Good morning. Welcome, everyone. I now call to order Altria Group's 2017 annual meeting of shareholders. I'm Marty Barrington, Chairman, CEO, and President of Altria Group. I'm joined this morning by Denise F. Keane, Altria's General Counsel, and Brant Surgner, our Corporate Secretary. It's really great to see all of you here today, and I want to also welcome all of those who are joining us by webcast. 2016 was another outstanding year for Altria and our shareholders, and we look forward to discussing those results shortly. First, though, we ask you to please review the safe harbor statement in today's presentation and the forward-looking and cautionary statement section in today's press release for the important information that's there. That's all available on altria.com along with reconciliations and further explanations of the non-GAAP financial measures we discuss today.
On your seats, you have our agenda and our meeting rules and some 2016 business highlights. We'll 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 then share a brief business update, followed by advisory votes on the compensation of Altria's Named Executive Officers, or NEOs, and the frequency of future advisory votes on NEO compensation. We'll then take your questions and vote on one shareholder proposal if it's properly presented. We'll then conclude with a report on the preliminary voting results. With that introduction, Brant, 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 statement, and annual report, which includes financial statements for the fiscal year ended December 31st, 2016. Please remember that only shareholders of record as of March 27th, 2017, may vote at this meeting. 89% of Altria's common stock is represented here today, a quorum is present.
Thanks, Brant. Please file the documents with our meeting records. I now appoint representatives from Computershare, the transfer agent for Altria's common stock, as inspectors of election. The inspectors 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 certify the votes. All proxies and ballots are confidential unless shareholders want to vote on them. We'll 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.
I'd ask you to please raise your hand if you need a proxy card. Okay, great. Thank you. Let's please welcome our board of directors. They provide Altria with strong leadership and thoughtful oversight. We value their diverse skills, experiences, and perspectives. We're about to proceed to the election of directors, but before doing so, it's my privilege to thank Tom Jones for his 15 years of distinguished service on the Altria board. Mr. Jones has decided to retire from the board upon the completion of his term, which is today. We very much appreciate his many significant contributions over the years, including his strong chairmanship of the finance committee. I hope you'll join me in thanking him for his service to our board. Thank you. Denise, please announce the names of the nominees for director as they appear in the proxy statement.
The nominees are Gerald L. Baliles, Martin J. Barrington, John T. Casteen III, Dinyar S. Devitre, Thomas F. Farrell II, Debra J. Kelly-Ennis, W. Leo Kiely III, Kathryn B. McQuade, George Muñoz, Nabil Y. Sakkab, and Virginia E. Shanks, each to hold office until the next annual meeting of shareholders and until his or her successor has been duly elected and qualified.
Thanks, Denise. 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 the selection of PricewaterhouseCoopers LLP as Altria's independent registered public accounting firm for 2017. I want to welcome Ken Lemelin from PwC, who's here with us today. Denise, would you please present the matter?
I move the adoption of the following resolution. Resolved that the selection of PricewaterhouseCoopers LLP as Altria's independent registered public accounting firm for the fiscal year ending December 31st, 2017, be ratified.
Thank you. Those in the room wishing to vote on the ratification of the selection of PwC should please do so now. We're now pleased to update you on the business. We know that shareholders stay current on our business and financial results through various means, including our 2016 annual report, our presentation at the CAGNY Conference, and our first quarter earnings release. All those materials are available at altria.com. As I mentioned, we've also provided you today with a card highlighting important 2016 business results. We'll briefly summarize those results and then update our progress on some key responsibility initiatives. Altria and its companies had another outstanding year in 2016. We generated adjusted net earnings of $5.9 billion, or $3.03 per share, representing 8.2% adjusted diluted earnings per share growth versus the prior year.
We delivered a total shareholder return of 20.5%, far outpacing the S&P 500 and the S&P Food, Beverage, and Tobacco Index. It marks the fourth consecutive year that total shareholder returns exceeded 20%. We paid shareholders over $4.5 billion in dividends. We increased our dividend by 8%, and we repurchased over $1 billion of Altria shares. We also took advantage of favorable capital market conditions to further strengthen our balance sheet. Our smokable products segment delivered excellent performance in 2016, growing adjusted operating company's income by 5.3%, following almost 11% growth in 2015. Marlboro remains the retail share leader across all 50 states and has industry-leading and growing equity scores. The smokeless products segment grew volume nearly 5% last year, well ahead of the category, and increased adjusted operating company's income by 11%.
USSTC grew Copenhagen and Skoal's combined market share, and Copenhagen was both the largest and the fastest-growing brand in the MST category. In e-vapor, Nu Mark made excellent progress toward establishing MarkTen as a leading brand in the category, continued to improve its supply chain, and took the necessary steps to comply with FDA's deeming regulations. By year-end, MarkTen had reached a number 2 market share position in retail stores where it's sold. We continue to benefit from our alcohol assets. Ste. Michelle Wine Estates grew adjusted operating company's income by nearly 10% in 2016, and we're very excited to celebrate this year, the 50th anniversary of Chateau Ste. Michelle, Washington State's founding winery. In beer, our 10.2% ownership in Anheuser-Busch InBev makes us a significant shareholder in the world's first truly global brewer.
We'd like to thank our talented employees for their passion, their focus, and their dedication, and we congratulate them on another year of outstanding performance. Moving to 2017. We're off to a solid start despite some short-term headwinds. We grew first quarter adjusted diluted earnings per share by 1.4% against a very difficult comparison in the year-ago period. The smokable products segment continued to generate strong results, which offset lower equity earnings from our beer investment and the effect of the voluntary product recall in the smokeless products segment. Our business fundamentals remain strong, and we believe we are well positioned for the rest of 2017, and we thus reaffirm our guidance for 2017 full-year adjusted diluted EPS to be in a range of $3.26-$3.32, representing growth of 7.5%-9.5% from our 2016 adjusted diluted EPS base of $3.03.
We're proud of our business success. We're also proud of how we achieved it, responsibly and in line with our company values. We have four principal responsibility focus areas: to reduce the harm of tobacco products, to market responsibly, to manage our supply chain responsibly, and to develop our employees and our culture. Let's look at two of these in more detail. First, harm reduction. A group of leading public health researchers has concluded that there is a continuum of risk among tobacco products, with conventional combustible cigarettes at the highest end of that spectrum and other products lower. Our long-term goal is to achieve a leadership position in innovative tobacco products, including those with the potential to reduce harm. We own, of course, the world's largest manufacturer and marketer of smokeless tobacco.
We also believe e-vapor holds promise. We've briefly touched on the progress Nu Mark is making with MarkTen. Another promising technology is heated tobacco. Through our agreement with Philip Morris International, Altria has the exclusive commercial rights to the IQOS system in the U.S. We've partnered with PMI on FDA applications to designate IQOS as a modified risk tobacco product and for a market order. Once approved for commercialization by the FDA, we plan to launch a lead market. Ultimately, it's the FDA's role to evaluate potentially reduced-harm products and decide what manufacturers may communicate to consumers about them. We're actively engaging with the FDA and others to advocate for science and evidence-based policies and actions that advance harm reduction. In addition to developing potentially reduced-harm products, we continue to provide cessation resources to adult tobacco consumers who wish to quit.
We continue to dedicate resources to helping reduce underage tobacco use. We invested more than $22 million in 2016 in leading youth-serving organizations like 4-H, Big Brothers Big Sisters, and Boys & Girls Clubs, which help young people build life skills and avoid risky behaviors like tobacco use. According to government studies, underage use of traditional tobacco products continues to decline. However, work always remains, including in the area of reducing underage e-vapor use. A second focus area is supply chain responsibility. We've been working diligently with tobacco growers to improve the safety and working conditions on their farms. Our role is to set clear expectations, monitor compliance with them, then help the growers address any gaps in compliance. We've continued to enhance our approach in these areas.
For example, to reinforce our expectations around safety and working conditions, we recently distributed an updated supplier code of conduct and new tobacco good agricultural practice guidelines. In 2016, we expanded and we enhanced our grower assessments, which now include a review of wage and time records and third-party interviews with farm workers about their working conditions. We encourage you to learn more about these efforts through altria.com and our upcoming 2016 corporate responsibility report. We operate in competitive businesses. The environment continues to evolve, and it always presents new challenges and opportunities. The leadership team and I feel very good about Altria's performance, and so do others. For example, the large convenience chain Speedway recently named Altria Group Distribution Company its supplier of the year. Just last month, we were ranked fourth on Corporate Responsibility Magazine's 100 Best Corporate Citizens list.
Again, I want to recognize the hard work and dedication of our talented employees that make these results possible. 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 for these executives. We believe our executive compensation programs contribute to our excellent business results and strong shareholder returns. As the proxy statement fully describes, we designed these programs to align the interests of our executives with those of our shareholders by appropriately compensating executives for achieving performance goals and advancing our mission and strategies. At the 2016 annual meeting, more than 93% of the votes cast approved the compensation of our NEOs. The board recommends that shareholders cast their votes in favor of this advisory matter.
Those in the room wishing to vote on this matter should please do so now. The next item on our agenda is the advisory vote on the frequency of future shareholder votes on NEO compensation. The board's recommendation is every year. While this vote is non-binding, the board will consider the outcome when determining the frequency of future advisory votes. Those in the room wishing to vote on this matter should please do so now. Okay, let's now transition to the question and answer session. We very much welcome your questions, and we know that you'll observe our meeting rules. If you would please identify yourself and address your question to me. We have some lights up front that'll help us manage our time. If we run short today, I hope you'll complete and return a comment card so that we can respond to you.
Why don't we please now move to the first question? I'll begin over here on the left.
Good morning, Mr. Barrington.
Morning, Mr. Sweda.
Edward Sweda, a shareholder from Massachusetts. You and other executives of Altria and also executives of other tobacco companies have often referred to tobacco litigation as an issue that is, quote, "manageable" and therefore should not be troubling to investors. Yet just within the past two months, the following developments have occurred. On April 6th, in the Marotta case, the Florida Supreme Court ruled that federal law does not preempt Engle progeny plaintiffs from bringing strict liability and negligence claims against tobacco companies. On April the 12th, a Florida appeals court affirmed a jury award in the Boatwright case. That was an award of $35 million to a smoker against Philip Morris USA and reversed the reduction of the award because the smoker was also at fault for his illnesses.
The appeals court ruled that Florida's comparative fault law does not apply to intentional torts and thereby increasing our company's exposure. On April 6th, a Florida state jury awarded $1 million to the widow of a lawyer and real estate developer after finding that Philip Morris was responsible for his coronary disease and fatal lung cancer. That was the Sommers versus Philip Morris case. My question to you, sir, today is, do you understand why there are shareholders who do believe that the tobacco litigation problem is not simply, quote, "manageable," unquote?
Thank you for your question, Mr. Sweda. It's a pleasure to have you back in our meeting. You're always welcome. Listen, you point out that litigation presents a risk, and it does. We try to do a thorough discussion of the risks in the 10-K to try to lay out for shareholders to dimensionalize that risk. Second thing I would say is I do continue to believe that the litigation has been well managed. It is a risk, but we devote substantial resources to it, and I think you'll agree, because I know you've followed this for many years.
If you look at the slope of tobacco litigation from its height, whether it was at the attorneys general litigation or the class actions or the like, I think we could all agree that the slope has been coming down, which is a good thing for shareholders as we work through that docket. You mentioned several of the Engle cases. I would agree with you that Engle continues to present a complex set of cases down there. I think shareholders know the history of a large case that was tried as a class action. It was decertified as we argued it should be, it has left a complex set of individual cases. We think that the terms actually on which those cases are being tried are not particularly fair to the defendants, and we continue to argue for that. We're working our way through that.
I saw some numbers the other day on Engle. For example, we had, I think, 1,300 dismissals in the Engle cases, and we tried about 90. You can understand the relationship between the number of cases that are filed and the cases that actually get tried. The ones that get tried, the plaintiffs win some, and we win some, we win some more on appeals. It's a complex matter, but it's a finite matter, and I think that we're working our way through it. In any event, welcome back to the meeting. Thank you very much for your question.
Good morning, Marty. It's Anne Gurkin with Davenport.
Hi, Ms. Gerken. Welcome back.
Thank you. Congratulations on a solid start to your year, and I appreciate your comments this morning about your work on innovative products. Marty, I was wondering if you would discuss how you are looking at allocating resources among the core tobacco portfolio versus spending to support your innovation, potentially launching products by year-end, maybe under the IQOS label, how you're allocating those resources between those two sectors.
It's a very thoughtful question. Thank you. What we try to do is to maximize the core business that we have while innovating for our future, which involves allocating appropriate investments to those innovative products. Fortunately, the business is of the size and scale where we can do both. It's not a binary choice between those. You see the results, for example, in 2016 at the core businesses, which were quite strong, and you also see significant progress on the innovative side. You see that our Nu Mark business has really done a good job, I think, of growing in 2016. You saw the e-vapor shares I mentioned, I think, at the CAGNY presentation. We are placing appropriate investments in IQOS. It's a very promising technology for heat-not-burn.
When innovative products come to the market, you invest behind them because they may very well be our future. At the same time, we're trying to continue our long-term aspiration to grow our earnings between 7% and 9%, return 80% of the EPS to the shareholders through the dividend. If you look back over the last several years, we've been able to do that pretty successfully. We have an outstanding team of people at Altria who are able to balance both of those objectives. That's the balance that we're trying to strike every year. You're right. Thank you again for your question. Morning, sir.
Good morning. My name is Hampton Hinton. I'm a tobacco grower in Woodford County, Kentucky. I represent the Council for Burley Tobacco. I own a farm, and until recently, I was on the FDA TPSAC committee, so I have some background in part of the tobacco issue. It's interesting today as you talk about the progress of the company. We as growers are in the supply chain, but sometimes we feel like we're at the bottom of the supply chain or maybe even your food chain. We're suffering from prices that are exactly the same as they were 16 years ago at the farm level. As an example, the products that we sell, a C2, which many of you won't know the difference. In 2001, it was $1.94. Today, it's $1.92. A B2 in 2001 was $1.97 a pound. Now it's $1.98. We need some incentives to be our sustainability.
Sustainability as we move into new products is especially vulnerable for us as we are part of the system. I continually ask you all to think about ways to deal with the supply chain at our level so we can be sustainable also, and we can be a product moving in the right direction, especially on modified risk issues. Without any profit incentive, it's awfully hard for us to move our product at the farm level to a reduced risk level. We can do some of this, but without any profitability, we can't capitalize, we can't grow. We're dealing with GAAP concerns, additional cost of labor, and environmental. We're happy to do that. You have left us completely out of the supply chain profitability aspect.
In that regard, I don't think it's possible, but if it's possible for growers to address your board at some time, or maybe even have an advisory position on your board. The growers are still an important part in the Carolinas and Kentucky, Tennessee. We appreciate you all inviting us to this meeting. Thank you. I'm a stockholder also.
Thank you, Mr. Hinton. Those are very thoughtful and eloquent comments. I appreciate you coming and raising them today. We regard our growers as partners in our business, as you know. It's not appropriate for me to comment on pricing or profitability, as you can expect. I can assure you that we're very much interested in the sustainability of the growers, and we have folks I know who work very hard at that. If you believe that there should be some further dialogue between your group, for example, and others at the company, I would welcome that dialogue because our success depends upon your success. I couldn't agree with you more, and I very much appreciate you coming today to share those comments. Thank you.
Hi, my name is Jonathan Chaffee. I'm a shareholder from New York. Currently, there are 10 counties and New York City that have made the minimum age to purchase tobacco and vape products to 21. Over 60% of New York's population is now covered by Tobacco 21. What is Altria's plan to counter these local laws from expanding in popularity and cutting down our current market?
Mr. Chaffee, welcome back. I remember our conversation very well last year about this issue about 21. I won't want to repeat what I explained to you last year. I will tell you our view is as follows, and it's not a question of trying to stop anything. It's a question of exchanging views on an important topic. Our view is this, we are all in favor of minimum age laws. In fact, you may remember that Altria and its companies were among the leaders. It's hard to imagine these days, but there were actually a time when there were not minimum age laws in place for many tobacco products, and we were at the forefront of asking legislatures to do that. You may know, for example, that we did it more recently on e-vapor.
When e-vapor products came into the marketplace, they were not covered by many minimum age laws, and it was the Altria family of companies with others who persuaded the legislatures to raise the minimum age law to 18. It's a line-drawing exercise of where we really are. There are some, and I know that you've been active in this out in Western New York, who would like to raise the age to 21. I think the greater weight of the evidence is at 18, but we acknowledge that the debate is underway. If you look at the Master Settlement Agreement, if you look at the majority of state legislatures, if you look at the Tobacco Control Act of 2009, the demarcation point has generally been weighted to 18. There are some exceptions, but the greater weight is there.
Here's the other issue that I think we have to be thoughtful about, and I saw that, for example, out in Cattaraugus County, I think that the legislature did pass 21. The problem is that it's surrounded by Erie and Allegheny and Chautauqua and Pennsylvania. A 20-year-old who was giving business to one of your hardworking retailers in Cattaraugus probably took that business across the county line. It has a tendency to shift the volume around without really accomplishing what the purpose would be for those who propose it. We don't think that's fair, frankly, to retailers to do that. There should be a debate if there's one to be had at the national level.
There's a report that's been sent over to Congress, if there's going to be regulation in this regard, it ought to be based on science and evidence, and we can have it in one place so that we have one rule and not a patchwork of rules, which tends to pick winners and losers. That's our view on it. I acknowledge that there are others, and I appreciate you coming back to the meeting this morning. Is there a question on this side? I see none, we'll stay here. Is there a question over here? Welcome, sir.
Thank you. Hello, my name is Lee. I'm from Elmira, New York. My question, what steps are Altria taking to ensure that specific populations with higher smoking rates based on ethnicity, income, education, and mental health are not being profiled by Altria tobacco advertising?
Thank you very much for your question. Welcome to the meeting. That's not how we run our marketing. We market our products to adult tobacco consumers. We try to be thoughtful about the reach of those marketing materials. I can explain more about that if you're interested. We are selling to adults. I know that the FDA has some studies underway. I think they're calling them vulnerable populations among adults. You may want to direct that question to FDA, which is, I think, looking at the issue that you're raising. In any event, welcome to the meeting. Glad you're here.
Thank you.
You're welcome. Morning, sir.
Morning, Mr. Barrington. My name is Justin Flores, vice president of the Farm Labor Organizing Committee, a farm workers union based out of North Carolina.
Welcome back.
Thanks for having us here again. We wanted to bring a similar message as in previous years. As usual, we do appreciate the work that Altria has done on issues of farm labor, human rights, wages, conditions, and the work that's going on at the FLPG. Unfortunately, I'm here again to bring a report from Eastern North Carolina that while I think these are all very good first steps, we just had another tobacco growing season where we're not seeing very real changes, improvements in wages, work conditions out in the fields. My question today is, in the conversations with the company, there's been a lot of discussion around compliance with the law. As I'm sure you're familiar with, farm workers are excluded from a number of labor laws, employment laws, workers' compensation, the right to collectively bargain, you name it.
Some other companies such as Philip Morris International, Alliance One, Universal Leaf, have taken a view of following ILO standards, international standards, rather than simply complying with the law on the ground. The question today is that something that the company is interested in looking at? I'd also would like to take the opportunity to follow up on the man's comment from the grower's point of view, which is that when we talk about improving these things, we feel the grower paying $11.27 with really good housing and workers' compensation insurance is being paid the same amount for his or her tobacco as the grower paying $7.25 per hour and with no workers' compensation insurance using FLCs.
I'd like to ask that question in mind that we have a common cause, I think, with a lot of the growers in that these issues are really we do need to set standards and we need to work together on these issues. At the end of the day, these are economic issues. To sort of align with that question, is there any financial benefit that growers are seeing from meeting improved or higher standards?
Okay. Well, thanks for your comments and your questions. I'm always glad to see you at our meeting. I think you're a very passionate spokesperson for the folks that you're helping. I appreciate that. We share that. I like very much your phrase about common cause. I think that the growing community and the farm worker community and the manufacturers who buy the tobacco have a common cause, which is to make sure that we have good standards in the field. I'd hope you'd agree with me that the work that you and we and others have been doing over the last several years have helped to improve, whether it's been the progress that we've made on child labor, whether it's been the progress we've made on personal protection equipment in the field.
We have made a lot of progress, but there's always more to do, of course. I do know that many of the growers in North Carolina did sign up for the collective bargaining agreement that the Growers Association offered. I looked at the numbers the other day. Half of the growers that we used in Carolina, I think, actually are covered by the collective bargaining agreement. I acknowledge that there are others who don't, but you know our position on that is we can encourage it, but we can't compel it. Of course, we want to continue to work with you, and we actually do things that are above the law, as you well know, whether it's the child labor law or the like. We're not constrained by what the law is. We want to do the right thing in partnership with others.
Thanks again for coming. I think we do now have a question over here.
Yes, Mr. Chairman, my name is Michael Shpak. I represent the AFL-CIO Reserve Fund. The AFL-CIO withdrew its proposal to this year's meeting in lieu of Altria investigating the OECD mediation process then having a meeting with the AFL-CIO to discuss their findings. This follow-up meeting is now being scheduled. Mr. Chairman, FLOC and President Baldemar Velásquez are part of a global call to implement the human rights of those working in tobacco production.
It has joined with the IUF, International Union Federation, based in Geneva, which represents union tobacco production workers and tobacco farm worker unions around the world to call on the tobacco industry with global procurement systems to take immediate steps to guarantee the right to freedom of association and collective bargaining by creating a mechanism that is within their supply chain that guarantees the following: A defined process for workers to choose representation by independent trade unions for those unions to gain recognition by contract growers. A process that guarantees good faith bargaining once representatives are recognized. Neutrality from employers that includes access to estates, ability for workers to speak with trade union representatives, an end to retaliation for workers' union activities. Mr. Chairman, my questions are these.
What % of Altria's tobacco is obtained from sources outside of the U.S.? What leaf supplier or suppliers are used by Altria to obtain non-U.S.-grown tobacco leaf?
Thank you very much for being back. Glad to see you. I appreciate your comments. They're thoughtful as always. Let me try to take a couple of these things in turn. We buy actually a very small proportion of our leaf offshore. Most of the leaf that we use in our products is bought in America. We do use some products offshore for the blends because it's necessary, but it's a small proportion of that. We use the suppliers that everybody else uses around the world. As you know, there are large companies that provide leaf from international markets. We work with them. We take the same approach to them as we take in the United States, which is we tell them what our expectations are about sourcing tobacco to us. We give them a supplier code of conduct.
They have to comply with good agricultural practice guidelines. We try to make progress with them on conditions in the field. We've made a lot of progress, as I said. I just mentioned to Mr. Flores the amount of, or the number of growers rather, that we use who have collective bargaining agreements. The difference between us is the one we've discussed in the years past, which is while we encourage freedom of association, you can see that in our own business where we have labor unions at several of our locations, and we have excellent relationships with them. We can't do is compel independent third parties to associate, which is after all what signing a collective bargaining agreement is, to associate in the name of freedom of association for others.
We think that's not the way forward. We do think the way forward is to continue to work on the underlying conditions that require attention. That's making sure that, for example, wages get paid. While there are laws in place, our contracts require that our growers pay the wages that are required by law. We audit against that. If there's remediation required, I know you know the case where we have found some remediation that was required, we've done that. I know that we differ on this question of collective bargaining. We just can't compel people to sign agreements they don't want to sign. That's not to say we can't make progress on the underlying issues. That's our approach. I just need to go here. I'll be back if we have time.
If you'll indulge me, please. Thank you. Good morning.
Good morning. My name is Emma Stewart. I'm from Plattsburgh, New York. With the passage of the Smoke-Free Public Housing and Multifamily Properties in November by the U.S. Department of Housing and Urban Development, what is Altria determined to do, if anything, to protect their customers' right to smoke in their own homes?
Yes. Thank you very much for being here. Glad you're at our meeting. I'll tell you what our position is on secondhand smoke. We want to make sure that the government and the public health authorities speak with one voice on health issues around tobacco. You can see that position on our website, which is secondhand smoke causes disease in non-smokers. You have to be mindful of that. That's why we have regulation virtually everywhere in the U.S. regulating public place smoking. Generally speaking, we think that a homeowner ought to have the right to decide about the use of tobacco products in their own home. I think you have to take them each on their own facts and circumstances. The one that you've raised with respect to the HUD rule is complicated, isn't it?
You have the government, which is in some cases the homeowner, in other cases is providing subsidies. We have not weighed in on that. We think that the process that's been chosen, which is as that rule is being implemented, the building operators are talking to their residents about what's the best way to implement the rule. That's fine with Altria. Thank you. Welcome again. Yes, sir. Thank you for being patient. I can come back this way.
I want to make sure your other person gets to speak. Again, my question was, what % would you say of tobacco that you purchase is coming from outside of the U.S.?
Small.
Small, 2%, 3%?
We buy leaf competitively with other manufacturers, I don't know that that's the number. I can't remember as I stand here whether that's the number that we've publicly given out. If we have, I'll have Mr. Sikes follow up and give it to you. If not, it's probably because we regard it as competitive, and I won't give it to you.
Right. In terms of leaf suppliers you use?
The same answer I gave you a moment ago, which is we use the same suppliers that we use around the world.
Alliance One?
I don't have a list here, but it's no secret who we use. If that's of interest to you, I'm sure we can get it for you.
Okay, thank you.
Okay, thank you very much. Is there a question over here?
Hi, I'm Taylor Shear from New York.
Welcome.
When I go into my local stores, why are there Marlboro brand advertisements placed near products that youth are interested in, such as candy, food items, and toys?
We don't do that. Our trade programs don't do that, and we encourage retailers not to do that. The reason that tobacco products are available in stores is because adults have a right to buy them. Our trade programs have worked for over 20 years to address that issue. We incented people to take cigarette products off of the counter. You may not remember this. They actually used to be on the counter. They now have to be behind the counter. We limit the amount of signage. We train clerks on not to sell them to underage people. We do a whole host of things. There's a big description of this on our website. I'm sorry, it's just not accurate to suggest that we put products near products like that you're making references to. It's just not accurate at all.
In any event, welcome to the meeting, and thank you for your question.
Good morning, Mr. Barrington.
Morning.
My name is Eric Pearson. I'm a shareholder from Wisconsin. My question relates to the taxation of new reduced risk products. Are discussions already ongoing with federal and state authorities? Do you have any information that you could share in a public forum about whether or not there are opportunities to differentiate between the taxation for reduced risk products and traditional smokable products?
Yeah, it's a thoughtful question. Thank you for being here, and I appreciate it. We're in support of differential taxation as well as differential regulation of other elements of tobacco marketing. It would make sense that if you're trying to migrate adult tobacco consumers down the continuum of harm that we discussed this morning, that you would have tax policy which supported that. You want to try to get people to be aware of the product, to try it, to see if it's for them, and certainly overtaxing them at the outset would be bad policy. The answer to your question is we are having those discussions now, particularly in the States. Thank you. Okay. That looks like we have exhausted our questions. I thank everybody for asking your questions. I appreciate very much your coming to ask them here.
We'll now hear a presentation and then vote on one 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 everyone to read the full proposal and our response. Proponents and any speakers commenting on the proposal should please first identify themselves. Again, thank you very much in advance for your cooperation with our meeting rules. Will the representative from the Sisters of St. Francis of Philadelphia please present the proposal? Good morning.
Good morning, Mr. Chairman, and thank you for your beautiful responses to people and your respect for people in this audience. It's been a while since I've been here, and I haven't heard that in the past.
You're very welcome.
Good morning again, members of the board, fellow shareholders. I am Sister Nora Nash. I represent the Sisters of St. Francis of Philadelphia and five other co-filers, all members of the Interfaith Center on Corporate Responsibility. I hereby move shareholder proposal number five. As faith-based investors, we believe that our company has a moral duty to produce and market its products in a responsible manner. Altria is doing that and is doing its part to meet its stated policies, it is not doing enough to prevent the blatant marketing that is taking place in low-income city neighborhoods across the country.
Your board of directors suggest, quote, "Congress did not ban retail advertising, recognizing that tobacco companies have the right to communicate about their products to their adult consumers at the point of purchase." How does that speak to economic justice and human rights when you know that families from lower income communities are more likely to be less educated and have little awareness of the high risks associated with smoking? In 2009, we shared the risks associated with food insecurity, where families spent less on food and more on cigarettes. These are still the same communities. Can't you hear their cry? Our proposal is actually screaming through the voice of Philadelphia's [city analyst of license], telling us that the lower income codes had two-thirds more tobacco retailers per capita than higher income zip codes, and three-quarters more within 1,000 feet of a school.
Did you actually read the Philadelphia Thomas Farley's statement about tobacco companies? They are not just selling them. They are marketing them and marketing them to our children. He added, "I think that people should be quite unhappy and even outraged about the amount of marketing of this killer product in low-income neighborhoods by companies who want nothing more than to make a profit off getting people sick." That's a very, very strong statement, I don't want to think that this is true of Altria. Please listen to us. You have strategies for advertising to adults. Please employ those same strategies for education in city junior high school and high schools. Try it right here in Richmond. Look at the zip codes. Look at the data. Think of it as your contribution to economic justice and the human rights of communities. It is the better way.
Not as part of my official statement, I stand before you today, and another person has stood here for many, many years, and you know him as Reverend Michael Crosby. Reverend Michael Crosby is quite ill at this point in time, and I think it is my privilege to stand before you today and pay some tribute to Mike Crosby, who has fought in this room, as you well know, for many years, to do something about tobacco and its illnesses. He has worked extremely hard with Philip Morris on farm labor, and we all have worked in the movie industry and all sorts of areas, and Mike has been our leader, and he has been your leader.
A tribute to Mike would be to do something here in Richmond on those zip codes or in the farm labor field that could be named the Crosby something, Crosby-Altria something. That's my heartfelt thought, and again, I appreciate the work that you are doing, but a lot more needs to be done.
Thank you very much, Sister Nora. I appreciate your comments, and I hope that you'll extend our best wishes to Father Crosby. Many of us reached out to him upon hearing about his illness, and we're keeping him in our thoughts every day. We miss him. I hope you'll tell him that. Thank you very much. Are there 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. Okay, 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 the report is being delivered, I'd like to take a moment to note that this will be Denise Keane's final shareholder meeting in the capacity as General Counsel. Denise recently announced her decision to retire from Altria after 40 years of extraordinary service. During her career, Denise has held several leadership roles, including General Counsel of Altria Group since 2008, and before that, General Counsel of Philip Morris USA. She has been a key member of our leadership team, an invaluable resource to our board of directors, and a tireless advocate for diversity and inclusion, both at Altria and in the legal profession. On a personal note, Denise has been my friend, my colleague, and my sounding board for nearly 25 years through thick and thin.
While we will benefit from her talents through the end of next month, I wanted to take this moment to ask you to join me in thanking Denise for her dedication and her many contributions to Altria. Thank you very much for that. Brant, can you please summarize the inspector's 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 88% 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, 2017, has been ratified with more than 98% of the shares voting in favor. Shareholders have approved, on an advisory basis, the compensation of the company's NEOs with more than 92% of the shares voting in favor. Shareholders have voted on an advisory basis that future advisory votes on the compensation of the company's NEOs should be considered annually. Of the shares voting, 89% voted for an annual frequency, 1% voted for a two-year frequency, and 10% voted for a three-year frequency.
Proposal five has been defeated with 97.4% of the shares voting on the proposal voting against and 2.6% voting in favor. That concludes the report.
Thanks, Brant. Please file the report, the inspector 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-K. Thank you all very much for coming today or for listening on the webcast, and especially thank you for your continued confidence in Altria. Our meeting is adjourned.