Good morning, everybody, and welcome. I call to order Altria Group's 2018 Annual Meeting of Shareholders. I'm Marty Barrington, Chairman, CEO and President of Altria Group. With me today are Murray Garnett, Altria's General Counsel and Brandt Surgner, our Corporate Secretary. Thank you all for being with us today, including those of you joining by webcast.
And we're going to begin with our meeting details, but just a word about my voice. Apologies in advance. The allergies have compromised it a bit, so I know you'll indulge me. So let's first please review the Safe Harbor statement in today's presentation and the forward looking and cautionary statements section in today's press release for the important information that's there. They're available on altria.com along with reconciliations and further explanations of the non GAAP financial measures we'll be discussing.
Please also review the cards that were on your seats that have our agenda and the meeting rules along with some business highlights. We will begin by presenting our meeting documents, move to electing directors and then vote on the selection of PricewaterhouseCoopers as Altria's independent registered public accounting firm. We'll present a business update followed by an advisory vote on the compensation of Altria's named executive officers or NEOs. We'll then take your questions and vote on one shareholder proposal if properly presented. And finally, we'll report on the preliminary voting results.
So with that introduction, Brandt, would you please present
the meeting documents? Thanks, Marty. I present together with the affidavits of mailing a copy of the notice of meeting, form of proxy, proxy statement and annual report, which includes financial statements for the fiscal year ended December 31, 2017. Please remember that only shareholders of record as of March 26, 2018 may vote at this meeting. 89% of Altria's common stock is represented here today, so a quorum is present.
Thank you, Brandt. Please file the documents with our meeting records. I appoint representatives from Computershare to transfer agent for Altria's common stock as inspectors of election. The inspector should please take custody of all proxies and the certified list of holders of common stock as of the record date. This list, which is available for inspection throughout our meeting, contains the names and addresses of all shareholders of record and the shares held by each.
The inspector's responsibility is to determine the number of shares represented at our meeting and to certified votes. All proxies and ballots are confidential unless shareholders have commented on them. We will now distribute proxy cards to any shareholders who haven't yet returned them or who have voted but wish to change their vote. If you've already returned your card or otherwise voted, you do not need to submit a new card. So would you please raise your hand if you need a proxy card?
Okay. Thank you. Let's please all welcome our Board of Directors. It's an extraordinary group that provides Altria strong leadership and thoughtful oversight and we very much value their diverse skills and their experiences and perspectives. We're about to elect our directors, but before doing so, it's my privilege to thank Governor Jerry Belisle for his 10 years of distinguished service on the Altria Board.
Governor Beliales has decided to retire from the Board upon completing his term, which is today. His intelligence, expertise in public policy, deep sense of corporate responsibility and his collegial style has served our Board and our shareholders extremely well. We very much appreciate that and his leadership of our nominating corporate governance and social responsibility committee. So I hope you'll join me in thanking Governor Belisle. Thank you, Governor.
Murray, would you please announce the names of the nominees for Director as they appear in the proxy statement?
The nominees are John T. Kesting III, Dinir S. De Vitri, Thomas F. Farrell II, Deborah J. Kellyannes, W.
Leo Kylie III, Catherine B. McQuade, George Munoz, Mark E. Newman, Nabiloy Sakabe, Virginia E. Shanks and Howard A. Willis III, each to hold office until the next Annual Meeting of Shareholders and until his or her successor has been duly elected and qualified.
Thank you. Under our bylaws, the nominations are closed.
Those in the room wishing to vote on the election of directors should please do so now. Our next item is the ratification of PricewaterhouseCoopers LLP as Altria's independent registered public accounting firm for 2018, and I want to welcome Russ Moore from PwC who is with us here today. Murray, would you please present the matter?
I move the adoption of the following resolution. Resolve that the selection of PricewaterhouseCoopers LLP as Altria's independent registered public accounting firm for the fiscal year ending December 31, 2018, be ratified.
Thank you. Those in the room wishing to vote on selection of PwC should please do so now. We're now pleased to update you on the business. As you know, we run our businesses for the long term. So we'll begin by briefly reviewing our performance for the most recent 5 year period.
We will then turn to 2017 and finally we will say a word about 2018 through the Q1. From 2012 through 2017, we achieved strong business performance, delivered outsized returns to shareholders, and we invested in key long term strategic initiatives for our future success. At the core, our Smokeable Products segment grew its adjusted operating company's income or OCI at a 6.4% compounded annual growth rate to $8,600,000,000 and increased its adjusted OCI margins by 10 percentage points to 51.2%. PM USA increased its retail share by half a share point, strengthened Marlboro's brand equity and maintained its significant market leadership. Our Smokeless product segment grew its adjusted OCI at a 7.4% compounded annual growth rate to $1,400,000,000 expanded its adjusted OCI margins by 7 percentage points to 67.8 percent and delivered combined share growth of Copenhagen and Skol of 1.2 share points to 50.7%.
In wine, Ste. Michelle grew its adjusted OCI at a 7.2% compounded annual growth rate. In Embiid, we strengthened our position by supporting Anheuser Busch in bed's business combination with SABMiller, providing Altria with a more than 10% interest in the world's largest global brewer and significant income and cash benefits. For example, Altria received over $800,000,000 in dividends from AB InBev in 2017 alone. What Altria's shareholders have received over this 5 year period includes annual adjusted diluted EPS growth of nearly 9% from $2.21 per share to $3.39 per share, $21,000,000,000 in dividends and a dividend rate that grew at a compounded annual rate of more than 8%.
Another $6,000,000,000 in cash through share repurchases and a cumulative total shareholder return of over 180%, significantly outperforming its benchmarks. All pursue our aspiration to be the U. S. Leader in providing adult tobacco consumers with authorized non combustible reduced risk products. To do that, we've embraced the opportunities that our dynamically changing industry is presenting and we invested to win in these opportunities.
You'll remember, for example, that Altria supported the passage in 2,009 of the Tobacco Control Act providing the FDA with jurisdiction over tobacco. It was enabling legislation that was required to establish the possibility of bringing innovative reduced risk products to market. Once that passed, we provided the FDA with a comprehensive science and evidence based analysis advocating that it should regulate based on a continuum of risk, should promote innovative products, and it should permit consumers to have truthful information about such products. And in July last year, the FDA adopted that policy approach in announcing its new comprehensive plan for tobacco and nicotine regulation. We also have been building a portfolio of the 3 leading platforms of non combustible products for U.
S. Adult tobacco consumers. 1st, smokeless tobacco and oral nicotine containing products 2nd, e vapor and third, heated tobacco. In Smokeless, USSTC is the largest and most profitable non combustible tobacco business in the world. Businesses in the U.
S. With its Mark 10 brand. In heated tobacco, we have the exclusive right to commercialize the IQOS platform and HeatSticks in the U. S. Once authorized by the FDA, an opportunity for which our teams are ready.
All this is complemented by having built best in class regulatory and science capability and substantial financial firepower. So with that longer term perspective on the business, let's turn to 2017. Full year 2017 was another strong year. We grew adjusted diluted EPS 11.9%, built on the success of our core tobacco businesses and complemented by federal income tax reform, an initiative we had long supported. We delivered a TSR of 9.4 percent.
We paid out $4,800,000,000 in dividends and increased our dividend by 8.2 percent, and it was the 51st dividend increase in the last 48 years. We repurchased more than $2,900,000,000 in Altria shares under expanded $4,000,000,000 program and we acquired and integrated Nat Sherman to address opportunities in the smokeable segment. As for 2018, we're off to a fast start to the strong year of EPS growth to which we've guided. As we reported in April, in the Q1, we grew adjusted diluted EPS by more than 30% and increased our dividend by 6.1%. And we took a significant step forward toward our harm reduction aspiration with USSTC submission to the FDA of its modified risk tobacco product application for Copenhagen snuff.
We reaffirm our guidance to deliver full year 2018 adjusted diluted EPS of $3.90 to $4.03 per share from a 2017 adjusted diluted EPS base of $3.39 and this range represents a growth rate of 15% to 19% from 2017. A word now about the share price, which like other tobacco company stocks has declined in 2018 through April. The reasons include sector rotation away from consumer staples and strong dividend payers in a rising interest rate environment. There has also been a dampening effect in some quarters over regulatory risk from FDA. Long term shareholders will recall that our stock price previously has faced similar short term challenges.
We addressed the related business challenges then continued to create shareholder value despite them. Today, we remain confident that we have the strategies, resources and the people to deliver winning results in this environment and over the long term. Let's close with a word on corporate responsibility. Importantly, we achieved the results discussed today responsibly and in line with our mission. Our harm reduction aspiration is one element of our approach to responsibility, but there are other ones that bear a mention.
For example, we continued our long standing efforts on underage tobacco prevention, an issue on which we have worked for decades. In fact, over the past 5 years, we've invested more than $100,000,000 in leading youth serving organizations that promote the healthy development of kids and help them avoid risky behaviors like tobacco use. We continue to communicate about the health effects of our products and to provide cessation resources to adult tobacco consumers who wish to quit. We concentrate on supply chain responsibility. For example, we've continued our work with tobacco growers and other stakeholders to improve worker safety and working conditions on the farms.
We communicate our expectations through our supplier code of conduct, good agricultural practice guidelines and our contracts and it's all backed up by audits And we've recently announced a new program called TLP Select to reward growers who successfully increase farm safety and improve the living and working conditions for their workers. We invest in our employees by attracting, developing and retaining talented leaders and we promote a vibrant and a diverse work culture where everyone is welcome and challenged to contribute. We make the details of these and many other corporate responsibility efforts available on altria com and in our annual corporate responsibility reports. I think shareholders should be proud of the recognition their company has received in this regard. In 2017 alone Altria was ranked 4th on Corporate Responsibility Magazine's 100 Best Corporate Citizens list, named by the Civic 50 to be among America's most community minded companies.
For the first time, we were named to CDP's Water A list, which recognizes the world's businesses leading on water stewardship and designated by DiversityInc as one of 25 Noteworthy Companies for Diversity and it's the 5th year in a row for this recognition. The credit for these accomplishments and so much more all belongs to our dedicated and our talented employees, and so we thank them for their efforts. Let's now move to the advisory vote to approve the compensation of our NEOs. While this vote is non binding, the compensation committee will consider its outcome when making future decisions. We believe our executive compensation programs contribute to our excellent business results and strong shareholder returns.
And as the proxy statement fully describes, we design these programs to align the interest of our executives with those of our shareholders by appropriately compensating executives for achieving performance goals and advancing our mission and strategies. At the 2017 annual meeting, more than 92% of the votes cast approved the compensation of our NEOs. The Board recommends that shareholders vote in favor of this matter. Those in the room wishing to vote on this matter should please do so now. Okay, let's now transition to our question and answer session.
We welcome your questions and we know that you will observe our meeting rules. So if you'd please identify yourself and address your question to me and the lights up front will help us manage our time. If we run short of time today, I hope you'll complete and return a comment card so that we can respond to you. So with that, let's begin and I'll alternate between the microphones. I'll begin on my left.
Good morning.
Good morning, Mr. Barrington. Edward Sweder, I'm a shareholder from Massachusetts. And before I ask my question, I will note, as you are well aware, that today's meeting is the 1st Altria Group shareholder meeting taking place after the death of Father Michael Crosby. He, of course, passed away last August, just 8 months after his diagnosis with cancer.
And I just wanted to state and I think this is certainly very appropriate setting for me to state my enormous admiration and respect for Father Crosby. I met him actually in the early 1990s coming to shareholder meetings when the company was called Philip Morris and also going to Reynolds meetings in Winston Salem. But he was just without any flaw in terms of his total dedication to social justice inspired by his devotion to his Catholic faith and of course he was a Capuchin father for many, many years. So I just wanted to note that most certainly I could not possibly be here without thinking of and respecting his memory. My question on Page 10 of the company's 10 ks form, Altria lists 4 separate litigation setbacks in Florida that occurred, all of them, just in the month of February of this year.
And on April 18th this year, Florida's 1st District Court of Appeals upheld a $6,300,000 plaintiff verdict against Philip Morris USA in the Brown case. So my question is, isn't it true that the value of Altria's shares has been diminished by the uncertainties and concern about tobacco litigation?
No, I don't think that's true for reasons I'll explain in a moment. But let me begin by seconding your comments about Father Crosby. And they were very eloquent and gracious on his behalf, Mr. Sweet. Thank you very much.
We share those sentiments. You may know that we reached out to Father Crosby's family upon learning of his death, and they were wonderful in working with us. So I appreciate you doing that. And we miss him as well. We don't always agree, but we were always glad to see him at the meeting.
I think that the litigation remains a risk for the company as it has been for many years. I think the 2 issues that are important for shareholders is to make sure that they know that it's very effectively managed and defended. And secondly, that there is complete disclosure in the 10 ks, and we do both those things. It's true that there are some short term data points, as you point out, where we lose cases at trial. We often win many of them on appeal.
I think if you look to the table in the 10 ks, you actually see that the litigation has diminished significantly. It's not that it's risk free. Every company that has litigation has the risk, including us. But I think shareholders should feel good about the way company has handled litigation. And I don't think it has anything to do at all with the stock price.
Thank you for your question. Good morning.
Good morning, Marty. It's Ann Gerken with Davenport. Hi, Ann. First, I want to thank you for your leadership and wish you all the best in retirement, which I think occurs at the conclusion of this meeting.
You're very nice. Thanks.
My question this morning, I was just wondering if you would share some insights on the domestic cigarette category volume and the rapid growth of e vapor and now increasing gas prices. If you would address concerns about e vapor potentially taking volume and share away from the combustible cigarette category, and the interaction of the combustible and e vapor? And then wrapping in that discussion, if you would give any perspective or insight into recent FDA actions towards reducing use access to these e vapor products, I would appreciate that
insight. Okay. I'm going to try
to do this short. That's a lot. As to volume, as you know, our long term estimate of the volume decline in the cigarette category has been 3% to 4% over the long term. And that's built on a model of both secular decline as well as price elasticity. We continue to believe that the model is robust.
The short term in the Q1, for example, where the industry volume was down, I think, 5.5%, which was outside that range. I think in our remarks at the earnings call, we pointed out that we were lapping the California SET increase, which occurred last year in so lapped that in the Q2. We would expect for volumes probably to improve in the back. There is interchange, no question among adult consumers who are using e vapor products and other products. And I do think the gasoline prices are up.
I think the last number I saw, they're up somewhere between $0.25 $0.30 And as you know, from time they went down, it does have an effect on consumers. So, all of that appears still to be within our long term range. Let me dimensionalize the e vapor category for shareholders to try to understand the interaction that you're making reference to. Consumers spend about $90,000,000,000 a year in the United States at retail and about $3,000,000,000 of that is on vapor. So it's obviously a very small part.
But there's no question that as innovative products come into the market, there's going to be interaction between consumers who we know are looking for innovative alternatives. And we see that as an opportunity for the company, as you heard this morning, by building our innovation aspiration. So we will have to see over the long term, but that's our thinking at the moment on volume and vapor.
Are the FDA recent actions towards reducing use access to e vapor, any insights you can share there?
I think it's a good thing that they have done for some irresponsible, frankly, executions in the marketplace, which we don't do. Some of the names of the vapor products are completely irresponsible and some of the packaging and the marketing is completely irresponsible. And we've called on the FDA to enforce that and we're pleased to see the FDA taking enforcement against those folks. Great.
Thank you.
Thanks, Ann. Good morning.
Good morning. My name is Mike Helton, and I'm a retired aerospace engineer. I own about 3,000 shares of this company, and I have shares in about 30 other companies. And I just wanted to compliment you on the fine management. This company has better management than I have ever seen in any companies I've ever looked at.
So I appreciate that. My question is concerning the growth of the cannabis industry. As you may know, it's been growing and the legality of recreational marijuana has been increasing. And so my question is very simply, how do you and your Board feel about this growth into that section of the industry.
Welcome to
the meeting, Mr. Hilton. Glad you're here. Would you like to make any other comments about the management team? I want to make sure you've used all your
time. If you give me one more hour, I'd be glad to ask.
You're very, very generous and I appreciate that on behalf of the executive team and the Board of Directors. The answer on cannabis is no. It's true that some states are experimenting, but as I'm sure you know, it's illegal at the federal level. And indeed, it's impossible to even have bank accounts or accounting relationships or legal relationships. And as long as it's illegal, we're not that's not a category we're interested in.
But I appreciate your question and welcome to me. Okay. Thank you. Okay. Good morning.
Hi, good morning. My name is Jackie Castillo. I am a farm worker since the age of 7 working in tobacco, growing up, there were many violations. One that stood out was about 5 years ago when I had to share 1 single cup of water, yellowish and black specks. There I knew this is not what I wanted for the rest of my life, but there is always constant fear of retaliation.
3 years ago, my family joined Flock. We began to educate ourselves of our rights. For the first time, we felt confident to speak out on better working conditions. Just yesterday, my mother and flock members organized and demanded our grower to pay up to $1,000 in old wages. I come here to share my story and ask Altria to work with FLOT in guaranteeing workers' right to organize and negotiate and make complaints without fear of retaliation?
Thank you.
Thank you for your question. Welcome to our meeting. I'm glad you're here. Thank you. We share your concern about working conditions.
You heard me mention of that in our remarks. We've been working with FLOC and with the Farm Labor Group and other stakeholders for many years now to try to improve conditions in the field because everybody is entitled to good conditions where they work and they're entitled to payment of their wages. And we respect freedom of association at Altria and we call upon others to do so as well. We have enjoyed a very good relationship with the organization and with people in the field. I hope you see our representatives in the field.
You may know that our LEAP department has representatives that visit the fields to perform audits to make sure that the expectations that we have about working conditions and safe working conditions and environmental practices are all being followed. I appreciate you raising it and give you my commitment we'll continue to work with people to see that that happens. Thank you. Okay. Good morning.
Good morning. My name is Emma and I'm from Upstate New York. In my hometown, others and I have recently done a major cigarette filter cleanup in various outdoor places. According to the Truth Initiative, it is estimated that 4,500,000,000,000 cigarette filters are littered worldwide each year. According to Longwood University, filters take 10 years fully break down in the environment.
And as they break down, they release arsenic, nicotine, heavy metals and other chemicals into the environment. We know that for the past 15 years, Keep America Beautiful has managed the cigarette prevention program with funding from Philip Morris USA. I know the cigarette prevention program focuses on 4 key ideas: encourage enforcement of the law, including cigarette litter raise awareness about issues using public service messages placing ash receptacles at transition points and distributing portable ashtrays to adult smokers. But with 15 years of these four focuses and yet 600 filters from each person on earth being littered. This causes the appeal of public spaces to decrease.
My question is, how does Philip Morris feel about policies establishing tobacco free outdoor spaces to increase the appeal of those spaces?
Thank you for your question. Welcome back. We had a discussion last year, as I recall. Glad to see you back. I think you have to separate out 2 issues.
We completely agree with you about cigarette litter and we've been working on it for many years. Cigarette smokers should not discard their filters on the ground. They should be disposed of properly. Many don't. We unfortunately have been talking to our consumers about that.
And you're right, I think we're the largest funder on Keep America Beautiful. I can't remember how many cities we've been in, but it's scores of them over the years and we've invested heavily in that. I think we've made progress, but I think there's more progress to be made. I think you have to separate that out from the issue of smoke free policies outside, right? There's nothing that's inconsistent with a smoker who is in an area that they should be free to enjoy their cigarette, properly disposing of it.
And I don't think those are the same issues at all. So I think that you can both reduce the litter and we can respect adults' choices to use the products in places that are appropriate, while understanding that there are and others that aren't. That's how we think about it.
Welcome back. Okay. Good morning.
Good morning.
Good morning.
Good morning.
My name is Justin Flores, Vice President of the Farm Labor Organizing Committee. I know many of you pretty well. I've been here at a few shareholder meetings now. And unfortunately, I have a very similar report to make. Again, we do appreciate the work that Altria has been doing with the FLPG and in training and in a number of spaces and what I think is a good faith effort on dealing with labor issues.
But unfortunately, on the ground, we're really not seeing much of an improvement. In fact, in a lot of ways, we're backsliding. We're seeing an increase in the use of H-2A and regular labor contractors. We're seeing growers feel pinched by the way the industry is operating and looking to ways to cut labor cost, which involves using these labor contractors because they're cheaper, because they don't comply with the law. And so we're still here dealing with these same issues.
I was intrigued to hear of the what I wrote down, I think was TLP Select, although I'm not sure if I got the letters right. I have heard from growers about an incentive program that is sort of incentivizing a little extra money for those using the H-2A program, which I think is a good faith program. H-2A program has additional costs and those should be reflected. But I want to really just encourage people to think not about H-2A by itself meaning better working conditions because we see a lot of violations in the H-2A program. And again, not seeing training and audits as the ultimate solution because those have limited value and an auditor goes out to a farm and talks to workers and the first time they've ever talked to him, talks to a select group of workers, you're not going to get the real picture of what happens on a day to day.
And I think training is useful, but not really a solution. This is an economic problem. Just give one example, we see in all the safety trainings, dealing with heat stress, taking regular breaks, being in the shade and drinking cold water are important pieces. But 2 15 minute breaks for a crew of 50 workers, look at that means that's about 3 hours per worker of breaks in 1 week with 50 workers in a few months talking about $20,000 or $30,000 so the grower who gives breaks makes $20,000 or $30,000 less than the grower who doesn't. And so we really want to see a more comprehensive view.
We really encourage you to work with us, work with farm workers. We have members on the ground all over North Carolina and in Kentucky and a few other states. And we think it's really important to deal with this on a comprehensive way instead of making these small steps, which are good. And I believe they're made in good faith. But we hope that you'll continue dialogue with our President, Baltimore Velasquez and take seriously an idea of signing an agreement that guarantees improved labor rights with the mechanism on the ground.
So, thank you for letting
me Thanks, Farris. Nice to have you back again. You certainly have our commitment to continue to work on that. When we left the meeting, I think it was last year and you and I were having this discussion about what more we could do, we did go back and examine whether there was more to do. And you heard us this morning, we've done I think 3 things that are intended toward those goals.
One is our pricing. I think everybody who's in the grower community knows that our pricing is at the top of the is in the grower community knows that our pricing is at the top of the pricing for the United States tobacco market. And we've done that in part because we know that growers have responsibility initiatives and they cost money and we want them to have the funds that they need in order to have safe workplaces. That's one. We did increment a supplement on the H-2A program.
So for growers who use H-2A who bear greater costs, we now have a supplemental payment to them. And then the third, as you've mentioned, we are going to pilot our TLP Select program. So just a word on that, it's going to pay $10,000 each to as many as 45 growers who demonstrate leadership in the field on worker safety and good working conditions. And we think that's the right way to incent people to do the right thing beyond what we've already been doing. So welcome back and thanks.
If you talk to Mr. Sykes, he has a whole package. I sort of anticipated you might want more and I think he's ready for you. Okay, Mr. Pilaris.
Thank you. Good morning, sir.
Good morning, Mr. Chairman. My name is Raul Sanchez, and I represent Sarah Jobs for Progress National. Sarah is a national nonprofit community based organization serving more than 1,300,000 people a year by assisting them with their employment and educational needs. We are glad that you participate in the Hispanic Association on Corporate Responsibility's Annual Corporate Inclusion Index survey.
You have shown great improvement since you began participating in the survey and much of the credit must go to your Board of Directors for their leadership and concern for diversity. We want to again acknowledge Mr. George Munoz serving on your Board. We know he does an excellent job for Altria and representing the Hispanic community. Every so often society experience moments when change is right in plain sight.
We had several such moments when a number of iconic American brands rolled out ads during the Super Bowl and during the Olympics that were aimed at what one voiceover called the new us. They do their market research, they look at their numbers, they know how fast the country is changing. The nation's 16,000,000 Hispanic children will likely continue to be our fastest growing child population. The United States Census Bureau projects that the number of Hispanic children will raise to 24,000,000 by 2025. Hispanics account for more than 53,000,000 consumers who collectively possess $1,500,000,000,000 in buying power, a figure that makes them the world's 14th largest economy.
We are glad that Altria has a vision to react and embrace these changes. Thank you.
Thank you, sir, for your comments, which are very eloquent. We like Mr. Munoz too, and we like all of our directors. And I think you know from our previous discussions on this topic that we are passionate about this topic of diversity and inclusion. It's been one of our major cultural initiatives at the company.
We have really our leadership has dug in
on this and we have some ground to cover, but
it's top of mind with us. Has dug in on this and we have some ground to cover, but it's top of mind with us and it's top of mind in terms of our interactions with our consumers as well. So I appreciate you coming and I thank you for your comments.
Thank you, sir.
Good morning, sir. Good morning.
My name is Daryl Varner and I'm a shareholder and a burley contract grower for PM USA since 2004. Welcome. Thank you. I serve as President of the Council for Burley Tobacco in the State of Kentucky. And as a grower, I want to thank you for your being the industry leader in price, your commitment to our divide and commitment purchase of our burley and for keeping lines of communication through the leadership in the leaf department and grower reps in the field.
As one of many growers, I am complying with all the good agricultural practices of GAP requirements to provide traceability and reliability, and we are bringing compliance to make our leaf premium and value added. We will as growers in our burley can and will adapt to the new risk reduction goal. The Council for Burley Tobacco that I serve as President for have already invested money and resources towards research to reduce an atrocious means in tobacco through grants and farm plots. And I want to thank you for the infrastructure program that you have had in place to support growers and improving the infrastructure and I urge you to continue to provide programs like this one and help build infrastructure for growers so that we can improve quality and reduce cost in production. These types of programs are very much needed and appreciate In closing, I'm proud to be a shareholder and a Burley grower for PM USA and I thank you for your time.
Thank you, Mr. Varner for those very nice comments and you have our continuing commitment. Congratulations on your leadership at the Burling Council. Good morning, sir.
Good morning. I am Austin and I am from Olean. Welcome. So it's known that youth use a wide range of tobacco products, including cigarettes, chew, cigars, cigarillos and e cigarettes. According to the Surgeon General and Centers For Disease Control and Prevention, used exposure to smoking has been known to cause sudden infant death syndrome, severe asthma, lymphoma, leukemia, liver cancer and brain tumors.
Additionally, many substances in both conventional and electronic cigarettes are classified as carcinogens by the Environmental Protection Agency. The Centers For Disease Control and Prevention states that scientific evidence shows that tobacco company advertising a promotion influences young people to start using tobacco. Adolescents who are exposed to cigarette advertising often find the ads appealing and tobacco ads make smoking appear to be more appealing, which can increase adolescents' desire to smoke. The 3 most heavily advertised brands in America Marlboro, Newport and Camel were preferred brands of cigarettes smoked by middle school and high school students. Through store advertising or observations, Philip Morris' packaging and advertisements are similar to youth products such as mints, gum and beef jerky products.
So my question is, what is Philip Morris doing to decrease the appeal of its products to youth?
Welcome to the meeting. Thank you for your comments. I'd refer you to the website and to the corporate responsibility report where we devote pages and pages and pages describing the work that we've done that's responsive to your request. I have to disagree with you respectfully on one point. We do not make our packaging to look like the other products.
In fact, we go out of our way not to do that. We comply with everything that is out there on tobacco regulation and it's a lot. It's probably the most heavily regulated product in America and we comply with it all rigorously. Our marketing reach is actually limited. We are trying to reach adult tobacco consumers and we take steps that are designed to limit the reach to others.
So for example, we don't market to people in a one to one way unless they're age 21 and have been verified through 3rd party sources as being there. So we share the concern about underage tobacco use. In fact, as you know, the rates are down significantly, significantly. They are at generational lows actually on cigarettes, but there is always more work to do. So we've been working in this space for about 20 years.
We've invested frankly 1,000,000,000 of dollars with our retail trade program and our partners there to sure the kids don't have access to these and that we merchandise our category responsibly. So I know it's a concern and I'd refer you to the 2 places I mentioned and you can see in full how we handle that. Welcome to the meeting again. Good morning, sir.
Good morning. My name is Scott Travis. I'm a farmer in Kentucky, grow burley and I have nearly my whole life, come from a family of multiple generations dating back into the 1800s of tobacco growers, still a proud tobacco grower. Currently, I serve on
the Board of Directors of
the Kentucky Farm Bureau Federation Board. I'm a member of the Kentucky Tobacco Research and Development Center at University Kentucky where we do work on tobacco research and so forth. That's going to help us stay in business. Also, I am a member of the Council of Burley Tobacco as a previous speaker before. But basically speaking on behalf of a farmer, farmer is a person of faith.
We have faith, we put a seed in the earth that it's going to rain, the sun is going to shine and we're going to have a crop that we can feed our family and expand our operation and make a living on. And tobacco has been very challenging because the ability to grow what we need to grow, the ability for new growers to get into the system has kind of been diminished in the last 10, 15 years. Several years ago, back pre buyout time, there were 60,000 or more tobacco growers in Kentucky. And now I believe there are probably less than 4,000 tobacco growers in Kentucky. And that voice to me would be very valuable to you guys.
If there were some way to offer more contracts, maybe offer contracts to younger growers. Myself, when I got out of high school, if you wanted to make a living on the farm, you worked hard and you grow raise tobacco. I earned the respect of landlords. They were retiring. They rented me their farm.
Now I can grain farm, raise cattle, so forth. But the opportunity was there because of tobacco. Do you see in the future that Altria could do some things to offer the younger generation of farmer an ability to get some contracts? And also those voices that you used to have, how much value would you put on them as far as having clout when we go to Washington or go to Frankfort, Kentucky? Well, welcome to
the meeting. I'm really glad you're here and sharing your point of view with that. The growers are absolutely critical to our success. It's the crop that we use for most of our products. That's why we work so hard with you and others to try to make sure that we have a sustainable crop.
It's good quality that we pay fair prices. And I think that our engagement with the farmers has improved over the last years because it's a dynamic time and people need to be kept apprised of what's going on. We are always looking for farmers who can produce a quality crop and I know Mr. Sykes and his team are looking for growers who meet our contract requirements and are happy to work with us on that. The industry is changing.
And so, I think at a time of change, more dialogue is better than less because the entire supply chain is going to have to adjust, aren't they, from retail to manufacturers to growers. But I promise you, you have our commitment continue that dialogue and if there are good ideas like those and others, we are willing listeners.
I am glad you came
and shared them. Thank you.
And we will offer invitation to your entire Board to come visit us in Louisville at the Kentucky Farm Bureau Federation building. Our doors are open. We share interests and we want to work together and help. Well, you're very kind.
They're all sitting in the 1st row, so I'm sure they heard it. On the Louisville.
Good morning.
Good morning, Mr. Barrington. My name is Eric Pearson. I'm a shareholder from Wisconsin. Yes.
Welcome back. Thank you. My question concerns FDA regulation. Insofar as the company is aware, has the agency attempted to draw or has it drawn a linkage at all between progress on the MRTPA or the PMTA for IQOS on the one hand and the nicotine product standard on the other hand? And then if you could just explain the company's position on the nicotine product standard, please?
Thank you. Sure.
And thanks for your questions. So Mr. Pearson is making reference to the fact that there are 2 applications pending on IQOS that you saw in our remarks. One is for a market order, which is called a PMTA, so that we can sell IQOS in the US market. And then the second is called the MRTP, which is to actually put a claim on it to inform consumers that it has less health risk.
Our understanding of that process is that they're going to rule on the PMTA first and the MRTP second. And we're hopeful the time has been running on the PMTA. We've been working closely with PMI and FDA on that. And it could really be at any time on the PMTA. As you know, there was a tips act hearing on the reduced health claim.
And so there's some work there probably to be followed up on. The commissioner has made clear that there is a direct linkage between the creation of an innovative products market on the one hand like IQOS or like vapor, and a nicotine product standard on the other. Why? Because you have people today who use nicotine principally like smoking cigarettes and if you're going to do anything, which is far from clear that that will happen, but he's interested in exploring whether we can migrate smokers from the more hazardous form to more innovative reduced risk forms. And that's going to require the creation of the market.
And I think that's the linkage between them. Okay. Thanks for your question. Okay. I guess we have you have the privilege, sir, of asking the last question.
Excellent. That's what I was hoping for. I'm John Chafee, I'm from New York. On our Trio's website and at this meeting, it mentions that the company's aspiration is to be the U. S.
Leader in non combustible and reduced risk products. Under Tobacco Harm Reduction, 3 products are listed: Smokeless, e vapor and heated tobacco products. The Center For Disease Control and Prevention states that using smokeless tobacco products can cause mouth, esophagus and cancer of the pancreas. Smokeless tobacco also increases the risk for early delivery and stillbirth when used during pregnancy. The CDC also states that using smokeless tobacco may increase the risk of death from heart disease and stroke.
In the past, the FDA had the authority to regulate tobacco products and prohibit the use of certain terms such as light, mild and low in cigarette labeling and advertising. So my question Mr. Barrington is, what's Altria's definition of risk reduction and harm reduction? And are these terms miss leading like light, mild or low? Well, welcome back to
the meeting. Glad you're here again. No, they're not misleading because they're in the statute. The Tobacco Control Act sets the standard for what will be or will not be passing muster for reduced risk products. So if you refer to the Tobacco Control Act, you can actually see that there.
We have a very good presentation if you're interested in this topic on our website. Go to the November 2 Investor Day and the gentleman who runs our smokeless business, Mr. Quigley and others made presentations about the difference in risk between using smokeless tobacco products and cigarette smoking. No one is claiming that it's safe, but the idea is to move people to less hazardous products once they are fully informed. There is a very good presentation there.
I would commend it to you. Thanks for your question. Thank you all for your questions. So we'll now hear a presentation and then vote on 1 shareholder proposal included in the proxy statement. The Board recommends a vote against the proposal for the reasons explained in the proxy statement.
We encourage all shareholders to read the proposal and our response. Proponents and any speakers commenting on the proposal should please identify themselves. Again, we thank everybody in advance for cooperating with the meeting rules. So will the representative from the Sisters of St. Francis of Philadelphia please present the proposal.
Good morning.
Good morning, Mr. Sherman, members of the Board and fellow shareholders. I am Sister Anur Nash, a Sister of St. Francis of Philadelphia, and I represent 4 other co filers, all members of the Interfaith Center on Corporate Responsibility. I hereby present shareholder proposal number 4.
Today, in honor of Father Michael Crosby, I ask our company to play a more significant role in protecting young Americans against the severe health effects of tobacco. We have asked the company to be transparent and to make available to tobacco using customers the nicotine levels for each of our cigarette brands and begin to reduce the nicotine more seriously. During our most recent dialogue on January 22, 2018, Altria proposed that the FDA is in the best position to do what shareholders are asking. You explained that the FDA wants to get its arms around the issue and have answers to those questions. And then we'll decide whether to impose a standard and what that standard will be.
I would like to say at this time, we deeply respect the fact that we have had very good dialogues with the company and we always appreciate those dialogues. Excuse me. Little probs are around this morning.
Yes, I hope I didn't send it your way.
However, the Board in its recommendation against our proposal suggests that the regulatory framework is far more important than the health of the individuals since the advanced notice of proposal rules holds the key. You also suggest that our proposal is premature and would require costly and burdensome activities without the benefit of regulatory guidance. We don't agree with that. Yet, and again, you, Mr. Barrington, said at the November investor presentation that Altria is ready for the introduction of reduced cigarette products.
You are preparing for a new axis of competition. Your company has indicated that you've developed ways of producing reduced nicotine cigarettes and aspires to become the U. S. Market leader in non combustible tobacco products such as the e cigarettes ahead of potential federal requirements for tobacco. To me that seems a little contradictory in light of the whole document that we have read from the FDA.
We are about protecting families and reducing the risk. The FDA and all concerned shareholders are looking at how we can protect the American family and all who have serious issues with nicotine. Father Mike would want to keep that before you and the public health question and issue as we look at opportunities again to take safe steps and to be safe. We wish you well in your retirement and we thank this assembly for listening and we really do ask you to address our proposal more seriously. Thank you.
Thank you, Sister Nora. Welcome back. Are there any comments on the proposal? Yes, sir.
Yes.
Good morning. Again, Edward Sweder, a shareholder from Massachusetts. I, of course, read the proposal and then read the company's response. And frankly, it reminded me of something we went through in Massachusetts back in the 1990s when there was an initial effort by the State Department of Public Health to require the disclosure of ingredients that are in cigarette products. And the heavy and certainly industry wide consistent position of opposing that proposal and basically keeping to themselves the information rather than sharing it with consumers.
And so in this instance, I was struck by how truly modest the proposal is. Obviously, it is true that the FDA has begun the process of regulatory framework on this issue. But the company really is not compelled to just sit back and wait or let the FDA take its the efforts, the process, which we know can take multiple years, is really if the company were to accept this proposal, it could still have all of its input in terms of advice to the FDA and all. So I would just underscore the very modest nature of this proposal and give full support to it.
Thank you, Mr. Sweta. Are there any other comments on the proposal? Okay, thank you. Those in the room wishing to vote on this proposal should please do so now.
All matters to be voted on have now been presented. If you haven't already voted, please complete your proxy card, raise your hand and an usher will collect your card. Thank you. Since all shareholders have had the opportunity to vote, the polls are now closed. The ushers should have collected all the proxies and delivered them to the inspectors.
As we await the inspectors report, I'd like to say a word about our leadership team. The keen eyed among you will have noticed that when we elected directors earlier that I was not among the nominees. That's because earlier this year, I did inform the Board of my decision to retire as Chairman and CEO because I'm turning 65 shortly and have completed more than 25 years of service. Through its long term succession planning process, the Board has elected Howard Willard to serve as the company's next Chairman and CEO. Howard is immensely qualified to lead Altria, having served in numerous leadership positions during his 25 year career with us, including as Chief Operating Officer and as Chief Financial Officer.
Further, the Board has elected Billy Gifford to the executive position of Vice Chairman of Altria, while continuing his appointment as Chief Financial Officer. These appointments reflect the leadership and the valuable contributions each of them has made to our company. Both Howard and Billy are fully ready to propel our great company forward to even greater future success as I step down today. So I hope you'll join me in congratulating them both. As I step away, I do so with the most heartfelt thanks for the opportunity to have served as your Chairman and CEO and for all of the support you've shown to me.
It has been my privilege to serve and I am deeply grateful to you all. Okay, Brandt, if you could please summarize the inspectors report.
The inspectors have completed the preliminary count of the vote. The preliminary voting results are as follows. Shareholders have elected each of the nominees for director with more than 93% of the shares voting for their election. The selection of PricewaterhouseCoopers LLP as Altria's independent registered public accounting firm for the fiscal year ending December 31, 2018 has been ratified with more than 97% of the shares voting in favor. Shareholders have approved on an advisory basis the compensation of the company's NEOs with more than 94% of the shares voting voting in favor.
The shareholder proposal has been defeated with 96% of the shares voting on the proposal voting against and 4% voting in favor.
That concludes the report. Okay. Thanks, Brandt. Please file the inspector's report, certificate and the proxies with our meeting records. We'll post the voting results on the website with the press release following our meeting and we'll file the final voting results with the SEC on a Form 8 ks.
I want to thank you all very much for coming today or for listening on the webcast and thank you for your continued confidence in Altria and our meeting is adjourned.