Tobacco Documents Online

13 y adding Kraft to the General Foods cornpana;es, Philip Mbrris has become the largest U.S.-based food company-and a powTerfull presence in international markets.. As we merge distribution networks for our valued brand name products, we wiR be even better positioned to respond to changing, consumer needs around the world. Operating Revenues (Percera o' Tcta: ^perabrig Reverues) ~~

Kraft Gieneral Foods Group The recent addition of Kraft has made us the largest, most diversified food and beverage company in the. United'States. Kraft and General Foods introduced more than 250 new prm¢- ucts and packings ' between them in 1988. This exemplifies the attention to the marketplace and the needs of consumers that exists in ourcompanies, The challenge we now face is managjng the integration of facilities, distribution systems, and product lines so thatwe may bestreatizet our full: Accordingly, we an- nounced the formation of the Kraft General Foods Group, effective March 1, 1989i Its seven operating units will enable us to compete even more effec- tively not only in the U.S:, butalso in the growing global! marketplace. orn.ralifaods USA General Foods USAA increased operating reve- nues and operating,income in most of its businesses. It also increased v+olume and share of most products. IKool-Aid and our otherr powdered beverages increased their market share to 82.2%. Jell;O gela- tin desserts captured a 76,696 share, and Stove Top stuffing increased its share to $8':596. In addition, the acquisi- tion of'The Charles Frei- hofer Baking Company, together with the Califomia expansion of Entenmann's, increased our share and! wltame in the fresh baked goods market. Post cereals maintained wlume and launched Post Oat Flakes in the growing oat segment Maxwell House had an unsatisfactory year. Initia- tives taken toimproue cof: fee pricing,and margins in early 1988 were unsuccess- ful„leading to a loss in market share. We recovered the share loss in the latter part of the year, but associ- ated marketing expendi- tures adversely affected income. The major brands of General Foods USA now include: Maxwell House, Sanka, Yuban„Brim, General Foods Internation- al Coffees, Kool-Aid, Crys- taI Light, Country Time, Tang, Jell-O, Baker's, Entenmann's; Oroweat, Freihofer's, Post, Minute, Stove Top, Ronzoni, Good' Seasons, and l:og,Cabin. Strategic Focus We are investing in such new products and brand extensions as Jell-O ready to-eat puddings and Post Oat Flakes. We are meeting consumer demand for freshness and convenience with ready-to-drink Kool- Aid 1{oolers in aseptic packaging, as well as sin- gle-serve microwave pack= aging for our Minute brand products. Further, we have expanded distribudonof the Impromptu line of shelf-stable meals. Maxwell House is being strengthened', in the U.S. by way of improved quality, increased advertising sup• port, and new packaging and'graphics. We are intro- ducing several'new prod- ucts, including Maxwell House Rich French Roast,,a robust European-style blend, and Maxwell House Filter Packs, pre-measured coffee packaged in a sealed i filter. Kraft UJSA' Kraft cheese volume in 1988 grew by over 4%, inexcess of industry growth. Recent marketing and research and development efforts hawe spurred the introduction of a number of new products and line extensions which contrib- uted to thaG growth. The introduction of Kraft 100% Natural Shreds,,Velveeta Shreds, reduced-fat, low- cholesterol Kraft Light Mat, urals, and Cheez Whiz all contributed to volume growth in the cheese. category.This unit's gr•ocery prod- ucts volume has been rela- tive~ly flat in recent years, consistent with industry trends: "Light" versions of Miracle Whip:saladldress- ing,and Kraft mayonnaise have gainedwmlinme andl share. Bull's-Eye ' ~banbecue sauce, our premium entry, increased share and vol- ume in this segment. Pourable salad dressings performed largely iniline Oeneral Foods USA's product tine includes classic brand hames such as: Kool-Aid (right) in aseptic pack- ages; Jelb0 pudding,snacks (lower right) in 1 sing/e-senre portions; Enten- mannls (below)iwithihigh;tiber baked goods; and AMaxwetl House coffee (pottom) with new redesi pned pactf-, aging, Abroed, products such as France s Hot/ywoodigum (inset, nght) maintained MarketJeadership: 10052310598,

While Oscar Mayer was successlully launching LunchabdesJunch combi- nations (lett); itsJine of sdiced lunch- eon meats finset, left) cl mbed ~to a 35% market share: Among Kraft USA°s comprehensive,li'ne o/icheeses: bw-cholesterol Light JWaturals. (below). The Kraft General food5 Irtternational Group produces brands such as ltaty's Mato Mato ketchup (tiottom):. with industrytrends: Kraft' macaroni and cheese con- tinued to lead! the pasta dinner segment: The major brands of Kraft'USA now include: Kraft (natural and process cheese, dry packaged din- ners, mayonnaise, pourable salad dressings, barbecuee sauce, and caramels); Ve1- veeta+ Philadelphia Brand, Cheez Whiz, Miracle Whip, Seven Seas, Parkay,Chiffon; andlBull's-Eye: Strategic Focus We are committed to growth through new prod- ucts, line extensions, and increased marketing, efforts. We will continue to capitalize on strong brand assets. New products will address consumer con- cerns relating to fat, cho- lesterol, and convenience. We will intensify our effortss in the growth areas of cheese exempli'fied'by Churny and Polly-O. Con- sumer convenience is addressed by products such as the new, versatilee side dishes of Kraft dinners and Ithe miarowavabie CheezWhiz spread. Kraft fi.naral Foods Inb.rnational This group has been.newly formedlto rnanage all Kraft and IGeneral Foods busi- nesses outside the United States and Canada ~and gives us a worldwide food l base upon which to grow. General Foods' interna- tional business results in. 1!988 reflected increased volume and income. General Foods coffee fran- chises had substantial vol- ume increases in Europe and Asia, while interna- tional i products such as Hollywood chewing gum in France, Kibon ice creami in Brazil, and Siinmenthal'. canned meats in Italy gained strength as market leaders. Kraft products improved volume and share in their most important markets. Kraft's international busi- ness emphasizes cheese and edible-oil-based prod- ucts such~as salad dress- ings. Other products include peanut butter, ketchup; packagedIdinners, jellies, and preserves~ Examples of significant, brand franchises are Mato Mato ketchupand Philadel- phia Brand cream cheese in Italy,,Miraicoli pasta dinners in Germany, and Vegemite spread in Australia. Strategic Focus In the European, Latin. American, Asian, and Pacific markets, we will continue to build our cof- fee, powdered beverage;, cheese, and grocery busi- nesses. We expect major growth~from our principal product lines in Italy,, Spain, and Asia: The orga- nizations will be.combined on a regionalland country basis as necessary to lever- age oursize;,brands, and Kraft4an.ral Foads. Canada The formation of Kraft General Foods Canada cre- ates a strong foundation for future growth as one of the major packaged goods companies in the country: Kraft's cheese and grocery lines have experienced steady growth in Canada in recent years, in large part through successful ne,,+, product introductions. We have merged General Foods' Hostess brand, Canada's leading snack brand, with Frito-Lay, a subsidiary of PepsiCo, Inc., to establish an even~ stronger franchise. Otherr businesses in Canada, con- sist of General Foods coffee and groceryproducts, which have provided con- sistent income growth. The major brands of Kraft General Foods Canada now include: Kraft, Philadelphia Brand, Hostiess,,Frito-llay Jell-O;. Birds Eye, Kool-Aid, C©ol Whip, Post, Sanka„and Maxwell I House. Oscar Mayer Foods Oscar MayerFoodS' results reflected strong vol- ume growth and effective marketing. The Oscar Mayer brand grew share in processed meats, while the Louis Rich brand continues to grow from its leadership positioni within rthe rapidly expand- ing turkey segml Includ- ing its Louis Rich biand, Oscar Mayer now accounts for 35% of the market forr distribution systems. 1oo~OSo' 17

sliced luncheon meats and. 18.1I°% for hot dogs. Oscar Mayer also recently became the exclusive sup- plierof'igrilled hot dogs to ower 5,000 7,Elevenstores across the nation. We are now firstin sales volume of' ready,to:-eat hotdogs inthe United States. In addition, the Oscar Mayer brand also leads the bacon markett with a 12.2°'o share. This unit markets all processed meat, poultry, seafood products, and pick- les under the Oscar Mayer, Louis Rich„Loui's Kemp, and'Claussen brand names. Strategic Focus We wil l support' and' emphasize continued rnomentium inour core Oscar %layer and Louis Rich franchises, building on our market leadership positions. We are creating, the framework for future growth by introducing con- venience products such as Lunchables lunch.combi, nations, Zappetites micro- wave snacks, and Louis Kemp surirni'seafood prod- ucts. We are also capitaliz- ing on growthiinithe food- awayfrom-horne business byimcreasingiour distribu- tion to convenience stores and otherfoodservice outlets, . Kraft General Foods Frozen Products The foundation for future growth of our new Frozen Products group is evidenU in the 1988 resultsof the leading brands that are part of this unitL Birds Eye vegetables, posting the best volume gain in over 15 years, increased market share to: 14! 9%. The Budget Gour- met frozen entrees gained share and volume, in con- trast to most competitors. In addition, Lender's frozeni bagels, Breyers Light ice. milk, and Cool Whip des- sert toppings registered vol- ume and share gains. Our, ice cream business under, the Breyers, Sealtest, and Frusen Gladje' brands con- tinued to lead the industry. The major brands of Kraft General Foods Frozen Products now include: The. Budget Gourmet, Lender's, Breyers, Sealtest, Light n' Lively, Knudsen, Fruseni Gladje, Birds Eye; Tornb- stone, Je11-O frozen novel- ties, Cool Whip, andl Breakstone's. Strategic Focus The combination of these brands and productss makes us one ofithe largest factors in the frozen foods case. Ourtask is to convert this presence into superior performance. We have undertaken a number of strategic initiatives to meet consumer demand for reduced-calorie and low- fat products. Among the new brand lines offering growthi potential are Birds Eye in single-setve microwave packaging, The Budget Gourmet side dishes, and Lender's Big 'n Crusty bagels: We will also continue to roll out strong, regional U.S. brands. For example, although available in only 30% of the country„ Tomb- stone pizza ranks first nationally among branded frozen pizzas. We intend to expand Tombstone geographicaily, u.a. conun+.rciatl Group This group includes Kraft's U.S: foodservice distribu- tion, as well as industrial food ingredients and the edible-oil refining busi- nesses. We are pursuing opportunities in these markets. The food-away-from- home business has been growing rapidly in recent years. We plan to increase service to in•store delis, now the fastest-growing section inithe supermarket. Investments in foodservice will emphasize information and management systems to achieve significant econ- omies rather than further geographical I expansion. The food ingredients busi- ness increased both ton~ nage and income in,19 The edible-oil businesss iinprovedlincome and achieved cost reduction and scale efficiencies after the successftrlicombination, of Kraft's and Anderson Clayton's edible-oil' businesses. KrahlGeneral foods Frozen Products Group includes quaN'ty brands such ~ as: Lght,n''LNely yogurt (right)„ and Tombstone (below), America's No. I branded lrozen pizza. Overseas, Kraft General FbodsJnternafionai produces national lavorites such as AUstratia's Vegemite yeast ispread (inset, right). The W:S: Commercial Group (bottom)„manages KralYs foodservice operations 1045230602 1'8:

T he worldPs second-largest brewer, Mi l ler Brewing Cornpany- led by its Miller Lite low-caloriie and Mil'ller Genuine Draft premit''!1m beers-ac ieved growth in a generally flat industrvAs consumer ta .tes continue to shift, we are so1 id'ifyring I our competi- tive base by introducing new l'ines; refocusing our advertising and pack- aging; and entering international markets.. Operating: Revenues (Percer,t o! Tota; Operatin;;,Revemues) - Financia' en... PS . _ [:st a£., an4RE'_:ci 21

Mi11er Brewing Company A3.5°,'o volume increase, to a record 40.7 milQionbar- rels shipped, helped to increase ourshare shareUS. beer market. Operating revenues of $3.3 billion were 5.1% higher than in 1987,,and operating in- come rose by 1n~796 to $190villion. Miller Genuine Draft, with Miller's exclusive Cbld=Filteredn' pnocess, remained one of the coun- try's fastest-growing,pre- rnium brands and helped to increase Miller's share of the full-calorie premium segment for the first time in, eight years. Miller Lite; the second- bestrselling,beer in Amer- ica, also increased volume again and accounts for approximately one-half of the low calorie premium segment: Combined volume for our popular-priced entries;, Miillwaukee's Best and Meister Brau; grew by 11.6%, resulting,inia 17% share of the segment. Strategic Focus We experienced growthiin volume, markeCshare, and income in an essentially flat industry by concentrat- ing efforts in areas such as the low-calorie and the emerging packaged-draft segments. For instance, Lite Genuine Draft was introduced into four test markets. Our 1988 purchase of'the Jacob Leinenkugel Brewing Company brought us high- quality regional brands that possess national potentiall Miller Brewing Company will al'socontinue topur- sue international marketing, opportunities. Financial Services and Rieavt' Estate. Operating revenues increased 29.196' to $629 million. Due to strong,land sales in California, Mi'ssion. Wiejo Realty Group Inc.'s operating revenues increased by 38%. Inaddi- tion, Philip Morris Credit Corporation's (PMCC) i financial services activities continued to record gains: Strategic Focus PMCC has increased its commitment to customerr and supplier financing. New programs under, take n i i n 1988 t ha t w i l l Tbe expanded in the future include inventory and term ~ loan financing for suppliers and distributors of our operating companies. We will continue our cornmit- mentto theJeasing market,, which providesattractiive returns to PMCC. Since mid-1987; Mission Viejo's strategic focus has been redirectedltowardl land!planning, develop- ment, and sales; home- building,is being,phasedl out in Uifornia: Due to unusually strong market conditions in that state, our revised operating strategy produced higher increases in revenues andlearnings in19 Miller Lite (right) remains Americs's first choice in tow-ca/orie beers. Mitter Genuine DraR (inset, right), is among the Jeaders in ithe premium beer sep- ment: lnnp-neck bottles were intia duced for our three ma)or brands, includihp Mitter'Hiph Life (below). 1005230GVp 22

ILSLK.r Inau." mamdsAiprn.els FeL9!a TBr.,PBic Nthdra.rae • u.i. N.rIndvRhyt •.erwSAlprn.nta.  ruarshm. loa us. ~maua.y (%; A4?!iGms C` $d•~EiS ?W 40

Management's Dis+cwssio'n and Analyrsis of Financial Condition and Reswlts of Operations Op.rstft Rasult* The company's financial services and real estate subsidiaries, previously accounted for by the equitymethod, have been consoli- dated in 1988 in accordance with Statement oflFinancial Account- ing Standards Na, 94, "Consolidation of All Majority-ownedl Subsidiaries:"'P>•ior years' amounts have been restated tolconform with the current year's presentation, which restatement had no effect on previously reported net earnings ocearnings per share. 198$'CoFnpared with 1987 Operating,revenues for 1988'increased b'3;6 billion (12.696) and operating profit; as defined for segment reporting (operating, income excluding unallocated corporate expenses), increased $438 million (10.546)L All business segments had increased oper- atingrevenues and all business segments except food lhad increased operating profit. The company's 1988 results incliade restructuring costs at General Foods. The charges relate to a plant closing and consolida~ tionof manufacturing facilities, early retirement programs and other overhead cost reductions, all of which are expected to improve cost efficiencies. This restructuring reduced earnings before income taxes and cumulative effect of accounting,change, net earnings and earnings pershare by$348'million„S2'12 million andiS'.911 respectively. In 1987, the companyrecorded'a pre-tax charge of $117'million related to a restructuring! of General Foods, partially offset by a pre- tax gain of S46 million from the sale of the Open Pit barbecue sauce retail business. These items reduced 1987 earnings before income taxes, net earnings and earnings per share by $71 million, $22 millionand $.09, respectively. On December 7,1988, Krafti Inc. became a~wholly-owned sub- sidiary of the company Consolidated results of the company include the operating,results of Kraft since acquisition. The net effect on the company's 1988'consolidated net earnings of'Kraft's income contribution after goodwill amortization and the cost of acquisition financing was a dilution of approximately $.12 per share. The cost of the acquisition, including retirement of employee stock options and other payments, totaled'approximately $12.9'billion The acquisitionof,Kraft was financed by internal funds andlapproximately $9.6 billion of debtand resulted in approximately $11.6 billion of goodwill. Interest and other debt expense, net, increased $24 millionin~ 1988 compared with 1987: The increase was due primarily to inter- estionidebtassociated with the purchase of~Kraft (approximately $68'.million), partiallyoffset by lower interest expense throughout the year prior, to the Kraft acquisition, as well as higher interest income earned on cash balances ($27 million),. Interest expense prior to the acquisition of Kraftwas lower by approximately $10 million in 1'988'due primarily to lower average amounts of out- standing debt, partially offset by higher interest rates. The com- pany's ratio.of earnings to fixed charges was 5:2 in 1988 compared with 5.0 in 19'87'and 4.0 in 1986. This ratio is expected too decrease in 1989 as a result of the interest associatediwith the pur- chase of Kraft. In the fourth quarter, the company adopted retroactive to Janu- ary 1,1988 the method lof accounting for income taxes prescribed byStatemenfiof'Financial Accounting,Standards No. 96; "Account- ing,forincome'ILLxes,"'Arcordingly thecompany has changed its method of computing income taxes from the deferred method usedlin prioryears to the method prescribed by SFAS'9F,. SFAS'96 increased 1988 net earnings and eamings pershare by $213 million, and $.91, respectively. Prioryears' data have not been restated! (See Note 10 to the 1988 Consolidated Financial'Statements for further details.). The company's effective tax rate in 1988 was 44.696, compared with 44!9% in 1987, The rate didlnotdecrease in line with the reduction in the U.S. corporate income tax rate, due to the reversal during 1988 oflexcess deferred tax benefits recorded as of January. 1, 1988 in ~accordance with SFAS 96 and higher provisions for the repatriation oflforeignearnings. Net earnings increased ini1988 by $495 million (26:990), due principally to increasedloperating profiti ($4'38'million) and the cumulative effeaof a change in the method of accounting for income taxes, partially offset by a higher income tax provision ($161 million). The 2'9:498 increase in earnings per share exceededl the percentage increase in net earnings due to a loweraverager number of outstanding shares of common stock in 1988! The per- centage increases in 1988 should not be considered indicative of future earnings growth as the acquisition of 1Graft will have.a dilu- tive effectoveothe next several years. 1987 C'ompared with 1986 Operating,revenues for 1987 increased $2.3 billion (8'.99b)iand operating profit' increased $489 million (1314'46). The increases were due pnncipally to tobacco operations, which had increases imoperating revenuesand operating profit of$2.0 billion and $442 million, respectively. The company's effective tax rate in 1987 was 44.9%, compared with 46.5% in1986: The decrease resulted primarilyfrorn reduc- tion in the U.S. corporate income tax rate, partially offset by a. $56 million increase in the provisions for: the repatriation of foreign earnings. In 1987nonrecurring items.consisted of'a $1117, millionpre-tax restructuring charge related!to General Food's; partially offset by a $46 millionpre-tax gain on the sale of the Open Pit barbecue sauce retail business. 1~5~!06108 24

. ~....~. IVet eamings increased by i3164million (24.7%) over 1986,,due principally to increased operating profit (5489'million); as well as reduced interest and other debt expense, net ($126 million)j partially offset by a higher incometax provision ($215 million),. The decrease in interest and other debt expense, net; was due . primarily to a lower average amount of'outstanding debt.. OP.r.N" ~AsWb by Bus/nss S"Rnsnt. Operating revenues and operating profit increased 12.6% and 10.5%, respectively,over'1987: Operating revenues of tobacco oper- ations were 52% of total operating revenues in both 1988 and 1987. Operating profit of'tobacco operations was 8+4% of total operating profit in 1988 compared with 79%' in 1987, of which Philip Morris U.S.A: and Philip Morris International contributed 67% and 17%, respectively in 1988'and 65% and 14%, respectively, in 1987. Food operating revenues were 36% and~35% of'total operating revenues in 1988 and'1987; respectively. Operating profit of food operations was 9%~of total operating profit in 1988 compared with 15% in 1987. The decrease is due primarily to higher restructuring charges related to General Foods. TobGrcco Operating revenues and operating profit in 1988 increased $1.9 bil- lion1(13.3%) and $556 million (16.9%); respectively, over 1987: The increase in operating revenues was due primarily to price increases ($'744 million) and volume growth (E117'million)7 ini Philip Morris US:A. and to volume growth ($522'million) and cur- rency translation (E379'million) in Philip Morris International. The increase in operating profit of tobacco operations was due princi- palhyto higher gross profit ($1.2 billion), approximately 70%' of ' which related to price increases, with the remainder attributable too volume increases. Partially offsetting,the increase in gross profit were higher marketing„administration and!research costs ($674 million); approximately 78%' of which were due to higher market- ing',expenses. In 1988, Philip Morris U.S.A:'s operating revenues increased $861 million.(ln i.3%); approximately 86%' of whi+ch was due to price increases, with the remainder primarily attributable to a 1.7% increase in domestic unit volume. Philip Morris UJS:Ai.'s unit volume continued Ito outperform the domestic cigarette industry; which declined approximately 2.1% during 1988: Philip Morris USA increased its domestic unit wlume to 219:3 billion units for a market share of 39 .3!96 in 1988 compared with 37.8% in 1987. Marlboro's unit volume increased by 3.2% to 138.8 billion units, approximately 25% of the U.S: market. Philip Morris International increased operating revenues by V.1 billion (15 ,4'96) due primarily to increased unit volume ($522 million) and currency translation.. 'Ibtal unit volume of Philip Morris International for 1988 increased 4.4% over 1987: Rstlo e/ Earalnms b fb'o.I Cbsel.r  7YMI labt (Abar-End) ~  Consum.. hwMrots . Osse (rYar-End). Ratio BNlions d Ddlars 7 18'. 6 8 6 '. HIL ~ 84, 85 86 87 88 I 25

' JA.VIY`?~_ In 1987, operating revenues and operating,profitfrom tobacco operations increased $2.0 billion.(15.496) and $442 million(15396) over 1986, respectively. The increase in operating revenues was due primarilyto price increases in Philip Morris USA. ($490 million) and to volume growth ($556 million) and currency translation ($791 rnillion);in Philip Morns International. The increase in operating profit of tobacco operations was due principally to higher gross profit ($922 million), resulting primarily from price increases ($528 million), currency translation ($206 million) and volume increases ($202 million), partially offset by higher marketing, administration and research costs ($4'83'million, approximately 8796 of which was due to higher marketing expenses). Compared with 1986, Philip Morris U:S:A.'s operating revenues increased $587'million (8.3%) in4987; approximately 83% of' which was due to price increases, with the remainder primarily attributable to a0.596 increase in domestic unit volume. Philip Morris U iS:A.'s unit volume outperformed the domestic cigarette industry, which declined by 2.1% during,1987: Phil'ip Morris International increased its operating revenues by $1.4 billion (24.3%) ~due primarily to increased unit volume ($556'million).and currency translation ($791 million). Food' Food operating revenues increased $1l3 billion (13.3%) in198f1. The higher operating revenues in 1388'were due primarily to.the inclusion ofloperating,results of Kraft since acquisition (62%of the total increase)„to higher unitvolume in General Foods' major lines of'business and to currency translation ($165 million). General Foods had unit volume increases in its bakerybusiness (due primarily to the acquisition oflThe Charles Freihofer Baking Com= panyin November1987) andibeverage andlfroxen food operations, while unitvoliume decreased in dty grocery products (due primarily to the sale in September 1987 of the Open Pit barbecue sauce retail business). Domestic coffeeoperations had both pricee and'volume decreases. Oscar Mayer Foods had increased unit volume in allibrands. Internationally, operating revenues increased due to currency translation and higher unit volume (related primarily to acquisitions made in 1987). Food operating profit decreasedl$213 million 05'.146) due primarily to higher restructuring charges ($277 million). Higher gross profit of $455 million was partially offset by increases in marketing, administration and research costs of $378'mill!ion, the largest portion of which was incremental marketing costs associ- ated with Maxwell House's successful effort to recapture market share. Excluding the restructuring items in 1988'and in 1987;, food operating profit wouldhave increased approximately 9.5%. Operating,results in 1988 include.Kraft's operating revenues of~ $821lrnillion and operating,profit of $'58'million since acquisition. Ini1987; food operating revenues increased $282 million (2:996): The increase in operating revenues in 1987 was due primarily to higher unitvolume in major lines of business, except domestic coffee, and to currency translationi partially offset by coffee price decreases. General Foods had'unit volume increases in its breakfast foods, bakery and desserts operations, while unit volume in beverages and meals remained flat. Domestic coffee prices weree adversely affected by lower green ~cof fee bean prices throughout the year. Oscar Mayer Foods had unit volume increases in both Louis Rich and Oscar Mayerbrands: Internationally, operatingg revenues increased due to currency translation and to increased unit volume. Food operating profit decreased i$34 million (5.6%) due primarily to higher marketing, administration and research costs in, 1987 ($4T7 million) and1restructumng costs in,1987 ($7,1 million), which more than ol'fseChighergross profit($449'anillion). Higher marketing;expenses resulted primarily from trade spending for coffee associated witht'he competitive environment resulting from lower,green coffee bean prices. Excluding the restructuring costs in 1987, operating profit would have increased approximately 6%. Beer Operating revenues in 1988 increased $157 million (5'.196'),. Approx- imately 69'4fi of the increase resulted from unit volume increases, and'the remainder from price increases. Market share rose too approximately 22.5% from 21.9% in 1987, Operating profit in 1988 increased $20 mill'ion (11.6%) due to higher gross profit ($39'mil- lion); partially offsetby higher marketing, administration and research costs ($l9anillion): Operating revenues in 1987 increased $51 million (1.7%). Approximately 86% of the increase resulted from unit volume increases, and~the remainder,ftomprice increases. Market share rose to 21.9% in 1987 from 21.6% in 1986: Operating,profit increased $!16 millionl(9:996) due primarilyto higher gross profit ($35 mi'llion), partially offset byhigheornarketing, administration and research costs ($19 million). Fenancia! Services and Real Estate Operating,revenues and operating,profit in 1988'increased by $141 million (29:196) and $94 million (over 100!46)„respectively. Operatingrevenues for Philip Morris Credit'Corporation~(financial' services) increased 10:496 and operating,profit more than doubled. Financial services operating profit increased relatively faster than operating revenues in 1988'due primarily to interest savings from debt refinancings undertaken during the year: Operating revenuess forMission V'iejp RealtyGroup {real estate) increased 38.0% and operating profitmore than doubled due primarilyto strong market demand and a change in business strategy from residential I development toJand sales, both in Southern California. 1~0.52.306i0 26