Management's Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Discussion and Analysis > Consolidated Operating Results
See pages 39–40 for a discussion of Cautionary Factors That May Affect Future Results.
|
 |
|
| (in millions) |
|
2004 |
|
|
2003 |
|
2002 |
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
|
Domestic tobacco |
|
$17,511 |
|
|
$17,001 |
|
$18,877 |
|
|
|
International tobacco |
|
39,536 |
|
|
33,389 |
|
28,672 |
|
|
|
North American food |
|
22,060 |
|
|
20,937 |
|
20,489 |
|
|
|
International food |
|
10,108 |
|
|
9,561 |
|
8,759 |
|
|
|
Beer |
|
|
|
|
|
|
2,641 |
|
|
|
Financial services |
|
395 |
|
|
432 |
|
495 |
|
|
|
|
Net revenues |
|
$89,610 |
|
|
$81,320 |
|
$79,933 |
|
|
|
| |
|
|
|
| (in millions) |
|
2004 |
|
|
2003 |
|
2002 |
|
|
|
|
Operating Income |
|
|
|
|
|
|
|
|
|
|
Operating companies income: |
|
|
|
|
|
|
|
|
|
|
Domestic tobacco |
|
$ 4,405 |
|
|
$ 3,889 |
|
$ 5,011 |
|
|
|
International tobacco |
|
6,566 |
|
|
6,286 |
|
5,666 |
|
|
|
North American food |
|
3,870 |
|
|
4,658 |
|
4,664 |
|
|
|
International food |
|
933 |
|
|
1,393 |
|
1,466 |
|
|
|
Beer |
|
|
|
|
|
|
276 |
|
|
|
Financial services |
|
144 |
|
|
313 |
|
55 |
|
|
|
Amortization of intangibles |
|
(17 |
) |
|
(9 |
) |
(7 |
) |
|
|
General corporate expenses |
|
(721 |
) |
|
(771 |
) |
(683 |
) |
|
|
|
Operating income |
|
$15,180 |
|
|
$15,759 |
|
$16,448 |
|
|
|
As discussed in Note 15. Segment Reporting, management reviews operating companies income, which is defined as operating income before general corporate expenses and amortization of intangibles, to evaluate segment performance and allocate resources. Management believes it is appropriate to disclose this measure to help investors analyze the business performance and trends of the various business segments.
The following events that occurred during 2004, 2003 and 2002 affected the comparability of statement of earnings amounts.
 Domestic Tobacco Headquarters Relocation Charges—PM USA has substantially completed the move of its corporate headquarters from New York City to Richmond, Virginia. PM USA estimates that the total cost of the relocation will be approximately $110 million, including compensation to those employees who did not relocate. Pre-tax charges of $31 million and $69 million were recorded in the operating companies income of the domestic tobacco segment for the years ended December 31, 2004 and 2003, respectively. Cash payments of approximately $55 million were made during 2004, while total cash payments related to the relocation were $85 million through December 31, 2004. At December 31, 2004, a liability of $15 million remains on the consolidated balance sheet.
International Tobacco E.C. Agreement—On July 9, 2004, PMI entered into an agreement with the E.C. and 10 member states of the European Union that provides for broad cooperation with European law enforcement agencies on anti-contraband and anti-counterfeit efforts. The agreement resolves all disputes between the parties relating to these issues. Under the terms of the agreement, PMI will make 13 payments over 12 years, including an initial payment of $250 million, which was recorded as a pre-tax charge against its earnings in 2004. The agreement calls for additional payments of approximately $150 million on the first anniversary of the agreement, approximately $100 million on the second anniversary and approximately $75 million each year thereafter for 10 years, each of which is to be adjusted based on certain variables, including PMI’s market share in the European Union in the year preceding payment. Because future additional payments are subject to these variables, PMI will record charges for them as an expense in cost of sales when product is shipped. During the third quarter of 2004, PMI began accruing for payments due on the first anniversary of the agreement.
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