<PAGE>
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 Section 240.14a-11(c) or Section 240.14a-12
Philip Morris Companies Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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 transaction 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):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(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:
<PAGE>
LOGO
PHILIP MORRIS
COMPANIES INC.
GEOFFREY C. BIBLE 120 PARK AVENUE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER NEW YORK, NY 10017
March 13, 1995
DEAR STOCKHOLDER:
You are cordially invited to attend the 1995 Annual Meeting of Stockholders of
Philip Morris Companies Inc. The meeting will be held at 9:00 a.m. on Thursday,
April 27, 1995, 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 six 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-
tary at 120 Park Avenue, New York, NY 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.
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
<PAGE>
PHILIP MORRIS COMPANIES INC.
120 Park Avenue
New York, New York 10017
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, APRIL 27, 1995
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, 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;
(3) Act upon six 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, will be entitled to vote at the meeting.
G. Penn Holsenbeck
Vice President and Secretary
March 13, 1995
<PAGE>
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, 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-
mence on or about March 13, 1995. Holders of record of Common Stock, $1 par
value (the "Common Stock"), at the close of business on March 7, 1995 will be
entitled to one vote for each share held on all matters to come before the
meeting. On February 28, 1995, there were outstanding 849,346,156 shares of
Common Stock.
A proxy on the enclosed form may be revoked at any time before it has been ex-
ercised. 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 reinvestment and voluntary cash payment plan and the trustee of each de-
fined 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-
cluded 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-
cluded in determining the number of votes cast.
Stockholders' proxies are received by the Company's independent proxy process-
ing 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-
vide aggregate figures rather than names of stockholders. The independent in-
spectors 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.
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-day operations. Members of the Board are kept informed of the Company's
businesses by various reports and documents sent to them each
1
<PAGE>
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 has 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-
tional meeting follows immediately after the annual meeting of stockholders.
The Board held eleven regular monthly meetings in 1994 and one special meeting.
----------------
COMMITTEES OF THE BOARD
Various committees have been established by the Board to assist it in the dis-
charge of its responsibilities. Certain of these committees are described be-
low. The biographical information on the nominees for director set forth in
this proxy statement includes committee memberships currently held by each nom-
inee.
The AUDIT COMMITTEE meets with management, the Company's independent accoun-
tants and its internal auditors to consider the adequacy of the Company's in-
ternal controls and other financial reporting matters. The Audit Committee rec-
ommends 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-
ment 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.
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 twice in 1994.
The COMPENSATION COMMITTEE, consisting of six non-employee directors, held
seven meetings in 1994. This committee determines cash remuneration arrange-
ments for the highest paid executives and administers the Company's stock op-
tion and incentive compensation plans. See the Report of the Compensation Com-
mittee on Executive Compensation which appears elsewhere in this proxy state-
ment.
The CORPORATE EMPLOYEE PLANS INVESTMENT COMMITTEE, consisting of five direc-
tors, held six meetings in 1994. This committee oversees the investment of cer-
tain 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.
The FINANCE COMMITTEE consists of eight directors and met four times in 1994.
It monitors the financial condition of the Company and advises the Board with
respect to financing needs, dividend policy and other financial matters.
The NOMINATING AND CORPORATE GOVERNANCE COMMITTEE consists of six non-employee
directors and met three times in 1994. This committee reviews the qualifica-
tions of candidates suggested by Board members, management, stockholders and
other sources, considers 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-
cerning corporate governance to the extent these matters are not the responsi-
bility of other committees, assesses the Board's performance and makes recom-
mendations to the Board on the retirement policies for non-employee directors,
the functions and duties of the committees of the Board, general Board prac-
tices and the Company's relations with its shareholders.
----------------
2
<PAGE>
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 the persons named below as management's nominees and, unless other-
wise 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-
rently serves as a director and was elected by the stockholders at the 1994
annual meeting, except for Geoffrey C. Bible, who was elected by the Board on
May 25, 1994. 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.
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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3
<PAGE>
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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4
<PAGE>
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
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5
<PAGE>
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.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Huntley (who is a member of the Compensation Committee) is counsel to Hun-
ton & Williams, which firm acts as counsel to the Company. In 1994, the Com-
pany paid Hunton & Williams fees of $8,011,977. Messrs. Brown, Douglas, Mur-
doch, 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.
COMPENSATION OF DIRECTORS
Directors who are full-time employees of the Company receive no additional
compensation for services as a director. In 1994, non-employee directors re-
ceived 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-
ity Committees and $500 ($1,000 for the chairman) for each other committee
meeting attended. In 1994, the chairman of the Compensation Committee received
$30,000, and the other members of the Committee $5,000, for additional servic-
es.
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 twelve months. On May 1, 1994, each eligible direc-
tor received 400 shares of Common Stock.
The 1992 Compensation Plan for Non-Employee Directors permits a director to
defer meeting fees and all or a part of the retainer fee. Deferred amounts are
"credited" to an unfunded account and may be "invested" in four "investment
choices" which are the same as those offered under the Philip Morris Deferred
Profit-Sharing Plan and which are used to determine the "earnings" that are
credited for bookkeeping purposes. Subject to certain restrictions, the direc-
tor is permitted to take cash distributions, in whole or in part, from his or
her account either prior to or following termination of service.
Under the Pension Plan for Directors, any director who was not an employee of
the Company, who ceases to be a director at his or her normal retirement date
and who has completed five years of accredited service is entitled until death
to an annual pension (payable monthly) equal to the annual cash retainer in
effect on his or her 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-
ter age 60, and after completing five years of accredited service, is entitled
for a period equal to his or her accredited service to monthly pension pay-
ments. In the event 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
<PAGE>
The Company has entered into employment agreements with each of its officer-di-
rectors 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.
<TABLE>
<CAPTION>
SOLE VOTING
AND INVESTMENT AGGREGATE
NAME POWER (1) OTHER (2) TOTAL
---- -------------- --------- ---------
<S> <C> <C> <C>
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
</TABLE>
- --------
(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
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
TO OUR STOCKHOLDERS:
The Compensation Committee is responsible for administering total compensation
programs which are designed to enable the Company to:
. Hire, reward, motivate and retain the highest quality managers possible;
. 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-
nificant portion of compensation at risk and subject to the achievement
of financial goals and objectives;
. Maximize profitability through growth and efficiency, balancing appropri-
ately 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 major factors affected the actions of the Committee in 1994:
. On June 17, 1994, Michael A. Miles resigned as Chairman of the Board and
Chief Executive Officer;
. On June 20, 1994, the Board elected William Murray as Chairman of the
Board and Geoffrey C. Bible as President and Chief Executive Officer;
. 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;
. Increasing legal, legislative and regulatory challenges facing the United
States tobacco industry led the Committee to the conclusion that it was
critical to reinforce the 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.
The Committee believes that the actions undertaken in 1994 with respect to the
Company's compensation program, as discussed below, meet 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"). All elements
of compensation are valued when making comparisons to the Peer Group. In addi-
tion, 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-
tion 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
<PAGE>
Based on the most recent information available, overall total compensation for
the executive officer group ranked in the upper quartile relative to the com-
pensation paid by the Peer Group. The Company's financial performance relative
to the Peer Group ranked in the third quartile for five-year total shareholder
return and in the upper quartile for one-year return on equity and one-year
earnings per share growth.
To achieve a further correlation between executive compensation and perfor-
mance, approximately two-thirds of the compensation awarded to the executive
officer group in 1994 was variable incentive compensation consisting of annual
cash bonuses and stock awards. By design, approximately one-half of executive
officers' variable at-risk compensation consists of stock-based compensation.
BASE SALARY. Base salary, which is designed to comprise approximately one-third
of total compensation, is based on a qualitative evaluation of a variety of
factors including level of responsibility, time in position, prior experience,
individual performance and a comparison of salaries paid within the Peer Group.
Based on these factors, executive officers of the Company on average received
base salary merit increases of 5.8% in 1994.
ANNUAL INCENTIVES. Annual cash bonuses are provided to senior executives and
middle management employees. Early in 1994, the Committee approved a formula
based on earnings per share to establish the maximum annual incentive awards
for the Company's six highest-paid executive officers employed as of the end of
the year.
The annual incentive payments for 1994 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, return on equity, net earnings
and earnings per share as measured against the financial results of the previ-
ous year as well as against the strategic business plan. At the business unit
level, volume, revenues, and operating income were measured against the prior
year and the strategic business plan.
In 1994, awards to the six highest-paid executive officers employed as of the
end of the year were based upon achieving 90% of the formula maximum and the
Committee's subjective assessment of each of these executive's individual con-
tributions. For the other participants, corporate performance exceeded the tar-
get level in 1994 and bonuses were awarded accordingly. Performance varied
across the individual business units and bonuses were awarded at, above or be-
low 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 make its customary annual stock option
grants under the Incentive Plan in 1994. Rather, as discussed below, re-
stricted stock was awarded to each participant who would have been enti-
tled to receive a 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. 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
<PAGE>
Although stock options have generally been used as the primary long-term
incentive vehicle, 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 at the 55th percentile of the Peer Group. However,
the size of the restricted stock awards was adjusted upward or downward
based on a subjective evaluation of individual contribution and poten-
tial.
. LONG-TERM PERFORMANCE AWARDS. In 1994, long-term performance awards were
earned under the Incentive Plan 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 determining the amount of the award for the cycle that was terminated
effective December 31, 1994, corporate and 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 reflect individual performance.
The seven key strategic initiatives were:
. 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
. Simplifying the organization structure.
Payments were prorated to reflect the shortened performance period. For
covered officers, payments were deferred until retirement.
COMPENSATION OF THE CHAIRMAN OF THE BOARD AND THE PRESIDENT AND CHIEF EXECUTIVE
OFFICER. Immediately following the resignation of Mr. Miles, the Board elected
Mr. Murray as Chairman of the Board and Mr. Bible as President and Chief
Executive Officer. Acknowledging the significant responsibilities 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. As a result, their increased
base salaries approximated the median of base salaries paid to the chief execu-
tive officers of the Peer Group.
10
<PAGE>
In addition to base salary, Messrs. Murray and Bible earned an annual incentive
bonus for 1994 based on the Company's exceeding its earnings per share goal and
the Committee's assessment of their individual performance. Their bonuses ap-
proximate the 75th percentile of bonuses paid to the chief executive officers
of the Peer Group.
Similar to the grants made to other participants in the Incentive Plan, Messrs.
Murray and Bible each received 75,000 shares of restricted stock. The Committee
determined the size of the awards after an evaluation of the increased respon-
sibilities of these two individuals.
In recognition of his promotion to President and Chief Executive Officer in
June of 1994, Mr. Bible was granted a ten-year, non-qualified stock option for
250,000 shares of Common Stock, with an exercise price approximately 25% above
the stock's fair market value on the date of grant. In December of 1994, Mr.
Bible was granted a ten-year non-qualified stock option for 250,000 shares with
an exercise price approximately 29% above the stock's fair market value on the
date of grant 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 and 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 their total compensation also places them in the up-
per 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. Section
162(m) of the Internal Revenue Code generally limits to $1,000,000 the 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. However, the limitation does not apply to performance-
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 Federal income tax
deductibility of compensation payments, under certain circumstances, elements
of annual compensation, such as perquisites, dividends paid in cash on re-
stricted stock and income resulting from payments made pursuant to plans that
do not discriminate in favor of executive officers, may cause an executive of-
ficer's income to exceed deductible limits. In addition, the Committee retains
the authority to authorize other payments, including salary and bonuses, that
may not be deductible, if that is in the best interests of the Company and its
stockholders.
COMPENSATION COMMITTEE
John S. Reed, Chairman
Harold Brown
Paul W. Douglas
Robert E. R. Huntley
Rupert Murdoch
Stephen M. Wolf
11
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE STOCKHOLDER TOTAL RETURN(/1/)
(CHART)
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PHILIP MORRIS $100.0 $128.59 $204.83 $202.86 $153.67 $167.75
- --------------------------------------------------------------------
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
- --------------------------------------------------------------------
S&P FOOD/BEV/TOBACCO 100.0 109.34 155.07 154.36 141.89 156.14
</TABLE>
Assumes $100 invested on December 31, 1989 in Philip Morris Common Stock, S&P
500 Index, Peer Group(/2/) and S&P 500 Beverages (Alcoholic), S&P 500 Foods and
S&P 500 Tobacco Indices(/3/).
- --------
(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., 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-
tional Inc., General Mills, Inc., H.J. Heinz Company, Hershey Foods Corpora-
tion, Kellogg Company, Pet Incorporated, The Quaker Oats Company, Ralston
Purina Company, Sara Lee Corporation, The Seagram Company Ltd., UST Inc. and
Wm. Wrigley Jr. Company. Although the Company is a component of the S&P 500 To-
bacco Index, it has been excluded for the purpose of this presentation.
12
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------- -------------------------------
AWARDS PAYOUTS
--------------------- ---------
OTHER ALL
ANNUAL SECURITIES OTHER
COMPEN- RESTRICTED UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION STOCK(1) OPTIONS LTIP(2) SATION(3)
- --------------------------- ---- --------- --------- ------- ---------- ---------- --------- ---------
$ $ $ $ SHS. $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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........ 1994 875,000 1,000,000 29,472 4,312,500 500,000 1,660,000 113,909
President and Chief 1993 725,000 580,000 18,402 -0- 91,720 -0- 108,750
Executive Officer, 1992 637,500 550,000 24,817 -0- 36,400 1,672,539 95,625
Executive Vice Presi-
dent, Vice Chairman,
Worldwide Tobacco,
Executive Vice
President,
International
James M. Kilts........... 1994 603,077 575,000 3,057 1,380,000 -0- 1,139,939 34,630
Executive Vice Presi- 1993 538,846 409,500 -0- -0- 42,500 -0- 27,466
dent, Worldwide Food, 1992 498,846 293,448 -0- -0- 26,080 858,590 22,897
Group President,
Kraft USA
Hans G. Storr............ 1994 600,000 600,000 7,893 1,437,500 -0- 773,200 78,109
Executive Vice President 1993 565,000 168,000 -0- -0- 44,620 -0- 84,750
and Chief Financial 1992 525,000 495,000 -0- -0- 28,520 1,082,555 78,750
Officer
Murray H. Bring.......... 1994 535,962 600,000 1,601 2,875,000 -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
Officer
</TABLE>
- --------
(1) At December 31, 1994, 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, 83,512 shares, $4,801,940; J.M. Kilts, 32,346
shares, $1,859,895; H.G. Storr, 36,904 shares, $2,121,980; and M.H. Bring,
56,322 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.
(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 amounts represent the company
contribution to a defined contribution plan, $75,939, 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; and $24,094 for of-
fice and secretarial expenses. These severance amounts are the equivalent of
what would typically be paid over two years.
13
<PAGE>
1994 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.
<TABLE>
<CAPTION>
% OF TOTAL
NO. OF SHARES FOR
SHARES WHICH GRANT
UNDERLYING OPTIONS DATE
OPTIONS GRANTED TO EXERCISE EXPIRATION PRESENT
NAME GRANTED EMPLOYEES PRICE DATE (1) VALUE(2)
- ---- ---------- ---------- -------- ---------- ---------
$ $
<S> <C> <C> <C> <C> <C>
Geoffrey C. Bible......... 250,000 100% 65(/3/) 6/25/04 1,920,000
250,000 100% 75(/4/) 12/13/04 2,482,500
</TABLE>
- --------
(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-
mittee has the discretion to accelerate vesting.
(2) 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-
dend 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, a factor of 26.57%
was assigned to the volatility of the Common Stock, the yield on the Common
Stock was set at 6.35% 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%. In
each case, volatility was based on daily stock market quotations for the five
years preceding the date of grant, yield was based on the annual dividend rate
of $3.30 per share for 1994, the risk free rate of return was fixed at the rate
for a ten year U.S. Treasury Note for the month of grant as reported in the
Federal Reserve Statistical Release H.15(519) 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. The actual value, if any, an optionee will realize will depend on the ex-
cess 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.
1994 OPTION EXERCISES AND YEAR-END VALUE
<TABLE>
<CAPTION>
NUMBER OF TOTAL NUMBER OF
SHARES SHARES UNDERLYING TOTAL VALUE OF UNEXERCISED,
ACQUIRED ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS HELD AT
NAME EXERCISE REALIZED HELD AT DECEMBER 31, 1994 DECEMBER 31, 1994(1)
- ---- ----------- -------- ------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
William Murray.......... -0- $-0- 147,220 -0- $ 779,203 $-0-
Geoffrey C. Bible....... -0- -0- 310,720 500,000 4,265,200 -0-
James M. Kilts.......... -0- -0- 149,980 -0- 1,107,247 -0-
Hans G. Storr........... -0- -0- 131,940 -0- 672,231 -0-
Murray H. Bring......... -0- -0- 137,640 -0- 1,224,034 -0-
Michael A. Miles........ -0- -0- 897,200 -0- 3,246,375 -0-
</TABLE>
- --------
(1) Based on the closing price of the Common Stock on December 30, 1994,
$57.50.
14
<PAGE>
PENSION PLAN TABLE--PHILIP MORRIS RETIREMENT PLAN
<TABLE>
<CAPTION>
FIVE-YEAR YEARS OF SERVICE (1)
AVERAGE -------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- ------------ -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 $130,084 $173,445 $ 216,806 $ 260,167 $ 303,528 $ 346,890
750,000 195,709 260,945 326,181 391,417 456,653 521,890
1,000,000 261,334 348,445 435,556 522,667 609,778 696,890
1,250,000 326,959 435,945 544,931 653,917 762,903 871,890
1,500,000 392,584 523,445 654,306 785,167 916,028 1,046,890
1,750,000 458,209 610,945 763,681 916,417 1,069,153 1,221,890
2,000,000 523,834 698,445 873,056 1,047,667 1,222,278 1,396,890
2,500,000 655,084 873,445 1,091,806 1,310,167 1,528,528 1,746,890
</TABLE>
- --------
(1) At February 1, 1995, Messrs. Bible, Kilts, Storr and Bring had accredited
service of 11, 0, 40 and 14 years, respectively.
Messrs. Bible, Kilts, Storr and Bring participate in the Philip Morris Sala-
ried Employees Retirement Plan (the "Retirement Plan") which is a non-contrib-
utory 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's years of accredited service, five-year average compensation (the
highest average annual compensation during any period of five consecutive
years out of the ten years preceding retirement) and applicable social secu-
rity covered compensation amount. 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, five-year average compensation for Mr. Bible was
$1,123,139; Mr. Kilts, $770,652; Mr. Storr, $882,100; and Mr. Bring, $734,092.
However, a participant with more than 35 years of accredited service is lim-
ited to the greater of a full retirement allowance based upon 35 years of
service and five-year average compensation, including annual bonus awards, or
a full retirement allowance based on all service and five-year average compen-
sation, 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 security covered com-
pensation 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. 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. 404,995 (approximately $315,540 on February 1, 1995).
Reference is made to the material appearing under the caption "Employment Con-
tracts, Termination of Employment and Change of Control Arrangements" for in-
formation with respect to pension benefits for Mr. Miles and to the immedi-
ately following material for additional information with respect to Messrs.
Bible and Kilts.
PENSION PLAN TABLE--KRAFT FOODS RETIREMENT PLAN
<TABLE>
<CAPTION>
FIVE-YEAR
AVERAGE
COMPENSATION YEARS OF SERVICE (1)
------------ --------------------------------------------------
15 20 25 30 35
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 500,000.................. $124,167 $165,556 $ 206,945 $ 248,334 $ 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 1,315,834
</TABLE>
- --------
(1) At February 1, 1995, Messrs. Bible and Kilts had accredited service of 1
and 9 years, respectively.
15
<PAGE>
Messrs. Bible and Kilts will be eligible for benefits under or participate in
the Kraft Foods Retirement Plan (the "KF Retirement Plan") which provides for
fixed retirement benefits in relation to the participant's years of service,
five-year average compensation (the highest average annual compensation during
any period of five consecutive years out of the ten years preceding retirement)
and applicable social security covered compensation amount. Compensation in-
cludes the amount shown as annual salary and bonus in the Summary Compensation
Table. At December 31, 1994, five-year average compensation for Mr. Bible was
$1,123,139 and for Mr. Kilts was $770,652. 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 KF Retirement Plan are
set forth in the above table. The examples, which assume retirement at age 62
or later, are based on the social security covered compensation amount in ef-
fect 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-
tributions to a significant degree, depending upon retirement date and years of
service.
Reference is made to the material appearing under the caption "Pension Plan Ta-
ble--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. 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-day period following the first anniversary of the change of
control, the executive is entitled to receive a lump 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-
tion of employee welfare benefits. An additional payment is required to compen-
sate the executive for excise taxes imposed upon payments under the agreements.
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-
ments with Kraft, which, among other things, provided for a lump sum cash pay-
ment upon termination of employment other than for cause. Following the acqui-
sition 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-
cific number of shares of Common Stock. The account is credited with any in-
crease in the market value of the number of shares credited to the account to-
gether with the market value of shares of Common Stock resulting from the rein-
vestment 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, dental and life insurance benefits. In the event of involuntary termina-
tion of employment without cause, he will be entitled to a lump sum cash pay-
ment 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 Federal 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, this account had a value of $3,167,790.
Mr. Bring has entered into an employment agreement with the Company which pro-
vides, among other things, for a minimum base salary and participation in bene-
fit plans, including an enhanced retirement benefit.
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On June 17, 1994, the Company entered into a settlement agreement and release
with Michael A. Miles 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 1994 of $900,000 and a long-term incentive award
of $1,622,500 (two thirds of his target amount) for the 1993-1995 performance
cycle. In addition, he received $2,130,928, representing defined contribution
plan accruals, and $6,112,455, the actuarial lump-sum equivalent of all retire-
ment benefits, assuming an additional 60 months of credited service and final
average compensation of $1,700,000. Since Mr. Miles' termination constituted an
approved early retirement, all shares of restricted stock vested as of the date
of termination and all stock options continue to be exercisable in accordance
with their terms. Certain welfare benefits, e.g., retiree health, dental, and
life insurance were provided assuming 60 months of additional credited service.
The agreement also provides for reimbursement of club dues, relocation, secre-
tarial and legal expenses. Reference is made to the Summary Compensation Table
for additional information.
SELECTION OF AUDITORS
The Audit Committee has recommended to the Board that Coopers & Lybrand, which
firm has been the independent accountants of the Company since 1933, be contin-
ued as auditors for the Company. The stockholders are being asked to approve
the Board's decision to retain Coopers & Lybrand for the fiscal year ending De-
cember 31, 1995. A representative of Coopers & Lybrand 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, a proposal re-
questing that the Board redeem the Common Stock Purchase Rights (the "Rights")
issued in 1989. On March 1, 1995, 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 by the
stockholder proposal mentioned above. Accordingly, the Board decided that re-
demption of the Rights was a prudent course of action at this time.
Various stockholders have submitted the six 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 six 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 1
"WHEREAS:
We believe that financial, social and environmental criteria should all be
taken into account in fixing compensation packages for corporate officers. Pub-
lic 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.
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--When top officers' compensation packages are compared to those of the low-
est 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-
bacco and dairy farmers who supply our Company were making minimum wage or
less.
--Our Company has promised shareholders cost-saving measures. Reducing com-
pensation to our executives may be a more effective strategy than reducing sup-
pliers and laying 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."
--The relationship between compensation and the social and environmental im-
pact 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 and Westinghouse, have reported to sharehold-
ers 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-
sults 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.
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-
ronmental standards);
3. Ways to link financial viability of the Company to long-term environmental
and social sustainability (e.g., 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.,
environmental performance, lawsuits, settlements, penalties, violations, inves-
tigations, 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.
Your Board believes 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 (at pages 8 to 11), provides the essen-
tial information which 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 which is more
comprehensive and more specific, in many respects, than that requested by pro-
ponents.
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Approximately two-thirds of the compensation of senior executives is linked di-
rectly to performance. For 1993, this linkage resulted in a reduction of nearly
50% in the affected portion of the compensation of these senior officers.
Comparisons of the salaries of Philip Morris' senior executives to those of the
lowest paid employees reveal a differential which is narrower than that at peer
companies. Your Board believes that 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 responsibility of the Chief Executive
Officer is far more typical.
Management believes, and the Board concurs, 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-
plicative of 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.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
PROPOSAL 2
"WHEREAS--the "Environmental Protection Agency 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-
lic 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-
ing just one article. It questioned some methodology, while overlooking many
other studies reaching basically the same conclusions about health-hazards con-
nected to ETS. However, in October, 1994, it was revealed the critique's au-
thors (and employer) received in 1993, more than $10,000 from Philip Morris'--
related companies. Further findings reveal even more tobacco funding of other
"independent" experts used by the tobacco industry to "challenge" ETS data.
- --Our Company joined the tobacco industry seeking a permanent injunction over-
turning 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". 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." (6/24/1993)
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--USA Today editorialized: "Small wonder that the tobacco industry is resort-
ing 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. . .
With so much going for them, smoking bans are a valuable tool for those yearn-
ing to breathe free." (6/24/1993)
--The Los Angeles Times, editorialized (6/25/1993): "The tobacco industry in-
creasingly recognizes the EPA's findings could do what decades of public serv-
ice announcements about smoking failed to do--dramatically change laws gov-
erning 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, a coalition of tobacco groups wants the EPA report declared null and void.
The EPA was biased in its used of scientific findings, the industry contends.
The "science' of cigarette smoking in humans "is complex,' say the cigarette
makers. Perhaps. But the personal and financial cost of smoking-related dis-
eases is quite clear."
- --No labels warn about ETS. Our Company has not paid any plaintiffs by arguing
that warnings free it from responsibility. Effort to undermine notification of
ETS hazards might result in hugh awards for lost ETS lawsuits;
RESOLVED that shareholders request Philip Morris to cease expenditures of funds
challenging legitimate studies consistently showing ETS (environmental tobacco
smoke) health hazards."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The Company believes that the lawsuit challenging the EPA's risk assessment and
classification of ETS as a carcinogen, has substantial merit. The Company is
participating in the lawsuit because it believes the EPA misused scientific da-
ta, exceeded its authority, and failed to follow its own guidelines, in order
to promote an anti-smoking policy. By using language from certain editorials
which 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.
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-
nents 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. The Company also has the
right to challenge scientific studies with which it disagrees. The Company
strongly believes that the scientific evidence does not support claims that ETS
is harmful to non-smokers.
This proposal was presented to shareholders at the 1994 Annual Meeting and was
defeated overwhelmingly. Your Company continues to believe that it must be able
to challenge the EPA and any other regulatory organization that would improp-
erly 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 purpose for this proposal is to greatly reduce or ideally totally
eliminate any tobacco product liability litigation against the remaining, non-
domestic tobacco units of the company. This should then create a more stable
business environment in which to operate.
Even though the Company has been successful in defending itself in prior to-
bacco product liability litigation, future success will depend upon an ever
more unpredictable legal, judicial and political sys-
20
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tem. In my opinion, one of the paramount concerns of senior management should
be the protection of 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
restrictions and a generally extremely hostile political and regulatory envi-
ronment.
Moreover, the current situation will probably only get worse, such that the do-
mestic tobacco business will continue 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.
RESOLVED that shareholders strongly recommend to management that action be
taken to spinoff, sell or otherwise totally divest its domestic tobacco from
other components of the Company."
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.
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. It was clear, however, that such a decision would have resulted in a com-
plicated structural transaction. The resulting uncertainties, including the
possibility of protracted litigation, posed a risk of disrupting the Company's
businesses, possibly causing shareholder value to diminish.
The Board is committed to enhancing shareholder value and remains convinced
that its decision in May 1994 was correct. Periodically, management and your
Board review possible alternatives to the present business structure. Current-
ly, no alternative structure is deemed by management and your Board to be fea-
sible or desirable. Accordingly, the Board urges a vote against this proposal
which it believes is not in the best interest of shareholders at this time.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
PROPOSAL 4
"BE IT RESOLVED: That the shareholders of Philip Morris Companies, Inc.
("Company") request that the Board 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 submitted to the 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 on the Board, Directors owe their fundamental allegiance to the
shareholders of the corporation--the owners who elect them, and not to manage-
ment.
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<PAGE>
We believe, however, that certain business 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, the Company established a retirement or pension plan for
non-employee Directors with at least five years of service who will receive an
annual retirement benefit for life equal 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."
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 compensation 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 age and who have served for at least five years. Retire-
ment benefits are based upon an aggregate of the annual retainer 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.
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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 dynamics in the United States as well as in-
creases in export volume. Independent tobacco farming was essential to this
record production and thus forms the cornerstone of the Company's most profit-
able business. Your Company remains committed to tobacco farming and to the
growers who work to produce the U.S. tobacco crop, recognized as the best in
the world.
The Company does not own or lease any tobacco producing farmland and is en-
tirely dependent upon the production of independent farmers, who generally sell
their crops in independent warehouses to
23
<PAGE>
dealers who purchase tobacco 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. It remains the strong view of your Board that the pro-
posal would not be beneficial either 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
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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.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
OTHER MATTERS
Management knows of no other business which will be presented to the meeting
for a vote, except that it has been advised that stockholder proposals not in-
cluded 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, 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-
tion 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-
terial 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
<PAGE>
1996 ANNUAL MEETING
Stockholders wishing to suggest candidates to the Nominating and Corporate
Govenance Committee for consideration as directors may submit names and bio-
graphical 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 1996 Annual Meeting,
presently anticipated to be held April 25, 1996, notice of the nomination must
be received by the Company between October 15 and November 14, 1995. The no-
tice must describe various matters regarding the nominee, including the name,
address, occupation and shares held. For a stockholder to bring other matters
before the 1996 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 therefor and other specified matters. For a
matter to be included in the Company's proxy statement and proxy for the 1996
Annual Meeting, notice must be received by the Company on or before November
14, 1995. In each case the notice must be given to the Secretary of the Compa-
ny, whose address is 120 Park Avenue, New York, NY 10017. Any stockholder de-
siring 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, 1995
26
<PAGE>
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.
SEE REVERSE
SIDE
FOLD AND DETACH PROXY CARD HERE
LOGO
PHILIP MORRIS
PHILIP MORRIS
COMPANIES INC.
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]
<PAGE>
[X] Please mark your 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 VOTED FOR THE ELECTION OF DIRECTORS,
FOR THE SELECTION OF AUDITORS AND AGAINST EACH OF THE STOCKHOLDER PROPOSALS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
FOR WITHHELD
1. Election 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 [_] [_] [_]
The signer hereby revokes all proxies heretofore given by the signer 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.
