Altria Group, Inc. (MO) CEO Howard Willard Hosts 2019 Annual Meeting of Shareholders (Transcript)

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Altria Group, Inc. (NYSE:MO) 2019 Annual Meeting of Shareholders May 16, 2019 10:00 AM ET

Company Participants

Howard Willard - Chairman and CEO

Murray Garnick - General Counsel

Brandt Surgner - Corporate Secretary

Conference Call Participants

Cathy Rowan - Trinity Health

Ann Gurkin - Davenport

Sister Nora Nash - St. Francis of Philadelphia

Howard Willard

Good morning everyone and welcome. I call the order Altria's 2019 Annual Meeting of Shareholders. I'm Howard Willard, Chairman and CEO of Altria. With me today are Murray Garnick, Altria's General Counsel; and Brandt Surgner, our Corporate Secretary. Thank you for being with us today including those of you joining by webcast.

We'll begin with our meeting details. First, please review the safe harbor statement in today's presentation and the forward-looking and cautionary statements section in today's press release for important information. They're available on altria.com, along with reconciliations and further explanations of the non-GAAP financial measures will be discussing.

Please also review the cards that were on your seats that have our agenda and meeting rules, along with some business highlights. We'll begin by presenting our meeting documents, move to electing directors and then vote on the selection of PricewaterhouseCoopers as Altria's independent registered public accounting firm.

We'll present a business update, followed by a nonbinding advisory vote on the compensation of Altria's named executive officers or NEO's. We'll then take your questions and vote on two shareholder proposals, if properly presented. Finally, we'll report on the preliminary voting results.

So with that introduction, Brandt, please present our meeting documents.

Brandt Surgner

Thanks, Howard. I present together with the affidavits of mailing, a copy of the notice of meeting, form of proxy, proxy statement and annual report, which includes financial statements for the fiscal year ended December 31, 2018. Please remember that only shareholders of record as of March 25, 2019, they voted this meeting. 90% of Altria's common stock is represented here today, so a quorum is present.

Howard Willard

Thanks, Brandt. Please file the documents with our meeting records. I appoint representatives from Computershare, the transfer agent for Altria's common stock, as inspectors of election. The inspector should please take custody of all proxies and the certified list of holders of common stock as of the record date. This list which is available for inspection throughout our meeting contains the names and addresses of all shareholders of record and the shares held by each. The inspectors' responsibility is to determine the number of shares represented at our meeting and to certify the votes.

All proxies and ballots are confidential unless shareholders have commented on them. We'll now distribute proxy cards to any shareholders who haven't yet returned them or who have voted, but wish to change their votes. If you've already returned your card or otherwise voted, you do not need to submit a new card. Please raise your hand if you need a proxy card? Thank you.

Let's please welcome our Board of Directors. It's an extraordinary and committed group that provides strong leadership and thoughtful oversight to Altria. We value the skills, experiences and perspectives they bring to the boardroom. Murray, please announce the names of the nominees for director as they appear in the proxy statements.

Murray Garnick

The nominees are John Casteen; Dinyar Devitre; Thomas Farrell; Debra Kelly-Ennis; Leo Kiely; Kathryn McQuade; George Munoz; Mark Newman; Nabil Sakkab; Virginia Shanks; and Howard Willard. Each to hold office until the next Annual Meeting of Shareholders and until his or her successor has been duly elected and qualified.

Howard Willard

Thank you. Under our bylaws, the nominations are closed. Those in the room wishing to vote on the election of directors, so please do so now.

Our next item is the ratification of the selection of PricewaterhouseCoopers as Altria's independent registered public accounting firm for 2019. We welcome Russ Moore from PwC, who is with us here today. Murray, please present the matter?

Murray Garnick

I move the adoption of the following resolution, resolved that the selection of PricewaterhouseCoopers LLP as Altria's independent registered public accounting firm for the fiscal year ending December 31, 2018 be ratified.

Howard Willard

Thank you. Those in the room wishing to vote on the ratification of the selection of PwC should please do so now. I'm pleased to now provide shareholders and update on our business. In 2018, Altria took both steps that we believe position as best among our peers to sustain earnings growth and industry leadership across a variety of future scenarios.

Today, we'll discuss our evolved to business platform, including our core tobacco businesses, and recent strategic investments. And I'll update you on some other priorities. Altria closed out 2018 with excellent full year adjusted diluted EPS of $3.99, representing 17.7% growth over the prior period.

We continue to reward shareholders by maintaining a dividend payout ratio target of approximately 80% of our adjusted diluted EPS. In fact, our Board of Directors raised the regular quarterly dividend twice in 2018, growing dividends per share 21.2%. We paid approximately $5.4 billion in dividends, and made nearly $1.7 billion in share repurchases, returning a combined $7.1 billion to shareholders.

At the core, our operating companies made investments to strengthen their businesses for the long-term. PM USA expanded Marlboro Ice in 2018 with a resale packaging innovations resonated with adult smokers. It also began offering Marlboro Smooth in the innovative refill pack. With this success in PM USA plans to further expand the resale pack technology to other offerings this year.

PM USA also had a very successful 2018 trial of a new loyalty promotion, and launched to Marlboro rewards loyalty program nationally in January of this year. Through these investments and other efforts, PM USA stabilized Marlboro retail share in 2018 and the smokeable segments delivering more than $8.4 billion in adjusted operating companies' income.

Smokeless product segments grew adjusted operating companies income by 7.5% in 2018. Driven by growth in USSTC's flagship Copenhagen brand, our total smokeless retail share once again led the industry at 54%.

To summarize, 2018 was a strong year for our core tobacco businesses. 2018 was also marked by two transformative investments in areas we believe are poised for excellent growth. In e-vapor, we made a $12.8 billion investment for 35% ownership interest in JUUL, the U.S. leader in e-vapor.

This investment prepares out free of our future where adult smokers overwhelmingly choose non-combustible products with the potential to reduce harm. We believe that working with JUUL to accelerate its mission will have long-term benefits for adult smokers and our shareholders.

Altria also announced its intention to acquire a 45% ownership interest in Cronos, a leading goal cannabinoid Company, headquartered in Toronto, Canada, and subsequently closed the transaction in the first quarter of this year. Our investment includes the opportunity to increase our ownership interest up to 55%. This strategic investment positions Altria to participate in the emerging global cannabis sector, which we believe is poised for rapid growth over the next decade.

Finally, our alcohol assets complement our category-leading tobacco businesses and our other strategic investments. Altria's ownership of Ste. Michelle provides exposure to the premium wine category, and our approximate 10% interest in AB InBev allows us to participate in the global beer profit pool.

This strong and diversified business platform rests on, of course, our people. We're committed to continuing to make Altria an interesting, dynamic and rewarding place to work for our employees. We’re focused on delivering better results on inclusion and diversity, and offering all of our employees an opportunity to grow. All of these efforts are also intended to benefit adult consumers, customers and our shareholders.

Moving to 2019, our first quarter adjusted diluted EPS declined in the mid-single digit range in line with our guidance. Our core tobacco businesses are performing on plan, and we believe we’re on track to deliver against our full year 2019 guidance. We reaffirm our guidance to deliver 2019 adjusted diluted EPS in a range of $4.15 to $4.27, representing a growth rate of 4% to 7% from our adjusted diluted EPS base of $3.99 in 2018.

Let’s transition to the opportunity to advance tobacco harm reduction. We’re now closer than ever to realizing this goal of harm reduction. We’ve invested in three promising non-combustible product platforms.

First, we have the largest and most profitable smokeless tobacco business in USSTC. The Company filed a modified risk tobacco product application for Copenhagen Snuff last year. USSTC’s presentation to the Tobacco Products Scientific Advisory Committee in February was very well received and the committee overwhelmingly voted that the proposed modified risk claim is supported by scientific evidence. This was an important step. It is critical that adult smokers have accurate information that will help them switch to non-combustible tobacco products. The FDA will continue reviewing the application.

Second, with recent FDA authorization of the IQOS heated tobacco system. We now have the opportunity to distribute IQOS, the world leader in heated tobacco, in the U.S. IQOS has achieved strong success internationally, and we’re excited to bring this platform to adult smokers, beginning with a lead market in Atlanta in the third quarter.

Third, we have a 35% ownership interest in JUUL, the leading e-vapor company with global expansion plans. JUUL is a key element of our portfolio approach to harm reduction. Today, more than 13 million adults in the U.S. have chosen e-vapor products, demonstrating that the vision of switching adults to non-combustible alternatives can be realized.

Youth e-vapor use, however, threatens the potential of harm reduction for adults. That’s why we’re advocating for raising the minimum age to purchase all tobacco products to 21 at both the federal and state levels. With passage of legislation in 15 states and the District of Columbia to date and bipartisan support in Congress, we’re making significant headway on this important issue.

And, we’re investing an additional $100 million over 2 years in underage tobacco prevention, to help drive down youth e-vapor use. As adult smokers are more willing than ever to switch to non-combustible tobacco products, we now have access to the leading brands and products across all of the most relevant, non-combustible categories.

Let’s close on another area of long-standing commitment, corporate responsibility. As part of our decades-long effort on underage tobacco prevention, we remain fully invested in working with organizations that promote healthy development of kids to help them avoid risky behaviors, like tobacco use.

For example, through the Success360 program, Altria's tobacco companies invest in leading national and local non-profit organizations that serve middle school kids and their families. Altria also established goals to reduce our environmental impact by the end of 2025. We committed to the Science Based Targets Initiative, started by CDP and others, to help mitigate the rise in global temperature.

Beyond this commitment, some of our operating companies have established additional goals. For example, PM USA's water recycling project will save significant amounts of water annually and contribute to our water neutrality goal. They have also implemented programs to reduce energy use in their facilities.

In our supply chain, GAP Connections, of which Altria is a founding member, launched a voluntary Tobacco Grower Certification Program. This program creates a comprehensive and transparent tool to verify compliance with agricultural best practices. We're very pleased with the level of voluntary participation by our growers in only the first year.

These efforts and others earned Altria continued recognition, including, ranking 14 on Corporate Responsibility Magazine's 100 Best Corporate Citizens List, our ninth consecutive year to be named to this list, acknowledgment as one of America's most community-minded companies in The Civic 50.

Listing on CDP's Water A-List for the second year in a row, one of only 31 global companies to receive an A grade last year, and ranking fourth among the S&P 500 on the Center for Political Accountability-Zicklin Index that measures corporate political activity disclosures, and achieving a perfect score of 100 on the Human Rights Campaign Corporate Equality Index and recognition as one of the best places to work for LGBTQ Equality.

Credit for all of these achievements belongs to our deeply talented employees. We're grateful for their dedication to these efforts. I encourage all shareholders to learn more about these efforts and other important work we are doing in the area of sustainability by visiting our website, altria.com. Thank you.

Let's now move to the advisory votes to approve the compensation of our NEOs. While this vote is nonbinding, the compensation committee will consider its outcome when making future decisions. We believe our executive compensation programs contribute to our excellent business results and strong shareholder returns. As a proxy statement fully describes, we designed these programs to align the interests of our executives with those of our shareholders, by appropriately compensating executives for achieving performance goals, and advancing our mission and strategies.

At the 2018 annual meeting, more than 93% of the votes cast, approve the compensation of our NEOs. The board recommends that shareholders vote in favor of this matter. Those in the room wishing to vote on this matter should please do so now.

Let's now transition to our question and answer session. We welcome your questions and know you'll observe you'll observe our meeting rules. Please identify yourself and address your questions to me. And the lights upfront will help us manage time. If we run short of time today, please complete and return a comment card so that we may respond to you.

Let's begin, right, over here.

Question-and-Answer Session

Q - Unidentified Analyst

Good morning, Mr. Willard. I am Edward Sweda [ph], a shareholder from Massachusetts. You mentioned of course the purchase of the expenditure of $12.8 billion for 35% stake in JUUL. Since then though, a federal class action lawsuit has been filed in Sarasota County, Florida on behalf of a girl and her parents accusing JUUL of intentionally targeting teenagers for addiction and falsely denying doing so. The lawyers are using the anti-racketeering statute, alleging the Company committed fraud, product liability and deceptive trade practices.

In late April, the Public Health Advocacy Institute for which I work sent a demand letter to JUUL on behalf of three youths in Massachusetts. The three of them have become addicted to nicotine by using JUUL and alleging a violation of the state Consumer Protection Act. And specifically the allegations involved breach of the implied warranty of merchantability regarding the design of the product to addict non-smoking minors, also unfair design marketing to teenagers.

And the plaintiffs here are seeking the establishment of a program for the prevention and treatment of nicotine addiction in young people who use JUUL. And then of course just yesterday, the North Carolina Attorney General, Josh Stein, sued JUUL, saying that it had misrepresented the potency and danger of nicotine and its products. And he is seeking injunctive relief, the disgorgement of profits and limiting of some of the flavors used by JUUL.

So my question is. What specific actions will Altria group take to protect its $12.8 billion investment in JUUL by making JUUL less vulnerable to lawsuits of this time?

Howard Willard

Thank you for your question. Thanks for making the trip for Massachusetts. Certainly, you raised the fact that litigation has been filed against JUUL. We were aware when we made the investment in December. There was some early litigation and certainly more litigation has come forward. I can tell you that at Altria, we are very committed to helping address the increase in e-vapor use and to encouraging JUUL to make sure that their marketing is only to adult cigarette smokers.

At Altria, we are very focused on raising the minimum age to purchase all tobacco products to 21. This is a legislative priority that has made significant progress in just the last six months. And JUUL shares our support for this. Also at Altria, we have committed to spending an incremental $100 million on use tobacco prevention efforts over the next two years. So, we acknowledge that the e-vapor category represents a significant opportunity to switch adult cigarette smokers to non-combustible products. But we also have to address the youth usage issue and I'm confident we'll make progress on that. Thanks for your question. A question over here.

Unidentified Analyst

Good morning. My name is Dr. Andrew Kramer [ph] and I'm here with my brother, Dr. Albert Kramer [ph], and he's ceded his time to me. At some background, our relationship with Altria began in the mid-1960s with our father's initial purchase of Philip Morris Corporation stock. From that day forward my father religiously reinvested his dividends and despite repeated cries to do so, he never sold a single share. And my brother and I have continued in that tradition. As anyone who's been a shareholder for that length of time knows, we've lived through some challenging moments that were accompanied by dramatic falls in the stock price including Black Friday, the onslaught of class action litigation, most notably the Engel case, and the days that preceded the massive settlement agreement, when every state's Attorney General mounted their attack. Through all those times, we never lost faith in this company or its management.

So we're here as long standing dedicated shareholders who care deeply about the continued success of this company at this time of transition. So with that in mind, I'd like to ask several questions and even express some criticism. I first like to begin by expressing some disappointments and some criticism it relates to the JUUL transaction. You're aware of the three main criticisms of the deal. One that we paid too much. Two, more often, to me, is that there's no path to control. And lastly, we're restricted from distributing any other nicotine vaping systems that limits our -- that prohibits our ability to build a diversified portfolio in that space.

My criticism and disappointment is that I believe that the deal negotiated was a consequence of a failure on the part of management to reach certain conclusions and act on those conclusions sooner. Conclusion that I feel can be made by mid 2017, if not sooner. So what were those considerations? That one, vaping is an all-time method to consuming nicotine was becoming increasingly popular. Two, most individuals who's vaped had little interest in using a product that resembles a cigarette. Three that MarkTen was a commercial failure and we did not have a product that could successfully complete compete in a rapidly growing vaping market. Four, although some entrance to the vaping space have brief periods of popularity only to lose consumer appeal, others specifically JUUL had gave significant traction in consumer premium.

Howard Willard

I'm going to just ask you to wrap up your questions.

Unidentified Analyst

Okay. So, it is my belief that management could have and should have reached those conclusions earlier. And had they, we could have engaged JUUL earlier and negotiate a much better deal. So I appreciate your response to that criticism.

Howard Willard

All right. Thank you. Thanks for your participation in the meeting. And thanks for your long term loyalty to holding the Altria stock. I'm aware of your family's long-term record and I have to tell you, having started with Altria in 1992, I'm particularly impressed with somebody who's been on this journey since the 1960s.

I understand your comments on the e-vapor category. And you're concerned about our recent investment in JUUL. But I have to tell you since the Company started focusing on the e-vapor in probably five or six years ago, the category has grown in fits and starts. And certainly, the MarkTen products that we invested in early on, we're making progress in moving to a leadership position in a category that was not achieving very much growth. It really wasn't until 2018, that the category returns a strong growth.

And that growth was primarily driven by JUUL, and frankly, that growth continued in the first quarter of this year. So we believe based on the Company's assessment of JUUL, that that is a very attractive investment for the Company. We believe it's going to be an important product over the next decade to help convert adult cigarette smokers to less harmful non-combustible tobacco products.

So we are very pleased with the opportunity to make the investment and we think it's going to pay dividends down the road. Thanks for your questions.

Cathy Rowan

Good morning, Mr. Willard. I'm Cathy Rowan representing Trinity Health shareholder. Just a comment on your slide on GAP Connections, I want to commend the Company for its leadership in GAP Connections, especially your colleagues Frank Geovannello and Linwood Sykes and all the time and effort they put in this initiative. The critical initiative to address many of the challenges that farmers and farm workers and our country face today, and I believe that that model of training and education, compliance and recognition of good practices, labor, environmental practices can be a real model for other labor intensive crops in our country. So just want to thank Altria for its leadership and GAP Connections.

Howard Willard

Thank you very much for your comments, and thanks for your recognition of Linwood and Frank, who I know have done a significant amount of work with regard to our tobacco growers here in the U.S. And I would agree with you that we've been making progress. I'd like to thank many in the room who are here that have also contributed to the efforts there. And thank you for your efforts and I know that will continue to work on that going forward.

Ann Gurkin

Good morning, Howard. It's Ann Gurkin with Davenport. Certainly, it's a dynamic time in the tobacco industry and certainly Altria has had a very active year. Or as you stated, you've taken bold steps recently. I just was wondering, if you would spend a few more minutes talking about international prospects for JUUL and Cronos, if you would comment on the comfort level of having both IQOS and JUUL in your portfolio. Can they successfully co-exist in your portfolio here in the U.S.? And then finally, on the federal -- there was a federal judge suing the FDA to review e-cigs. That new came out this morning. Do you have any comments on that latest development against e-cigs? Thank you.

Howard Willard

Thanks for your question, Ann. To begin with, with regard to international prospects for both JUUL and Cronos, I think it's important to point out that while Altria's focus in the tobacco market has primarily beem in the U.S. market historically. You are right to point out that that our investment in JUUL encompasses JUUL's focused on the tobacco market, not only in the U.S., but overseas. And this is early days, but there are some promising early signs that the JUUL product has some real promise in markets overseas.

I would say a similar thing about Cronos. Right now, the cannabis market is developing at a moderate pace overseas, probably at a bit of a faster pace here in the U.S., and certainly we believe Cronos has the opportunity to compete here in the U.S. market once, once it is federally legal to sell cannabis in the U.S., and also as opportunities in other markets. I have to tell you that, I really believe that the maximum amount of harm reduction can occur over the next decade by having multiple non-combustible tobacco products available in the U.S. market to appeal to adult cigarette smokers and to convince them to change to those products.

So I very much believe that having both IQOS and JUUL and other products available is going to increase the amount of switching that occurs. I think, to the benefit of brining harm reduction. The case you mentioned, for those that have not follow the latest news there was a federal judge in the state of Maryland. Recently rule yesterday that calls into question whether FDA had the authority to delay the filing deadlines for e-vapor products and some other tobacco products.

And that federal judge stated that they wanted further, further hearings on what potential remedy would be appropriate. And so I think that that is likely to play out over the next probably several weeks, months and maybe even years if you consider the appellate process, but certainly that was a new development late yesterday. And we'll be studying in a more detail here after the meeting is over. Thank you. Good to see. Over here.

Unidentified Analyst

Hi, Mr. Chairman. My name is Lindsay Amico [ph], and I'm from Buffalo, New York, and I'm a shareholder of Altria. I work with youth to identify tobacco retailing and advertisements in our community. Many of my views are people of color, who noticed the disproportionate amount of tobacco retailers and tobacco marketing in their communities. And as a result, higher rates of smoking still exists among individuals of specific racial, ethnic and socio economic backgrounds.

So my question is. How do you think the introduction of your new non-combustible tobacco products will impact the mortality rate of smokers within these populations?

Howard Willard

Thanks for your question, thanks for making the trip. Also, thank you for working with you on encouraging them not to use tobacco products. I have to say that as we communicate about our non-combustible tobacco products, most recently with the approval of IQOS, we have taken significant steps on these non-combustible tobacco products to make sure that they reach adult cigarette smokers and are not appealing to you.

We are pleased that we had the benefit of working with PMI on their practices overseas. And we have also had a chance to engage with FDA about our marketing practices and have gotten their perspective on the practices that we're going to follow. So, I really believe that we are going to continue to have success at encouraging you not to use any tobacco products, and at the same time with these non-combustible tobacco products, encourage adult cigarette smokers to switch down the continuum of harm. Thanks for coming into the meeting.

Unidentified Analyst

Good morning. My name is Miranda Bickham [ph] from Broome County. In the United States, 70% of the 46 million Americans who smoke wants to quit. What proportion of Altria's customers say that they want to quit? And what is Altria doing to help them quit? And does Altria support putting the 1800 now phone number on their product packaging and in retail stores?

Howard Willard

Thanks for your questions. Certainly, as Altria looks at its responsibility activity. We acknowledge that for folks that that are concerned about the health effects of tobacco use, the best thing to do is quit and we have for quite some time communicated to them information about how to effectively quit. We have our quit assist resources that are available at altria.com that that provide links to our consumers to quitting resources. And that's been a long standing commitment and one that will continue investing going forward. Thank you.

Unidentified Analyst

I'm Amelia DeDominicas [ph] from Plattsburgh, New York. And I was just wondering. What is Altria doing to try to adequately informed tobacco consumers about how to save their lives? Are you sharing your information with the medical community health department or elected officials?

Howard Willard

Okay, thanks for your question. I think with regard to the health effects of tobacco use. Our belief is that the public health community should be the source for consumers of the health risks of cigarettes smoking. We defer to the public health community. We provide links and access to that information on our website. Of course, we've got warnings that are federally mandated on our products. And as I stated the answer to the earlier question, we also provide information to consumers about access to quitting information, if they're interested. And then I would say in addition to that, for consumers that want to continue to use tobacco products, we are also providing them access to non-combustible tobacco products that we think can reduce the harm caused by tobacco product usage. Thank you for your questions.

Unidentified Analyst

My name is Seth Vosoc [ph] from Nebraska. And with Altria investing in JUUL and JUUL falling under scrutiny by public health organizations and government entities such as the U.S. Food and Drug Administration. Do you feel that the scrutiny on JUUL has probably reflected on Altria as a responsible corporation? And with JUUL's questionable marketing practices, will this reignite criticism of Altria's marketing practices?

Howard Willard

Thank you for your question. I think you are raising the fact that with the increased growth in JUUL, there is a significant harm reduction opportunity and that harm reduction opportunity is to switch adult cigarette smokers to the JUUL e-vapor product. That product is demonstrating very significant impact on converting adult cigarette smokers down the continuum of harm. That is a real positive opportunity that I think exists with e-vapor. And over the last year is quickly growing to be the standout leader in the e-vapor category and contributing most of the growth in the category.

At the same time, we acknowledge that the recent growth of the e-vapor category has created a challenge that I think JUUL has to contribute to the solution of certainly Altria and many others have agreed we need to contribute to the solution. And that is that after a long period of declining youth usage of tobacco products, there's been a significant increase in use of e-vapor products. And I think that is caused Altria and JUUL to mobilize to help contribute to reducing the problem.

As I said earlier, we're supporting a minimum age of purchase of 21. And we're committing incremental resources to support programs that ultimately we think can convince to not use the e-vapor products. So, I think in the end, I think the JUUL has the opportunity to drive down significantly the number of adults that use combustible cigarettes. And I think ultimately we will address the use e-vapor problem. Thanks for your question.

Unidentified Analyst

I'm Amber Updike [ph] from Watkins Glen from New York. And my question is. How many current smokers does Altria think will switch to non-combustible, if they knew the trade off and risk?

Howard Willard

That's a hard question to give a numerical answer to. But I can tell you that we're really focused on the opportunity to convert adult cigarette smokers over the next decade. And we feel like the opportunity has never been greater to convert adult cigarette smokers to less harmful products. And we believe we can have a greater impact on driving down tobacco related harm over the next decade. Then we have over the last several decades.

And it really comes -- our optimism comes from the fact that we now have access to the IQOS's tobacco eating system, which will move into the market here in the third quarter. We have access to JUUL, and we have access to our USSTC oral tobacco products. So I think it's a real opportunity, I can't give you a specific number, but certainly we believe it's a significant opportunity. Thank you.

Unidentified Analyst

Good morning. My name is Jonathan Chafee [ph]. I'm from Cattaraugus County, New York. Two years ago while attending this meeting, your predecessor CEO, Marty Barrington, congratulated me on Cattaraugus County, New York, raising the age from 18 to 21 to purchase tobacco products. At that time, Mr. Barrington made the comment that tobacco 21 would not be successful in helping youth not initiating tobacco use because they would purchase products and other areas not covered by the local law.

Currently, on Altria's website under helping reduce underage tobacco use, Altria now supports raising the age to purchase tobacco products to 21. The website also mentions and I quote, And the most important way we can make sure kids don't use any tobacco products is the little access and appeal. Our studies from the Institute for Social Research at the University of Michigan found that 65% to 66% of vaping teens in 8th, 10th and 12th grade last use vape for just flavoring reasons, more than all reasons combined. The survey mentioned was over 44,000 students.

My question is. Why has Altria changed their stance on raising the purchase age of tobacco to 21? And if Altria wants to limit the appeal of tobacco products to youth with the results of the previous data survey, why does Altria not support limiting flavors that appeal to youth in e-vapor for products similar to the limit of flavors in traditional cigarettes?

Howard Willard

Thanks for your question. I think as we laid out in the earlier presentation, I think that up until last year, there had been significant success in driving down youth use of tobacco products. And it was last year that we identified that there was a significant step up in youth use of the e-vapor products.

Ultimately, after assessing the drivers of that situation, we concluded that social access was the primary way that these youth under 18 were getting access to the products. And we concluded that if we raised the minimum age to purchase all tobacco products to 21. That would very significantly curtail the availability of social access for youth in high school.

And since we've, since we've gotten behind that legislation at both the state and federal level, I think that we've made significant progress. I would point out that I think it's particularly important that we continue to make progress until we get that minimum age to purchase of 21 spread across the country to prevent any opportunities. People have to circumvent that by going to another geography. Thanks for your question.

Unidentified Analyst

My name is Olivia Lang [ph], and I'm from Cattaraugus County. And my question is. With the adverse health effects are known from long-term use of tobacco products, what does Altria see as their ethical obligation to help their customers make better informed health decisions?

Howard Willard

Thanks for your question. What Altria, we take a number of actions to address the harm caused by tobacco use. Certainly we communicate about the health effects to our consumers. We communicate the availability of station information. And then I think as I referenced several times in this meeting, we are very focused on introducing non-combustible tobacco products that can be a better alternative for adult cigarette smokers. And we believe there's a significant opportunity with products like ICOS in the new e-vapor products like JUUL to convert adult cigarette smokers down the risk continuum. Thanks for your question.

Unidentified Analyst

Good morning. My name is Lee Wicker [ph]. I'm a former tobacco farmer. And have been a proud Altria shareholder since 2008. Currently, I'm responsible for the government affairs and farm labor compliance for more than 600 farmers throughout the State of North Carolina. Many of them grow tobacco under contract for Philip Morris USA. I believe North Carolina tobacco is a big reason Marlboro has been number one for nearly half a century. The North Carolina farmers I represent will employ over 8,000 workers on H-2A worker visas and thousands more U.S. workers in 2019.

I'm proud to work for the best tobacco farmers and farm workers on the planet. Farm worker advocates have been coming to the shareholder meetings in recent years to talk about how widespread and bad farm worker conditions are on tobacco farms and that disagree. I came here today because I need to say to you, the Board of Directors, and most importantly the shareholders, the farm worker conditions on most U.S. tobacco farms are good and getting better. I'm not saying the things are perfect every day on every farm.

Human beings always have issues, but conditions continue to improve. And I'm proud to say Altria has been engaged and leading in this space for more than a decade. Our previous commitment and support to programs to provide training and education to farmers and farm workers has contributed to higher levels of compliance on all tobacco farms. Compliance with the numerous laws and regulations in place to protect farm workers is expensive and we very much appreciate the $0.02 per pound program that Altria has provided to our H-2A farmers, who contract with Philip Morris USA.

This financial support is needed, welcomes and reflects the Company's recognition of the economic challenges facing our farmers. The other program is providing personal protective equipment grant money to implement needed capital improvements for the benefit of farm workers has been outstanding. These tobacco farm jobs are so important to our workers and I've seen with my own eyes.

Howard Willard

Thank you word for kind of it's a time limit. Okay, so if you have any closing comments.

Unidentified Analyst

Thank you for continuing to buy directly from farmers for maintaining stable pricing and volumes. This is very important. NCGA farmers and farm workers appreciate the opportunity to grow tobacco for Altria and hope to continue the viability of our farms depends on behalf of the farmers and farm workers of North Carolina Growers Association. Thanks for all the good work must keep moving forward together. Thank you.

Howard Willard

Thanks very much for your comments. I have to tell you that I agree with you. That I believe a cornerstone of the high quality products that we produce both in our PM USA business and our USSTC business is because we buy U.S. grown tobacco. I think it's the highest quality tobacco that's available in the world. And I have to tell you that I agree with you that we've made significant progress in improving working conditions, improving quality practices in the field.

And as was mentioned earlier, I know that Frank and Linwood on our team, who are sitting on the back of the room here, have been part of that. But I also know that many of the others that are participating in the meeting have contributed to that progress and I thank you all. And I agree that it's important to our future that that we keep a sustainable tobacco growing community here in the U.S. Thank you.

Unidentified Analyst

Good morning. My name is Darrell Varner [ph]. I'm from Woodford County, Kentucky. And I'm here today as a longtime Burley Tobacco Growers, and the President of a Council for Burley Tobacco Growers Organization that represents all Burley Growers. We're facing desperate times on the farm with events of last year. In previous years, we have lost a number of extremely good growers. If nothing changes the quality tobacco growers will be gone in a few years. Our growers have embraced every industry change that has been asked to them. Growers can now, U.S. for Burley Growers provide a source verified quality product that meets good all, all good agricultural practice guidelines.

As a tobacco grower and the President of the Council for Burley tobacco, I am coming to encourage Altria to work and collaborate with us as growers to develop a sustainable future, a sustainable future not just for growers but also for Altria. Altria can provide growers a sustainable living. In return, growers can provide a source verified quality product in demand by the consumer. Altria is the leader in the industry and we're, and I'm proud to be a grower for Altria. Really appreciate the hard work that Frank and Linwood puts in and our grower reps on the ground. And I appreciate the time to address you. Thank you.

Howard Willard

Thanks very much for coming to the meeting. And thanks for all your hard work. I understand the hard work that Burley Growers put into producing the tobacco that makes our brands I think the highest quality in the industry. And I also acknowledge some of the challenges that are facing the industry, whether that's rising labor costs or whether challenges that certainly have cropped up in the last couple of years.

We remain committed to our team working with growers in the U.S. to continue to make it a sustainable business. And while we acknowledge that declining rates of cigarette consumption, do mean that there's going to be probably less demand in the future. We continue to believe that if we work with growers, that we can continue to have a sustainable industry here in the U.S. So, I thank you for your commitment.

I think at this point, the time is up. I encourage anybody that has additional questions, to write them on a comment card, and we will make sure somebody gets back to you. Thanks very much.

Howard Willard

So we'll now hear presentations and then vote on two shareholder proposals, if properly presented. The board recommends a vote against both proposals for the reasons explained in the proxy statements. We encourage all shareholders to read each proposal and our responses. Proponents and any speakers commenting on the proposal, please identify themselves. Again, thank you very much in advance for cooperating with our meeting rules. Will the representative from the Sisters of St. Francis of Philadelphia, please present the first proposal.

Sister Nora Nash

Good morning, Mr. Chairman, members of the board, shareholders, guests and students who have come today. I am Sister Nora Nash, a sister of St. Francis of Philadelphia, and I represent four other co-filers, all members of the Interfaith Center on Corporate Responsibility. I hereby move shareholder proposals number four.

On December 20, 2018, I was beyond shocked by Sheila Kaplan and Matt Richtel's article indicating that Altria had agreed to pay nearly $13 billion for a 35% stake in JUUL labs. Altria was so committed to this deal that the Company gave 2 billion in bonuses to JUUL employees. It's amazing to know the prior competition and then realize that both Altria and JUUL will flood the market with nicotine chemicals and volatile organic compounds.

For the American public, this 35% stake is another significant disaster for public health. Like Father Michael Crosby, who many of you know, we will not ceased to remind you that any form of cigarette smoking or vaping, raises questions about Altria's human rights policies and commitments to public health. The very fact that Altria purchased JUUL was an indication that the Company needs a stake in its future and has a little interest in public health, especially since JUUL has been the leading brand behind youth e-cigarettes epidemic.

Our resolution continues to ask the Company to publicly disclose the nicotine levels in your cigarette brands. While you still argue that the FDA has the responsibility. Shouldn't Altria be very active in helping the FDA toward the assessment of what is safe nicotine? And what is the safe nicotine level? In light of concern of the human rights of persons, it appears that Altria is more concerned with and I quote, costly and virgin some activities without the benefit of regulatory guidance.

We believe that there has been significant guidance for Altria to make a moral choice and be more cognizant of the horrors of young people addicted to your products. Today, we plead with the board take the steps necessary to reduce the addictive lists of cigarettes and other combustible tobacco products. We are confirmed stakeholders looking to protect families, children and reduce risk in their lives.

In effect, Altria needs to hear the cause of the thousands of people, who will die this year from the horrible effects of smoking cigarettes and other products. We thank you for listening and I have to commend you, especially for your participation in the science based targets and also in the CDP. Thank you.

Howard Willard

Thank you. Are there any comments?

Unidentified Analyst

Good morning my name is Natalie Wasek [ph]. I'm with the Sisters of St. Francis of Philadelphia. We still await Altria's response to our January 2019 question related to your support of the FDA in reducing nicotine levels. How are you participating and supporting this FDA initiative?

Howard Willard

All right. Thank you. Those in the room wishing to vote on this proposal should please do so now. Will the representative from Trinity Health please present the second proposal?

Cathy Rowan

Good morning, Mr. Willard, members of the board, fellow shareholders and all presence. I'm Cathy Rowan [ph] representing Trinity health, also a member of the Interfaith Center and Corporate Responsibility, asking for your vote in supportive proposal five. The proposal asked for a report on Altria's policy and procedures governing direct and indirect lobbying, our company's payments for such lobbying, Altria's membership in and payments to any tax exempt organization that endorses model legislation and a description of our company's oversight of this activity. We believe transparency and accountability and corporate spending for influencing public policy are in the best interest of Altria's shareholders.

Without a clear system ensuring accountability, company resources can be used to promote policy objectives that may pose risks to Altria's reputation or misaligned with its own policy positions. We appreciate that Altria has strengthened its disclosure around board oversight of political and policy activities. And it's good to know that there is a board committee that is regularly updated regarding contributions to trade associations and other tax exempt organizations. However, we encourage the Company to take the additional steps outlined in our proposal.

With Altria's new business investments, it seems that the spotlight on the Company's lobbying activity is getting brighter. Just in the past few weeks, we've seen some headlines which we think may cause headline risk on the website of political on April 23rd, for example, there was a headline, beer and cigarette makers join the pot lobby parade. Pot may be illegal at the federal level, but corporate giants and K Street are preparing for the push to legalize.

In the New York Times on April 28th, the headline was In Washington JUUL Promises to Curve Youth Vaping. Its Lobbying in States Runs Counter to That Pledge. According to the article, the Company -- Altria did not respond to the reporter's question as to whether Altria was advising JUUL's lobbying efforts.

We do know though, that the Company spends a lot on lobbying according to opensecrets.org Altria spent 4over $20 million in 2017 and 2018 on federal lobbying activities. Regarding lobbying spending at the state level, a recent study of disclosures from the six states with the most robust reporting requirements found that Altria was the second highest spending company in those six states between 2012 and 2016.

Trade associations also lobby indirectly on behalf of their members, without specific disclosure or accountability for that spending. So we have an incomplete picture in regards to Altria's membership and trade associations. Our proposal also asked for disclosure of payments to tax exempt organizations that writes model legislation, which includes the American Legislative Exchange Council of which Altria is a member also known as ALEC.

ALEC has attracted negative attention for its role in promoting legislation that undermined regulation to address issues such as workplace safety and climate change. And I think in particular, their position on climate change runs counter to our own company's commitment to use science based targets for reducing its greenhouse gas emissions.

A number of companies have left ALEC highlighting the reputational risks that membership brings, including AT&T, ExxonMobil, Procter & Gamble, Verizon, General Motors have all left ALEC. Altria is a leader in disclosing its political campaign contributions. And now it needs to take the next step toward greater transparency by disclosing the spending on direct and indirect lobbying. Thank you.

Howard Willard

Thank you. Are there any additional comments? Thank you. Go ahead.

Unidentified Analyst

So again, Edward Sweda [ph], Shareholder from Massachusetts. Our simply underscore two quick points. One is that the resolution is the proposal is really extremely modest and does provide transparency that if the Company would go along with it would really back up the claims that you've made earlier in the meeting, most especially also regarding the acquisition of JUUL, because JUUL's conduct up until just recently has been, as alleged in these lawsuits and action by the North Carolina attorney general has been to addict kids, basically '14, '15, '16, '17 year old.

It is so important to be transparent. You proclaimed you have commitment to make sure that that goes down. But going along with instead of objecting to a modest resolution like this, I believe there's more than your statements. So I would hope for future resolutions of this type, that the Company would accept rather than sort of a knee-jerk reaction to oppose proposals like this. Thank you.

Howard Willard

Thank you for your comments. Looks like, we have another comment.

Sister Nora Nash

Yes. I'm Sister Nora, and I would just really like to urge you and the board to take some steps to remove yourself from the American exchange legislative council. We have urged over 100 corporations to make that move, because the legislation that is drafted by them is not good for the Company and not good for the American citizens. Thank you.

Howard Willard

Thank you. Those in the room wishing to vote on this proposal, so please do so now. All matters to be voted on and now been presented. If you haven't already voted please complete your proxy card. Raise your hand and an usher will collect your cards.

Since all shareholders have now had the opportunity to vote. The polls are now closed. The ushers should have collected all the proxies and delivered them to the inspectors.

Thank you. Brandt, please summarize the inspectors report.

Brandt Surgner

The inspectors have completed the preliminary count of the vote. The preliminary voting results are as follows. Shareholders have elected each of the nominees for director with more than 96% of the shares voting, voting for their election. The selection of PricewaterhouseCoopers LLP is Altria's independent registered public accounting firm for the fiscal year ending December 31 2019, has been ratified with more than 97% of the shares voting, voting in favor.

Shareholders have approved on an advisory basis the compensation of the Company's NEOs, with more than 94% of the shares voting, voting and favor. Proposal four has been defeated with 96.1% of the shares voting on the proposal voting against, and 3.9% voted in favor. Proposal five has been defeated, with 72.1% of shares voted on the proposal voting against in 27.9% voting in favor. That concludes the report.

Howard Willard

Thanks Brandt. Please file the inspectors report, their certificate in the proxies with our meeting records. We'll post the voting results on the website with the press release following our meeting and will file final voting results with the SEC on a Form 8-K.

For those employees listening in the room and on the webcast, thank you once again for your commitment and contribution to our great company. And to the others joining us, thank you for your continued competence in Altria. Our meeting is adjourned.