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. )
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(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
Philip Morris Companies Inc.
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(Name of Registrant as Specified In Its Charter)
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PHILIP MORRIS COMPANIES INC.
GEOFFREY C. BIBLE 120 PARK AVENUE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER NEW YORK, NY 10017
March 15, 2002
DEAR FELLOW STOCKHOLDER:
You are cordially invited to attend the 2002 Annual Meeting of Stockholders of
Philip Morris Companies Inc. The meeting will be held at 9:00 a.m. on Thursday,
April 25, 2002, at the Philip Morris U.S.A. Manufacturing Center, 3601 Commerce
Road, Richmond, Virginia.
At the meeting, we will elect 15 directors and act upon the selection of
independent accountants and the Company's proposal to amend the Company's
articles of incorporation to change the Company's name to Altria Group, Inc. We
will also vote on three stockholder proposals, if presented. 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 security, you will
not be permitted to bring any packages, briefcases, large pocketbooks or bags
into the meeting. Also, cellular and digital phones, audio tape recorders, video
and still cameras, pagers and pets 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 and most beneficial
stockholders may vote by telephone or over the Internet. Instructions for using
these convenient services are set forth on the enclosed proxy. 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
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 25, 2002
To the Stockholders of
PHILIP MORRIS COMPANIES INC.:
The Annual Meeting of Stockholders of Philip Morris Companies Inc. will be held
on Thursday, April 25, 2002, at the Philip Morris U.S.A. 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, 2002;
(3) Act upon the Company's proposal to amend the Company's restated
articles of incorporation to change the Company's name to Altria Group,
Inc.;
(4) Vote on three stockholder proposals if presented by their proponents;
and
(5) 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 4,
2002, will be entitled to vote at the meeting.
G. Penn Holsenbeck
Vice President and Secretary
March 15, 2002
TABLE OF CONTENTS
Page
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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.................................. 8
Ownership of Equity Securities.............................. 9
Executive Compensation...................................... 11
Comparison of Five-Year Cumulative Total Return........ 11
Compensation Committee Report on Executive
Compensation.......................................... 12
Summary Compensation Table............................. 17
2001 Philip Morris Stock Option Grants................. 18
2001 Kraft Foods Inc. Stock Option Grants.............. 19
2001 Philip Morris Stock Option Exercises and Year-End
Values................................................ 20
2001 Kraft Foods Inc. Stock Option Exercises and
Year-End Values....................................... 20
Long-Term Incentive Plan: 2001-2003 Cycle.............. 20
Pension Plan Table--Philip Morris Retirement Plan...... 21
Employment Contracts, Termination of Employment and
Change of Control Arrangements........................ 22
Audit Committee Matters..................................... 22
Audit Committee Report for the Year Ended December 31,
2001.................................................. 22
Independent Accountants' Fees.......................... 23
Selection of Independent Accountants........................ 24
Amending the Company's Restated Articles of Incorporation... 25
Stockholder Proposals....................................... 26
Other Matters............................................... 32
2003 Annual Meeting......................................... 32
Exhibit A--Proposed Amendment to Restated Articles of
Incorporation............................................. A-1
PROXIES AND VOTING INFORMATION
Solicitation of Proxies
This proxy statement is furnished by the Board of Directors (the "Board") of
Philip Morris Companies Inc. (the "Company"), 120 Park Avenue, New York, New
York 10017, in connection with its solicitation of proxies for use at the Annual
Meeting of Stockholders to be held on Thursday, April 25, 2002, at 9:00 a.m., at
the Philip Morris U.S.A. 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, 2002. Holders of record of the
Company's Common Stock (the "Common Stock") at the close of business on March 4,
2002, will be entitled to one vote for each share held on all matters to come
before the meeting. On February 28, 2002, there were outstanding XX
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. Most stockholders whose shares are held by
a broker or other nominee are also afforded the opportunity to vote by telephone
or over the Internet. Instructions are set forth on the enclosed proxy.
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. Approval of the amendment to the Company's restated articles of
incorporation to change the Company's name requires the affirmative vote of a
majority of all votes entitled to be cast by holders of record of the Common
Stock. 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.
1
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, June, July and
November, and special meetings are held when necessary. The organizational
meeting follows immediately after the Annual Meeting of Stockholders. The Board
held nine meetings in 2001.
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, which consists entirely of non-employee directors, assists
the Board in monitoring the Company's financial reporting processes, systems of
internal control, the independence and performance of the Company's independent
accountants and the performance of the internal auditors, and provides an avenue
of communication among management, the independent accountants, the internal
auditors and the Board. The committee's Report appears on pages 22 to 23 of this
proxy statement. This committee met four times in 2001. The members of the
committee are: Robert E. R. Huntley (chair); Elizabeth E. Bailey; J. Dudley
Fishburn; Lucio A. Noto; 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 four times in 2001. The members of the committee are: Jane Evans
(chair); Elizabeth E. Bailey; Harold Brown; J. Dudley Fishburn; Robert E. R.
Huntley; Billie Jean King; John D. Nichols; and Stephen M. Wolf.
The Compensation Committee, which consists entirely of non-employee directors,
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 on pages 12 to 16 of this proxy statement. This
committee met eleven times in 2001. The members of the committee are: John S.
Reed (chair); Harold Brown; Robert E. R. Huntley; Lucio A. Noto; and Stephen M.
Wolf.
The Corporate Employee Plans Investment Committee oversees the investment of
certain employee benefit plan assets. This committee met two times in 2001. The
members of the committee are: John D. Nichols (chair); Harold Brown; Jane Evans;
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 once in 2001. The
members of the committee are: Geoffrey C. Bible (chair); Elizabeth E. Bailey;
Lucio A. Noto; John S. Reed; and Stephen M. Wolf.
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 2001. The members of the committee are: Geoffrey C. Bible (chair);
2
Harold Brown; J. Dudley Fishburn; Robert E. R. Huntley; John D. Nichols; Lucio
A. Noto; John S. Reed; Carlos Slim Helu; and Louis C. Camilleri, the Company's
chief financial officer.
The Nominating and Corporate Governance Committee, which consists entirely of
non-employee directors, 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 four times in 2001. The members of the
committee are: Harold Brown (chair); Elizabeth E. Bailey; Jane Evans; Billie
Jean King; John D. Nichols; John S. Reed; Carlos Slim Helu; and Stephen M. Wolf.
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THE NOMINEES
It is proposed that 15 directors, 12 of whom are non-employee directors, be
elected to hold office until the next Annual Meeting of Stockholders and until
their successors have been elected, except for Mr. Bible and Mr. Webb, who will
retire from the Company and step down from the Board in August 2002, at which
time the number of directors will be reduced to 13. 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 2001 Annual Meeting, except
William H. Webb who was elected to the Board in August 2001 and Louis C.
Camilleri and Thomas W. Jones who are being proposed for election at the 2002
Annual Meeting. All nominees who served during 2001 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 Company's By-Laws to
reduce the number of directors.
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[PHOTO OF ELIZABETH E. BAILEY Dr. Bailey assumed her present position in July 1991, having
ELIZABETH E. served from July 1990 to June 1991 as a professor of
BAILEY] John C. Hower Professor of industrial administration at Carnegie-Mellon University and as
Public Policy & a visiting scholar at the Yale School of Organization and
Management, The Wharton Management. From 1983 to 1990, she was dean of the Graduate
School of the University School of Industrial Administration of Carnegie- Mellon
of Pennsylvania, University. Dr. Bailey serves as a director of the College
Philadelphia, PA Retirement Equities Fund and CSX Corporation, and as a trustee
of The Brookings Institution, the National Bureau of Economic
Director since 1989 Research and Bancroft NeuroHealth. She is a member of the
Audit, Executive, Nominating and Corporate Governance, and
Age: 63 Public Affairs and Social Responsibility Committees.
3
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[PHOTO OF GEOFFREY C. BIBLE Employed by the Company continuously since 1976, Mr. Bible
GEOFFREY C. served Philip Morris International Inc. in various executive
BIBLE] Chairman of the Board and capacities from 1976 to 1990, becoming its President and Chief
Chief Executive Officer Executive Officer in 1987. He served as President and Chief
Administrative Officer of Kraft Foods, Inc., from 1990 to 1991,
Director since 1994 Executive Vice President, International, of the Company from
1991 to April 1993 and Executive Vice President, Worldwide
Age: 64 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
and the Lincoln Center for the Performing Arts, Inc. Mr. Bible
is chair of the Executive and Finance Committees.
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[PHOTO OF HAROLD HAROLD BROWN Dr. Brown has been a partner of Warburg Pincus since 1990. Dr.
BROWN] Brown assumed his present position at the Center for Strategic
Partner, Warburg Pincus, and International Studies in July 1992. Previously and from
New York, NY, private 1984, he was chairman of the Foreign Policy Institute of the
equity firm; Counselor, School of Advanced International Studies, The Johns Hopkins
Center for Strategic and University. Dr. Brown is a director of Evergreen Holdings, Inc.
International Studies, and Mattel, Inc. and a trustee of the Trilateral Commission
Washington, DC (North America), the California Institute of Technology and the
RAND Corporation. Dr. Brown is chair of the Nominating and
Director since 1983 Corporate Governance Committee and a member of the
Compensation, Corporate Employee Plans Investment, Finance, and
Age: 74 Public Affairs and Social Responsibility Committees.
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[PHOTO OF LOUIS LOUIS C. CAMILLERI Mr. Camilleri is currently the Senior Vice President and Chief
C. CAMILLERI] Financial Officer of the Company, a position he has held since
Senior Vice President and November 1996. He has been employed continuously by the Company
Chief Financial Officer and its subsidiaries in various capacities since 1978. In
January 2002, the Board announced its intention to elect Mr.
Age: 47 Camilleri as the Company's President and Chief Executive
Officer following the 2002 Annual Meeting of Stockholders. Mr.
Camilleri is a member of the Corporate Employee Plans
Investment and Finance Committees.
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[PHOTO OF JANE JANE EVANS Employed as the Chief Executive Officer of Opnix, Inc. since
EVANS] May 2001. From January 1997 to April 2001, Ms. Evans served as
Chief Executive Officer, President and Chief Executive Officer of GAMUT Interactive
Opnix, Inc., Tempe, AZ, (formerly SmartTV), where she had been employed since April
Internet traffic 1995. From 1991 to 1995, she served as vice president and
management company general manager, Home & Personal Services Division of U.S. West
Communications, Inc. Previously and from 1989, she was
Director since 1981 president and chief executive officer of the InterPacific
Retail Group. Ms. Evans serves as a director of Georgia Pacific
Age: 57 Corporation, Hypercom Corporation, KB Home, Main Street and
Main Incorporated, and PetsMart, Inc. She also serves on the
Board of Trustees of Vanderbilt University. She is chair of the
Committee on Public Affairs and Social Responsibility and a
member of the Corporate Employee Plans Investment and
Nominating and Corporate Governance Committees.
4
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[PHOTO OF J. J. DUDLEY FISHBURN Mr. Fishburn was a Conservative Member of Parliament from 1988
DUDLEY to 1997 and also served as a Parliamentary private secretary in
FISHBURN] Director of Household the administrations of Prime Ministers Margaret Thatcher and
International, Inc. and John Major. Prior to entering Parliament, Mr. Fishburn was
Chairman of its British executive editor of The Economist for nine years. Mr. Fishburn
subsidiary, HFC Bank plc; serves as a director of Cordiant Communications Group plc,
Treasurer of Britain's Henderson Smaller Companies Investment Trust plc (UK), and
largest charity, the Murray Emerging Economies Trust plc (UK). He is a trustee of
National Trust; and the Liver Research Trust and the Peabody Housing Trust. Mr.
Associate Editor of The Fishburn is a member of the Audit, Finance, and Public Affairs
Economist, United Kingdom and Social Responsibility Committees.
Director since 1999
Age: 55
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[PHOTO OF ROBERT ROBERT E. R. HUNTLEY Mr. Huntley retired as counsel to the law firm of Hunton &
E. R. HUNTLEY] Williams in December 1995, a position he had held since
Retired lawyer, educator December 1988. Previously, Mr. Huntley had served as chairman,
and businessman president and chief executive officer of Best Products Co.,
Inc., professor of law at Washington and Lee School of Law and
Director since 1976 president of Washington and Lee University. He is chair of the
Audit Committee and a member of the Compensation, Finance, and
Age: 72 Public Affairs and Social Responsibility Committees.
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[PHOTO OF THOMAS THOMAS W. JONES Mr. Jones assumed his current position with Citigroup Inc. in
W. JONES] August 1999. Mr. Jones is also Co-Chairman and Chief Executive
Chairman and Chief Officer of Citigroup Asset Management. Mr. Jones joined
Executive Officer, Global Travelers Group as Vice Chairman and Director in 1997 and
Investment Management and served as Chairman and Chief Executive Officer of Smith Barney
Private Banking Group of Asset Management until October 1998. Prior to joining Travelers
Citigroup Inc. and Group, Mr. Jones served as Vice Chairman and Director of
Chairman and Chief TIAA-CREF, the largest pension system in the United States,
Executive Officer of from 1995 to 1997. He currently serves as a director of the
Citigroup Asset Management Federal Home Loan Mortgage Corporation, Pepsi Bottling Group
Inc. and Fox Entertainment Group Inc. Mr. Jones is also a
Age: 52 trustee of Cornell University, the Educational Broadcasting
Corporation and the Investment Company Institute.
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[PHOTO OF BILLIE BILLIE JEAN KING Ms. King is an international tennis champion with a record 20
JEAN KING] Wimbledon titles. She founded the Women's Tennis Association in
Director and Official 1973. In 1974, she founded the Women's Sports Foundation and
Spokesperson for WORLD Women's Sports magazine. She is the co-founder and current
TEAMTENNIS director of WORLD TEAMTENNIS. She is on the board of directors
for the Elton John AIDS Foundation, Women's Sports Legends and
Director since 1999 Women's Sports Foundation. She is on the advisory board of
Voxxy. She is a member of the International Tennis Hall of Fame
Age: 58 and the National Women's Hall of Fame. She is a member of the
Nominating and Corporate Governance and Public Affairs and
Social Responsibility Committees.
5
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[PHOTO OF JOHN JOHN D. NICHOLS Mr. Nichols assumed his current position in January 2002. He
D. NICHOLS] retired as chairman of Illinois Tool Works Inc. in May 1996, a
Chief Executive Officer, position he had held since 1986. Mr. Nichols had been chief
The Marmon Group, Inc., executive officer of Illinois Tool Works Inc. from 1982 to
Chicago, IL, international September 1995. He serves as a director of Household
association of International, Inc., Rockwell Automation, and Junior
manufacturing and service Achievement of Chicago, as a trustee of the Art Institute of
companies Chicago, the Chicago Community Trust, the Lyric Opera of
Chicago, the Museum of Science and Industry, the Chicago
Director since 1992 Symphony Orchestra, and as a member of three visiting
committees at Harvard University. He is chair of the Corporate
Age: 71 Employee Plans Investment Committee and a member of the
Finance, Nominating and Corporate Governance, and Public
Affairs and Social Responsibility Committees.
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[PHOTO OF LUCIO LUCIO A. NOTO Mr. Noto assumed his current position in March 2001. He retired
A. NOTO] as Vice Chairman of Exxon Mobil Corporation on January 31,
Managing Partner, 2001, a position he had held since the merger of the Exxon and
Midstream Partners, LLC, Mobil companies on November 30, 1999. Before the merger, Mr.
New York, NY, energy Noto was Chairman and Chief Executive Officer of Mobil
investment company Corporation and chairman of its executive committee. Mr. Noto
had been employed by Mobil continuously since 1962. Mr. Noto is
Director since 1998 a director of International Business Machines Corporation and
UAG Inc. He is a member of the Mitsubishi Corp. (Japan)
Age: 63 International Advisory Council, the Singapore Technologies
(Singapore) International Advisory Council, the Trilateral
Commission Foreign Relations Council, the Council for the
United States and Italy and the Singapore-US Business Council.
He is a member of the Audit, Compensation, Executive, and
Finance Committees.
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[PHOTO OF JOHN JOHN S. REED Mr. Reed retired from his position with Citigroup, Inc. in
S. REED] April 2000, a position he had held since 1998. Previously, he
Retired; formerly Chairman had also been the Chairman of Citicorp and Citibank, N.A. since
and Co-CEO, Citigroup, 1984. Mr. Reed had held numerous positions with Citigroup,
Inc., New York, NY Inc., New York, Citigroup and its predecessors and affiliates
since 1965. Mr. Reed serves as a director of Monsanto Company.
Director since 1975 He is also a member of the Corporation of the Massachusetts
Institute of Technology and a trustee of the Memorial
Age: 63 Sloan-Kettering Cancer Center, the Center for Advanced Studies
in Behavioral Sciences and the Spencer Foundation. He is chair
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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[PHOTO OF CARLOS CARLOS SLIM HELU Mr. Slim assumed his present position with Grupo Carso, S.A. de
SLIM HELU] C.V. in October 1998. Previously and from January 1991, he was
Chairman Emeritus of Chairman of the Board of Grupo Carso, S.A. de C.V. Mr. Slim
Grupo Carso, S.A. de C.V.; also serves as Chairman of America Movil, S.A. de C.V.; and
Chairman of Telefonos de Fundacion Telemex, A.C. He also serves as Chairman Emeritus of
Mexico, S.A. de C.V.; and Grupo Financiero Inbursa, S.A. de C.V. He also serves as a
Chairman of Carso Global director of SBC Communications Inc. Mr. Slim is a member of
Telecom, S.A. de C.V., each of the Advisory Council for Latin America of the New York
Mexico Stock Exchange, the board of Fundacion Unam A.C. and Patronato
del Hospital Infantil. He is also Chairman of the Executive
Director since 1997 Committee for the Rescue of the Historical Center of Mexico
City and Chairman of the board of the Museo Soumaya. He is a
Age: 62 member of the Corporate Employee Plans Investment, Finance, and
Nominating and Corporate Governance Committees.
6
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[PHOTO OF WILLIAM WILLIAM H. WEBB Mr. Webb assumed the position of Vice Chairman of the Board in
H. WEBB] August 2001. He also served as Chief Operating Officer of the
Vice Chairman of the Board Company, a position he held since March 1997. He has been
continuously employed by the Company and its subsidiaries in
Director since August 2001 various capacities since 1966. He is director of the
International Tennis Hall of Fame, the Alvin Ailey American
Age: 62 Dance Theater and the Business Council of New York State.
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[PHOTO OF STEPHEN STEPHEN M. WOLF Mr. Wolf assumed his present position in November, 2001;
M. WOLF] previously from January 1996 to November 2001, he served as
Chairman and Chief Chairman of the US Airways Group, Inc. and US Airways, Inc. He
Executive Officer of US also served as Chief Executive Officer of US Airways Group,
Airways Group, Inc. and US Inc., from January 1996 until November 1998, and he served as
Airways, Inc., Arlington, Chief Executive Officer of US Airways, Inc. from January 1996
VA until May 1998. Previously and from August 1994, he was senior
advisor in the investment banking firm of Lazard Freres & Co.
Director since 1993 LLC. Previously and from 1987, he was chairman and chief
executive officer of UAL Corporation and United Air Lines,
Age: 60 Inc. He serves as a director of R.R. Donnelley & Sons Company
and as a trustee of Georgetown University, The Brookings
Institution and the World Wildlife Fund. He is a member of the
Audit, Compensation, Executive, Nominating and Corporate
Governance, and Public Affairs and Social Responsibility
Committees.
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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. With respect to non-employee directors,
the Company's philosophy is to provide competitive compensation and benefits
necessary to attract and retain high-quality non-employee directors and to
encourage ownership of Company stock to further align their interests with those
of stockholders.
During 2001, 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 chair)
for each meeting attended of the Audit, Compensation, Corporate Employee Plans
Investment, Executive, Finance, Nominating and Corporate Governance, and Public
Affairs and Social Responsibility Committees, and $500 ($1,000 for the chair)
for each other committee meeting attended. The chairs of the Audit and
Compensation Committees each received annual retainers of $10,000 for additional
services rendered in connection with committee chair responsibilities, while the
other Board committee chairs received annual retainers of $5,000.
Pursuant to the 2000 Stock Compensation Plan for Non-Employee Directors, which
was approved by stockholders at the 2000 annual meeting, each non-employee
director receives an annual share distribution of that number of shares of
Common Stock having an aggregate fair market value of $40,000 on the date of
grant as well as an option to purchase the number of shares of Common Stock
calculated by dividing $40,000 by the Black-Scholes value of each such option.
These options have an exercise price equal to the fair market value of the
Common Stock on the date of grant and a term of ten years. Each eligible
director received 797 shares of Common Stock and an option to purchase 2,400
shares of Common Stock on April 26, 2001.
A non-employee director may elect to defer the award of shares of Common Stock,
meeting fees and all or part of the annual retainer. Deferred fee amounts are
"credited" to an unfunded account and may be "invested" in eight "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
7
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.
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.
8
OWNERSHIP OF EQUITY SECURITIES
The following table shows the number of shares of Common Stock beneficially
owned as of February 28, 2002, 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 is less than 1% of the outstanding shares. The beneficial ownership of
the directors and executive officers of the Company as a group is X % of the
outstanding shares.
Amount and
Nature of
Beneficial
Name Ownership(1)(2)
---- ---------------
Elizabeth E. Bailey......................................... 30,660
Geoffrey C. Bible........................................... 6,406,517
Harold Brown................................................ 31,569
Louis C. Camilleri.......................................... 1,716,717
Jane Evans.................................................. 27,139
J. Dudley Fishburn.......................................... 6,462
Robert E. R. Huntley........................................ 43,901
Thomas W. Jones............................................. X
Billie Jean King............................................ 19,647
John D. Nichols............................................. 45,464
Lucio A. Noto............................................... 37,877
John S. Reed................................................ 68,657
Carlos Slim Helu............................................ 3,927,834
Michael E. Szymanczyk....................................... 1,239,116
Charles R. Wall............................................. 1,294,493
William H. Webb............................................. 1,944,796
Stephen M. Wolf............................................. 23,964
Group (28 persons).......................................... X,XXX,XXX
------------------------------------
(1) Includes maximum number of shares subject to purchase before April 28, 2002
upon the exercise of stock options as follows: Dr. Bailey, 12,039; Mr. Bible,
5,214,045; Dr. Brown, 12,039; Mr. Camilleri, 1,583,220; Ms. Evans, 12,039; Mr.
Fishburn, 2,400; Mr. Huntley, 12,039; Ms. King, 12,039; Mr. Nichols, 12,039; Mr.
Noto, 12,039; Mr. Reed, 12,039; Mr. Slim, 12,039; Mr. Szymanczyk, 1,073,977; Mr.
Wall, 1,175,288; Mr. Webb, 1,679,468; and Mr. Wolf, 12,039; and group,
16,038,197. Also includes shares of restricted Common Stock as follows: Mr.
Bible, 576,360; Mr. Camilleri, 100,000; Mr. Szymanczyk, 100,000; Mr. Wall,
65,800; and Mr. Webb, 154,896; and group, 1,098,256.
(2) Includes 18,436 shares as to which beneficial ownership is disclaimed as
follows: Mr. Nichols, 2,400 (shares held by children); Mr. Noto, 16,036 (shares
held by spouse and daughter). Also includes 3,911,000 shares as to which Mr.
Slim shares voting and/or investment power with others and has disclaimed
beneficial ownership except to the extent of his pecuniary interest therein.
Also includes 25,284 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, 19,530 (shares held in a
trust); Mr. Huntley, 3,600 (shares held in joint tenancy); Mr. Noto, 2,154
(shares held in joint tenancy); and others in group, 32,896 (shares held in
joint tenancy). Also includes shares of deferred stock as follows: Dr. Bailey,
2,704 and Mr. Noto, 801.
9
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.
Percent of
Common Stock
Name and Address Number of Shares Outstanding On
of Beneficial Owner Beneficially Owned February 28, 2002
------------------- ------------------ -----------------
FMR Corp.(1).............................................. 151,757,651 X%
82 Devonshire Street
Boston, MA 02109
------------
(1) According to Schedule 13G, dated February 14, 2002, filed with the
Securities and Exchange Commission jointly by FMR Corp., Edward C. Johnson 3d
and Abigail P. Johnson, 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, 2001, (i) Fidelity
Management & Research Company ("Fidelity"), a wholly-owned subsidiary of FMR
Corp., was the beneficial owner of 142,644,306 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 ("Fidelity Management"), a bank that is
wholly-owned by FMR Corp., was the beneficial owner of 5,600,420 shares of
Common Stock (the power to vote 5,026,790 of such shares resides with Mr.
Johnson and FMR Corp. through its control of Fidelity Management); and (iii)
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 3,492,045 shares of Common Stock. FMR Corp. and Fidelity International
Limited each disclaim beneficial ownership of Common Stock beneficially owned by
the other.
10
EXECUTIVE COMPENSATION
Comparison of Five-Year Cumulative Total Return
The following graph compares the cumulative total return on the Common Stock for
the last five years with the cumulative total return for the same period of the
S&P 500 Index and the peer group index.(1) The graph assumes the investment of
$100 in Common Stock and each of the indices on December 31, 1996, and
reinvestment of all dividends.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
Date Philip Morris S&P 500 Philip Morris Peer Group(1)
---- ------------- ------- ---------------------------
December 1996.................................. $100.00 $100.00 $100.00
December 1997.................................. $124.77 $133.32 $136.23
December 1998.................................. $153.12 $171.33 $153.00
December 1999.................................. $ 69.75 $207.33 $137.72
December 2000.................................. $143.14 $188.42 $147.89
December 2001.................................. $156.18 $166.12 $139.70
(1) The peer group consists of the following companies that are competitors of
the Company's operating subsidiaries or that have been selected on the basis of
size, international focus, and industry leadership: Anheuser-Busch Companies,
Inc., B.A.T. Industries, Campbell Soup Company, The Coca-Cola Company, ConAgra,
Inc., General Mills, Inc., Gillette Co., H.J. Heinz Company, Hershey Foods
Corporation, Kellogg Company, Nestle, Inc., PepsiCo, Inc., Procter & Gamble
Company, RJ Reynolds Tobacco Holdings Inc., Sara Lee Corporation, Unilever N.V.,
and UST, Inc.
Note: The Quaker Oats Company was acquired by PepsiCo, Inc. during 2001 and has
been removed from the peer group index.
11
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
to the external environment;
- maximize profitability through growth and efficiency, while appropriately
balancing 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 that link a significant portion of compensation
to stock performance.
The Committee accomplishes these goals through the use of competitive cash and
equity-based compensation programs that help to focus our executive officers on
the Company's short-term and long-term business objectives.
To ensure that the Company's compensation programs are properly benchmarked with
those of our competitors, the Committee compares the Company's compensation
practices to a compensation survey group. The compensation survey group is a
somewhat broader and more diverse group of companies than those included in the
peer group index in the performance graph on page 11 of this proxy statement,
and consists of companies that compete with the Company for executive talent and
have executive positions similar in breadth, complexity and scope of
responsibility to those of the Company.
In 2001, the Company achieved strong year-over-year gains in underlying income
from operations and cash earnings per share. The Company's total stockholder
return outperformed both the S&P 500 Index and the Company's peer group indices.
The integration of Nabisco Holdings Corp., which was acquired at the end of
2000, continued on schedule; top-line growth was driven by innovation and
further expansion in developing markets; and strong productivity savings were
delivered. Importantly, the initial public offering ("IPO") of Kraft Foods Inc.
Class A common stock was successfully completed in June 2001.
In 2001, the Committee considered the following in determining executive
compensation under the Company's compensation programs:
- the Company's financial performance compared with its annual and long-term
goals, as measured by net income, earnings per share growth, return on
equity, volume growth, cost reductions and implementation of strategic
initiatives, as well as financial comparisons to companies within the
performance peer group measured by total stockholder return and net income
growth;
- individual executives' contributions to the Company's performance;
- the external challenges to the Company's ability to recruit and retain
executive talent, given the environment surrounding the tobacco industry; and
- the Company's size and complexity compared with companies in the compensation
survey group.
Based on a review of qualitative and quantitative factors, the Compensation
Committee determined that it was appropriate to target total compensation for
executives within the top or fourth quartile of the
12
compensation survey group. Based on the latest available data, total
compensation for the Company's executive officer group ranked within the third
quartile of the compensation survey group.
There are three major elements to the Company's overall executive compensation
program: base salary, annual incentives, and long-term incentives. By design,
approximately three-fourths of the compensation awarded to executive officers in
2001 was at-risk incentive compensation directly related to the performance of
the Company and its operating companies. Additionally, the majority of such at-
risk compensation was awarded in the form of equity-based compensation to
further strengthen the link between executive compensation and overall return to
stockholders.
Base Salary
Each year, the Committee determines the base salaries for senior executive
officers. The Committee reviews the following qualitative factors when
determining base salaries: the executive's individual performance, level of
responsibility, tenure, prior experience and a comparison to base salaries paid
for comparable positions within the Company's compensation survey group.
Annual Incentives
The Committee sets annual incentive goals for the Company's management and
executive employees. Annual incentive goals serve both to motivate executives as
well as to increase stockholder returns by focusing executive performance on the
attainment of those annual goals identified as having a positive impact on the
Company's business results.
For those executives whose compensation is subject to the deductibility
limitations of Section 162(m) of the Internal Revenue Code, the officer's
("covered officers") annual incentive awards are contingent upon the achievement
of adjusted net income derived from a compensation formula set by the Committee.
For 2001, annual incentive awards to executives who are not covered officers
were based upon a qualitative assessment of individual, operating company and
corporate performance. The Committee did not assign specific weights to any of
these factors. At the corporate level, the performance factors included
quantitative financial measures of cash flow, net income, and earnings per
share. At the operating company level, the performance factors were operating
income, volume and cash flow.
The Committee also evaluated the Company's performance against the qualitative
measures of portfolio management, diversity and leadership development, and the
ability to operate effectively given the current legal and societal challenges.
Adjusted net income levels were achieved and the covered officers received
payments consistent with financial performance as permitted under the
pre-determined formula. For the other senior executives and middle management
employees, annual incentives were paid based on a qualitative evaluation of
corporate performance as well as the performance of their operating company and
the subjective evaluation of their individual performance. Annual incentives
were generally paid at or above target levels but varied based on individual and
business unit performance.
Long-Term Incentives
The 2000 Performance Incentive Plan (the "2000 Plan"), approved by stockholders
at the 2000 Annual Meeting, enables the Company to grant stock options, stock
appreciation rights, restricted stock and other equity awards based on the
Company's Common Stock, as well as performance-based, long-term incentive cash
awards to the Company's salaried employees. Long-term incentives assist the
Company in focusing employee efforts on attaining performance goals over a
number of years, which is integral to the Company's continued success.
13
- Stock Options. In 2001, the Committee targeted its annual stock option award
guidelines at the 55th percentile of the compensation survey group.
Individual stock option awards were determined based on an evaluation of each
participant's individual performance and ability to affect the success of the
Company. During 2001, the Committee awarded two separate stock option grants.
In January 2001, the Committee granted options to eligible employees as part
of the Company's annual stock option program. In June 2001, the Committee
also granted options at the time of the IPO. Eligible employees received a
combination stock option grant, of which ninety percent of the grant value
was attributable to options to purchase Common Stock of the Company and ten
percent was attributable to options to purchase shares of Kraft Foods Inc.
Class A common stock from the Company. Each stock option grant has an
exercise price equal to the fair market value of the respective common stock
on the date of grant. No options to purchase Kraft Foods Inc.'s Class A
common stock were granted to Messrs. Bible, Camilleri or Webb in order to
avoid the appearance of a conflict of interest because of their roles as
members of the pricing committee for the IPO.
The Company expects that all subsequent grants will consist entirely of options
to purchase the Company's Common Stock, and does not anticipate making another
annual stock option grant before January 2003.
- Building Share Ownership. The stock options the Company awards to its most
senior executives have an Executive Ownership Stock Option ("EOSO") feature.
The EOSO feature promotes the earlier exercise of stock options and the
retention of Company shares in an effort to build share ownership among the
Company's senior executives. An EOSO is granted when an eligible executive
exercises an option at a time when the Company's stock price has appreciated
at least 20% above the option grant price, and the executive satisfies
payment of the option exercise price using shares of Common Stock that have
been owned for at least six months. The executive is required to hold the new
net shares delivered upon exercise for a period of one year or the related
EOSO grant is forfeited. The EOSO is granted for the number of shares used to
buy the exercise of the underlying option and related withholding taxes, has
an exercise price equal to the fair market value of Common Stock tendered,
has a term limited to the remaining term of the original option and vests six
months from the date of grant on the date of such exercise. The EOSO feature
does not apply to options to purchase stock of Kraft Foods Inc. granted by
the Company.
- Long-Term Performance Awards. Long-Term Performance Awards focus senior
executives on the achievement of long-term financial and strategic goals that
contribute to the long-term business success of the Company and have a
positive impact on stockholder return. In January 2001, a new three-year,
long-term performance cycle commenced, with awards scheduled to be paid in
the first quarter of 2004 after the completion of the three-year cycle in
2003, provided that certain long-term performance goals are attained. The
2001 - 2003 Long-Term Performance Awards of covered officers are payable in
cash, and payment is contingent on a formula tied to the achievement of
cumulative adjusted net income. For other executives, long-term performance
awards are payable in cash based solely on a quantitative and qualitative
evaluation of three-year business performance relative to the three-year
plan, beginning January 2001, along with an assessment of individual
performance. The performance factors are the cumulative quantitative
financial measures of income, discretionary cash flow, volume, earnings per
share and return on management investment, and the strategic measures of
market share, total stockholder return, portfolio management, productivity
and synergy savings, and organizational development. No specific weights have
been assigned to the factors the Committee will consider; however, the
individual performance factor will be limited to an adjustment of plus or
minus 25%.
14
Compensation of the Chairman of the Board and Chief Executive Officer
Effective July 2001, the Committee increased Mr. Bible's salary from $1,750,000
to $2,000,000. The Committee last approved a base salary increase for Mr. Bible
in July 1999. Mr. Bible's current salary ranks in the top or fourth quartile of
base salaries paid to chief executive officers in the compensation survey group.
Mr. Bible also earned an annual incentive award under the 2000 Plan derived from
the achievement of adjusted net income in accordance with a formula established
at the beginning of the year that was applicable to all covered officers. Mr.
Bible's annual incentive award ranks in the third quartile of bonuses paid to
the chief executive officers in the Company's compensation survey group based on
the latest available data.
Mr. Bible's 2001 total cash compensation (2001 base salary plus annual
incentive) ranks within the fourth quartile of total compensation paid to the
chief executive officers in the Company's compensation survey group based on the
latest available data.
In January 2001, the Committee awarded Mr. Bible a non-qualified stock option to
purchase 676,060 shares of Common Stock with an exercise price equal to the fair
market value of the Common Stock on the date of grant. The option vested one
year after the date of grant. The Committee considered the following factors in
determining Mr. Bible's January 2001 stock option grant:
- achievement of key strategic and financial objectives;
- management of ongoing legal and societal challenges; and
- development of a senior executive succession plan.
Mr. Bible's total compensation (2001 total cash compensation plus all long-term
incentive compensation) ranks in the third quartile of total compensation paid
to the chief executive officers in the compensation survey group based on the
latest available data.
Policy With Respect To Qualifying Compensation for Deductibility and Other
Matters
The Company's ability to deduct compensation paid to individual covered officers
is generally limited by Section 162(m) of the Internal Revenue Code to $1.0
million annually. However, this limitation does not apply to performance-based
compensation, provided certain conditions are satisfied. The annual and
long-term incentives the Committee awarded to covered officers in 2001 were
subject to, and made in accordance with, performance-based compensation
arrangements previously implemented by the Company.
In general, the Company's policy is to preserve the federal income tax
deductibility of compensation it pays its executives. Accordingly, the Committee
has taken appropriate actions, to the extent it believes feasible, to preserve
the deductibility of annual incentive, long-term performance, restricted stock,
and stock option awards. However, notwithstanding this 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 they are in
the best interests of both the Company and its stockholders. After an analysis
of competitive practices and a thorough review of the alternatives, the
Committee determined that it was appropriate to pay Mr. Bible and Mr. Webb base
salaries in excess of $1.0 million. This determination will cause a portion of
Mr. Bible's and Mr. Webb's compensation to exceed the $1.0 million deductibility
limit. In addition, other covered officers' income may exceed the $1.0 million
deductibility limit because of certain elements of their annual compensation,
such as perquisites, certain restricted stock and cash dividends 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.
15
Compensation Committee:
John S. Reed, Chair
Harold Brown
Robert E. R. Huntley
Lucio A. Noto
Stephen M. Wolf
The information contained in the report above shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference in such filing.
16
Summary Compensation Table
Annual Compensation
-----------------------------------------------
Other Annual
Name and Principal Position Year Salary Bonus(1) Compensation(2)
--------------------------- ---- --------- ---------- ---------------
$ $ $
Geoffrey C. Bible............... 2001 1,875,000 3,250,000 460,913
Chairman of the Board and 2000 1,750,000 3,000,000 461,278
Chief Executive Officer 1999 1,625,000 4,400,000 293,940
Louis C. Camilleri(6)........... 2001 985,192 1,465,000 26,996
Senior Vice President and 2000 906,667 1,750,000 18,146
Chief Financial Officer 1999 806,667 1,760,000 8,993
Michael E. Szymanczyk........... 2001 853,333 1,300,000 22,146
President and Chief Executive 2000 781,667 1,650,000 16,745
Officer, Philip Morris 1999 688,333 1,368,000 14,048
Incorporated
Charles R. Wall(8).............. 2001 778,500 1,025,000 51,846
Senior Vice President and 2000 725,417 950,000 31,364
General Counsel
William H. Webb................. 2001 1,028,538 1,500,000 145,575
Vice Chairman and 2000 950,000 1,900,000 167,599
Chief Operating Officer 1999 875,000 1,760,000 132,297
Long-Term Compensation
------------------------------------------------------
Awards Payouts
------------------------------------------ ---------
Securities Securities
Restricted Underlying Underlying
Stock Options (Philip Options All Other
Name and Principal Position Awards(3) Morris) (Kraft) LTIP Compensation(4)
--------------------------- ---------- --------------- ---------- --------- ---------------
$ Shs. Shs. $ $
Geoffrey C. Bible............... -0- 1,831,293(5) -0- -0- 281,250
Chairman of the Board and -0- 1,438,967 -0- 8,200,000 262,500
Chief Executive Officer 6,476,650 1,028,685 -0- -0- 243,750
Louis C. Camilleri(6)........... -0- 482,940 -0- -0- 147,779
Senior Vice President and -0- 468,600 -0- 3,997,900 136,000
Chief Financial Officer 985,788 387,500 -0- -0- 121,000
Michael E. Szymanczyk........... -0- 439,629(5)(7) 32,260 -0- 128,000
President and Chief Executive -0- 374,900 -0- 3,564,100 117,250
Officer, Philip Morris 766,275 300,000 -0- -0- 103,250
Incorporated
Charles R. Wall(8).............. -0- 357,337(5)(7) 26,620 -0- 116,775
Senior Vice President and -0- 335,000 -0- 3,020,200 108,813
General Counsel
William H. Webb................. -0- 561,683(5) -0- -0- 154,281
Vice Chairman and -0- 493,973 -0- 4,408,300 142,500
Chief Operating Officer 985,788 303,750 -0- -0- 131,250
------------
(1) 1999 bonuses included a special one-time cash bonus.
(2) 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 vested benefits under non-qualified supplemental
retirement plans and are not intended to increase total promised benefits.
(3) On December 31, 2001, each of the named executive officers held shares of
restricted stock, with a value at such date as follows: Mr. Bible, 656,641
shares, $30,106,990; Mr. Camilleri, 146,390 shares, $6,711,982; Mr. Szymanczyk,
136,060 shares, $6,238,351; Mr. Wall, 132,050 shares, $6,054,493; and Mr. Webb,
186,839 shares, $8,566,568.
(4) The amounts in this column consist of allocations to defined contribution
plans.
The Company provides funding for individual trusts for covered officers and
certain other employees with vested accrued benefits under non-qualified
supplemental retirement plans. During 2001, the following amounts, less
applicable tax withholding, were deposited in individual trusts for the named
executive officers to provide funding for allocations to the Company's
non-qualified supplemental defined contribution plans for prior years
(previously reported as All Other Compensation), and for earnings through May
31, 2001 on such allocations: Mr. Bible, $609,529; Mr. Camilleri, $105,286; Mr.
Szymanczyk, $103,675; Mr. Wall, $122,306; and Mr. Webb, $166,803. The funding of
these amounts is not intended to increase total promised benefits.
(5) Includes EOSO grants for Mr. Bible of 1,155,233 shares, Mr. Szymanczyk of
30,739 shares, Mr. Wall of 19,997 shares, and Mr. Webb of 35,823 shares. An EOSO
does not become exercisable until six months following its grant and is subject
to forfeiture if the executive does not hold the net option shares received upon
exercise for a period of one year following exercise of the underlying options.
(6) In January 2002, the Board announced its intention to elect Mr. Camilleri as
the Company's President and Chief Executive Officer following the 2002 Annual
Meeting of Stockholders.
(7) Excludes a one-time grant of an option to purchase shares of Kraft Foods
Inc. Class A common stock. On June 12, 2001, Mr. Szymanczyk received an option
to purchase 32,260 shares of Kraft Foods Inc. Class A common stock, and Mr. Wall
received an option to purchase 26,620 such shares.
(8) Mr. Wall was promoted to his current position during 2000.
17
2001 Philip Morris Stock Option Grants
Number of
Shares Percent of
Underlying Total Options/
Options/ SARs Granted Grant Date Value at
SARs to Employees Exercise Expiration Present December 31,
Name Grant Date Granted in Fiscal Year Price Date(1) Value(2) 2001(3)
---- ----------------- ---------- -------------- -------- ---------------- ---------- ------------
Geoffrey C. Bible........ January 31, 2001 676,060 1.92% $44.3750 January 31, 2011 $7,005,672 $997,189
May 14, 2001 442,997(4) 1.26 51.2000 January 26, 2010 5,663,938 -0-
November 19, 2001 387,583(4) 1.10 47.7650 January 26, 2010 3,971,059 -0-
November 19, 2001 232,989(4) 0.66 47.7650 June 25, 2004 2,005,103 -0-
November 19, 2001 91,664(4) 0.26 47.7650 June 24, 2005 892,762 -0-
Louis C. Camilleri....... January 31, 2001 253,530 0.72 44.3750 January 31, 2011 2,627,205 373,957
June 12, 2001 229,410 0.65 49.0400 June 12, 2011 2,718,440 -0-
Michael E. Szymanczyk.... January 31, 2001 225,360 0.64 44.3750 January 31, 2011 2,335,293 332,406
June 12, 2001 183,530 0.52 49.0400 June 12, 2011 2,174,775 -0-
May 16, 2001 6,757(4) 0.02 51.8000 January 26, 2010 87,879 -0-
November 20, 2001 23,982(4) 0.07 47.6650 January 26, 2010 244,919 -0-
Charles R. Wall.......... January 31, 2001 185,920 0.53 44.3750 January 31, 2011 1,926,596 274,232
June 12, 2001 151,420 0.43 49.0400 June 12, 2011 1,794,282 -0-
July 24, 2001 19,997(4) 0.06 45.5450 January 26, 2010 211,160 6,099
William H. Webb.......... January 31, 2001 276,060 0.78 44.3750 January 31, 2011 2,860,672 407,189
June 12, 2001 249,800 0.71 49.0400 June 12, 2011 2,960,055 -0-
August 1, 2001 35,823(4) 0.10 45.7500 June 24, 2005 363,263 3,582
------------
(1) Options that expire on January 31, 2011 are not exercisable until January
31, 2002. Options that expire on June 12, 2011 are not exercisable until January
31, 2003.
(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. 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, the volatility was based
on the monthly closing stock prices and dividends for the five-year period
preceding the grant dates, the dividend yield was based on an annual dividend
rate applicable at the time of each individual grant, the risk-free rate of
return was fixed at the rate for a five-year U.S. Treasury Note for the month of
grant as reported in the Federal Reserve Statistic Release H.15(159), and an
estimated time period equal to the lesser of the option term or five years was
used. The following assumptions were used in the table:
Black-Scholes Model Assumptions
--------------------------------------------------------------------------------
Dividend Risk-Free Rate
Stock Option Grant Expiration Date Volatility Yield of Return Time Period
------------------ ---------------- ---------- -------- -------------- -----------
January 31, 2001 (annual) January 31, 2011 33.88% 4.78% 4.86% 5.0 years
June 12, 2001 (annual) June 12, 2011 33.40 4.32 4.81 5.0
Geoffrey C. Bible (EOSO) January 26, 2010 33.63 4.14 4.93 5.0
Geoffrey C. Bible (EOSO) January 26, 2010 33.16 4.86 3.97 5.0
Geoffrey C. Bible (EOSO) June 25, 2004 35.05 4.86 3.04 2.6
Geoffrey C. Bible (EOSO) June 24, 2005 35.19 4.86 3.44 3.6
Michael E. Szymanczyk
(EOSO) January 26, 2010 33.16 4.87 3.97 5.0
Michael E. Szymanczyk
(EOSO) January 26, 2010 33.63 4.09 4.93 5.0
Charles R. Wall (EOSO) January 26, 2010 33.33 4.65 4.76 5.0
William H. Webb (EOSO) June 24, 2005 34.56 4.63 4.52 3.9
18
Consequently, the grant date present values set forth in the table are only
theoretical values and may not accurately represent 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) Based on the closing price of the Common Stock of $45.85 on December 31,
2001, the final day of trading in 2001.
(4) Represents EOSOs that do not become exercisable until six months following
their grant. EOSOs are subject to forfeiture if the executive does not hold the
net option shares giving rise to the grants for a period of one year following
exercise of the underlying options.
2001 Kraft Foods Inc. Stock Option Grants
Number of Percent of
Shares Total
Underlying Options/SARs
Options/ Granted to Grant Date Value at
SARs Employees in Exercise Expiration Present December 31,
Name Grant Date Granted(1) Fiscal Year Price Date(2) Value(3) 2001(4)
---- ------------- ---------- ------------ -------- ------------- ---------- ------------
Michael E. Szymanczyk.... June 12, 2001 32,260(5) 1.88% $31.0000 June 12, 2011 $294,378 $97,748
Charles R. Wall.......... June 12, 2001 26,620(5) 1.55 31.0000 June 12, 2011 242,912 80,659
------------
(1) See page 14 for a discussion of the grant of options to purchase Kraft Foods
Inc. Class A common stock.
(2) Options that expire on June 12, 2011 are not exercisable until January 31,
2003.
(3) 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. 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 value for Kraft Foods Inc. Class A common stock, the
volatility was based on the average monthly closing stock prices of companies
within the Kraft Foods Inc. compensation survey group for the five-year period
preceding the grant date. The dividend yield was based on a projected annual
dividend rate of $0.52 at the time of grant, the risk-free rate of return was
fixed at the rate for a five-year U.S. Treasury Note for the month of grant as
reported in the Federal Reserve Statistic Release H.15(159), and an estimated
time period equal to the lesser of the option term or five years was used. The
following assumptions were used in the table:
Black-Scholes Model Assumptions
--------------------------------------------------------------------------------
Risk-Free
Dividend Rate of
Stock Option Grant Expiration Date Volatility Yield Return Time Period
------------------ ---------------- ---------- -------- --------- -----------
June 12, 2001 June 12, 2011 29.70% 1.68% 4.81% 5.0 years
Consequently, the grant date present values set forth in the table are only
theoretical values and may not accurately represent 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.
(4) Based on the closing price of the Kraft Foods Inc. Class A common stock of
$34.03 on December 31, 2001.
(5) Reflects options on Kraft Foods Inc. Class A common stock owned by the
Company.
19
2001 Philip Morris Stock Option Exercises and Year-End Values
Number of Total Number of Shares
Shares Underlying Unexercised Total Value of Unexercised
Acquired Value Options Held at In-the-Money Options Held at
on Exercise Realized December 31, 2001 December 31, 2001(1)
----------- ----------- --------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ------------ --------------
Geoffrey C. Bible....... 1,615,851 $44,320,764 4,537,985 1,638,296 $42,020,271 $2,459,689
Louis C. Camilleri...... 16,500 511,019 1,329,690 676,690 18,502,823 1,507,394
Michael E. Szymanczyk... 71,330 1,966,157 932,617 582,872 13,026,766 1,209,906
Charles R. Wall......... 26,729 646,875 969,371 507,337 11,647,202 1,157,831
William H. Webb......... 150,234 3,120,561 1,435,973 640,433 17,519,545 871,458
------------
(1) Based on the closing price of the Common Stock of $45.85 on December 31,
2001.
2001 Kraft Foods Inc. Stock Option Exercises and Year-End Values
Number of Total Number of Shares
Shares Underlying Unexercised Total Value of Unexercised
Acquired Value Options Held at In-the-Money Options Held
on Exercise Realized December 31, 2001 at December 31, 2001(1)
----------- -------------- --------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Michael E. Szymanczyk.... -0- $-0- -0- 32,260 $-0- $97,748
Charles R. Wall.......... -0- -0- -0- 26,620 -0- 80,659
------------
(1) Based on the closing price of the Kraft Foods Inc. Class A common stock of
$34.03 on December 31, 2001.
Long-Term Incentive Plan: 2001-2003 Cycle(1)
Performance Period Until
Name Maturation Estimated Future Payouts(2)
---- ------------------------ -------------------------------------
Threshold Target Plan Maximum
--------- ---------- ------------
Geoffrey C. Bible(3)............. 3 years $-0- $7,875,000 $18,000,000
Louis C. Camilleri............... 3 -0- 3,712,500 18,000,000
Michael E. Szymanczyk............ 3 -0- 3,262,500 18,000,000
Charles R. Wall.................. 3 -0- 2,737,500 18,000,000
William H. Webb(3)............... 3 -0- 3,832,500 18,000,000
------------
(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, 2001 and ending on December 31, 2003.
(2) As 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 base salary as of December 31, 2001
and the annual bonus earned in 2001 are earned in each year of the three-year
performance cycle. The target award opportunities are 50% of total cash
compensation for covered officers. The awards from this cycle will be subject to
the limits under performance-based compensation arrangements previously
implemented by the Company.
20
(3) Mr. Bible and Mr. Webb will retire from the Company before the conclusion of
the 2001-2003 cycle of the Long-Term Incentive Plan. The amounts listed above
reflect payments based on full-term participation and are not indicative of
prorated payments each may receive following his retirement.
Pension Plan Table--Philip Morris Retirement Plan
Five-Year
Average Years of Service(1)
Annual -------------------------------------------------------------------------
Compensation 10 15 20 25 30 35
------------ -------- ---------- ---------- ---------- ---------- ----------
$ 500,000 $ 86,317 $ 129,475 $ 172,633 $ 215,792 $ 258,950 $ 302,108
750,000 130,067 195,100 260,133 325,167 390,200 455,233
1,000,000 173,817 260,725 347,633 434,542 521,450 608,358
1,250,000 217,567 326,350 435,133 543,917 652,700 761,483
1,500,000 261,317 391,975 522,633 653,292 783,950 914,608
1,750,000 305,067 457,600 610,133 762,667 915,200 1,067,733
2,000,000 348,817 523,225 697,633 872,042 1,046,450 1,220,858
2,250,000 392,567 588,850 785,133 981,417 1,177,700 1,373,983
2,500,000 436,317 654,475 872,633 1,090,792 1,308,950 1,527,108
2,750,000 480,067 720,100 960,133 1,200,167 1,440,200 1,680,233
3,000,000 523,817 785,725 1,047,633 1,309,542 1,571,450 1,833,358
3,250,000 567,567 851,350 1,135,133 1,418,917 1,702,700 1,986,483
3,500,000 611,317 916,975 1,222,633 1,528,292 1,833,950 2,139,608
3,750,000 655,067 982,600 1,310,133 1,637,667 1,965,200 2,292,733
4,000,000 698,817 1,048,225 1,397,633 1,747,042 2,096,450 2,445,858
4,250,000 742,567 1,113,850 1,485,133 1,856,417 2,227,700 2,598,983
------------
(1) At February 1, 2002, Messrs. Bible, Camilleri, Szymanczyk, Wall and Webb had
accredited service of 30.6, 23.4, 11.3, 11.7 and 35.9 years, respectively.
Messrs. Bible, Camilleri, Szymanczyk, Wall and Webb participate in the
tax-qualified Philip Morris Salaried Employees Retirement Plan and one or more
non-qualified supplemental 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. Allowances are payable upon retirement at the normal retirement age of
65 and at earlier ages. Compensation includes the amount shown as annual salary
and bonus (excluding the special bonus paid in 2000) in the Summary Compensation
Table. At December 31, 2001, five-year annual compensation for Mr. Bible was
$4,167,500; Mr. Camilleri, $1,732,820; Mr. Szymanczyk, $1,432,805; Mr. Wall,
$1,321,783; and Mr. Webb $1,884,509.
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 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
2002. Mr. Szymanczyk is also eligible for benefits under the Kraft Foods Inc.
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 $65,184. During the year 2000, the
Compensation Committee decided to provide Mr. Bible with an additional annual
retirement benefit of $1,507,506, payable as a 100% Joint and Survivor annuity.
This benefit supplements the
21
amount payable under the Retirement Plan. It was provided to encourage Mr.
Bible's continued leadership in guiding the Company through the difficult
business environment and legal challenges the Company faces, and developing and
implementing a succession plan. Mr. Bible is also eligible for benefits under
the Kraft Foods Inc. Retirement Plan. Mr. Camilleri is eligible for benefits
under two pension plans of other Company subsidiaries. However, these benefits
for Mr. Bible and Mr. Camilleri offset and are not in addition to benefits
provided under the Philip Morris Retirement Plan. The Company provides funding
payments that may be used for individual trusts for covered officers and certain
other employees with vested accrued benefits under non-qualified supplemental
retirement plans. During 2001, the following amounts, less applicable tax
withholding, were deposited in individual trusts for the named executive
officers with respect to the present value of projected benefits expected to be
earned through July 1, 2002, under the Philip Morris non-qualified supplemental
pension plans: Mr. Bible, $3,273,722; Mr. Camilleri, $713,885; Mr. Szymanczyk,
$310,718 (includes benefits payable under a Kraft Foods Inc. non-qualified
supplemental pension plan); Mr. Wall, $697,525 and Mr. Webb, $1,482,209. These
amounts offset benefits otherwise payable by the Company at retirement and are
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
selected executive officers, including those named in the Summary Compensation
Table. The agreements provide that if the executive is terminated other than for
cause within three years after a change of control of the Company or if the
executive terminates his or her employment for good reason within such
three-year period or voluntarily during the thirty-day period following the
first anniversary of the change of control, the executive is entitled to receive
a lump-sum severance payment equal to two and one-half times the sum of base
salary and highest annual bonus, times a fraction, the numerator of which is the
number of months remaining until the expiration of the three-year period, but
which shall be no greater than 30, and the denominator of which is 30, together
with certain other payments and benefits, including continuation of employee
welfare benefits. An additional payment is required to compensate the executive
in the event excise taxes are imposed upon payments under the agreements.
The Company proposes to enter into an agreement with Mr. Bible pursuant to which
he will provide consulting services to the Company following his retirement. The
Company shall provide Mr. Bible, for his lifetime, with an office and
secretarial services, use of a Company car and driver, home security
arrangements, reasonable access to Company facilities, including use of Company
aircraft with the approval of the Chief Executive Officer, and financial
counseling services of up to $15,000 per year. The Company will also reimburse
Mr. Bible for expenses he incurs while providing services to the Company.
AUDIT COMMITTEE MATTERS
Audit Committee Report for the Year Ended December 31, 2001
To Our Stockholders:
Management has the primary responsibility for the financial statements and the
reporting process, including the system of internal controls. On behalf of the
Board of Directors, the Audit Committee monitors the Company's financial
reporting processes and systems of internal control, the independence and the
performance of the independent accountants, and the performance of the internal
auditors.
Management has represented to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, and the Audit Committee has reviewed and
discussed the consolidated financial statements with management and the
independent accountants. The Audit Committee has discussed with the independent
accountants
22
their evaluation of the accounting principles, practices and judgments applied
by management, and the Committee has discussed any items required to be
communicated to it by the independent accountants in accordance with standards
established by the American Institute of Certified Public Accountants.
The Audit Committee has received from the independent accountants a letter
describing any relationships with the Company that may bear on their
independence and has discussed with the independent accountants the accountants'
independence from the Company and its management. The Committee has reviewed the
audit fees of the independent accountants. It has also reviewed non-audit
services and fees to assure compliance with the Company's and the Committee's
policies restricting the independent accountants from performing services that
might impair their independence.
The Audit Committee discussed with the Company's internal auditors and
independent accountants the overall scope of and plans for their respective
audits. The Committee has met with the internal auditors and the independent
accountants, separately and together, with and without management present, to
discuss the Company's financial reporting processes and internal controls. The
Committee has reviewed significant audit findings prepared by the independent
accountants and those prepared by the internal auditors, together with
management's responses.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors the inclusion of the audited
consolidated financial statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001.
Audit Committee:
Robert E.R. Huntley, Chair
Elizabeth E. Bailey
J. Dudley Fishburn
Lucio A. Noto
John S. Reed
Stephen M. Wolf
The information contained in the report above shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference in such filing.
Independent Accountants' Fees
Audit Fees
Aggregate fees, including out-of-pocket expenses, for professional services
rendered by PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") in connection
with (i) the audit of the Company's consolidated financial statements as of and
for the year ended December 31, 2001, including statutory audits of the
financial statements of the Company's affiliates that are relied on in
performance of the audit of the Company's consolidated financial statements, and
(ii) the limited reviews of the Company's unaudited condensed consolidated
interim financial statements as of September 30, 2001, June 30, 2001, and March
31, 2001 were $17.3 million.
Aggregate fees for these services for the year ended December 31, 2000 were
$14.3 million.
23
Financial Information Systems Design and Implementation Fees
In accordance with Company policy, which was adopted in 1985, during the years
ended December 31, 2001 and December 31, 2000, PricewaterhouseCoopers rendered
no professional services to the Company in connection with the design and
implementation of financial information systems.
All Other Fees
In addition to the fees described above, aggregate fees, including out-of-pocket
expenses, of $27.2 million were paid to PricewaterhouseCoopers during the year
ended December 31, 2001, primarily for the following professional services:
tax-related services ($10.8 million); services relating to compliance with
tariff valuation and classification regulations ($9.0 million); due diligence
for acquisitions ($2.7 million); and other audit services ($4.3 million). Other
audit services consist primarily of services relating to the initial public
offering of shares of Kraft Foods Inc., audits of our employee benefit plans,
accounting for our acquisition of Nabisco, Inc. and various other audit reports
issued by PricewaterhouseCoopers. All other fees for 2001 also include amounts
for consulting services ($0.4 million).
Fees for all other services performed by PricewaterhouseCoopers during the year
ended December 31, 2000 were $29.3 million.
SELECTION OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee and subject to stockholder
approval, the Board has retained PricewaterhouseCoopers as the Company's
independent accountants for the fiscal year ending December 31, 2002. In
recommending to the Board that PricewaterhouseCoopers be retained as the
Company's independent accountants, the Audit Committee considered whether the
provision of non-audit services by PricewaterhouseCoopers was compatible with
maintaining PricewaterhouseCoopers' independence and concluded that it was.
PricewaterhouseCoopers and its predecessors have been the independent
accountants of the Company since 1933. A representative of
PricewaterhouseCoopers 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.
The Board recommends a vote FOR the selection of PricewaterhouseCoopers.
24
AMENDING THE COMPANY'S RESTATED ARTICLES OF INCORPORATION--
CHANGING THE NAME OF THE COMPANY TO ALTRIA GROUP, INC.
The Company seeks stockholder approval to amend its restated articles of
incorporation to change its name from Philip Morris Companies Inc. to Altria
Group, Inc. The primary reasons for the proposed name change are to better
clarify the identity of the Company and to reflect the fact that the Company has
evolved into a substantially larger, more diverse enterprise than it was
originally.
Philip Morris Companies Inc. today is a holding company that owns, directly and
indirectly, a global family of diverse consumer products companies and other
businesses. The principal consumer products companies owned by the Company are
Philip Morris Incorporated (Philip Morris U.S.A.), Philip Morris International
Inc., Kraft Foods Inc. and Miller Brewing Company. Currently, "Philip Morris" is
not only part of the holding company's name, but also part of the names of its
two tobacco subsidiaries--Philip Morris Incorporated and Philip Morris
International Inc. As a result, individuals are sometimes unclear as to which
company they are speaking with or about. Examples of this appear regularly in
the media and in a variety of contexts. A new name for the holding company will
help clarify its corporate identity and make it clearer to people how to refer
to one of our tobacco subsidiaries and how to refer to the Company.
The Company's consumer products companies will retain their current names under
this proposal, and the Company will continue to benefit from the brand equity
that has been built over the years in names such as "Philip Morris," "Kraft" and
"Miller." In addition, the Company has decided to retain the iconic symbol "MO"
for its stock exchange listings because it has clear meanings of financial
strength, momentum and operational excellence in the financial
community--qualities which are part of the Company's heritage and which will be
part of the Company's future as Altria.
Changing the name of the Company will not result in any change in the name of
any branded consumer product marketed by any of the Company's consumer products
companies. If this proposal is approved, the corporate structure of the Company
would remain the same, as illustrated in the diagram below:
[ALTRIA LOGO] ALTRIA
Kraft Foods Miller Brewing Company Philip Morris U.S.A. Philip Morris International
The Company's holdings have changed considerably since it was established more
than 15 years ago. The acquisition of Nabisco Holdings Corp. and the initial
public offering of Kraft Foods Inc. provide two recent examples of this growth
and evolution. The Company believes that the name "Altria" will better reflect
the broad diversity of businesses that make up the family of companies. The name
"Philip Morris" will continue to be part of the name of the Company's two
tobacco subsidiaries that make high-quality tobacco products.
The Company believes that the proposed new name, together with the logo that has
been designed to accompany it, embrace important qualities that are critical to
its success now and in the future. The Company selected the name "Altria" to
symbolize an enterprise that is already great, but reaching ever higher. The new
"mosaic" logo represents the enormous global diversity of the brands and people
of the Company and its operating companies. "Altria" represents the unmatched
performance of its subsidiaries in creating and marketing great consumer brands
and in bringing successful new products to
25
market. In addition, "Altria" represents the Company's continuing commitment to
giving back and to aligning its actions with the values of the communities in
which its various businesses operate, seeking to constructively resolve
contentious issues.
A small, privately held venture capital company named Altira Group LLC has
commenced litigation against the Company, alleging trademark infringement and
other Federal and state causes of action, and seeking, among other things, to
enjoin the Company from using "Altria" or any "confusingly similar designation"
as a "trade name, service mark or other designation." The Company expects that
plaintiff's requests for this injunction may be heard by the court in the
relatively near future. Although the Company believes that it is legally
entitled to use the name "Altria" for the purposes that it intends, the outcome
of this litigation cannot be predicted at this time. Accordingly, if stockholder
approval of the name change is granted, the Board will retain the discretion to
determine when to effect the name change.
A copy of the proposed amendment to the restated articles of incorporation is
attached as Exhibit A to this proxy statement.
The Board recommends a vote FOR this proposal.
STOCKHOLDER PROPOSALS
PROPOSAL 1--Inserts Disclosing Personal And Social Effects Related To Using Our
Company's Tobacco Products
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, together with a co-proponent, submitted the proposal set forth
below. The name, address and shareholding of the co-proponent will be furnished
upon request made to the Secretary of the Company.
Phillip Morris Companies Inc.
"WHEREAS, in Lorillard Tobacco co, etal. V. Reilly, Attorney General of
Massachusetts, etal, the U.S. Supreme Court ruled that Massachusetts law
regarding the sale of tobacco products constituted "nearly a complete ban on the
communication of truthful information." The Court ruled "speech regulation
cannot unduly impinge on the speakers ability to propose a commercial
transaction and the adult listeners opportunity to obtain information about
products."
-- Welcoming the Supreme Court ruling, William S. Ohlemeyer, Vice President and
Associate General Counsel at Phillip Morris USA said the Company's
opposition to the Massachusetts law had "everything to do with our ability
to communicate truthful information to adult smokers" like "cigarette price,
brand availability and average tar and nicotine yields." (NYT, 07/03/01).
-- In the Master Settlement Agreement reached with 46 States Attorneys General
our company agreed to tell the truth about dangers arising from the use of
our products.
-- In arguing against damages related to use of our Company's products the
Company has argued that consumers were fully informed as to the
health-hazards connected to their use. However juries here and abroad have
not agreed with such attestations, in part, because of the kinds of
promotion--including those at point-of-purchase -- used by our Company.
-- It would seem to the proponents of this resolution that, if the companies
support the fact that consumers should be fully appraised of "truthful
information" regarding our products, that such can only be conveyed by a
package insert detailing information regarding the product.
RESOLVED: shareholders recommend that, in addition to making information known
regarding "cigarette price, brand availability and average tar and nicotine
yields," every package of our tobacco products include full and truthful
information regarding ingredients that may be harmful to the con-
26
sumer's health, the toxicity of the specific brand, and what detriment to
life-expectancy the consumer may expect to incur from regular use of the
product, as well as the health hazards for others, especially children,
connected with environmental tobacco smoke.
Supporting Statement
Our Company recognizes the health hazards involved in use of its tobacco
products. Therefore, we recommend that this insert be included with the sale of
all of our tobacco products domestically as well as wherever in the world we
have point-of-purchase sales. In foreign countries this shall be in the language
appropriate to the area in which the sale takes place.
Our company recognizes that cigarettes are a drug-delivery device. With other
drugs the FDA has determined that consumers be fully informed as to the effects,
counter-effects and adverse warnings of the product. It seems to the filers of
this resolution that such information would be another way our company might
make sure those using our tobacco products are fully informed as to the
consequences of using them."
The Board recommends a vote AGAINST this proposal.
Philip Morris U.S.A., our domestic tobacco company, and Philip Morris
International, our international tobacco company, support a single, consistent
public health message on the role played by cigarette smoking in the development
of disease in smokers, and smoking and addiction. This includes our support of
legislation that requires cigarette manufacturers to place health warnings on
cigarette packages and in cigarette advertisements, and our belief that
governments and public health officials should determine the text of the warning
messages. We believe the public is and has long been aware of the dangers of
cigarette smoking. Governments, public health authorities, and tobacco control
advocates have disseminated extensive information regarding the dangers of
smoking.
In addition, the companies support the notion that consumers should have access
to additional information regarding their products and have made such
information available in response to requests from governments and on their web
sites. Each company's web site includes information about cigarette ingredients,
"tar" and nicotine yield measurements and the conclusions of government and
public health authorities regarding the dangers of smoking, as well as links to
additional documents from government and public health authorities on these
topics. Further, neither Philip Morris U.S.A. nor Philip Morris International
currently has equipment with the capability of adding inserts or "onserts" to
the package in an efficient and cost effective manner across their product
lines. Such capability requires development of efficient, cost effective
equipment compatible with the scale and high speed of the companies'
manufacturing processes, and also requires significant capital expenditures.
Accordingly, the Company does not believe that the proponents' request is
necessary or appropriate.
Therefore, your Board urges stockholders to vote AGAINST this proposal.
PROPOSAL 2--Environmental Tobacco Smoke
Philip Morris
The Charitable Trust and the Retirement Plans for the Employees of the Sisters
of Mercy Regional Community of Detroit, 29000 Eleven Mile Road, Farmington
Hills, Michigan 48336, claiming beneficial ownership of 2,900,000 shares of
Common Stock, together with six co-proponents, submitted the proposal set forth
below. The names, address and shareholdings of the co-proponents will be
furnished upon request made to the Secretary of the Company.
"WHEREAS a 2001 study in the International Journal of Cancer conclusively showed
that the more people smoke in the workplace, the greater the risks for
non-smokers.
27
-- In May, 2000 the U.S. National Institute of Environmental Health Sciences
formally added to its list of "known human carcinogens" directly inhaled
tobacco smoke (ie, environmental tobacco smoke/ ETS);
-- The Journal of the American Medical Association reported in 2001 (436-41):
"Before exposure to environmental tobacco smoke, coronary flow velocity
reserve was significantly higher in nonsmokers than in smokers. After
exposure. . . [it] decreased and was not significantly different from that
of smokers."
-- In the most rigorous study to date researchers discovered breathing in other
people's cigarette smoke makes non-smokers 82% more likely to suffer a
stroke. It also increases the risk of heart disease, heart attack, lung and
breast cancer, and breathing-related diseases (Tobacco Control, August,
1999).
-- Restaurant and bar workers have some of the highest rates of lung cancer
among all occupations. In a parallel situation, our Company was sued by a
class of flight attendants claiming their exposure to ETS increased members
of the class' risk of contracting lung cancer. We paid millions of dollars
to settle that lawsuit.
-- The company's own director of applied research from 1976-1984 said that
carcinogens called nitrosamines "were the most significant risk in lung
cancer both among smokers and among nonsmokers. Yet our company has funded
numerous restaurant and hospitality associations to oppose laws prohibiting
smoking in restaurants and bars. We also sponsor "Marlboro" (and other
brand) nights in bars and provide cigarettes for patrons to smoke. Such
activities increase workers' exposure to ETS."
-- The Arthur D. Little report financed by our Company called "Public Finance
Balance of Smoking in the Czech Republic" stated that health care
expenditures include the effects of passive smoking. It stated that, "based
on review of recent studies in the field of respiratory diseases, that ETS
causes lung cancer, chronic airways obstruction, aggravation of asthma in
asthmatic children and other respiratory diseases."
-- In reports related to the discovery of the study our Company apologized for
its release, but did not reject nor apologize for such data regarding ETS as
was disclosed in the report;
-- Since it did not reject the findings of the Arthur D. Little Czech Report,
it would seem to indicate the Company now accepts such findings about the
health hazards and costs associated with ETS. However while it admits
smoking is a cause of lung cancer, our Company has yet to accept the
scientific evidence that links ETS to lung cancer.
-- Failure to warn may increase our liability in future litigation.
RESOLVED: shareholders request the Company find appropriate mechanisms to
develop and implement a continuing program to warn persons who smoke, who are
exposed to ETS (such as restaurant and bar workers) or who are responsible for
minors exposed to ETS from the Company's products, that tobacco smoke is
hazardous to nonsmokers and specify the nature of the hazards."
The Board recommends a vote AGAINST this proposal.
Philip Morris U.S.A. and Philip Morris International support the dissemination
of information by public health authorities regarding their conclusions about
the health effects of ETS. It is also our policy to defer to the judgment of
public health officials as to the text of any required warning messages.
28
The companies have already taken steps to provide such information to the
public. For example, the web sites of Philip Morris U.S.A. and Philip Morris
International state:
Government agencies have concluded that ETS causes disease --including
lung cancer and heart disease -- in non-smokers. We recognize and
accept that many people have health concerns regarding ETS. In
addition, because of concerns relating to conditions such as asthma
and respiratory infections, we believe that particular care should be
exercised where children are concerned, and that smokers who have
children -- particularly young ones -- should seek to minimize their
exposure to ETS.
The web sites also provide direct links to studies by the U.S. Environmental
Protection Agency, the International Agency for Research on Cancer and other
public health authorities, all of which conclude that ETS exposure poses health
risks to non-smokers. More information on ETS can be found on Philip Morris
U.S.A.'s web site at www.philipmorrisusa.com and Philip Morris International's
web site at www.pmintl.com.
Consistent with its policy of deference regarding government health warning
messages, Philip Morris U.S.A. also supports legislation establishing a
comprehensive regulatory framework for tobacco products that includes
authorizing the U.S. Food and Drug Administration to revise the text of the
existing warning labels on cigarette packages and in cigarette advertisements.
Philip Morris International supports similar proposals in markets around the
world.
Accordingly, the Company does not believe that the proponents' request is
necessary or appropriate.
Therefore, your Board urges stockholders to vote AGAINST this proposal.
PROPOSAL 3--Philip Morris Companies Inc./Global Human Rights Standards
The Comptroller of the City of New York, 1 Centre Street, New York, New York,
10007, claiming beneficial ownership of 2,260,530 shares of Common Stock,
together with a co-proponent, submitted the proposal set forth below. The name,
address and shareholding of the co-proponent will be furnished upon request made
to the Secretary of the Company.
"Whereas, Philip Morris Companies, Inc. has extensive overseas operations, and
Whereas, reports of human rights abuses in the overseas subsidiaries and
suppliers of some U.S.-based corporations has led to an increased public
awareness of the problems of child labor, "sweatshop" conditions, and the denial
of labor rights in U.S. corporate overseas operations, and
Whereas, corporate violations of human rights in these overseas operations can
lead to negative publicity, public protests, and a loss of consumer confidence
which can have a negative impact on shareholder value, and
Whereas, a number of corporations have implemented independent monitoring
programs with respected human rights and religious organizations to strengthen
compliance with international human rights norms in subsidiary and supplier
factories, and
29
Whereas, these standards incorporate the conventions of the United Nation's
International Labor Organization (ILO) on workplace human rights which include
the following principles:
1) All workers have the right to form and join trade unions and to
bargain collectively. (ILO Conventions 87 and 98)
2) Workers representatives shall not be the subject of discrimination
and shall have access to all workplaces necessary to enable them to
carry our their representation functions. (ILO Convention 135)
3) There shall be no discrimination or intimidation in employment.
Equality of opportunity and treatment shall be provided regardless of
race, color, sex, religion, political opinion, age, nationality,
social origin, or other distinguishing characteristics. (ILO
Conventions 100 and 111)
4) Employment shall be freely chosen. There shall be no use of force,
including bonded or prison labor. (ILO Conventions 29 and 105)
5) There shall be no use of child labor. (ILO Convention 138), and,
Whereas, independent monitoring of corporate adherence to these standards is
essential if consumer and investor confidence in our company's commitment to
human rights is to be maintained,
Therefore, be it resolved that stockholders request that the Company commit
itself to the implementation of a code of corporate conduct based on the
aforementioned ILO human rights standards by its international suppliers and in
its own international production facilities and commit to a program of outside,
independent monitoring of compliance with these standards."
The Board recommends a vote AGAINST this proposal.
We agree with the principles on which this proposal is based, but we do not
currently believe that adopting a code of corporate conduct is appropriate for
our Company at this time.
Our Company and its various subsidiaries are committed to the fair and ethical
treatment and human rights of all employees in the workplace. We provide equal
employment opportunity without regard to race, color, religion, national origin,
age, sexual orientation, marital status, citizenship status or disability, and
we do not tolerate discrimination on the basis of any of these factors. We
permit employees to organize in accordance with applicable labor laws. And, we
do not engage in or condone the unlawful employment or exploitation of children
or forced labor in the workplace.
Our Company is committed to improving and upgrading our policies and performance
where appropriate, and to that end, took the following steps during the last
year:
-- We adopted an enhanced child and forced labor policy and are now moving
forward on implementing this enhanced policy. Among other things, this
policy sets a global minimum age employment policy for our Company and
forbids the use of forced labor in all our operations around the world. The
policy also commits our businesses to work with their direct suppliers to
gain their compliance to International Labor Organization standards on child
and forced labor. In addition, we are committing, as an agricultural based
company, to work with others to address the complex issues of the
inappropriate or illegal use of children or forced labor in agricultural
sectors where we are major purchasers.
-- We have appointed a Chief Compliance Officer and created similar positions
in all the operating companies to help strengthen our standards for
compliance and integrity programs in the areas described above and across
the board. These officers are aiming to build world-class compliance systems
to ensure that we continue to meet and/or exceed our legal obligations, as
well as our own
30
corporate commitments and policies. These improved compliance systems will
include additional monitoring, training and communications, and auditing in
all of our operations.
-- In response to the 2001 stockholder proposal to adopt the SA 8000 Social
Accountability Standard, the Company made a commitment to examine a broad
range of codes of conduct to determine whether we should adopt one or more
codes or if appropriate changes should be made in the way we conduct our
business. The Company appointed an internal global task force to conduct
this review. Throughout this review, which is still ongoing, we have
conducted extensive research and met with numerous global businesses, code
sponsors, non-governmental organizations and other groups who have expertise
in these areas.
As a result of our research and external consultations to date, we believe our
enhanced child/forced labor policy, our internal compliance system, and our
commitment to continuous improvement will provide better assurance that our
policies regarding human and labor rights will be implemented.
We will continue to consider and review the benefits of adopting appropriate
external codes of conduct or enhancing our internal business guidelines.
Therefore, your Board urges stockholders to vote AGAINST this proposal.
31
OTHER MATTERS
Management knows of no other business that will be presented to the meeting for
a vote. If other matters properly come before the meeting, 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 $22,000, plus reimbursement of out-of-pocket expenses.
2003 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 2003 Annual Meeting, presently anticipated to be
held on April 24, 2003, notice of the nomination must be received by the Company
between October 16 and November 15, 2002. 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 2003 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
March 15, 2002 Vice President and Secretary
32
EXHIBIT A
PROPOSED AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION
OF PHILIP MORRIS COMPANIES INC.
Article I of the Restated Articles of Incorporation of Philip Morris
Companies Inc. is deleted and is replaced by the following:
"ARTICLE I
The name of the Corporation is Altria Group, Inc."
A-1
PHILIP MORRIS COMPANIES INC.
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, APRIL 25, 2002
AND PROXY STATEMENT
PROXY
PHILIP MORRIS COMPANIES INC.
Proxy Solicited on Behalf of the Board of Directors
Annual Meeting April 25, 2002
Geoffrey C. Bible and Charles R. Wall, 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 Common Stock held by the
undersigned in Philip Morris Companies Inc. (the "Company") at the annual
meeting of stockholders to be held at the Philip Morris U.S.A. Manufacturing
Center, Richmond, Virginia, April 25, 2002, at 9:00 a.m., and at all
adjournments thereof.
Election of Directors, Nominees:
01. Elizabeth E. Bailey 06. J. Dudley Fishburn 11. Lucio A. Noto
02. Geoffrey C. Bible 07. Robert E. R. Huntley 12. John S. Reed
03. Harold Brown 08. Thomas W. Jones 13. Carlos Slim Helu
04. Louis C. Camilleri 09. Billie Jean King 14. William H. Webb
05. Jane Evans 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 Board of Directors'
recommendations, just sign on the reverse. You need not mark any boxes.
SEE REVERSE
SIDE
--------------------------------------------------------------------------------
* FOLD AND DETACH PROXY CARD HERE *
RETURN PROXY CARD IN ENCLOSED ENVELOPE AFTER COMPLETING, SIGNING AND DATING
Admission Ticket
---------------------------------------------
PHILIP MORRIS COMPANIES INC.
2002 ANNUAL MEETING OF
STOCKHOLDERS
Thursday, April 25, 2002
9:00 A.M.
The Philip Morris U.S.A. Manufacturing Center
3601 Commerce Road
Richmond, Virginia
1-804-274-3346
---------------------------------------------
Please present this ticket to the Philip Morris representative in the
Registration Area.
DIRECTIONS
The Philip Morris U.S.A. Manufacturing Center is located approximately 6 miles
south of downtown Richmond. Take Interstate 95 to Exit 69 (Bells Road). You may
request a map by calling 1-800-367-5415.
For hotel information in the Richmond area, please call the Richmond Convention
& Visitors Bureau at 1-800-370-9004.
--------------------------------------------------------------------------------
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.
[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, FOR the name change and AGAINST
each of the stockholder proposals.
The Board of Directors recommends a vote FOR:
FOR WITHHELD
1. Election of [ ] [ ]
Directors
(see reverse)
For, except vote withheld from the following nominee(s):
--------------------------------------------------------
FOR AGAINST ABSTAIN
2. Selection of [ ] [ ] [ ]
Independent
Accountants
FOR AGAINST ABSTAIN
3. Amend the Restated [ ] [ ] [ ]
Articles of Incorporation of
the Company to reflect the
name change to Altria
Group, Inc.
The Board of Directors recommends a vote AGAINST
FOR AGAINST ABSTAIN
4. Stockholder Proposal No. 1 [ ] [ ] [ ]
FOR AGAINST ABSTAIN
5. Stockholder Proposal No. 2 [ ] [ ] [ ]
FOR AGAINST ABSTAIN
6. Stockholder Proposal No. 3 [ ] [ ] [ ]
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
---------------------------------------
---------------------------------------
SIGNATURE(S) DATE
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* 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.