrs. Bible, Kilts, Bring, Storr and BringWebb participate in the tax-qualified
Philip Morris Sala-
riedSalaried Employees Retirement Plan (theand one or more supplemental
nonqualified pension plans (collectively, the "Retirement Plan") which. The Retirement
Plan is a non-contrib-
utorynon-contributory plan maintained for the benefit of certain employees
of the Company. The Retirement Plan provides for fixed retirement benefits in
relation to the par-
ticipant'sparticipant's years of accredited service, five-year average
annual compensation (the highest average annual compensation during any period
of five consecutive years out of the ten years preceding retirement) and applicable
social secu-
ritySocial Security covered compensation amount.
15
Allowances are payable upon retirement at the normal retirement age of 65 and at
earlier ages. Compensation includes the amounts shown as annual salary and bonus
in the Summary Compensation Table. At December 31, 1994,1995, five-year average
annual compensation for Mr. Bible was $1,123,139;$1,388,242; Mr. Kilts, $770,652;$891,835; Mr.
Bring, $857,892; Mr. Storr, $882,100;$982,700 and Mr. Bring, $734,092.Webb, $719,642. However, a
participant with more than 35 years of accredited service is lim-
itedlimited to the
greater of a full retirement allowance based upon 35 years of service and
five-year average annual compensation, including annual bonus awards, or a full
retirement allowance based on all service and five-year average compen-
sation,annual
compensation, excluding such awards.
Examples of annual retirement allowances payable under the Retirement Plan are
set forth in the above table. The examples, which assume retirement at the
normal retirement age of 65, are based upon the social securitySocial Security covered
com-
pensationcompensation amount in effect for an employee attaining age 65 in calendar year
1995. Mr. Murray, who retired on February 1, 1995, will receive an annual
lifetime pension of $562,687 based on five-year average compensation of
$1,571,339 and 25 years of accredited service. Mr. Bible is also eligible to receive a retirement benefit under the
retirement plan of a Swiss subsidiary of the Company.Company and under a domestic
nonqualified supplemental plan coordinated with the Swiss plan. At his current
annual salary, upon retirement at age 65, he would receive, in addition to the
retirement allowances payable to him under the Retirement Plan and the Kraft
Foods Retirement Plan (see below), an annual benefit of SFr. 404,995498,231
(approximately $315,540$410,574 on February 1, 1995)1996). Reference is made toThe Company provides funding for
individual trusts for the material appearingcovered officers and certain other employees with
vested accrued benefits under nonqualified supplemental retirement plans. During
1995, the caption "Employment Con-
tracts, Termination of Employment and Change of Control Arrangements"amounts set forth below, less applicable tax withholdings, were
deposited in individual trusts for in-
formationthe following executive officers, with
respect to benefits previously accrued under Philip Morris supplemental pension
plans (including benefits for Mr. Miles anddetermined by reference to the immedi-
ately following material for additional information with respect to Messrs.terms of the Swiss
subsidiary retirement plan): Mr. Bible, $4,285,210; Mr. Bring, $1,165,082; Mr.
Storr, $3,046,000; Mr. Webb $1,225,785. These amounts offset benefits previously
accrued and Kilts.do not increase total promised benefits.
PENSION PLAN TABLE--KRAFT FOODS RETIREMENT PLAN
FIVE-YEAR
AVERAGE COMPENSATION YEARS OF SERVICE (1)
------------ --------------------------------------------------ANNUAL -------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
-------- -------- ---------- ---------- ----------- ------------ --------- --------- ----------- ----------- -----------
$ 500,000.................. $124,167 $165,556500,000 $ 206,945124,074 $ 248,334165,432 $ 260,834
750,000.................. 186,980 249,306 311,633 373,959 392,709
1,000,000.................. 249,792 333,056 416,320 499,584 524,584
1,250,000.................. 312,605 416,806 521,008 625,209 656,459
1,500,000.................. 375,417 500,556 625,695 750,834 788,334
1,750,000.................. 438,230 584,306 730,383 876,459 920,209
2,000,000.................. 501,042 668,056 835,070 1,002,084 1,052,084
2,500,000.................. 626,667 835,556 1,044,445 1,253,334 1,315,834206,790 $ 248,148 $ 260,648
750,000 186,887 249,182 311,478 373,773 392,523
1,000,000 249,699 332,932 416,165 499,398 524,398
1,250,000 312,512 416,682 520,853 625,023 656,273
1,500,000 375,324 500,432 625,540 750,648 788,148
1,750,000 438,137 584,182 730,228 876,273 920,023
2,000,000 500,949 667,932 834,915 1,001,898 1,051,898
2,500,000 626,574 835,432 1,044,290 1,253,148 1,315,648
- -----------------
(1) At February 1, 1995,1996, Messrs. Bible and Kilts had accredited service of 1 and
9 years, respectively.
15
Messrs. Bible and Kilts will be eligible for benefits under, or participate in,
the tax-qualified Kraft Foods Retirement Plan (the "KFand a supplemental nonqualified
Kraft Foods pension plan (collectively, the "Kraft Foods Retirement Plan") which. The
Kraft Foods Retirement Plan provides for fixed retirement benefits in relation
to the participant's years of service, five-year average annual compensation
(the highest average annual compensation during any period of five consecutive
years out of the ten years preceding retirement) and applicable social securitySocial Security
covered compensation amount. Compensation in-
cludesincludes the amount shown as annual
salary and bonus in the Summary Compensation Table. At December 31, 1994,1995,
five-year average annual compensation for Mr. Bible was
$1,123,13916
$1,388,242 and for Mr. Kilts was $770,652.$891,835. The fixed retirement benefit is also
dependent upon the periods of service prior to January 1, 1989, in which the
participant elected to make contributions.
At age 65, Mr. Kilts will receive an
additional annual benefit of $10,770 under the General Foods Retirement Plan
for U.S. Salaried Employees.
Examples of annual pension benefits payable under the KFKraft Foods Retirement
Plan are set forth in the above table. The examples, which assume retirement at
age 62 or later, are based on the social securitySocial Security covered compensation amount in
ef-
fecteffect for an employee attaining age 65 in calendar year 1995. Since participant
contributions could be substantial in individual cases, the benefit amounts
shown in the table may be attributable in certain instances to participant
con-
tributionscontributions to a significant degree, depending upon retirement date and years
of service. The Company provides funding for individual trusts for the named
executive officers and certain other employees with vested accrued benefits
under nonqualified supplemental retirement plans. During 1995, the following
amounts, less applicable tax withholdings, were deposited in individual trusts
for named executive officers, with respect to benefits previously accrued under
Kraft Foods supplemental pension plans: Mr. Bible, $120,387; Mr. Kilts,
$131,333. These amounts offset benefits previously accrued and do not increase
total promised benefits.
Reference is made to the material appearing under the caption "Pension Plan
Ta-
ble--PhilipTable--Philip Morris Retirement Plan" for additional information with respect to
Messrs. Bible and Kilts.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGE-
MENTS.ARRANGEMENTS
The Company has entered into change of control employment agreements with each
of its officer-directors and each of its other executive officers, including
those named in the Summary Compensation Table. The agreements provide that, if
the executive is terminated other than for cause within three years after a
change of control of the Company or if the executive terminates his or her
employment for good reason within such three-year period or voluntarily during
the thirty-day30-day period following the first anniversary of the change of control, the
executive is entitled to receive a lump sumlump-sum severance payment equal to two and
one-half times the sum of his base salary and highest annual bonus, together
with certain other payments and benefits, including continua-
tioncontinuation of employee
welfare benefits. An additional payment is required to compen-
satecompensate the executive
for excise taxes imposed upon payments under the agreements.agreement.
Prior to the acquisition of Kraft, Inc. ("Kraft") by the Company, Mr. Kilts, as
well as certain other executives of Kraft, had entered into employment
agree-
mentsagreements with Kraft which, among other things, provided for a lump sumlump-sum cash
pay-
mentpayment upon termination of employment other than for cause. Following the
acqui-
sitionacquisition of Kraft, these employment agreements were replaced with new
agreements between the Company and the executives. These new agreements
established, in most cases, a deferred incentive payment account to which was
credited a spe-
cificspecific number of units with values equal to shares of Common Stock.
The account is credited with any in-
creaseincrease in the market value of the number of
sharesunits credited to the account to-
gethertogether with the market value of shares of Common
Stock resulting from the rein-
vestmentreinvestment of dividends. In the event of termination
of employment, Mr. Kilts will be entitled to the deferred incentive payment and
the continuation of med-
ical,medical, dental and life insurance benefits. In the event of
involuntary termina-
tiontermination of employment without cause, he will be entitled to a
lump sumlump-sum cash pay-
mentpayment equal to his then current base salary and most recent
applicable annual incentive compensation or a payment pursuant to the severance
plan or policy applicable to him, whichever is greater. If receipt of the
deferred incentive payment subjects Mr. Kilts to any Federalfederal excise tax, the
Company has agreed to make additional payments to place him in the position that
would have existed had no such excise tax been payable. Mr. Kilts' account was
originally credited with the equivalent of 43,784 shares of Common Stock (after
giving effect to stock splits). At December 31, 1994,February 1, 1996, this account had a value of
$3,167,790.$5,388,485.
17
Mr. Bring has entered into an employment agreement with the Company which pro-
vides,that
provides, among other things, for a minimum base salary and participation in
bene-
fitbenefit plans, including an enhanced retirement benefit.
16
On June 17, 1994, the Company entered into a settlement agreement and release
with Michael A. MilesOWNERSHIP OF EQUITY SECURITIES
The following table sets forth information regarding beneficial ownership of
Common Stock as of February 1, 1996, by each director, each executive officer
named in connection with his resignation as Chairman of the
Board and Chief Executive Officer. This agreement provided for severance pay-
ments of $2,554,408 as set forth in Note (3) to the Summary Compensation Table an annual incentive award for 1994and of $900,000the directors and executive
officers of the Company as a long-term incentive awardgroup. The beneficial ownership of $1,622,500 (two thirdseach director
and executive officer and of his target amount) for the 1993-1995 performance
cycle. In addition, he received $2,130,928, representing defined contribution
plan accruals,group is less than 1% of outstanding shares.
SOLE VOTING
AND INVESTMENT
NAME POWER(1) OTHER(2) TOTAL
- ---- -------------- -------- ---------
Elizabeth E. Bailey................ 5,144 5,144
Geoffrey C. Bible.................. 810,869 158,468 969,337
Murray H. Bring.................... 107,640 58,710 166,350
Harold Brown....................... 3,114 1,200 4,314
William H. Donaldson............... 11,514 11,514
Jane Evans......................... 4,004 4,004
Robert E.R. Huntley................ 8,214 1,200 9,414
James M. Kilts..................... 160,136 56,005 216,141
Rupert Murdoch..................... 2,414 100 2,514
John D. Nichols.................... 3,879 800 4,679
Richard D. Parsons................. 5,614 5,614
Roger S. Penske.................... 2,814 2,814
John S. Reed....................... 14,728 14,728
Hans G. Storr...................... 389,560 46,114 435,674
William H. Webb.................... 74,061 43,502 117,563
Stephen M. Wolf.................... 1,779 1,779
Group.............................. 2,259,028 372,964 2,631,992
- ---------
(1) Includes maximum number of shares subject to purchase before April 1, 1996,
upon the exercise of stock options as follows: G.C. Bible, 810,720; M.H.
Bring, 107,640; J.M. Kilts, 149,980; H.G. Storr, 131,940; W.H. Webb, 66,390;
and $6,112,455,group, 1,666,575.
(2) Includes shares held in certain fiduciary capacities (including such
holdings by a spouse), unrestricted and restricted shares owned by spouses,
minor children and other relatives sharing the actuarial lump-sum equivalenthome of all retire-
ment benefits, assuming an additional 60 monthsthe director or
executive officer and shares subject to purchase before April 1, 1996, upon
exercise of credited servicestock options by such persons. Beneficial ownership of these
shares is disclaimed. Also includes shares held jointly with spouses and final
average compensation of $1,700,000. Since Mr. Miles' termination constituted an
approved early retirement, all
shares of restricted stock vested asheld by executive officers.
18
The following table sets forth information regarding persons or groups known to
the Company to be beneficial owners of more than 5% of the dateCompany's outstanding
Common Stock.
PERCENT OF
NUMBER OF COMMON STOCK
SHARES OUTSTANDING ON
NAME AND ADDRESS OF BENEFICIALLY FEBRUARY 26,
BENEFICIAL OWNER OWNED 1996
------------------------- ------------- --------------
FMR Corp.......................... 50,725,729(1) 6.1%
82 Devonshire Street
Boston, MA 02109
- ---------
(1) According to Schedule 13G, dated February 14, 1996, filed with the
Securities and Exchange Commission jointly by FMR Corp., Edward C. Johnson
3d, Abigail P. Johnson and Fidelity Management & Research Company
("Fidelity"), Mr. Johnson is chairman and Ms. Johnson is a director of terminationFMR
Corp. and all stock options continuemay be deemed to be exercisablemembers of a controlling group with respect to
FMR Corp. The Schedule 13G indicates that at December 31, 1995, (i)
Fidelity, a wholly-owned subsidiary of FMR Corp., was the beneficial owner
of 44,477,741 shares of Common Stock in accordanceits capacity as investment adviser
to various registered investment companies (the "Fidelity Funds") (the power
to vote such shares resides solely with their terms. Certain welfare benefits, e.g.the boards of trustees of the
Fidelity Funds, while the power to dispose of such shares resides with Mr.
Johnson, FMR Corp., retiree health, dental,Fidelity and life insurance were provided assuming 60 monthsthe Fidelity Funds); (ii) Fidelity
Management Trust Company, a bank that is wholly-owned by FMR Corp., was the
beneficial owner of additional credited service.
The agreement also provides for reimbursement5,892,675 shares of club dues, relocation, secre-
tarialCommon Stock; (iii) Mr. Johnson was
the beneficial owner, either directly or through trusts, of 33,250 shares of
Common Stock; and legal expenses. Reference(iv) Fidelity International Limited, an investment adviser
of which Mr. Johnson is made tochairman but which is managed independently from FMR
Corp., was the Summary Compensation Table
for additional information.beneficial owner of 322,063 shares of Common Stock. FMR Corp.
and Fidelity International Limited each disclaim beneficial ownership of
Common Stock beneficially owned by the other.
SELECTION OF AUDITORS
The Audit Committee has recommended to the Board that Coopers & Lybrand L.L.P.,
which firm has been the independent accountants of the Company since 1933, be
contin-
uedcontinued as auditors for the Company. The stockholders are being asked to
approve the Board's decision to retain Coopers & Lybrand L.L.P. for the fiscal
year ending De-
cemberDecember 31, 1995.1996. A representative of Coopers & Lybrand L.L.P. will
be present at the meeting. The representative will be given an opportunity to
make a statement if he or she desires to do so and will be available to answer
questions.
THE BOARD RECOMMENDS A VOTE FOR.
STOCKHOLDER PROPOSALS
Management and the Board take all stockholder proposals very seriously. The Company
received this year, as it had in the past two years,last year, a proposal re-
questingfrom the International Union
of Operating Engineers requesting that the Board redeemrefrain from providing
retirement benefits to non-employee directors. As discussed on page 7, effective
January 1, 1996, the Board terminated the Company's Pension Plan for Non-
Employee Directors and, in liquidation of the benefits that would have been
payable thereunder, each non-employee director received Common Stock Purchase Rights (the "Rights")
issued in 1989. On March 1, 1995,equivalent
units. In taking this action, the Board voted to redeem the Rights. The no-
tice of redemption accompanies this proxy statement. The Board decided to re-
deem the Rights for two reasons. In the five years since the Company adopted
the Rights, the takeover environment has changed dramatically, making it highly
unlikely that the Company would be subject to the type of abusive takeover tac-
tics the Rights were intended to address. In addition, the Rights had become
the subject of controversy among certain stockholders, as indicated byconsidered the stockholder proposal mentioned above. Accordingly,and
the Board decided that re-
demption of the Rights was a prudent course of action at this time.concerns raised by stockholders with respect to such plans.
19
Various stockholders have submitted the sixfour proposals set forth below. The name, address and shareholdings of each proponent and co-proponent will be fur-
nished upon request to the Secretary of the Company. The sixfour
proposals have been duly considered by the Board, which has concluded that their
adoption would not be in the Company's best interests. For the reasons set forth
after each proposal, the Board recommends a vote AGAINST each proposal.
PROPOSAL 11--FINANCIAL, SOCIAL AND ENVIRONMENTAL COMPENSATION REVIEW
The Sinsinawa Dominicans, 2128 South Central Park Avenue, Chicago, Illinois
60623, claiming beneficial ownership of 25 shares of Common Stock, together with
three co-proponents, have submitted the proposal set forth below. The names,
addresses and shareholdings of the co-proponents will be furnished upon request
made to the Secretary of the Company.
"WHEREAS:
We believe that financial, social and environmental criteria should all be taken
into account in fixing compensation packages for corporate officers. Pub-
licPublic
scrutiny on compensation is reaching a new intensity, not just for the Chief
Executive Officer, but for all executives. Concerns expressed include the
following:
--Too often top executives receive considerable increases in compensation
packages even when corporate financial performance is poor, stockholders watch
dividends slip and stock prices drop.
17
--When top officers' compensation packages are compared to those of the
low-
estlowest paid employees, national authority, Graef Crystal, notes that many U.S.
CEO's make 160 times more than the average employee, while in Japan that ratio
is 16:1.
--Former Philip Morris Chairman and CEO, Hamish Maxwell, received more than
$24 million when he "stepped down" in 1991. At the same time, thousands of
to-
baccotobacco and dairy farmers who supply our Company were making minimum wage or
less.
--Our Company has promised shareholders cost-savingcost saving measures. Reducing
com-
pensationcompensation to our executives may be a more effective strategy than reducing
sup-
plierssuppliers and laying offlaying-off more than 14,000 employees--especially in light of our
past annual report theme that "The Strength of Our Brands Begins With Our
Peo-
ple.People."
--The relationship between compensation and the social and environmental
im-
pactimpact of company decision-makers is an important question. For instance, should
top officers' pay be reduced if "in their watch" our Company experiences costly
fines, expensive, protracted litigation and significant loss of market share?
Should the pay of those involved executives be "as usual" when our Company is
the object of multiple government investigations and consumer boycotts? Should
CEO compensation be affected by our Company's record related to environmentally
wasteful packaging, plant closings or public relations problems?
We believe that these considerations deserve the careful scrutiny of our Board
and committees dealing with compensation. Other companies, including Procter and&
Gamble, Bristol-Myers Squibb andAnd Westinghouse have reported to sharehold-
ersshareholders on
how they integrate similar factors into compensation packages.
RESOLVED: Shareholders request that a committee of outside directors of the
Board institute an Executive Compensation Review and prepare a report available
to shareholders by the October following this year's annual meeting with re-
sultsresults
of the Review and any recommended changes in practice. The report shall cover
pay, benefits, perks, stock options and any special arrangements in the
compensation packages for all our Company's top officers.
20
SUPPORTING STATEMENT
We recommend that the Board consider the following in its review:
1. Ways to link executive compensation more closely to financial performance
with proposed criteria and formulae;
2. Ways to link compensation to environmental and social corporate performance
(e.g., lower base pay with incentives for meeting or surpassing certain
envi-
ronmentalenvironmental standards);
3. Ways to link financial viability of the Companycompany to long-term environmental
and social sustainability (e.g.eg., linkages that avoid short-range thinking and
instead promote long-term planning);
4. A description of social and environmental criteria taken into account (e.g.,(eg.;
environmental performance, lawsuits, settlements, penalties, violations,
inves-
tigations,investigations, employee relations, financial stability of our suppliers,
especially dairy farmers, as well as the communities where we are located)."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
YourManagement believes, and your Board believesconcurs, that your Company's compensation
policies and practices are already consistent with the intent of this
resolution, and that the Compensation Committee Report on Executive
Compen-
sation, issued by the Compensation, Committee of the Board of Directors and which appears in this Proxy Statement (aton pages 8 to 11),11 of this proxy statement, provides
the essen-
tialessential information whichthat proponents are requesting. Indeed, the rules of the
United States Securities and Exchange Commission pursuant to which this Report
is published require information in addition to that requested by proponents.
The Company
believes that the current Report provides information whichthat is more comprehensive
and more specific, in many respects, than that requested by pro-
ponents.
18
Approximately two-thirdsproponents.
As in past years, this year's Report clearly demonstrates that senior executive
compensation is linked very closely to Company performance. As stated in the
Report, approximately 60% of the compensation awarded to executive officers in
1995 was "at risk" incentive compensation directly related to the Company's
performance.
This link between pay and performance encompasses social and environmental
factors. Your Company has long had policies that underscore our commitment to
help address the needs of senior executives is linked di-
rectlysociety and return something of value to performance.the many
communities in which we operate. For 1993, this linkage resultedexample, we have a nationally recognized
charitable contributions program that focuses on education, the arts and hunger
and nutrition. In addition, we provide grants to support conservation and
environmental organizations, to increase understanding of diversity and to
assist in AIDS care, education and research. We have also adopted a
reductioncomprehensive set of nearly
50% inenvironmental principles that affirm our commitment to
reduce the affected portionenvironmental impact of our activities, while continuing to provide
quality products that meet the needs of customers. Copies of the compensationCompany's
environmental principles and guidelines for charitable contributions are
available to stockholders upon request. In addition, in furtherance of these
senior officers.
Comparisonspolicies, the Board has established a Public Affairs and Social Responsibility
Committee, an Affirmative Action and Diversity Committee and a Corporate
Contributions Policy Committee, consisting of members of the salaries of Philip Morris'Board and senior
executives to those of the
lowest paid employees reveal a differential which is narrower than that at peer
companies.management.
Your Board believes that compliance with these policies will improve the
comparison to Japanese salaries is
meaningless, particularly the comparisons of Chief Executive Officer salaries,
because a significant portion of executive compensation in that country is of-
ten delivered through large expense accounts and executive perquisites, which
are often not reported. It is also significant that in Japan, management by a
small group of individuals sharing the responsibilitylong-term performance of the Chief Executive
OfficerCompany and that it is far more typical.
Management believes,senior management's
responsibility to see that these policies are carried out. Failure of management
to do so will result in poorer Company performance and, as a result, in reduced
compensation for executives.
This proposal was presented to stockholders at the 1995 Annual Meeting and was
overwhelmingly defeated. Your Board concurs,continues to believe that your Company's compensation
strategy and the resulting compensation levels are already consistent with the
intent of the resolution. The compensation levels and strategies are updated
and revised periodically under the supervision of the Board's Compensation Com-
mittee to reflect accurately the intended link between pay and performance.
The Board believes that the committee called for by this proposal would be du-
plicativeis
unnecessary and duplicative of existing policies and would conflict with the existing Compensation Committee of the
Board, which is itself composed entirely of non-employee directors and which
passes upon all aspects of compensation arrangements for senior executives.practices.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
21
PROPOSAL 22--ENVIRONMENTAL TOBACCO SMOKE
The Congregation of the Sisters of Charity of the Incarnate Word, P.O. Box
230969, 6510 Lawndale, Houston, Texas 77223-0969, claiming beneficial ownership
of 10,000 shares of Common Stock, has submitted the proposal set forth below.
"WHEREAS--the "Environmental Protection Agency concluded: "passive'. . . concluded 'passive' tobacco
smoke is a human lung carcinogen" causing 3,000 lung cancer deaths yearly (The
Wall Street Journal, 1/6/1993);
- --Since the Report's release, 20 states tightened or considered tightening
pub-
licpublic smoking laws; 150 local governments enacted smoking bans, the largest
being Los Angeles despite a massive effort by the tobacco industry to overturn
its ban;
- --Our Company ran an ad series in major papers attacking the ETS findings, us-
ingusing
just one article. It questioned some methodology, while overlooking many other
studies reaching basically the same conclusionsconclusion about health-hazards con-
nectedconnected to
ETS. However, in October, 1994, it was revealed the critique's au-
thorsauthors (and
employer) received in 1993, more than $10,000 from Philip Morris'--
related-related
companies. Further findings reveal even more tobacco funding of other
"independent" experts used by the tobacco industry to "challenge" ETS data.data;
- --Our Company joined the tobacco industry seeking a permanent injunction
over-
turningoverturning the EPA's findings, alleging EPA officials misused scientific data
and EPA regulations promoting anti-smoking objectives. The print media's
reaction indicated this strategy is filled with contradictions:
--In an editorial "Let Judge Choke off Tobacco Suit".Suit," The Milwaukee Journal
editorialized: "In a transparent attempt to stave off further regulation of
smoking, the tobacco industry has sued the US Environmental Protection Agency
for deeming secondhand cigarette smoke a cancer risk to non-smokers. Now here is
a business in deep denial. May the judge assigned to hear the industry's case
see this frivolous lawsuit for what it is and throw it out."out" (6/24/1993)
19
--USA Today.
--USAToday editorialized: "Small wonder that the tobacco industry is
resort-
ingresorting to ever more desperate measures." It continued: "The industry has a
lonely battle to fight. It may be the sole entity harmed by smoking
restrictions.restriction. . . . With so much going for them, smoking bans are a valuable tool
for those yearn-
ingyearning to breathe free."free" (6/24/1993).
--The Los Angeles Times, editorialized (6/25/1993): "The tobacco industry
in-
creasinglyincreasingly recognizes the EPA's findings could do what decades of public
serv-
iceservice announcements about smoking failed to do--dramatically change laws
gov-
erninggoverning smoking. As such, nervous cigarette makers feel themselves backed into
a corner.
Not surprisingly, then, they are lashing out. In a federal suit filed
Tues-
day,Tuesday, a coalition of tobacco groups wants the EPA report declared null and
void. The EPA was biased in its useduse of scientific findings, the industry
contends. The "science''The science' of cigarette smoking in humans "is'is complex,' say the
cigarette makers. Perhaps. But the personal and financial cost of
smoking-related dis-
easesdiseases is quite clear."
- --No labels warn about ETS. Our Company has not paid any plaintiffs by arguing
that warnings free it from responsibility. EffortEfforts to undermine notification of
ETS hazards might result in hughhuge awards for lost ETS lawsuits;
RESOLVED that shareholders request Philip Morris to cease expenditures of funds
challenging legitimate studies consistently showing ETS (environmentalthe health hazards of
environmental tobacco smoke) health hazards.smoke (ETS)."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
22
The Company believes that the lawsuit challenging the EPA's risk assessment and
classification of ETS as a Group A carcinogen has substantial merit. The
CompanyCompany's domestic tobacco subsidiary, Philip Morris Incorporated, is
participating in the lawsuit because it believes the EPA misused scientific
da-
ta,data, exceeded its authority, and failed to follow its own guidelines, in order
to promote an anti-smoking policy. By using language from certain editorials
whichthat express a point of view rather than discuss the facts or merits of the
lawsuit, the proponents create the erroneous impression that the EPA's findings
are universally supported by all groups other than the tobacco industry. This is
certainly not the case. Indeed, the Congressional Research Service, a division
of the Library of Congress that serves as an independent research arm of
Congress, recently released a report that calls into question the validity of
the EPA's risk assessment as well as the proposal by the Occupational Safety and
Health Administration to impose severe restrictions on smoking in the workplace.
Proponents warn of "huge awards for lost ETS lawsuits." Yet, the Company has
never paid money damages to plaintiffs in smoking and health cases. The
propo-
nentsproponents offer no proof that ETS lawsuits will be lost, or result in huge
awards.
The Company has a right to oppose legislation prohibiting smoking in public
places. It is the Company's position that the interests of both smokers and
non-smokers can be protected through a policy of accommodation in which public
areas are provided for both smoking and non-smoking. TheIn light of such studies as
the recent Congressional Research Service report, the Company also has the
rightcontinues to
challenge scientific studies with which it disagrees. The Company
strongly believesbelieve that the scientific evidence does not support claims that ETS
is harmfulthe EPA's position with
respect to non-smokers.ETS.
This proposal was presented to shareholdersstockholders at the 1994 and 1995 Annual MeetingMeetings
and was defeated overwhelmingly.overwhelmingly each time. Your Company continues to believe
that it must be able to challenge the EPAany studies which it believes are faulty and
any other regulatory organization thatregulations based on such studies which would improp-
erlyimproperly and unfairly
attempt to affect the use of the Company's tobacco products.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
PROPOSAL 3
"The primary purpose3--SPIN OFF NON-TOBACCO BUSINESS FROM REST OF CORPORATION
The Congregation of Divine Providence, Inc., P.O. Box 197, 18811 Scenic Loop,
Helotes, Texas 78023, claiming beneficial ownership of 2,200 shares of Common
Stock, has submitted the proposal set forth below.
"WHEREAS, some institutional investors have been uneasy about Philip Morris's
potential legal liability for this proposal is to greatly reduce or ideally totally
eliminate anythe health problems of smokers, and think that
such problems have depressed the share price of tobacco product liabilitycompanies' stock (The
New York Times 9/22/94);
- --Increased litigation againstcoming from states and private insurers indicate new and
ominous challenges that might undermine the remaining, non-
domestic tobacco unitsvalue of the company. This should then create a more stable
business environmentstock. The stock value
might be increased if the tobacco division(s) would be separated from the other
divisions. For instance, when Kimberly-Clark (who supplied our paper for
cigarettes and who was also named in whichlitigation for its cigarette involvement)
announced it would spin-off its tobacco-related entities, its stock rose almost
5% the next day.
- --Despite this positive sign on the street regarding Kimberly-Clark's decision
to operate.
Even thoughspin-off its tobacco entities, and the Companyparallel positive signs related to RJR
Nabisco's movement toward spin-off, Philip Morris decided in May, 1994 "not to
separate the Company's food and tobacco businesses and, further, that this issue
would not be placed before the Board again for the foreseeable future;"
- --consumer boycott of Philip Morris' products has been successful in defending itself in prior to-
bacco product liabilitylaunched by INFACT a
consumer activist group. It successfully brought infant formula companies to
change their practices and General Electric to sell a good portion of its
nuclear weapons business. Among INFACT's demands to end the boycott include the
Company's need to stop marketing to children and young people, stop influencing
public policy, and pay its just share of health care costs associated with
tobacco use;
23
- --The combination of litigation future success will depend upon an ever
more unpredictable legal, judicial and political sys-
20
tem. In my opinion, oneboycott may adversely affect the price of
our Company's stock which might be further enhanced if there would be a spin-off
of the paramount concerns of senior management should
betobacco and non-tobacco businesses;
- --Spinoffs and breakups like the protection ofone that drove up AT&T's stock by 11% in one
day "have produced a gold mine in the financial interests of the shareholders against poten-
tially massive and devastating product liability losses.
In addition to the product liability exposure issue, the Company is trying to
increase domestic tobacco profits in an environment that is ever more hostile
and difficult in accomplishing this goal. Some of these problems include;
health considerations (including secondary smoke), possibility of cigarettes
being regulated by the government as a drug, continual excise tax increases
(either Federal or State), various smoking bans and restrictions, advertising
restrictionspast two and a generally extremely hostile politicalhalf years for divesting
companies and regulatory envi-
ronment.
Moreover, the current situation will probably only get worse, such that the do-
mestic tobacco business will continueinvestors." according to under perform and negatively affect
the other more profitable segments of the company (including the foreign to-
bacco unit), thereby limiting overall profit growth.
In summary, this action is the most viable way of protecting shareholder value,
while increasing overall company profits.The Wall Street Journal (09/21/95);
RESOLVED that shareholders strongly recommendask management to management that action be
takentake steps to spinoff, sell or otherwise totally divest its domestic tobacco from
other componentsaccomplish a
separation of the Company.Corporation's non-tobacco business from all its tobacco
businesses by January 1, 1997."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
In May 1994, your Company announced that its Board of Directors had decided not
to separate the Company's food and tobacco businesses and, further, that this
issue would not be placed before the Board again for the foreseeable future.businesses. This decision was made
after months of management review and deliberation, with the benefit of advice
and counsel from leading investment advisors and lawyers. Upon review, your
Board concluded that it was not clear that separation of the businesses would
result in a meaningful, enduring increase in shareholder val-
ue.stockholder value. It was clear,
however, that such a decision would have resulted in a com-
plicatedprolonged, complicated
and costly structural transaction. The resulting uncertainties, including the
possibility of protracted litigation, posed a risk of disrupting the Company's
businesses, possibly causing shareholderstockholder value to diminish.
The Board is committed to enhancing shareholderstockholder value and remains convinced that
its decision in May 1994 was correct. Periodically, managementcorrect, as evidenced by the Company's strong
performance and your
Board review possible alternativesimpressive total stockholder return in 1995. The Company's 1995
net earnings were up 15.9% over 1994, and net earnings per share were up 19.4%,
to $6.51 (15.3%, 18.9% and $6.48, respectively, including the present business structure. Current-
ly,effect of two
accounting standards adopted in the first quarter of 1995). Total stockholder
return (increase in share price with quarterly reinvestment of dividends) was
64.5% in 1995 versus 37% for the S&P 500 Index. Currently, no alternative
business structure that would provide for the separation of the food and tobacco
businesses is deemed by management and your Board to be fea-
siblefeasible or desirable. Accordingly, the Board urges a vote against thisA
similar proposal which it believes is not in the best interest of shareholderswas presented to stockholders at this time.last year's Annual Meeting and
was overwhelmingly rejected.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
PROPOSAL 4
"BE IT RESOLVED: That4--NAMING AND CURBING NICOTINE IN TOBACCO PRODUCTS
Dr. Gregory N. Connolly, 399 Common Street, Belmont, Massachusetts 02178, who
claims beneficial ownership of 30 shares of Common Stock, has submitted the
shareholdersproposal set forth below.
"WHEREAS the federal Food and Drug Administration has proposed regulating
cigarettes and smokeless tobacco products as drugs;
- --Virtually every major health organization in the United States of Philip Morris Companies, Inc.
("Company") requestAmerica as
well as throughout the world has concluded that cigarette smoking and smokeless
tobacco-use are addictive;
- --An estimated 40 million people smoke in the United States; a vast majority of
these are addicted to tobacco use. Each day 3,000 young people begin to smoke.
Of these one half will become addicted and of these, half will die of smoking;
- --Most who smoke want to stop but find this difficult to do so;
- --It has been recognized by the medical profession as well as many in the
tobacco industry that the Boardaddictive ingredient in tobacco is nicotine;
- --The FDA reported that nicotine content in cigarettes has increased for all
brand categories including regular, low nicotine and ultra low brands from 1982
to 1992;
24
- --Our company is being sued in a national class action suit alleging that we
intentionally addict consumers through the design, manufacture and marketing of
Directors in the future refrain from pro-
viding pension or other retirement benefits to non-employee or outside Direc-
tors unless such benefits are specifically submittedour brands and that our tobacco products have caused serious health problems to
the class members;
- --A successful lawsuit may affect adversely and seriously the price of our
stock;
- --Certain tobacco companies have developed new nicotine analogs that reduce
certain adverse health effects of nicotine while maintaining pharmacological
effects which could be beneficial to smokers who want to quit;
- --A "smokeless cigarette" has also been developed that eliminates many toxic
agents in cigarette smoke;
- --Scientists have recommended that nicotine levels in tobacco products be slowly
reduced to a level that cannot induce addiction among young non-smokers;
- --The technology is available to our company for it to reduce nicotine content
in its tobacco products;
- --A panel of experts recently concluded that the current Federal Trade
Commission's rating for nicotine in cigarettes does not provide adequate
information for smokers about how much nicotine they actually receive from
smoking;
RESOLVED that shareholders for
approval.
SUPPORTING STATEMENT
The Board of Directors should play a vital and independent role in helping to
determine overall corporate policy and strategic direction. They should ac-
tively monitor senior management in faithfully implementing these policies. In
their capacity onrequest the Board Directors owe their fundamental allegiance to take steps to preserve the
shareholdershealth of its tobacco-using customers. We suggest the corporation--the owners who elect them,following steps:
1. Develop and notpublicize nicotine ratings for each of our cigarette brands and
to manage-
ment.
21
We believe, however, that certain businessmake this available in accurate information to our customers about how much
nicotine they consume when smoking.
2. Determine the nicotine level in cigarettes at which nicotine addiction cannot
be induced or financial relationships can ad-
versely affect the ability of Directors to function in their appropriate over-
sight role. This is especially critical for so-called outside or independent
Directors who are not employee/Directors and who should bring a certain arms-
length objectivity to Board deliberations. According to the Company's most re-
cent proxy statement,maintained. With this information, the Company establishedshall implement a
retirementprogram that would gradually reduce levels of nicotine in our brands over an
appropriate time period to a level that is not addictive. This effort to reduce
nicotine availability would be undertaken in collaboration with independent
health experts.
3. Develop and market new nicotine or pension plan for
non-employee Directors with at least five yearsnicotine-like products that have minimal
toxic agents that can be used by our consumers in lieu of service who will receive an
annual retirement benefit for life equalcigarette smoking, and
market these products as drugs or medical devices to the annual Board cash retainer plus
25% of attendance fees for up to twenty-four board meetings earned during the
two years before retirement. That retainer is now a generous $26,000, plus
$1,000 for attending each Board meeting ($2,000 for committee chairman).
While non-employee or outside Directors should be entitled to reasonable com-
pensation for their time and expertise, we are of the opinion that additional
layers of compensation in the form of retirement benefits, which are in excess
of 100% of the Director's base compensation, has the pernicious effect of com-
promising their independence and impartiality. It is our view that such gener-
ous and unnecessary extra compensation for outside Directors of the Company is
management's way to insure their unquestioning loyalty and acquiescence to
whatever policy management initiates. Accordingly, when viewed from this per-
spective, these types of retirement benefits become yet another device to en-
hance and entrench management's control over corporate policy while being ac-
countable only to themselves, and not to the company's owners. We believe that
this additional layer of compensation to Directors may influence their ability
to exercise that degree of independence from management which is critical to
the proper functioning of the Board.
Because of our strong concern for maximizing the ability of Boards of Direc-
tors to act in shareholder's interest, we feel that the long-term best inter-
ests of the Company are not well served by such retirement policies. The vast
preponderance of Directors at various corporations are undoubtedly covered by
generous retirement policies at their principal place of employment, and they
need not be "double-dipping" at this Company or any others.
We urge your support for this Proposal.help adult smokers quit
tobacco use."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The Company's Compensation Program for non-employee directors must be competi-
tive to attract the highest caliber candidate. Direct and deferred compensation
are integral parts of competitive director compensation systems. Indeed, de-
ferred compensationSmoking is a component of the majority of director compensation
programs. Your Company views retirement benefits for non-employee directors as
an additional form of deferred compensation. The Company's Retirement Plan for
non-employee directors provides benefits to retiring directors who have reached
at least 60 years of agecomplex behavioral activity, and who have served for at least five years. Retire-
ment benefits are based upon an aggregate of the annual retainerits motivations and a percent-
age of monthly Board and Committee meeting fees. This results in retirement
benefits which are similar to what is offered by peer companies recently sur-
veyed.
The supporting statement claims without support that the proposal should be
adopted in part because without it, the Company's non-employee directors will
act purely in their own self-interests, violating not only their duties under
corporate law but also the principles pursuant to which the Company conducts
its business. In so doing, the proposal impugns the character and integrity of
the men and women the shareholders have chosen to direct the affairs of the
Company.
Each member of your Board recognizes his or her fiduciary responsibility to act
in the best interests of the Company and is committed to the fulfillment of
that responsibility. The retirement plan for non-employee directors is an im-
portant element of a total compensation program which is competitive and in the
best interests of shareholders.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
22
PROPOSAL 5
"WHEREAS, according to the USDA, U.S. cigarette production declined from 713
billion cigarettes in 1993 to 625 billion in 1994. This adversely impacted do-
mestic tobacco growers at the same time they faced an international tobacco
glut;
- --In 1969 less than 1 percent of the tobacco used in U.S. cigarettes was im-
ported. By 1992, 28 percent of burley and 23 percent of the flue cured was for-
eign (Washington Post, 5/10/93);
- --The New York Times noted: "Farmers' profit margins have declined while the
major manufacturers' profits have risen . . . (add to Philip Morris: [without
the elision marks]: with Philip Morris' operating income for domestic tobacco
doubling since 1986, to nearly $5.2 billion in 1992.) Farmers have been
squeezed by a combination of rising costs for labor, fertilizers and chemicals,
and the relatively stagnant prices of tobacco leaves depressed by an influx of
cheap foreign imports" (06/06/93);
- --The New York Times reported a year later (08/28/94) that tobacco company
profits continually increased as farmer's profit margins decreased: "American
farmers received $1.5 billion last year from sales of cured tobacco, down from
a peak of $1.9 billion in 1981... The principal cigarette companies, Philip Mor-
ris, R.J. Reynolds, Brown & Williamson and Lorillard, still collect handsome
profits because they can sell cigarettes abroad, where consumption is still
growing, and because they have found a way to exploit the tobacco glut."
- --After challenges about unilateral price increases for domestic cigarettes
even as domestic tobacco purchases and income decreased, major U.S. cigarette
companies agreed to support floors for content percentages of domestic tobacco
for cigarettes;
- --It has been recognized that the agricultural economy in tobacco-growing
states must be diversified and that funds to achieve this must come, in part,
from a portion of federal cigarette excise tax revenues, as well as other fund-
ing sources;
- --Entities within the tobacco-growing community have made various recommenda-
tions to ease the transition of tobacco farmers from dependency on production
for cigarette sales to alternative land uses, including:
1) reducing or eliminating tobacco acreage by diversification into other crops
or land usage;
2) dedicating a portion of any cigarette excise tax increase for government
purchase of tobacco growing allotments to retire them. Inclusion of tax bene-
fits forfeiting allotments could be effective for farmers re-investing into
the growth of alternative crops.
3) providing grants and low-interest loans to tobacco farmers changing to new
crops, equipment, seeds, nursery stocks, farm equipment, and irrigation sys-
tems.
RESOLVED that (name of Company) establish a Committee of the Board to review
the Company's connections to its farm-suppliers and to determine how they can
be helped in diversification and economic conversion from dependency on tobac-
co-for-cigarettes (for UST: smokeless use) to use of farmland for other purpos-
es. Furthermore that the Company support legislation to help ease this economic
conversion for tobacco-growers at federal and state levels."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
1994 was a year of record cigarette production for the domestic tobacco compa-
ny, a result of changing market dynamicspractices vary
among smokers. Roughly 40 million people in the United States as well as in-
creases in export volume. Independent tobacco farming was essential to this
record productionhave stopped
smoking, and thus formsabout 90% of them have done so without professional assistance.
The "tar" and nicotine yields of cigarettes are measured and reported under the
cornerstoneauspices of the Company's most profit-
able business. Your Company remains committedFederal Trade Commission ("FTC"). The FTC testing method, which
was developed through the cooperation of the FTC staff and independent and
tobacco company scientists, is designed to tobacco farmingprovide "tar" and nicotine ratings
for use by consumers in comparing cigarette brands. The International
Organization for Standardization method, used in many foreign countries, is
nearly identical to the growers who workFTC method and produces similar "tar" and nicotine
ratings. Pursuant to producean agreement sanctioned by the FTC, Philip Morris
Incorporated, like all other U.S. tobacco crop, recognizedcigarette companies, follows the FTC method,
and the FTC "tar" and nicotine ratings are as a practical matter the bestonly ones
that may be advertised to consumers. Indeed, to develop and publicize additional
separate ratings would be inconsistent with the FTC's primary objective, which
is to provide consumers with a standard to compare competing cigarette brands.
25
Cigarettes from Philip Morris Incorporated and its competitors are currently
available across the full range of "tar" and nicotine yields, allowing consumers
to exercise their individual preferences.
The Company is not engaged in the world.
The Company does not ownmanufacture or lease any tobacco producing farmlandsale of drugs and is en-
tirely dependent upon the production of independent farmers, who generally sell
their crops in independent warehouses to
23
dealers who purchase tobaccomedical
devices. Various smoking cessation products containing nicotine, such as
nicotine gum and nicotine patches, are currently available on the Company's behalf. While the Company has no
control over the decision of independent farmers to raise tobacco or other
crops, it is unlikely that tobacco farmers, many of whom already grow tobacco
in rotation with other crops, wish to halt their production of tobacco, a
highly lucrative crop.
This proposal was presented to shareholders at the 1994 Annual Meeting and was
overwhelmingly defeated.market. It
remains the strong view of your Boardshould be noted that the pro-
posal wouldvarying degrees of effectiveness of these products
suggest that people do not be beneficial eithersmoke simply to tobacco growers or to the Company.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
PROPOSAL 6
"BE IT RESOLVED: That the shareholders of Philip Morris Companies, Inc. ("Com-
pany") hereby request that the Company's Board of Directors take the steps nec-
essary to amend the Company's by-laws to create an Independent Directors Com-
mittee of the Board of Directors. For these purposes, the definition of inde-
pendent director shall mean a director who:
. has not been employed by the Company or an affiliate in an executive capacity
within the last five years;
. was not, and is not a member of a corporation or firm that is one of the
Company's paid advisers or consultants;
. is not employed by a significant customer, supplier or provider of profes-
sional services;
. has no personal services contract with the Company;
. is not employed by a foundation or university that receives significant
grants or endowments from the Company;
. is not a relative of the management of the Company;
. is not a shareholder who has signed shareholder agreements legally binding
him to vote with management; and
. is not a director of a company on which Philip Morris' Chairman or Chief Ex-
ecutive Officer is also a board member.
The Independent Directors Committee ("Committee") shall be charged with the du-
ties of independently evaluating management proposals to the Board of Directors
and generating independent alternatives and proposals for Board consideration.
In order to provide the Committee with the necessary resources to effectively
perform its function, the Committee shall have the authority to hire and fire
staff members who work exclusively for the Committee.
SUPPORTING STATEMENT
We believe that the judgement of our Company's Board of Directors has a pro-
found impact on Philip Morris' long-term financial performance. Further, we be-
lieve that directors who neither sit on each others boards nor are dependent on
management for salaries, consulting fees, business relationships, and the like,
are best able to objectively evaluate management's recommendations to the Board
of Directors and generate independent alternatives and proposals for Board con-
sideration.
Currently, 11 of Philip Morris' 18 directors meet the above definition of inde-
pendent (Bailey, Brown, Donaldson, Douglas, Evans, Murdoch, Nichols, Parsons,
Penske, Reed and Wolf). The March 7, 1994 management proxy discloses that 10 of
the 11 independent directors have full-time jobs. Eight of the ten are top ex-
ecutives of large companies.
As shareholders, we face a dilemma regarding independent directors. On the one
hand, we want the majority of our Board to be composed of independent directors
in order to promote objective, effective decision making. On the other hand,
the full-time jobs of our Company's independent directors carry tremendous re-
sponsibilities and time commitments that severely limit the time and commitment
they can devote to the affairs of Philip Morris.
24
We believe that an Independent Directors Committee, empowered to hire and fire
staff who work exclusively for the Committee, provides independent directors
with sufficient resources to not only evaluate management proposals, but to
generate new ideas for the betterment of the Company."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The Board believes that this proposal serves no useful purpose. The proposal
would create a committee whose role would be ill-defined, but whose activities
would necessarily be duplicative of the activities of the full Board. A new
layer of bureaucracy would be created resulting in substantial inefficiencies
and unnecessary expense.
Of the fourteen nominees for director, only three are employees or former em-
ployees of the Company. The three most important committees--Audit, Compensa-
tion and Nominating and Corporate Governance--are composed entirely of non-em-
ployee directors. These Committees met fourteen times in 1994.The non-employee
members of the Board are unanimous in their opinion that ample opportunities
exist for them to evaluate management proposals free from management's influ-
ence and strongly disagree with the proposal's contrary implication. They are
convinced that they are able to share their thoughts and ideas freely and
openly and to make final decisions concerning the policies and direction of the
Company in accordance with their fiduciary obligations to the stockholders and
that no additional committee, as contemplated by the proposal, is required to
enable them to do so.obtain nicotine.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
OTHER MATTERS
Management knows of no other business whichthat will be presented to the meeting for
a vote, except that it has been advised that stockholder proposals not in-
cludedincluded
in this proxy statement may be presented. If other matters properly come before
the meeting, including proposals omitted from this proxy statement and
accompanying proxy pursuant to the rules of the Securities and Exchange
Commis-
sion,Commission, the persons named as proxies will vote on them in accordance with
their best judgment.
The cost of this solicitation of proxies will be borne by the Company. In
addi-
tionaddition to the use of the mails, some of the officers and regular employees of
the Company may solicit proxies by telephone and will request brokerage houses,
banks and other custodians, nominees and fiduciaries to forward soliciting
ma-
terialmaterial to the beneficial owners of Common Stock held of record by such
persons. The Company will reimburse such persons for expenses incurred in
forwarding such soliciting material. It is contemplated that additional
solicitation of proxies will be made in the same manner under the engagement and
direction of D.F. King & Co., Inc., 77 Water Street, New York, NY 10005, at an
anticipated cost to the Company of $21,000, plus reimbursement of out-of-pocket expenses.
25
19961997 ANNUAL MEETING
Stockholders wishing to suggest candidates to the Nominating and Corporate
GovenanceGovernance Committee for consideration as directors may submit names and
bio-
graphicalbiographical data to the Secretary of the Company.
The Company's By-Laws prescribe the procedures a stockholder must follow to
nominate directors or to bring other business before stockholder meetings. For a
stockholder to nominate a candidate for director at the 19961997 Annual Meeting,
presently anticipated to be held April 25, 1996,24, 1997, notice of the nomination must
be received by the Company between October 1512 and November 14, 1995.11, 1996. The no-
ticenotice
must describe various matters regarding the nominee, including the name,
address, occupation and shares held. For a stockholder to bring other matters
before the 19961997 Annual Meeting, notice must be received by the Company within
the time limits described above. The notice must include a description of the
proposed business, the reasons therefortherefore and other specified matters. For a
matter to be included in the Company's proxy statement and proxy for the 19961997
Annual Meeting, notice must be received by the Company on or before November 14, 1995.11,
1996. In each case, the notice must be given to the Secretary of the Compa-
ny,Company,
whose address is 120 Park Avenue, New York, NY 10017. Any stockholder de-
siringdesiring a
copy of the Company's By-Laws will be furnished one without charge upon written
request to the Secretary.
G. Penn Holsenbeck
Vice President and Secretary
March 13, 199511, 1996
26
P R O X Y
PHILIP MORRIS COMPANIES INC.
Proxy Solicited on Behalf of the Board of Directors
Annual Meeting April 27, 1995
Geoffrey C. Bible, Murray H. Bring and Hans G. Storr, and each of them, are
appointed attorneys, with power of substitution, to vote, as indicated on the
matters set forth on the reverse hereof and in their discretion upon such other
business as may properly come before the meeting, all shares of the undersigned
in Philip Morris Companies Inc. (the "Company") at the annual meeting of
stockholders to be held at the Philip Morris Manufacturing Center, Richmond,
Virginia, April 27, 1995, at 9:00 a.m., and at all adjournments thereof.
Election of Directors, Nominees:
Elizabeth E. Bailey, Geoffrey C. Bible, Murray H. Bring, Harold Brown,
William H. Donaldson, Jane Evans, Robert E.R. Huntley, Rupert Murdoch,
John D. Nichols, Richard D. Parsons, Roger S. Penske, John S. Reed, Hans
G. Storr and Stephen M. Wolf.
This card also serves to instruct the administrator of the Company's dividend
reinvestment and voluntary cash payment plan and the trustee of each defined
contribution plan sponsored by the Company or any of its subsidiaries how to
vote shares held for a stockholder or employee participating in any such plan.
SEE REVERSE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS, JUST SIGN ON THE REVERSE. YOU NEED NOT MARK ANY BOXES.25, 1996
P
R Geoffrey C. Bible, Murray H. Bring and Hans G. Storr, and each of them, are
appointed attorneys, with power of substitution, to vote, as indicated on the
O matters set forth on the reverse hereof and in their discretion upon such
other business as may properly come before the meeting, all shares of the
X undersigned in Philip Morris Companies Inc. (the "Company") at the annual
meeting of stockholders to be held at the Philip Morris Manufacturing
Y Center, Richmond, Virginia, April 25, 1996, at 9:00 a.m., and at all
adjournments thereof.
|
| Election of Directors, Nominees:
Elizabeth E. Bailey, Geoffrey C. Bible, Murray H. Bring, Harold Brown,
William H. Donaldson, Jane Evans, Robert E.R. Huntley, Rupert Murdoch,
John D. Nichols, Richard D. Parsons, Roger S. Penske, John S. Reed,
Hans G. Storr and Stephen M. Wolf.
This card also serves to instruct the administrator of the Company's dividend
reinvestment and voluntary cash payment plan and the trustee of each defined
contribution plan sponsored by the Company or any of its subsidiaries how to
vote shares held for a stockholder or employee participating in any such plan.
SEE REVERSE. If you wish to vote in accordance with the Board of Directors' SEE REVERSE
recommendations, just sign on the reverse. You need not mark any boxes. SIDE
FOLD AND DETACH PROXY CARD HERE
LOGO
PHILIP[PHILIP MORRIS LOGO]
PHILIP MORRIS DIRECTIONS ADDRESS For hotel information
COMPANIES INC. The Philip Morris 3601 Commerce Road in the Richmond area,
Manufacturing Center Richmond, Virginia please call the
is located approximately Richmond
6 miles south of PHONE Convention & Tourism
downtown Richmond (804) 274-5492 Bureau at
off of Interstate 95. 1-800-370-9004
ANNUAL
STOCKHOLDERS
MEETING
DIRECTIONS
The Philip Morris Manufacturing Center is located approximately 6 miles south of
downtown Richmond off of Interstate 95.
Address
3601 Commerce Road
Richmond, Virginia
Phone
(804) 274-5492
For hotel information in the Richmond area, please call the Richmond Convention
& Tourism Bureau at 1-800-365-7272
[MAP]
[MAP]------------------------- -------------------------
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! M A P ! ! M A P !
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------------------------- -------------------------
[X] Please mark your [0142
votes as in this
example.
0142
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTEDThis Proxy when properly executed will be voted as specified. If no
specification is made, this proxy will be voted FOR THE ELECTION OF DIRECTORS,the election of directors,
FOR THE SELECTION OF AUDITORS ANDthe selection of auditors and AGAINST EACH OF THE STOCKHOLDER PROPOSALS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
FOR WITHHELD
1. Electioneach of Directors (see reverse) [_] [_]
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Selection of Auditors [_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
FOR AGAINST ABSTAIN
Stockholder Proposal No. 1 [_] [_] [_]
Stockholder Proposal No. 2 [_] [_] [_]
Stockholder Proposal No. 3 [_] [_] [_]
Stockholder Proposal No. 4 [_] [_] [_]
Stockholder Proposal No. 5 [_] [_] [_]
Stockholder Proposal No. 6 [_] [_] [_]stockholder proposals.
The Board of Directors recommends a vote FOR: The Board of Directors recommends
a vote AGAINST
FOR AGAINST ABSTAIN
FOR WITHHELD FOR AGAINST ABSTAIN Stockholder Proposal [ ] [ ] [ ]
1. Election of No. 1.
Directors (see [ ] [ ] 2. Selection [ ] [ ] [ ]
reverse) of Auditors Stockholder Proposal [ ] [ ] [ ]
No. 2.
For, except vote withheld from the following nominee(s):
Stockholder Proposal [ ] [ ] [ ]
No. 3.
- ----------------------------------------
Stockholder Proposal [ ] [ ] [ ]
No. 4.
The signer hereby revokes all proxies
heretofore given by the signer to vote
at said meeting or any adjournments
thereof.
NOTE: Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
----------------------------------------------
----------------------------------------------
SIGNATURE(S) DATE
FOLD AND DETACH PROXY CARD HERE
RETURN PROXY CARD IN ENCLOSED ENVELOPE AFTER COMPLETING, SIGNING AND DATING
[PHILIP MORRISS LOGO] PHILIP MORRIS COMPANIES INC.
1996 ANNUAL MEETING OF
Admission Ticket STOCKHOLDERS
- ---------------- Thursday, April 25, 1996
9:00 A.M.
The Philip Morris Manufacturing Center
3601 Commerce Road
Richmond, Virginia
--------------------------------------
Please present this ticket to the Philip Morris
representative in the Registration Area. Only the
stockholder or the person holding a proxy from the
stockholder whose name(s) appears on this ticket
will be admitted.
- ------------------------------------------------------------------------------------------
It is important that your shares are represented at this meeting, whether or not
you attend the signermeeting in person. To make sure your shares are represented, we
urge you to vote at
said meeting or any adjournments thereof.
SIGNATURE(S) _________________________________________________ DATE ___________
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
FOLD AND DETACH PROXY CARD HERE
RETURN PROXY CARD IN ENCLOSED ENVELOPE AFTER COMPLETING, SIGNING AND DATING
LOGO
PHILIP MORRIS
PHILIP MORRIS COMPANIES INC.
1995 ANNUAL MEETING OF STOCKHOLDERS
APRIL 27, 1995
9:00 A.M.
THE PHILIP MORRIS MANUFACTURING CENTER
3601 COMMERCE ROAD
RICHMOND, VIRGINIA
SEE REVERSE SIDE FOR DIRECTIONS TO MEETING.complete and mail the proxy card above.
See reverse side for directions to Meeting.