Philip Morris Companies Inc. (NYSE: MO)--

Reported Net Earnings Up 6.9%
Underlying Net Earnings Up 5.5%
Reported Diluted E.P.S. Up 13.1% to $0.95 per Share
Underlying Diluted E.P.S. Up 11.8% to $0.95 per Share
Highlights of 2000 Second-Quarter Earnings
Reported Net Earnings Up 6.9%
Underlying Net Earnings Up 5.5%
Reported Diluted E.P.S. Up 13.1% to $0.95 per Share
Underlying Diluted E.P.S. Up 11.8% to $0.95 per Share

  • Philip Morris' underlying net earnings grew 5.5% to $2.2 billion and diluted earnings per share rose 11.8% to $0.95 per share. The comparison of underlying results excludes the 1999 impact of $45 million in pre-tax charges for employee separation programs in the company's domestic tobacco business. This item is described in detail on the last page of this release.
  • Reported net earnings were up 6.9% to $2.2 billion. Reported diluted earnings per share were up 13.1% to $0.95 per share.

  • Underlying operating companies income, which excludes not only the above-mentioned pre-tax charges, but also the results of operations divested since the beginning of 1999, grew 5.8% to $4.1 billion, despite an unfavorable currency impact of $83 million.

  • Reported operating companies income rose 7.0% to $4.1 billion.

  • Domestic Tobacco: Underlying operating companies income grew 6.5% to $1.3 billion due to higher pricing and 3.6% volume growth. PM USA's total shipment share and Marlboro shipment share reached 49.9% and 36.9%, up 1.0 points and 1.7 points, respectively.

  • International Tobacco: Underlying operating companies income grew 4.6% to $1.3 billion as volume gains in Western Europe, Russia, Japan and Asia and higher pricing in many of PMI's markets were partially offset by the adverse effect of volume declines in certain markets within Central and Eastern Europe, lower worldwide duty-free shipments and unfavorable currency of $67 million.

  • North American Food: Underlying operating companies income grew 5.3% to $996 million, driven by volume gains, increased productivity savings and lower commodity costs, partially offset by increased marketing investment.

  • International Food: Underlying operating companies income grew 6.3% to $289 million, reflecting strong volume growth with gains across all regions and categories, productivity savings and lower commodity costs, partially offset by unfavorable currency of $16 million.

  • Beer: Underlying operating companies income grew 8.4% to $193 million driven by the impact of higher pricing and contract brewing.

Philip Morris Companies Inc. (NYSE: MO) announced today that on an underlying basis, second-quarter net earnings grew 5.5% to $2.2 billion and diluted earnings per share rose 11.8% to $0.95 per share.

The comparison of underlying results excludes the 1999 impact of $45 million in pre-tax charges for employee separation programs in the company's domestic tobacco business. Reported net earnings were up 6.9% to $2.2 billion, and reported diluted earnings per share grew 13.1% to $0.95 per share.

"Our robust second-quarter results reflect the continued strength of our business fundamentals," said Geoffrey C. Bible, chairman of the board and chief executive officer. "Our domestic tobacco business generated good volume and income growth, and volume growth returned to our international tobacco business as it benefited from the continued economic recovery in Asia and Russia. In our North American food business, new products contributed to higher overall volume, and in our international food business, volume grew in each of its three business categories. In our beer business, operating companies income was up during the quarter due to higher pricing and contract brewing. We believe that we're in an excellent position to meet the company's growth targets for the full year."

Underlying operating companies income, which excludes the above-mentioned pre-tax charges and the results of operations divested since the beginning of 1999, increased 5.8% to $4.1 billion. Reported operating companies income rose 7.0% to $4.1 billion. Both underlying and reported operating companies income reflect an unfavorable currency impact of $83 million.

Underlying operating revenues, adjusted for divestitures, grew 5.4% to $20.8 billion, despite an adverse currency impact of $592 million.

During the quarter, the company bought back 36 million shares of its common stock at a cost of $900 million as part of its $8 billion, three-year share repurchase program.

For the first six months of 2000, on an underlying basis, operating revenues were $41.1 billion, up 4.8%; underlying operating companies income increased to $8.1 billion, up 5.8%; and net earnings and diluted earnings per share grew 5.6% and 11.5%, respectively. On a reported basis, operating revenues of $40.9 billion were up 4.0%; operating companies income increased 9.2% to $8.0 billion; and net earnings and diluted earnings per share were up 9.5% and 15.9%, respectively.

In June, Philip Morris announced that it had entered into definitive agreements to acquire all outstanding shares of Nabisco Holdings Corp. for $55.00 per share in cash. The transaction reflects an enterprise value of $18.9 billion, which includes the assumption of approximately $4.0 billion in net debt. As part of the acquisition, Nabisco will be combined with Kraft Foods, Inc. (Kraft), the operating food company of Philip Morris Companies Inc. Following the combination, the company plans to undertake an initial public offering for less than 20% of the newly combined food company.

Unless otherwise specified, the following review of the company's performance refers to second-quarter 2000 underlying operating results and volumes compared with those for 1999. As detailed on the last page of this release, underlying operating companies income excludes the 1999 charges for employee separation programs as well as the results from operations divested since the beginning of 1999.

Domestic Tobacco

Underlying operating companies income for Philip Morris Incorporated (PM USA), the company's domestic tobacco business, grew 6.5% to $1.3 billion due largely to higher pricing and increased volume versus last year.

PM USA's shipment volume of 53.7 billion cigarettes grew 3.6%, and industry volume of 107.5 billion cigarettes was up 1.5%. This shipment growth was largely driven by wholesalers' decisions to continue to build their inventory levels this year. In contrast, wholesalers decreased their inventories during the corresponding period last year. PM USA estimates that after adjusting for these inventory changes, industry volume declined approximately 1 to 2% during the quarter.

PM USA's shipment share reached 49.9%, up 1.0 share points. Shipments of Marlboro rose 6.2% to 39.6 billion cigarettes, and the brand's shipment share grew 1.7 points to 36.9%. Contributing to this gain was the introduction of Marlboro Milds, launched nationally at retail in May. The industry's premium segment was up 0.4 points to 73.5% of total shipments, while PM USA's share of the segment increased to 59.7%, up 1.2 share points.

As a group, PM USA's other premium brands, which include Virginia Slims, Parliament, Merit and Benson & Hedges, accounted for 7.0% of industry shipments, down 0.6 points versus a year ago. Basic's overall share of industry shipments was up 0.5 points to 5.2%, primarily influenced by the timing of promotional shipments year-over-year. PM USA's share of the discount category advanced 0.2 points to 22.8%.

According to consumer purchase data from Information Resources Inc./Capstone, PM USA's share of cigarettes sold during the second quarter at retail grew 0.8 points to 51.0%, and Marlboro's retail share rose 1.1 points to 37.6%.

International Tobacco

Underlying operating companies income for Philip Morris International (PMI), the company's international tobacco business, grew 4.6% to $1.3 billion, despite unfavorable currency of $67 million. Volume gains in Western Europe, Russia, Japan and Asia and higher pricing in many of PMI's markets were partly offset by the adverse effect of volume declines in certain markets within Central and Eastern Europe, as well as by lower worldwide duty-free shipments, which were affected by the July 1999 cessation of intra-EU duty-free sales.

PMI's total volume comparison to the prior year quarter turned positive as economic recoveries in Asia and Russia followed the economic downturns of 1998 and 1999. Second quarter volume of 172.7 billion cigarettes was 0.1% above 1999. Volume grew a collective 4.5% in the important markets of Western Europe and Japan, which account for approximately 62% of PMI's operating companies income.

In Western Europe, PMI recorded good volume growth in the established markets of Italy, France, Spain, Portugal, the Benelux countries, Sweden, Greece, and Switzerland. PMI strengthened its leadership position in the region with share gains in Italy, France, Spain, the Netherlands, Belgium, Greece and Portugal. Volume and share in Germany were lower as a result of the continued strong growth of trade brands and a reduction in the number of cigarettes per vending pack following fourth quarter 1999 industry price increases.

In Central Europe, PMI's volume declined 10.1% due to trade purchasing patterns in the Czech Republic and a lower industry and market share in Poland reflecting intense competition in the low price segment.

In Eastern Europe, total volume was adversely affected by tax-driven price increases in certain markets. However, in Russia, volume increased over the second quarter of 1999, due largely to the continuing recovery from the economic crisis which began in the third quarter of 1998.

In Japan, PMI continued to generate strong volume and market share growth driven by the outstanding performance of Marlboro Lights Menthol and by the introduction of Marlboro Medium.

In Asia, PMI turned in double-digit volume gains driven by the excellent performance of Marlboro in the Philippines and the recovering economies of Korea, Malaysia, Thailand and Indonesia. PMI gained share in most markets.

Elsewhere, PMI delivered solid volume and share gains in Saudi Arabia, Egypt and Mexico.

Total Marlboro volume grew 2.0% driven by strong performances in Japan, Asia, Western Europe, Russia and Mexico, partly offset by lower volume in certain Central and Eastern European markets and by lower worldwide duty-free shipments. Double-digit volume gains were reported in Spain, Sweden, Romania, Russia, Japan, Korea, Malaysia, Thailand, Indonesia and Mexico. Solid increases were also achieved in Italy, France, Portugal, the Benelux countries, Greece, Switzerland, Saudi Arabia, Egypt, the Philippines and Singapore. Marlboro gained share in most of PMI's major markets and registered a full share point or more gain in France, Spain, Belgium, Portugal, Saudi Arabia, Egypt, Japan, Singapore and Mexico.

Good volume gains were recorded for other PMI brands. Philip Morris grew in Italy, France, Switzerland, Korea and Argentina. Volume growth was also reported for L&M in Romania, Ukraine, Kazakhstan, Malaysia and Thailand; Parliament in Russia and Japan; Chesterfield in Spain, Russia and Ukraine; Merit in Italy, Saudi Arabia and Egypt; Virginia Slims in Russia and Korea; and Bond Street in Russia, Ukraine and Kazakhstan.

North American Food

Kraft Foods North America (Kraft) turned in another solid quarter. Underlying operating companies income grew 5.3% to $996 million, driven by volume gains, increased productivity savings and lower commodity costs, partially offset by increased marketing investment.

Kraft's beverage business once again delivered strong volume growth led by the continued success of Capri Sun and the new Tang pouch ready-to-drink beverages.

Desserts and snacks posted solid gains led by growth in Cool Whip frozen toppings and Altoids mints. In addition, the business benefited from the first-quarter acquisition of Balance Bar nutrition and energy snack bars.

Kraft's frozen pizza business gained volume, aided by the introduction of DiGiorno Half and Half frozen pizzas.

The processed meats business generated volume growth led by the continued success of Oscar Mayer Lunchables lunch combinations, which benefited from the introduction of Lunchables Mega Pack. In addition, the first-quarter acquisition of Boca Burger meat alternatives boosted volume.

Volume in Kraft's cheese business increased with gains in Kraft Natural cheese, Breakstone's sour cream and cottage cheese, and Philadelphia cream cheese, including the national rollout of Philadelphia Snack Bars.

Kraft's Maxwell House coffee business generated volume growth driven by the continued success of Starbucks grocery coffee and Maxwell House Slow Roast coffee.

Enhancers volume was down slightly as lower volume in spoonable salad dressings and barbecue sauce was partially offset by a gain in pourable salad dressings, aided by the introduction of Kraft Taste of Life dressings.

In Canada, volume in the retail grocery business was up, driven by new products including Kraft Delissio frozen pizza, Jell-O refrigerated ready-to-eat desserts, and Capri Sun ready-to-drink beverages. However, overall volume in Canada was down as foodservice shipments declined due to the planned discontinuation of low margin items.

Post cereals volume was down due primarily to a decline in the ready-to-eat cereal category. However, Kraft continued to benefit from new products including Grape Nuts-O's and Cinna Cluster Raisin Bran.

In the meals business, volume was lower in Kraft Macaroni and Cheese Dinners and Taco Bell Home Originals, partially offset by strong growth in Stove Top Oven Classics.

International Food

Underlying operating companies income of $289 million was 6.3% higher than 1999, reflecting higher volume, productivity savings and lower commodity costs, partially offset by unfavorable currency of $16 million.

Volume was up strongly versus 1999 with excellent growth across all regions and categories. This volume growth was driven by a focus on pan-regional power brands, successful new products and improved marketing and sales programs.

In coffee, Kraft Foods International (KFI) volume grew strongly, led by gains in key European markets, including Germany, France, Sweden and the United Kingdom. Important new product introductions included Jacobs Milea in the roast and ground mild segment in Austria and Germany and the innovative, resealable container for roast and ground Carte Noire in France. KFI's products gained share in a number of markets, including roast and ground brands such as Jacobs Kronung in Germany and Grand'Mere in France as well as Kenco and Maxwell House soluble coffees in the United Kingdom. In Central and Eastern Europe, double-digit coffee volume growth was driven by Poland, the Slovak Republic, Hungary and Lithuania. In addition, coffee volume growth in China was excellent.

In confectionery, KFI's volume was higher with strong gains in all key European markets, including Germany, France, the Benelux countries, Sweden, Norway, Italy and the United Kingdom. In Asia Pacific, double-digit volume growth continued to be driven by the success of Sugus chewy candy in Indonesia. In Latin America, volume grew in Brazil due primarily to higher chocolate bonbon sales. KFI registered strong share growth in several markets, including Milka pralines and Toblerone countlines in Germany, Milka tablets in France, Cote d'Or tablets in Belgium, Freia chocolate tablets in Norway and Marabou chocolate products in Sweden. Successful new products and line extensions continued to drive KFI's confectionery business. Under the flagship Milka brand, KFI introduced several new products in the chocolate bakery range. In Central and Eastern Europe, a series of line extensions were launched under Africana in the Czech Republic, Karuna and Princas in Lithuania and Sugus in Romania.

In cheese and grocery, KFI's strong volume growth was driven by favorable performance across all regions. In the United Kingdom, volume benefited from the success of the recently launched Dairylea Lunchables Fun Pack. In Italy, volume growth reflects the continued success of Philadelphia cream cheese. In Central and Eastern Europe, double-digit volume growth was driven by successful geographic expansion and the launch of new flavors of Tang powdered soft drinks. In Asia Pacific, volume growth was driven by strong gains in Tang powdered soft drinks and Kraft Eden cheese in the Philippines. In Latin America, higher volume was driven by the good performance of Capri Sun ready-to-drink beverages, Kraft Mayonnaise, Post cereals and cheese products in Mexico and Puerto Rico, as well as Kraft Miracle Whip, Kraft Macaroni and Cheese, Kraft Singles and Jell-O in the Caribbean.

During the quarter, KFI announced the proposed sale of its French chewing gum and candy business. The sale is anticipated to be finalized during the second half of 2000.

Beer

Underlying operating companies income for Miller Brewing Company rose 8.4% to $193 million, driven by the impact of higher pricing and contract brewing. Total domestic shipment volume was down 2.7% to 11.9 million barrels resulting from higher pricing and Miller's decision to reduce distributor inventories.

Domestic shipment volume for the flagship Miller Lite brand was up, while the Miller Genuine Draft, Miller High Life and Icehouse franchises were down. The Foster's franchise continued to show growth.

Financial Services

Philip Morris Capital Corporation's underlying operating companies income rose 15.0% to $69 million, driven by new leasing and structured finance investments and gains realized on related portfolio management activities.

With 1999 operating revenues of more than $78 billion, the Philip Morris family of companies is the world's largest producer and marketer of consumer packaged goods. Philip Morris Companies Inc. has five principal operating companies: Kraft Foods, Inc. (comprising Kraft Foods North America and Kraft Foods International), Miller Brewing Company, Philip Morris International Inc., Philip Morris Incorporated (PM USA) and Philip Morris Capital Corporation.

For more information about Philip Morris Companies Inc. and its operating companies, please visit the following Web sites: www.philipmorris.com, www.kraftfoods.com, www.kraftinternational.com, www.millerbrewing.com, www.pmintl.com, www.philipmorrisusa.com.


PHILIP MORRIS COMPANIES INC.
and Subsidiaries
Condensed Statements of Earnings For the Quarters ended June 30,
(in millions, except per share data)

REPORTED

2000 1999 % Change

Operating revenues $ 20,844 $19,810 5.2 %

Cost of sales 7,517 7,487 0.4 %
Excise taxes on products 4,421 4,243 4.2 %

Gross profit 8,906 8,080 10.2 %

Marketing, administration
and research costs 4,775 4,173 14.4 %
Separation programs - 45

Operating companies income 4,131 3,862 7.0 %

Amortization of goodwill 147 145
Minority interest 28 29
General corporate expenses 204 111
Interest and other debt
expense, net 193 222

Earnings before income
taxes 3,559 3,355 6.1 %

Provision for income taxes 1,388 1,325 4.8 %

Net earnings $ 2,171 $ 2,030 6.9 %

Basic earnings
per share (b) $ 0.96 $ 0.84 14.3 %

Diluted earnings
per share (b) $ 0.95 $ 0.84 13.1 %

UNDERLYING (a)


2000 1999 % Change

Operating revenues $ 20,844 $19,771 5.4 %

Operating companies
income $ 4,131 $ 3,904 5.8 %

Net earnings $ 2,171 $ 2,057 5.5 %

Basic earnings per
share (b) $ 0.96 $ 0.85 12.9 %

Diluted earnings per
share (b) $ 0.95 $ 0.85 11.8 %

Weighted average number of
shares outstanding
- Basic 2,273 2,406 (5.5)%
- Diluted 2,280 2,417 (5.7)%

(a) See notes on last page.
(b) Basic and Diluted earnings per share are computed for each of
the periods presented. Accordingly, the sum of the quarterly
earnings per share amounts may not agree to the year-to-date amounts.

PHILIP MORRIS COMPANIES INC.
and Subsidiaries
Selected Financial Data by Business Segment
For the Quarters ended June 30,
(in millions)


OPERATING REVENUES REPORTED

2000 1999 % Change

Domestic tobacco $ 5,706 $ 4,735 20.5 %
International tobacco 6,801 6,926 (1.8)%
International food 2,171 2,204 (1.5)%
North American food 4,803 4,626 3.8 %
Beer 1,256 1,222 2.8 %
Financial services 107 97 10.3 %

Total operating revenues $20,844 $ 19,810 5.2 %

OPERATING COMPANIES INCOME REPORTED

2000 1999 % Change

Domestic tobacco $ 1,274 $ 1,196 6.5 %
Separation programs - (45)

Domestic tobacco, net 1,274 1,151 10.7 %
International tobacco 1,310 1,252 4.6 %
International food 289 275 5.1 %
North American food 996 946 5.3 %
Beer 193 178 8.4 %
Financial services 69 60 15.0 %

Total operating companies
income $ 4,131 $ 3,862 7.0 %

OPERATING REVENUES UNDERLYING (a)

2000 1999 % Change

Domestic tobacco $ 5,706 $ 4,735 20.5 %
International tobacco 6,801 6,926 (1.8)%
International food 2,171 2,165 0.3 %
North American food 4,803 4,626 3.8 %
Beer 1,256 1,222 2.8 %
Financial services 107 97 10.3 %

Total operating revenues $20,844 $ 19,771 5.4 %

OPERATING COMPANIES INCOME UNDERLYING (a)

2000 1999 % Change

Domestic tobacco $ 1,274 $ 1,196 6.5 %
International tobacco 1,310 1,252 4.6 %
International food 289 272 6.3 %
North American food 996 946 5.3 %
Beer 193 178 8.4 %
Financial services 69 60 15.0 %

Total operating companies
income $ 4,131 $ 3,904 5.8 %

(a) See notes on last page.

PHILIP MORRIS COMPANIES INC.
and Subsidiaries
Condensed Statements of Earnings For the six months ended June 30,
(in millions, except per share data)

REPORTED

2000 1999 % Change

Operating revenues $ 40,884 $39,307 4.0 %

Cost of sales 14,820 14,747 0.5 %
Excise taxes on products 8,871 8,606 3.1 %

Gross profit 17,193 15,954 7.8 %

Marketing, administration
and research costs 9,191 8,294 10.8 %
Separation programs - 332

Operating companies income 8,002 7,328 9.2 %

Amortization of goodwill 293 292
Minority interest 60 63
General corporate expenses 419 235
Interest and other debt
expense, net 378 428

Earnings before income taxes 6,852 6,310 8.6 %

Provision for income taxes 2,672 2,493 7.2 %

Net earnings $ 4,180 $ 3,817 9.5 %

Basic earnings
per share (b) $ 1.82 $ 1.58 15.2 %

Diluted earnings
per share (b) $ 1.82 $ 1.57 15.9 %

UNDERLYING (a)

2000 1999 % Change

Operating revenues $ 41,106 $39,213 4.8 %

Operating companies income $ 8,099 $ 7,653 5.8 %

Net earnings $ 4,240 $ 4,017 5.6 %

Basic earnings
per share (b) $ 1.85 $ 1.66 11.4 %

Diluted earnings
per share (b) $ 1.84 $ 1.65 11.5 %

Weighted average number of
shares outstanding
- Basic 2,294 2,415 (5.0)%
- Diluted 2,299 2,428 (5.3)%

(a) See notes on last page.
(b) Basic and Diluted earnings per share are computed for each of
the periods presented. Accordingly, the sum of the quarterly
earnings per share amounts may not agree to the year-to-date amounts.

PHILIP MORRIS COMPANIES INC.
and Subsidiaries
Selected Financial Data by Business Segment
For the six months ended June 30,
(in millions)




OPERATING REVENUES REPORTED

2000 1999 % Change

Domestic tobacco $ 11,152 $ 9,195 21.3 %
International tobacco 13,928 14,266 (2.4)%
Incremental Year 2000
business (129) -

International tobacco,
net 13,799 14,266 (3.3)%
International food 4,204 4,446 (5.4)%
Incremental Year 2000
business (28) -
International food, net 4,176 4,446 (6.1)%
North American food 9,327 9,022 3.4 %
Incremental Year 2000
business (69) -
North American food,
net 9,258 9,022 2.6 %
Beer 2,300 2,208 4.2 %
Financial services 199 170 17.1 %

Total operating revenues $40,884 $39,307 4.0 %


OPERATING COMPANIES INCOME REPORTED

2000 1999 % Change

Domestic tobacco $ 2,390 $ 2,244 6.5 %
Separation programs - (175)
Domestic tobacco, net 2,390 2,069 15.5 %
International tobacco 2,800 2,683 4.4 %
Incremental Year 2000
business (59) -
International tobacco,
net 2,741 2,683 2.2 %
International food 549 521 5.4 %
Incremental Year 2000
business (14) -
International food, net 535 521 2.7 %
North American food 1,889 1,788 5.6 %
Separation programs - (157)
Incremental Year 2000
business (26) -

North American food, net 1,863 1,631 14.2 %
Beer 346 314 10.2 %
Financial services 127 110 15.5 %

Total operating companies
income $ 8,002 $ 7,328 9.2 %

OPERATING REVENUES UNDERLYING (a)

2000 1999 % Change

Domestic tobacco $ 11,152 $ 9,195 21.3 %
International tobacco 13,928 14,266 (2.4)%
International food 4,200 4,352 (3.5)%
North American food 9,327 9,022 3.4 %
Beer 2,300 2,208 4.2 %
Financial services 199 170 17.1 %

Total operating revenues $41,106 $39,213 4.8 %

OPERATING COMPANIES INCOME UNDERLYING (a)

2000 1999 % Change

Domestic tobacco $ 2,390 $ 2,244 6.5 %
International tobacco 2,800 2,683 4.4 %
International food 547 514 6.4 %
North American food 1,889 1,788 5.6 %
Beer 346 314 10.2 %
Financial services 127 110 15.5 %
Total operating companies
income $ 8,099 $ 7,653 5.8 %

(a) See notes on last page.

PHILIP MORRIS COMPANIES INC.
and Subsidiaries
Condensed Balance Sheets
(in millions, except ratios)

June 30, December 31,
2000 1999

Assets

Cash and cash equivalents $ 4,224 $ 5,100
All other current assets 14,745 15,795
Property, plant and equipment, net 12,355 12,271
Goodwill and other intangible assets, net 16,686 16,879
Other assets 3,761 3,625
Total consumer products assets 51,771 53,670
Total financial services assets 8,015 7,711

Total assets $ 59,786 $ 61,381

Liabilities and Stockholders' Equity

Accrued settlement charges $ 2,784 $ 2,320
All other current liabilities 13,899 15,697
Long-term debt 10,339 11,280
Other long-term liabilities 10,738 10,673
Total consumer products liabilities 37,760 39,970
Total financial services liabilities 6,948 6,106

Total liabilities 44,708 46,076

Total stockholders' equity 15,078 15,305

Total liabilities and
stockholders' equity $ 59,786 $ 61,381

Total consumer products debt $ 11,640 $ 13,522

Debt/equity ratio - consumer products 0.77 0.88

Total debt $ 13,279 $ 14,468

Total debt/equity ratio 0.88 0.95

PHILIP MORRIS COMPANIES INC.
and Subsidiaries
Notes to Condensed Statements of Earnings and Selected Financial Data
(in millions)


The following pre-tax charges/(income) impacted underlying results in
2000 and 1999:


Second Second Six Six
Quarter Quarter Months Months
2000 1999 2000 1999

- Related primarily to employee separation
programs:
Domestic tobacco $ - $ 45 $ - $ 175
North American food - - - 157

- Related to incremental Year 2000
business:(a)
International tobacco - - (59) -
International food - - (14) -
North American food - - (26) -
------- ------ ----- ----
$ - $ 45 $(99) $332

In addition, operating results of businesses sold since the
beginning of 1999 are excluded from underlying operating revenues and
operating companies income (but not from underlying net earnings or
earnings per share). Several small International and domestic food
operations were divested since the beginning of 1999. No assumptions
were made as to the application of proceeds from the sales of any
operations.

(a) Relates to sales of products that would normally have occurred
in January 2000, but were made in 1999 in order for the Company's
customers to avoid potential problems related to the Century Date
Change. These sales were previously excluded from the underlying 1999
fourth quarter results.