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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PHILIP MORRIS COMPANIES INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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[LOGO]
PHILIP MORRIS COMPANIES INC.
GEOFFREY C. BIBLE 120 PARK AVENUE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER NEW YORK, NY 10017
March 15, 1999
DEAR STOCKHOLDER:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders of
Philip Morris Companies Inc. The meeting will be held at 9:00 a.m. on
Thursday, April 29, 1999, at the Philip Morris Manufacturing Center, 3601
Commerce Road, Richmond, Virginia.
At the meeting, we will elect 15 directors and act upon the selection of
independent accountants. 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. For your comfort, and
because of overcrowding, we ask that you not bring any packages, briefcases,
large pocketbooks or bags into the meeting. Also, cellular and digital phones,
audio tape recorders, and video and still cameras will not be permitted into
the meeting. If you are a registered stockholder and plan to attend the
meeting, please detach and retain the admission ticket 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. You can vote by signing, dating and
returning the enclosed proxy card. Also, registered stockholders may vote by
telephone or over the Internet. Instructions for using these convenient
services are set forth on the proxy card. I urge you to vote your proxy as
soon as possible. In this way, you can be sure your shares will be voted at
the meeting, 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
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PHILIP MORRIS COMPANIES INC.
120 Park Avenue
New York, New York 10017
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held Thursday, April 29, 1999
To the Stockholders of
PHILIP MORRIS COMPANIES INC.:
The Annual Meeting of Stockholders of Philip Morris Companies Inc. will be
held on Thursday, April 29, 1999, at the Philip Morris Manufacturing Center,
3601 Commerce Road, Richmond, Virginia, at 9:00 a.m.
The purpose of the meeting is to:
(1) Elect 15 directors;
(2) Ratify the selection of independent accountants for the fiscal year
ending December 31, 1999;
(3) Vote on 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 at the close of business on March 8,
1999, will be entitled to vote at the meeting.
G. Penn Holsenbeck
Vice President and Secretary
March 15, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Proxies and Voting Information............................................ 1
Solicitation of Proxies................................................. 1
Voting at the Meeting................................................... 1
Election of Directors..................................................... 2
General Information..................................................... 2
Committees of the Board................................................. 2
The Nominees............................................................ 3
Compensation of Directors............................................... 7
Certain Relationships................................................... 7
Executive Compensation.................................................... 8
Comparison of Five-Year Cumulative Total Return......................... 8
Compensation Committee Report on Executive Compensation................. 9
Summary Compensation Table.............................................. 13
1998 Option Grants...................................................... 14
1998 Option Exercises and Year-End Values............................... 14
Long-Term Incentive Plan: 1998-2000 Cycle............................... 15
Pension Plan Table -- Philip Morris Retirement Plan .................... 15
Employment Contracts, Termination of Employment and Change of Control
Arrangements........................................................... 16
Ownership of Equity Securities............................................ 18
Selection of Independent Accountants ..................................... 19
Stockholder Proposals..................................................... 20
Other Matters............................................................. 27
2000 Annual Meeting....................................................... 27
</TABLE>
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PROXIES AND VOTING INFORMATION
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 29, 1999, 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 15, 1999. Holders of record of the Company's Common
Stock (the "Common Stock") at the close of business on March 8, 1999, will be
entitled to one vote for each share held on all matters to come before the
meeting. On February 26, 1999, there were outstanding 2,425,864,366 shares of
Common Stock.
Stockholders are urged to sign and date the enclosed proxy and return it as
promptly as possible in the envelope enclosed for that purpose. Registered
stockholders can also deliver proxies by calling a toll-free telephone number
or by using the Internet. The telephone and Internet voting procedures are
designed to authenticate stockholders' identities, to allow stockholders to
give their voting instructions and to confirm that stockholders' instructions
have been recorded properly. Instructions for voting by telephone or over the
Internet are set forth on the enclosed proxy card.
A proxy may be revoked at any time before it has been voted at the meeting by
submitting a later dated proxy (including a proxy by telephone or over the
Internet) or by giving written notice to the Secretary of the Company. 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. The trustee of each defined
contribution plan will vote the plan shares for which proxies are not received
in the same proportion as the shares for which proxies are received.
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 independent
accountants 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.
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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
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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, 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 March, July and
October, and special meetings are held when necessary. The organizational
meeting follows immediately after the Annual Meeting of Stockholders. The
Board held nine meetings in 1998.
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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 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 also monitors compliance with the Company's Business Conduct
Policy and the Company's preparations for dealing with the Year 2000 issue.
The Audit Committee met four times in 1998. The current members of the
committee are: Robert E. R. Huntley (Chair); Elizabeth E. Bailey; William H.
Donaldson; Richard D. Parsons; John S. Reed; and Stephen M. Wolf.
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 met two times in 1998. The current members of the
committee are: Jane Evans (Chair); Elizabeth E. Bailey; Murray H. Bring;
Harold Brown; J. Dudley Fishburn; Robert E. R. Huntley; John D. Nichols; Lucio
A. Noto; Richard D. Parsons; and Stephen M. Wolf.
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 plans for the chief executive officer and other senior executives.
The committee's Report on Executive Compensation appears elsewhere in this
proxy statement. This committee met four times in 1998. The current members of
the committee are: John S. Reed (Chair); Harold Brown; Robert E. R. Huntley;
Richard D. Parsons; and Stephen M. Wolf.
The Corporate Employee Plans Investment Committee oversees the investment of
certain employee benefit plan assets. This committee met four times in 1998.
The current members of the committee are: William H. Donaldson (Chair); Harold
Brown; Jane Evans; John D. Nichols; John S. Reed; Carlos Slim Helu; and Louis
C. Camilleri, the Company's chief financial officer.
The Executive Committee has authority to act for the Board on most matters
during intervals between Board meetings. This committee met two times in 1998.
The current members of the committee are: Geoffrey C. Bible (Chair); Elizabeth
E. Bailey; William H. Donaldson; Rupert Murdoch; Richard D. Parsons; and John
S. Reed.
2
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The Finance Committee 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. This committee met four times
in 1998. The current members of the committee are: Geoffrey C. Bible (Chair);
Harold Brown; William H. Donaldson; J. Dudley Fishburn; Robert E. R. Huntley;
John D. Nichols; Lucio A. Noto; John S. Reed; and Louis C. Camilleri, the
Company's chief financial officer.
The Nominating and Corporate Governance Committee reviews the qualifications
of candidates for director suggested by Board members, management,
stockholders and others, considers the performance of incumbent directors in
determining whether to nominate them for reelection and recommends to the
Board a slate of nominees for election as directors. It advises the Board on
all matters 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 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. This
committee met three times in 1998. The current members of the committee are:
Harold Brown (Chair); William H. Donaldson; Jane Evans; John D. Nichols;
Richard D. Parsons; John S. Reed; and Stephen M. Wolf.
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The Nominees
It is proposed that 15 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 1998 Annual Meeting, except for J. Dudley Fishburn, who
was elected to the Board effective February 1, 1999. All nominees who served
during 1998 attended at least 75% of the aggregate number of meetings of the
Board and all committees of the Board on which they served.
Although management does not anticipate that any of the persons named below
will be unable or unwilling to stand for election, a proxy, in the event of
such an occurrence, may be voted for a substitute designated by the Board.
However, in lieu of designating a substitute, the Board may amend the By-Laws
to reduce the number of directors.
[Photo] Elizabeth E. Dr. Bailey assumed her present position in
Bailey July 1991, having served from July 1990 to
June 1991 as a professor of industrial
John C. Hower administration at Carnegie-Mellon
Professor of University and as a visiting scholar at the
Public Policy & Yale School of Organization and Management.
Management, The From 1983 to 1990, she was dean of the
Wharton School of Graduate School of Industrial
the University of Administration of Carnegie-Mellon
Pennsylvania, University. Dr. Bailey serves as a director
Philadelphia, PA of the College Retirement Equities Fund,
CSX Corporation, Honeywell Inc., and as a
Director since trustee of The Brookings Institution, the
1989 National Bureau of Economic Research and
Bancroft NeuroHealth. She is a member of
Age: 60 the Audit, Executive, Nominating and
Corporate Governance, and Public Affairs
and Social Responsibility Committees.
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[Photo] Geoffrey C. Bible Employed by the Company continuously since
1976, Mr. Bible served Philip Morris
Chairman of the International Inc. in various executive
Board and Chief capacities from 1976 to 1990, becoming its
Executive Officer President and Chief Executive Officer in
1987. He served as President and Chief
Director since Administrative Officer of Kraft Foods,
1994 Inc., from 1990 to 1991, Executive Vice
President, International, of the Company
Age: 61 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 The News Corporation Limited,
the New York Stock Exchange, Inc., Lincoln
Center for the Performing Arts, Inc., and
the International Tennis Hall of Fame. Mr.
Bible is chairman of the Executive and
Finance Committees.
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3
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[Photo Murray H. Bring Employed by the Company continuously since
1988, Mr. Bring had been a partner in
Vice Chairman, Arnold & Porter, Washington, DC, since
External Affairs, 1967. He became Associate General Counsel
and General of the Company in January 1988, Senior Vice
Counsel President and General Counsel in July 1988,
Executive Vice President, External Affairs,
Director since and General Counsel, in December 1994 and
1988 assumed his present position in March 1997.
He is a director of the Whitney Museum of
Age: 64 American Art, the New York University Law
Center Foundation, The William J. Brennan
Center for Justice and The New York City
Opera. Mr. Bring is a member of the
Committee on Public Affairs and Social
Responsibility.
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[Photo] Harold Brown Dr. Brown assumed his present position at
the Center for Strategic and International
Studies in July 1992. Previously and from
Counselor, Center 1984, he was chairman of the Foreign Policy
for Strategic and Institute of the School of Advanced
International International Studies, The Johns Hopkins
Studies, University. Dr. Brown has been a partner of
Washington, DC; Warburg Pincus & Co. since 1990. Dr. Brown
Partner, Warburg is a director of Cummins Engine Company,
Pincus & Co., New Inc., Evergreen Holdings, Inc., and Mattel,
York, NY, venture Inc. Dr. Brown is chairman of the
capital firm Nominating and Corporate Governance
Committee and a member of the Compensation,
Director since Corporate Employee Plans Investment,
1983 Finance, and Public Affairs and Social
Responsibility Committees.
Age: 71
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[Photo] William H. Mr. Donaldson assumed his present position
Donaldson with Donaldson, Lufkin & Jenrette in
October 1995. Previously and from 1991, he
was chairman and chief executive officer of
Co-founder and the New York Stock Exchange, Inc., and from
Senior Advisor, 1980 until 1990, he was chairman and chief
Donaldson, Lufkin executive officer of Donaldson Enterprises,
& Jenrette, New Inc. He serves as a director of Aetna Inc.,
York, NY, Bright Horizons Family Solutions Inc.,
investment Mail.com, Inc., NEC Corporation
banking firm (International Advisory Board), Council for
Excellence in Government, Lincoln Center
Director since for the Performing Arts, Inc., Foreign
1979 Policy Association and as a trustee for the
Marine Corps University Foundation,
Age: 67 Carnegie Endowment for International Peace,
and the New York City Police Foundation. He
also serves as chairman of the Yale School
of Management Advisory Board. 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.
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[Photo] Jane Evans Employed by SmartTV since April 1995, Ms.
Evans assumed her present position in
January 1997. From 1991 to 1995 she served
President and as vice president and general manager, Home
Chief Executive & Personal Services Division of U.S. West
Officer, SmartTV, Communications, Inc. Previously and from
Burbank, CA, 1989, she was president and chief executive
portable officer of the InterPacific Retail Group.
interactivity and Ms. Evans serves as a director of Georgia-
electronic Pacific Corporation, Kaufman and Broad Home
commerce Corporation, Main St. and Main, and Pets
Mart, Inc. She also serves on the Board of
Director since Trustees of Vanderbilt University. She is
1981 chair of the Committee on Public Affairs
and Social Responsibility and a member of
Age: 54 the Corporate Employee Plans Investment and
Nominating and Corporate Governance
Committees.
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4
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[Photo] J. Dudley Mr. Fishburn was a Conservative Member of
Fishburn Parliament from 1988 to 1997 and also
served as a Parliamentary private secretary
Director of in the administrations of Prime Ministers
Household Margaret Thatcher and John Major. Prior to
International entering Parliament, Mr. Fishburn was
Corporation and executive editor of The Economist for nine
Chairman of its years. Mr. Fishburn serves as a director of
British Euclidian plc, Cordiant plc, and a fund,
subsidiary, HFC backed by the World Bank, that makes
Bank; Treasurer investments in Russia. He is chairman of
of Britain's the trustees of the Open University in the
largest charity, United Kingdom, and a trustee of the Prison
the National Reform Trust, the Liver Research Trust, and
Trust; and the Notting Hall Housing Association. Mr.
Associate Editor Fishburn is a member of the Finance and
of The Economist, Public Affairs and Social Responsibility
United Kingdom Committees.
Director since
February 1, 1999
Age: 52
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[Photo] Robert E. R.
Huntley
Mr. Huntley retired as counsel to the law
Retired lawyer, firm of Hunton & Williams in December 1995,
educator and a position he had held since December 1988.
businessman Previously, Mr. Huntley had served as
chairman, president and chief executive
officer of Best Products Co., Inc.,
Director since professor of law at Washington and Lee
1976 School of Law and president of Washington
and Lee University. He is chairman of the
Age: 69 Audit Committee and a member of the
Compensation, Finance, and Public Affairs
and Social Responsibility Committees.
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[Photo] Rupert Murdoch
Mr. Murdoch became head of News Limited of
Chairman and Australia in 1954 and in 1959 assumed the
Chief Executive position of chief executive of the
of The News subsequently formed parent company, The
Corporation News Corporation Limited, the interests of
Limited, New which include Fox Entertainment Group,
York, NY, Inc., Twentieth Century Fox Film
publishing, Corporation and Fox Broadcasting Company in
motion pictures the United States and The Times and Sunday
and television Times in the United Kingdom. He is a
director of Fox Entertainment Group, Inc.
and British Sky Broadcasting Group plc. Mr.
Director since Murdoch is a member of the Executive
1989 Committee.
Age: 68
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[Photo] John D. Nichols Mr. Nichols retired as chairman of Illinois
Tool Works Inc. in May 1996, a position he
Retired; formerly had held since 1986. He was chief executive
Chairman, officer from 1982 to September 1995. He
Illinois Tool serves as a director of Grand Eagle
Works Inc., Companies Inc., Household International
Glenview, IL, Corporation, Rockwell International
engineered Corporation, and Junior Achievement of
components and Chicago, as a trustee of the Chicago
industrial Community Trust, the Lyric Opera of
systems and Chicago, the Museum of Science and
consumables Industry, and the Chicago Symphony
Orchestra, as a member of the Board of
Overseers for Harvard University, and is
Director since chairman of the Art Institute of Chicago.
1992 He is a member of the Corporate Employee
Plans Investment, Finance, Nominating and
Age: 68 Corporate Governance, and Public Affairs
and Social Responsibility Committees.
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5
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[Photo] Lucio A. Noto Employed by Mobil continuously since 1962,
Mr. Noto has served Mobil in various
executive capacities, including president
Chairman and and chief operating officer from 1993 to
Chief Executive March 1, 1998, and chairman and chief
Officer of Mobil executive officer from March 1994 to the
Corporation, present. Mr. Noto is a director of
Fairfax, VA International Business Machines Corporation
and the American Petroleum Institute. He is
Director since a member of The Council for the United
1998 States and Italy and the Urban Institute.
He is a member of the Finance and Public
Age: 60 Affairs and Social Responsibility
Committees.
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[Photo] Richard D. Mr. Parsons assumed his present position in
Parsons February 1995. Previously, he was chief
executive officer of Dime Bancorp, Inc.
President, Time (formerly The Dime Savings Bank of New
Warner Inc., New York, FSB) from July 1990, having served as
York, NY, media president and chief operating officer from
and entertainment July 1988. He became chairman in 1991. From
1979 to July 1988, he was a partner in the
Director since law firm of Patterson, Belknap, Webb &
1990 Tyler. Mr. Parsons also serves as a
director of Citigroup, Inc., Time Warner
Age: 50 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.
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[Photo] John S. Reed Mr. Reed assumed his present position with
Citigroup, Inc. in October 1998. He has
also been the Chairman of Citicorp and
Chairman and Co- Citibank, N.A. since 1984. Mr. Reed serves
CEO, Citigroup, as a director of Monsanto Company,
Inc., New York, Telefonica Internacional and Visa USA, as a
NY member of the Corporation of the
Massachusetts Institute of Technology, and
Director since as a trustee of the Memorial Sloan-
1975 Kettering Cancer Center and the Center for
Advanced Studies in Behavioral Sciences. He
Age: 60 is chairman of the Compensation Committee
and a member of the Audit, Corporate
Employee Plans Investment, Executive,
Finance, and Nominating and Corporate
Governance Committees.
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Mr. Slim assumed his present position with
[Photo] Carlos Slim Helu Grupo Carso, S.A. de C.V. in October 1998.
Previously and from January 1991, he was
chairman of the board of Grupo Carso, S.A.
Chairman Emeritus de C.V. He also serves as a director of
of Grupo Carso, Empresas ICA Sociedad Controladora S.A. de
S.A. de C.V.; C.V. and SBC Communications Inc. He is a
Chairman of the member of the Corporate Employee Plans
Board, Telefonos Investment Committee.
de Mexico, S.A.
de C.V., Mexico
Director since
1997
Age: 59
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[Photo] Stephen M. Wolf Mr. Wolf assumed his present position in
January 1996. He served as chief executive
Chairman of US officer of US Airways Group from January
Airways Group, 1996 until November 1998. Previously and
Inc. and US from August 1994, he was senior advisor in
Airways, Inc., the investment banking firm of Lazard
Arlington, VA Freres & Co. LLC. Previously and from 1987,
he was chairman and chief executive officer
Director since of UAL Corporation and United Air Lines,
1993 Inc. He serves as a director of R.R.
Donnelley & Sons Company and as a trustee
Age: 57 of Georgetown University and The Brookings
Institution. He is a member of the Audit,
Compensation, Nominating and Corporate
Governance, and Public Affairs and Social
Responsibility Committees.
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6
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Compensation of Directors
Directors who are full-time employees of the Company receive no additional
compensation for services as a director. During 1998, non-employee directors
received an annual retainer of $40,000 and fees of $1,500 for each Board
meeting attended, $1,000 ($2,500 for the chairman) for each meeting attended
of the Board Committees described above, and $500 ($1,000 for the chairman)
for each other committee meeting attended. The chairmen of the Audit and the
Compensation Committees received $10,000 annual retainers for additional
services rendered in connection with committee chairman responsibilities,
while the other Board committee chairmen received annual retainers of $5,000.
Each non-employee director receives an annual share distribution equal to the
lesser of (i) 1,200 shares, or (ii) that number of shares of Common Stock
having an aggregate fair market value equal to the annual retainer paid during
the preceding 12 months. On May 1, 1998, each eligible director received 1,068
shares of Common Stock.
A non-employee director may elect to defer meeting fees and all or part of the
annual retainer. Deferred amounts are "credited" to an unfunded account and
may be "invested" 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.
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."
Certain Relationships
A subsidiary of Philip Morris International Inc. participates in a Mexican
cigarette joint venture with a subsidiary of Grupo Carso, S.A. de C.V. Mr.
Slim is Chairman Emeritus of Grupo Carso.
7
<PAGE>
EXECUTIVE COMPENSATION
Comparison of Five-Year Cumulative Total Return
The following graph compares the cumulative total stockholder return on Philip
Morris Common Stock for the last five years with the cumulative total return
for the same period of the S&P 500 Index, the combined S&P 500 Foods, S&P 500
Beverages (Alcoholic) and S&P 500 Tobacco Indices(/1/), the peer group
index(/2/) and a 'revised' peer group index(/3/). The revised peer group index
consists of companies that are competitors of the Company's tobacco, food and
beer businesses, and others that have been selected on the basis of size,
international focus and industry leadership, and accordingly are considered a
more appropriate group of companies when comparing total stockholder return.
In the future, the revised peer group will be used in lieu of the peer group
and the combined S&P 500 Foods, S&P 500 Beverages (Alcoholic) and S&P 500
Tobacco Indices. The graph assumes the investment of $100 in Philip Morris
Common Stock and each of the indices on December 31, 1993, and reinvestment of
all dividends. In addition to the creation of stockholder value, the Company's
executive compensation program is based on financial and strategic results as
discussed in the Compensation Committee Report on Executive Compensation.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1998
Philip Morris Companies Inc. $100.00 $109.16 $179.50 $235.04 $293.24 $359.89
Revised Peer Group 100.00 106.10 147.25 180.20 245.24 274.04
Peer Group 100.00 108.95 156.03 202.88 276.87 353.30
S&P 500 100.00 101.36 139.32 171.23 228.27 293.38
S&P Food/Bev/Tobacco 100.00 106.35 137.56 161.52 216.90 241.83
</TABLE>
(1) No standardized industry index is considered a comparable peer group. The
following companies constitute the S&P 500 Foods, S&P 500 Beverages
(Alcoholic) and S&P 500 Tobacco Indices: Adolph Coors Company, Anheuser-Busch
Companies, Inc., Bestfoods, Brown-Forman Corporation, Campbell Soup Company,
ConAgra, Inc., General Mills, Inc., H.J. Heinz Company, Hershey Foods
Corporation, Kellogg Company, The Quaker Oats Company, Ralston Purina Company,
RJR Nabisco Holdings Corp., 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.
(2) The peer group consists of the following companies: American Home Products
Corporation, Amoco Corporation, Anheuser-Busch Companies, Inc., ARCO,
Bestfoods, The Boeing Company, Bristol-Myers Squibb Company, Chevron
Corporation, The Coca-Cola Company, ConAgra, 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 Holdings Corp., Sara Lee
Corporation and Texaco, Inc.
(3) The revised peer group consists of the following companies: Anheuser-Busch
Companies, Inc., B.A.T. Industries, Bestfoods, Campbell Soup Company, The
Coca-Cola Company, ConAgra, Inc., General Mills, Inc., The Gillette Company,
H.J. Heinz Company, Hershey Foods Corporation, Kellogg Company, Nestle, Inc.,
PepsiCo, Inc., The Procter & Gamble Company, The Quaker Oats Company, RJR
Nabisco Holdings Corp., Sara Lee Corporation, Unilever N.V. and UST Inc.
8
<PAGE>
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 environment;
. Maximize profitability through growth and efficiency, balancing
appropriately the short-term and long-term goals of the Company;
. 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 other critical objectives; 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 stock performance.
During 1998, a review of companies with which the Company compares itself for
executive compensation purposes was completed, resulting in the development of
a compensation survey group. Companies were selected for this group primarily
on the basis of being those that the Company competes with for executive
talent and that have executive positions similar in magnitude, complexity and
scope of responsibility to those of the Company. The compensation survey group
is a broader, more diverse group of companies than those included in the peer
groups.
The Committee considered the following with respect to its actions during 1998
under the Company's Compensation programs.
. The financial performance of the Company compared with its annual goals, as
measured by earnings-per-share growth, return on equity, volume growth, cost
reductions and implementation of strategic initiatives, as well as relevant
financial comparisons to companies within the peer group, such as total
stockholder return and net income growth;
. The size and complexity of the Company compared with companies in the peer
group;
. The risk and uncertainty associated with the business, litigation and
regulatory environment in which the Company's tobacco businesses currently
operate, and the impact of this uncertainty on compensation issues,
including employee retention; and
. The achievement of a settlement of health care cost recovery and other
claims of all 50 states and several commonwealths and territories against
the Company's domestic tobacco subsidiary and other domestic tobacco
companies.
Based on its evaluation of these factors, the Committee determined that it was
appropriate to target a total compensation pay objective within the top
quartile of the compensation survey group. Based on the most recent
information available, total compensation for the executive officer group
ranked within the top quartile relative to the compensation survey group. To
achieve a further correlation between executive compensation and performance,
approximately two-thirds of the compensation awarded to the executive officer
group in 1998 was at-risk incentive compensation directly related to the
performance of the Company and its business units. This includes annual cash
bonuses, long-term performance awards, and long-term stock awards. By design,
the majority of executive officers' at-risk compensation consists of equity-
based compensation.
9
<PAGE>
Base Salary
Base salary is based on a qualitative evaluation of a variety of factors,
including level of responsibility, time in position, prior experience,
individual performance and a comparison to salaries paid within the
compensation survey group.
Annual Incentives
Annual incentive payments for 1998 were based upon a qualitative evaluation of
corporate or business unit performance and an assessment of individual
performance. Specific weights were not assigned to the factors considered. At
the corporate level, the performance factors were cash flow, net income and
earnings per share as measured against the prior year, as well as against the
annual business plan. An evaluation of the Company's performance against
certain strategic measures, such as response to the business, regulatory and
litigation environment, portfolio management, diversity and leadership
development, was also considered. At the business unit level, the performance
factors included operating income, volume, cash flow and strategic measures,
which were evaluated against the prior year and the annual business plan.
For the corporate participants, targeted goals were exceeded, and bonuses were
awarded accordingly. Performance varied across the business units, and bonuses
were awarded at, above, or below target levels accordingly.
Long-Term Incentives
The Company's 1997 Performance Incentive Plan (the "1997 Plan"), approved by
stockholders at the 1997 Annual Meeting, provides for stock options, stock
appreciation rights ("SARs"), restricted stock, annual and long-term
performance awards, and other "stock-based" awards to be made to key
executives who contribute to the management, growth and profitability of the
Company.
. Stock Options. In 1998, the Committee targeted its stock option grant
guidelines at the 55th percentile of the compensation survey group. The size
of actual stock option grants was adjusted upward or downward based on a
subjective evaluation of individual contribution and potential.
. Restricted Stock. During 1998, the Committee awarded restricted stock to 45
executives, including two of the covered officers named in the Summary
Compensation Table. The decision to award restricted stock was made to
recognize and reward individuals with high potential and to address specific
retention and leadership development needs. The amount of the restricted
stock awarded was based on the Committee's subjective assessment of an
individual's potential contribution to the future growth and success of the
Company.
The 1998 restricted stock awards for executives whose compensation may be
subject to the deductibility limitations of Section 162(m) of the Internal
Revenue Code ("IRC") vest after their continued employment with the Company
for a ten-year period following the date of award, or at age 65 if sooner.
Other 1998 restricted stock awards vest only after the participant's
continued employment with the Company for a five-year period following the
date of award.
. Long-Term Performance Awards. A new three-year long-term performance cycle
began January 1, 1998. The purpose of long-term performance awards under
this performance cycle is three-fold: to reward financial and strategic
achievements that are intended to increase value for the Company's
stockholders; to strengthen executives' incentives by rewarding them for
long-term business unit results within their control; and to provide total
long-term compensation (long-term performance awards and stock awards) that
is competitive with the compensation survey group.
Long-term performance awards under this performance cycle will be based on a
qualitative evaluation of corporate or business unit performance relative to
the strategic plan and on an
10
<PAGE>
assessment of individual performance. At the corporate level, the
performance factors include discretionary cash flow, earnings per share and
total stockholder return. Performance factors vary by business unit and
include income from operations, volume, cash flow and return on management
investment. No specific weights are assigned to the factors considered;
however, the individual performance factor is limited to an adjustment of
plus or minus 25%.
Compensation of the Chairman of the Board and Chief Executive Officer
No adjustment to Mr. Bible's base salary was made in 1998. Mr. Bible's current
base salary of $1,500,000 ranks below the top quartile of base salaries paid
to chief executive officers in the compensation survey group.
The Committee awarded Mr. Bible an annual incentive bonus for 1998 of
$3,500,000. A primary factor in determining the size of the award was the
Committee's desire to reward Mr. Bible for his leadership in helping to obtain
a nationwide settlement of health care cost recovery and other claims of the
states against the Company's domestic tobacco subsidiary and other domestic
tobacco companies. Based on the most recent data available, Mr. Bible's bonus
ranks in the top quartile of bonuses paid to the chief executive officers in
the compensation survey group.
Other covered officers received enhanced annual incentive awards in
recognition of their contribution to the settlement.
In 1998, the Committee awarded Mr. Bible a ten-year nonqualified stock option
for 400,000 shares with an exercise price equal to the fair market value of
the stock on the date of grant. The stock option grant was made in tandem with
SARs that are payable only in shares of stock, the exercise of which results
in the cancellation of the corresponding option.
The primary factors considered in determining the size of Mr. Bible's stock
option grant were Mr. Bible's performance with respect to the achievement of
key strategic and financial objectives, his efforts to achieve a resolution of
litigation and regulatory issues facing the domestic tobacco business, and his
actions to ensure that top executive advancement plans are in place. An
additional factor was the desire to maintain a position for Mr. Bible
comparable to that of other chief executive officers in the compensation
survey group.
According to the most recent data available, the amount of Mr. Bible's 1998
total compensation ranks at the 61st percentile of total compensation paid to
chief executive officers in the compensation survey 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 that certain
conditions are satisfied. Annual incentive awards to covered officers for 1998
were subject to, and made in accordance with, performance-based compensation
arrangements previously implemented by the Company, and long-term performance
awards to be made for the performance cycle that began in 1998 are subject to
such arrangements.
The Company's policy is generally to preserve the federal income tax
deductibility of compensation paid. Accordingly, the Company has taken
appropriate actions, to the extent it believes appropriate, to preserve the
deductibility of annual incentive, long-term performance, restricted stock and
stock option grants. However, notwithstanding the Company's general policy,
the Committee has authorized, and will continue to retain the authority to
authorize, payments that may not be deductible if it believes that it is in
the best interests of the Company and its stockholders. The Committee
11
<PAGE>
determined, after an analysis of competitive practices and a thorough review
of alternatives, that it was appropriate to continue 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. Certain other
elements of annual compensation, such as perquisites, restricted stock (with
respect to executive officers who are under age 55 at the time of the award)
and dividends paid in cash thereon, payments related to reducing unfunded
retirement benefits, tax reimbursements and income resulting from payments
made pursuant to plans that do not discriminate in favor of executive
officers, may cause a portion of covered officers' income to exceed the
deductibility limit.
Federal tax laws have placed increasingly restrictive limits on benefits
payable from funded tax-qualified plans, resulting in a substantial portion of
retirement benefits being paid from unfunded nonqualified plans. Accordingly,
the Company provides funding for individual trusts for covered officers and
certain other executives with vested benefits under these plans. During 1998,
the Committee determined that it was appropriate to increase funding levels
for executives participating in the program. The retirement benefits being
funded constitute a relatively small proportion of total compensation compared
with the executives' equity interests in the Company in the form of stock,
restricted stock and stock options. The amounts held in the 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.
Compensation Committee:
John S. Reed, Chairman
Harold Brown
Robert E. R. Huntley
Richard D. Parsons
Stephen M. Wolf
12
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Annual Compensation Awards Payouts
-------------------------------- --------------------- ---------
Restricted Securities
Other Annual Stock Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Value(/1/) Options LTIP Compensation(/2/)
- --------------------------- ---- --------- --------- ------------ ---------- ---------- --------- -----------------
$ $ $ $ Shs. $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Geoffrey C. Bible................ 1998 1,500,000 3,500,000 350,861(/3/) -0- 400,000 -0- 225,000
Chairman of the Board and 1997 1,375,000 1,900,000 142,505(/3/) -0- 1,000,000 6,000,000 206,250
Chief Executive Officer 1996 1,250,000 1,562,500 39,191(/3/) 5,700,000 600,000 -0- 187,500
Murray H. Bring.................. 1998 925,000 2,185,000 268,093(/3/) -0- 250,000 -0- 138,750
Vice Chairman, External Affairs, 1997 843,327 1,050,000 63,284(/3/) 2,118,025 200,000 3,050,000 126,499
and General Counsel 1996 695,000 800,000 22,022(/3/) -0- 600,000 -0- 104,250
William H. Webb.................. 1998 808,333 1,000,000 205,314(/3/) -0- 197,400 -0- 121,250
Chief Operating Officer 1997 745,673 825,000 49,032(/3/) -0- 159,600 2,775,000 111,851
1996 618,750 690,000 18,384(/3/) -0- 360,000 -0- 92,813
Louis C. Camilleri............... 1998 705,000 1,000,000 16,872(/3/) 2,452,788 171,100 -0- 105,750
Senior Vice President, 1997 661,667 725,000 6,466(/3/) 1,477,963 118,600 2,450,000 99,250
Chief Financial Officer 1996 578,333 550,000 -0- -0- 270,000 -0- 88,046
Michael E. Szymanczyk............ 1998 601,667 750,000 18,756(/3/) 2,417,125 131,600 -0- 90,250
President and Chief Executive 1997 492,500 525,000 11,290(/3/) -0- 66,100 1,550,000 73,875
Officer, Philip Morris
Incorporated(/4/)
</TABLE>
- -------------------
(1) Dollar values of restricted stock are based on the closing price of the
Common Stock on the date of award. The awards reflected in the table, together
with shares resulting from the reinvestment of dividends thereon, will vest at
the sooner of ten years or age 65, unless otherwise determined by the
Compensation Committee. During 1998, dividends on the restricted stock awards
were paid in cash to the covered officers. On December 31, 1998, each of the
covered officers held shares of restricted stock, with a value at such date as
follows: Mr. Bible, 440,681 shares, $23,576,434; Mr. Bring, 227,677 shares,
$12,180,720; Mr. Webb, 140,449 shares, $7,514,022; Mr. Camilleri, 100,000
shares, $5,350,000; and Mr. Szymanczyk, 100,000 shares, $5,350,000.
(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 1998, the following
amounts, less applicable tax withholding, were deposited in individual trusts
for the covered officers to provide funding for allocations to Philip Morris
supplemental defined contribution plans for prior years (previously reported
as All Other Compensation), and for earnings through June 30, 1998, on such
allocations: Mr. Bible, $339,223; Mr. Bring, $160,546; Mr. Webb, $119,389; Mr.
Camilleri, $49,537; and Mr. Szymanczyk, $20,515. The funding of these amounts
is not intended to increase total promised benefits.
(3) Includes reimbursement for taxes on a portion of the earnings on assets
held in trusts of individual officers. These trust assets offset amounts,
otherwise payable by the Company, for benefits under supplemental retirement
plans and are not intended to increase total promised benefits.
(4) Mr. Szymanczyk was promoted to his current position during 1997.
13
<PAGE>
1998 Option Grants
<TABLE>
<CAPTION>
Number of Percent of
Shares Total Options
Underlying Granted to Grant Date
Options Employees in Exercise Expiration Present
Name Granted Fiscal Year Price Date(/1/) Value(/2/)
- ---- ---------- ------------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Geoffrey C. Bible....... 400,000(/3/) 2.14% $39.71875 June 23, 2008 $3,112,000
Murray H. Bring......... 250,000(/3/) 1.34 39.71875 June 23, 2008 1,945,000
William H. Webb......... 197,400 1.06 39.71875 June 23, 2008 1,535,772
Louis C. Camilleri...... 171,100 0.92 39.71875 June 23, 2008 1,331,158
Michael E. Szymanczyk... 131,600 0.71 39.71875 June 23, 2008 1,023,848
</TABLE>
- ---------------------
(1) Options that expire on June 23, 2008, 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 estimated time period until
exercise of the option. In calculating the grant date present values set forth
in the table, a factor of 23.83% was assigned to the volatility of the Common
Stock, based on the monthly closing stock prices and dividends for the five-
year period preceding the grant date; the yield on the Common Stock was set at
4.03%, based on an annual dividend rate of $1.60 per share (the dividend rate
in effect at the time the options were granted); the risk-free rate of return
was fixed at 5.52%, the rate for a five-year U.S. Treasury Note for the month
of grant as reported in the Federal Reserve Statistical Release H.15(159); and
an estimated time period of five years until exercise 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.
(3) Stock option grant made in tandem with stock appreciation rights payable
only in shares of stock.
1998 Option Exercises and Year-End Values
<TABLE>
<CAPTION>
Total Number of Shares Total Value of
Number Underlying Unexercised Unexercised
of Shares Options Held at In-the-Money Options Held
Acquired December 31, 1998 at December 31, 1998(/1/)
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Geoffrey C. Bible....... 573,000 $18,848,368 3,795,160 400,000 $88,254,804 $5,512,500
Murray H. Bring......... -0- -0- 939,830 430,000 18,557,232 5,875,313
William H. Webb......... -0- -0- 644,880 314,400 13,113,530 4,299,919
Louis C. Camilleri...... -0- -0- 404,740 279,100 7,707,404 3,815,972
Michael E. Szymanczyk... -0- -0- 318,040 185,600 6,700,572 2,542,613
</TABLE>
- ---------------------
(1) Based on the closing price of the Common Stock of $53.50 on December 31,
1998.
14
<PAGE>
Long-Term Incentive Plan: 1998-2000 Cycle(/1/)
<TABLE>
<CAPTION>
Performance
Period Estimated Future Payouts(/2/)
Until -------------------------------
Name Maturation Threshold Target Maximum
- ---- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Geoffrey C. Bible................... 3 years $-0- $7,500,000 $9,000,000
Murray H. Bring..................... 3 years -0- 4,665,000 9,000,000
William H. Webb..................... 3 years -0- 2,712,500 6,103,125
Louis C. Camilleri.................. 3 years -0- 2,557,500 5,754,375
Michael E. Szymanczyk............... 3 years -0- 2,027,500 4,568,875
</TABLE>
- ---------------------
(1) Awards are expressed as a percentage of aggregate salary and annual bonus
earned by participants during the three-year performance cycle commencing on
January 1, 1998, and ending on December 31, 2000. Future payouts are based on
a qualitative evaluation of corporate or business unit performance over the
plan period and an assessment of individual performance. Specific weights are
not assigned to the factors considered. At the corporate level, the
performance factors include discretionary cash flow, earnings per share and
total stockholder return. Performance factors vary by business unit and
include income from operations, volume, cash flow and return on management
investment.
(2) 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 1998 is earned in each year of the three-year
performance cycle. The target award opportunities expressed as a percentage of
total cash compensation are 50% for covered officers. The awards from this
cycle will be subject to the limits under performance-based compensation
arrangements previously implemented by the Company.
Pension Plan Table -- Philip Morris 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 $129,762 $ 173,016 $ 216,271 $ 259,525 $ 302,779
750,000 195,387 260,516 325,646 390,775 455,904
1,000,000 261,012 348,016 435,021 522,025 609,029
1,250,000 326,637 435,516 544,396 653,275 762,154
1,500,000 392,262 523,016 653,771 784,525 915,279
1,750,000 457,887 610,516 763,146 915,775 1,068,404
2,000,000 523,512 698,016 872,521 1,047,025 1,221,529
2,250,000 589,137 785,516 981,896 1,178,275 1,374,654
2,500,000 654,762 873,016 1,091,271 1,309,525 1,527,779
2,750,000 720,387 960,516 1,200,646 1,440,775 1,680,904
3,000,000 786,012 1,048,016 1,310,021 1,572,025 1,834,029
</TABLE>
- ---------------------
(1) At February 1, 1999, Messrs. Bible, Bring, Webb, Camilleri and Szymanczyk
had accredited service of 15, 26, 33, 20 and 8 years, respectively.
Messrs. Bible, Bring, Webb, Camilleri and Szymanczyk 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 generally includes the amount shown as annual
salary and bonus in the Summary Compensation Table. At December 31, 1998,
five-year average annual compensation for Mr. Bible was $2,503,500; Mr. Bring,
$1,378,057; Mr. Webb, $1,240,512; Mr. Camilleri, $934,519; and Mr. Szymanczyk,
$781,632. 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 compensation, including annual bonus awards,
or a full retirement allowance based on all service and five-year average
compensation, excluding such bonus 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 1999. Mr. Bible is also eligible to receive a retirement benefit under
the retirement plan of a Swiss subsidiary of the Company and under
nonqualified supplemental plans based on the Swiss pension plan formula. 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, an annual benefit of Sfr.801,541 (approximately $577,063 on January 27,
1999). Mr. Szymanczyk is also eligible for benefits under the Kraft Foods
Retirement Plans. 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, an annual benefit of $35,735. Messrs. Bible and Camilleri
are also eligible for benefits under one or more pension plans of other
Company subsidiaries. These benefits offset, and are not in addition to,
benefits provided under the Philip Morris Retirement Plan. The Company
provides funding for individual trusts for the covered officers and certain
other employees with benefits under nonqualified supplemental retirement
plans. During 1998, the following amounts, less applicable tax withholding,
were deposited in individual trusts for the covered officers with respect to
the present value of projected benefits expected to be earned through July 1,
1999, under the Philip Morris supplemental pension plans: Mr. Bible,
$4,147,507; Mr. Bring, $4,092,664; Mr. Webb, $3,757,651; Mr. Camilleri,
$235,483; and Mr. Szymanczyk, $175,062. The funding of these amounts is not
intended to increase total promised benefits.
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 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.
Effective February 1, 1999, Andreas Gembler, a covered officer in last year's
proxy statement, retired as President and Chief Executive Officer of Philip
Morris International Inc. In connection with his retirement, Mr. Gembler
entered into agreements to provide consulting services through December 2000,
at a monthly fee of $28,695. Mr. Gembler's agreements also provide for a
prorated payout on or before February 15, 2001, of his Long-Term Incentive
Plan Award based on 13 months' participation in the 36-month plan cycle.
Assuming compliance with the non-competition provision of his agreements,
35,000 restricted shares awarded in 1995 will vest in June 2000, and his June
1998 stock option grant of 144,800 shares will vest in accordance with its
regular vesting schedule in June 1999. Mr. Gembler will forfeit 13,000
restricted shares awarded in 1995, 52,000 restricted shares
16
<PAGE>
awarded in 1998 and 72,000 shares from his January 1996 stock option grant.
Mr. Gembler's agreements also confirm his entitlement to the retirement
benefits described above in the "Pension Plan Table -- Philip Morris
Retirement Plan" and provide for the continued use of a company car through
December 31, 1999, financial counseling of $10,000 and relocation assistance.
Mr. Bring has 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.
17
<PAGE>
OWNERSHIP OF EQUITY SECURITIES
The following table shows the number of shares of Common Stock beneficially
owned as of February 2, 1999, by each director, nominee for director, and
executive officer named in the Summary Compensation Table and by the directors
and executive officers of the Company as a group. Unless otherwise indicated,
each of the named individuals has sole voting and investment power with
respect to the shares shown. The beneficial ownership of each director and
executive officer and of the group is less than 1% of the outstanding shares.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Name Ownership(/1/)(/2/)
- ---- -------------------
<S> <C>
Elizabeth E. Bailey......................................... 17,198
Geoffrey C. Bible........................................... 4,450,622
Murray H. Bring............................................. 1,234,935
Harold Brown................................................ 15,803
Louis C. Camilleri.......................................... 550,622
William H. Donaldson........................................ 37,403
Jane Evans.................................................. 14,873
J. Dudley Fishburn.......................................... -0-
Robert E. R. Huntley........................................ 29,103
Rupert Murdoch.............................................. 10,103
John D. Nichols............................................. 16,898
Lucio A. Noto............................................... 15,520
Richard D. Parsons.......................................... 10,000
John S. Reed................................................ 48,500
Carlos Slim Helu............................................ 1,068
Michael E. Szymanczyk....................................... 436,955
William H. Webb............................................. 850,776
Stephen M. Wolf............................................. 8,198
Group....................................................... 11,488,020
</TABLE>
- ---------------------
(1) Includes maximum number of shares subject to purchase before April 2,
1999, upon the exercise of stock options, as follows: Mr. Bible, 3,795,160;
Mr. Bring, 999,830; Mr. Camilleri, 440,740; Mr. Webb, 683,880; Mr. Szymanczyk,
336,040; and group 9,092,665. Also includes shares of restricted Common Stock
as follows: Mr. Bible, 440,681; Mr. Bring, 227,677; Mr. Camilleri, 100,000;
Mr. Webb, 140,449; Mr. Szymanczyk, 100,000; and group 1,513,506 (including,
50,000 deferred stock units).
(2) Includes 15,024 shares as to which beneficial ownership is disclaimed, as
follows: Mr. Nichols, 2,400 (shares held by children); Mr. Noto, 12,609
(shares held by spouse and daughter); and Mr. Szymanczyk, 15 (shares held by
son). Also includes 47,266 additional shares as to which voting and/or
investment power is shared with or controlled by another person and as to
which beneficial ownership is not disclaimed, as follows: Dr. Brown, 15,803
(shares held in a trust); Mr. Camilleri, 225 (shares held by spouse); Mr.
Huntley, 3,600 (shares held in joint tenancy); Mr. Noto, 1,814 (shares held in
joint tenancy); and others in group, 25,824 (18,804 shares held by spouse and
7,020 shares held in joint tenancy).
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
Common
Number of Stock
Shares Outstanding
Name and Address of Beneficially on February
Beneficial Owner Owned 26, 1999
- ------------------- ------------ -----------
<S> <C> <C>
FMR Corp........................................... 181,556,264(/1/) 7.48%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------------------
(1) According to Schedule 13G, dated February 1, 1999, 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, 1998, (i) Fidelity, a wholly-owned
subsidiary of FMR Corp., was the beneficial owner of 169,348,540 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 10,576,664 shares of
Common Stock; (iii) Mr. Johnson was the beneficial owner, either directly or
through trusts, of 35,880 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
1,595,180 shares of Common Stock. FMR Corp. and Fidelity International Limited
each disclaim beneficial ownership of Common Stock beneficially owned by the
other.
SELECTION OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee and subject to stockholder
approval, the Board has retained PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ending December 31, 1999.
PricewaterhouseCoopers LLP was formed during 1998 as a result of the merger of
Price Waterhouse LLP and Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. had
been the independent accountants of the Company since 1933. A representative
of PricewaterhouseCoopers LLP 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 the selection of PricewaterhouseCoopers LLP.
19
<PAGE>
STOCKHOLDER PROPOSALS
Management and the Board take all stockholder proposals seriously. The Company
received this year a proposal from the Teamsters General Fund requesting that
the Board adopt a policy that the Company "shall not adopt stock option plans
to cover top executives, without the prior approval of shareholders." The
Company has long had in effect a policy of seeking stockholder approval for
its executive stock option plans. The current stock option plan was approved
by stockholders in 1997 by 94% of the shares voting on the plan. That plan is
scheduled to expire in 2002. In accordance with the Company's policy, and in
response to the concerns expressed by the proponent, the Company commits, as
it has always intended, to submit its next executive stock option plan to
stockholders for approval. In response to this commitment to continue our
policy, the proponent has agreed to withdraw its proposal.
Stockholders have submitted the four proposals set forth below. The 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--Protecting Youth from Smoking in Developing Countries
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 1,000 shares of Common Stock, together with four co-proponents,
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, The New York Times editorialized (09/10/97): "Today American tobacco
companies win profits and build addiction throughout Asia, where tobacco
consumption is growing at the fastest rate in the world. Indeed, American
cigarette companies have agreed to the proposed domestic tobacco settlement in
part because it does not touch them overseas, where profits are soaring and
they can boldly target teen-agers without fear of lawsuits or powerful
critics."
- -- The editorial also noted that, in Hong Kong, hip clothing stores pass out
American cigarettes free to their customers and sell Marlboro caps, watches
and binoculars.
- -- In the U.S.A., our Company's "Action Against Access" calls for the company
not to offer free samples of cigarettes or send cigarettes through the
mail, place warnings on packages indicating that sales to minors is
prohibited, support laws prohibiting tobacco sales to minors, and train
retailers not to sell to minors. We see this as an important step.
- -- Due, in great part to our company's major marketing thrust, Philip Morris'
sale of cigarettes have soared in international markets, particularly in
the developing countries of Asia and Eastern Europe.
- -- A recent study among school children (average age 10) in Hong Kong found
that 95% of the children recognize the brand name Marlboro.
- -- At the same time, a 1992, Bush Administration, U.S. Government Accounting
Office report on "International Trade: Advertising and Promoting U.S.
Cigarettes in Selected Asian Countries," indicated extensive violation of
host country codes by U.S. cigarette companies.
- -- A New York Times article (05/15/94) noted that, despite local Asian
governments' efforts to launch anti-smoking campaigns, "but the tobacco
companies often find ways around the bans through indirect promotions that
skirt the law--sports events, glossy advertisements for clothing brands or
travel agencies that bear that name and logo of a cigarette brand."
20
<PAGE>
- -- Our company has used movie stars popular with U.S. teens, such as Roger
Moore and Tom Beringer, to advertise its cigarettes in Asia.
- -- Our company was sued in the Philippines in 1987 for allegedly advertising
and marketing cigarettes to Filipino children using methods that are
prohibited in the United States. Successful litigation in the Philippines
or other developing countries could adversely effect the value of our
stock.
- -- Lawsuits in the United States have alleged that, decades ago, our company
conducted advertising and marketing practices that enticed children to
smoke. If these lawsuits are successful the value of our stock could be
effected and used by people in other nations where similar actions may be
demonstrated.
RESOLVED that shareholders request management to implement the same programs
that the Company has voluntarily proposed and adopted in the United States to
prevent youth from smoking and buying our cigarettes in developing countries.
Supporting Statement
Much of the recent growth in cigarette sales has taken place in developing
countries. We think this proposal takes a fair and reasonable approach. To
protect children from developing countries from smoking and protect our
company in future litigation, we urge shareholders to vote for this proposal."
The Board recommends a vote AGAINST this proposal.
The Company shares the proponents' desire to prevent youth smoking and is
committed to taking action worldwide to prevent the sale of cigarettes to
minors. As we entered 1999, Philip Morris International, our international
tobacco company, had 73 youth smoking prevention programs underway in 51
countries, up from 60 programs in 36 countries in March 1998. In developing
countries, these programs include a range of retailer-endorsed youth smoking
prevention initiatives, including retailer education programs and the posting
of minimum-age notices, as well as a variety of education programs in schools
to dissuade minors from smoking.
While we agree with the proponents' desire to prevent youth smoking, we
disagree with the method they suggest to achieve their objective. The proposal
asks us to take a program specifically designed for the United States and
apply it in other countries without regard to its effectiveness under local
conditions. We believe that, to be effective, programs to combat youth smoking
must be adapted to local conditions, many of which are vastly different than
those in the United States. The products of Philip Morris International are
sold in numerous countries around the world, each with its own culture, laws
and market conditions.
Moreover, the unilateral imposition of a U.S. program is not likely to have
the desired effect of reducing underage smoking in countries in which Philip
Morris International is a relatively small competitor. More than half of all
the cigarettes sold outside the United States are manufactured by companies
owned by foreign governments. In countries such as these, we believe it is
better to work with local governments than to act alone, ineffectively. In
contrast to the proposal's well-intentioned but "one size fits all" approach,
we believe it makes more sense to continue to take action against youth
smoking in a manner that recognizes the diversity of the markets in which
Philip Morris International operates.
As we move forward in 1999 and beyond, Philip Morris International intends to
build on the momentum of the 73 youth smoking prevention programs already
under way. We will work proactively with governments, public health
authorities and other participants in the international tobacco industry to
achieve more effective results--certainly more effective than the Company
could achieve if it acted
21
<PAGE>
alone. We will, for example, work with others to support minimum-age laws in
countries where they are not yet in effect, and we will work closely with
education and health officials to support additional youth anti-smoking
programs in schools.
This proposal was defeated by stockholders at the 1997 and 1998 Annual
Meetings. The Company continues to believe that the action requested by the
proponents is not an effective approach to the important issue of youth
smoking in developing countries.
Therefore, your Board urges stockholders to vote AGAINST this proposal.
PROPOSAL 2--Establish a Review Committee to Investigate and Recommend
Actions Related to Smuggled Cigarettes of the Company
The Province of St. Joseph of the Capuchin Order, 1015 North Ninth Street,
Milwaukee, Wisconsin 53233, claiming beneficial ownership of 300 shares of
Common Stock, submitted the proposal set forth below.
"WHEREAS from one-quarter to one-third of all cigarettes exported by our
company end up being smuggled.
- -- A 1997 front-page expose in The New York Times, headlined "Cigarette Makers
Are Seen As Aiding Rise in Smuggling," noted that "tobacco giants deny" any
"role in illegal trade," but that "inquiries show there may be one."
- -- The article states: "The largest tobacco companies are selling billions of
dollars of cigarettes each year to traders and dealers who funnel them into
black markets in many countries, say law enforcement officials and
participants in the trade. In the last decade, the volume of cigarette
smuggling around the world has nearly tripled, according to a leading
tobacco research organization. This reflects a general surge in cigarette
sales abroad, especially for American brands."
- -- The article noted "the companies say they do nothing to encourage the
smuggling and do not condone it. But recent criminal investigations in
several countries show that people in the tobacco industry have played a
significant role at times in stimulating and fueling it."
- -- It specifically mentioned "two organized crime groups in Italy [who] take
in $500 million a year by smuggling in Marlboros they buy from Swiss
dealers selling products made by the Philip Morris Companies, America's
largest cigarette maker." It continued, "If the companies say they do not,
'It's a lie,' said Corrado Bianchi, who said he had sold Philip Morris
cigarettes as a dealer in Switzerland before retiring two years ago. 'Of
course they know.'"
- -- The proponents of this resolution believe our Company's and the Industry's
full-page ads warning against a "black market" if taxes on cigarettes will
be increased fall flat, given the data that shows the alleged involvement
of our company in such a market.
RESOLVED: shareholders request the Board to establish a committee of
independent directors to determine the extent of our Company's involvement
directly or indirectly in smuggling its cigarettes throughout the world and to
make appropriate recommendations to ensure that our Company is not involved in
any way in selling cigarettes in ways that assist smuggling. This Committee
shall report its findings and recommendations to the shareholders prior to the
2000 annual meeting.
22
<PAGE>
Supporting Statement
The proponents of this resolution do not believe the Board's defense of the
Company's anti-smuggling efforts is sufficient. In urging shareholders to vote
against this resolution last year, the company argued:
1. That it has mechanisms in place to keep this from happening. However, the
fact that these "mechanisms" seem ineffective is evidenced by the fact that
the European Union has called upon the U.S. government to aid it in
investigating U.S. tobacco companies for their involvement in the smuggling.
2. That it abides by all laws in the companies where it operates. However, the
African, Middle East and European centers of operation for Philip Morris are
in Switzerland which does not consider such smuggling to be illegal.
Therefore, our company can be involved in smuggling without it being illegal,
if Switzerland is considered the corporate source."
The Board recommends a vote AGAINST this proposal.
The Company continues to believe that it is not necessary or appropriate to
take the actions requested by the proponent. The Company has a worldwide
business conduct policy that requires employees of the Company and its
subsidiaries to comply with the laws and regulations of the countries in which
they do business, regardless of where its businesses may be headquartered. The
policy is monitored on a continuing basis, and significant issues are brought
to the attention of the Audit Committee, a Committee composed entirely of
independent directors.
Commentators that have looked at the problem of contraband in a vast array of
goods have concluded that primary causal factors are governmental policies and
practices, such as high levels of taxation and resulting price disparities;
trade barriers; insufficient enforcement of customs laws, resulting from
diverse factors such as desires to foster trade, lack of enforcement
resources, and outdated control structures and mechanisms; as well as socio-
cultural influences, all of which are beyond the ability of any single company
to control.
Despite its limited ability to address the issue of cigarette smuggling, the
Company views it as a serious problem that adversely affects the businesses of
its tobacco subsidiaries and their customers and consumers. The Company
believes that manufacturers, governments, and other affected parties all
should take reasonable steps to address the issue and its underlying causes in
a comprehensive manner. Accordingly, the Company's tobacco subsidiaries have
undertaken a number of efforts in this area, including cooperating with
governmental and intergovernmental efforts to reduce or eliminate the problem;
implementing markings and systems that permit the identification of intended
markets and/or first customers; and notifying all export customers that, as a
condition of doing business with the Company, they must comply with all
applicable fiscal and regulatory requirements. The Company and its
subsidiaries will continue to review their business practices, procedures and
organizations to determine if there are additional measures that might be
taken to address the issue.
This proposal was defeated by stockholders at the 1998 Annual Meeting. The
Company continues to believe that it is not necessary or appropriate to take
the actions requested by the proponent.
Therefore, your Board urges stockholders to vote AGAINST this proposal.
23
<PAGE>
PROPOSAL 3--Tobacco Executives' Compensation and Reduction of Teen Tobacco
The Christian Brothers Investment Services, Inc., 675 Third Avenue, New York,
NY 10017-5704, claiming beneficial ownership of 65,300 shares, together with
two co-proponents, 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 Our Company's executives consistently state they adamantly oppose
smoking by minors. They gave initial agreement to a set of goals to achieve
that end as outline in the now-abandoned National Tobacco Settlement Proposal
("settlement").
- -- However our company is on record for linking economic penalties for the
company if teen smoking did not decrease. In the "settlement" our Company
agreed to the payment of fines if smoking by teenagers would not drop
drastically by specific dates. Under the penalty section of the proposed
"settlement", smoking by people 18 or younger must fall 30% within five
years, 50% within seven years and 60% within ten years. For each percentage
point representing failure to meet these targets, tobacco companies agreed
as a group to pay an $80 million fine, up to a maximum of $2 billion
annually.
- -- Until now, the Congress and the Clinton Administration have put additional
pressure on any "settlement." They've indicated a desire to eliminate
liability protection and increase the fines if youth reduction goals are
not met. Any action such as this could have the effect of depressing the
stock price of our company.
- -- Our company's management agreed to the proposed "settlement" knowing the
evidence that has shown that the majority of those addicted to the nicotine
in cigarettes began smoking as minors, which would mean any consequent
decline in youth smoking could, in the long term, have serious economic
implications on future domestic sales of our company's tobacco products.
- -- While fines may adversely affect stock price and stockholder dividends they
seemingly do not negatively affect executive compensation.
- -- We believe that managers, as those responsible for developing strategies to
achieve these goals, should share in the success or failure of their
strategies.
RESOLVED: shareholders request that the Board voluntarily create a formula
linking future executive compensation packages with achievement of specific
decreases in teen consumption of our company's brands, using the terms of the
now-defunct "settlement" as a guide. The formula should penalize executives
when the company is not found in compliance with the goals determined and
reward them for meeting these goals.
Supporting Statement
Since our company has already indicated agreement with youth reduction goals
as outlined in the National Settlement, this request is not contingent on
approval of the "settlement". If you agree that all parties should bear
responsibility for reducing teen smoking, including the executives who agree
to and must oversee implementation of plans geared to insure such reductions,
please vote "yes" for this resolution."
The Board recommends a vote AGAINST this proposal.
The Company agrees that it is important to reduce the incidence of youth
smoking in this country. In 1995, our domestic tobacco subsidiary, Philip
Morris U.S.A., launched its "Action Against Access" initiative with the
objective of creating an environment in which minimum-age laws were enforced
and
24
<PAGE>
cigarettes could only be purchased through a face-to-face transaction with
proof of age. In 1997 and 1998, Philip Morris U.S.A. and other domestic
tobacco manufacturers entered into settlement agreements with all 50 states
that prohibit the targeting of youth in the advertising, promotion or
marketing of tobacco products, ban outdoor advertising, ban the use of cartoon
characters in tobacco advertising and promotion, and require participating
manufacturers to affirm corporate principles to reduce underage usage of
tobacco products. Above and beyond the actions required by the settlement
agreements, Philip Morris U.S.A. announced in late 1998 that it had embarked
on a proactive, long-term, $100 million comprehensive youth smoking prevention
effort that takes a four-pronged approach to dealing with the youth smoking
issue: Communication, Education, Community Action and Access. The first phase
of the Communication strategy consists of television ads that started airing
nationally in early December 1998, and are designed to convince kids that
smoking is not cool and that they do not need to smoke to establish their
identity.
The Company disagrees, however, with the proponents' view that tying executive
compensation to the youth smoking reduction goals of the now-defunct 1997
proposed federal tobacco resolution will be an effective tool in this
campaign. The youth smoking reduction goals in the defunct resolution were
dependent on the enactment of a comprehensive regulatory and enforcement
scheme and the satisfaction, not only by Philip Morris U.S.A., but also by
each other tobacco company and by retailers, distributors, the federal
government and the states, of their obligations under the proposed scheme. The
Company believes that it would not be in the best interests of stockholders,
nor would it further the important policy objectives set forth in the
proposal, to tie compensation to the goals of a non-existent program that
cannot be achieved by Philip Morris U.S.A. acting on its own.
The Company does believe that management decisions affecting stockholder value
should have a direct and meaningful impact on executive compensation. In fact,
the Company's compensation programs are already designed to achieve that
objective. The Compensation Committee's Report on Executive Compensation,
found on pages 9-12 of this proxy statement, emphasizes the Company's
objective of aligning management's interests with those of stockholders
through the use of equity-based incentive awards. The Report notes that
roughly two-thirds of compensation awarded to executive officers in 1998 was
at-risk incentive compensation directly related to the performance of the
Company and its business units, and that the majority of executive officers'
at-risk compensation consists of equity-based compensation.
Therefore, your Board urges stockholders to vote AGAINST this proposal.
PROPOSAL 4--Ensuring That Tobacco Ads Are Not Youth-Friendly
The Sisters of Charity of the Incarnate Word Health Care System, 2600 North
Loop West, Houston, Texas 77092, claiming beneficial ownership of 62,300
shares of Common Stock, submitted the proposal set forth below.
"WHEREAS our Company insists its tobacco ads and ad campaigns are not geared
to underage youth and has even taken some actions that would indicate it is
serious about ensuring that youth do not use our tobacco products;
- -- As concerned shareholders, aware that the future viability of our company's
tobacco division is based on ensuring new users, most of whom will continue
to use our brands because they began as underage youth;
- -- A 1996 University of British Columbia study found that teenagers are three
times as likely as adults to respond to cigarette ads and, on average,
whenever a cigarette brand increased its advertising budget by 10%, its
share of the adult smoking market grew only 3% but its share of teen
smokers grew 9%.
25
<PAGE>
- -- Cigarettes are the most heavily advertised product in the U.S.A. However,
unlike adults, whose consumption patterns do not reflect advertising
dollars, the three-most advertised cigarettes in the U.S. are the three
used most by underage youth.
- -- Further evidence presented in the New England Journal of Medicine, American
Journal of Public Health, and the Journal of Pediatrics had demonstrated
that tobacco advertising plays a significant role in stimulating illegal
consumption of tobacco by minors.
- -- Such data seems to undermine the stated concern of our company that it is
not advertising its tobacco in any way to influence young people to use our
products verses those of our competitors. This leaves some shareholders
confused as to how to be sure they are not involved in a company whose
activities may possibly be illegal at the worst and immoral at the least.
RESOLVED: Shareholders request the Board to implement the following, or its
equivalent, as policy for our Company: That, before any promotional,
marketing, and/or advertising campaign presently running is allowed to
continue or is inaugurated in the future, it must be submitted to independent
and certifiable testing to ensure that it is not equally or more appealing to
the 14-to-18-age group than groups over 18.
Supporting Statement
We suggest that, in creating this approach to testing, that the testing entity
be independent of the company and the tobacco industry, with no possible
conflict of interest. Its task will be to determine the effectiveness of the
campaign in making a positive impression on two age groups: those 18 and under
and those spread evenly between 18 and 45. If the test results on the young
focus group show the campaign is equal to or exceeds the effectiveness of the
older group the (proposed) campaign shall be terminated.
If you agree that independent data showing our company does not advertise in
ways that impact underage minors more than adults should be gathered to ensure
shareholders we do not target young people, please vote "yes" for this
resolution."
The Board recommends a vote AGAINST this proposal.
Your Board does not believe that it is necessary to take the actions requested
by the proponent. Both Philip Morris U.S.A., our domestic tobacco company, and
Philip Morris International, our international tobacco company, have programs
in place, and are subject to legal restrictions, that require that marketing
and advertising activities be directed only to adults who choose to smoke.
In the United States, cigarette ads were removed from broadcast media in 1971.
In 1995, Philip Morris U.S.A. launched its "Action Against Access" ten-step
initiative, with the objective of creating an environment where minimum-age
laws were enforced and cigarettes could only be purchased through a face-to-
face transaction with proof of age.
More recently, Philip Morris U.S.A. and other domestic tobacco manufacturers
entered into a master settlement agreement with 46 states, the District of
Columbia and several U.S. Commonwealths and territories, having already
reached separate agreements with four other states. Among other provisions,
the master settlement agreement prohibits the targeting of youth in the
advertising, promotion or marketing of tobacco products; bans all outdoor
advertising, including billboards and tobacco advertising in transportation
facilities, vehicles, enclosed stadia and shopping malls; bans the use of
cartoon characters in all tobacco advertising and promotions; and requires
participating manufacturers to affirm corporate principles to comply with the
agreement and to reduce underage usage of tobacco products.
Above and beyond the actions required by the master settlement agreement,
Philip Morris U.S.A. has embarked on a proactive, long-term, comprehensive
$100 million youth smoking prevention effort which takes a four-pronged
approach to dealing with the youth smoking issue: Communication,
26
<PAGE>
Education, Community Action and Access. The first phase of the Communication
strategy consists of television ads which started airing nationally in early
December, 1998, and are designed to convince kids that smoking is not cool and
that they do not need to smoke to establish their identity.
Thus, Philip Morris U.S.A. has a long-standing commitment to direct its
advertising only to adults who choose to smoke; is subject to comprehensive
advertising restrictions and monitoring provisions of the master settlement
agreement that prohibit the targeting of youth in the advertising, promotion
or marketing of tobacco products; and has launched its own comprehensive youth
smoking prevention effort, including advertising specifically designed to help
prevent youth smoking.
Philip Morris International also has an extensive and growing series of youth-
smoking prevention initiatives which are discussed in the Company's response
to stockholder proposal 1 (see pages 21-22 of this proxy statement). Its
advertising code prohibits the placement of advertisements in media that are
directed principally toward minors and contains many other provisions which
codify its commitment to ensuring that its marketing activities around the
world are directed only towards adults who have chosen to smoke. In addition,
as in the United States, there are existing and proposed laws in many other
countries that contain specific prohibitions against youth-oriented tobacco
advertising.
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 is possible 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 mail, 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., Inc., 77 Water Street, New York, NY 10005,
at an anticipated cost of $21,000, plus reimbursement of out-of-pocket
expenses.
2000 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 2000 Annual Meeting, presently
anticipated to be held April 27, 2000, notice of the nomination must be
received by the Company between October 18 and November 16, 1999. The notice
must describe various matters regarding the nominee, including name, address,
occupation and shares held. For a stockholder to bring other matters before
the 2000 Annual Meeting, and to include a matter in the Company's proxy
statement and proxy for that meeting, notice must be received by the Company
within the time limits described above. The notice must include a description
of the proposed business, the reasons therefor and other specified matters. 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 15, 1999
27
<PAGE>
[Logo]
PHILIP MORRIS COMPANIES INC.
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
THURSDAY,
APRIL 29, 1999
AND PROXY
STATEMENT
<PAGE>
PHILIP MORRIS COMPANIES INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING APRIL 29, 1999
P R O X Y
Geoffrey C. Bible and Murray H. Bring, and each of them, are appointed
attorneys, with power of substitution, to vote, as indicated on the matters set
forth on the reverse hereof and in their discretion upon such other business as
may properly come before the meeting, all shares of the undersigned in Philip
Morris Companies Inc. (the "Company") at the annual meeting of stockholders to
be held at the Philip Morris Manufacturing Center, Richmond, Virginia, April 29,
1999, at 9:00 a.m., and at all adjournments thereof.
Election of Directors, Nominees:
01. Elizabeth E. Bailey 06. Jane Evans 11. Lucio A. Noto
02. Geoffrey C. Bible 07. J. Dudley Fishburn 12. Richard D. Parsons
03. Murray H. Bring 08. Robert E.R. Huntley 13. John S. Reed
04. Harold Brown 09. Rupert Murdoch 14. Carlos Slim Helu
05. William H. Donaldson 10. John D. Nichols 15. 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 SEE REVERSE
BOARD OF DIRECTORS' RECOMMENDATIONS, JUST SIGN ON THE SIDE
REVERSE. YOU NEED NOT MARK ANY BOXES.
- --------------------------------------------------------------------------------
FOLD AND DETACH PROXY CARD HERE
RETURN PROXY CARD IN ENCLOSED ENVELOPE AFTER COMPLETING, SIGNING AND DATING
[PHILIP MORRIS LOGO HERE]
Admission Ticket
- -----------------------------------
PHILIP MORRIS COMPANIES INC. DIRECTIONS
1999 ANNUAL MEETING OF The Philip Morris Manufacturing Center
STOCKHOLDERS is located approximately 6 miles south
Thursday, April 29, 1999 of downtown Richmond. Take Interstate
9:00 A.M. 95 to Exit 69 (Bells Road). You may
The Philip Morris Manufacturing Center request a map by calling 1-800-367-
3601 Commerce Road 5415.
Richmond, Virginia
1-804-274-5492 For hotel information in the Richmond
area, please call the Richmond
- ----------------------------------- Convention & Tourism Bureau at 1-800-
370-9004.
Please present this ticket to the
Philip Morris representative in the
Registration Area.
- --------------------------------------------------------------------------------
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 OR VOTE YOUR SHARES
ELECTRONICALLY OVER THE INTERNET OR BY TELEPHONE.
- --------------------------------------------------------------------------------
See reverse side for instructions on voting your shares electronically over the
Internet or by telephone.
<PAGE>
[X] Please mark your
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 INDEPENDENT ACCOUNTANTS AND AGAINST EACH OF THE STOCKHOLDER
PROPOSALS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Selection of [ ] [ ] [ ]
Directors [ ] [ ] Independent
(see reverse) Accountants
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
FOR AGAINST ABSTAIN
3. Stockholder Proposal No. 1 [ ] [ ] [ ]
4. Stockholder Proposal No. 2 [ ] [ ] [ ]
5. Stockholder Proposal No. 3 [ ] [ ] [ ]
6. 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.
- -----------------------------------------------------------------
- -----------------------------------------------------------------
SIGNATURES(S) DATE
- -------------------------------------------------------------------------------
- FOLD AND DETACH PROXY CARD HERE -
Philip Morris Companies Inc. encourages you to consider voting your shares
electronically over the Internet or by telephone. These convenient ways by which
you can vote your shares eliminate the need to return the proxy card.
TO VOTE YOUR SHARES ELECTRONICALLY YOU MUST USE THE CONTROL NUMBER PRINTED IN
THE BOX ABOVE JUST BELOW THE PERFORATION. THIS CONTROL NUMBER MUST BE USED TO
ACCESS THE SYSTEM.
TO VOTE OVER THE INTERNET:
. Have this card and your social security number available
. Log on to the Internet and go to the web site
http://www.eproxyvote.com/mo
TO VOTE BY TELEPHONE:
. Using a touch-tone telephone, U.S. and Canadian stockholders may dial
toll-free 1-877-PRX-VOTE (1-877-779-8683) 24 hours a day, 7 days a week.
From outside the U.S. or Canada, stockholders may call collect
1-201-536-8073.
If you choose to vote your shares electronically, there is no need for you to
mail your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
