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Philip Morris International Inc. (NYSE:PM)

2012 Annual Meeting of Stockholders

May 09, 2012 9:00 am ET

Executives

Louis C. Camilleri - Executive Chairman and Chief Executive Officer

Jerry E. Whitson - Corporate Secretary and Deputy General Counsel

Louis C. Camilleri

Good morning, ladies and gentlemen, and welcome to Philip Morris International's 2012 Annual Meeting of Stockholders. The meeting is now called to order.

I am Louis Camilleri, Chairman of the Board and Chief Executive Officer. I'd like to extend my warmest welcome to stockholders and employees who have joined us via a live audio webcast, as well as those who are here in person today. It is my privilege to welcome our Board of Directors, all of whom are in attendance and seated in the front rows with the exception of Carlos Slim Helú who, regretfully, was unable to attend. I would also like to introduce Jerry Whitson, Deputy General Counsel and Corporate Secretary, who's on the stage with me. In addition, I'd like to introduce Jim Schumacher of PricewaterhouseCoopers, our auditors. He is in the audience and will be available to answer questions after the meeting. It is our intention to proceed in accordance with the agenda and the rules for the meeting that have been placed on your seats.

My remarks today contain certain forward-looking statements, and I direct your attention to the forward-looking and cautionary statement section on this slide. A Glossary of Terms and Reconciliation slides of non-GAAP to U.S. GAAP measures are provided at the end of this presentation and will be posted on our website. The Secretary will now present certain formal documents. Jerry?

Jerry E. Whitson

Thank you, Mr. Chairman. 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, including financial statements for the fiscal year ended December 31, 2011. The holders of record of common stock at the close of business on March 16, 2012, are entitled to vote at this meeting. I'm informed that more than 87% of Philip Morris International, Inc.'s common stock is represented here today and therefore, a quorum is present for the transaction of business.

Louis C. Camilleri

Will the Secretary please file the documents with the records of the meeting. I appoint as inspectors of election, Amilja Regan and Kevin Laurita of Computershare, the transfer agent for PMI's common stock. The inspectors are instructed to execute the oath and to take custody of all proxies and of the certified list of holders of common stock as of the close of business on March 16, 2012. The list contains the names and addresses of all holders of common stock and the number of shares held by each. The list is available for inspection throughout the meeting. The inspectors will certify the vote on each of the matters to be presented to the meeting. Individual proxies and ballots are kept confidential, except where stockholders have written comments on them.

2011 was an outstanding year for Philip Morris International. Our cigarette volume grew by 1.7% to 915 billion units. Net revenues increased by 14.3% to $31.1 billion. Reported operating companies income, or OCI, was up by 18.7% to $13.6 billion. Reported diluted earnings per share increased by 23.7% to reach $4.85.

We measured the underlying strength of our performance on an organic, currency-neutral basis. On this basis, our 2011 results were also excellent. We returned to organic cigarette volume growth. Net revenues and adjusted OCI increased by 9.2% and 14%, respectively, and adjusted diluted earnings per share grew by 21.2%.

This strong momentum continued into the first quarter of this year, when we were helped by the leap year and an undemanding year-on-year comparison. Our continued investments in the business delivered organic cigarette volume growth of 5.3%, while net revenues and adjusted OCI, both excluding currency and acquisitions, grew by 10.9% and 14.2%, respectively. Adjusted diluted earnings per share, excluding currency, increased by 19.8%. We remain optimistic for the remainder of the year, despite the tough comparison we will face in the second quarter due to Japan and currency volatility.

These strong results were driven primarily by our success in the Asia region, our superior brand portfolio and geographic diversity, favorable pricing, a reasonable global excise tax environment and measures taken to control input costs and generate productivity savings. With a growing adult population and increasing consumer purchasing power, Asia has become a key growth driver for a wide range of consumer products, including tobacco. These favorable trends, complemented by the strength of our international and local brands, have helped us gain share in key markets. Together, these factors contributed to our achieving organic cigarette volume growth in the Asia region of 7.5% in 2011 and 12.4% in the first quarter of 2012.

Both the Russian and Turkish economies have rebounded, leading to a resumption of adult consumer up-trading. Our above premium-priced Parliament brand achieved double-digit volume growth in the first quarter and helped drive our share growth in both markets. Parliament is also performing strongly in Kazakhstan and Ukraine, and has been successfully expanded to the Middle East.

While the Asia and EEMA regions have been the key drivers of our increased profits, we registered a solid performance in the first quarter this year across all our regions. Excluding currency, the European Union and Latin America and Canada regions achieved 3.7% and 4% growth in adjusted OCI, respectively.

In the European Union Region, underlying industry trends are improving, except in markets such as Spain, where unemployment remains tragically high. The overall excise tax environment is reasonable and there have been structural improvements in many countries. Governments appear to have understood that higher specific excise tax elements enhance the predictability of their revenues, while large increases are disruptive and have adverse unintended consequences.

Pricing remains the key driver of our financial performance in the region. A still weak economic outlook has led to continued pressure on the premium segment. Our market share in France was down in the first quarter because Marlboro crossed the EUR 6 per pack barrier, ahead of key competitive brands. However, we have gained share in Germany, where L&M remains the fastest-growing cigarette brand. On a region-wide basis, L&M increased its share further in the first quarter and we've also made significant progress with Chesterfield in the low-price segment.

The Latin America and Canada Region results were impacted by the disruptive excise tax increase in Mexico in 2011. There's been no excise tax increase this year, allowing the market to stabilize. Despite the large tax-driven price increases, Marlboro has continued to grow its share in Mexico, as well as in Argentina and Colombia. In Brazil, [Audio Gap] structuring should provide an opportunity for the brand to better fulfill its potential in the coming years.

As I mentioned earlier, a key driver of our success is our superior portfolio of leading international and local heritage brands. Every single one of our top 10 brands increased volume in 2011. We were able to repeat this performance in the first quarter of 2012 when Marlboro led the way with an increase in volume of 3.6 billion units or 5.2%. We deploy these brands across our extensive geographic footprint.

While Asia is our largest region in both volume and profitability, we have a very good overall balance between more developed high-margin markets, such as those in the European Union and Japan; and less developed markets in Asia, EEMA and Latin America, that have greater potential for further market share expansion.

We've complemented our superior brands and the strength of our global footprint with successful business development activities. These 3 factors led us in 2011 to record our fourth consecutive year of global market share growth. In 4 years, we've increased our market share, excluding China and the USA, from 25% in 2007 to 28.1% in 2011.

Using our top 30 profit markets as a proxy for our overall share performance, you can see that we have maintained our momentum during the first quarter of 2012. The favorable pricing environment remains an essential element of our earnings growth. In 2011, we generated a $1.9 billion pricing variance. During the first quarter of this year, we generated a further $369 million and a favorable $224 million volume mix variance at the OCI level.

Most governments now recognize that over the longer term, the optimization of their revenues is fostered by a combination of factors. These include reasonable, regular excise tax increases; predominantly specific excise tax structures; the use of minimum excise taxes and other mechanisms to limit consumption by discouraging low prices; a multi-year legislation or plans that provide predictability over a longer period. While surprises can still happen, we have not witnessed any disruptively large excise tax increases this year.

In addition to rational excise tax regimes, many of our markets have passed strict tobacco regulations, including extensive public smoking restrictions; bans on most forms of tobacco product marketing; large graphic health warnings; and bans on descriptors. We operate successfully in such regulatory environments and have generally supported these regulations. We have, however, opposed and will continue to oppose regulations that are extreme in nature and are not based on rational scientific principles such as plain packaging; health warnings covering most of the cigarette pack; display bans; and bans on the use of all ingredients. Further, these regulations lack sound evidence that they would reduce consumption among adults or youth, or would meaningfully benefit public health. Instead, these measures would likely result in significant adverse consequences, which undermine public health objectives and government revenues, such as fostering illicit trade, increasing consumption of cheap tobacco products, and a hindering competition in the legitimate tobacco industry.

In the few cases where proposals for extreme regulations have been enacted, we have been left with no option but to seek an unbiased review of them by a court of law or an arbitration panel. For example, in Uruguay, we challenged the Ministry of Health's decision to mandate 80% health warnings, leaving virtually no space for our trademarks and branding. In comparison, we have not challenged large health warnings in many of our markets, including graphic warnings covering 50% of the pack, the size recommended by the U.S. Food and Drug Administration, such as these in Egypt, Hong Kong, Panama and Singapore.

We've also brought litigation against Uruguay's law, prohibiting all but one variant per cigarette brand on the market. The law is anti-competitive and lacks any public health benefit. Indeed, while we removed 3 or 4 versions of Marlboro from the market, representing 40% of Marlboro sales, as required by the law, the local Uruguayan tobacco company, with a market share of 77%, merely renamed all its brand variants and kept its pack designs.

Since these 2 laws have been enforced, what has been the impact on public health? Three years after their implementation, total consumption has remained essentially stable, while contraband has increased by 30% at the expense of the legitimate tobacco industry.

We are firmly opposed to the so-called plain packaging law that has been enacted in Australia with implementation scheduled for December of this year.

Let me take this opportunity to give you an update on this issue. There are currently 3 types of legal challenges pending against plain packaging in Australia.

First, there is a domestic case in Australia with each of the major tobacco companies calling for the suspension of the legislation, arguing that plain packaging is incompatible with the Australian constitution. Last month, the High Court held a 3-day hearing, and we expect it to deliver a judgment during the next 6 months. We should bear in mind, however, that the High Court is considering a very narrow legal question under a specific provision of Australian constitutional law. We do not expect that the court will determine the merits or effectiveness of the plain packaging measure itself.

Second, Philip Morris Asia has filed a claim under the bilateral investment treaty between Hong Kong and Australia. We expect that -- this legal process to take 2 to 3 years.

Finally, country-to-country proceedings have been initiated against Australia through the World Trade Organization by a number of countries. These cases are also likely to take several years to reach final resolution.

Plain packaging is clearly a misguided policy with a severe lack of any concrete evidence in favor of the measure, but a strong potential for unintended consequences that would actually undermine public health objectives. We remain optimistic that countries considering plain packaging will consider all the facts and decide not to follow the Australian experiment.

Contrary to many other consumer goods companies, we are not facing significant input cost pressures. After a step-up in tobacco leaf prices in 2008, when we faced a supply-demand imbalance, we have expanded our direct contracts with farmers and increased our vertical integration. This has helped to make the tobacco leaf market much more balanced on a global basis. Consequently, this year, we expect tobacco and direct material costs to increase broadly in line with inflation.

We established earlier this year a pretax productivity target of $300 million, which we are fully on track to achieve. These productivity savings will be generated mostly in manufacturing, purchasing and the overall supply chain.

Our strong operating results have been the key driver of the $2.8 billion increase in our free cash flow since 2008. In addition, we implemented a 3-year $1 billion working capital reduction program at the end of 2009. This program was completed within 12 months ahead of schedule.

Our growing cash flow underpins our strong balance sheet. Our goal is to maintain our A long-term credit rating in order to be able to continue to issue well-laddered bonds at attractively low costs; to access Tier 1 commercial paper, where we currently pay 10 to 20 basis points in interest; and to retain strong financial flexibility.

Our year-end net debt-to-EBITDA ratio of 1.1x was below that of many of our peers and well within the range for the credit agencies to maintain our credit ratings. Our EBITDA interest coverage of 17.9x at year end placed us in the top half of our company peer group, while our debt-to-enterprise value of 10.7% was the lowest among the same group of companies, highlighting the strength of our capital structure.

We are steadfastly committed to using our significant cash to enhance shareholder returns. Between the spin-off from Altria Group, Inc. in March 2008 and the end of 2011, we had $42.3 billion available. 44% went to dividends, 51% went to share repurchases and 5% to acquisitions. In total during this period, close to $40 billion has been returned to our shareholders.

Our share repurchase programs have been substantial. By the end of 2011, we had spent $21.4 billion to buy 414.1 million shares, representing 19.6% of the shares outstanding at the time of the spin. In the first quarter of this year, we spent another $1.5 billion to buy a further 18.1 million shares. Since the spin through the end of March this year, the average price of the shares repurchased has been $52.88, which compares very favorably to yesterday's closing stock price of $87.72.

We have a generous dividend payout target of 65% and have increased our dividends by 67.4% since the spin to a current annualized rate of $3.08 per share. Our dividend increase is superior to all our company and tobacco peers, except McDonald's and Lorillard.

During 2011, we outperformed every single company that makes up the Dow 30, both in terms of share price and total shareholder returns. In fact, shareholders who bought our shares at the time of the spin and reinvested their dividends in our stock, generated a total return of well over 100% through the end of April this year. Over this period, it is almost double the return of our tobacco peer group, nearly 4x that of our company peer group and dwarfs the return on the S&P 500 Index.

The strong performance of our stock price over the last 12 months has led some investors to voice concerns about our valuation as expressed by the price-earnings multiple. We are currently trading at approximately 17x consensus analyst earnings per share projections for 2012. This is in line with other premium, multinational consumer companies such as McDonald's and Nestlé, and represents a modest discount to Coca-Cola.

However, when we look at our current price and market capitalization as a function of our free cash flow for 2011, we are still trading somewhat below most peers with PMI at 16.1x free cash flow versus the peer average of 17.4x. Just as importantly, when we look at our price-earnings growth ratio, which measures our price earnings as a function of our expected long-term earnings per share growth, we are trading at a very significant discount to our peers, indicating that PMI remains good value in light of its expected growth potential.

In conclusion, our performance and growth potential has been widely recognized. And just this week, we were placed seventh on Barron’s list of America's 500 top performing companies, and we were the highest-placed consumer products company in that survey. Thank you.

I will now open the meeting for questions and comments. This period will be followed by the resolution of items for voting. I would ask that we all remember that this meeting represents an opportunity for shareholders, or their representatives, to express their views, whether favorable or otherwise. Whilst I value highly the chance to listen to your opinions and address your questions, I do expect the process to be based on mutual respect for the differing views represented in the audience.

As noted in the agenda, each speaker is kindly asked to limit his or her comments to 2 minutes to allow everyone an opportunity to be heard. Shareholders should confine their remarks to matters that relate directly to the business of the meeting. Also, please note that those who wish to speak a second time may do so only after all others who wish to speak have had their turn. I've asked Jerry to serve as timekeeper so that everyone will have an equal amount of time. We have allowed up to 1 hour for questions. There is a microphone in each of the 2 aisles. If there is not enough time for all of your questions during this morning's meeting, please feel free to ask an usher for a card, fill it out and return it to an usher at the end of the meeting. We will respond to you as soon as possible. Please address your questions or comments directly to me and be sure to identify yourself.

Question-and-Answer Session

Louis C. Camilleri

Sir, you're the first up.

Unknown Shareholder

My name is Jean-Jacques Illi [ph] from Steamboat Road in Greenwich, Connecticut. I would like to applaud you, your management team and the board for an excellent performance during the last year, especially your handling of the opportunity in Japan was exemplary. I know that you played fair with JP, but their samurai culture was stronger. Congratulations, and I think now applause is in order.

Louis C. Camilleri

Thank you very much. That's a good start to the meeting.

Unknown Shareholder

That's why -- I tried. My business question this year is about price elasticity of cigarettes and it follows my question at last year's meeting about Friday, April 2, 1993. My concern as a PMI shareholder is about cigarette pricing in general and specifically about the company's ability to continuously increase prices to drive the EPS growth. I assume, please correct me if I'm wrong, that as a company with a stock market capitalization of $150 billion as of last night, this according to Bloomberg, the company maintains some system of computer modeling of price elasticity. In an ideal case, that's my view, there should be some sort of a model for every SKU, but at least for every brand in every country. My specific question today is, what are some of the more unusual, and I stress, unusual risks in the price elasticity of cigarettes that don't immediately trend out? I'm asking you to describe in some detail the price elasticity of cigarettes and some significant issues that the company encounters in this regard.

Louis C. Camilleri

Thank you, Mr. Illi [ph]. Thank you for question. You're right, pricing has been a key driver of our profitability, and we believe will continue to be a key driver of our profitability. To address your specific question, I think it's very difficult to disassociate pricing with excise taxes. So key factor in price elasticity is what happens to taxes because ultimately we're talking about retail prices. And you will find that over time, governments have instituted significant tax reform, which has, in most instances, had a better structure in terms of the specific, to total tax ratios. And there's been a continued progress towards that factor. In fact, if you take our top 30 income markets, today some 75% of them have tax structures in place that we would deem to be fair. So there is still work to be done. But I would say that with tax structures in place that are favorable and that, by the way, address public health as well because they narrow price gaps, and the fact that in our pricing, we look at it from an each market perspective. We look at the fundamentals of each market and at times, to address one of the things you mentioned, clearly economic upheavals tend to enhance the price elasticity factor. Unemployment is a critical factor, and you can see that in the southern Mediterranean countries of the European Union. That obviously, is an issue. But I think we have a broad portfolio of products. The real worry is illicit trade. That's a big concern, and we are doing everything to try to combat illicit trade. So thank you.

Julia Gabbert

My name is Julia Gabbert, and I'm an organizer with Corporate Accountability International. More and more countries, spurred by the success of the Framework Convention on Tobacco Control, or FCTC, are implementing comprehensive bans on tobacco advertising, promotion and sponsorship. One way Philip Morris International skirts regulation and undermines public health is by promoting corporate social responsibility initiatives, or CSR. PMI's own internal documents illustrate how CSR is part of a coordinated attempt to improve PMI's tarnished image and gain access to customers and politicians. But CSR is recognized by the World Health Organization as a form of advertising, promotion and sponsorship a way for PMI to reach kids and other targeted populations. In fact, countries like Mauritius included a ban on CSR when it passed its law-restricting tobacco marketing. Still PMI continues to remote examples of CSR. In this year's annual report, the corporation highlights its education programs in Colombia. These programs specifically target young children in indigenous and tobacco-growing countries on PMI branding and marketing, addicting a new generation of customers to a deadly product. This is an egregious example of PMI flouting the FCTC, circumventing public health policy. In the Philippines, the CSR programs of Philip Morris Tobacco -- Fortune Tobacco Corporation are even more transparent. A recent cover of the national Sunday news featured an article that was actually an advertisement boasting about how important the corporation's growth is for the Filipino economy. PMI profits from selling a deadly product with tremendous economic costs, health care costs drain dollars from economies and reduce budgets for essential public services, the very services PMI claims to support through these CSR initiatives. Considering that PMI will likely spend more promoting CSR than an actual CSR programs, when will you publicly acknowledge that CSR is another form of advertising and account for it as such for the benefit of the shareholders?

Louis C. Camilleri

Thank you for your intervention. I regret that you feel that way. The fact is that we support our numerous communities in which we operate. And you will hear later in my presentation that last year alone, we helped 3.5 million people in this world. So rather than talk to me, you should go to those 3.5 million people and tell them that they don't deserve our help, be it in education, be it in rural communities that have no schools, no water, be it for disaster relief, be it for domestic violence, all are priority-giving. We feel very proud of what we achieve. It is totally transparent. Every single one of our contributions is listed on our website. So thank you.

John Stewart

My name is John Stewart. I'm the Senior Organizer with Corporate Accountability International's campaign to challenge big tobacco. It's been 7 years since the World Health Organization's Framework Convention on Tobacco Control entered into force -- and 46 [ph] countries adopted guidelines to protect public health policy from interference by tobacco corporations like PMI. PMI continues to drive an entirely preventable epidemic of tobacco-related disease and death while aggressively undermining implementation of the treaty. In an open letter from governments around the world, they highlight PMI's use of litigation to bully countries that implement strong tobacco control measures as part of their legal obligation to the treaty. The letter calls on this corporation to stop its costly and ineffective intimidation by litigation tactic. These lawsuits are beyond the pale and demonstrate the lengths that PMI will go to continue to export disease and death to every corner of the globe. The health ministries of Thailand, Panama, Turkey, Gambia, Palau, Djibouti, Bulgaria, Madagascar, the Maldives, the Philippines, Kenya, Israel and Swaziland, all of whom have faced intense opposition, sometimes even lawsuits from your corporation, have signed the letter. More than 250 organizations from more than 75 countries have also signed. The global community is resolved to stand up to big tobacco's intimidation. And the words of Dr. Margaret Chan of the WHO, "I urge all of these countries to stand firm together, do not bow to pressure. We must never allow the tobacco industry to get the upper hand." So the letter of the law is clear. PMI's business is not to dictate how countries should safeguard public health from tobacco's highly addictive and life-threatening effects. Litigation is a costly, risky and ultimately losing strategy, and it's time for PMI to face this reality. So my question to you is simple. When will you disclose to shareholders and the public how much this losing strategy is costing, and when will you stop robbing governments and shareholders to pay for these expensive litigation campaigns?

Louis C. Camilleri

Well, this has been a subject that comes up quite frequently at these annual meetings. We don't use litigation lightly. We ponder it very carefully. But at times, we have no choice. To get a neutral view of what we believe are very misguided policies. And that's when we use litigation. Whilst certainly the proponents of some of those measures have good intentions, the fact is that there are major unintended consequences to some of those policy measures that actually hurt the legitimate tobacco industry. Uruguay is often used as the poster child of the tobacco industry and are specifically using litigation to try to change some of their measures. Well, in my remarks, you saw what happened in Uruguay. The fact is if you look at 2011, total consumption in Uruguay was up by 5.8%. It increased, driven solely by an explosion in contraband that increased by 17%. So one has to be very careful in implementing measures that essentially backfire for the public health because consumption is up. Those products are cheap and therefore more attractive to you. That's why we litigate. So thank you. Sir?

Unknown Shareholder

My name is Alan Franco [ph], I'm an individual investor. My Philip Morris International shares in Altria are registered in my name. I have direct control over these shares. My question today involves the cigarette industry and the liquor industry. Specifically since -- as long as I can remember, the cigarette packs have warning labels on the side. Many, many years ago, the warning labels were just on the side, tobacco is advertised on billboards and magazines, at sporting events, on television, and each one of these venues was taken away from us one at a time. The tobacco industry is the most hounded industry in the United States of America and internationally. We've been forced to pay huge amounts of money, ransom money, to various governments around the world for whatever purposes they see fit. Many states in the United States of America have already built their tobacco settlement money into their budgets for items unrelated to health. On the contrary, the liquor industry appears to be getting a free ride. I don't know of any restrictions of advertising in the liquor industry and I don't know of anybody who's died in an automobile accident from smoking a cigarette. If you take a look around the most recent statistics, I believe 50,000 people died on the highway last year, which was more soldiers than we lost in the entire Vietnam War, and most of these accidents due to alcohol consumption. Alcohol consumption destroys the liver, destroys lives on the highway and it's one of the biggest menaces around, and yet there's no regulations and the government seems to be giving the alcohol industry a complete free ride while devoting 100% of their attention to us. My question is, why has this -- in your best opinion, why has this situation occurred where one industry, which is very destructive, is ignored and another industry is being harassed over and above what can be considered reasonable?

Louis C. Camilleri

I can't really comment on the alcohol industry, particularly as one of our board members is pretty heavy into beer. But I don't think he would share your perspective that the alcohol industry. In fact, all industries are subject to regulation. I think the important thing here is that we recognize the regulation in tobacco is important. And whilst there are skeptics in the room, we have been vocal advocates for regulation because we think it is important. And furthermore, ultimately, the real solution to the issue comes down to the product. And our hope is that in the coming years, we will be in a position to launch next-generation products that effectively reduce the risk and the harm associated with tobacco. In the meantime, we will continue to push for regulation that we think makes sense, that will actually help public health be consistent, be cohesive and coherent and not have the potential to backfire. So thank you very much.

Dan Harris

My name is Dan Harris, I'm from ABC News. I'm holding a picture of a Marlboro kiosk in Jakarta, Indonesia that is steps away from the front gate of a school. At this kiosk, which as you can see is branded Marlboro, they sell cigarettes individually for $0.10. Do you think this is an acceptable way to market your product?

Louis C. Camilleri

No. Sorry I can't hear you.

Dan Harris

Turn my mic back on. We sent you a letter about this kiosk 9 months ago. We then broadcast it on national television. We checked just a week ago, it's still there. How do you defend that?

Louis C. Camilleri

Well, I'm glad you brought it up because, I guess, I saw your program on 20/20, and it was a very powerful program. We have a policy that we should not advertise or have a billboards in place next to schools, anywhere in the world, including Indonesia. The kiosk you mentioned, we actually looked for it and we couldn't find it. So I'm glad you know exactly where it is. So why don't you give us the address of that kiosk so we can actually go and see for ourselves. I think it's very important for shareholders to understand however that kiosks are set up by independent parties. We don't have any kiosks and we don't, in any way, sponsor retail shops as you claim. However, I think that it's very important because Indonesia has been a very sensitive subject. And at times, the 2 documentaries, 1 of them was yours, another 1, I think, was produced by the Vanguard Group, if I'm correct, which essentially had the same themes. So I'm glad you came, and it gives me an opportunity to talk about Indonesia for the benefit of all shareholders. First, by way of background, the government has been criticized for treading rather lightly in terms of the tobacco industry. I think that's a slight unfair characterization. The fact is that the tobacco industry is the largest employer after the government in Indonesia. It is also a source of significant government revenues. And whilst there are 4 or 5 significant manufacturers, there are some more than 600 manufacturers present in Indonesia. And I say this not as a matter of excuse or anything, but for you to understand the complexity of the issue and that there is competing interests that are there. So we entered Indonesia in 2005. So what have we done in Indonesia since we entered, both voluntarily and from a legislative point of view? Voluntarily, we have essentially discontinued a number of the promotions that were going on before we bought Sampoerna. We no longer sponsor any sports. Marlboro is not on television as opposed to what the documentaries would show. Furthermore, the 2 programs that are referred to both in your documentary, as well as the other one regarding music, were discontinued in 2008, that's 4 years ago. Yet the documentaries would lead people to believe that they're still on. In terms of concerts, the posters announcing concerts do not have any branding. We're the only ones who do that. The concerts that take place are held in an enclosed locations where there is very strong, very strict age verification before anybody can enter those locations. In terms of TV advertising, which, as you know, is legal in Indonesia, we have reduced our TV advertising quite substantially. We're now down in terms of share of voice in the teens. When we bought Sampoerna, we were at 30%. And the list goes on. We have taken a number of voluntary measures to try to reduce the impact of marketing and advertising. On the legislative front, we have been very vocal advocates of marketing restrictions, graphic health warnings, public smoking restrictions, education and other measures. And there is good news, finally, good news. It is our understanding that a tobacco control bill is now currently on the desk of the President. And when he signs it, it will become law, and it includes a lot of the measures that we have pushed for despite the opposition from numerous other circles. So there is progress. I thank you for your program because it helped. And I would encourage you and others to press the government to continue to institute tobacco regulation that is fair and makes sense; and above all, to ensure the kids to not have access to cigarettes and their parents are educated about the dangers, the dramatic dangers and the causes, the disease causes that smoking can create in Indonesia. Thank you.

Dan Harris

[Question Inaudible]

Louis C. Camilleri

I think you've had your turn. You can come back later.

Dan Harris

[Question Inaudible]

Louis C. Camilleri

Could you put the mic up, please?

Dan Harris

You said that you don't put billboards outside of schools, but we found them outside of schools all over Jakarta and all over other cities. We also found that you're still using the Marlboro man, which was banned in this country because he was considered to be inappropriate marketing to the children. We also found that under the auspices of corporate social responsibility, you are sponsoring schools under the name of Sampoerna, which is the brand name that 97% of Indonesians associate with cigarettes. So if a child at that school walks around with a Sampoerna uniform, as they do, they are walking advertisement for cigarettes.

Louis C. Camilleri

Please, Mr. Harris, you don't believe what you're saying.

Dan Harris

Yes, I do.

Louis C. Camilleri

Well, you're misinformed, right?

Dan Harris

Well, explain it for me.

Louis C. Camilleri

I'm trying to, but you give a chance, right? Sampoerna Foundation was set out by the previous owners of Sampoerna, the father of the person who sold the business to us. It is one of the biggest and largest foundations in Indonesia and its principal priority has been education. We have given funds to the Sampoerna Foundation and we continue to do so, and they sponsor a university and schools as you say. But they provide the money and nothing else. So thank you. Sir?

Robert Peek

My name is Robert Peek, I'm an organizer with Corporate Accountability International. Last month, more than 135 countries reached agreement on a draft protocol to eliminate illicit trade in tobacco products in the global tobacco treaty. PMI has been attempting to undermine this protocol since the beginning of the negotiation when this is strictly prohibited by international law. PMI and other tobacco transnational corporations have benefited from and even been complicit in illicit trade in tobacco. To be clear, PMI has repeatedly been accused of, and I quote, "an ongoing global scheme to smuggle cigarettes, obstruct government oversight of the tobacco industry, fix prices and bribe foreign public officials." Though PMI avoided admitting guilt, it was forced to pay $1 billion through its agreement with the EU. Now it seems PMI is trying a different strategy to avoid accountability, one that is entirely outside of PMI's core product line and experience: the security products business. Philip Morris products patented a system called Codentify, that is clearly an effort to thwart legitimate global efforts to reign in illicit trade and control sensitive data and system functionality. This system does not seem to be effective or efficient, not surprising for a tobacco corporation that has no experience in criminal investigation tools. Codentify does, however, give PMI sensitive proprietary information from competitors and governments that, if misused, would actually make it easier for the corporation to engage in illicit trade. This presents serious problems in terms of transparency and accountability, not to mention the threat of future costly lawsuits against the corporation. PMI has invested a significant amount of resources to develop Codentify, even though it divested from Kraft several years ago to concentrate on its core tobacco business. This raises serious questions for investors about PMI's objectives when venturing into this unknown and risky territory of security products. My question is given PMI's complicity in illicit trade and that Codentify is entirely outside the scope of your core business, what is PMI's true agenda with regards to the promotion of the Codentify system?

Louis C. Camilleri

Well, thank you for raising that issue. A lot of what you said is so misguided, it's unbelievable. And you actually believe what you said, which is somewhat sad. This company has done a lot to fight illicit trade. And as opposed to what you just said, we actually have very much supported the FCTC's actions regarding illicit trade. Codentify is just one tool to be able to identify and track all products in the world. It is something that we invented. It is available to the tobacco industry in total, and it is available to all law enforcement authorities. You'd be interested to know that other industries are also interested in Codentify as a means to fight illicit trade. So for you to try to somehow subvert this into something that's quite Machiavellic in these areas frankly goes beyond the pale. Thank you. Madame, welcome.

Unknown Attendee

My name is Christy Smith-Mayboo [ph] and I am from Louisiana. And being that you stated at last year's stockholders' meeting that it's not hard to quit. Studies show that it takes a person 5 to 6 times to try and quit before they can. Me being a former smoker, it has taken me 5 times before I was able to stop, and it was hard. So really since you are the CEO of the leading international tobacco company, how long does it take a smoker to stop before feeling the need to start back and have you ever tried to quit smoking and how many times?

Louis C. Camilleri

In this day and age of soundbites, regretfully, that comment was taken somewhat out of context and you know it was. So I recognize that I could have been much more articulate. So I'll try to be more articulate today. The fact is that it can be excruciatingly and very difficult to quit. But many, many people, millions of people have been successful. And frankly, it's my personal opinion that to continually tell people who are trying to quit that it is nigh impossible is actually doing them a disservice. We should be encouraging them and giving them the proper motivation. So thank you for coming.

Rita Lara

My name is Rita Lara, and I'm an organizer with Corporate Accountability International. To date, 173 countries and the European Union have ratified the World Health Organization Framework Convention on Tobacco Control and are applying stronger measures than ever to protect public health. This includes measures like comprehensive bans on tobacco advertising, promotion, sponsorships, including bans on tobacco displays at retail stores. Because these displays are amongst big tobaccos last bastions to market to youth, this is a logical next step for countries looking to prevent youth smoking. A PMI affiliate, however, is not only suing the Norwegian government for implementing such a policy, but the corporation also used its political and economic power to leverage administrators of the European free trade agreement to weigh in on the lawsuit. This isn't the first nor is it the only time PMI has tried to divide and conquer, turning trade and commerce ministries against public health ministries even though the Framework Convention on Tobacco Control gives the party the right to prioritize health over trade concerns, and both the World Bank and the World Trade Organization support this. And yet, PMI continues to influence ministries and provide legal assistance to countries like the Ukraine and Honduras to interfere in Australia's sovereign right to create its own public health policies by filing complaints with the WTO against Australia's plain packaging laws. The Ukraine doesn't even trade with Australia. PMI's publicly admitted to this interference last week in an article in the Financial Times. Such brazen and aggressive interference in the affairs of other sovereign nations is sure to inspire outrage and backlash not just from public health communities but also from governments, posing a big risk for investors. Are the stakeholders and investors aware of PMI's role in the decision of these governments to interfere with the public health policies of Australia? And if not, don't you think they should be, given the risks this poses to PMI, and don't you think those risks should be discussed?

Louis C. Camilleri

We're about to discuss them. Thank you. Let me just correct a few things you first said, and then we'll try to set the record straight. The EFTA intervention in Norway was actually asked by the Norwegian court, that went to the EFTA Court to ask for their opinion on whether the product display ban had an impact on EFTA rules in terms of trade. So we did not approach EFTA, number one. Number two, display bans are in place in several places. The first to do it was Canada, just up north. And the problem with display bans is that essentially cigarettes get put under the table. And guess what happens when cigarettes are put under the table? Counterfeit, illicit trade, contraband explodes. The incidence of contraband of cigarettes in Canada is about 30% today. That's dramatic. And point-of-sale display ban does not help to measure that at all. With regard to the countries that have made a claim under the WTO rules, with regard to Australia, those countries have serious reservations about the legal consequences to intellectual property and the trade-related aspects of intellectual property and the agreements that Australia have signed with other countries not only for tobacco, but for other industries. The problem with plain packaging is it essentially will commoditize the industry. What then happens is that prices decline? And when prices decline, believe it or not, as the first gentleman alluded to in terms of price elasticity, consumption goes up. And in this specific instance, consumption will go up fueled by illicit trade. We've got a perfect example, which is Uruguay. You saw the health warnings in Uruguay, which were 80%. They're essentially surreptitious plain packaging. Well, as I've mentioned earlier, contraband has increased by 30%, 30% since they implemented that measure, that's dramatic, and it does nothing for public health. The problem with tobacco control activists is they are very well intended, and I recognize that. But you never think of the unintended consequences. You're too blinded by your desire to hurt and penalize the legitimate tobacco industry, and all you're doing is helping illicit trade. Criminal organizations and the illicit trade fuels funds to terrorism and other things, and that's dramatic. So I'd ask you to join forces with us to ensure that the measures that are taken that are coherent and that makes sense, right, are promulgated rather than ones that backfire. So thank you.

Unknown Attendee

I am Charles [ph]. 90% of people start smoking by 18, and the average of age of when a longtime smoker starts is 13. Given those 2 simple facts, who would you say is the main target for your products?

Louis C. Camilleri

We market our products to adult consumers. And we do everything that we can. We're imperfect at times, but we do everything we can to ensure that our communications are restricted to adults. We do everything we can to ensure that youth are -- does not have access to cigarettes in numerous countries, that there are minimum age laws implemented in numerous countries. Most of them have today, but many were implemented because of our advocacy. Indonesia, clearly, is an exception to that rule today, and we've been pushing for it and hopefully, it will be passed when the President signs the bill. So thank you. Sir, you're on.

Unknown Shareholder

Yes, Mr. Chairman. I have been a shareholder of Philip Morris for the past 25 years and I'm very satisfied with the company. And I understand why tobacco and alcohol have been here for thousands of years and it is not going to take the exit ramp. Now another question I have is being with the legalization of marijuana for medicinal use, will Philip Morris grow marijuana for medicinal use? Because it's being legalized in most of the United States. There are only like 2 states, a very small handful that haven't legalized it. That is one of my questions.

Louis C. Camilleri

First of all, we don't do business in the U.S. Secondly, we don't even grow our own tobacco, so I don't think we're going to go there. Thank you. Madame?

Unknown Attendee

My name is Krystal [ph]. Mr. Camilleri, could you please support the FCTC, which is the Framework Convention on Tobacco Control, which includes regulating taxation, regulating branding and advertising among other things? If you support these topics, why are you suing against covering 80% of the packaging in Uruguay?

Louis C. Camilleri

Because I think the picture itself says it all. Our brands generally trade in the premium segment. And the more you have health warnings that cover essentially all of the pack, it becomes plain packaging and you're commoditizing an industry. And I just have to repeat what I said earlier, when you commoditize an industry, prices decline, volumes go up and you open the door to more illicit trade. So think about that. Thank you. Sir, good morning.

Unknown Attendee

Good morning, Mr. Camilleri. My name is from Kyle Peebley [ph], I'm from Cincinnati, Ohio. And to quote Page 73 of today's shareholder information document, it states that we do not agree that marketing causes people to smoke, end quote. However, record amounts of money is spent on marketing in countries with potential marketing growth. What do you feel, Mr. Camilleri, is the leading cause of getting people to start smoking if it is not marketing in PMI's view?

Louis C. Camilleri

There are 2 things that I want to say to that comment. First of all, there is a difference between prevalence, i.e. the people who smoke, and brand preference. That people choose certain brands, right, has nothing to do with consumption per se. It's the choice of brand. So you're comparing often in your arguments apples to oranges. You will find that most studies that tried to determine the causes of why people take up smoking, advertising and marketing is generally at the bottom of the list. It's usually has a lot to do with peer pressure, friends, family and things of that nature. So look at those studies and they answer your question. Thank you. Madame, good morning.

Unknown Attendee

Irene Manhatam [ph], I have 2 whatever, comments, questions. The first regards the taxation in America on tobacco products. More and more areas, let's say, are refusing or restricting cigarette smoking, yet the taxes aren't going down. And that, to me, is not fair. Why do we have to pay full taxes for products I can't use in, let's say, whatever, 80% of the city or whatever? And I really think the taxes should go down. I think this is totally unfair. Of course, that's not going to happen and -- we know that. And of course they'll say it's for health purposes. Well, that's ridiculous because I'd like, I'd like to make them prove it. Where is that money going? It's not going to health. You know that and I know that. My second comment, which I said a few years ago in the meeting, my grandfather, 4 uncles and an aunt all smoked, and none of them got cancer. They did not die of cancer. I mean, there are other variables. Well, us being Greek, we ate the Mediterranean diet. We didn't have artificial flavors and colors and jello and diet soda. My grandfather owned a restaurant, we never served that junk. We didn't have foods with preservatives like chemicals and BHA and sodium benzoate [ph] and all that stuff. We didn't have that. And, of course, the hydrogenated oils and the excess sugar and salt. We ate a very, I'll use the word, pure diet. And if anyone has cancer, quite frankly, they should not have any sugar products. And my other comment is I really would like to know who is funding this group that is here, this Corporate Responsibility Group, and that's it.

Louis C. Camilleri

Thank you very much. I will start my Mediterranean diet this afternoon. As to the activists who are here, they generally are funded by NGOs and I don't think we should criticize them. They are well-intentioned. And I think it's important that we have this dialogue because at times, they are ill-informed. And I regret that at times, they're blinded by their hatred, which is never a good thing. I've said this quite often, we are lot more ally than we are foe, but it takes 2 to tango. So thank you.

Unknown Attendee

My name is Silver [ph] from Hawaii . My question is you were quoted in saying marketing has no effect on people's choice to smoke. If that's the case, then why are you spending billions of dollars of shareholders' money annually on marketing?

Louis C. Camilleri

I think I've addressed that question before, so thank you. Yes?

Unknown Attendee

My name is Hannah [ph], I'm from Utah. I come from a family of Marlboro smokers. My uncles all smoke Marlboro, as well as my father. At the age of 41, my father had a heart attack due to his tobacco addiction. He had a triple bypass surgery and was told if he didn't stop within 10 years, that bypass would fail. He still smokes, this is 6 years ago. I don't know how long my father's going to be around and it's put a strain on my relationship and all the relationships in my family. Due to the fact that tobacco kills 1 in 3 of its users, this product is a worldwide concern that strains families all over the world. Last, you were quoted as wishing your former Chief Financial Officer a long, happy retirement with his beautiful family. Do other families deserve that? And if he was a Marlboro smoker, would he have as many years as a non-smoker?

Louis C. Camilleri

Well, I'm sorry to hear about your dad. I would try to motivate him to quit. As I said, a lot of people have been successful. So I wish him all the best and keep striving to get him to quit. Thank you. Sir, good morning.

Unknown Attendee

Good morning, sir. As most people in here know, you serve as both the CEO and Chairman of PMI. According to Stockholder Proposal #1, which would create the independent Chair of the Board, it was asked in the shareholder documents that it recommend a vote of no. I was wondering why you feel there should be no -- there shouldn't be 2 separate people in those roles?

Louis C. Camilleri

Quite simply because I think our government system works very well. We have a lead director, we have a very powerful board. I'm the only executive actually present on the board. And I think the evidence is there to suggest that we do quite well. So thank you. Madame, good morning.

Unknown Shareholder

Mr. Camilleri, my name is Regina Gabber [ph] and I have been a shareholder of Philip Morris for many, many years. And I just have a comment. I have great admiration for you. And I wish and I hope that God gives you, blesses you with good health and gives you the wisdom to continue running the company the way you do.

Louis C. Camilleri

Thank you very much. That was very gracious of you. Thank you.

Unknown Attendee

My name is Makita [ph], I'm from Hawaii. So your company is known for supporting community charities in underdeveloped countries and even in aspects such as the fight on poverty. Yet you continue to push for expansion in these same countries. Do you not feel that it's contradictory that you strongly market in a place where -- you strongly market an addictive product in a place where money should be spent on food, education and other things vital for development?

Louis C. Camilleri

I think I addressed that before. I'd recommend that you go to our website and look at what we do and the funds we actually give for the causes you just mentioned. You'd be surprised to see what you see. Thank you.

Unknown Attendee

My name is Jillian [ph], I'm actually from New York. I was just wondering, before, you stated that you do not target youth. And I just got back from the Philippines, visiting my family a few weeks ago, and while we were shopping in a market, there were actually child pencil cases with your Marlboro brand on them. And so I guess, I was just wondering as a concerned high-schooler and family member, why would you allow your brand to be used in such a way when you have claimed not to target youth and adults don't use pencil cases?

Louis C. Camilleri

I'm actually not aware of that specific promotion. I'll check into it and get back to you. Honestly, it's the first time I hear of it. So we'll look into it. Thank you. Sir, good morning.

Unknown Attendee

I'm Jonathan [ph] from Louisiana. And over the last 30 minutes, the energy in the room has kind of dampered, so can we please give Mr. Chairman a hand clap, standing ovation, if you will, for the efforts that he puts forth, for Philip Morris International. I will ask this, of course, I believe that you have a good heart and good will as well. So my question would be to you, of course, how do you personally feel about the lives that have, of course, gone before [ph], related to tobacco illnesses and their deaths?

Louis C. Camilleri

It's very unfortunate. We recognize that cigarettes are a cause of very significant diseases. And that's why we try to operate our business in the most responsible manner as possible. We're often criticized because we enter so-called emerging markets, as if our entry suddenly makes them smoke. They've been smoking for centuries. But the fact is that when we come into a country, we actually try to raise the bar in terms of legislation and regulation. That is often not recognized. But ultimately, and the solution will be the next-generation products. And believe me, we're investing huge resources, human and financial resources, to come up with these products, and hopefully, they will see the light of day in the not-too-distant future. And that will fundamentally address the issue. So thank you for your intervention. Sir, good morning.

Unknown Attendee

My name is Russell [ph], and I want to thank you very much for running the company the way you do. I come here to listen to you tell us how well the company is being run and how successful it is. But yet, I have to hear many people, who have good intentions, come here and take up most of the time that I don't really want to listen to or hear about. So people with good intentions, they mean well. But I understand that 30% of the people that quit smoking is directly related to obesity in the United States, that there has been an increase of 30% in obesity. And obesity brings a lot more diseases than smoking cigarettes. So I don't know what to tell you. I just want to come here and listen to you tell us how well the company is doing, how much shares have increased and the price of our company has gone up, that's what I want to hear. And I want to thank you very much.

Louis C. Camilleri

Thank you, sir. Good morning.

Unknown Shareholder

Philip Burman [ph], portfolio manager and shareholder. Some comments and then some questions together. PMI's percentage gain, an advance in terms of points, gives us the ranking as the top performer in the peer respective group. And PMI also ranks as the best post MO spinoff, as well as the best consumer defensive stock since the 2008 market, bear market low. As of today, the total aggregate value of all the old MO predecessor spins, together, yield an all-time record, for all 3 together or on a separate and distinct basis. Above all, it is extremely noteworthy that of the 3 spins, we at PMI have the best Chairman whose hands-on expertise as a CFO has been impeccably transferred to his chairmanship of PMI to date.

Louis C. Camilleri

That's very kind of you. I don't think Altria and Kraft would subscribe to what you just said.

Unknown Shareholder

And now some questions. As you discussed pricing before, I have a more specific question for you. According to your business model, what percent of earnings per share growth in the next 5 years do you project to be directly attributable to your pricing power and your projected inflation add-ons?

Louis C. Camilleri

I'm not going to give you a number. I'll just say that as has been the case historically, pricing will be a key driver. Volume mix recently has been favorable, and we hope that we will continue to do that. But pricing will be the key driver of our profitability. And we believe that we still have considerable pricing flexibility for years to come, so thank you. Sir?

Unknown Attendee

Richard Lurie [ph]. I got here a little late. I'm not sure whether you answered the question before. The question is regarding Australia and that approach to plain packaging with no brand. What is the company doing about that?

Louis C. Camilleri

Yes, you're right. It's very late. I did try to cover it. We think it's a very flawed policy, and from your question, I think you agree. And we're regretfully down to litigation now, and there are essentially 3 avenues that are being pursued, and we'll see how that evolves. There is a constitutional claim, there's a bilateral trade agreement claim, and several countries are making a claim against Australia. So we will see what happens. Ultimately, we think it's a very flawed policy and it will backfire, so thank you. I can't hear you.

Unknown Attendee

New Zealand and the proposed huge cigarette tax over the next 8 years?

Louis C. Camilleri

Well, again, I think most governments, as I also said in my remarks, have figured out that using the tax weapon too strongly backfires. New Zealand, by the way, is also considering plain packaging. So if they do that, compounded with huge tax increases, guess what's going to happen. Thank you. So [indiscernible]

Unknown Shareholder

Xander Gently [ph] from Greenwich. Mr. Chairman, I think before I ask my next business question about human resource management, I want to applaud your CFO, Hermann Waldemer, who is retiring on July 31. I think as a shareholder, I was very, very happy that you and Mr. Waldemer formed such a powerful team. So my of applause to Mr. Waldemer.

Louis C. Camilleri

You're stealing my thunder.

Unknown Attendee

Sorry, I don't know what's coming later. But I wanted to say, I mean, his successor has extremely tall -- large shoes to fill, and I hope he will do a very good job. I speak here specifically as a shareholder.

Louis C. Camilleri

I know he will.

Unknown Attendee

Back up to my second question today that concerns human resources management. David Packard of Hewlett-Packard, a company with a reputation for outstanding human resources management at that time. Dave Packard called it once in a speech that I attended at Stanford University in Palo Alto in the 1980s, as "the human side of management." I was once told that Geoff Bible was personally involved in managing the careers of the top 400 executives in the old PM company. I'm very much aware that, that was a much different company at that time with Kraft and so on. My question is, how much are you personally involved in managing the human resources side of the company today? This is my last question.

Louis C. Camilleri

I am intimately involved. And clearly, it is management's probably #1 responsibility. Because in the end of the day, it's all about people. And this company is blessed, and shareholders should feel very proud about this, that we have phenomenal, phenomenal people in this company. The bench of talent, the determination, the commitment, the passion of all employees, all 78,000 of them, is phenomenal. And it's a privilege to work with them. Yes, welcome.

Unknown Attendee

I'm Megan [ph] from New York. I know that you showed us why you disagree with some tobacco control programs such as plain packaging, and I respect that, like I understand that they're going to buy the other cheaper brands. So I understand that and I also understand why you're against the display bans because of how you're also losing money from that. But I know that with display bans, you don't have the problem of them buying from other companies just because it's the lower priced because everyone's covered up. But I was just wondering how it compares to the marketing that you spend on those products that you wouldn't have to spend if there were a display ban. So the money that you're losing from display bans, how does it compare to the money that you're spending on marketing? Because you spend billions of dollars in marketing around the world. And I personally think that display bans are a good idea and that you might actually be saving money because you don't have to spend so much on marketing.

Louis C. Camilleri

I listened carefully but you lost me, I have to admit. I would look at our P&L quite carefully and the billions of dollars you're talking about are just not there, okay? Point-of-sale display bans are a very ill-thought-through measure that backfired, so thank you. Sir, good morning.

Unknown Shareholder

My name is Adrian Waldo [ph] and I have a few observations. Number one, I wish to commend you once again for doing a wonderful job running Philip Morris International.

Louis C. Camilleri

Thank you.

Unknown Shareholder

You deserve all the credit. Number two, ABC should clean up its own house before going after Philip Morris International. And number three, there are many shareholders here who own thousands of shares, I'm one of them. And I'm curious to know how many shares some of these activists own because I believe that it only takes one share of ownership to be able to attend this shareholders' meeting. And lastly, I would like to know why these activists even buy shares of Philip Morris International since all they do is savage the company.

Louis C. Camilleri

Thank you. We live in a democracy. You buy one share, you're entitled to come. You'd be surprised that actually most of them don't even own one share. They find somebody who's got one share and they get a proxy. So that's why they're here. But they're welcome. You've both been up already, so choose whichever one wants to go for it. Ladies first.

Unknown Attendee

Apparently, in a few months, the Law of the Sea [ph] treaty is going to become -- to come up for our Congress to vote on. And I -- that honestly will be horrible to pass, and I was wondering if it does pass, are you making any preparation for this? And it's going to be detrimental actually to all of the United States. And I was just wondering if you had any thoughts on that treaty or, as I said, if, God forbid, it passes, if you have -- are you making some at least preliminary plans?

Louis C. Camilleri

As you know, we don't do business in the U.S. You know that.

Unknown Attendee

I guess I forgot. Well, that was embarrassing. But it would still affect us, who's here, but anyway.

Louis C. Camilleri

Yes, but we're not here. Thank you. Sir?

Unknown Shareholder

Mr. Camilleri, first of all, I'd like to congratulate you and commend you for your patience and King Solomon-style wisdom listening to all these less-than-complimentary inquiries, should I say, diplomatically. My question now is a strategic planning issue. Philip Morris International, Altria, the tobacco industry, spins off a tremendous amount of free cash from operations. Has any consideration been given toward taking some of this free cash and investing in other businesses where we have leveraged the distribution channels, the sales force, the marketing team, that's less subject to regulatory limelight?

Louis C. Camilleri

You're probably talking to the wrong guy, I'm the one who split it up. In this day and age, you need to focus and you need to concentrate on 1 or maximum 2 segments. And you'll find that the most successful companies have actually been very much focused on one segment. And I think that speaks volumes against diversification. So I think the board agrees, from a strategic point of view, with management's views that we're not about to diversify. We have a great business and it's got great potential going forward. We're sort of running out of time so this is actually the last question. You've been up before, so it's all yours, sir.

Unknown Attendee

My name is Christopher Richards [ph] from Sri Lanka, came all the way to attend this meeting. Why did the consumption of cigarettes decline significantly in Turkey in 2011? What do you propose to do to increase consumption in Turkey, which I believe is a significant market?

Louis C. Camilleri

What happened was that there was a significant tax increase in Turkey and that affected consumption. But it predominantly affected the legitimate tobacco industry because actually, there was an explosion in illicit trade, which I think reached the level of about 20%. And in Southeast Turkey, the incidence of illicit trade even reached about 50%. The government has now focused on that. They've been much more reasonable in terms of taxes. The market, the legitimate market, is recovering and illicit trade is coming down. So this year will actually be a good year for Turkey, so thank you.

That concludes our question and comment period. We will now move on to the next stage of the meeting. The matters set forth in the Notice of Meeting will be put before the meeting at this time. Comments on each matter can be made after each one has been formally presented.

Now I would like to ask the ushers to distribute proxy cards to any stockholders who may not have returned their proxies for voting on the matters to come before the meeting.

Stockholders who have already returned proxies need not submit a new proxy card. If anyone requires a proxy card, please raise your hand now.

The ushers will collect these cards and deliver them to the inspectors of election after the final item of business has been presented.

The first order of business is the election of 12 directors.

I would first like to take this opportunity to introduce 2 new directors who were not yet serving on our board at the time of last year's annual meeting.

Kalpana Morparia serves as Chief Executive Officer of J.P. Morgan India and is a member of J.P. Morgan's Asia Pacific Executive Committee. Kalpana's significant experience within the financial services industry and her keen perspective on Asia will represent an invaluable asset for your company going forward.

Robert Polet, who was most recently Chairman, Chief Executive Officer and President of Gucci Group, prior to which he spent many years in a variety of executive roles in the Unilever Group. I have no doubt we will benefit from Robert's considerable entrepreneurial business experience in the global luxury and consumer packaged goods industry in the years to come.

It is my pleasure to welcome both Kalpana and Robert to our board on your behalf. These appointments further strengthen what is already a formidable board.

The following individuals have been nominated for election as director each to hold office until the next Annual Meeting of Stockholders and until his or her successor shall have been duly chosen.

Harold Brown, Mathis Cabiallavetta, myself, Dudley Fishburn, Jennifer Li, Graham Mackay, Sergio Marchionne, Kalpana Morparia, Lucio Noto, Robert Polet, Carlos Slim Helú and Stephen Wolf.

In accordance with the company's bylaws, no other nominations may be made at this time. If you would like to comment on the nominations, please proceed to a microphone. Again, each speaker is asked to limit his or her comments to 2 minutes.

Are there any comments? There is a comment. Please be sure to identify yourself.

Unknown Shareholder

My name is [indiscernible], I'm a shareholder. I just got this question. We're here to vote, if I'm right, on the directors and there's Carlos Slim is not here. This is the third meeting he's missed. I mean, you're asking me to vote for a no-show.

Louis C. Camilleri

Well, that's not the third meeting he's missed. He was here last year. And I don't know if you read the newspapers this morning, but Carlos announced a major transaction in Europe yesterday. It was the biggest investment he's ever made outside Latin America. So somewhat understandable that he couldn't make it. So thank you.

We will now turn to the second item on the agenda, the ratification of the selection of PricewaterhouseCoopers as independent auditors of the company for the fiscal year ending December 31, 2012. Are there any comments on this matter?

There are none, so we'll move on to the third item on the agenda, and that is the company's stockholders approve, on an advisory basis, the compensation of the named executive officers as disclosed in the company's proxy statement for the 2012 Annual Meeting of Stockholders. Are there any comments?

The fourth item seeks approval for the Philip Morris International, Inc. 2012 Performance Incentive Plan. Are there any comments on this matter? Thank you.

As you know, the proxy statement contains 2 stockholder proposals. For the reasons set forth in the proxy statement, we think stockholders should vote against each of these proposals. In the interest of time and for the sake of clarity, I do not intend to elaborate on the proposals or our views on them. We ask that the proponent of each of the stockholder proposals keep his or her statement limited to 4 minutes. We also ask that other speakers restrict their comments to the stockholder proposal and limit their comments to 2 minutes. In advance, I thank you for your cooperation and understanding.

Is the proponent of the first stockholder proposal present? Good morning.

Millicent Budhai

Yes, good morning. My name is Millicent Budhai and I am here on behalf of the New York City Comptroller, John C. Liu, and the trustees of the New York City Pension Fund. I present the resolution calling the company to adopt a policy to separate the positions of Chair of the Board of Directors and CEO, and that the Chair of the Board shall be an Independent Director. The Board Chair overseeing him or herself as CEO or not independent from senior management, creates an environment for potential conflict or the perception thereof. As the economy recovers from the recession, boards more than ever need to strongly oversee the CEO and management to rebuild shareholder confidence in companies and markets. A study by The Corporate Library found that companies with combined Chair and CEO positions tend to have less shareholder-friendly governance structures. The Chairmen's Forum, a group of independent board chairmen, proposed separating the roles and even considered asking the New York Stock Exchange and NASDAQ to adopt listing rules that would require separating the positions. The Securities and Exchange Commission in its new disclosure rules recommends that companies separate the 2 roles or explain why not. Appointing lead directors, while a step in the right direction is not a substitute for an independent Chair. To quote the Millstein Center 2009 report, "The lead director does not run the meeting. He who sits at the head of the table runs the meeting." Separation of Chair and CEO is a standard practice outside the U.S., and the trend is growing at companies inside the U.S. The proportion of S&P companies with truly independent Chairs increased to 21% in 2011 from 10% in 2006. Support for the proposal averaged 33% in 2011, up from 28% in 2010. We urge the company to be part of this growing trend. Thank you.

Louis C. Camilleri

Thank you. Are there any other comments on this proposal? Yes, madame?

Unknown Shareholder

Michelle Winfield [ph]. I'm an investor from New York City. I rise really to support the -- both positions separate. And I believe that in all businesses, there should be a check and balance system. Thank you.

Louis C. Camilleri

Thank you very much. We will now move onto the second stockholder proposal. Is the proponent of the second stockholder proposal present? Good morning, Father.

Michael H. Crosby

Good morning, Mr. Camilleri, and board and shareholders. My name is Michael Crosby, I am a brother in the Capuchin Franciscan Province of St. Joseph based in Detroit, and I am based in Milwaukee. And I'm here to move adoption of our shareholder proposal on 72 and 73. I'd like to speak, first of all, thanking the company for movement it made in response to our shareholder resolutions on green tobacco sickness and farm workers, and the movement being made there to get a multi-stakeholder meeting that would address problems of human rights with farm workers. And I see that as a positive step. However, given what we have heard today, and talk about blindness, I can't help but look at the fact that even though this company may be against what's going in Uruguay, when I saw Marlboro up there, and 80% of it with the diseased gums. Having taken marketing myself, my first reaction was Marlboro brings you this. I think it's very important, as we look at the product we're making, that Marlboro is bringing death. Everyone of us having shares, including us, but we're trying to engage the company. We're trying to bring about fairness to the people who are illiterate and children. And for us to sit here and clap when people are trying to bring about health to people, I just can't understand the motivation and it's deeply troubling for me. There's a disconnect. There's a deep disconnect between the fact that the product we are making is creating death for people. And we clapped at the fact that we're the best one in the country bringing death to people. I mean, not in the country, in the world. We're making our money on this. At least we should refrain. But when somebody gets up and tries to speak to the bottom issue of people's health, which is a human right, and then we say, and we all know that our product is creating death for 1 of every 3 users. It's something that is a moral issue. For us, the bottom line may be profit, but there's a deeper bottom line and that's the moral bottom line. I would urge you to support our resolution because all we're asking for, all we're asking for is that this company not interfere with governments who are trying to preserve the health of their people, especially the illiterate ones and the children. And when the company is against this, you see there's this disconnect. And so I would respectfully ask you to examine your consciences along with your pocketbook and support this resolution. Thank you.

Louis C. Camilleri

Thank you. Are there any further comments on this proposal?

Cathy Rowan

Yes, good morning. My name is Cathy Rowan, representing the shareholder, Trinity Health, to speak in support of this proposal. While PMI states its marketing is about communicating with adult smokers about available products, it's difficult to understand how a recent ad campaign in Indonesia meets this criteria. I've learned that last year, during the month of Ramadan, Sampoerna posted billboards showing 2 young men standing on the door of a moving bus, holding on to their friend who was getting left behind. There was a caption on the billboard, translated in English as, it is better to die than to leave a friend behind. And next to it was the Sampoerna logo with the tagline translated as, a fun friend. Are tobacco companies in Indonesia, including PMI, making extra efforts to promote their products during and at the end of Ramadan, which is a heavy travel time, in order to encourage people to resume smoking? An independent ethics committee is needed in order to ask this kind of question because we all know that using cigarettes finds many people dying in a way that leaves many friends behind. An ethics committee set up by the board would be attentive to health challenges such as the changing global patterns in tobacco use, with the burden of the preventable adult mortality caused my tobacco now shifting to people in developing countries, as well as the impact on children in poor households where income to purchase food is diverted to buying tobacco products. I ask you to please support the strengthening of PMI's policies by voting for this proposal. Thank you.

Louis C. Camilleri

Thank you, Mrs. Rowan. Sir?

John Stewart

John Stewart again with Corporate Accountability International. As we've talked about here, whether you're a shareholders accept it or not, the global community is resolved to stand up to big tobacco's intimidation. So much so that the World Health Organization is taking the boldest stand it's ever taken this year for its World No Tobacco Day, which you're probably familiar the theme of which is, intimidation, stop tobacco industry interference. This is looking forward to the next negotiation from the Framework Convention on Tobacco Control in Seoul, South Korea in November. This treaty could save 200 million lives by 2050, and yet your corporation consistently undermines the life-saving public health measures of the treaty. So I assume that you are planning on undermining the progress of treaty negotiation. And I remind you that this is an evidence-based treaty. This is an evidence-based treaty based on science.

Louis C. Camilleri

Let's hope it is.

John Stewart

And my question is what are your plans to undermine this treaty?

Louis C. Camilleri

There are no questions. The matter set forth is the stockholder proposal, so thank you. I do want to mention one thing. Mrs. Rowan, you mentioned the specific poster in Indonesia, which has been widely publicized by the anti-smoking community. The translation that was given to you and others from Bahasa into English is completely wrong. So please look at the original language and get it translated by somebody who speaks Bahasa, and you will see that it has nothing to do with what you just said. Thank you.

The matters to be voted on have now been formally presented to the meeting. If you have not already done so, please complete your proxy card. After you have done so, raise your hand and the ushers will collect all the proxy cards and deliver them to the inspectors of election.

Since all stockholders have now had time to vote, I declare the polls closed.

The ushers should now have collected all the proxies and they are directed to deliver the proxies to the inspectors of election for counting.

Through the funding of charitable giving programs, we at Philip Morris International are committed to addressing the most pressing needs in the communities where our employees live and work, as well as in the farming communities where we source tobacco. We focus on 5 areas of giving: Disaster relief, domestic violence, education, hunger and extreme poverty and rural living conditions. We have chosen to focus on them because they are among the most critical issues affecting many of the 180 or so countries in which we operate.

I'd now like to share a few examples of some of the projects that we run and their highlights in 2011.

Disasters can strike anytime and anywhere. When they occur in a place where we operate, our local employees are among the first to identify the most essential needs of the community and how we can help.

On March 11, 2011, one of the most powerful earthquakes ever recorded struck off the northeast coast of Japan, triggering tsunami waves that devastated several towns and villages.

Following these catastrophic events, we made a substantial financial donation to support immediate relief activities, as well as a number of longer-term recovery programs. Many of our own staff became volunteers and donors. Domestic violence is a common problem affecting all areas of the world and every sector of society. Women are not the only casualty. Children and men are also victims.

PMI was one of the first corporations to become involved in the fight against violence in the home.

In Germany, for example, we have been supporting the Berlin initiative against violence against women since 2001. The initiative offers professional counseling and help to domestic violence victims through emergency hotline support and on-site help through a mobile intervention unit.

Education is a crucial factor in eradicating poverty and inequality. Through our charitable contributions, we strive to ensure access to schooling for children living in communities where we do business, and to improve the quality of education from primary school to university and beyond.

An example of the importance of supporting education at all stages can be found in Russia. For the last 2 years, we've been funding training courses for secondary school teachers at the Russian Federal Academy in Moscow. Our grants have made it possible for 880 teachers and school principals from 7 regions across Russia to attend courses in teaching methodology at the academy. We also support programs that provide direct relief to the poor and hungry all over the world, and direct aid. But direct aid can only go so far, which is why we believe in empowering people to improve their own living conditions.

In Indonesia, for example, we have joined forces with a local NGO specializing in community empowerment projects to train farmers in the system of rice intensification, which in 2011 alone helped them harvest 60% to 70% more rice at a significantly lower cost.

Finally, we support programs to protect and enhance natural resources, reforest the land, implement conservation agriculture, provide clean water, ensure food security and improve the livelihoods of people living in rural communities.

In Malawi, for example, small maize and tobacco farmers are caught in a vicious cycle of increasing poverty. Many still use unsustainable farming methods, ill-adapted to their climate and conditions.

Over the last decade, our funding has assisted more than 6,700 villages, 153,000 households and over 765,000 people across Malawi, Tanzania and Mozambique.

In 2011, we supported over 270 charitable projects across 58 countries. In total, more than 3.5 million people were impacted globally by our charitable giving programs.

It only remains for me to ask you to join me in thanking our more than 78,000 employees worldwide, whose hard work and volunteerism help support the programs I have just outlined and their positive impact on our local communities around the globe.

Thank you. I would now like to say a few words about some of the senior management changes we announced on Monday.

Hermann, if you could stand.

Today is Hermann Waldemer's last annual meeting in his capacity as PMI's Chief Financial Officer. Hermann has elected to take early retirement effective July 31 of this year. Herman's achievements during his 25 years with PMI are myriad. But the crowning success in his illustrious career is undoubtedly his invaluable contribution to our company's exceptional performance since our spinoff from Altria Group in March 2008.

Beyond our stellar results, Hermann is recognized from both within and outside the company as a consummate professional with not only a profound business acumen, but also with leadership characteristics that are an example to us all. Hermann is also highly regarded within the investment community for driving the impeccable quality of our investor communications. I will personally miss Hermann, I'll miss him a lot. And I will especially miss his calm demeanor, his wise counsel and his great sense of humor.

I would ask you to please join me in saluting Hermann for his quite simply outstanding contributions and service to our company.

Hermann will be succeeded by Jacek Olczak. Jacek, please stand. Currently, the President of our European Union Region. Since joining PMI in 1993, Jacek has held a series of increasingly senior positions in finance, sales, operations and line management. Jacek has long been admired for his extraordinary intellect, business acumen and his leadership skills. Throughout his career, Jacek has always delivered results, and done so with precision and quality. He is blessed with a rare degree of creativity and curiosity, and addresses each new challenge with enthusiasm and passion. He combines all these qualities with much humility and a leadership and motivational style that has proven to be successful time and time again. I know you'll all join me in wishing Jacek much continued success as he takes on his new responsibilities, and congratulate him warmly on his appointment. Congratulations.

Louis C. Camilleri

Thank you. I will ask now one of the inspectors of election to deliver their report to the Secretary.

Will the secretary please read the report?

Jerry E. Whitson

Mr. Chairman, inspectors of election have completed the preliminary count of the vote, which I have now received. The preliminary voting results are as follows:

Each of the nominees for directors has been elected with more than 92% of shares voting, voting for their election.

The selection of PricewaterhouseCoopers as independent auditors has been ratified with more than 99% of shares voting, voting in favor.

The advisory resolution to approve executive compensation has been approved with more than 97% of shares voting, voting in favor.

The Philip Morris International, Inc. 2012 Performance Incentive Plan has been approved with more than 96% of shares voting, voting in favor.

Stockholder proposal #1 has been defeated. 82.35% of shares voting on the proposal voted against it, while 17.65% voted in favor.

Stockholder proposal #2 has been defeated. 96.52% of shares voting on the proposal voted against it, while 3.48% voted in favor.

Mr. Chairman, that concludes the report.

Louis C. Camilleri

Thank you, Jerry. I would now ask the secretary to file with the records of the meeting, the inspector's report, the oath of the inspectors of election, their certificate and the proxies. Final voting results will be included in a Form 8-K that we will file with the SEC in the next couple of days.

And now, there being no further business to come before the meeting, I hereby declare the meeting adjourned. Thank you all very much for coming. Thank you.

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