These are the prepared remarks of Geoffrey Bible [who apparently was told by his physician to give up smoking] given at the beginning of the 2001 shareholders meeting, utilizing two state of the art tele-prompters, and broadcast to all PM offices across the world. PM makes these remarks public, but does not make the interaction with shareholder portion of the meeting available to the public.
of the Board and Chief Executive Officer Philip Morris Companies
Inc., Geoffrey Bible; 2001 Annual Meeting of Stockholders, April 26, 2001, Richmond, Virginia
Since last year’s meeting, we have accomplished a great deal as we continue delivering on our promise to be the most successful consumer products company in the world.
2000 was a very good year
for Philip Morris. We entered 2001 with
momentum, and we have every reason to expect solid results again this year.
The performance of our businesses
over the past year, and our confidence
for the future, result from our adherence to a set of fundamental strategies
that have guided us well through challenging times.
Here’s how we delivered on those strategies for the full year 2000:
Above all, we continued to develop our talented employees around the world. They are not just superb employees, they are good and caring citizens. I will talk more later about how the people of Philip Morris are working to make a difference in their communities.
We continued to grow our
businesses and met our growth target, with
underlying diluted earnings per share increasing 12.4% to $3.71, and we are projecting solid growth for 2001.
We completed the acquisition
of Nabisco and we are integrating it with
Last month, we filed a registration
statement with the Securities and
Exchange Commission for an initial public offering (IPO) of common stock for Kraft Foods Inc. and we expect to complete the offering by the end of the second quarter of 2001.
SEC regulations put severe limits on what we can say about the IPO and our global food business while we are in what is commonly referred to as the “quiet period.” These regulations prevent me from discussing any details of the offering or answering questions about it this morning.
Returning to the highlights of 2000:
We reinvested in our businesses and our brands.
Our enhanced portfolio, including
Nabisco, now has 91 brands that each
generate more than $100 million in annual revenues.
And 15 of those are mega-brands that each generate more than $1 billion in revenues.
We made excellent progress
in aligning our global businesses to meet high
societal expectations, including advancing reasonable and practical
positions on tobacco regulation, and we are aggressively pursuing programs to assure our leadership in food safety.
We also continued to successfully manage our litigation challenges, and we have seen a number of favorable legal developments this year.
We enhanced shareholder value
by maintaining a balanced program of
dividends and share repurchases, while continuing to guard our excellent credit rating.
Last year, we raised our
dividend 10.4% to an annualized rate of $2.12 per
common share. Over the past ten years, the compound annual growth rate for our dividend was nearly 14%.
And we have raised the dividend 33 times over the past 31 years.
In 2000, we bought back 138
million shares, or 5.9% of our outstanding
common shares, at a cost of $3.6 billion as part of our recently concluded
three-year $8 billion share repurchase program.
And to underscore our historical
commitment to increasing shareholder
value, in February of this year, we announced a new three-year $10 billion share repurchase program.
I will now review our business
results for 2000 and the first quarter of
I will refer in most instances
to underlying results, which exclude the
impact of certain pre-tax items, as well as results of divested businesses. Due to the timing of the acquisition, Nabisco is not included in year 2000
operating results, but is included in first quarter 2001 results.
For the full-year 2000, operating
revenues increased 3.2% to $80.3 billion.
Operating companies income increased 5.9% to $16.0 billion.
We achieved this robust performance despite a $495 million adverse currency impact. Excluding that, operating companies income would have been up 9.2%.
Net earnings rose 6.3% to
$8.4 billion. And diluted earnings per share rose
12.4% to $3.71.
We registered income gains
across all our businesses in 2000, and
strengthened our leadership position in numerous categories.
Last week we announced results
for the first quarter, showing continued
gains in our food and tobacco businesses.
First quarter results are
in line with our expectation that the rate of
earnings per share growth will be stronger in the second half of the year
than the first half. This is principally due to the dilutive impact of the
Nabisco acquisition during the first six months of 2001, as well as the effects of currency.
In the first quarter, operating
revenues increased 10.8% to $22.4 billion.
Operating companies income increased 10.1% to $4.4 billion.
Excluding an adverse currency
impact of $106 million, operating companies
income would have been up 12.8%.
Net earnings rose 2.2% to
$2.1 billion. And diluted earnings per share rose
6.7% to $0.95.
However, assuming Philip
Morris had owned Nabisco for all of 2000, net
earnings would have risen 10.6% and diluted earnings per share would have increased 15.9%.
Beginning with Kraft Foods North America, assuming Philip Morris had owned Nabisco for all of 2000, volume was up 3.3%, reflecting the success of new products and increases across all major businesses, with particularly good results in beverages.
Operating companies income was up 6.5% to $1.2 billion, driven by increased volume, continued productivity savings and lower coffee commodity costs.
Following an excellent year
in 2000, Kraft Foods International continued
its strong performance in the first quarter.
Volume was up 3.3%, benefiting from gains across most key categories and in the developing markets of Central and Eastern Europe, as well as Latin America and Asia Pacific. These results were partially offset by softness in some Western European markets, particularly in Germany, where we faced intense price competition and reductions in trade inventories.
Operating companies income
was up 8.6% to $239 million, driven by higher
volume and productivity savings.
On a constant currency basis,
however, operating companies income would
have been up 15.9%.
Results for both Kraft Foods
North America and Kraft Foods International
were fueled by our continuing efforts to achieve significant benefits from our scale by applying key strategies worldwide, including accelerating the
growth of our core food brands.
An essential component of
these worldwide strategies is food safety. Over
the past two years, we have invested more than $100 million to assure that our manufacturing processes lead the industry in food safety.
Although we target growth opportunities around the world, we have identified in particular snacks, beverages, convenient meals and health and wellness as having significant global growth potential.
Snacks include the growth categories of cookies and crackers, confectionery and salty snacks.
We have the No. 1 cookie
and cracker business in the world. In the U.S.,
we have eight of the top 12 cookie and cracker brands.
Our cookie brands include Oreo, Chips Ahoy!, Nilla and Newtons.
In the cracker category in
the U.S., we have over a 50% share with such
great brand names as Ritz, Premium, Wheat Thins and Triscuits.
We are accelerating growth
through new products and innovative line
extensions. For example, we introduced Mini Oreo last year, which achieved sales of close to $40 million in the last six months of 2000 alone.
Our Milka brand chocolate,
a venerable name that is celebrating its 100th
anniversary this year, is an excellent example of how new products continue to generate gains.
Beverages is another core
category where Kraft is a global leader in coffee
and powdered soft drinks. This sector includes leading brand names such as Capri Sun, Tang, Maxwell House, Jacobs and Kool-Aid.
Capri Sun is building on
its leadership position in single-serve
ready-to-drink beverages with the introduction of Capri Sun Big Pouch .
Since we acquired it in 1991, Capri Sun’s revenues are up more than 400 percent.
Our high-margin powdered
soft drink business also continues to register
good growth, fueled by new flavors, effective marketing and geographic
expansion. Tang, which is sold in more than 60 countries, is the global brand leader in this category.
In the coffee category, volume
for Jacobs, our billion-dollar mega-brand in
Europe, benefited from an innovative new process to improve the aroma of
In the convenient meals sector, we continue to expand the choices available to consumers for preparing delicious meals at home.
Convenient meals include
such great brands as Oscar Mayer, DiGiorno,
Lunchables lunch combinations, Miracoli dinners and sauces and, of course, the leading macaroni and cheese dinner in the U.S., Kraft.
Lunchables lunch combinations
generated double-digit volume growth last
year in North America, helped by the introduction of Mega Pack Lunchables.
One of our largest convenient
meals opportunities is frozen pizza, where
DiGiorno rising crust frozen pizza continues to show excellent growth,
driven by new products such as DiGiorno Half and Half.
As you can see, Kraft is
building on proven strategies and a portfolio of
exceptional brands, including 61 $100 million brands and seven mega-brands with revenues over $1 billion, and is dedicated to achieving its mission to be the undisputed leader of the global food and beverage industry.
In our beer business, Miller Brewing Company continues to face difficulties.
In the first quarter, domestic
shipment volume declined 5.3%. Operating
companies income declined 18.4% to $124 million, due to lower volume as
well as double-digit increases in marketing spending behind our core premium brands.
We are addressing the key
business issues behind Miller’s results on
several fronts. These include retail pricing realignment, distributor inventory reductions and reorganization of the sales force.
We are focusing on five core
brands – Miller Lite, Miller Genuine Draft,
Miller High Life, Icehouse and Foster’s – supported by improved sales and
Another strategy is to create
world-class advertising, particularly for our
flagship brand, Miller Lite.
In the growing import segment,
Foster’s is Australian for beer. Through a
series of new and exciting promotions, the enhanced “How to Speak
Australian” ad campaign should translate into increased brand and consumer exposure throughout the U.S. this year.
While our beer business continues
to face challenges, we have taken
appropriate strategic actions to address the situation.
In our international tobacco
business, the performance of Philip Morris
International continues to be driven by our superior products in all major
In the first quarter, PMI
volume increased 2.6%, despite an unfavorable
comparison with 2000 that included one less trading day this year and
distortions in trade purchasing patterns in a number of markets.
Operating companies income rose 4.6% to $1.6 billion.
Excluding an unfavorable
currency impact of $86 million, operating
companies income would have grown 10.3%.
During the first quarter,
we gained share in 20 of our top 25 income
And in 14 of those we gained a full share point or more.
In Western Europe, our volume
rose 1.3% in the first quarter with strong
gains in Italy and in Spain, where volume benefited from the continued growth of Chesterfield. This was offset by lower volume in Germany due to a significant decline in the vending segment and the growth of trade discount brands. Excluding Germany, volume was up 4.6%.
In Eastern Europe, volume
increased a strong 6.4%, led by double-digit
increases in Russia and the Ukraine and strong growth for L&M , the number three international cigarette brand.
In Central Europe, the Middle East and Africa, volume increased 4.2% and we recorded share gains in the Czech Republic, Hungary, Poland, Saudi Arabia, the Slovak Republic and Turkey.
In Asia, volume rose a strong 7.2%. Marlboro drove strong volume and share gains in Japan. Volume tripled in Indonesia, led by Marlboro, and was up strongly in Korea.
Our volume in Latin America
declined 3.7%, due largely to a recessionary
environment in Argentina and lower volume in Brazil. However, volume and
share continued to grow in Mexico, where Marlboro achieved a record market share of 40.8%.
Our results continue to benefit from consumer preference for American-blend and lighter-style cigarettes.
Marlboro remains the leading
brand in the American-blend segment, and the leading international
brand. Its share continued to grow in the first
quarter, fueled by increases in France, Indonesia, Italy, Japan, Korea,
Mexico, Russia, Spain, Turkey and the Ukraine.
Including Marlboro, we have
7 of the top 20 international brands. Six of
them recorded solid volume growth last year and continued to show growth in the first quarter.
Going forward, we expect
Philip Morris International to generate superior
growth based on its outstanding portfolio of brands, led by Marlboro, its
leading position in the growing American-blend and lighter-style cigarette
segments, and its worldwide infrastructure.
In our domestic tobacco business,
Philip Morris U.S.A. continues to show
its determination to respond to market challenges by enhancing its leadership position.
For the first quarter, PM
USA shipment volume declined 2.3%, versus an
industry decline of 3.7%.
Operating companies income
rose a strong 7.7% to $1.2 billion, driven by
Our shipment share rose 0.8
points, to a record 52.4%, due to continued
share gains by Marlboro, Parliament and Virginia Slims .
Our share of the premium
segment rose 1.2 points, to 62.9%, and premium
brands continued to account for 9 out of every 10 cigarettes we sold.
Marlboro shipment share climbed 1.1 points to 39.9%.
Last year we introduced Marlboro
Milds nationally to capitalize on growth
in the menthol segment. Milds achieved a retail share of 0.6% in the first
quarter, helping maintain Marlboro Menthol as the fastest-growing major
We also are supporting two of our other key premium brands — Virginia Slims and Parliament — with focused marketing programs.
And we are taking Parliament national this month.
In the discount segment,
Basic’s share of industry shipments was down
slightly to 4.9% in the first quarter, but Basic’s performance was up 0.2 share points in retail sales.
In response to changes in
the industry, we are making other adjustments to
our business operations. One example is our Tobacco Farmer Partnering Program. Through this program, we assure the quality and integrity of our blends by partnering directly with tobacco farmers for leaf purchases.
Another effort is a farm-based
program to significantly reduce tobacco
specific nitrosamines, or TSNAs, in flue-cured tobacco, since public health
authorities have identified TSNAs as potentially harmful. We are exploring
technologies and processes that may reduce TSNAs in burley tobacco, as
While the domestic tobacco environment remains a challenging one, we have a clear track record for generating good growth. Our terrific employees have achieved this by building Marlboro’s leading position with line extensions and outstanding marketing programs, by capitalizing on our superior sales infrastructure and by reducing costs. We will also drive growth with new and breakthrough products that meet evolving demand among adult smokers.
The company’s business fundamentals
remain strong, and we continue to
pursue growth and profitability with a clear vision and powerful strategies in all our businesses.
For the full year 2001, we
are projecting 9 to 11 percent growth in
underlying earnings per share, which includes the dilutive impact of the Nabisco acquisition.
Our underlying cash earnings
per share — which excludes the impact of
goodwill amortization — are expected to grow in the range of 13 to 15 percent.
The performance of the dollar
versus foreign currencies and other factors
represent a continuing risk to these projections. I direct your attention
to our Form 10K for a list of the factors that could cause results to differ
materially from projections.
These projections are consistent
with what we said at the time of the
Nabisco acquisition last year. We expect Nabisco to be immediately accretive to cash earnings per share, and to be accretive to diluted earnings per share in 2002.
The financial markets have
recognized the strength of Philip Morris, and
our disciplined plans for growth. As I am sure you are aware, we were the best performer in the Dow Jones Industrial Average last year.
While we are encouraged by the recent performance of our stock versus the S&P 500 and our peer companies, we believe that our shares remain undervalued, reflecting the concern of some investors about our litigation challenges.
Turning to the litigation
environment, I’m sure all of you have seen the
headlines about the Engle case in Florida. What you generally do not read
about in the headlines are the many other cases in which, for example,
courts continue to reject attempts to certify smoking cases as class actions.
To date, courts have ruled
in 32 cases that claims against tobacco
companies should not be litigated as class actions.
These cases make it all the
more clear that the Engle case, despite its
size and attendant publicity, is an aberration and should never have been
certified as a class. We also believe the Engle verdict resulted, in large part, from an unconstitutional and unlawful trial plan, and that the trial judge made numerous errors of law.
We are appealing the Engle
verdict. While it is possible that the validity
of the Florida bond cap statute may be challenged, we are optimistic about the outcome of our appeal and we will take all appropriate actions to protect our right to appeal.
As the appellate process moves ahead in Engle, we have continued our record of successful management of other types of litigation.
In the health care reimbursement
cases, every appellate court that has
considered the issue has rejected these claims. The only such case tried
to conclusion resulted in a unanimous jury verdict for the industry.
Since an early loss in an
individual case on the West Coast in March of
last year, which is on appeal, juries returned verdicts in favor of the industry in six of the seven other individual smoking and health cases that have gone to trial. In the seventh, the trial court reversed a jury verdict against one of our competitors and ordered a new trial.
In September last year, a
federal district judge granted our motion to
dismiss a substantial portion of the health care cost-recovery case filed by the Department of Justice. The remaining claim will be allowed to proceed to the fact-finding stage, but will be subject to a motion for summary judgment prior to trial.
Outside the United States
in 2000, Philip Morris and other tobacco
companies achieved significant success in several key cases, including the dismissal of a class action in Australia, the dismissal of individual cases in key European and South American countries, and the dismissal of a health care reimbursement case filed in Israel.
In short, while litigation
will continue to pose a variety of challenges,
we are demonstrating that the litigation is manageable over time and we will continue to take all appropriate actions and to allocate all the resources
necessary to protect the interests of the company, its shareholders and its
As we continue to protect
the interests of our company, we also are
reaching out to our critics and others regarding regulation of tobacco products. We look forward to taking part in the process of creating a new and rational regulatory environment for the manufacture, sale and marketing of cigarettes — one that addresses health issues while respecting the principle of freedom of choice among adults.
Philip Morris supports meaningful,
tough and effective regulation of
cigarettes by the FDA. We recently published a white paper describing our
position in detail. Copies are available in the reception area and on PM
USA’s Web site.
We also support sensible
and practical regulation of cigarettes worldwide
through the Framework Convention on Tobacco Control proposed by the World Health Organization and currently being negotiated by 191 member states of the World Health Assembly.
Regulation also would provide
guidance and support for our efforts to
produce reduced-risk tobacco products. It would help us to define what is meant by “reduced risk,” and how such products would be produced and marketed. We believe that it is our responsibility to aggressively pursue reduced-risk technology that provides products adults find acceptable while potentially reducing the risks of smoking.
Our dedication to addressing societal concerns about tobacco products can be seen in a range of initiatives that we have undertaken, particularly in the field of youth smoking prevention. We are working with retailers to comply with the tobacco settlement, and going far beyond the settlement in many areas as we continue to work with the state attorneys general to identify and solve problems related to underage tobacco use.
Philip Morris USA’s Youth Smoking Prevention Department devotes more than $100 million to this effort every year.
Philip Morris International
is actively involved in more than 130 youth
smoking prevention programs in nearly 70 countries, and we continue to
expand the scope and depth of our participation.
We have been airing TV commercials
since 1998 to discourage kids from
smoking by changing their perceptions. The commercials convey a “Think, Don’t Smoke” message through peer-to-peer communications to underscore that it is not cool to smoke.
We support efforts to minimize environmental tobacco smoke, while providing adults with pleasant and comfortable places to smoke, through our Options initiative in the U.S. and our international partnership programs, Courtesy of Choice and Traditional Hospitality, which can be found in more than 50 countries.
Miller Brewing has developed
a new responsibility campaign that boldly
states, “Don’t Get Drunk,” and offers positive messages about personal
We believe the new campaign,
which begins this summer, appropriately
addresses issues related to alcohol abuse in today’s society.
Kraft has joined with the
Tufts University School of Nutrition to make
accurate nutritional information more widely available by underwriting an
Internet service called The Nutrition Navigator. This service evaluates
hundreds of Web-based nutrition sites and helps consumers use them wisely and is linked to the Kraft Web site.
Our public communications
initiatives aimed at telling the world who we are
and what we stand for have been very successful, and we believe that they
have already produced significant results in improving the public’s
understanding of our people, our products and our principles. We have succeeded in helping millions of consumers appreciate that the people of Philip Morris are dedicated, caring citizens of their communities and the world. This initiative is a powerful ongoing program, and we are committed to it for the long term.
In summary, our strategies
have served us well, and we intend to stay the
course and adhere to them as our guideposts for the future. I hope that
you can see from our results that our corporate infrastructure is powerful and sound, that we are successfully managing our litigation challenges, and that we are changing the way we conduct our businesses in concert with societal expectations.
We define ourselves in many
ways. First, we are more than a tobacco
We are the largest consumer
packaged goods company in the world, with
operating revenues of over $80 billion last year.
We are a growth company.
We generated double-digit earnings per share
growth last year and we are projecting good growth again in 2001.
We are one of the world’s
best companies at building brands. We have 91
$100 million power brands and of those, 15 are billion-dollar mega-brands.
We are a company that is
committed to returning tangible value to
We have one of the largest combined dividend and share repurchase programs, returning over $8 billion last year alone.
We are a company that invests
for the future. We have an unparalleled
worldwide infrastructure of production facilities, business systems and
sales and marketing teams.
We are a company that has
a tremendous economic impact felt around the
world. In the U.S., our products generate more taxes than any other company’s products, with over $15 billion in U.S. income and excise taxes paid in 2000 alone. $15 billion!
We are also a company committed
to helping others. Since 1990, we have
given over $1 billion in cash and food donations to a variety of charitable
And we are a company that is committed to opening the world of opportunity to our global workforce of fully engaged and talented employees.
The elements are thus in
place for continued strength and growth for years
to come. We are deeply committed to using our powerful financial performance to invest in the future and to build shareholder value, and reward the faith that you have placed in your company and its management.
As I never tire of saying,
the very heart of this company is made up of
good, diverse, decent, hard-working, ethical people -- tens of thousands of them. Their loyalty and dedication to Philip Morris make this one of the finest corporations in the world today.
We share a deep and abiding commitment to honoring the rich diversity and experience among our employees. In 2000, people of color represented nearly 28% of our U.S. workforce, and more than 37% of our employees in the U.S. are women. We also strengthened our supplier diversity program in 2000, spending approximately $1.3 billion with minority- and women-owned businesses, compared with about $1.1 billion in 1999.
When it comes to corporate
generosity, Philip Morris continues to set the
standard. We have consistently been ranked as one of the most generous
corporate philanthropists in America. And our history of giving back to
our communities is not a recent phenomenon. We began our giving program 45 years ago. Since 1990, our charitable contributions have exceeded $1 billion. We do it for one very simple reason – because it is the right thing to do.
Last year, our employees
donated more than $10 million out of their own
pockets to non-profit organizations in the United States alone. When you
add company contributions and matching funds to that amount, our employees personally directed more than $20 million dollars to charities of their choice. In addition to financial support, they volunteered countless hours of personal time, as well.