SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Philip Morris Companies Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
-------------------------------------------------------------------------
(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:
-------------------------------------------------------------------------
[ ] 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:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
<PAGE>
[LOGO]
PHILIP MORRIS
COMPANIES INC.
GEOFFREY C. BIBLE 120 PARK AVENUE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER NEW YORK, NY 10017
March 11, 1996
DEAR STOCKHOLDER:
You are cordially invited to attend the 1996 Annual Meeting of Stockholders of
Philip Morris Companies Inc. The meeting will be held at 9:00 a.m. on Thursday,
April 25, 1996, at the Philip Morris Manufacturing Center, 3601 Commerce Road,
Richmond, Virginia.
At the meeting, we will elect fourteen directors and act upon the selection of
auditors. If presented, we will also vote on four 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 Secretary at 120
Park Avenue, New York, New York 10017. IF YOU ARE A REGISTERED STOCKHOLDER AND
PLAN TO ATTEND THE MEETING, PLEASE DETACH AND RETAIN THE ADMISSION TICKET AND
MAP THAT IS ATTACHED TO THE PROXY CARD. IF YOUR SHARES ARE HELD IN THE NAME OF A
BROKER OR OTHER NOMINEE AND YOU DO NOT HAVE AN ADMISSION TICKET, PLEASE BRING
PROOF OF YOUR SHARE OWNERSHIP TO THE MEETING.
The vote of each stockholder is important. I urge you to sign, date and return
the enclosed proxy card as promptly as possible. In this way, you can be sure
your shares will be voted, and you will spare your Company the expense of a
follow-up mailing.
Sincerely,
/s/ Geoffrey C. Bible
-------------------------------------------------
FOR FURTHER INFORMATION ABOUT THE ANNUAL MEETING,
PLEASE CALL 1-800-367-5415
-------------------------------------------------
<PAGE>
PHILIP MORRIS COMPANIES INC.
120 Park Avenue
New York, New York 10017
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, APRIL 25, 1996
To the Stockholders of
PHILIP MORRIS COMPANIES INC.:
The annual meeting of stockholders of Philip Morris Companies Inc. will be held
on Thursday, April 25, 1996, at the Philip Morris Manufacturing Center, 3601
Commerce Road, Richmond, Virginia, at 9:00 a.m. to:
(1) Elect fourteen directors;
(2) Act upon the selection of auditors for the fiscal year ending December
31, 1996;
(3) Act upon four 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 5, 1996, will be entitled to vote at the meeting.
G. Penn Holsenbeck
Vice President and Secretary
March 11, 1996
<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 25, 1996, at 9:00 a.m., at the Philip
Morris Manufacturing Center, 3601 Commerce Road, Richmond, Virginia, and at any
and all adjournments thereof. Mailing of the proxy statement will commence on or
about March 11, 1996. Holders of record of Common Stock, $1 par value (the
"Common Stock"), at the close of business on March 5, 1996, will be entitled to
one vote for each share held on all matters to come before the meeting. On
February 26, 1996, there were outstanding 829,738,022 shares of Common Stock.
A proxy on the enclosed form may be revoked at any time before it has been
exercised. Unless the proxy is revoked or there is a direction to abstain on one
or more proposals, it will be voted on each proposal and, if a choice is made
with respect to any matter to be acted upon, in accordance with such choice. If
no choice is specified, the proxy will be voted as recommended by the Board. The
proxy will also serve to instruct the administrator of the Company's Dividend
Reinvestment and Voluntary Cash Payment Plan and the trustee of each defined
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
included 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
included in determining the number of votes cast.
Stockholders' proxies are received by the Company's independent proxy processing
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
provide aggregate figures rather than names of stockholders. The independent
inspectors will notify the Company if a stockholder has failed to vote so that
he or she may be reminded and requested to do so.
-------------------
As used herein, the term "Company" or "Philip Morris" includes Philip Morris
Companies Inc. from July 1, 1985, and Philip Morris Incorporated prior to July
1, 1985, and, where appropriate, their subsidiaries.
1
<PAGE>
ELECTION OF DIRECTORS
GENERAL INFORMATION
The Board has 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 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 holds 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
organizational meeting follows immediately after the annual meeting of
stockholders. The Board held eleven regular monthly meetings in 1995.
-------------------
COMMITTEES OF THE BOARD
Various committees of the Board have been established to assist it in the
discharge of its responsibilities. Those committees are described below. The
biographical information on the nominees for director set forth in this proxy
statement includes committee memberships currently held by each nominee.
The AUDIT COMMITTEE meets with management, the Company's independent accountants
and its internal auditors to consider the adequacy of the Company's internal
controls and other financial reporting matters. The Audit Committee recommends
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 management 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 1995.
The COMMITTEE ON PUBLIC AFFAIRS AND SOCIAL RESPONSIBILITY reviews and monitors
the Company's policies, practices and programs with respect to public issues of
importance to stockholders, the Company and the general public, to the extent
those matters are not the responsibility of other committees of the Board. This
committee consists of eleven directors and met four times in 1995.
The COMPENSATION COMMITTEE is responsible for administering the Company's
compensation programs and remuneration arrangements for its highest-paid
executives, including the chief executive officer, and for reviewing the
succession plan for the chief executive officer and other senior executives. The
Committee's Report on Executive Compensation appears elsewhere in this proxy
statement. The Compensation Committee consists of six non-employee directors and
met seven times in 1995.
The CORPORATE EMPLOYEE PLANS INVESTMENT COMMITTEE, consisting of six directors,
held ten meetings in 1995. This committee oversees the investment of certain
employee benefit plan assets.
The EXECUTIVE COMMITTEE, consisting of six directors, has authority to act for
the Board on most matters during intervals between Board meetings. This
committee did not meet in 1995.
The FINANCE COMMITTEE consists of eight directors and met four times in 1995. It
monitors the financial condition of the Company and advises the Board with
respect to financing needs, dividend policy, share repurchase programs and other
financial matters.
The NOMINATING AND CORPORATE GOVERNANCE COMMITTEE consists of seven non-employee
directors and met three times in 1995. This committee reviews the qualifications
of candidates for director suggested by Board members, management, stockholders
and other sources, considers
2
<PAGE>
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 concerning corporate governance
to the extent these matters are not the responsibility of other committees,
assesses the Board's performance and makes recommendations to the Board on the
retirement policies for non-employee directors, the functions and duties of the
committees of the Board, general Board practices and the Company's relations
with its stockholders.
-------------------
THE NOMINEES
It is proposed that fourteen directors be elected to hold office until the next
annual meeting of stockholders and until their successors have been elected. The
Nominating and Corporate Governance Committee has recommended to the Board and
the Board has approved the persons named below as management's nominees and,
unless otherwise marked, a proxy will be voted for such persons. Each of the
nominees currently serves as a director and was elected by the stockholders at
the 1995 Annual Meeting. It is anticipated that Hans G. Storr, who will attain
age 65 in October 1996, the mandatory retirement age for the Company's executive
officers, will retire from the Board before the 1997 Annual Meeting. All
nominees attended at least 75% of the aggregate number of meetings of the Board
and all committees of the Board on which they served during 1995, except Mr.
Murdoch.
Although management does not anticipate that any of the persons named below will
be unable or unwilling to stand for election, a proxy, in the event of such an
occurrence, may be voted for a substitute designated by the Board. However, in
lieu of designating a substitute, the Board may amend the By-Laws to reduce the
number of directors.
<TABLE>
<C> <S> <C>
ELIZABETH E. BAILEY Dr. Bailey assumed her present position in July
[Photo] John C. Hower Professor 1991, having served from July 1990 to June 1991 as a
of Public Policy & Man- professor of industrial administration at
agement, The Wharton Carnegie-Mellon University and as a visiting scholar
School of the University at the Yale School of Organization and Management.
of Pennsylvania, From 1983 to 1990, she was dean of the Graduate
Philadelphia, PA School of Industrial Administration of
Carnegie-Mellon University. Dr. Bailey serves as a
Director since 1989 director of the College Retirement Equities Fund,
CSX Corporation, Honeywell Inc. and National
Age: 57 Westminster Bancorp Inc., and as a trustee of the
Brookings Institution and the National Bureau of
Economic Research. She is a member of the Audit,
Executive, Nominating and Corporate Governance and
Public Affairs and Social Responsibility Committees.
__________________________________________________________________________________________________
GEOFFREY C. BIBLE Employed by the Company continuously since 1976, Mr.
[Photo] Chairman of the Board and Bible served Philip Morris International Inc. in
Chief Executive Officer various executive capacities from 1976 to 1990,
becoming its President and Chief Executive Officer
Director since 1994 in 1987. He served as President and Chief
Administrative Officer of Kraft Foods, Inc. ("Kraft
Age: 58 Foods"), from 1990 to 1991, Executive Vice
President, International of the Company from 1991 to
April 1993 and Executive Vice President, Worldwide
Tobacco, from April 1993 to June 1994, when he
became President and Chief Executive Officer. He
assumed his present position in February 1995. He is
a director of British Sky Broadcasting Group plc,
the New York Stock Exchange, Inc., Lincoln Center
for the Performing Arts, Inc., the International
Tennis Hall of Fame, the Health Care Chaplaincy and
a member of the Board of Trustees of Thunderbird
(American Graduate School of International
Management). Mr. Bible is chairman of the Executive
Committee and a member of the Finance and Public
Affairs and Social Responsibility Committees.
__________________________________________________________________________________________________
</TABLE>
3
<PAGE>
<TABLE>
<C> <S> <C>
MURRAY H. BRING First employed by the Company in 1988, Mr. Bring had
[Photo] Executive Vice President, been a partner in Arnold & Porter, Washington, DC,
External Affairs and Gen- since 1967. He became Associate General Counsel of
eral Counsel the Company in January 1988, Senior Vice President
and General Counsel in July 1988 and assumed his
Director since 1988 present position in December 1994. He is a director
of the Whitney Museum of American Art, the New York
Age: 61 University Law Center Foundation, The William J.
Brennan Center for Justice, The New York City Opera
and The Legal Aid Society. Mr. Bring is a member of
the Committee on Public Affairs and Social
Responsibility.
__________________________________________________________________________________________________
HAROLD BROWN Dr. Brown assumed his present position at the Center
[Photo] Counselor, Center for for Strategic and International Studies in July
Strategic and 1992. Previously and from 1984, he was chairman of
International Studies, the Foreign Policy Institute of the School of
Washington, DC; Partner, Advanced International Studies, The Johns Hopkins
Warburg Pincus & Co., New University. Dr. Brown has been a partner of Warburg
York, NY, venture capital Pincus & Co. since 1990. Dr. Brown is a director of
Alumax Inc., Cummins Engine Company, Inc., Evergreen
Director since 1983 Holdings, Inc., International Business Machines
Corporation and Mattel, Inc. Dr. Brown is chairman
Age: 68 of the Nominating and Corporate Governance Committee
and a member of the Compensation, Corporate Employee
Plans Investment, Finance and Public Affairs and
Social Responsibility Committees.
__________________________________________________________________________________________________
WILLIAM H. DONALDSON Mr. Donaldson assumed his present position with
[Photo] Co-founder and Senior Donaldson, Lufkin & Jenrette in October 1995. He has
Advisor, Donaldson, been chairman of Donaldson Enterprises, Inc., since
Lufkin & Jenrette, New June 1995. Previously and from 1991, he was chairman
York, NY, investment and chief executive officer of the New York Stock
banking firm; Chairman, Exchange, Inc., and from 1980 until 1991, he was
Donaldson chairman and chief executive officer of Donaldson
Enterprises, Inc., Enterprises Incorporated. He serves as a director of
New York, NY, private Aetna Life and Casualty Company, Honeywell Inc., the
investment firm Carnegie Endowment for World Peace, the Committee
for Economic Development, Lincoln Center for the
Director since 1979 Performing Arts, Inc., the New York City Partnership
and the Business Council of New York State, and as a
Age: 64 trustee of the Marine Corps Command & Staff College
Foundation. Mr. Donaldson is chairman of the
Corporate Employee Plans Investment Committee and a
member of the Audit, Executive, Finance and
Nominating and Corporate Governance Committees.
__________________________________________________________________________________________________
JANE EVANS Ms. Evans assumed her present position in June 1995,
[Photo] President and Chief having served as vice president and general manager,
Operating Officer, Home & Personal Services Division of U.S. West
SmartTV, Burbank, CA, Communications, Inc., from 1991 to 1995. From 1989
portable interactivity until 1991, she was president and chief executive
and electronic commerce officer of the InterPacific Retail Group. Ms. Evans
serves as a director of BancOne-Arizona Corp.,
Director since 1981 Edison Brothers Stores, Inc., Georgia-Pacific
Corporation, Kaufman and Broad Home Corporation and
Age: 51 the Ladies Professional Golf Association. She is
chair of the Public Affairs and Social
Responsibility Committee and a member of the
Corporate Employee Plans Investment and Nominating
and Corporate Governance Committees.
__________________________________________________________________________________________________
</TABLE>
4
<PAGE>
<TABLE>
<C> <S> <C>
ROBERT E.R. HUNTLEY Mr. Huntley retired as counsel to the law firm of
[Photo] Retired; formerly counsel Hunton & Williams in December 1995, a position he
to the law firm of Hunton had held since December 1988. Previously, Mr.
& Williams, Richmond, VA Huntley had served as chairman, president and chief
executive officer of Best Products Co., Inc.,
Director since 1976 professor of law at Washington and Lee School of Law
and president of Washington and Lee University. Mr.
Age: 66 Huntley serves as a director of Sprint Corporation.
He is chairman of the Audit Committee and a member
of the Compensation, Finance and Public Affairs and
Social Responsibility Committees.
__________________________________________________________________________________________________
RUPERT MURDOCH Mr. Murdoch became publisher of News Limited of
[Photo] Chairman and Chief Exec- Australia in 1954 and in 1959 assumed the position
utive of The News Corpo- of chief executive of the subsequently formed parent
ration Limited, New York, company, The News Corporation Limited, the interests
NY, publishing, motion of which include TV Guide and Fox Broadcasting
pictures and television Company in the United States and The Times and
Sunday Times in the United Kingdom. He is a director
Director since 1989 of MCI Communications Corporation and British Sky
Broadcasting Group plc. Mr. Murdoch is a member of
Age: 65 the Compensation, Executive and Public Affairs and
Social Responsibility Committees.
__________________________________________________________________________________________________
JOHN D. NICHOLS Mr. Nichols is retiring as chairman of Illinois Tool
[Photo] Chairman, Illinois Tool Works Inc. in May 1996, a position he has held since
Works Inc., Glenview, IL, 1986. He had been chief executive officer from 1982
engineered components and to September 1995. He serves as a director of
industrial systems and Household International Corporation, Rockwell Inter-
consumables national Corporation, Stone Container Corporation,
the Art Institute of Chicago, Junior Achievement of
Director since 1992 Chicago, the Lyric Opera of Chicago and the Museum
of Science and Industry, as a member of the Board of
Age: 65 Overseers for Harvard University and as a trustee of
the Chicago Symphony Orchestra. He is a member of
the Finance, Nominating and Corporate Governance and
Public Affairs and Social Responsibility Committees.
__________________________________________________________________________________________________
RICHARD D. PARSONS Mr. Parsons assumed his present position in February
[Photo] President, Time Warner 1995. Previously, he had been chief executive
Inc., New York, NY, media officer of Dime Bancorp, Inc. (formerly The Dime
and entertainment Savings Bank of New York, FSB), from July 1990,
having served as president and chief operating
Director since 1990 officer from July 1988. He became chairman in 1991.
From 1979 to July 1988, he had been a partner in the
Age: 47 law firm of Patterson, Belknap, Webb & Tyler. Mr.
Parsons also serves as a director of the Federal
National Mortgage Association, Time Warner Inc., the
Metropolitan Museum of Art, Lincoln Center for the
Performing Arts, Inc., and the Rockefeller Brothers
Fund, and as a trustee of Howard University. He is a
member of the Audit, Compensation, Executive,
Nominating and Corporate Governance and Public
Affairs and Social Responsibility Committees.
__________________________________________________________________________________________________
</TABLE>
5
<PAGE>
<TABLE>
<C> <S> <C>
ROGER S. PENSKE Mr. Penske has been president of Penske Corporation
[Photo] President, Penske Corpo- since 1969. He is also chairman and chief executive
ration, transportation officer of Detroit Diesel Corporation and Penske
service, and Chief Truck Leasing Corporation. Mr. Penske serves as a
Executive Officer, Penske director of General Electric Company and Gulfstream
Truck Leasing Corporation Aerospace Corporation, and as a trustee of the Henry
and Detroit Diesel Ford Museum and Greenfield Village. He is a member
Corporation, Detroit, MI of the Finance and Public Affairs and Social
Responsibility Committees.
Director since 1991
Age: 58
__________________________________________________________________________________________________
JOHN S. REED Mr. Reed assumed his present positions with Citicorp
[Photo] Chairman of Citicorp and and Citibank, N.A. in 1984. He also serves as a
Citibank, N.A., New York, director of Monsanto Company, as a member of the
NY Corporation, Massachusetts Institute of Technology,
and as a trustee of the Rand Corporation, the
Director since 1975 Spencer Foundation and Memorial Sloan-Kettering
Cancer Center. He is chairman of the Compensation
Age: 57 Committee and a member of the Audit, Corporate
Employee Plans Investment, Executive, Finance and
Nominating and Corporate Governance Committees.
__________________________________________________________________________________________________
HANS G. STORR First employed by the Company in 1955, Mr. Storr was
[Photo] Executive Vice President named its Chief Financial Officer in 1979. He was
and Chief Financial named Senior Vice President in 1987 and Executive
Officer and Chairman and Vice President in 1991. Since the formation of
Chief Executive Officer Philip Morris Capital Corporation in 1982, he has
of Philip Morris Capital served as its Chief Executive Officer. Mr. Storr is
Corporation a member of the American Institute of Certified
Public Accountants and a director and treasurer of
Director since 1983 the International Tennis Hall of Fame. He is
chairman of the Finance Committee and is a member of
Age: 64 the Corporate Employee Plans Investment Committee.
__________________________________________________________________________________________________
STEPHEN M. WOLF Mr. Wolf assumed his present position in January
[Photo] Chairman and Chief Exec- 1996. Previously and from August 1994, he was senior
utive Officer of USAir advisor in the investment banking firm of Lazard
Inc., Arlington, VA Freres & Co. Previously and from 1987, he was
chairman and chief executive officer of UAL Corpo-
Director since 1993 ration and United Air Lines, Inc. He serves as a
director of R.R. Donnelley & Sons Company and as a
Age: 54 trustee of Northwestern University and the
Rush-Presbyterian-St. Luke's Medical Center. He is a
member of the Audit, Compensation, Corporate
Employee Plans Investment and Public Affairs and
Social Responsibility Committees.
__________________________________________________________________________________________________
</TABLE>
6
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, Mr. Huntley (who is a member of the Compensation Committee) was
counsel to Hunton & Williams, which firm acts as counsel to the Company. In
1995, the Company paid Hunton & Williams fees of approximately $9,300,000. Mr.
Huntley retired as counsel to Hunton & Williams in December, 1995. Messrs.
Brown, Murdoch, Parsons, Reed and Wolf were the other members of the
Compensation Committee during 1995.
COMPENSATION OF DIRECTORS
Directors who are full-time employees of the Company receive no additional
compensation for services as a director. In 1995, non-employee directors
received 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 Responsibility
Committees and $500 ($1,000 for the chairman) for each other committee meeting
attended. The chairman of the Compensation Committee also receives $10,000, for
additional services rendered in connection with certain of the Company's
compensation plans.
Each director who is not employed by the Company, and was not so employed on
January 1, 1990, receives annually, on May 1, a share distribution equal to the
lesser of (i) 400 shares or (ii) that number of shares of Common Stock having an
aggregate fair market value equal to 100% of the cash retainer fee paid during
the preceding 12 months. On May 1, 1995, each eligible director received 379
shares of Common Stock.
A non-employee director may elect to defer meeting fees and all or part of the
retainer. Deferred amounts are "credited" to an unfunded account and may be
"invested" by a director in seven "investment choices," including a Common Stock
equivalent account. These "investment choices" parallel the investment options
offered to employees under the Philip Morris Deferred Profit-Sharing Plan and
determine the "earnings" that are credited for bookkeeping purposes to a
director's account. Subject to certain restrictions, a director is permitted to
take cash distributions, in whole or in part, from his or her account either
prior to or following termination of service.
Effective January 1, 1996, the Board terminated the Company's Pension Plan for
Non-Employee Directors. In liquidation of benefits that would have been payable
under the terminated plan, each current non-employee director received 3,150
Common Stock equivalent units ("stock units") and was allowed a one-time
election to have 50% of the stock units credited to unfunded deferred
compensation accounts that are deemed to be invested in fixed income and equity
index funds. When a director retires from the Board, the then value of the stock
units and the deferred compensation accounts will be paid in cash. Prior to
payment, the number of stock units will be increased to reflect assumed payment
and reinvestment of dividends that are paid on Common Stock.
Under the terminated Pension Plan, any non-employee director who retired at the
normal retirement date and had completed five years of service was entitled to a
lifetime post-retirement annual pension equal to the annual cash retainer for
directors at the time of retirement plus 25% of attendance fees for Board
meetings earned during the two years before retirement. A qualifying director
retiring before normal retirement date, but after age 60, who served for five
years, was entitled to payments for a post-retirement period equal to the term
of service.
The Company has entered into employment agreements with each of its
officer-directors as described below under "Executive Compensation--Employment
Contracts, Termination of Employment and Change of Control Arrangements."
7
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
TO OUR STOCKHOLDERS:
The Compensation Committee is responsible for administering total compensation
programs that are designed to:
. Support the Company's efforts to develop world class leaders;
. Match the Company's compensation plans to its business strategies, as well
as the external business environment;
. Emphasize the relationship between pay and performance by placing a
significant portion of compensation at risk and subject to the achievement
of financial goals and objectives;
. Maximize profitability through growth and efficiency, balancing
appropriately 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.
The following factors affected the actions of the Committee in 1995:
. The overall financial performance of the Company, as measured by five-year
total stockholder return, one-year earnings per share growth and one-year
return on equity, was evaluated in determining the Company's competitive
compensation objectives, the annual awards to certain executive officers
and Mr. Bible's compensation.
. The significant improvement in stockholder value during the year of 64.5%
versus 43.2% for the peer group of companies that are listed on page 12
(the "Peer Group") was a factor in evaluating Mr. Bible's compensation.
. The successful repositioning of the business units, including the
aggressive divestiture of non-strategic businesses, resulted in increased
market shares, streamlined operations and improved productivity. This
restructuring within the business units has been complemented by the
implementation of a new, long-term incentive plan award cycle that focuses
attention on business unit results.
. The continuing legal, legislative, and regulatory challenges facing the
United States tobacco industry led the Committee to continue to address
issues of employee retention and retirement security.
The Committee believes that the actions undertaken in 1995 with respect to the
Company's compensation program, as discussed below, met its objectives.
The Committee relates total compensation levels for the Company's executive
officers to the compensation paid to executives of the Peer Group. All elements
of compensation are valued when making comparisons to the Peer Group. In
addition, the Committee takes into account both the performance and size of the
Company relative to the performance and size of the companies in the Peer Group.
The Committee believes that compensation for executive officers should be linked
to performance, as evaluated for incentive plan purposes. Accordingly, total
compensation is targeted for the upper, or fourth, quartile of compensation 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, total compensation for the
executive officer group ranked in the upper, or fourth, quartile relative to the
compensation paid by the Peer Group. The Company's financial performance
relative to the Peer Group ranked in the third quartile for five-year total
stockholder return, in the fourth quartile for one-year return on equity and in
the third quartile for one-year earnings per share growth.
To achieve a further correlation between executive compensation and performance,
approximately 60% of the compensation awarded to the executive officer group in
1995 was at-risk incentive compensation directly related to the performance of
the Company and its business units. This includes annual cash bonuses and stock
and long-term incentive plan awards. By design, approximately one-half of
executive officers' at-risk compensation consists of equity-based compensation.
BASE SALARY. Base salary, which is designed to comprise approximately 30% of
total compensation, is based on a qualitative evaluation of a variety of
factors, including level of responsibility, time in position, prior experience
and individual performance, and a quantitative comparison to salaries paid
within the Peer Group. Based on these factors, the executive officers of the
Company, on average, received base salary merit increases of 5.2% in 1995.
ANNUAL INCENTIVES. Annual cash bonuses are provided to senior executives and
middle-management employees. Early in 1995, the Committee approved a formula
based on earnings per share to establish the maximum annual incentive awards for
those officers (the "covered officers") whose compensation may be subject to the
deductibility limits of Section 162(m) of the Internal Revenue Code ("IRC")
(including those named in the Summary Compensation Table).
The annual incentive payments for 1995 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 total stockholder return, cash flow, return
on equity, net earnings, and earnings per share as measured against the prior
year as well as against the strategic business plan. Comparisons to the Peer
Group and certain strategic measures, such as portfolio management, response to
the regulatory and litigation environment and management development, were also
considered. At the business unit level, volume, return on assets, cash flow and
operating income were measured against the prior year and the strategic business
plan.
In 1995, awards to the covered officers were based upon the Company's exceeding
the formula target and achieving 95% of the formula maximum and the Committee's
subjective assessment of each executive's individual contribution. For the other
participants, corporate performance exceeded the target level in 1995, and
bonuses were awarded accordingly. Performance varied across the individual
business units, and bonuses were awarded at, above or below 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 resumed its annual stock option grant cycle in
1995. The Committee periodically evaluates its stock option award
guidelines. In 1995, the Committee targeted its awards at the 65th
percentile of the Peer Group based on the following factors: the overall
financial performance of the Company relative to the Peer Group; the
desire to strengthen a focus on long-term incentives, particularly
stock-based compensation; and an evaluation of the Company's historical
stockholder return versus the economic value of the stock option program.
The size of actual stock option awards was adjusted upward or downward
based on a subjective evaluation of individual contribution and potential.
9
<PAGE>
. RESTRICTED STOCK. The Committee granted restricted stock, on a selective
basis, to 30 individuals, five of whom are executive officers. The
decision to grant restricted stock was made to recognize and reward
individuals with high potential and to address specific retention issues.
The amount of restricted stock awarded was based on a competitive analysis
generally targeted at the 65th percentile of the Peer Group.
In most instances, the restricted shares vest only after the participant's
continued employment with the Company for a five-year period following the
date of grant. The restricted shares granted to covered officers vest only
at retirement at age 65 unless the Committee determines that continuation
of the vesting period will no longer be necessary to assure deductibility.
. LONG-TERM PERFORMANCE AWARDS. A new three-year long-term performance cycle
began January 1, 1995. The purpose of the plan is twofold: to reward
financial and strategic achievements that contribute to the long-term
business success of the business units, resulting in increased value for
stockholders; and to strengthen senior executives' incentive to contribute
to the Company's long-term success by rewarding them for results within
their control.
Except for the covered officers, the amount of the awards earned will be
based on a qualitative evaluation of individual business unit performance
relative to the strategic plan and on an assessment of individual
performance. The performance factors vary by business unit and include
quantitative financial measures such as income from operations, cash flow,
volume and return on assets, and strategic measures such as market share,
portfolio management and management development. When appropriate,
comparisons may be made against select industry peers. No specific weights
are assigned to the factors considered; however, the individual
performance factor is limited to an adjustment of plus or minus 25%.
The awards for the covered officers are based on a formula tied to the
achievement of cumulative net income during the performance cycle once an
adjusted earnings per share hurdle has been exceeded.
. PREMIUM-PRICED STOCK OPTIONS. On January 30, 1996, the Committee awarded
premium-priced stock options to 51 senior executives. The purpose of the
award was to focus the senior management team on delivering superior
stockholder value. The options were granted at an exercise price of $120
per share, which was approximately 28% above the fair market value of the
Common Stock on the date of grant; therefore, the recipients will not be
able to realize value from the options until the price of the Common Stock
exceeds $120 per share. The size of the individual option awards was based
on the Committee's subjective assessment of individual potential and
contribution. The awards vest ratably over a five-year period and expire
seven years from the date of grant.
COMPENSATION OF THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER. Effective
July 1, 1995, Mr. Bible's salary was increased to $1,250,000. This determination
was based on a qualitative evaluation of competitive practice and Mr. Bible's
performance in increasing total stockholder value and guiding the Company during
a period of strategic repositioning. As a result of this increase, Mr. Bible's
base salary ranks in the top quartile of base salaries paid to chief executive
officers in the Peer Group.
In addition to base salary, Mr. Bible earned an annual incentive bonus for 1995
based on the Company's exceeding its earnings per share goal and the Committee's
assessment of his individual performance. Mr. Bible's bonus ranks in the third
quartile of bonuses paid to the chief executive officers of the Peer Group.
10
<PAGE>
At the same time as options were granted to other participants in the Incentive
Plan, the Committee granted to Mr. Bible a ten-year, nonqualified stock option
for 140,000 shares of Common Stock, with an exercise price equal to the fair
market value on the date of grant. The factors considered in determining the
size of Mr. Bible's award were the stock option guidelines established for all
participants and Mr. Bible's performance and contribution to the increase in
stockholder value.
Mr. Bible's long-term incentive compensation awards rank in the upper quartile
of awards made to chief executive officers of the Peer Group. The amount of his
total compensation also places him in the upper quartile relative to the Peer
Group.
POLICY WITH RESPECT TO QUALIFYING COMPENSATION FOR DEDUCTIBILITY AND OTHER
MATTERS. Section 162(m) of the IRC generally limits to $1,000,000 the annual tax
deductible compensation paid to a covered officer. 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
deductibility of compensation paid. Accordingly, the Company has taken, to the
extent it believes feasible, appropriate actions to preserve the deductibility
of annual incentive, long-term performance, restricted stock and stock option
awards. However, notwithstanding the Company's general policy, the Committee
retains the authority to authorize payments that may not be deductible if it
believes that is in the best interests of the Company and its stockholders.
Certain other elements of annual compensation, such as perquisites, dividends
paid in cash on restricted stock, tax reimbursements and income resulting from
payments made pursuant to plans that do not discriminate in favor of executive
officers, may also cause a covered officer's income to exceed deductible limits.
In 1995, the Committee determined, after an analysis of competitive practice and
a thorough review of alternatives, it was appropriate to pay Mr. Bible a base
salary in excess of $1,000,000. This action will cause a portion of his
compensation to exceed the $1,000,000 deductibility limit.
From time to time, the Committee also reviews the funding of retirement benefits
for the Company's executive officers. As the federal tax laws have placed
increasingly restrictive limits on benefits payable from funded tax-qualified
plans, the portion of retirement benefits payable to executive officers from
unfunded nonqualified plans had grown by year end 1994 to represent as much as
80% of the total retirement benefits promised certain executives. During 1995,
the Committee determined that it was appropriate to reduce this unfunded portion
by providing funding for individual trusts for covered officers and certain
other individuals, thus increasing funding levels for these individuals to
levels somewhat more comparable to those of Company executives generally. These
retirement benefits constitute a relatively small portion of total compensation,
compared with the covered officers' equity interests in the Company in the form
of stock, restricted stock and options. The amounts held in these individual
trusts will offset amounts that would otherwise be payable by the Company, and
are not intended to increase the total amount of benefits payable to these
executives. These actions will cause a portion of some covered officers'
compensation to exceed the $1,000,000 deductibility limit.
COMPENSATION COMMITTEE
John S. Reed, Chairman
Harold Brown
Robert E.R. Huntley
Rupert Murdoch
Richard D. Parsons
Stephen M. Wolf
11
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN(1)
[GRAPH]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
PHILIP MORRIS $100.00 $159.29 $157.76 $119.51 $130.45 $214.53
PEER GROUP(2) 100.00 129.24 125.32 130.99 142.84 204.48
S&P 500 100.00 130.34 140.25 154.32 156.42 214.99
S&P FOOD/BEV/TOBACCO(3) 100.00 140.32 140.77 133.46 146.58 186.40
</TABLE>
Assumes $100 invested on December 31, 1990, in Philip Morris Common Stock, Peer
Group, S&P 500 Index and S&P 500 Foods, S&P 500 Beverages (Alcoholic) and S&P
500 Tobacco Indices.
- ---------
(1) Total return assumes reinvestment of dividends on a quarterly basis.
(2) The Peer Group consists of the following companies, selected on the basis of
size, complexity and return to stockholders: American Brands, Inc., American
Home Products Corporation, Amoco Corporation, Anheuser-Busch Companies, Inc.,
ARCO, The Boeing Company, Bristol-Myers Squibb Company, Chevron Corporation, The
Coca-Cola Company, ConAgra, Inc., CPC International, Inc., E.I. du Pont de
Nemours and Company, Exxon Corporation, General Electric Company, General Mills,
Inc., H.J. Heinz Company, International Business Machines Corporation, Johnson &
Johnson, Merck & Company, Inc., Mobil Corporation, PepsiCo, Inc., Pfizer, Inc.,
The Procter & Gamble Company, RJR Nabisco, Inc., Sara Lee Corporation and
Texaco, Inc.
(3) No standardized industry index is considered a comparable peer group. The
following companies constitute the S&P 500 Beverages (Alcoholic), S&P 500 Foods
and S&P 500 Tobacco Indices: Adolph Coors Company, American Brands, Inc.,
Anheuser-Busch Companies, Inc., Archer-Daniels-Midland Company, Brown-Forman
Corporation, Campbell Soup Company, ConAgra, Inc., CPC International, Inc.,
General Mills, Inc., H.J. Heinz Company, Hershey Foods Corporation, Kellogg
Company, The Quaker Oats Company, Ralston Purina Company, Sara Lee Corporation,
The Seagram Company Ltd., Unilever N.V., UST Inc., and Wm. Wrigley Jr. Company.
Although the Company is a component of the S&P 500 Tobacco 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 RESTRICTED SECURITIES OTHER
NAME AND PRINCIPAL COMPEN- STOCK UNDERLYING COMPEN-
POSITION YEAR SALARY BONUS SATION VALUE(1) OPTIONS LTIP SATION(2)
- ---------------------- ---- --------- --------- -------- ---------- ---------- --------- -------
$ $ $ $ SHS. $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Geoffrey C. Bible..... 1995 1,125,000 1,350,000 21,929 -0- 140,000 -0- 157,657
Chairman of the Board 1994 875,000 1,000,000 29,472 3,900,000 500,000 1,660,000 113,909
and Chief Executive 1993 725,000 580,000 18,402 -0- 91,720 -0- 108,750
Officer
James M. Kilts........ 1995 725,000 615,000 129,120(3) 1,639,000 65,000 -0- 101,601
Executive Vice 1994 603,077 575,000 3,057 1,248,000 -0- 1,139,939 34,630
President, 1993 538,846 409,500 -0- -0- 42,500 -0- 27,466
Worldwide Food
Murray H. Bring....... 1995 650,000 650,000 1,380 -0- 60,000 -0- 91,090
Executive Vice 1994 535,962 600,000 1,601 2,600,000 0 707,785 69,772
President, External 1993 492,500 141,000 -0- -0- 39,030 -0- 73,875
Affairs and General
Counsel
Hans G. Storr......... 1995 640,500 615,000 1,510 -0- 45,000 -0- 89,759
Executive Vice 1994 600,000 600,000 7,893 1,300,000 0 773,200 78,109
President and Chief 1993 565,000 168,000 -0- -0- 44,620 -0- 84,750
Financial Officer
William H. Webb....... 1995 575,000 600,000 -0- 1,490,000 60,000 -0- 80,903
President and Chief 1994 504,807 500,000 -0- 1,144,000 0 993,890 65,416
Executive Officer, 1993 429,416 335,000 -0- -0- 40,760 -0- 64,413
Philip Morris
International Inc.
</TABLE>
- ---------
(1) Dollar values of awards are based on the closing price of Common Stock on
the date of grant. The restricted stock awards reflected in the table, together
with shares resulting from the reinvestment of dividends thereon, will vest in
the year of retirement at age 65 unless otherwise determined by the Compensation
Committee. Dividends on the restricted stock awards, otherwise payable in cash
to the covered officers, are paid in additional shares of restricted stock. At
December 31, 1995, each of the named executive officers held shares of
restricted stock, with a value at such date as follows: G.C. Bible, 87,142
shares, $7,864,566; J.M. Kilts, 56,005 shares, $5,054,451; M.H. Bring, 58,710
shares, $5,298,578; H.G. Storr, 38,114 shares, $3,439,789; W.H. Webb, 43,502
shares, $3,926,056.
(2) The amounts in this column consist of allocations to defined contribution
plans.
The Company provides funding for individual trusts for the covered officers
and certain other employees with vested accrued benefits under nonqualified
supplemental retirement plans. During 1995, the following amounts, less
applicable tax withholding, were deposited in individual trusts for the named
executive officers to provide funding for allocations to Philip Morris and Kraft
Foods supplemental defined contribution plans for prior years (previously
reported as All Other Compensation), and for earnings credited through the end
of 1995 on such allocations: Mr. Bible, $534,220; Mr. Kilts, $404,702;
Mr. Bring, $253,785; Mr. Storr, $483,379; Mr. Webb, $124,286. The funding of
these amounts is not intended to increase total promised benefits.
(3) This amount includes $60,482 for termination of an executive club membership
program and related taxes of $55,317.
13
<PAGE>
1995 OPTION GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SHARES GRANT
UNDERLYING PERCENT OF TOTAL DATE
OPTIONS OPTIONS GRANTED EXERCISE EXPIRATION PRESENT
NAME GRANTED TO EMPLOYEES PRICE DATE(1) VALUE(2)
- ------------------------------ ---------- ---------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Geoffrey C. Bible............. 140,000 1.76% $74.8125 6/24/05 $2,143,400
James M. Kilts................ 65,000 .82 74.8125 6/24/05 995,150
Murray H. Bring............... 60,000 .76 74.8125 6/24/05 918,600
Hans G. Storr................. 45,000 .57 74.8125 6/24/05 688,950
William H. Webb............... 60,000 .76 74.8125 6/24/05 918,600
</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
Committee has the discretion to accelerate vesting.
(2) In accordance with the Securities and Exchange Commission rules, grant date
present value is determined using the Black-Scholes Model. The Black-Scholes
Model is a complicated mathematical formula widely used to value exchange-traded
options. However, stock options granted by the Company 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 dividend 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, a factor of 19.91% was assigned to the volatility of the
Common Stock, the yield on the Common Stock was set at 4.41% and the risk-free
rate of return was fixed at 6.17%. Volatility was based on the daily stock
market quotations for the one year preceding the grant date, yield was based on
an annual dividend rate of $3.30 per share, 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(159), and the actual
option term of ten years was used. Consequently, the grant date present values
set forth in the table are only theoretical values and may not accurately
determine present value. The actual value, if any, an optionee will realize will
depend on the excess of market value of the Common Stock over the exercise price
on the date the option is exercised.
1995 OPTION EXERCISES AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF TOTAL NUMBER OF TOTAL VALUE OF UNEXERCISED
SHARES SHARES UNDERLYING IN-THE-MONEY OPTIONS HELD
ACQUIRED ON VALUE UNEXERCISED OPTIONS AT
NAME EXERCISE REALIZED HELD AT DECEMBER 31, 1995 DECEMBER 31, 1995 (1)
- ------------------ ----------- ---------- ----------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Geoffrey C. Bible. -0- $ -0- 810,720 140,000 $23,734,305 $2,161,250
James M. Kilts.... -0- -0- 149,980 65,000 5,407,977 1,003,438
Murray H. Bring... 30,000 1,181,719 107,640 60,000 3,575,802 926,250
Hans G. Storr..... -0- -0- 131,940 45,000 4,342,806 694,688
William H. Webb... 33,300 1,484,750 66,390 60,000 2,241,542 926,250
</TABLE>
---------
(1) Based on the closing price of the Common Stock of $90.25 on December 29,
1995.
14
<PAGE>
LONG-TERM INCENTIVE PLAN--AWARDS IN 1995
<TABLE>
<CAPTION>
PERFORMANCE
PERIOD
NUMBER OF UNTIL
NAME UNITS(1) MATURATION ESTIMATED FUTURE PAYOUTS(2)(3)
- -------------------------------- --------- ----------- -------------------------------------
THRESHOLD TARGET MAXIMUM
--------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Geoffrey C. Bible............... -0- 3 yrs. $-0- $3,712,500 $6,682,500
James M. Kilts.................. -0- 3 yrs. -0- 2,010,000 3,618,000
Murray H. Bring................. -0- 3 yrs. -0- 1,950,000 3,510,000
Hans G. Storr................... -0- 3 yrs. -0- 1,506,600 2,711,880
William H. Webb................. -0- 3 yrs. -0- 1,762,500 3,172,500
</TABLE>
- ---------
(1) Participants are not awarded a number of units. Rather, awards are expressed
as a percentage of aggregate salary and annual bonus earned by the participants
during the three-year performance cycle commencing January 1, 1995, and ending
December 31, 1997.
(2) Estimated future payouts ("earned awards") are predicated upon the
achievement of 1995-1997 cumulative net income once an adjusted cumulative
earnings per share hurdle has been exceeded. Actual payments to covered officers
will be made from a performance pool, on a pre-set percentage distribution
basis. The Chairman and Chief Executive Officer will be eligible to receive up
to 33.3% of the pool and each of the remaining covered officers will be eligible
to receive up to 16.67% of the pool. Because future payments are based on
three-year total cash compensation, the amount of the target award is not
presently determinable. However, an estimate is provided based on the assumption
that the amount of salary and annual bonus earned in 1995 is earned in each year
of the three-year performance cycle. The target award opportunities expressed as
a percentage of total cash compensation range from 40% to 50%, based on the
executive's position in the Company.
(3) A participant's earned award can range from 0% to 180% of the target award
opportunity.
PENSION PLAN TABLE--PHILIP MORRIS RETIREMENT PLAN
<TABLE>
<CAPTION>
FIVE-YEAR
AVERAGE YEARS OF SERVICE (1)
ANNUAL ----------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- ------------ --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 $130,009 $173,345 $ 216,682 $ 260,018 $ 303,355 $ 346,691
750,000 195,634 260,845 326,057 391,268 456,480 521,691
1,000,000 261,259 348,345 435,432 522,518 609,605 696,691
1,250,000 326,884 435,845 544,807 653,768 762,730 871,691
1,500,000 392,509 523,345 654,182 785,018 915,855 1,046,691
1,750,000 458,134 610,845 763,557 916,268 1,068,980 1,221,691
2,000,000 523,759 698,345 872,932 1,047,518 1,222,105 1,396,691
2,500,000 655,009 873,345 1,091,682 1,310,018 1,528,355 1,746,691
</TABLE>
- ---------
(1) At February 1, 1996, Messrs. Bible, Kilts, Bring, Storr and Webb had
accredited service of 12, 1, 17, 41 and 30 years, respectively.
Messrs. Bible, Kilts, Bring, Storr and Webb participate in the tax-qualified
Philip Morris Salaried Employees Retirement Plan and one or more supplemental
nonqualified pension plans (collectively, the "Retirement Plan"). The Retirement
Plan is a non-contributory plan maintained for the benefit of certain employees
of the Company. The Retirement Plan provides for fixed retirement benefits in
relation to the participant's years of accredited service, five-year average
annual compensation (the highest average annual compensation during any period
of five consecutive years out of ten years preceding retirement) and applicable
Social Security covered compensation amount.
15
<PAGE>
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, 1995, five-year average
annual compensation for Mr. Bible was $1,388,242; Mr. Kilts, $891,835; Mr.
Bring, $857,892; Mr. Storr, $982,700 and Mr. Webb, $719,642. However, a
participant with more than 35 years of accredited service is limited to the
greater of a full retirement allowance based upon 35 years of service and
five-year average annual compensation, including annual bonus awards, or a full
retirement allowance based on all service and five-year average annual
compensation, excluding such awards.
Examples of annual retirement allowances payable under the Retirement Plan are
set forth in the above table. The examples, which assume retirement at the
normal retirement age of 65, are based upon the Social Security covered
compensation amount in effect for an employee attaining age 65 in calendar year
1995. Mr. Bible is also eligible to receive a retirement benefit under the
retirement plan of a Swiss subsidiary of the Company and under a domestic
nonqualified supplemental plan coordinated with the Swiss plan. At his current
annual salary, upon retirement at age 65, he would receive, in addition to the
retirement allowances payable to him under the Retirement Plan and the Kraft
Foods Retirement Plan (see below), an annual benefit of SFr. 498,231
(approximately $410,574 on February 1, 1996). The Company provides funding for
individual trusts for the covered officers and certain other employees with
vested accrued benefits under nonqualified supplemental retirement plans. During
1995, the amounts set forth below, less applicable tax withholdings, were
deposited in individual trusts for the following executive officers, with
respect to benefits previously accrued under Philip Morris supplemental pension
plans (including benefits determined by reference to the terms of the Swiss
subsidiary retirement plan): Mr. Bible, $4,285,210; Mr. Bring, $1,165,082; Mr.
Storr, $3,046,000; Mr. Webb $1,225,785. These amounts offset benefits previously
accrued and do not increase total promised benefits.
PENSION PLAN TABLE--KRAFT FOODS RETIREMENT PLAN
<TABLE>
<CAPTION>
FIVE-YEAR
AVERAGE YEARS OF SERVICE (1)
ANNUAL -------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------ --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 500,000 $ 124,074 $ 165,432 $ 206,790 $ 248,148 $ 260,648
750,000 186,887 249,182 311,478 373,773 392,523
1,000,000 249,699 332,932 416,165 499,398 524,398
1,250,000 312,512 416,682 520,853 625,023 656,273
1,500,000 375,324 500,432 625,540 750,648 788,148
1,750,000 438,137 584,182 730,228 876,273 920,023
2,000,000 500,949 667,932 834,915 1,001,898 1,051,898
2,500,000 626,574 835,432 1,044,290 1,253,148 1,315,648
</TABLE>
- ---------
(1) At February 1, 1996, Messrs. Bible and Kilts had accredited service of 1 and
9 years, respectively.
Messrs. Bible and Kilts will be eligible for benefits under, or participate in,
the tax-qualified Kraft Foods Retirement Plan and a supplemental nonqualified
Kraft Foods pension plan (collectively, the "Kraft Foods Retirement Plan"). The
Kraft Foods Retirement Plan provides for fixed retirement benefits in relation
to the participant's years of service, five-year average annual compensation
(the highest average annual compensation during any period of five consecutive
years out of the ten years preceding retirement) and applicable Social Security
covered compensation amount. Compensation includes the amount shown as annual
salary and bonus in the Summary Compensation Table. At December 31, 1995,
five-year average annual compensation for Mr. Bible was
16
<PAGE>
$1,388,242 and for Mr. Kilts was $891,835. The fixed retirement benefit is also
dependent upon the periods of service prior to January 1, 1989, in which the
participant elected to make contributions.
Examples of annual pension benefits payable under the Kraft Foods Retirement
Plan are set forth in the above table. The examples, which assume retirement at
age 62 or later, are based on the Social Security covered compensation amount in
effect 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
contributions to a significant degree, depending upon retirement date and years
of service. The Company provides funding for individual trusts for the named
executive officers and certain other employees with vested accrued benefits
under nonqualified supplemental retirement plans. During 1995, the following
amounts, less applicable tax withholdings, were deposited in individual trusts
for named executive officers, with respect to benefits previously accrued under
Kraft Foods supplemental pension plans: Mr. Bible, $120,387; Mr. Kilts,
$131,333. These amounts offset benefits previously accrued and do not increase
total promised benefits.
Reference is made to the material appearing under the caption "Pension Plan
Table--Philip Morris Retirement Plan" for additional information with respect to
Messrs. Bible and Kilts.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Company has entered into change of control employment agreements with each
of its officer-directors and each of its other executive officers, including
those named in the Summary Compensation Table. The agreements provide that, if
the executive is terminated other than for cause within three years after a
change of control of the Company or if the executive terminates his or her
employment for good reason within such three-year period or voluntarily during
the 30-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 continuation of employee
welfare benefits. An additional payment is required to compensate the executive
for excise taxes imposed upon payments under the agreement.
Prior to the acquisition of Kraft, Inc. ("Kraft") by the Company, Mr. Kilts, as
well as certain other executives of Kraft, had entered into employment
agreements with Kraft which, among other things, provided for a lump-sum cash
payment upon termination of employment other than for cause. Following the
acquisition 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 specific number of units with values equal to shares of Common Stock.
The account is credited with any increase in the market value of the number of
units credited to the account together with the market value of shares of Common
Stock resulting from the reinvestment of dividends. In the event of termination
of employment, Mr. Kilts will be entitled to the deferred incentive payment and
the continuation of medical, dental and life insurance benefits. In the event of
involuntary termination of employment without cause, he will be entitled to a
lump-sum cash payment 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 February 1, 1996, this account had a value of
$5,388,485.
17
<PAGE>
Mr. Bring has entered into an employment agreement with the Company that
provides, among other things, for a minimum base salary and participation in
benefit plans, including an enhanced retirement benefit.
OWNERSHIP OF EQUITY SECURITIES
The following table sets forth information regarding beneficial ownership of
Common Stock as of February 1, 1996, by each director, each executive officer
named in the Summary Compensation Table and of the directors and executive
officers of the Company as a group. The beneficial ownership of each director
and executive officer and of the group is less than 1% of outstanding shares.
<TABLE>
<CAPTION>
SOLE VOTING
AND INVESTMENT
NAME POWER(1) OTHER(2) TOTAL
- ---- -------------- -------- ---------
<S> <C> <C> <C>
Elizabeth E. Bailey................ 5,144 5,144
Geoffrey C. Bible.................. 810,869 158,468 969,337
Murray H. Bring.................... 107,640 58,710 166,350
Harold Brown....................... 3,114 1,200 4,314
William H. Donaldson............... 11,514 11,514
Jane Evans......................... 4,004 4,004
Robert E.R. Huntley................ 8,214 1,200 9,414
James M. Kilts..................... 160,136 56,005 216,141
Rupert Murdoch..................... 2,414 100 2,514
John D. Nichols.................... 3,879 800 4,679
Richard D. Parsons................. 5,614 5,614
Roger S. Penske.................... 2,814 2,814
John S. Reed....................... 14,728 14,728
Hans G. Storr...................... 389,560 46,114 435,674
William H. Webb.................... 74,061 43,502 117,563
Stephen M. Wolf.................... 1,779 1,779
Group.............................. 2,259,028 372,964 2,631,992
</TABLE>
- ---------
(1) Includes maximum number of shares subject to purchase before April 1, 1996,
upon the exercise of stock options as follows: G.C. Bible, 810,720; M.H.
Bring, 107,640; J.M. Kilts, 149,980; H.G. Storr, 131,940; W.H. Webb, 66,390;
and group, 1,666,575.
(2) Includes shares held in certain fiduciary capacities (including such
holdings by a spouse), unrestricted and restricted shares owned by spouses,
minor children and other relatives sharing the home of the director or
executive officer and shares subject to purchase before April 1, 1996, upon
exercise of stock options by such persons. Beneficial ownership of these
shares is disclaimed. Also includes shares held jointly with spouses and
shares of restricted stock held by executive officers.
18
<PAGE>
The following table sets forth information regarding persons or groups known to
the Company to be beneficial owners of more than 5% of the Company's outstanding
Common Stock.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF COMMON STOCK
SHARES OUTSTANDING ON
NAME AND ADDRESS OF BENEFICIALLY FEBRUARY 26,
BENEFICIAL OWNER OWNED 1996
------------------------- ------------- --------------
<S> <C> <C>
FMR Corp.......................... 50,725,729(1) 6.1%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------
(1) According to Schedule 13G, dated February 14, 1996, filed with the
Securities and Exchange Commission jointly by FMR Corp., Edward C. Johnson
3d, Abigail P. Johnson and Fidelity Management & Research Company
("Fidelity"), Mr. Johnson is chairman and Ms. Johnson is a director of FMR
Corp. and may be deemed to be members of a controlling group with respect to
FMR Corp. The Schedule 13G indicates that at December 31, 1995, (i)
Fidelity, a wholly-owned subsidiary of FMR Corp., was the beneficial owner
of 44,477,741 shares of Common Stock in its capacity as investment adviser
to various registered investment companies (the "Fidelity Funds") (the power
to vote such shares resides solely with the boards of trustees of the
Fidelity Funds, while the power to dispose of such shares resides with Mr.
Johnson, FMR Corp., Fidelity and the Fidelity Funds); (ii) Fidelity
Management Trust Company, a bank that is wholly-owned by FMR Corp., was the
beneficial owner of 5,892,675 shares of Common Stock; (iii) Mr. Johnson was
the beneficial owner, either directly or through trusts, of 33,250 shares of
Common Stock; and (iv) Fidelity International Limited, an investment adviser
of which Mr. Johnson is chairman but which is managed independently from FMR
Corp., was the beneficial owner of 322,063 shares of Common Stock. FMR Corp.
and Fidelity International Limited each disclaim beneficial ownership of
Common Stock beneficially owned by the other.
SELECTION OF AUDITORS
The Audit Committee has recommended to the Board that Coopers & Lybrand L.L.P.,
which firm has been the independent accountants of the Company since 1933, be
continued as auditors for the Company. The stockholders are being asked to
approve the Board's decision to retain Coopers & Lybrand L.L.P. for the fiscal
year ending December 31, 1996. A representative of Coopers & Lybrand L.L.P. will
be present at the meeting. The representative will be given an opportunity to
make a statement if he or she desires to do so and will be available to answer
questions.
THE BOARD RECOMMENDS A VOTE FOR.
STOCKHOLDER PROPOSALS
Management and the Board take stockholder proposals very seriously. The Company
received this year, as it had last year, a proposal from the International Union
of Operating Engineers requesting that the Board refrain from providing
retirement benefits to non-employee directors. As discussed on page 7, effective
January 1, 1996, the Board terminated the Company's Pension Plan for Non-
Employee Directors and, in liquidation of the benefits that would have been
payable thereunder, each non-employee director received Common Stock equivalent
units. In taking this action, the Board considered the stockholder proposal and
the concerns raised by stockholders with respect to such plans.
19
<PAGE>
Various stockholders have submitted the four proposals set forth below. The four
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--FINANCIAL, SOCIAL AND ENVIRONMENTAL COMPENSATION REVIEW
The Sinsinawa Dominicans, 2128 South Central Park Avenue, Chicago, Illinois
60623, claiming beneficial ownership of 25 shares of Common Stock, together with
three co-proponents, have submitted the proposal set forth below. The names,
addresses and shareholdings of the co-proponents will be furnished upon request
made to the Secretary of the Company.
"WHEREAS:
We believe that financial, social and environmental criteria should all be taken
into account in fixing compensation packages for corporate officers. Public
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.
--When top officers' compensation packages are compared to those of the
lowest 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
tobacco and dairy farmers who supply our Company were making minimum wage or
less.
--Our Company has promised shareholders cost saving measures. Reducing
compensation to our executives may be a more effective strategy than reducing
suppliers 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
People."
--The relationship between compensation and the social and environmental
impact 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 &
Gamble, Bristol-Myers Squibb And Westinghouse have reported to shareholders 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 results
of the Review and any recommended changes in practice. The report shall cover
pay, benefits, perks, stock options and any special arrangements in the
compensation packages for all our Company's top officers.
20
<PAGE>
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
environmental standards);
3. Ways to link financial viability of the company to long-term environmental
and social sustainability eg., linkages that avoid short-range thinking and
instead promote long-term planning);
4. A description of social and environmental criteria taken into account (eg.;
environmental performance, lawsuits, settlements, penalties, violations,
investigations, employee relations, financial stability of our suppliers,
especially dairy farmers, as well as the communities where we are located)."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
Management believes, and your Board concurs, that your Company's compensation
policies and practices are already consistent with the intent of this
resolution, and that the Compensation Committee Report on Executive
Compensation, which appears on pages 8 to 11 of this proxy statement, provides
the essential information that proponents are requesting. Indeed, the Company
believes that the current Report provides information that is more comprehensive
and more specific, in many respects, than that requested by proponents.
As in past years, this year's Report clearly demonstrates that senior executive
compensation is linked very closely to Company performance. As stated in the
Report, approximately 60% of the compensation awarded to executive officers in
1995 was "at risk" incentive compensation directly related to the Company's
performance.
This link between pay and performance encompasses social and environmental
factors. Your Company has long had policies that underscore our commitment to
help address the needs of society and return something of value to the many
communities in which we operate. For example, we have a nationally recognized
charitable contributions program that focuses on education, the arts and hunger
and nutrition. In addition, we provide grants to support conservation and
environmental organizations, to increase understanding of diversity and to
assist in AIDS care, education and research. We have also adopted a
comprehensive set of environmental principles that affirm our commitment to
reduce the environmental impact of our activities, while continuing to provide
quality products that meet the needs of customers. Copies of the Company's
environmental principles and guidelines for charitable contributions are
available to stockholders upon request. In addition, in furtherance of these
policies, the Board has established a Public Affairs and Social Responsibility
Committee, an Affirmative Action and Diversity Committee and a Corporate
Contributions Policy Committee, consisting of members of the Board and senior
management.
Your Board believes that compliance with these policies will improve the
long-term performance of the Company and that it is senior management's
responsibility to see that these policies are carried out. Failure of management
to do so will result in poorer Company performance and, as a result, in reduced
compensation for executives.
This proposal was presented to stockholders at the 1995 Annual Meeting and was
overwhelmingly defeated. Your Board continues to believe that this proposal is
unnecessary and duplicative of existing policies and practices.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
21
<PAGE>
PROPOSAL 2--ENVIRONMENTAL TOBACCO SMOKE
The Congregation of the Sisters of Charity of the Incarnate Word, P.O. Box
230969, 6510 Lawndale, Houston, Texas 77223-0969, claiming beneficial ownership
of 10,000 shares of Common Stock, has submitted the proposal set forth below.
"WHEREAS--the "Environmental Protection Agency . . . concluded 'passive' 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
public 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, using
just one article. It questioned some methodology, while overlooking many other
studies reaching basically the same conclusion about health-hazards connected to
ETS. However, in October, 1994, it was revealed the critique's authors (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
overturning 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).
--USAToday editorialized: "Small wonder that the tobacco industry is
resorting to ever more desperate measures." It continued: "The industry has a
lonely battle to fight. It may be the sole entity harmed by smoking
restriction. . . . With so much going for them, smoking bans are a valuable tool
for those yearning to breathe free" (6/24/1993).
--The Los Angeles Times, editorialized (6/25/1993): "The tobacco industry
increasingly recognizes the EPA's findings could do what decades of public
service announcements about smoking failed to do--dramatically change laws
governing smoking. As such, nervous cigarette makers feel themselves backed into
a corner.
Not surprisingly, then, they are lashing out. In a federal suit filed
Tuesday, a coalition of tobacco groups wants the EPA report declared null and
void. The EPA was biased in its use 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 diseases is quite clear."
- --No labels warn about ETS. Our Company has not paid any plaintiffs by arguing
that warnings free it from responsibility. Efforts to undermine notification of
ETS hazards might result in huge awards for lost ETS lawsuits;
RESOLVED that shareholders request Philip Morris to cease expenditures of funds
challenging legitimate studies consistently showing the health hazards of
environmental tobacco smoke (ETS)."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
22
<PAGE>
The Company believes that the lawsuit challenging the EPA's risk assessment and
classification of ETS as a Group A carcinogen has substantial merit. The
Company's domestic tobacco subsidiary, Philip Morris Incorporated, is
participating in the lawsuit because it believes the EPA misused scientific
data, exceeded its authority, and failed to follow its own guidelines, in order
to promote an anti-smoking policy. By using language from certain editorials
that express a point of view rather than discuss the facts or merits of the
lawsuit, the proponents create the erroneous impression that the EPA's findings
are universally supported by all groups other than the tobacco industry. This is
certainly not the case. Indeed, the Congressional Research Service, a division
of the Library of Congress that serves as an independent research arm of
Congress, recently released a report that calls into question the validity of
the EPA's risk assessment as well as the proposal by the Occupational Safety and
Health Administration to impose severe restrictions on smoking in the workplace.
Proponents warn of "huge awards for lost ETS lawsuits." Yet, the Company has
never paid money damages to plaintiffs in smoking and health cases. The
proponents 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. In light of such studies as
the recent Congressional Research Service report, the Company continues to
believe that the scientific evidence does not support the EPA's position with
respect to ETS.
This proposal was presented to stockholders at the 1994 and 1995 Annual Meetings
and was defeated overwhelmingly each time. Your Company continues to believe
that it must be able to challenge any studies which it believes are faulty and
any regulations based on such studies which would improperly and unfairly
attempt to affect the use of tobacco products.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
PROPOSAL 3--SPIN OFF NON-TOBACCO BUSINESS FROM REST OF CORPORATION
The Congregation of Divine Providence, Inc., P.O. Box 197, 18811 Scenic Loop,
Helotes, Texas 78023, claiming beneficial ownership of 2,200 shares of Common
Stock, has submitted the proposal set forth below.
"WHEREAS, some institutional investors have been uneasy about Philip Morris's
potential legal liability for the health problems of smokers, and think that
such problems have depressed the share price of tobacco companies' stock (The
New York Times 9/22/94);
- --Increased litigation coming from states and private insurers indicate new and
ominous challenges that might undermine the value of the stock. The stock value
might be increased if the tobacco division(s) would be separated from the other
divisions. For instance, when Kimberly-Clark (who supplied our paper for
cigarettes and who was also named in litigation for its cigarette involvement)
announced it would spin-off its tobacco-related entities, its stock rose almost
5% the next day.
- --Despite this positive sign on the street regarding Kimberly-Clark's decision
to spin-off its tobacco entities, and the parallel positive signs related to RJR
Nabisco's movement toward spin-off, Philip Morris decided in May, 1994 "not to
separate the Company's food and tobacco businesses and, further, that this issue
would not be placed before the Board again for the foreseeable future;"
- --consumer boycott of Philip Morris' products has been launched by INFACT a
consumer activist group. It successfully brought infant formula companies to
change their practices and General Electric to sell a good portion of its
nuclear weapons business. Among INFACT's demands to end the boycott include the
Company's need to stop marketing to children and young people, stop influencing
public policy, and pay its just share of health care costs associated with
tobacco use;
23
<PAGE>
- --The combination of litigation and boycott may adversely affect the price of
our Company's stock which might be further enhanced if there would be a spin-off
of the tobacco and non-tobacco businesses;
- --Spinoffs and breakups like the one that drove up AT&T's stock by 11% in one
day "have produced a gold mine in the past two and a half years for divesting
companies and investors." according to The Wall Street Journal (09/21/95);
RESOLVED that shareholders ask management to take steps to accomplish a
separation of the Corporation's non-tobacco business from all its tobacco
businesses by January 1, 1997."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
In May 1994, your Company announced that its Board of Directors had decided not
to separate the Company's food and tobacco businesses. 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 stockholder value. It was clear,
however, that such a decision would have resulted in a prolonged, complicated
and costly structural transaction. The resulting uncertainties, including the
possibility of protracted litigation, posed a risk of disrupting the Company's
businesses, possibly causing stockholder value to diminish.
The Board is committed to enhancing stockholder value and remains convinced that
its decision in May 1994 was correct, as evidenced by the Company's strong
performance and impressive total stockholder return in 1995. The Company's 1995
net earnings were up 15.9% over 1994, and net earnings per share were up 19.4%,
to $6.51 (15.3%, 18.9% and $6.48, respectively, including the effect of two
accounting standards adopted in the first quarter of 1995). Total stockholder
return (increase in share price with quarterly reinvestment of dividends) was
64.5% in 1995 versus 37% for the S&P 500 Index. Currently, no alternative
business structure that would provide for the separation of the food and tobacco
businesses is deemed by management and your Board to be feasible or desirable. A
similar proposal was presented to stockholders at last year's Annual Meeting and
was overwhelmingly rejected.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
PROPOSAL 4--NAMING AND CURBING NICOTINE IN TOBACCO PRODUCTS
Dr. Gregory N. Connolly, 399 Common Street, Belmont, Massachusetts 02178, who
claims beneficial ownership of 30 shares of Common Stock, has submitted the
proposal set forth below.
"WHEREAS the federal Food and Drug Administration has proposed regulating
cigarettes and smokeless tobacco products as drugs;
- --Virtually every major health organization in the United States of America as
well as throughout the world has concluded that cigarette smoking and smokeless
tobacco-use are addictive;
- --An estimated 40 million people smoke in the United States; a vast majority of
these are addicted to tobacco use. Each day 3,000 young people begin to smoke.
Of these one half will become addicted and of these, half will die of smoking;
- --Most who smoke want to stop but find this difficult to do so;
- --It has been recognized by the medical profession as well as many in the
tobacco industry that the addictive ingredient in tobacco is nicotine;
- --The FDA reported that nicotine content in cigarettes has increased for all
brand categories including regular, low nicotine and ultra low brands from 1982
to 1992;
24
<PAGE>
- --Our company is being sued in a national class action suit alleging that we
intentionally addict consumers through the design, manufacture and marketing of
our brands and that our tobacco products have caused serious health problems to
the class members;
- --A successful lawsuit may affect adversely and seriously the price of our
stock;
- --Certain tobacco companies have developed new nicotine analogs that reduce
certain adverse health effects of nicotine while maintaining pharmacological
effects which could be beneficial to smokers who want to quit;
- --A "smokeless cigarette" has also been developed that eliminates many toxic
agents in cigarette smoke;
- --Scientists have recommended that nicotine levels in tobacco products be slowly
reduced to a level that cannot induce addiction among young non-smokers;
- --The technology is available to our company for it to reduce nicotine content
in its tobacco products;
- --A panel of experts recently concluded that the current Federal Trade
Commission's rating for nicotine in cigarettes does not provide adequate
information for smokers about how much nicotine they actually receive from
smoking;
RESOLVED that shareholders request the Board to take steps to preserve the
health of its tobacco-using customers. We suggest the following steps:
1. Develop and publicize nicotine ratings for each of our cigarette brands and
to make this available in accurate information to our customers about how much
nicotine they consume when smoking.
2. Determine the nicotine level in cigarettes at which nicotine addiction cannot
be induced or maintained. With this information, the Company shall implement a
program that would gradually reduce levels of nicotine in our brands over an
appropriate time period to a level that is not addictive. This effort to reduce
nicotine availability would be undertaken in collaboration with independent
health experts.
3. Develop and market new nicotine or nicotine-like products that have minimal
toxic agents that can be used by our consumers in lieu of cigarette smoking, and
market these products as drugs or medical devices to help adult smokers quit
tobacco use."
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
Smoking is a complex behavioral activity, and its motivations and practices vary
among smokers. Roughly 40 million people in the United States have stopped
smoking, and about 90% of them have done so without professional assistance.
The "tar" and nicotine yields of cigarettes are measured and reported under the
auspices of the Federal Trade Commission ("FTC"). The FTC testing method, which
was developed through the cooperation of the FTC staff and independent and
tobacco company scientists, is designed to provide "tar" and nicotine ratings
for use by consumers in comparing cigarette brands. The International
Organization for Standardization method, used in many foreign countries, is
nearly identical to the FTC method and produces similar "tar" and nicotine
ratings. Pursuant to an agreement sanctioned by the FTC, Philip Morris
Incorporated, like all other U.S. cigarette companies, follows the FTC method,
and the FTC "tar" and nicotine ratings are as a practical matter the only ones
that may be advertised to consumers. Indeed, to develop and publicize additional
separate ratings would be inconsistent with the FTC's primary objective, which
is to provide consumers with a standard to compare competing cigarette brands.
25
<PAGE>
Cigarettes from Philip Morris Incorporated and its competitors are currently
available across the full range of "tar" and nicotine yields, allowing consumers
to exercise their individual preferences.
The Company is not engaged in the manufacture or sale of drugs and medical
devices. Various smoking cessation products containing nicotine, such as
nicotine gum and nicotine patches, are currently available on the market. It
should be noted that the varying degrees of effectiveness of these products
suggest that people do not smoke simply to obtain nicotine.
THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.
OTHER MATTERS
Management knows of no other business that will be presented to the meeting for
a vote, except that it has been advised that stockholder proposals not included
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
Commission, the persons named as proxies will vote on them in accordance with
their best judgment.
The cost of this solicitation of proxies will be borne by the Company. In
addition 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
material 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., 77 Water Street, New York, NY 10005, at an
anticipated cost of $21,000, plus reimbursement of out-of-pocket expenses.
1997 ANNUAL MEETING
Stockholders wishing to suggest candidates to the Nominating and Corporate
Governance Committee for consideration as directors may submit names and
biographical 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 1997 Annual Meeting,
presently anticipated to be held April 24, 1997, notice of the nomination must
be received by the Company between October 12 and November 11, 1996. The notice
must describe various matters regarding the nominee, including the name,
address, occupation and shares held. For a stockholder to bring other matters
before the 1997 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 therefore and other specified matters. For a
matter to be included in the Company's proxy statement and proxy for the 1997
Annual Meeting, notice must be received by the Company on or before November 11,
1996. In each case, the notice must be given to the Secretary of the Company,
whose address is 120 Park Avenue, New York, NY 10017. Any stockholder desiring 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 11, 1996
26
<PAGE>
PHILIP MORRIS COMPANIES INC.
Proxy Solicited on Behalf of the Board of Directors
Annual Meeting April 25, 1996
<TABLE>
<S> <C>
P
R Geoffrey C. Bible, Murray H. Bring and Hans G. Storr, and each of them, are
appointed attorneys, with power of substitution, to vote, as indicated on the
O matters set forth on the reverse hereof and in their discretion upon such
other business as may properly come before the meeting, all shares of the
X undersigned in Philip Morris Companies Inc. (the "Company") at the annual
meeting of stockholders to be held at the Philip Morris Manufacturing
Y Center, Richmond, Virginia, April 25, 1996, at 9:00 a.m., and at all
adjournments thereof.
|
| Election of Directors, Nominees:
Elizabeth E. Bailey, Geoffrey C. Bible, Murray H. Bring, Harold Brown,
William H. Donaldson, Jane Evans, Robert E.R. Huntley, Rupert Murdoch,
John D. Nichols, Richard D. Parsons, Roger S. Penske, John S. Reed,
Hans G. Storr and Stephen M. Wolf.
This card also serves to instruct the administrator of the Company's dividend
reinvestment and voluntary cash payment plan and the trustee of each defined
contribution plan sponsored by the Company or any of its subsidiaries how to
vote shares held for a stockholder or employee participating in any such plan.
SEE REVERSE. If you wish to vote in accordance with the Board of Directors' SEE REVERSE
recommendations, just sign on the reverse. You need not mark any boxes. SIDE
</TABLE>
FOLD AND DETACH PROXY CARD HERE
[PHILIP MORRIS LOGO]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PHILIP MORRIS DIRECTIONS ADDRESS For hotel information
COMPANIES INC. The Philip Morris 3601 Commerce Road in the Richmond area,
Manufacturing Center Richmond, Virginia please call the
is located approximately Richmond
6 miles south of PHONE Convention & Tourism
downtown Richmond (804) 274-5492 Bureau at
off of Interstate 95. 1-800-370-9004
</TABLE>
ANNUAL
STOCKHOLDERS
MEETING
------------------------- -------------------------
! ! ! !
! ! ! !
! ! ! !
! ! ! !
! M A P ! ! M A P !
! ! ! !
! ! ! !
! ! ! !
! ! ! !
! ! ! !
------------------------- -------------------------
<PAGE>
[X] Please mark your [0142
votes as in this
example.
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.
<TABLE>
<CAPTION>
The Board of Directors recommends a vote FOR: The Board of Directors recommends
a vote AGAINST
<S> <C> <C> <C> <C> <C> <C> FOR AGAINST ABSTAIN
FOR WITHHELD FOR AGAINST ABSTAIN Stockholder Proposal [ ] [ ] [ ]
1. Election of No. 1.
Directors (see [ ] [ ] 2. Selection [ ] [ ] [ ]
reverse) of Auditors Stockholder Proposal [ ] [ ] [ ]
No. 2.
For, except vote withheld from the following nominee(s):
Stockholder Proposal [ ] [ ] [ ]
No. 3.
- ----------------------------------------
Stockholder Proposal [ ] [ ] [ ]
No. 4.
The signer hereby revokes all proxies
heretofore given by the signer to vote
at said meeting or any adjournments
thereof.
NOTE: Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
----------------------------------------------
----------------------------------------------
SIGNATURE(S) DATE
</TABLE>
<TABLE>
FOLD AND DETACH PROXY CARD HERE
RETURN PROXY CARD IN ENCLOSED ENVELOPE AFTER COMPLETING, SIGNING AND DATING
<S> <C>
[PHILIP MORRISS LOGO] PHILIP MORRIS COMPANIES INC.
1996 ANNUAL MEETING OF
Admission Ticket STOCKHOLDERS
- ---------------- Thursday, April 25, 1996
9:00 A.M.
The Philip Morris Manufacturing Center
3601 Commerce Road
Richmond, Virginia
--------------------------------------
Please present this ticket to the Philip Morris
representative in the Registration Area. Only the
stockholder or the person holding a proxy from the
stockholder whose name(s) appears on this ticket
will be admitted.
- ------------------------------------------------------------------------------------------
</TABLE>
It is important that your shares are represented at this meeting, whether or not
you attend the meeting in person. To make sure your shares are represented, we
urge you to complete and mail the proxy card above.
See reverse side for directions to Meeting.
