Everyone and welcome to Altria Group Inc. 2013 Annual Meeting of Shareholders. I now call the meeting to order. I'm Marty Barrington, Chairman of the Board and Chief Executive Officer of Altria. We welcome all shareholders, employees, retirees and guests who are here today or listening via the audio webcast.
The other executives who will participate this morning are Denise Keene, Altria's Executive Vice President and General Counsel and Brandt Surgner, our Corporate Secretary. Our remarks today contain certain forward looking statements and reference non GAAP financial measures. Please direct your attention to the forward looking and cautionary statements and reconciliations of non GAAP to GAAP measures on altria.com. We place cards on your seats with the agenda and the rules we'll follow for our meeting today. We'll start by presenting certain formal documents, proceed to the election of the Board of Directors and then move to the ratification of PricewaterhouseCoopers as Altria's continuing progress against its corporate mission, which enables the company to continue delivering superior returns to you, our shareholders.
We will then have an advisory vote on the compensation of the company's named executive officers, a question and answer session, and then we will vote on 1 shareholder proposal. The corporate secretary will report on the preliminary voting results and then we'll adjourn. Brandt will now present certain formal documents. Thank you, Marty. I present to the meeting together with 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, 2012.
The holders of record of common stock at the close
of business on March 25, 2013, are entitled to vote at this meeting. 86% of Altria's common stock is represented here today, so a quorum is present for the transaction of business. Thank you, Brandt.
Please file the documents with the records of the meeting. I point representatives from Computershare, the transfer agent for Altria's common stock as inspectors of election. Inspectors are instructed to execute the oath and to take custody of all proxies and the certified list of holders of common stock as of the close of business on March 25, 2013. This list, which is available for inspection throughout the meeting, contains the names and addresses of all shareholders of common stock and the shares each of them holds. The inspector's responsibility is to determine the number of shares represented at the meeting and to certify the vote of all matters presented at the meeting.
All proxies and ballots are confidential unless shareholders have written comments on them. We will now distribute proxy cards to any shareholders present who have not yet returned them. Shareholders who have already returned their proxy cards or voted by the Internet, mail or the telephone do not need to submit a new card. If you need a proxy card, please raise your hand. Upon conclusion of the voting, please return the proxy card to an usher who will deliver it to the inspectors.
I want to welcome our Board of Directors. The diversity of their skills and experiences provides Altria with strong leadership and oversight. In addition to the directors elected at the 2012 Annual Meeting of Shareholders, Deborah Kelly Ennis was unanimously elected to the Board since last year's meeting and has been nominated for election by shareholders at this meeting. As previously announced, Doctor. Elizabeth Bailey has decided to retire from Altria's Board of Directors after 24 years of service.
We thank Doctor. Bailey for her service and the countless contributions she has made to Altria's shareholders and our family of companies over the years. As a result of her retirement, Altria's bylaws have been amended so that the Board will consist of 11 members. The election of the Board of Directors is the first matter as set forth in the notice of meeting. Denise, please announce those nominees' names appearing in the proxy.
The nominees are Gerald L. Belisle, Martin J. Barrington, John T. Casteen III, Dinyar S. Davitri, Thomas F.
Farrell II, II, Thomas W. Jones, Deborah J. Kelly Ennis, W. Leo Kiley, Catherine B. McQuade, George Munoz and Nabeel Waisakabe, each to hold office until the next Annual Meeting of Shareholders or until his or her successor, Shalva Bhandouli, elected.
Thank you, Denise. Under our bylaws, the nominations are now closed. Those in the room wishing to vote on the nomination of Directors should do so now. The next agenda item is the ratification of PricewaterhouseCoopers as Altria's independent registered public accounting firm. I introduce Bill Brennan of PricewaterhouseCoopers.
Denise, 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 for the fiscal year ending December 31, 2013 be ratified.
Thank you. Those in the room wishing to vote on the ratification of the independent registered public accounting firm should do so now. I am pleased at this time to provide a business update. Altria delivered strong results and returns for our shareholders in 2012. Despite a continuing challenging external environment, our tobacco operating companies premium brands, Marlboro, Black and Mild, Copenhagen and Skol had an excellent year as our companies continued investing in their long term success.
Altria grew its adjusted diluted earnings per share by 7.8% behind the business performance of our operating companies, complemented by higher earnings from our equity investment in SABMiller. Our total shareholder return of 11.8% for the full year outperformed our U. S. Tobacco peers and the S and P Food, Beverage and Tobacco Index. Our employees' focus on our mission and values continues to drive our results.
Our mission is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products. We pursue our mission by focusing on 4 strategies: investing in leadership, aligning with society, satisfying adult consumers and creating substantial shareholder excuse me, creating substantial value for shareholders. Five core values guide our behavior as we pursue this mission and our business strategies. They are integrity, trust and respect, passion to succeed, executing with quality, driving creativity into everything we do and sharing with others. Altria made significant progress in support of its mission in 2012 as we executed our core strategies and were guided by our values.
Our first strategy, invest in leadership, reflects our focus on having excellent people and leading brands and external stakeholders important to our business' success. Our roughly 9,000 employees drive our company's success and we invest in programs to attract, develop and retain talented and diverse employees. Our recruiting program, advancement planning process and leadership development programs provide our employees with skills and experiences to help them reach their full potential. In 2012, Altria and its companies invested an average of $2,000 per employee for tuition reimbursement, seminars, internal and external training programs and professional memberships to advance our employees' professional development and the success of our businesses. Altria's investments in people were recognized by several organizations in 2012.
Human Resource Executive Magazine named Altria 28th on its list of most admired companies for HR recognizing its management quality, product quality, innovation and people management. Last month, Latino Magazine included Altria as part of its 1st annual Latino 100 listing, recognizing companies that provide the most opportunities for Latinos. Most recently, DiversityInc. Recognized Altria as one of 25 Noteworthy Companies making significant progress in their diversity efforts and as one of its top 10 companies for Blacks. Altria and his companies build relationships with business partners who promote actions consistent with our mission and values.
Our companies work with a diverse base of suppliers, including minority and women owned businesses. In January, diversitybusiness.com ranked Altria 18th on its list of America's top organizations for multicultural business opportunities. We work with growers who provide high quality tobacco and grapes for our premium products. Our companies invest in the sustainability of their agricultural supply chains, which are critical to their business success. Altria's Tobacco Companies are founding members of the Farm Labor Practices Group.
This group was formed to help both farmers and farm workers better understand and comply with labor laws and regulations. This initiative is also focused on improving labor conditions for farm workers. The group includes representatives of the U. S. Department of Labor, Grower Associations, other tobacco companies and non governmental organizations like the Interfaith Center on Corporate Responsibility.
Our success is tied to the communities where we live and work and we invest our time and resources to support them. Altria has a long history of supporting the arts and continues to support organizations that bring world class cultural experiences to our communities. These organizations include the Virginia Museum of Fine Arts, the Richmond Symphony, the Richmond Ballet and the Kennedy Center. In 2012, we announced a $10,000,000 commitment to support the renovation of Richmond's historic landmark theater. The project is expected to have a $60,000,000 economic impact initially and then $12,000,000 annually.
In 2012, we launched the Altria College Opportunity Fund that awards scholarships to select graduates from the Richmond Public Schools. 12 students were selected for the 1st class of scholars and will receive support of up to $10,000 per year for all 4 years of college. Our commitment of up to $2,000,000 will ensure the same level of support for students in the 2013 2014 classes. Altria's employees also contribute their own time and financial resources to their communities. In 2012, our employees, their families and friends volunteered more than 30,000 hours in company supported service projects.
For example, more than 100 volunteers helped transform a Richmond Middle School with projects to improve the physical and educational environment. The Altria Company's employee community fund donated more than $2,000,000 to 120 non profit groups in our communities. Our executives contribute their time and talents by serving on the boards of many non profit organizations. Last year, almost 40 executives served on the boards of 60 community organizations, including the Science Museum of Virginia Foundation, the Thurgood Marshall College Fund, and the Center Stage Foundation. In 2012, Altria ranked 30th on the Civic 50, which recognizes companies that best use their resources to improve their local communities and beyond.
Our second strategy is to align with society by actively participating in resolving societal concerns that are relevant to businesses. Significant progress has been made to reduce underage tobacco use. However, we know the trend has slowed in recent years. More work remains to be done and our companies continue to contribute to this effort. Philip Morris USA, the U.
S. Smokeless tobacco company and John Middleton each develop and implement annual plans to help reduce underage tobacco use. They have trained their brand management employees, internal partners and key outside vendors on underage access prevention goals and practices. They support responsible retailing through their trade programs and the WeCard program, which provides resources to retailers to help them prevent tobacco sales to underage purchasers. These tobacco companies provided significant support for youth serving organizations in 2012, combining their grant programs in education and positive youth development into one program we call Success 360.
This initiative helps leading national and local nonprofit organizations effectively support middle school kids' academic achievement and healthy development with a focus on helping them avoid risky behaviors like tobacco use. Success360 also provides support for these organizations to work together to better coordinate their efforts. Preventing underage tobacco use is also one of the areas addressed by the law that granted the Food and Drug Administration comprehensive regulatory authority over tobacco products. Federal regulations mandate that cigarettes and smokeless tobacco be sold behind the counter through age verified transactions and prohibit selling tobacco to minors. FDA has partnered with the states to conduct more than 145,000 compliance checks at retail outlets across the country and reports that 94% of them were complying with FDA regulations.
Our tobacco companies focus on complying with this law and constructively engaging with FDA and other stakeholders on issues related to the law. We conducted training sessions, exercises and discussions to help raise employee awareness of the law's provisions and to strengthen our compliance processes. Our companies continue to work constructively with FDA by sharing our experience, knowledge and expertise. We have submitted comments to FDA covering a variety of important issues, met numerous times with FDA and presented to the Tobacco Products Scientific Advisory Committee. PM USA and USSTC also hosted FDA representatives at their facilities to share information with the agency on manufacturing processes.
We will continue to engage and share science based information with FDA and other stakeholders about regulatory issues important to our business. Compliance with FDA regulations is but one aspect of our commitment to compliance. We believe a strong culture of compliance starts with leadership at the top, so we recently launched a new training program for our senior leaders called Leading With Integrity. An effective compliance program also depends on employees speaking up when they have a concern. While no system is perfect, we have seen good progress on this measure from surveys of our salaried employees.
Our companies work to reduce their impact on the environment. After making significant progress against multiyear goals through 2012, we established new long term goals to further reduce energy use and greenhouse gas emissions, implement sustainable water programs, increase recycling of waste from company facilities and to reduce the amount of material in product packaging. In 2012, Altria partnered with the National Fish and Wildlife Foundation in a water conservation project in Washington State, home of St. Michel Wine Estates. Altria's $100,000 contribution helped raise $950,000 in additional funding and resulted in more than 1,100,000,000 gallons of water being conserved.
Last year, Newsweek ranked Galtry a first among tobacco companies and 6th among food, beverage and tobacco companies in its grain rankings of the largest publicly traded companies. Our third strategy is to satisfy adult consumers by converting our deep understanding of adult tobacco and wine consumers into better and more creative products that satisfy their preferences. Marlboro is the truly iconic cigarette brand men smoke for flavor. In 2012, PM USA introduced Marlboro's new architecture that focuses on the brand's 4 product families red, gold, green and black. The architecture allows PM USA to express Marlboro's essence and positioning in new ways, enabling the brand to expand its reach and breadth among adult smokers.
PM USA updated Marlboro's retail look to communicate the new architecture and highlight the 4 product families. PM USA also communicated the architecture with brand building activities that use Marlboro's website, sweet steaks, 1 to 1 programs, direct mail and email, all limited to smokers 21 and older. PM USA also offered updated packaging on Marlboro 83s in the red family and expanded distribution of Marlboro NXT in the Marlboro Black family. Black and Mild is positioned as the best any day cigar adults enjoy for its smooth taste and pleasant aroma. Middleton has introduced new Black and Mild products that have helped the brand maintain its leadership position in the tipped cigarillo segment and expanded its presence in the growing untipped cigarillo segment.
In the Smotless product segment, USSTC has 2 strong premium brands, Copenhagen and Skol and is focused on managing their combined performance. Copenhagen is the original moist smokeless tobacco brand that has provided adult dipper satisfaction since 18/22. The brand's equity is built around its core values of masculinity, heritage, authenticity, tradition and craftsmanship. In recent years, Copenhagen maintained leadership position in the Natural segment and introduced or expanded products including Copenhagen Long Cut Wintergreen, Long Cut Straight and Extra Long Cut Natural to broaden its product portfolio. Beginning in 2012, USSTC expanded Copenhagen's Southern Blend into new geographies offering adult dippers a mellow taste in a manageable long cut form.
These products help drive Copenhagen's excellent retail share performance over the last few years. USSTC's other premium brand, Skol, is the contemporary smokeless brand that provides a smooth smokeless tobacco experience. Its products offer great taste and forms that are easy to manage. In November of 2012, U. S.
STC expanded Skol Ready Cut into 20 additional states offering adult dippers in innovative moist smokeless tobacco form. These portions are preformed and provide great taste. Skol Ready Cut is available in mint, wintergreen and straight at a premium price. USSTC is supporting Skol with equity building communications across multiple channels including online, mobile, direct mail and in adult only facilities, all limited to adult tobacco consumers 21 and older. In February, Skol began to refresh its packaging to better reflect the brand's contemporary premium qualities and to differentiate its product offerings.
Altria's tobacco companies have a deep understanding of adult tobacco consumers and work to develop products that meet their preferences. Adult tobacco consumers continue to express interest in tobacco alternatives. We are closely monitoring adult tobacco consumer interest in alternative products and our companies are working internally and through partnerships to develop innovative new products for them. Some of our innovative products are available in lead markets where we are learning while making disciplined financial investments. In addition, Altria's subsidiary Newmark plans to introduce an electronic cigarette into a lead market in the second half of this year.
We believe that FDA regulation presents an opportunity relating to certain tobacco product innovation because the law expressly recognizes the potential role that modified risk tobacco products may play in reducing the harm caused by tobacco use. We have engaged with FDA extensively on this important topic, encouraging the agency to develop scientific standards that are rigorous yet feasible for evaluating potentially less hazardous products. Our tobacco companies continue to communicate about the health effects of their products. PM USA's website, for example, acknowledges the overwhelming medical and scientific consensus that cigarette smoking is addictive and causes serious disease in smokers and provides links to reports by the U. S.
Surgeon General and other public health authorities. The site also highlights the online quit assist resource, which offers cessation information to smokers. Our 4th strategy is to create substantial value for shareholders. In the Smokeable Products segment, PM USA and Middleton's strategy is to maximize income while maintaining modest share momentum over time on Marlboro and Black and Mild. The companies grew adjusted operating companies income for the segment by 4.2% and expanded adjusted operating companies income margins by 0.9 percentage point to 41.2 percent for 2012.
Marlboro grew its retail share by 6 tenths of a share point to 42.6 for the full year supported by PM USA's brand building initiatives for Marlboro's new brand architecture. Black and Mild's retail share increased by 1 half of a share point to 30% for 2012 as the brand benefited from new untipped cigarillos introduced in 2011 offerings. In the Smokeless Products segment, USSTC and PM USA seek to increase income by growing volume at or ahead of the category growth rate, while maintaining modest share momentum on Copenhagen and Skol combined. Our companies grew their adjusted operating company's income in the segment by 7% for 2012. Copenhagen and Skol's combined full year retail share increased 1.6 percentage points to 50.6%.
In the wine segment, Ste. Michelle's goal is to grow income by expanding the share and distribution of its premium wines. Ste. Michelle grew its adjusted operating company's income by 9.5% for 2012. Our companies remain focused on managing cost structures.
Following the completion of a multiyear $1,500,000,000 cost reduction program in late 2011, Altria announced a cost reduction initiative to achieve an additional $400,000,000 in annualized savings versus previously planned spending by the end of 2013. Altria's companies made significant progress in 2012 on this program. Altria took a number of steps in the last year to help maintain its balance sheet strength. For example, Altria completed a tender offer and repurchased high coupon debt that it replaced with new lower cost debt. Altria's strong balance sheet supports our ability to return cash to shareholders, primarily in the form of dividends.
In August of 2012, Altria increased its dividend by 7.3% to an annualized rate of $1.76 per share. In 2012 Altria paid $3,400,000,000 in dividends to shareholders and our payout ratio of approximately 80% of adjusted diluted EPS was the highest in the S and P Food, Beverage and Tobacco Index. While all dividend payments remain subject to the discretion of Altria's Board of Directors, the company aims to increase its dividend in line with adjusted diluted EPS growth. Halfway joined with a broad coalition of businesses, associations and shareholders to support making permanent the lower personal tax rates on dividend income and maintaining parity between the tax treatment of dividends and capital of gains. Many of you contacted your elected officials on these issues and we thank you for making your voices heard.
We are pleased that parity was maintained between the tax treatment of dividends and capital gains. Altria also has repurchased stock when we have concluded that it is the best use of cash to maximize shareholder value. In 2012, Altria repurchased 34,900,000 shares of its common stock at an average price of $32 per share for a total cost of approximately $1,100,000,000 Last month, the Board of Directors authorized a new $300,000,000 share repurchase program that the company expects to complete by the end of 2013. Like dividends, all repurchases remain subject to the discretion of Altria's Board of Directors. In 2012, we continued to achieve success in managing litigation, although we continue to face substantial challenges as we have for many years.
A trial is currently underway in California in the lights class action case known as Brown and PM USA continues to defend Engel progeny cases in Florida. We believe we have substantial defenses in all these cases. A comprehensive discussion of tobacco related litigation may be found in Altria's 2013 Q1 Form 10 Q filing, which can be easily located in the Investors section of altria.com. Our goal remains to protect the interests of our shareholders by vigorously defending these claims. Altria delivered strong financial results for the Q1 of 2013 as our diverse business model delivered a 10.2% increase in adjusted diluted EPS.
Higher pricing contributed to adjusted operating companies income and margin growth in all three of our reportable segments. Higher earnings from our equity investment in SABMiller and lower interest expense also drove adjusted diluted EPS growth. PM USA continued to support Marlboro's new brand architecture with brand building activities that contributed to Marlboro's retail share gain of 0.2 percentage point for the Q1. Black and Mild's retail share decreased 3.1 percentage points for the Q1 due to heightened competitive activity, including high levels of low priced imported machine made large cigars. In the Smokeable Products segment, 1st quarter adjusted operating company's income increased 1.3 percent to $1,400,000,000 and adjusted operating company's income margins increased 0.9 percentage point to 41.9%.
In Smokeless Products, Copenhagen and Skol grew their combined volume by 4.9% and their combined retail share by 0.5 percentage point for the 1st quarter. The Smokeless Products segment's adjusted operating company's income of $222,000,000 was up 5.2% the quarter. In wine, Ste. Michelle's operating company's income increased 33% to $20,000,000 We're pleased with Altria's results for the Q1. Altria reaffirms that it expects its 20 13 full year adjusted diluted EPS to increase by 6% to 9% to a range of $2.35 to $2.41 from an adjusted diluted base of $2.21 per share in 2012.
Altria's pursuit of its mission has supported the consistent delivery of solid annual adjusted EPS growth and excellent total returns to its shareholders. From 2,007 through 2012 Altria grew its adjusted diluted EPS at a compounded annual rate of 7.9%. This is consistent with Altria's goal to grow adjusted diluted EPS at an average annual rate of 7% to 9% over time. From the spin off of Philip Morris International in early 2008 through the end of 2012, Altria paid 14 $400,000,000 in dividends and repurchased $3,600,000,000 in shares. During this timeframe, Altria increased its dividend 6 times for a compounded annual growth rate of 8.7%.
Our consistent adjusted diluted EPS growth and strong and growing dividends supported total shareholder returns that have exceeded the returns of the broader market and similar companies. The company's total shareholder return from the end of 2,007 through the end of 2012 was 84.2 percent, outperforming the S and P 500's total return for the same period of 8.6% and the S and P Food, Beverage and Tobacco Index's return of 54.9%. A number of organizations have recognized our strong performance in pursuit of our mission. For example, Altria has been named to the Dow Jones Sustainability North American Index and Corporate Responsibility Magazine ranked Altria 20th on its list of top 100 corporate citizens. Other organizations have recognized Altria for its disclosure of political activities, including contributions by its companies and its political compliance program.
In 2012, the Center For Political Accountability Zicklin Index ranked Galtry of 14th among the S and P 100 in terms of the voluntary disclosure of its political spending. The Baruch Index of Corporate Political Disclosure described the company in 2011 as a leader in publicly disclosing political activities. We're pleased with our business performance and we're proud of the results we've achieved. We believe that our executive compensation programs are an important contributor to them and to our strong shareholder returns. These programs are designed to align the interest of executives and shareholders to promote the company's mission and business strategies and to reward the achievement of corporate and individual performance goals.
At the 2012 Annual Meeting of Shareholders, more than 94 percent of the shares cast approved on an advisory basis, the compensation of our named executive officers demonstrating strong support for our alignment of shareholder interests with our executive compensation programs and philosophy. The next item on the agenda is an advisory vote to approve the compensation executive officers. While this vote is non binding, the compensation committee intends to consider the outcome of this vote when making future compensation decisions for our named executive officers. The Board recommends that shareholders approve on an advisory basis the compensation for our named executive officers as described in the Compensation Discussion and Analysis section of the proxy statement. Those in the room wishing to vote on this matter should do so now.
Okay. We'll now begin our 30 minute question and answer session. We place 2 microphones in the aisles for your use in asking questions. We'll alternate between the microphones until our time is up or we've run out of questions. The ushers will assist you in getting to the microphones.
We welcome the opportunity to hear from our shareholders and want to provide everyone who wishes to ask a question an opportunity to do so. We thus ask that each speaker limit his or her question to 2 minutes to allow time for others to participate and Brent will help us watch our time. As a courtesy to our questioners, our lighting system will help guide our time. When a speaker has 30 seconds remaining, the light in front of the stage will turn from green to yellow. When a speaker's time has expired, the light will turn red, and the speaker should please conclude his or her question.
Thank you in advance for your cooperation. You may ask a follow-up question after all other shareholders have asked their questions. And if there's not enough time for all the questions in today's meeting, please complete a comment card, which an usher can provide you and then return the card to him or her. We'll respond to you promptly. Please be sure to identify yourself and address your question to me.
So let's begin. Perhaps we'll start over here to my left. Good morning. Good morning.
Welcome to the Chair. My name is Michael Crosby and I'm going to be presenting sharing under investing in leadership about the Farm Labor Practices Group. We are part of that group, the Interfaith Center on Corporate Responsibility And our discussions are progressing slowly, but I think surely. And we're moving in a good direction. I think that probably one of the big issues is going to be the right of farm workers to organize and for collective bargaining, but that's always a big issue when you're dealing with commodity workers like this.
I just wanted to make that comment and thank you for the progress being made. The question that I have actually came out of reading this morning's Richmond Times dispatch and a letter to the editor. It seems that local town council is thinking of raising taxes, but the writer in the letter to the editor raised an issue that I wasn't thinking about. The Center For Disease Control holds that almost 40% of adult smokers in Virginia make less than 15% a year. That triggered something in me because where I live in Milwaukee, we're serving a meal, a free meal to 300 to 500 a day.
Our headquarters in Detroit serves meals and worked for 2000 to 3000 people a day. And a lot of these, a lot more in percentage with them, our guests, are low income, who are smoking rather than the higher income. My question is that in the alignment with society section where there's a real concerted underage but from lower income. This says 40%
of the gross profit is coming.
I'm sorry to interrupt, but I see your light has turned. Could you perhaps close with your question? Thank you.
So my question is, is there discussion in the company about how to reduce usage among the lower income who also are less educated around such things in the health consequences of their behavior? Thank you
very much for your question. I want to welcome you back to our meeting. I also want to begin by commending the work that you're doing with the Farm Labor Practices Group. We very much appreciate your leadership there and like you, I believe we're making good progress on the issues in the farm, which are so important. So thank you for that.
I also want to commend you for the work that you in your order do with low income populations to make sure that they're participating fully in this economy of ours. I think that when you look at the approach Altria takes totally to its mission and its values, what you see there is a total approach. We market to adults obviously who are in the category, particularly in our direct marketing programs who are 21 and older. As you know, we've worked very hard to make sure that's done in an age verified kind of a way. We're working very hard on underage tobacco prevention programs.
We're working very hard on the issues with respect to farm workers. There are a number of issues in our society obviously that are being worked through particularly during these difficult economic times, but I think those are the issues for Altria Group and those
are the ones that we're focused on.
I appreciate you coming to the meeting again. It's nice to see you and thank you for your question. Over here, sir.
Good morning, Mr. Barrington. I'm Edward Sweder, a shareholder from Massachusetts. My question is on tobacco litigation. I know you, of course, touched on it during your presentation.
While the company in fact did win a victory yesterday in the state of West Virginia, it suffered a major setback a couple of months ago on March 14th when the Florida Supreme Court ruled 6 to 1 in the Douglas case and basically rejected the industry's arguments that the way that the Engel Progyny cases are being tried and have been tried since 2009 violate the fundamental due process rights. Now when one of your fellow companies, A. J. Reynolds submitted its petition for certiorari to the U. S.
Supreme Court in in the Martin case a little over a year ago, the attorney in there said that the company and the companies, the defendants in the Engelprojnick cases face potential liability in 1,000,000,000 of dollars and that these Angle Progyny cases would continue to trial quote with no end in sight. Any potential appeal to the Supreme Court of the United States in the Douglas case is a long shot given that they declined to consider a very similar appeal in the Martin case last year. So my question is why shouldn't shareholders believe the tobacco company's attorneys who are appealing to the Supreme Court who have warned about the potential of massive liability with 1,000,000,000 of dollars with 1,000 of cases still in the pipeline with no end in sight rather than believing the optimistic assurances
from management And we go, as you know, to considerable length in the Q3. And we go, as you know, to considerable length in the Qs to lay out, gosh, I think there's maybe 30 pages in the last one that describes in detail our litigation status, the status of the cases, including the cases that you've mentioned. I tried to point out in our remarks this morning though that we believe that the company has demonstrated a capability to manage that litigation and you're right to point out the substantial case that was decided yesterday in West Virginia, which I think just makes an inflection point on the company's ability in that regard. But you're right to point out litigation remains a significant issue for the company. It has been for some time.
We work very hard on managing it in shareholders' interest and I would direct shareholders to the queue. I think that's what they should rely on in the disclosures to draw their own judgments about that issue. Thank you again for coming and thank you for your question. Yes, sir? Good morning, Mr.
Chairman and good morning to the Board. I'm Glenwood Burley. I'm a resident of Richmond for 40 years and I'm a long time stockholder. I go back to the last 2 to 3 decades, you've had the stockholders meeting over at Bells Road at Philip Morris, which now Phillip Morris USA. The name changed, you came here, you came down from New York, you're in Henrico County.
I'm a retired police officer. If you'll take and look at the reality of our attendance, you'll notice that the attendance has continuously and significantly dropped. If you take the gentlemen and ladies in the front rows, there's basically executives and associated with the corporation and look at this average stockholder, we have diminished considerably. I don't know the reason. I spoke and I'm going to yield my time because this is a minor issue, but yet it's an important issue.
I spoke with Michael Deese, who's on the committee. I respectfully ask you and the Board in some of your minutes, meetings in the future months to give consideration. Altria Corporation is in Henrico County. I know there's political balances between the city and the county and you have your facilities here in the city, you have your corporate in the county, I respectfully ask that you look at the enthusiast of this and give consideration of going to your corporate if possible or maybe back over there. I'm a retired police officer and I'm proud of the city of Richmond.
But there is people I know personally that want to come downtown. They have a perception of not being safe downtown. City does a fine job of providing us security for the community, including this specifically. And our prime in this particular area is respectfully better than it was in years past. But I think you should look at going to your home place.
It was very special when you came to the home place of Philip Morris. You're not in a whole place here. This is different than going to your new facility. So I'll shut up and say give it some thought and maybe next year we'll be somewhere else or maybe not. Thank you, sir.
Well, thank you for coming. It's very nice to have you here. Thank you for your loyalty to our company and thank you for your public service as a police officer. I remember like you well when we had the meeting down at Bells Road and it was a much bigger event that time. We will take your comments on board.
We have found over the last several years that this location has worked for us, but there's nothing that we're committed to in that regard. And I'm glad that a shareholder comes and shares his views about what might be other locations. So we'll certainly take you up on your offer to think about it and I appreciate you coming again this morning. We have a question over here.
Good morning, Mr. Chairman. Good morning. My name is Paul Blythe. I am a retiree of Philip MorrisOUTria.
And looking into the future, I know the company is probably is working on this concept, but cutting back on some jobs here and there and I just want to know if that's going to be a big undertaking in the future. And also being a veteran, I want to ask if the company goes out of the way to seek out veterans, servicemen who are getting out of the service and also servicewomen who are looking for employment and I wonder if that's something that you all could, you know, express especially go out and try to do. And I guess that concludes me.
Okay. Welcome to the meeting. Nice to have you here. Let me begin by saying thank you very much for your service to our company and I know there are other retirees here this morning, and to all of you, I want to say welcome back to the family meeting. Thank you all so much for what you've done for our great company.
You pointed out that the company does have to be disciplined about the way it runs the company in terms of the number of people that we will employ at any one point in time. We don't like to do layoffs. In fact, we'd much rather manage that over time through natural attrition. From time to time, there are disruptive events like large federal excise tax increases, for example, that caused us to have to do something more programmatically. But like you, we would like to avoid that if we can.
We try to manage that over time. And if we have to do it, we try to do it square up with our employees and provide good transition benefits. I'm so glad that you raised the issue of veterans. This has been an issue for the last several years actually of focus for us. We owe our returning service members and people who serve in our armed forces such a debt and we do have programs in fact that we seek out actively to hire men and women who are served in our armed forces.
We have actually good programs in place actually. It's quite a moving event. There's a Veterans Day event, for example, at our companies where we have our co employees who have been proud to wear the uniform come and talk about what it means to be a veteran. I'm glad you've raised it. I'm with you on that.
Our veterans are owed a great debt. Thank you for coming to the meeting. We'll go back over to my left.
Yes, Mr. Barrington. I don't think you answered my question and that's why I'm taking location to come back. This was a surprise for me and I've been involved in issues around tobacco since 1980. I did not know that the Center For Disease Control says that almost 40% of adult smokers in Virginia make less than 15,000 a year.
So that would mean 40% smokers in this state would probably be using tobacco and a lot of percentage of that would be our product. Now we know the Affordable Care Act is going to be coming after the tobacco companies, but you can see why it might because the profits are coming from the poor and from the uneducated. The poor you are, the more uneducated you are. The more uneducated you are, the more you're going to be smoking. Our experience is that a lot of the lower educated and less income lower income people are racial minorities.
So the question that I had asked coming out of today, not even thinking I was going to say anything about this, but it came to me in today's Richmond Times, dispatch. The question is you're doing a good job, I think, on underage smoking keeping of that. Since so much of our profits are coming from uneducated, poor, less income, lower income educate them to help them get off the addictive dimension of our cigarettes and be able to address that issue as clearly as we have the underage issues. It just came to me today and I think it's a key issue and a key challenge facing the company, not only this company, but all tobacco companies, if this data from the Center For Disease Control is right. Our profits are coming from uneducated and lower income people up to 40%.
So that's a huge part. Okay. And I think we have an obligation.
Thank you again for asking your question. I guess what I would say to you is the approach that we take is laid out in our mission and our value statement and you can see there, for example, we do communicate the health effects of our tobacco products. We do it on our website. We do it on our packaging. We do provide cessation information to people.
And so anyone who's interested in knowing about the health effects of our products or who is trying to quit, they can go to the Altria website and they can be informed about resources that are available to them there. I share with you the concern, of course, that people who have less, we need to help them and I would point out that's one of the reasons we run our philanthropy programs the way we do and why we went to the trouble to point out the generosity of the Altria employees through the community in their own efforts to try to help those who are in need. So I hope that's helpful to you about how we think about it. And again, welcome back to the meeting. Thank you for your comments.
We have a question over here. Yes, sir.
Thank you. My name is George Calvert. I'm a resident originally with stockholders since 1976. Like most stockholders, I'm just thrilled with the company's performance over the last 35 years. And I hate to have to vote against advisory referent of votes on compensation, but when it takes 30 pages in a proxy statement to cover it all, I wonder whether we have done enough.
Could you comment on that, the whole issue of compensation and the Board's role in that, especially the compensation committee?
Sure. Welcome. Thank you for your loyalty to Altria. Glad you're here this morning. With respect to the length of the materials and the proxy, we have to comply with all the rules and regulations respecting that and that's, I think, in large part accounts for the length.
It's also to give good disclosure to shareholders about how we think about executive compensation. I mentioned in the remarks briefly, these are programs that are designed to require pay for performance, to align the interest of management and shareholders, to try to attract the kind of people that we want to attract, retain and develop to run a business of the scale of Altria Group. And I think that they do support our efforts in that regard. And then disclosure is most important. And so if you refer to the proxy, I know it's long, but if you refer to it, I think how the compensation committee thinks about executive compensation, the philosophy, the design of the program, the structure of the program, the metrics of the program, we think it's important that that all be laid out so shareholders can see that and that's what we tried to do and that's our approach to executive compensation.
Thanks for your question. Over here to my left.
Yes, sir, Mr. Chairman. My name is Sam Jones from Henderson, North Carolina. I just want to thank you for the invitation to come here today. And I'd like to ask you how in 2012 did you beat LoRaW so well?
And I would also like to ask you, are there any spin offs coming from Altra in the near future or any talk of that? Thank you. Well, welcome to
the meeting and welcome to Richmond. Thanks for traveling in to see us. I think that the results that we achieved in 2012 belong correctly with the executive team that's here today and the oversight of our Board of Directors and the 9,000 employees standing behind us who come and do really good work every day. We have terrific brands. We have terrific people.
We're very focused on the business and we're trying to do our best for shareholders like you. So I think that counts for the business performance. And Altria Group, as you know, has been through a series of spin offs, but I believe that we're probably done for a while. Thank you for asking your question. All right.
Are there any other questions in the room? Okay. I think that we've had them all. Thank you very much all of you for your questions and I'd ask everybody to please return to their seats. As a reminder, if you have another question, just fill out a comment card and return it to an usher and we'll get back to you.
We will now hear a presentation on the shareholder proposal included in the proxy statement and then vote on this proposal. We believe shareholders should vote against this proposal for the reasons set forth fully in the proxy statement. In the interest of time, I will not elaborate on our views today, but we encourage all shareholders to read the proposal and our response. We ask that the proponent limit his or her presentation to 4 minutes or less and each speaker commenting on the proposal to limit comments to 2 minutes or less. We'll devote no more than 8 minutes to the proposal.
And as before, the lighting system will help speakers manage their time. Thank you again in advance for your cooperation. With the proponents for the proposal, please proceed to a microphone and identify yourself and your proposal.
I'm here to submit our resolution for voltaion. It is asking the company to provide associations and support for tax exempt organizations that write model legislation. This isn't about political contributions. It's more about the lobbying. I understand I might be wrong, but for every dollar in political contributions, there's up to 8 dealing with lobbying.
And so we think there's a need for even greater transparency than the company has already shown. The company is spending in 2011 and 'twelve $21,000,000 on federal lobbying. And we found that $6,300,000 in 2012 went to state lobbying expenditures by the company in 34 states. But the disclosure about this is out there, but it's patchwork and isn't presenting a full picture itself. It might direct to some other source like a state or government, federal, but not on the website.
The research that we have also shows that between 2,000 and312, I'll try ahead at least 629 lobbyists in 49 states. So there's a need for disclosure with the best amount of transparency on this that there can be. Altria doesn't disclose as adequately as we think it should its trade association memberships and payments nor the portions of those payments used for lobbying. And so we don't exactly know what is going on as clearly as we would like. Now it belongs to ALEC in the Chamber of Commerce.
It is also we know that it serves on ALEC, the American Legislative Exchange Council's Private Enterprise Board. And so there's a need for greater transparency, especially when the company is involved with an organization like ALEC that has had so many other members pull out of ALEC because of the negative image. It's hard enough with a company with an image like this to be able not to be with a company with an entity like ALEC that has compounded problems. The proxy advisor in ISS supports this proposal. Our same proposal at on Tuesday got 44.2 percent of the votes.
Now we don't think we're going to get quite that amount here, but a lot of shareholders and institutional investor advisors are saying this is a legitimate request of a company. So ISS says Altria quote does not provide examples of the types of trade association the company belongs to or identify any specific trade associations the company is a member of. Disclosure of such information would aid shareholders in understanding the company's trade association participation and any potential related political lobbying activities. So with that, I submit the resolution and ask if you have not considered voting with us to reconsider and support this resolution that is asking for greater transparency and disclosure. The company is doing good, but we think again it could do better.
Thank you very much. Thank you, Father Crosby. Are there any comments on this shareholder proposal?
Yes. Again, Edward Swedo, a shareholder from Massachusetts. So much of this issue has come forward, particularly in the last three years. We had the momentous landmark decision by the U. S.
Supreme Court in the Citizens United case. And in that ruling for the majority, Justice Anthony Kennedy made the case for transparency and he said, shareholders can determine whether their corporation's political speech advances the corporation's interest in making profits and citizens can see whether elected officials are in the pocket of so called moneyed interests. But as an editorial earlier this month in USA TODAY pointed out, alas, the world that he described does not exist.
Citizens and shareholders cannot make these determinations because
they lack the basic information cannot make these determinations because they lack the basic information to do so. And while Altria certainly has provided some information on the website that has been cited and there is still more to be done. I think it is the opposition to this pro transparency resolution is fundamentally shortsighted. I think it's critical for shareholders of any company to know information regarding the company's lobbying expenditures and payments to groups such as ALEC that Father Crosby just mentioned. And actually and last week, I was in Winston Salem, attended the Reynolds American shareholder meeting and that company had already settled with sponsors of similar resolution.
So a vote did not need to take place. So for these reasons, I concur with Father Crosby and urge shareholders to support the resolution.
Thank you for your comment. Are there any other comments? Seeing none, those in the room wishing to vote on the shareholder proposal should do so now. All matters to be voted on have now been formally presented to the meeting. If you need to do so, please complete your proxy card.
After you have done so, raise your hand and the ushers will collect all the cards and deliver them to the inspectors of election. Since all shareholders have now had the opportunity to vote, I declare the polls closed. The ushers should now have collected all the proxies and they are directed to deliver them to the inspectors of election for counting. While the inspectors of election count the proxies, let me make a few concluding remarks. We believe that Altria's mission and the strengths of our diverse business model position the company well to create value for our shareholders into the future.
Our tobacco companies have strong premium brands in today's largest tobacco categories. Their knowledge of adult tobacco consumers will support their ability to innovate for future growth. Our alcohol assets complement our tobacco company's performance. Altria's strong balance sheet supports our ability to return significant amounts of cash to shareholders. We also have talented, dedicated and hardworking employees who drive progress in support of our mission and demonstrate our values.
Their efforts are at the heart of Altria's success and I thank them for a job well done. Finally, I want to thank you, our shareholders, for your continuing support of Altria. It is a privilege to serve as Chairman and CEO of this great company. I now ask that the Inspectors of Election deliver their report to the Corporate Secretary. Grant, will you please read the report?
The inspectors of election have
Each of the nominees for Director has been elected with more than 93% of the shares voting for their election. The selection of PricewaterhouseCoopers LLP is Autry's independent registered public accounting firm for the fiscal year ending December 31, 2013 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 named executive officers with more than 95% of the shares voting in favor. The shareholder proposal has been defeated. 78.18 percent of the shares voting on the proposal voted against the proposal and 21.82% voted in favor.
That concludes the report.
Thank you, Brandt. Please file the inspectors' report, the oath of the inspectors of election, their certificate and the proxies with the records of the meeting. We will post voting results on our website with a press release following the meeting and final voting results will also be filed in a Form 8 ks. I want to thank all of you for coming today or listening on our webcast. We appreciate the opportunity to hear from you and to respond to your questions about Altria.
Please travel safely on your way home. The meeting is adjourned.