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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended December 31, 2002

COMMISSION FILE NUMBER 1-16483

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KRAFT FOODS INC.
(Exact name of registrant as specified in its charter)

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Virginia (State or other jurisdiction of incorporation or organization)		52-2284372 (I.R.S. Employer Identification No.)
Three Lakes Drive, Northfield, Illinois (Address of principal executive offices)		60093 (Zip Code)

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Registrant's telephone number, including area code: 847-646-2000
Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Class A Common Stock, no par value		New York Stock Exchange

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        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o

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        The aggregate market value of the shares of Class A Common Stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock on June 28, 2002, was approximately $11.5 billion. At February 28, 2003, there were 552,354,056 shares of the registrant's Class A Common Stock outstanding, and 1,180,000,000 shares of the registrant's Class B Common Stock outstanding.

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Documents Incorporated by Reference

        Portions of the registrant's annual report to shareholders for the year ended December 31, 2002 (the "2002 Annual Report") are incorporated in Part I, Part II and Part IV hereof and made a part hereof. The registrant's definitive proxy statement for use in connection with its annual meeting of shareholders to be held on April 22, 2003, filed with the Securities and Exchange Commission (the "SEC") on March 7, 2003, is incorporated in Part III hereof and made a part hereof.

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PART I

Item 1. Business.

(a)    General Development of Business

General

        Kraft Foods Inc. ("Kraft") was incorporated in 2000 in the Commonwealth of Virginia. Following Kraft's formation, Altria Group, Inc. (formerly Philip Morris Companies Inc.) transferred to Kraft its ownership interest in Kraft Foods North America, Inc. ("Kraft Foods North America"), a Delaware corporation, through a capital contribution. In addition, during 2000, a subsidiary of Altria Group, Inc. transferred management responsibility for its food businesses in Latin America to Kraft Foods North America and its wholly owned subsidiary, Kraft Foods International, Inc. ("Kraft Foods International"). On December 11, 2000, Kraft acquired all of the outstanding shares of Nabisco Holdings Corp. ("Nabisco"). Kraft, through its subsidiaries (Kraft and its subsidiaries are hereinafter referred to as the "Company"), is engaged in the manufacture and sale of branded foods and beverages in the United States, Canada, Europe, Latin America, Asia Pacific, the Middle East and Africa.

        Prior to June 13, 2001, the Company was a wholly owned subsidiary of Altria Group, Inc. On June 13, 2001, the Company completed an initial public offering ("IPO") of 280,000,000 shares of its Class A common stock at a price of $31.00 per share. The IPO proceeds, net of the underwriting discount and expenses, of $8.4 billion were used to retire a portion of an $11.0 billion long-term note payable to Altria Group, Inc., incurred in connection with the acquisition of Nabisco. After the IPO, Altria Group, Inc. owned approximately 83.9% of the outstanding shares of the Company's capital stock through its ownership of 49.5% of the Company's Class A common stock and 100% of the Company's Class B common stock. The Company's Class A common stock has one vote per share, while the Company's Class B common stock has ten votes per share. At December 31, 2002, Altria Group, Inc. held 97.8% of the combined voting power of the Company's outstanding capital stock and owned approximately 84.2% of the outstanding shares of the Company's capital stock.

Source of Funds—Dividends

        Because the Company is a holding company, its principal source of funds is dividends from its subsidiaries. The Company's principal wholly owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock.

(b)    Financial Information About Industry Segments

        The Company conducts its global business through its subsidiaries: Kraft Foods North America and Kraft Foods International. The Company has operations in 68 countries and sells its products in more than 150 countries. Kraft Foods North America operates in the United States, Canada and Mexico, and manages its operations by product category, while Kraft Foods International manages its operations by geographic region. Kraft Foods North America's reportable segments are Cheese, Meals and Enhancers; Biscuits, Snacks and Confectionery; Beverages, Desserts and Cereals; and Oscar Mayer and Pizza. Kraft Foods North America's food service business within the United States and its businesses in Canada and Mexico are reported through the Cheese, Meals and Enhancers segment. Kraft Foods International's reportable segments are Europe, Middle East and Africa; and Latin America and Asia Pacific.

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        Net revenues and operating companies income* attributable to each such segment (together with a reconciliation to consolidated operating income) for each of the last three years are set forth in Note 13 to the Company's consolidated financial statements and are incorporated herein by reference to the 2002 Annual Report.

        The relative percentages of operating companies income attributable to each reportable segment were as follows:

				For the Years Ended December 31,
				2002		2001		2000
Kraft Foods North America:
	Cheese, Meals and Enhancers			34.5	%	34.8	%	38.8	%
	Biscuits, Snacks and Confectionery			17.4		16.0		2.1
	Beverages, Desserts and Cereals			18.1		19.8		22.9
	Oscar Mayer and Pizza			8.8		8.9		10.8
		Total Kraft Foods North America		78.8		79.5		74.6
Kraft Foods International:
	Europe, Middle East and Africa			15.3		14.3		21.4
	Latin America and Asia Pacific			5.9		6.2		4.0
		Total Kraft Foods International		21.2		20.5		25.4
		Total Kraft Foods Inc		100.0	%	100.0	%	100.0	%

        The inclusion of Nabisco's operating results in 2001 contributed to the shift in relative percentages toward the Biscuits, Snacks and Confectionery and Latin America and Asia Pacific segments.

(c)    Narrative Description of Business

Acquisitions and Divestitures

Nabisco Acquisition

        On December 11, 2000, the Company acquired all of the outstanding shares of Nabisco. The purchase of the outstanding shares, retirement of employee stock options and other payments totaled approximately $15.2 billion. In addition, the acquisition included the assumption of approximately $4.0 billion of existing Nabisco debt. The Company financed the acquisition through the issuance of two long-term notes payable to Altria Group, Inc., totaling $15.0 billion, and short-term intercompany borrowings of $255 million. The acquisition has been accounted for as a purchase. Beginning January 1, 2001, Nabisco's earnings have been included in the consolidated operating results of the Company.

        The integration of Nabisco into the Company has continued throughout 2001 and 2002. The closure of a number of Nabisco domestic and international facilities resulted in severance and other exit costs of $379 million, which are included in the adjustments for the allocation of the purchase price. The closures will result in the termination of approximately 7,500 employees and will require total cash payments of $373 million, of which approximately $190 million had been spent through December 31, 2002. Substantially all of the closures were completed as of December 31, 2002, and the remaining payments relate to salary continuation payments for severed employees and lease payments.

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*

Management uses operating companies income, which is defined as operating income before general corporate expenses and amortization of intangibles, to manage and to evaluate the performance of Kraft and its operating subsidiaries. Management believes it is appropriate to disclose this measure to assist investors with analyzing business performance and trends. This measure should not be considered in isolation or as a substitute for operating income prepared in accordance with accounting principles generally accepted in the United States.

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        The integration of Nabisco into the operations of the Company has also resulted in the closure or reconfiguration of several of the Company's existing facilities. The aggregate charges to the Company's consolidated statement of earnings to close or reconfigure its facilities and integrate Nabisco were originally estimated to be in the range of $200 million to $300 million. During 2002, the Company recorded pre-tax integration related charges of $115 million to consolidate production lines, close facilities and for other consolidation programs. In addition, during 2001, the Company incurred pre-tax integration costs of $53 million for site reconfigurations and other consolidation programs in the United States. The integration related charges of $168 million included $27 million relating to severance, $117 million relating to asset write-offs and $24 million relating to other cash exit costs. Cash payments relating to these charges will approximate $51 million, of which $21 million has been paid through December 31, 2002. In addition, during 2002, approximately 700 salaried employees elected to retire or terminate employment under voluntary retirement programs. As a result, the Company recorded a pre-tax charge of $142 million related to these programs. As of December 31, 2002, the aggregate pre-tax charges to close or reconfigure the Company's facilities and integrate Nabisco, including charges for early retirement programs, were $310 million, slightly above the original estimate. No additional pre-tax charges are expected to be recorded for these programs.

        By combining Nabisco's operations with the operations of Kraft Foods North America and Kraft Foods International, the Company achieved annualized net cost synergy savings of $425 million through 2002 from the pre-acquisition cost structures of continuing businesses, expects to generate annualized additional net cost synergies of $140 million to $150 million in 2003 and expects to achieve its target of annualized net cost synergies of $600 million by 2004.

Other Acquisitions and Divestitures

        During 2002, the Company acquired a snacks business in Turkey and a biscuits business in Australia. The total cost of these and other smaller acquisitions was $122 million. During 2001, the Company purchased coffee businesses in Romania, Morocco and Bulgaria and also acquired confectionery businesses in Russia and Poland. The total cost of these and other smaller acquisitions was $194 million. During 2000, the Company purchased Balance Bar Co. and Boca Burger, Inc. The total cost of these and other smaller acquisitions was $365 million.

        During 2002, the Company sold several small North American food businesses. In addition, the Company sold its Latin American yeast and industrial bakery ingredients business for $110 million and recorded a pre-tax gain of $69 million. The aggregate proceeds received from sales of businesses during 2002 were $219 million, on which the Company recorded pre-tax gains of $80 million. During 2001, the Company sold several small food businesses. The aggregate proceeds received in these transactions were $21 million, on which the Company recorded pre-tax gains of $8 million. During 2000, the Company sold a French confectionery business for proceeds of $251 million, on which a pre-tax gain of $139 million was recorded. Several small international and North American food businesses were also sold in 2000. The aggregate proceeds received from sales of businesses during 2000 were $300 million, on which the Company recorded pre-tax gains of $172 million.

        The impact of these acquisitions and divestitures, excluding Nabisco, has not had a material effect on the Company's results of operations.

Markets and Products

        The Company's brands span five consumer sectors, as follows:

•

Snacks—primarily cookies, crackers, salted snacks and confectionery;



•

Beverages—primarily coffee, aseptic juice drinks and powdered beverages;



•

Cheese—primarily natural, process and cream cheeses;

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•

Grocery—primarily ready-to-eat cereals, enhancers and desserts; and



•

Convenient Meals—primarily frozen pizza, packaged dinners, lunch combinations and processed meats.

        The following table shows each reportable segment's participation in these five core consumer sectors.

				Percentage of 2002 Net Revenues by Consumer Sector(3)
Segment(1)				Snacks		Beverages		Cheese		Grocery		Convenient Meals		Total
Kraft Foods North America:
	Cheese, Meals and Enhancers(2)			5.3	%	9.5	%	77.5	%	48.4	%	29.8	%	29.9	%
	Biscuits, Snacks and Confectionery			54.7						3.5				17.4
	Beverages, Desserts and Cereals			5.3		41.3				32.4				14.9
	Oscar Mayer and Pizza											64.4		10.1
		Total Kraft Foods North America		65.3		50.8		77.5		84.3		94.2		72.3
Kraft Foods International:
	Europe, Middle East and Africa			25.1		42.3		17.1		6.7		5.0		20.9
	Latin America and Asia Pacific			9.6		6.9		5.4		9.0		0.8		6.8
	Total Kraft Foods International			34.7		49.2		22.5		15.7		5.8		27.7
		Total Kraft Foods Inc		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
	Consumer Sector Percentage of Total Kraft Foods Inc			30.8	%	19.3	%	18.0	%	16.1	%	15.8	%	100.0	%

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(1)

The amounts of net revenues, total assets and long-lived assets attributable to each of the Company's geographic regions and the amounts of net revenues and operating companies income of each of the Company's reportable segments for each of the last three fiscal years are set forth in Note 13 to the Company's consolidated financial statements, incorporated herein by reference to the 2002 Annual Report.

(2)

The Cheese, Meals and Enhancers segment includes the Company's United States food service business and its businesses in Canada and Mexico which sell products across all consumer sectors.

(3)

Percentages are calculated based upon dollars rounded to millions.

Additional Product Disclosure

        Products or similar products contributing 10% or more of the Company's consolidated net revenues for each of the three years in the period ended December 31, 2002, were as follows:

		2002		2001		2000
Cheese		18	%	19	%	23	%
Biscuits		15		15
Coffee		12		13		18
Confectionery		10		10		11
Meats						10

        The inclusion of Nabisco's operating results in 2001 contributed to the shift in relative percentages toward biscuits.

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        The Company's major brands within each reportable segment are as follows:

Kraft Foods North America:

Cheese, Meals and Enhancers (includes U.S. food service, Canada and Mexico sales within each consumer sector)

	Snacks:		Oreo and Chips Ahoy! cookies in Mexico; Ritz crackers in Mexico; and Life Savers sugar confectionery products in Mexico.
	Beverages:		Maxwell House, Sanka and Nabob coffees in Canada; Kool-Aid and Tang powdered beverages in Canada and Mexico; and Capri Sun aseptic juice drinks in Canada and Mexico.
	Cheese:		Kraft and Cracker Barrel natural cheeses; Philadelphia cream cheese; Kraft and Velveeta process cheeses; Kraft grated cheeses; Cheez Whiz process cheese sauce; Easy Cheese aerosol cheese spread; and Knudsen and Breakstone's cottage cheese and sour cream.
	Grocery:		Kraft and Miracle Whip spoonable dressings; Kraft salad dressings; A.1. steak sauce; Kraft and Bull's-Eye barbecue sauces; Grey Poupon premium mustards; and Shake 'N Bake coatings.
	Convenient Meals:		Kraft macaroni & cheese dinners; Taco Bell, It's Pasta Anytime and Stove Top Oven Classics meal kits; Stove Top stuffing mix; Minute rice; and Delissio frozen pizzas in Canada.
Biscuits, Snacks and Confectionery
	Snacks:		Oreo, Chips Ahoy!, Newtons, Nilla, Nutter Butter, Stella D'Oro and SnackWell's cookies; Ritz, Premium, Triscuit, Wheat Thins, Cheese Nips, Better Cheddars, Honey Maid Grahams and Teddy Grahams crackers; Planters nuts and salted snacks; Handi-Snacks two compartment snacks; Life Savers, Creme Savers, Altoids, Gummi Savers and Fruit Snacks sugar confectionery products; and Terry's and Toblerone chocolate confectionery products.
	Grocery:		Milk-Bone pet snacks.
Beverages, Desserts and Cereals
	Snacks:		Balance nutrition and energy snacks; Jell-O refrigerated gelatin and pudding snacks; and Handi-Snacks shelf-stable pudding snacks.
	Beverages:		Maxwell House, General Foods International Coffees, Starbucks, Yuban, Sanka and Gevalia coffees; Capri Sun, Kool-Aid, Tang and Crystal Light aseptic juice drinks; and Kool-Aid, Tang, Capri Sun, Crystal Light and Country Time powdered beverages.
	Grocery:		Jell-O dry packaged desserts; Cool Whip frozen whipped topping; Post ready-to-eat cereals; and Cream of Wheat and Cream of Rice hot cereals.

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Oscar Mayer and Pizza
	Convenient Meals:		DiGiorno, Tombstone, Jack's and California Pizza Kitchen frozen pizzas; Lunchables lunch combinations; Oscar Mayer and Louis Rich cold cuts, hot dogs and bacon; and Boca soy-based meat alternatives.
Kraft Foods International:
Europe, Middle East and Africa
	Snacks:		Milka, Suchard, Côte d'Or, Marabou, Toblerone, Freia, Terry's, Daim, Figaro, Korona, Poiana, Prince Polo, Alpen Gold and Siesta chocolate confectionery products; and Estrella, Maarud, Kar Gida, Cipso and Lux salted snacks.
	Beverages:		Jacobs, Gevalia, Carte Noire, Jacques Vabre, Kaffee HAG, Grand' Mère, Kenco, Saimaza, Maxwell House, Dadak, Onko, Samar and Nova Brasilia coffees; Tang powdered beverages; and Suchard Express, O'Boy and Kaba chocolate drinks.
	Cheese:		Kraft, Dairylea, Sottilette, El Caserìo and Invernizzi cheeses; and Philadelphia cream cheese.
	Grocery:		Kraft pourable and spoonable salad dressings; and Miracel Whip spoonable dressing.
	Convenient Meals:		Lunchables lunch combinations; Kraft and Mirácoli pasta dinners and sauces; and Simmenthal canned meats.
Latin America and Asia Pacific
	Snacks:		Oreo, Chips Ahoy!, Ritz, Terrabusi, Canale, Club Social, Cerealitas, Trakinas and Lucky biscuits; Milka, Lacta and Gallito chocolate confectionery products; and Sugus and Artic sugar confectionery products.
	Beverages:		Maxwell House and Maxim coffee; Tang, Clight, Kool-Aid, Royal, Verao, Fresh, Frisco, Q-Refres-Ko and Ki-Suco powdered beverages; and Maguary juice concentrate.
	Cheese:		Kraft and Eden process cheeses; Philadelphia cream cheese; and Cheez Whiz process cheese spread.
	Grocery:		Royal dry packaged desserts; Kraft spoonable and pourable salad dressings; Kraft and ETA peanut butters; and Vegemite yeast spread.
	Convenient Meals:		Kraft macaroni & cheese dinners.

Distribution, Competition and Raw Materials

        Kraft Foods North America's products are generally sold to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations and other retail food outlets. In general, the retail trade for food products is consolidating. Food products are distributed through distribution centers, satellite warehouses, company-operated and public cold-storage facilities, depots and other facilities. Most distribution in North America is in the form of warehouse delivery, but biscuits and frozen pizza are distributed through two direct-store-delivery systems. Selling efforts are supported by national and regional advertising on television and radio as

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well as outdoor media such as billboards and in magazines and newspapers, as well as by sales promotions, product displays, trade incentives, informative material offered to customers and other promotional activities. Subsidiaries and affiliates of Kraft Foods International sell their food products primarily in the same manner and also engage the services of independent sales offices and agents.

        Kraft Foods North America, Kraft Foods International and their subsidiaries are subject to competitive conditions in all aspects of their business. Competitors include large national and international companies and numerous local and regional companies. Some competitors may have different profit objectives and some international competitors may be more or less susceptible to currency exchange rates. In addition, certain international competitors benefit from government subsidies. Products of Kraft Foods North America and Kraft Foods International also compete with generic products and private-label products of food retailers, wholesalers and cooperatives. Kraft Foods North America, Kraft Foods International and their subsidiaries compete primarily on the basis of product quality, brand recognition, brand loyalty, service, marketing, advertising and price. Substantial advertising and promotional expenditures are required to maintain or improve a brand's market position or to introduce a new product.

        Kraft Foods North America, Kraft Foods International and their subsidiaries are major purchasers of milk, cheese, nuts, green coffee beans, cocoa, corn products, wheat, rice, pork, poultry, beef, vegetable oil, and sugar and other sweeteners. They also use significant quantities of glass, plastic and cardboard to package their products. They continuously monitor worldwide supply and cost trends of these commodities to enable them to take appropriate action to obtain ingredients and packaging needed for production.

        Kraft Foods North America, Kraft Foods International and their subsidiaries purchase a substantial portion of their milk requirements from independent agricultural cooperatives and individual producers, and a substantial portion of their cheese requirements from independent sources. The prices for milk and other dairy product purchases are substantially influenced by government programs, as well as by market supply and demand. Dairy commodity costs on average were lower in 2002 than those seen in 2001.

        The most significant cost item in coffee products is green coffee beans, which are purchased on world markets. Green coffee bean prices are affected by the quality and availability of supply, trade agreements among producing and consuming nations, the unilateral policies of the producing nations, changes in the value of the United States dollar in relation to certain other currencies and consumer demand for coffee products. In 2002, coffee bean prices were lower than in 2001. A significant cost item in chocolate confectionery products is cocoa, which is purchased on world markets, and the price of which is affected by the quality and availability of supply and changes in the value of the British pound sterling and the United States dollar relative to certain other currencies. In 2002, cocoa bean prices were higher than in 2001.

        The prices paid for raw materials and agricultural materials used in the products of Kraft Foods North America, Kraft Foods International and their subsidiaries generally reflect external factors such as weather conditions, commodity market fluctuations, currency fluctuations and the effects of governmental agricultural programs. Although the prices of the principal raw materials can be expected to fluctuate as a result of these factors, the Company believes such raw materials to be in adequate supply and generally available from numerous sources. The Company uses hedging techniques to minimize the impact of price fluctuations in their principal raw materials. However, they do not fully hedge against changes in commodity prices and these strategies may not protect the Company or its subsidiaries from increases in specific raw material costs.

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Regulation

        All of Kraft Foods North America's United States food products and packaging materials are subject to regulations administered by the Food and Drug Administration ("FDA") or, with respect to products containing meat and poultry, the United States Department of Agriculture. Among other things, these agencies enforce statutory prohibitions against misbranded and adulterated foods, establish safety standards for food processing, establish ingredients and manufacturing procedures for certain foods, establish standards of identity for certain foods, determine the safety of food additives and establish labeling standards and nutrition labeling requirements for food products.

        In addition, various states regulate the business of Kraft Foods North America's operating units by licensing dairy plants, enforcing federal and state standards of identity for selected food products, grading food products, inspecting plants, regulating certain trade practices in connection with the sale of dairy products and imposing their own labeling requirements on food products.

        Many of the food commodities on which Kraft Foods North America's United States businesses rely are subject to governmental agricultural programs. These programs have substantial effects on prices and supplies and are subject to Congressional and administrative review.

        Almost all of the activities of the Company's food operations outside of the United States are subject to local and national regulations similar to those applicable to Kraft Foods North America's United States businesses and, in some cases, international regulatory provisions, such as those of the European Union relating to labeling, packaging, food content, pricing, marketing and advertising and related areas.

        The European Union and certain individual countries require that food products containing genetically modified organisms or classes of ingredients derived from them be labeled accordingly. Other countries may adopt similar regulations. The FDA has concluded that there is no basis for similar mandatory labeling under current United States law.

Other Matters

Customers

        For the year ended December 31, 2002, the Company's five largest customers accounted for approximately 26.9% of its net revenues, while the Company's ten largest customers accounted for approximately 36.9% of its net revenues. One of the Company's customers, Wal-Mart Stores, Inc., accounted for approximately 12.2% of net revenues for 2002.

Employees

        At December 31, 2002, the Company employed approximately 109,000 people worldwide. Approximately one-third of the Company's 50,000 employees in the United States are represented by labor unions. Most of the unionized workers at the Company's domestic locations are represented under contracts with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union; the United Food and Commercial Workers International Union; and the International Brotherhood of Teamsters. These contracts expire at various times throughout the next several years. Outside the United States, approximately one-half of the Company's 59,000 employees are represented by labor unions or workers' councils. The Company's business units are subject to a number of laws and regulations relating to their relationships with their employees. These laws and regulations are specific to the location of each enterprise. In addition, in accordance with European Union requirements, Kraft Foods International has established European Works Councils composed of management and elected members of its workforce. The Company believes that its relations with employees and their representative organizations are good.

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Research and Development

        The Company pursues four objectives in research and development: uncompromising product safety and quality; growth through new products; superior consumer satisfaction; and reduced costs.

        The Company's research and development resources include more than 2,000 food scientists, chemists and engineers, deployed primarily in five key technology centers: East Hanover, New Jersey; Glenview, Illinois; Tarrytown, New York; Banbury, United Kingdom; and Munich, Germany. These technology centers are equipped with pilot plants and state-of-the-art instruments. Research and development expense was $360 million in 2002, $358 million in 2001 and $270 million in 2000.

Trademarks and Intellectual Property

        Trademarks are of material importance to the Company's businesses and are protected by registration or otherwise in the United States and most other markets where the related products are sold. The Company has from time to time granted various parties exclusive or non-exclusive licenses to use one or more of its trademarks in particular locations. The Company does not believe that these licensing arrangements have had a material effect on the conduct of its business or operating results.

        Some of the Company's products are sold under brands that have been licensed from others on terms that are generally renewable at the Company's discretion. These licensed brands include Starbucks bagged coffee for sale in United States grocery stores, Capri Sun aseptic juice drinks for sale in North America, Taco Bell Mexican style food products for sale in United States grocery stores, California Pizza Kitchen frozen pizzas for sale in grocery stores in the United States and Canada, Pebbles ready-to-eat cereals and Breyers yogurt products.

        Similarly, the Company owns thousands of patents worldwide, and the patent portfolio as a whole is material to the Company's business; however, no one patent or group of related patents is material to the Company. In addition, the Company has proprietary trade secrets, technology, know-how processes and other intellectual property rights that are not registered.

Environmental Regulation

        The Company is subject to various federal, state, local and foreign laws and regulations concerning the discharge of materials into the environment, or otherwise related to environmental protection, including the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as "Superfund"), which imposes joint and several liability on each responsible party. In 2002, subsidiaries of the Company were involved in 96 active Superfund and other actions in the United States related to current operations and certain former or divested operations for which the Company retains liability.

        Outside the United States, the Company is subject to applicable multi-national, national and local environmental laws and regulations in the host countries in which the Company does business. The Company has specific programs across its international business units designed to meet applicable environmental compliance requirements.

        Although it is not possible to predict precisely the estimated costs for such environmental-related expenditures, compliance with such laws and regulations, including the payment of any remediation costs and the making of such expenditures, has not had, and is not expected to have, a material adverse effect on the Company's results of operations, capital expenditures, financial position, earnings, cash flows or competitive position.

Forward-Looking and Cautionary Statements

        The Company and its representatives may from time to time make written or oral forward-looking statements, including statements contained in the Company's filings with the SEC and in its reports to shareholders. One can identify these forward-looking statements by use of words such as "strategy," "expects," "plans," "anticipates," "believes," "will," "continues," "estimates," "intends," "projects,"

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"goals," "targets" and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are based on our assumptions and estimates and are subject to risks and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby identifying important factors that could cause actual results and outcomes to differ materially from those contained in any forward-looking statement made by or on behalf of the Company; any such statement is qualified by reference to the following cautionary statements.

        Each of the Company's segments is subject to intense competition, changes in consumer preferences, the effects of changing prices for its raw materials and local economic conditions. Their results are dependent upon their continued ability to promote brand equity successfully, to anticipate and respond to new consumer trends, to develop new products and markets, to broaden brand portfolios in order to compete effectively with lower priced products in a consolidating environment at the retail and manufacturing levels, and to improve productivity. The Company's results are also dependent on its ability to consummate and successfully integrate acquisitions, including its ability to derive cost savings from the integration of Nabisco's operations with the Company. In addition, the Company is subject to the effects of foreign economies, currency movements and fluctuations in levels of customer inventories. The Company's benefit expense is subject to the investment performance of pension plan assets, interest rates and cost increases for medical benefits offered to employees and retirees. The food industry continues to be subject to recalls if products become adulterated or misbranded, liability if product consumption causes injury, ingredient disclosure and labeling laws and regulations and the possibility that consumers could lose confidence in the safety and quality of certain food products. Developments in any of these areas, which are more fully described elsewhere in this document and which descriptions are incorporated into this section by reference, could cause the Company's results to differ materially from results that have been or may be projected by or on behalf of the Company. The Company cautions that the foregoing list of important factors is not exclusive. Any forward-looking statements are made as of the date of the document in which they appear. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company.

(d)    Financial Information About Foreign and Domestic Operations and Export Sales

        The amounts of net revenues, total assets and long-lived assets attributable to each of the Company's geographic segments for each of the last three fiscal years are set forth in Note 13 to the Company's consolidated financial statements, incorporated herein by reference to the 2002 Annual Report.

        Kraft's subsidiaries export coffee products, grocery products, cheese and processed meats. In 2002, exports from the United States by these subsidiaries amounted to approximately $170 million.

(e)    Available Information

        Kraft is required to file annual, quarterly and special reports, proxy statements and other information with the SEC. Investors may read and copy any document that Kraft files, including this Annual Report on Form 10-K, at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, from which investors can electronically access Kraft's SEC filings.

        Kraft makes available free of charge on or through its Internet website (www.kraft.com), its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files such material with, or furnishes the material to, the SEC. Investors can also access Kraft's filings with the SEC by visiting http://ir.ccbn.com/ir.zhtml?t=kft&s=1901. The information on Kraft's website is not, and shall not be deemed to be, a part of this Report or incorporated into any other filings Kraft makes with the SEC.

10

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Item 2.    Properties.

        The Company has 207 manufacturing and processing facilities worldwide. In North America, the Company has 95 facilities, and outside of North America there are 112 facilities located in 44 countries. These manufacturing and processing facilities are located throughout the following territories:

        The Company owns 196 and leases 11 of these manufacturing and processing facilities. All of the Company's plants and properties are maintained in good condition, and the Company believes that they are suitable and adequate for its present needs.

        The integration of Nabisco into the operations of the Company resulted in the closure of seven Nabisco facilities during 2001 and 10 Nabisco facilities during 2002.

        As of December 31, 2002, the Company's distribution facilities consisted of 419 distribution centers and depots worldwide. In North America, the Company had 372 distribution centers and depots, more than 80% of which support the Company's direct-store-delivery systems. Outside North America, the Company had 47 distribution centers in 21 countries. The Company owns 80 of these distribution centers and two of these depots and leases 152 of these distribution centers and 185 of these depots. The Company believes that all of these facilities are in good condition and have sufficient capacity to meet the Company's distribution needs for the foreseeable future.

Item 3.    Legal Proceedings.

Legal Proceedings

        The Company is party to a variety of legal proceedings arising out of the normal course of business, including the matters discussed below. While the results of litigation cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect on the Company's results of operations or financial position.

        In May 2002, the Company was served with a lawsuit filed in California by the American Environmental Safety Institute against several major chocolate manufacturers alleging that the defendants' chocolate products contain "potentially dangerous levels of lead and cadmium." The suit alleges that these levels, which are not disclosed on the product labels, are a violation of California's Proposition 65, which requires a warning on products containing chemicals "known to the State" to be carcinogens or reproductive toxicants. The suit is in the discovery phase, and various procedural motions and defenses are being pursued. The Company believes that the suit is without merit, and the California Attorney General has publicly stated that the case is without merit.

        Since 1996, seven putative class actions have been filed by various dairy farmers alleging that the Company and others engaged in a conspiracy to fix and depress the prices of milk through their trading activity on the National Cheese Exchange. Plaintiffs sought injunctive and equitable relief and

11

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unspecified treble damages. Two of the actions were voluntarily dismissed by plaintiffs after class certification was denied. Three cases were consolidated in state court in Wisconsin, and, in November 1999, the court granted the Company's motion for summary judgment. In June 2001, the Wisconsin Court of Appeals affirmed the trial court's ruling dismissing the cases. In April 2002, the Wisconsin Supreme Court affirmed the intermediate appellate court's ruling, and plaintiffs filed a petition for certiorari to the United States Supreme Court. In December 2002, the Supreme Court denied plaintiffs' petition. In April 2002, the Company's motion for summary judgment dismissing the case was granted in a case pending in the United States District Court for the Central District of California. In June 2002, the parties settled the California case on an individual (non-class) basis, and plaintiffs dismissed their appeal. A case in Illinois state court has been settled and dismissed. No cases remain pending at this time.

Environmental Matters

        In May 2001, the State of Ohio notified the Company that it may be subject to an enforcement action for alleged past violations of the Company's wastewater discharge permit at its production facility in Farmdale, Ohio. The State has offered to attempt to negotiate a settlement of this matter, and the Company has accepted the offer to do so. The State has not yet identified the relief it may seek in this matter.

        The Company is potentially liable for certain environmental matters arising from the operations of Nabisco's former wholly owned subsidiary, Rowe Industries. Rowe operated a small engine manufacturing facility in Sag Harbor, New York in the 1950s, 1960s and early 1970s that used various solvents. About 20 homes downgradient from the site were connected to public drinking water in the mid-1980s after solvents were detected in their individual wells. Since 1996, three toxic tort cases have been brought against Nabisco in New York state court, collectively by or on behalf of approximately 80 individuals, including 17 minors. The first case was filed on March 6, 1996, in the Supreme Court of the State of New York and was subsequently dismissed by the trial court. That decision was affirmed on appeal. The other two cases both were filed on January 3, 2000, also in the Supreme Court of the State of New York. That court granted defendant's summary judgment motion as to all but one of the plaintiffs in each of the remaining cases, and the plaintiffs have now withdrawn their appeal of this ruling. In August 2002, the court entered summary judgment against the remaining two plaintiffs. Plaintiffs have appealed this judgment, and the appeal is currently pending.

Item 4.    Submission of Matters to a Vote of Security Holders.

        None.

PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters.

        The information called for by this Item is hereby incorporated by reference to the paragraph captioned "Quarterly Financial Data (Unaudited)" on page 62 of the 2002 Annual Report and made a part hereof.

        The principal stock exchange on which the Company's Class A common stock is listed is the New York Stock Exchange. At January 31, 2003, there were approximately 2,100 holders of record of the Company's Class A common stock.

Item 6.    Selected Financial Data.

        The information called for by this Item is hereby incorporated by reference to the information with respect to 1998-2002 appearing under the caption "Selected Financial Data" on page 43 of the 2002 Annual Report and made a part hereof.

12

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The information called for by this Item is hereby incorporated by reference to the paragraphs captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" (the "MD&A") on pages 26 to 42 of the 2002 Annual Report and made a part hereof.

        Following a $10.1 billion judgment on March 21, 2003 against Altria Group, Inc.'s domestic tobacco subsidiary, Philip Morris USA Inc., the three major credit rating agencies placed Altria Group, Inc.'s credit ratings on watch with negative implications. While the Company is not a party to, and has no exposure to, this litigation, its credit ratings are affected by those of Altria Group, Inc., and accordingly, its ratings were also placed on watch with negative implications. The rating agencies' actions are expected to result in higher short-term borrowing costs for the Company. None of the Company's debt agreements require accelerated repayment in the event of a decrease in credit ratings.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

        The information called for by this Item is hereby incorporated by reference to the paragraphs in the MD&A captioned "Market Risk" and "Value at Risk" on pages 40 to 41 of the 2002 Annual Report and made a part hereof.

Item 8.    Financial Statements and Supplementary Data.

        The information called for by this Item is hereby incorporated by reference to the 2002 Annual Report as set forth under the caption "Quarterly Financial Data (Unaudited)" on page 62 and in the Index to Consolidated Financial Statements and Schedules (see Item 15) and made a part hereof.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        None.

PART III

Item 10.    Directors and Executive Officers of the Registrant.

Executive Officers of the Company

        The following are the executive officers of the Company as of February 28, 2003:

Name		Age		Title
Roger K. Deromedi		49		Co-Chief Executive Officer; and President and Chief Executive Officer, Kraft Foods International
Betsy D. Holden		47		Co-Chief Executive Officer; and President and Chief Executive Officer, Kraft Foods North America
John F. Baxter		43		Senior Vice President, Research and Development/Quality, Kraft Foods International
Ronald J.S. Bell		52		Group Vice President, Kraft Foods International, and President, European Union Region
David A. Brearton		42		Senior Vice President, Finance, Kraft Foods International
Daryl Brewster		46		Group Vice President, Kraft Foods North America, and President, Canada, Mexico and Puerto Rico

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Maurizio Calenti		48		Group Vice President, Kraft Foods International, and President, Central and Eastern Europe, Middle East and Africa Region
Calvin J. Collier		61		Senior Vice President, General Counsel and Corporate Secretary
James P. Dollive		51		Senior Vice President and Chief Financial Officer
Terry M. Faulk		57		Senior Vice President, Human Resources
Mary Kay Haben		46		Group Vice President, Kraft Foods North America and President, Cheese, Meals and Enhancers Group
David S. Johnson		46		Group Vice President, Kraft Foods North America, and President, Operations, Technology, Procurement and Information Services
Joachim Krawczyk		51		Group Vice President, Kraft Foods International, and President, Latin America Region
John F. Mowrer III		53		Vice President and Controller
Edward J. Moy		59		Senior Vice President and General Counsel, Kraft Foods International
Ralph J. Nicoletti		45		Senior Vice President, Finance, Kraft Foods North America
David G. Owens		51		Senior Vice President, Strategy
Philip F. Pellegrino		63		Senior Vice President, Sales and Customer Service, Kraft Foods North America
Michael B. Polk		42		Group Vice President, Kraft Foods North America, and President, Biscuit, Snacks and Confectionery Group
David K. Ratcliffe		58		Senior Vice President, Sales, Kraft Foods International
Hugh H. Roberts		51		Group Vice President, Kraft Foods International, and President, Asia Pacific Region
Irene B. Rosenfeld		49		President, North American Businesses, Kraft Foods North America
Richard G. Searer		49		Group Vice President, Kraft Foods North America, and President, Oscar Mayer and Pizza Group
Elizabeth A. Smith		39		Group Vice President, Kraft Foods North America, and President, Beverages, Desserts and Cereals Group
Paula A. Sneed		55		Group Vice President, Kraft Foods North America, and President, E-Commerce and Marketing Services
Franz-Josef H. Vogelsang		52		Senior Vice President, Operations, Procurement and Supply Chain, Kraft Foods International

        All of the above-named officers have been employed by the Company in various capacities during the past five years.

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Item 11.    Executive Compensation.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

        The number of shares to be issued upon exercise and the number of shares remaining available for future issuance under the Company's equity compensation plans at December 31, 2002 were as follows:

Equity Compensation Plan Information

		Number of Shares to be Issued Upon Exercise of Outstanding Options		Weighted Average Exercise Price of Outstanding Options			Number of Shares Remaining Available for Future Issuance under Equity Compensation Plans
Equity compensation plans approved by stockholders		19,291,672		$	31.00		56,199,406
		19,291,672		$	31.00		56,199,406

Item 13.    Certain Relationships and Related Transactions.

        Except for the information relating to the executive officers of the Company set forth in Part I of this Report and the information regarding equity compensation plans set forth in Item 12 above, the information called for by Items 10-13 is hereby incorporated by reference to the Company's definitive proxy statement for use in connection with its annual meeting of shareholders to be held on April 22, 2003, filed with the SEC on March 7, 2003, and, except as indicated therein, is made a part hereof.

Item 14.    Controls and Procedures.

        Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chairman, Co-Chief Executive Officers, and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. Based upon that evaluation, the Chairman, Co-Chief Executive Officers, and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. Since the date of the evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect the controls.

PART IV

Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)

Index to Consolidated Financial Statements and Schedules

			Reference
			Form 10-K Annual Report Page		2002 Annual Report Page
Data incorporated by reference to the Company's 2002 Annual Report
	Consolidated Balance Sheets at December 31, 2002 and 2001		—		44
	Consolidated Statements of Earnings for the years ended December 31, 2002, 2001 and 2000		—		45

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	Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000		—		46
	Consolidated Statements of Shareholders' Equity for the years ended December 31, 2002, 2001 and 2000		—		47
	Notes to Consolidated Financial Statements		—		48-62
	Report of Independent Accountants		—		63
Data submitted herewith:
	Report of Independent Accountants on Financial Statement Schedule		S-1		—
	Financial Statement Schedule—Valuation and Qualifying Accounts		S-2		—

        Schedules other than those listed above have been omitted either because such schedules are not required or are not applicable.

(b)

Reports on Form 8-K. During the last quarter of 2002, the Company filed a Current Report on Form 8-K on November 26, 2002, covering Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits), which contained the terms agreement and certain other documents related to the Company's public offering of debt. Subsequent to December 31, 2002, the Company filed a Current Report on Form 8-K on January 29, 2003, covering Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits), which contained the Company's consolidated financial statements as of and for the year ended December 31, 2002.



(c)

The following exhibits are filed as part of this Report (Exhibit Nos. 10.4-10.14 are management contracts, compensatory plans or arrangements):

16

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(1)

Incorporated by reference to the Registrant's Form S-1 filed with the Securities and Exchange Commission on March 16, 2001 (No. 333-57162).

(2)

Incorporated by reference to the Registrant's Amendment No. 1 to Form S-1 filed with the Securities and Exchange Commission on May 2, 2001 (No. 333-57162).

(3)

Incorporated by reference to the Registrant's Amendment No. 2 to Form S-1 filed with the Securities and Exchange Commission on May 11, 2001 (No. 333-57162).

(4)

Incorporated by reference to the Registrant's Amendment No. 5 to Form S-1 filed with the Securities and Exchange Commission on June 8, 2001 (No. 333-57162).

(5)

Incorporated by reference to the Registrant's Form S-3 filed with the Securities and Exchange Commission on August 16, 2001 (No. 333-67770).

(6)

Incorporated by reference to the Annual Report on Form 10-K of Altria Group, Inc. ("Altria Group") for the year ended December 31, 1995 (SEC File No. 1-8940).

(7)

Incorporated by reference to the Annual Report on Form 10-K of Altria Group for the year ended December 31, 1997 (SEC File No. 1-8940).

(8)

Incorporated by reference to the Proxy Statement of Altria Group dated March 10, 1997 (SEC File No. 1-8940).

(9)

Incorporated by reference to the Proxy Statement of Altria Group dated March 10, 2000 (SEC File No. 1-8940).

(10)

Compensation plans maintained by Altria Group and its subsidiaries in which officers of the Registrant have historically participated.

(11)

Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.

(12)

Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2003.

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KRAFT FOODS INC.
	By:		/s/  JAMES P. DOLLIVE       (James P. Dollive, Senior Vice President and Chief Financial Officer)
Date: March 25, 2003

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:

Signature		Title		Date
/s/  ROGER K. DEROMEDI       (Roger K. Deromedi)		Director, Co-Chief Executive Officer; and President and Chief Executive Officer, Kraft Foods International		March 25, 2003
/s/  BETSY D. HOLDEN       (Betsy D. Holden)		Director, Co-Chief Executive Officer; and President and Chief Executive Officer, Kraft Foods North America		March 25, 2003
/s/  JAMES P. DOLLIVE       (James P. Dollive)		Senior Vice President and Chief Financial Officer		March 25, 2003
/s/  JOHN F. MOWRER III       (John F. Mowrer III)		Vice President and Controller		March 25, 2003
*LOUIS C. CAMILLERI,                 DINYAR S. DEVITRE,                 W. JAMES FARRELL,                 JOHN C. POPE,                 MARY L. SCHAPIRO,                 CHARLES R. WALL,                 DEBORAH C. WRIGHT		Directors

*By:

/s/  JAMES P. DOLLIVE       (James P. Dollive, Attorney-in-fact)

March 25, 2003

18

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Certifications

I, Roger K. Deromedi, Co-Chief Executive Officer of Kraft Foods Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Kraft Foods Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003
		/s/  ROGER K. DEROMEDI
		Roger K. Deromedi Co-Chief Executive Officer

19

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I, Betsy D. Holden, Co-Chief Executive Officer of Kraft Foods Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Kraft Foods Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003
		/s/  BETSY D. HOLDEN
		Betsy D. Holden Co-Chief Executive Officer

20

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I, James P. Dollive, Senior Vice President and Chief Financial Officer of Kraft Foods Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Kraft Foods Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003
		/s/  JAMES P. DOLLIVE
		James P. Dollive Senior Vice President and Chief Financial Officer

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REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders of
KRAFT FOODS INC.:

        Our audits of the consolidated financial statements referred to in our report dated January 27, 2003 appearing in the 2002 Annual Report to Shareholders of Kraft Foods Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
January 27, 2003

S-1

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KRAFT FOODS INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2002, 2001 and 2000
(in millions)

Col. A			Col. B			Col. C						Col. D			Col. E
						Additions
Description			Balance at Beginning of Period			Charged to Costs and Expenses			Charged to Other Accounts			Deductions			Balance at End of Period
									(a)			(b)
2002:
	Allowance for discounts		$	11		$	10		$	2		$	12		$	11
	Allowance for doubtful accounts			168			25			(39	)		20			134
			$	179		$	35		$	(37	)	$	32		$	145
2001:
	Allowance for discounts		$	7		$	5		$	4		$	5		$	11
	Allowance for doubtful accounts			165			25			5			27			168
			$	172		$	30		$	9		$	32		$	179
2000:
	Allowance for discounts		$	5		$	15		$	—		$	13		$	7
	Allowance for doubtful accounts			119			11			65			30			165
			$	124		$	26		$	65		$	43		$	172

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Notes:

(a)

Primarily related to divestitures, acquisitions and currency translation.

(b)

Represents charges for which allowances were created.

S-2

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QuickLinks

PART I

Item 1. Business.

Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Item 6. Selected Financial Data.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

PART III

Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information

Item 13. Certain Relationships and Related Transactions.
Item 14. Controls and Procedures.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

SIGNATURES

                                                                      Exhibit 13
                                 Kraft Foods Inc.

Management's Discussion and Analysis of Financial Condition and Results of
Operations


Overview

Kraft Foods Inc. ("Kraft"), together with its subsidiaries (collectively
referred to as the "Company") is the largest branded food and beverage company
headquartered in the United States. Prior to June 13, 2001, the Company was a
wholly-owned subsidiary of Altria Group, Inc. (formerly Philip Morris Companies
Inc.). On June 13, 2001, the Company completed an initial public offering
("IPO") of 280,000,000 shares of its Class A common stock at a price of $31.00
per share. The IPO proceeds, net of the underwriting discount and expenses, of
$8.4 billion were used to retire a portion of an $11.0 billion long-term note
payable to Altria Group, Inc., incurred in connection with the acquisition of
Nabisco Holdings Corp. ("Nabisco"). After the IPO, Altria Group, Inc. owned
approximately 83.9% of the outstanding shares of the Company's capital stock
through its ownership of 49.5% of the Company's Class A common stock and 100% of
the Company's Class B common stock. The Company's Class A common stock has one
vote per share, while the Company's Class B common stock has ten votes per
share. At December 31, 2002, Altria Group, Inc. held 97.8% of the combined
voting power of the Company's outstanding capital stock and owned approximately
84.2% of the outstanding shares of the Company's capital stock.

The Company conducts its global business through two subsidiaries: Kraft Foods
North America, Inc. ("KFNA") and Kraft Foods International, Inc. ("KFI"). KFNA
manages its operations by product category, while KFI manages its operations by
geographic region. KFNA's segments are Cheese, Meals and Enhancers; Biscuits,
Snacks and Confectionery; Beverages, Desserts and Cereals; and Oscar Mayer and
Pizza. KFNA's food service business within the United States and its businesses
in Canada and Mexico are reported through the Cheese, Meals and Enhancers
segment. KFI's segments are Europe, Middle East and Africa; and Latin America
and Asia Pacific.

Critical Accounting Policies

Financial Reporting Release No. 60, which was issued by the Securities and
Exchange Commission ("SEC"), requires all registrants to discuss critical
accounting policies or methods used in the preparation of financial statements.
Note 2 to the consolidated financial statements includes a summary of the
significant accounting policies and methods used in the preparation of the
Company's consolidated financial statements. In most instances, the Company must
use an accounting policy or method because it is the only policy or method
permitted under accounting principles generally accepted in the United States of
America ("U.S. GAAP").

The preparation of all financial statements includes the use of estimates and
assumptions that affect a number of amounts included in the Company's
financial statements, including, among other things, employee benefit costs
and income taxes. The Company bases its estimates historical experience and
other assumptions that it believes are reasonable. If actual amounts are
ultimately different from previous estimates, the revisions are included in
the Company's results for the period in which the actual amounts become
known. Historically, the aggregate differences, if any, between the Company's
estimates and actual amounts in any year have not had a significant impact on
the Company's consolidated financial statements.

The Company's Audit Committee has reviewed the development, selection and
disclosure of the critical accounting policies and estimates.

The following is a review of the more significant assumptions and estimates, as
well as the accounting policies and methods used in the preparation of the
Company's consolidated financial statements:

Employee Benefit Plans: As discussed in Note 14 to the consolidated financial
statements, the Company provides a range of benefits to its employees and
retired employees, including pensions, postretirement health care benefits
and postemployment benefits (primarily severance). The Company records
amounts relating to these plans based on calculations specified by U.S. GAAP,
which include various actuarial assumptions, such as discount rates, assumed
rates of return on plan assets, compensation increases, turnover rates and
health care cost trend rates. The Company reviews its actuarial assumptions
on an annual basis and makes modifications to the assumptions based on
current rates and trends when it is deemed appropriate to do so. As required
by U.S. GAAP, the effect of the modifications is generally recorded or
amortized over future periods. The Company believes that the assumptions
utilized in recording its obligations under its plans, which are presented in
Note 14 to the consolidated financial statements, are reasonable based on its
experience and advice from its actuaries.

During the years ended December 31, 2002, 2001 and 2000, the Company recorded
the following amounts in the consolidated statement of earnings for employee
benefit plans:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                    2002        2001        2000
- --------------------------------------------------------------------------------
                                                                  
U.S. pension plan income                            $(33)      $(227)      $(315)
Non-U.S. pension plan cost                            47          35          34
Postretirement healthcare cost                       217         199         126
Postemployment benefit plan cost                      35          12           9
Employee savings plan cost                            64          63          43
- --------------------------------------------------------------------------------
  Net expense (income) for employee
  benefit plans                                     $330       $  82       $(103)
================================================================================


The 2002 net expense for employee benefit plans of $330 million increased by
$248 million over the 2001 amount. This increase includes the costs associated
with voluntary early retirement and integration programs ($148 million), which
were recorded during 2002. The remainder of the cost increase primarily relates
to a lowering of the Company's discount rate assumption on its pension and
postretirement benefit plans, and lower than expected returns on invested
pension assets. The 2001 net expense for employee benefit plans of $82 million
increased by $185 million over the 2000 amount. This increase was due primarily
to the Company's acquisition of Nabisco, lower pension asset returns and higher
retiree medical costs.


                                       26



                                 Kraft Foods Inc.

At December 31, 2002, for the U.S. pension and postretirement plans, the Company
reduced its discount rate assumption from 7.0% to 6.5%, maintained its expected
return on asset assumption at 9.0%, and increased its medical trend rate
assumption. The Company presently anticipates that these assumption changes,
coupled with lower returns on pension fund assets in prior years, will result in
an increase in 2003 pre-tax benefit expense of approximately $180 million, or
approximately $0.07 per share, exclusive of the impact of the voluntary early
retirement and integration programs in 2002. The Company's long-term rate of
return assumption remains at 9.0% based on the investment of its pension assets
primarily in U.S. equity securities. While the Company does not presently
anticipate a change in its 2003 assumptions, a fifty basis point decline in
the Company's discount rate would increase the Company's pension and
postretirement expense by approximately $50 million, while a fifty basis point
increase in the discount rate would decrease pension and postretirement expense
by approximately $35 million. Similarly, a fifty basis point decline (increase)
in the expected return on plan assets would increase (decrease) the Company's
pension expense for the U.S. pension plans by approximately $35 million. See
Note 14 to the consolidated financial statements, for a sensitivity discussion
of the assumed health care cost trend rates.

Revenue Recognition: As required by U.S. GAAP, the Company recognizes revenues,
net of sales incentives, and including shipping and handling charges billed to
customers, upon shipment of goods when title and risk of loss pass to customers.
Shipping and handling costs are classified as part of cost of sales. Provisions
and allowances for sales returns and bad debts are also recorded in the
Company's consolidated financial statements. The amounts recorded for these
provisions and related allowances are not significant to the Company's
consolidated financial position or results of operations. As discussed in Note 2
to the consolidated financial statements, effective January 1, 2002, the Company
adopted newly required accounting standards mandating that certain costs
reported as marketing, administration and research costs be shown as a reduction
of operating revenues or an increase in cost of sales. As a result, previously
reported revenues were reduced by approximately $4.6 billion and $3.6 billion
for 2001 and 2000, respectively. The adoption of the new accounting standards
had no impact on operating income, net earnings or basic or diluted earnings per
share ("EPS").

Depreciation and Amortization: The Company depreciates property, plant and
equipment and amortizes definite life intangibles using straight-line methods
over the estimated useful lives of the assets. As discussed in Note 2 to the
consolidated financial statements, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets," on January 1, 2002. The Company
has determined that substantially all of its goodwill and other intangible
assets have indefinite lives due to the long history of its brands. As a
result, the Company stopped recording the amortization of goodwill and
substantially all of its intangible assets as a charge to earnings. Net
earnings and diluted EPS would have been as follows had the provisions of the
new standards been applied as of January 1, 2000:



                                         (in millions, except per share amounts)
- --------------------------------------------------------------------------------
Year Ended December 31,                                      2001           2000
- --------------------------------------------------------------------------------
                                                                    
Net earnings, as previously reported                       $1,882         $2,001
Adjustment for amortization
 of goodwill and indefinite
 life intangibles                                             955            530
- --------------------------------------------------------------------------------
Net earnings, as adjusted                                  $2,837         $2,531
================================================================================
Diluted EPS, as previously reported                        $ 1.17         $ 1.38
Adjustment for amortization
 of goodwill and indefinite
 life intangibles                                            0.59           0.36
- --------------------------------------------------------------------------------
Diluted EPS, as adjusted                                   $ 1.76         $ 1.74
- --------------------------------------------------------------------------------
Average diluted shares outstanding                          1,610          1,455
- --------------------------------------------------------------------------------


Marketing and Advertising Costs: As required by U.S. GAAP, the Company records
marketing costs as an expense in the year to which such costs relate. The
Company does not defer any amounts on its consolidated balance sheet with
respect to marketing costs. The Company expenses advertising costs in the year
in which the related advertisement initially appears. The Company records
consumer incentive and trade promotion costs as a reduction of revenues in the
year in which these programs are offered, based on estimates of utilization and
redemption rates that are developed from historical information.

Related Party Transactions: As discussed in Note 3 to the consolidated financial
statements, Altria Group, Inc.'s subsidiary, Altria Corporate Services, Inc.
(formerly Philip Morris Management Corp.), provides the Company with various
services, including planning, legal, treasury, accounting, auditing, insurance,
human resources, office of the secretary, corporate affairs, information
technology and tax services. Billings for these services, which were based on
the cost to Altria Corporate Services, Inc. to provide such services plus a
management fee, were $327 million, $339 million and $248 million for the years
ended December 31, 2002, 2001 and 2000, respectively. Although the value of
services provided by Altria Corporate Services, Inc. cannot be quantified on a
stand-alone basis, management believes that the billings are reasonable based on
the level of support provided by Altria Corporate Services, Inc., and that the
charges reflect all services provided. The cost and nature of the services are
reviewed annually by the Company's Audit Committee, which is comprised of
independent directors.

The Company also has long-term notes payable to Altria Group, Inc. and its
affiliates of $2.6 billion at December 31, 2002 and $5.0 billion at December
31, 2001. The decrease from 2001 to 2002 reflects the repayment of borrowings
with proceeds from public global bond offerings, floating rate notes and
short-term borrowings. The interest rates on the debt with Altria Group, Inc.
were established at market rates available to Altria Group, Inc. at the time
of issuance for similar debt with matching maturities. The remaining amount
due under the 7.0% long-term note payable to Altria Group, Inc. and
affiliates has no prepayment penalty, and


                                       27



                                 Kraft Foods Inc.

the Company may repay some or all of the note with the proceeds from external
debt offerings.

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." The accounts of the Company are included in the
consolidated federal income tax return of Altria Group, Inc. Income taxes are
generally computed on a separate company basis. To the extent that foreign tax
credits, capital losses and other credits generated by the Company, which cannot
be utilized on a separate company basis, are utilized in Altria Group, Inc.'s
consolidated federal income tax return, the benefit is recognized in the
calculation of the Company's provision for income taxes. The Company utilized
tax benefits that it would otherwise not have been able to use of $193 million,
$185 million and $139 million for the years ended December 31, 2002, 2001 and
2000, respectively.

Business Environment

The Company faces a number of challenges in 2003, including among other
things, higher benefit costs, increased stock compensation costs and weak
economies in certain parts of Latin America. As previously discussed, higher
benefit costs are expected to impact 2003 EPS by approximately $0.07 per
share. The higher benefit costs are primarily the result of lower returns on
pension fund assets, a lower discount rate and higher retiree medical costs.
The additional stock compensation costs, which are expected to impact 2003
earnings per share by approximately $0.02 per share, relate to restricted
stock awards to employees. These awards have a three-year vesting period and
will further align the long-term interests of employees with those of the
Company's shareholders. The award of restricted stock to employees (rather
than stock options) is more transparent to shareholders as the cost of the
program is based upon the average market price of the stock on the date of
grant, rather than a fair value generated by an option-pricing model. In
Latin America, political unrest in Venezuela, as well as the devaluation of
certain currencies, are also expected to negatively impact 2003 EPS.

The Company is subject to fluctuating commodity costs, currency movements and
competitive challenges in various product categories and markets, including a
trend toward increasing consolidation in the retail trade and consequent
inventory reductions and changing consumer preferences. In addition, certain
competitors may have different profit objectives, and some competitors may be
more or less susceptible to currency exchange rates. To confront these
challenges, the Company continues to take steps to build the value of its brands
and improve its food business portfolio with new products and marketing
initiatives.

Fluctuations in commodity costs can lead to retail price volatility,
intensify price competition and influence consumer and trade buying patterns.
KFNA's and KFI's businesses are subject to fluctuating commodity costs,
including dairy, coffee bean and cocoa costs. Dairy commodity costs on average
were lower in 2002 than those seen in 2001. Coffee bean prices were also
lower, while cocoa bean prices were higher than in 2001.

On December 11, 2000, the Company acquired all of the outstanding shares of
Nabisco for $55 per share in cash.  The purchase of the outstanding shares,
retirement of employee stock options and other payments totaled approximately
$15.2 billion. In addition, the acquisition included the assumption of
approximately $4.0 billion of existing Nabisco debt. The Company financed the
acquisition through the issuance of two long-term notes payable to Altria
Group, Inc., totaling $15.0 billion, and short-term intercompany borrowings
of $255 million. The acquisition has been accounted for as a purchase.
Beginning January 1, 2001, Nabisco's earnings have been included in the
consolidated operating results of the Company.

The closure of a number of Nabisco domestic and international facilities
resulted in severance and other exit costs of $379 million, which are
included in the adjustments for the allocation of the Nabisco purchase price.
The closures will result in the termination of approximately 7,500 employees
and will require total cash payments of $373 million, of which approximately
$190 million has been spent through December 31, 2002. Substantially all of
the closures were completed as of December 31, 2002, and the remaining
payments relate to salary continuation payments for severed employees and
lease payments.

The integration of Nabisco into the operations of the Company has also
resulted in the closure or reconfiguration of several of the Company's
existing facilities. The aggregate charges to the Company's consolidated
statement of earnings to close or reconfigure its facilities and integrate
Nabisco were originally estimated to be in the range of $200 million to $300
million. During 2002, the Company recorded pre-tax integration related
charges of $115 million to consolidate production lines, close facilities and
for other consolidation programs. In addition, during 2001, the Company
incurred pre-tax integration costs of $53 million for site reconfigurations
and other consolidation programs in the United States. The integration
related charges of $168 million included $27 million relating to severance,
$117 million relating to asset write-offs and $24 million relating to other
cash exit costs. Cash payments relating to these charges will approximate $51
million, of which $21 million has been paid through December 31, 2002. In
addition, during 2002, approximately 700 salaried employees elected to retire
or terminate employment under voluntary retirement programs. As a result, the
Company recorded a pre-tax charge of $142 million related to these programs.
As of December 31, 2002, the aggregate pre-tax charges to close or
reconfigure the Company's facilities and integrate Nabisco, including charges
for early retirement programs, were $310 million, slightly above the original
estimate. No additional pre-tax charges are expected to be recorded for these
programs.

During 2001, certain small Nabisco businesses were reclassified to businesses
held for sale, including their estimated results of operations through
anticipated sale dates. These businesses have subsequently been sold, with
the exception of one business that had been held for sale since the
acquisition of Nabisco. This business, which is no longer held for sale, has
been included in 2002 consolidated operating results.


                                       28



                                 Kraft Foods Inc.

During 2002, the Company acquired a snacks business in Turkey and a biscuits
business in Australia. The total cost of these and other smaller acquisitions
was $122 million. During 2001, the Company purchased coffee businesses in
Romania, Morocco and Bulgaria and also acquired confectionery businesses in
Russia and Poland. The total cost of these and other smaller acquisitions was
$194 million. During 2000, the Company purchased Balance Bar Co. and Boca
Burger, Inc. The total cost of these and other smaller acquisitions was $365
million. The operating results of these businesses were not material to the
Company's consolidated financial position or results of operations in any of the
periods presented.

During 2002, the Company sold several small North American food businesses, some
of which were previously classified as businesses held for sale. The net
revenues and operating results of the businesses held for sale, which were not
significant, were excluded from the Company's consolidated statements of
earnings, and no gain or loss was recognized on these sales. In addition, the
Company sold its Latin American yeast and industrial bakery ingredients business
for $110 million and recorded a pre-tax gain of $69 million. The aggregate
proceeds received from sales of businesses during 2002 were $219 million, on
which the Company recorded pre-tax gains of $80 million.

During 2001, the Company sold several small food businesses. The aggregate
proceeds received in these transactions were $21 million, on which the Company
recorded pre-tax gains of $8 million.

During 2000, the Company sold a French confectionery business for proceeds of
$251 million, on which a pre-tax gain of $139 million was recorded. Several
small international and North American food businesses were also sold in
2000. The aggregate proceeds received from sales of businesses during 2000
were $300 million, on which the Company recorded pre-tax gains of $172
million.

The operating results of the businesses sold were not material to the Company's
consolidated operating results in any of the periods presented.

Century Date Change: The Company did not experience any material disruptions
to its business as a result of the Century Date Change ("CDC"). The Company's
increases in 1999 year-end inventories and trade receivables caused by
preemptive CDC contingency plans resulted in incremental cash outflows during
1999 of approximately $155 million. The cash outflows reversed in the first
quarter of 2000. In addition, the Company had increased shipments in the
fourth quarter of 1999 because customers purchased additional product in
anticipation of potential CDC-related disruptions. The increased shipments in
1999 resulted in estimated incremental net revenues and operating companies
income in 1999 of approximately $85 million and $40 million, respectively,
and corresponding decreases in net revenues and operating companies income in
2000.

53rd Week: The Company's subsidiaries end their fiscal years as of the Saturday
closest to the end of each year. Accordingly, most years contain 52 weeks of
operating results while every fifth or sixth year includes 53 weeks. The
Company's consolidated statement of earnings for the year ended December 31,
2000 included a 53rd week. Volume comparisons contained in this Management's
Discussion and Analysis for 2001 versus 2000 have been provided on a comparable
52-week basis to provide a more meaningful comparison of operating results.


Consolidated Operating Results

The acquisition of Nabisco and subsequent IPO were significant events that
affect the comparability of earnings. In order to isolate the financial
effects of these events, and to provide a more meaningful comparison of the
Company's results of operations, the following tables and the subsequent
discussion of the Company's consolidated operating results refer to results
on a reported and pro forma basis. Reported results include the operating
results of Nabisco in 2002 and 2001, but not in 2000. Reported results also
reflect average shares of common stock outstanding during 2002 and 2001, and
reflect an average of 1.455 billion shares outstanding during 2000. Pro forma
results assume the Company owned Nabisco for all of 2000. In addition, pro
forma results reflect common shares outstanding based on the assumption that
shares issued immediately following the IPO were outstanding during 2001 and
2000, and that, effective January 1, 2000, the net proceeds of the IPO were
used to retire a portion of a long-term note payable used to finance the
Nabisco acquisition. Pro forma results also adjust for other items, all of
which are detailed in reconciliations of reported to pro forma results
throughout this discussion. Management uses pro forma results to manage and
to evaluate the performance of the Company. Management believes it is
appropriate to disclose pro forma results to assist investors with analyzing
business performance and trends. Pro forma measures should not be considered
in isolation or as a substitute for reported results, which are prepared in
accordance with accounting principles generally accepted in the United States.


                                       29



                                 Kraft Foods Inc.



Consolidated Operating Results
                                                                   (in millions)
- --------------------------------------------------------------------------------
Year Ended December 31,                            2002         2001        2000
- --------------------------------------------------------------------------------
                                                                
Reported volume (in pounds):
Kraft Foods North America
 Cheese, Meals and Enhancers                      5,898        5,219       4,820
 Biscuits, Snacks and Confectionery               2,369        2,350          54
 Beverages, Desserts and Cereals                  3,708        3,421       3,117
 Oscar Mayer and Pizza                            1,554        1,519       1,507
- --------------------------------------------------------------------------------
   Total Kraft Foods North America               13,529       12,509       9,498
- --------------------------------------------------------------------------------
Kraft Foods International
 Europe, Middle East and Africa                   2,961        2,826       2,829
 Latin America and Asia Pacific                   2,059        2,057         803
- --------------------------------------------------------------------------------
   Total Kraft Foods International                5,020        4,883       3,632
- --------------------------------------------------------------------------------
     Total reported volume                       18,549       17,392      13,130
- --------------------------------------------------------------------------------

Reported net revenues:
Kraft Foods North America
 Cheese, Meals and Enhancers                    $ 8,877      $ 8,732     $ 7,923
 Biscuits, Snacks and Confectionery               5,182        5,071         293
 Beverages, Desserts and Cereals                  4,412        4,237       4,267
 Oscar Mayer and Pizza                            3,014        2,930       2,829
- --------------------------------------------------------------------------------
    Total Kraft Foods North America              21,485       20,970      15,312
- --------------------------------------------------------------------------------
Kraft Foods International
 Europe, Middle East and Africa                   6,203        5,936       6,398
 Latin America and Asia Pacific                   2,035        2,328       1,212
- --------------------------------------------------------------------------------
    Total Kraft Foods International               8,238        8,264       7,610
- --------------------------------------------------------------------------------
      Total reported net revenues               $29,723      $29,234     $22,922
================================================================================


Reported operating
 companies income:
Kraft Foods North America
 Cheese, Meals and Enhancers                    $ 2,168   $ 2,099        $ 1,845
 Biscuits, Snacks and Confectionery               1,093       966            100
 Beverages, Desserts and Cereals                  1,136     1,192          1,090
 Oscar Mayer and Pizza                              556       539            512
- --------------------------------------------------------------------------------
   Total Kraft Foods North America                4,953     4,796          3,547
- --------------------------------------------------------------------------------
Kraft Foods International
 Europe, Middle East and Africa                     962       861          1,019
 Latin America and Asia Pacific                     368       378            189
- --------------------------------------------------------------------------------
    Total Kraft Foods International               1,330     1,239          1,208
- --------------------------------------------------------------------------------
      Total reported operating
        companies income                        $ 6,283   $ 6,035        $ 4,755
================================================================================


The following is a reconciliation of reported operating results to pro forma
operating results:



                                                                   (in millions)
- --------------------------------------------------------------------------------
Year Ended December 31,                            2002       2001          2000
- --------------------------------------------------------------------------------
                                                                 
Reported volume (in pounds)                      18,549     17,392        13,130
 Volume of businesses sold                         (150)      (187)          (82)
 Changes due to businesses
  held for sale                                                647
 Estimated impact of century
  date change                                                                 55
 Nabisco volume                                                            4,367
- --------------------------------------------------------------------------------
Pro forma volume (in pounds)                     18,399     17,852        17,470
- --------------------------------------------------------------------------------

Reported net revenues                           $29,723    $29,234       $22,922
 Net revenues of businesses sold                    (89)      (121)         (162)
 Changes due to businesses
  held for sale                                                252
 Estimated impact of century
  date change                                                                 85
 Nabisco net revenues                                                      6,822
- --------------------------------------------------------------------------------
Pro forma net revenues                          $29,634    $29,365       $29,667
================================================================================

Reported operating
 companies income                               $ 6,283    $ 6,035       $ 4,755
 Gains on sales of businesses                       (80)        (8)         (172)
 Operating companies income of
  businesses sold                                   (15)       (24)          (39)
 Integration costs and a loss on
  sale of a food factory                            111         82
 Separation programs                                142
 Changes due to businesses
  held for sale                                                 23
 Estimated impact of century
  date change                                                                 40
 Nabisco operating
  companies income                                                         1,000
- --------------------------------------------------------------------------------
Pro forma operating
 companies income                                $ 6,441   $ 6,108       $ 5,584
================================================================================
Reported net earnings                            $ 3,394   $ 1,882       $ 2,001
 After-tax effect of:
  Integration costs and a loss
   on sale of a food factory                          72        45
 Separation programs                                  91
 Gains on sales of businesses                        (52)       (5)         (101)
 Cessation of goodwill and
  indefinite life intangible
  asset amortization                                           955           530
 Nabisco results                                                            (135)
 Interest reduction assuming
  full-year IPO                                                165           363
 Estimated impact of century
  date change                                                                 23
- --------------------------------------------------------------------------------
Pro forma net earnings                          $ 3,505    $ 3,042       $ 2,681
================================================================================
Average diluted shares outstanding                1,736      1,610         1,455
 Adjustment to reflect shares
  outstanding after IPO                                        125           280
- --------------------------------------------------------------------------------
Pro forma diluted shares outstanding              1,736      1,735         1,735
- --------------------------------------------------------------------------------



                                        30



                                 Kraft Foods Inc.

2002 compared with 2001

Reported volume for 2002 increased 1,157 million pounds (6.7%) over 2001, due
primarily to the inclusion in 2002 of a business previously considered held for
sale, new product introductions, geographic expansion and acquisitions. Pro
forma volume increased 3.1% over 2001, due primarily to new product
introductions, geographic expansion and acquisitions.

Reported net revenues for 2002 increased $489 million (1.7%) over 2001, due
primarily to the inclusion in 2002 of a business previously considered held
for sale, higher volume/mix and the impact of acquisitions, partially offset
by the adverse effect of currency exchange rates and lower sales prices on
cheese and coffee products (driven by commodity-related declines). Pro forma
net revenues increased $269 million (0.9%) over 2001, due primarily to higher
volume/mix ($401 million) and the impact of acquisitions ($191 million),
partially offset by the adverse effect of currency exchange rates ($291
million) and lower sales prices on cheese and coffee products (driven by
commodity-related declines).

The Company's management reviews operating companies income to evaluate segment
performance and allocate resources. Operating companies income excludes general
corporate expenses and amortization of intangibles. Reported operating companies
income was affected by the following unusual items during 2002 and 2001:

o Integration Costs and a Loss on Sale of a Food Factory: During 2002, the
Company recorded pre-tax integration related charges of $115 million to
consolidate production lines, close facilities and for other consolidation
programs. In addition, during 2002, the Company reversed $4 million related to
the loss on sale of a North American food factory. During 2001, the Company
incurred pre-tax integration costs of $53 million for site reconfigurations and
other consolidation programs in the United States. In addition, the Company
recorded a pre-tax charge of $29 million to close a North American food factory.
These items were included in the operating companies income of the following
segments:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                             2002           2001
- --------------------------------------------------------------------------------
                                                                      
Cheese, Meals and Enhancers                                  $ 30            $63
Biscuits, Snacks and Confectionery                              1              2
Beverages, Desserts and Cereals                                56             12
Oscar Mayer and Pizza                                           7              5
Latin America and Asia Pacific                                 17
- --------------------------------------------------------------------------------
                                                             $111            $82
================================================================================


o Separation Programs: During 2002, approximately 700 salaried employees
elected to retire or terminate employment under voluntary retirement
programs. As a result, the Company recorded a pre-tax charge in 2002 of $142
million related to these programs. This charge was included in the operating
companies income of the following segments: Cheese, Meals and Enhancers, $60
million; Biscuits, Snacks and Confectionery, $3 million; Beverages, Desserts
and Cereals, $47 million; Oscar Mayer and Pizza, $25 million; Europe, Middle
East and Africa, $5 million; and Latin America and Asia Pacific, $2 million.

o Businesses Held for Sale: During 2001, certain small Nabisco businesses
were reclassified to businesses held for sale, including their estimated
results of operations through anticipated sale dates. These businesses have
subsequently been sold with the exception of one business that had been held
for sale since the acquisition of Nabisco. This business, which is no longer
held for sale, has been included in 2002 reported operating results and has
been included as an adjustment to arrive at pro forma results for 2001.

Reported operating companies income increased $248 million (4.1%) over 2001. On
a pro forma basis, operating companies income increased $333 million (5.5%),
driven primarily by volume growth and favorable margins.

In addition, reported net earnings were also affected by the following during
2002:

o Amortization of Intangibles: On January 1, 2002, the Company adopted SFAS
No. 141 and SFAS No. 142. As a result, the Company stopped recording the
amortization of goodwill and indefinite life intangible assets as a charge to
earnings. Reported net earnings and diluted EPS would have been approximately
$2.8 billion and $1.76, respectively, for the year ended December 31, 2001,
and $2.5 billion and $1.74, respectively, for the year ended December 31,
2000, had the provisions of the new standards been applied in those periods.

Currency movements have decreased net revenues by $291 million and operating
companies income by $4 million from 2001. Decreases in net revenues and
operating companies income are due primarily to the strength of the U.S.
dollar against certain Latin American currencies, partially offset by the
weakness of the U.S. dollar against the euro and other currencies.

Reported interest and other debt expense, net, decreased $590 million in 2002.
This decrease was due primarily to lower debt levels after the repayment of
Nabisco acquisition borrowings with the proceeds from the Company's IPO, as well
as the Company's refinancing of notes payable to Altria Group, Inc. and lower
short-term interest rates. On a pro forma basis, interest and other debt
expense, net, decreased $288 million in 2002 from $1,135 million in 2001. This
decrease in pro forma interest expense is due to the use of free cash flow to
repay debt, the refinancing of notes payable to Altria Group, Inc. and lower
short-term interest rates.

During 2002, the Company's reported effective tax rate decreased by 9.9
percentage points to 35.5% as compared with 2001, due primarily to the adoption
of SFAS No. 141 and SFAS No. 142, under which the Company is no longer required
to amortize goodwill and indefinite life intangible assets as a charge to
earnings.

Reported diluted and basic EPS, which were both $1.96 for 2002, increased by
67.5% over 2001, due primarily to growth in operating companies income, lower
interest expense and the


                                       31



                                 Kraft Foods Inc.

elimination of substantially all goodwill amortization. Reported net earnings of
$3,394 million for 2002 increased $1,512 million (80.3%) over 2001. On a pro
forma basis, diluted and basic EPS, which were both $2.02 for 2002, increased by
15.4% over 2001, due primarily to growth in operating companies income and
lower interest expense. On a pro forma basis, net earnings of $3,505 million for
2002 increased $463 million (15.2%) over 2001.

2001 compared with 2000

Reported volume for 2001 increased 4,262 million pounds (32.5%) over 2000, due
primarily to the acquisition of Nabisco. Pro forma volume increased 2.2% over
2000. Excluding the 53rd week of shipments in 2000, volume increased 3.4%,
reflecting new product introductions and volume gains in developing markets.

Reported net revenues for 2001 increased $6,312 million (27.5%) over 2000, due
primarily to the acquisition of Nabisco. Pro forma net revenues decreased
slightly from 2000, due primarily to the 53rd week of sales in 2000, the adverse
effect of currency exchange rates and lower sales prices on coffee products
(driven by commodity-related price declines), partially offset by the favorable
impact of volume growth.

Reported operating companies income increased $1,280 million (26.9%) over 2000,
due primarily to the acquisition of Nabisco. On a pro forma basis, operating
companies income increased $524 million (9.4%), driven by volume growth,
productivity savings and Nabisco synergies, partially offset by unfavorable
currency movements.

Currency movements decreased net revenues by $493 million and operating
companies income by $60 million from 2000. Decreases in net revenues and
operating companies income were due to the strength of the U.S. dollar against
the euro, Canadian dollar and certain Asian and Latin American currencies.

Reported interest and other debt expense, net, increased $840 million in 2001.
This increase was due primarily to notes issued to Altria Group, Inc. in the
fourth quarter of 2000 to finance the acquisition of Nabisco. On a pro forma
basis, interest and other debt expense, net, decreased $213 million in 2001 from
$1,348 million in 2000. This decrease in pro forma interest expense is due to
the use of free cash flow to repay debt and the refinancing of debt payable to
Altria Group, Inc.

During 2001, the Company's reported effective tax rate increased by 4.0
percentage points to 45.4% as compared with 2000, due primarily to higher
Nabisco-related goodwill amortization, which was not tax deductible.


Reported diluted and basic EPS, which were both $1.17 for 2001, decreased by
15.2% from 2000, due primarily to higher levels of goodwill amortization and
interest expense associated with the acquisition of Nabisco. Reported net
earnings of $1,882 million for 2001 decreased $119 million (5.9%) from 2000.
On a pro forma basis, diluted and basic EPS, which were both $1.75 for 2001,
increased by 12.9% over 2000, due primarily to higher operating results in
all segments. On a pro forma basis, net earnings $3,042 million for 2001
increased $361 million (13.5%) from 2000.

Operating Results By Reportable Segment

Kraft Foods North America



                                                                   (in millions)
- --------------------------------------------------------------------------------
Year Ended December 31,                                2002      2001       2000
- --------------------------------------------------------------------------------
                                                                  
Reported volume (in pounds):
 Cheese, Meals and Enhancers                          5,898     5,219      4,820
 Biscuits, Snacks and Confectionery                   2,369     2,350         54
 Beverages, Desserts and Cereals                      3,708     3,421      3,117
 Oscar Mayer and Pizza                                1,554     1,519      1,507
- --------------------------------------------------------------------------------
Total reported volume (in pounds)                    13,529    12,509      9,498
 Volume of businesses sold:
  Cheese, Meals and Enhancers                                                 (5)
  Biscuits, Snacks and Confectionery                    (15)      (13)
  Beverages, Desserts and Cereals                                  (1)
 Changes due to businesses
  held for sale:
  Cheese, Meals and Enhancers                                     647
 Estimated impact of century
  date change:
  Cheese, Meals and Enhancers                                                 16
  Biscuits, Snacks and Confectionery                                           1
  Beverages, Desserts and Cereals                                             19
  Oscar Mayer and Pizza                                                        5
 Nabisco volume:
  Cheese, Meals and Enhancers                                              1,101
  Biscuits, Snacks and Confectionery                                       2,246
  Beverages, Desserts and Cereals                                             40
- --------------------------------------------------------------------------------
Pro forma volume (in pounds)                         13,514    13,142     12,921
- --------------------------------------------------------------------------------

Reported net revenues:
 Cheese, Meals and Enhancers                        $ 8,877   $ 8,732    $ 7,923
 Biscuits, Snacks and Confectionery                   5,182     5,071        293
 Beverages, Desserts and Cereals                      4,412     4,237      4,267
 Oscar Mayer and Pizza                                3,014     2,930      2,829
- --------------------------------------------------------------------------------
Total reported net revenues                          21,485    20,970     15,312
 Net revenues of businesses sold:
  Cheese, Meals and Enhancers                                                (10)
  Biscuits, Snacks and Confectionery                    (21)      (19)
  Beverages, Desserts and Cereals                                 (12)
 Changes due to businesses
   held for sale:
   Cheese, Meals and Enhancers                                    252
 Estimated impact of century
   date change:
   Cheese, Meals and Enhancers                                                29
   Biscuits, Snacks and Confectionery                                          3
   Beverages, Desserts and Cereals                                            16
   Oscar Mayer and Pizza                                                      11
 Nabisco net revenues:
   Cheese, Meals and Enhancers                                             1,016
   Biscuits, Snacks and Confectionery                                      4,653
   Beverages, Desserts and Cereals                                            79
- --------------------------------------------------------------------------------
Pro forma net revenues                              $21,464   $21,191    $21,109
================================================================================



                                       32



                                 Kraft Foods Inc.

Kraft Foods North America (continued)



                                                                   (in millions)
- --------------------------------------------------------------------------------
Year Ended December 31,                            2002       2001          2000
- --------------------------------------------------------------------------------
                                                                 
Reported Operating
  Companies Income:
  Cheese, Meals and Enhancers                     $2,168     $2,099       $1,845
  Biscuits, Snacks and Confectionery               1,093        966          100
  Beverages, Desserts and Cereals                  1,136      1,192        1,090
  Oscar Mayer and Pizza                              556        539          512
- --------------------------------------------------------------------------------
Total reported operating
   companies income                                4,953      4,796        3,547
 Gains on sales of businesses:
   Cheese, Meals and Enhancers                                               (33)
   Biscuits, Snacks and Confectionery                 (8)
 Operating companies income of
    businesses sold:
   Cheese, Meals and Enhancers                                                (4)
   Biscuits, Snacks and Confectionery                 (5)        (4)
   Beverages, Desserts and Cereals                               (2)
 Integration costs and a loss on
   sale of a food factory:
   Cheese, Meals and Enhancers                        30         63
   Biscuits, Snacks and Confectionery                  1          2
   Beverages, Desserts and Cereals                    56         12
   Oscar Mayer and Pizza                               7          5
 Separation programs:
   Cheese, Meals and Enhancers                        60
   Biscuits, Snacks and Confectionery                  3
   Beverages, Desserts and Cereals                    47
   Oscar Mayer and Pizza                              25
 Changes due to businesses
  held for sale:
  Cheese, Meals and Enhancers                                    23
 Estimated impact of century
  date change:
  Cheese, Meals and Enhancers                                                 15
  Biscuits, Snacks and Confectionery                                           1
  Beverages, Desserts and Cereals                                              7
  Oscar Mayer and Pizza                                                        4
 Nabisco operating
  companies income:
  Cheese, Meals and Enhancers                                                230
  Biscuits, Snacks and Confectionery                                         671
  Beverages, Desserts and Cereals                                             28
- --------------------------------------------------------------------------------
Pro forma operating
  companies income                                $5,169     $4,895       $4,466
================================================================================


2002 compared with 2001

KFNA's reported volume for 2002 increased 8.2% over 2001, due primarily to the
inclusion in 2002 of a business that was previously held for sale and
contributions from new products. On a pro forma basis, volume for 2002 increased
2.8%, due primarily to higher shipments across all segments, which benefited
from contributions by new products.

Reported net revenues increased $515 million (2.5%) over 2001, due primarily to
higher volume/mix ($437 million) and the inclusion in 2002 of a business that
was previously held for sale ($252 million), partially offset by lower selling
prices in response to lower commodity costs ($154 million). On a pro forma
basis, net revenues increased 1.3%.

Reported operating companies income for 2002 increased $157 million (3.3%) over
2001, due primarily to higher volume/mix ($174 million), favorable margins ($176
million, driven by lower commodity-related costs and productivity) and Nabisco
synergy savings, partially offset by higher benefit expense, including the 2002
charge for voluntary retirement programs ($135 million). On a pro forma basis,
operating companies income increased 5.6%.

The following discusses operating results within each of KFNA's reportable
segments.

Cheese, Meals and Enhancers: Reported volume in 2002 increased 13.0% over 2001,
due primarily to the inclusion in 2002 of a business that was previously held
for sale. On a pro forma basis, volume in 2002 increased 0.5%, driven by volume
gains in enhancers, meals and food service, partially offset by a decline in
cheese. Volume gains in enhancers and meals were led by Kraft pourable
dressings, barbecue sauce, macaroni & cheese dinners and the 2001 acquisition of
It's Pasta Anytime. In cheese, volume declined as lower dairy costs resulted in
aggressive competitive activity by private label manufacturers as they reduced
prices and increased merchandising levels.

During 2002, reported net revenues increased $145 million (1.7%) over 2001, due
primarily to the inclusion in 2002 of a business that was previously held for
sale ($252 million) and higher volume/mix ($36 million), partially offset by
lower net pricing ($135 million, primarily related to lower dairy commodity
costs). On a pro forma basis, net revenues decreased 1.2% from the comparable
period of 2001, as lower net pricing was partially offset by higher volume/mix.

Reported operating companies income for 2002 increased $69 million (3.3%) over
2001, due primarily to favorable margins ($48 million, due primarily to lower
cheese commodity costs and productivity savings), higher volume/mix ($30
million), lower integration related costs in 2002 ($33 million) and the
inclusion in 2002 of a business that was previously held for sale ($23 million),
partially offset by higher benefit expenses, including the 2002 charge for
voluntary retirement programs ($60 million). On a pro forma basis, operating
companies income also increased 3.3%, driven by favorable margins and higher
volume/mix, partially offset by higher benefit expenses.

Biscuits, Snacks and Confectionery: Reported volume in 2002 increased 0.8% over
2001. On a pro forma basis, volume in 2002 increased 0.7% over 2001, as volume
gains in biscuits and snacks were partially offset by a decline in confectionery
shipments. In biscuits, volume also increased, due primarily to promotional
initiatives. Confectionery volume declined, resulting primarily from competitive
activity in the breath freshening category, partially offset by new product
introductions in the non-chocolate confectionery business.


                                       33



                                 Kraft Foods Inc.


During 2002, reported net revenues increased $111 million (2.2%) over 2001, due
to higher volume/mix ($59 million) and higher net pricing ($52 million). On a
pro forma basis, net revenues also increased 2.2%.

Reported operating companies income for 2002 increased $127 million (13.1%) over
2001, due primarily to favorable margins ($96 million, due primarily to higher
net pricing and lower commodity costs for nuts), Nabisco synergy savings and
higher volume/mix. On a pro forma basis, operating companies income increased
12.4%.

Beverages, Desserts and Cereals: Reported and pro forma volume in 2002 increased
8.4% over 2001, due primarily to growth in ready-to-drink beverages. In coffee,
volume increased, driven by merchandising programs and packaging innovation. In
the desserts business, volume increases were led by dry packaged desserts and
frozen toppings, which benefited from holiday programs, and in ready-to-eat
desserts, aided by new products.

During 2002, reported net revenues increased $175 million (4.1%) over 2001,
due primarily to higher volume/mix ($245 million), partially offset by lower
net pricing ($58 million). On a pro forma basis, net revenues increased 4.4%.

Reported operating companies income for 2002 decreased $56 million (4.7%)
from 2001, primarily reflecting the 2002 charge for voluntary retirement
programs ($47 million), higher integration related costs in 2002 ($44
million), higher marketing, administration and research costs ($36 million,
including higher benefit costs) and lower margins ($18 million), partially
offset by higher volume/mix ($98 million) and productivity savings. On a pro
forma basis, operating companies income increased 3.1%, resulting from volume
growth and productivity savings, partially offset by higher marketing,
administration and research costs.

Oscar Mayer and Pizza: Reported and pro forma volume in 2002 increased 2.3% over
2001, due to volume gains in processed meats and pizza. The increase in
processed meats was driven by gains in hot dogs, bacon and soy-based meat
alternatives, aided by new product introductions. The pizza business also
benefited from new products.

During 2002, reported and pro forma net revenues increased $84 million (2.9%)
over 2001, due to higher volume/mix ($97 million), partially offset by lower net
pricing ($13 million).

Reported operating companies income for 2002 increased $17 million (3.2%) over
2001, primarily reflecting favorable costs ($50 million, due primarily to lower
meat and cheese commodity costs and productivity savings) and higher volume/mix
($30 million), partially offset by the 2002 charge for voluntary retirement
programs ($25 million), higher marketing, administration and research costs ($24
million, including higher benefit costs) and higher manufacturing costs. On a
pro forma basis, operating companies income increase 8.1%.

2001 compared with 2000

KFNA's reported volume for 2001 increased 31.7% over 2000, due primarily to the
acquisition of Nabisco. On a pro forma basis, volume for 2001 increased 1.7%, or
2.9% excluding the 53rd week of shipments in 2000. The 2.9% increase was due
primarily to higher shipments across all segments and reflects contributions
from new products.

Reported net revenues increased $5.7 billion (37.0%) over 2000, due primarily to
the acquisition of Nabisco ($5.7 billion) and the shift in CDC revenues ($59
million), partially offset by unfavorable currency movements ($62 million). On a
pro forma basis, net revenues increased 0.4%, due primarily to higher net
revenues from the Biscuits, Snacks and Confectionery segment and the Oscar Mayer
and Pizza segment, partially offset by the impact of the 53rd week in 2000.

Reported operating companies income for 2001 increased $1,249 million (35.2%)
over 2000, due primarily to the acquisition of Nabisco ($1.2 billion), lower
marketing, administration and research costs ($274 million) and the shift in CDC
income ($27 million), partially offset by lower margins ($136 million, driven
primarily by higher dairy commodity-related costs) and the loss on the sale of a
North American food factory and integration costs ($82 million). On a pro forma
basis, operating companies income increased 9.6%.

The following discusses operating results within each of KFNA's reportable
segments.

Cheese, Meals And Enhancers: Reported volume in 2001 increased 8.3% over 2000,
due primarily to the acquisition of Nabisco. On a pro forma basis, volume in
2001 decreased 1.1%, due primarily to the 53rd week of shipments in 2000.
Excluding the 53rd week of shipments in 2000, volume increased 0.2%, as volume
gains in meals, enhancers and Canada were partially offset by declines in cheese
and food service. Meals recorded volume gains, reflecting higher shipments of
macaroni & cheese dinners. Enhancers also recorded volume gains, reflecting
higher shipments of spoonable and pourable dressings. In Canada, volume grew on
higher shipments of branded products. In cheese, shipments decreased, due
primarily to the Company's decision to exit the lower-margin, non-branded cheese
business. Volume also declined in process cheese loaves and cream cheese, as
retailers continued to reduce trade inventory levels, partially offset by higher
volume in grated and natural cheese. In U.S. food service, shipments declined
due to weakness in the economy and the Company's exit from lower-margin
businesses.

During 2001, reported net revenues increased $809 million (10.2%) over 2000, due
primarily to the acquisition of Nabisco ($791 million), higher net pricing ($122
million, primarily related to higher dairy commodity costs) and the shift in CDC
revenues ($29 million), partially offset by lower volume/mix ($65 million) and
unfavorable currency movements ($62 million). On a pro forma basis, net revenues
increased slightly from the comparable period of 2000, as higher pricing in
cheese and food service were partially offset by unfavorable currency and lower
volume/mix.


                                       34



                                 Kraft Foods Inc.

Reported operating companies income for 2001 increased $254 million (13.8%) over
2000, due primarily to the acquisition of Nabisco ($234 million), lower
marketing, administration and research costs ($140 million, primarily lower
marketing expense) and the shift in CDC income ($15 million), partially offset
by unfavorable margins ($48 million, due primarily to higher dairy commodity
costs) and the loss on the sale of a North American food factory and integration
costs ($63 million). On a pro forma basis, operating companies income increased
6.4%.

Biscuits, Snacks and Confectionery: Reported volume in 2001 increased more than
100% over 2000, due primarily to the acquisition of Nabisco. On a pro forma
basis, volume in 2001 increased 1.6% over 2000. Excluding the 53rd week of
shipments in 2000, volume also increased 1.6%, due primarily to new product
introductions in biscuits, partially offset by lower shipments of snack nuts.

During 2001, reported net revenues increased $4.8 billion, or more than 100%
over 2000, due primarily to the acquisition of Nabisco. On a pro forma basis,
net revenues increased 2.1%, due primarily to higher volume driven by new
biscuit products and higher pricing of biscuit and confectionery products.

Reported operating companies income for 2001 increased $866 million, or more
than 100% over 2000, due primarily to the acquisition of Nabisco ($925 million),
partially offset by higher marketing, administration and research costs ($27
million). On a pro forma basis, operating companies income increased 24.9%, due
primarily to higher volume from new biscuit products, lower commodity costs for
snack nuts, and productivity and Nabisco synergy savings.

Beverages, Desserts and Cereals: Reported volume in 2001 increased 9.8% over
2000, due primarily to growth in beverages. On a pro forma basis, volume in 2001
increased 7.7% over 2000. Excluding the 53rd week of shipments in 2000, volume
increased 9.3%, due primarily to increased shipments of ready-to-drink
beverages, benefiting from the introduction of new products. Desserts volume was
below the prior year, due to lower shipments of dry packaged desserts and frozen
toppings. Cereal volume declined, due primarily to weak category performance and
increased competition in the ready-to-eat cereal category.

During 2001, reported net revenues decreased $30 million (0.7%) from 2000, due
primarily to lower net pricing ($167 million, due primarily to coffee
commodity-related price reductions), partially offset by the acquisition of
Nabisco ($83 million), the acquisition of Balance Bar Co. ($20 million), the
shift in CDC revenues ($16 million) and higher volume/mix ($17 million). On a
pro forma basis, net revenues decreased 3.1%, reflecting commodity-related price
reductions on coffee products and lower shipments in desserts and cereals.

Reported operating companies income for 2001 increased $102 million (9.4%) over
2000, primarily reflecting lower marketing, administration and research costs
($139 million), the acquisition of Nabisco ($32 million), and the shift in CDC
income ($7 million), partially offset by unfavorable margins ($31 million) and
integration costs ($12 million). On a pro forma basis, operating companies
income increased 6.8%.

Oscar Mayer and Pizza: Reported volume in 2001 increased 0.8% over 2000.
Excluding the 53rd week of shipments in 2000, volume increased 2.3%, due to
volume gains in processed meats and pizza. The processed meats business
recorded volume gains in luncheon meats, hot dogs, bacon and soy-based meat
alternatives. Volume in the pizza business increased, driven by new products.

During 2001, reported net revenues increased $101 million (3.6%) over 2000, due
primarily to higher volume/mix ($75 million), the shift in CDC revenues ($11
million) and the acquisition of Boca Burger, Inc.

Reported operating companies income for 2001 increased $27 million (5.3%) over
2000, primarily reflecting higher volume/mix ($45 million), lower marketing,
administration and research costs ($22 million) and the shift in CDC income,
partially offset by unfavorable margins ($36 million, due primarily to higher
meat and cheese commodity costs).

Kraft Foods International



                                                                      (in millions)
- -----------------------------------------------------------------------------------
Year Ended December 31,                                2002        2001        2000
- -----------------------------------------------------------------------------------

                                                                    
Reported volume (in pounds):
  Europe, Middle East and Africa                      2,961       2,826       2,829
  Latin America and Asia Pacific                      2,059       2,057         803
- -----------------------------------------------------------------------------------
Total reported volume (in pounds)                     5,020       4,883       3,632
  Volume of businesses sold:
   Europe, Middle East and Africa                                    (1)        (40)
   Latin America and Asia Pacific                      (135)       (172)        (37)
  Estimated impact of century date change:
   Europe, Middle East and Africa                                                 7
   Latin America and Asia Pacific                                                 7
  Nabisco volume:
   Europe, Middle East and Africa                                                44
   Latin America and Asia Pacific                                               936
- -----------------------------------------------------------------------------------
Pro forma volume (in pounds)                          4,885       4,710       4,549
===================================================================================

Reported net revenues:
  Europe, Middle East and Africa                     $6,203      $5,936      $6,398
  Latin America and Asia Pacific                      2,035       2,328       1,212
- -----------------------------------------------------------------------------------
Total reported net revenues                           8,238       8,264       7,610
  Net revenues of businesses sold:
   Europe, Middle East and Africa                                              (131)
   Latin America and Asia Pacific                       (68)        (90)        (21)
  Estimated impact of century date change:
   Europe, Middle East and Africa                                                14
   Latin America and Asia Pacific                                                12
  Nabisco net revenues:
   Europe, Middle East and Africa                                                46
   Latin America and Asia Pacific                                             1,028
- -----------------------------------------------------------------------------------
Pro forma net revenues                               $8,170      $8,174      $8,558
===================================================================================



                                       35


                                Kraft Foods Inc.

Kraft Foods International (continued)



                                                                      (in millions)
- -----------------------------------------------------------------------------------
Year Ended December 31,                                2002        2001        2000
- -----------------------------------------------------------------------------------

                                                                    
Reported operating companies income:
  Europe, Middle East and Africa                     $  962      $  861      $1,019
  Latin America and Asia Pacific                        368         378         189
- -----------------------------------------------------------------------------------
Total reported operating
    companies income                                  1,330       1,239       1,208
  Gains on sales of businesses:
   Europe, Middle East and Africa                                              (139)
   Latin America and Asia Pacific                       (72)         (8)
  Operating companies income of businesses sold:
   Europe, Middle East and Africa                                               (32)
   Latin America and Asia Pacific                       (10)        (18)         (3)
  Integration costs:
   Latin America and Asia Pacific                        17
  Separation programs:
   Europe, Middle East and Africa                         5
   Latin America and Asia Pacific                         2
  Estimated impact of century date change:
   Europe, Middle East and Africa                                                 8
   Latin America and Asia Pacific                                                 5
  Nabisco operating companies income:
   Europe, Middle East and Africa                                                 1
   Latin America and Asia Pacific                                                70
- -----------------------------------------------------------------------------------
Pro forma operating
    companies income                                 $1,272      $1,213      $1,118
===================================================================================


2002 compared with 2001

KFI's reported volume for 2002 increased 2.8% over 2001. On a pro forma basis,
volume for 2002 increased 3.7% over 2001, due primarily to acquisitions, new
product introductions, geographic expansion and marketing programs. This
increase in volume was partially offset by the impact of economic weakness in
several Latin American countries.

During 2002, reported net revenues decreased $26 million (0.3%) from 2001, due
primarily to unfavorable currency movements ($271 million), lower volume/mix
($36 million) and revenues of divested businesses ($22 million), partially
offset by the impact of acquisitions ($181 million) and higher net pricing ($122
million). On a pro forma basis, net revenues decreased slightly.

Reported operating companies income for 2002 increased $91 million (7.3%) over
2001, due primarily to gains on sales of businesses ($64 million), favorable
margins ($37 million, including productivity savings), lower marketing,
administration and research costs ($23 million, including synergy savings) and
the impact of acquisitions ($18 million), partially offset by lower volume/mix
($19 million), 2002 integration costs ($17 million) and income of divested
businesses ($8 million). On a pro forma basis, operating companies income
increased 4.9%, driven by productivity and synergy savings, partially offset by
lower volume/mix.

The following discusses operating results within each of KFI's reportable
segments.

Europe, Middle East and Africa: Reported and pro forma volume for 2002 increased
4.8% over 2001, driven by acquisitions and volume growth across most markets
including Italy, the United Kingdom, Sweden, the Ukraine, the Middle East and
Poland, partially offset by declines in Germany and Romania. Snacks volume
increased, benefiting from confectionery acquisitions in Russia and Poland, a
snacks acquisition in Turkey and new product introductions across the segment.
Snacks volume growth was moderated by a decline in Germany, reflecting
aggressive competitive activity, and in Romania, due to lower consumer
purchasing power. In beverages, volume increased in both coffee and refreshment
beverages. Coffee volume grew in most markets, driven by new product
introductions, and acquisitions in Romania, Morocco and Bulgaria. In Germany,
coffee volume decreased, reflecting market softness and increased price
competition. Refreshment beverages volume also increased, driven by the
geographic expansion of powdered beverages and new product introductions. Cheese
volume increased with gains in Philadelphia cream cheese, benefiting from
advertising and new product introductions. In convenient meals, volume
increased, due primarily to higher canned meats volume in Italy against a weak
comparison in 2001, and new product introductions of lunch combinations in the
United Kingdom.

Reported and pro forma net revenues for 2002 increased $267 million (4.5%) over
2001, due primarily to favorable currency movements ($197 million), the
acquisitions of coffee, confectionery and snacks businesses ($147 million) and
higher volume/mix ($22 million), partially offset by lower net pricing
($99 million, due primarily to commodity-driven coffee price declines).

Reported operating companies income for 2002 increased $101 million (11.7%) over
2001, due primarily to favorable margins ($42 million), favorable currency
movements ($37 million), higher volume/mix ($19 million) and acquisitions ($16
million), partially offset by higher marketing, administration and research
costs. On a pro forma basis, operating companies income increased 12.3%.

Latin America and Asia Pacific: Reported volume for 2002 increased slightly over
2001. On a pro forma basis, volume for 2002 increased 2.1% over 2001, driven by
the acquisition of a biscuits business in Australia and gains across numerous
markets, partially offset by a volume decline in Argentina due to economic
weakness, and lower results in China. In snacks, volume growth was driven by
gains in biscuits, benefiting from geographic expansion of cookies and crackers
in Latin America, new product introductions and the acquisition of a biscuits
business in Australia. Snacks volume growth was partially offset by the negative
impact of the continued economic weakness in Argentina and distributor inventory
reductions in China. Beverages volume also increased, due primarily to growth in
powdered beverages in numerous markets across Latin America


                                       36


                                Kraft Foods Inc.


and Asia Pacific, which benefited from new product introductions. In grocery,
volume declined in both Latin America and Asia Pacific. Continued instability of
the economic climate in Argentina, Brazil and Venezuela is expected to
negatively impact volume and income in the Latin America and Asia Pacific
segment during 2003.

During 2002, reported net revenues decreased $293 million (12.6%) from 2001, due
primarily to unfavorable currency movements ($468 million), lower volume/mix
($58 million) and revenues from divested businesses ($22 million), partially
offset by higher net pricing ($221 million) and the 2002 acquisition of a
biscuits business in Australia ($34 million). On a pro forma basis, net revenues
decreased 12.1%.

Reported operating companies income for 2002 decreased $10 million (2.6%) from
2001, due primarily to lower volume/mix ($38 million), unfavorable currency
movements ($37 million), 2002 integration costs ($17 million) and the operating
companies income of disposed businesses, partially offset by gains on sales of
businesses ($64 million) and lower marketing, administration and research costs
($31 million, including synergy savings). On a pro forma basis, operating
companies income decreased 13.4%, due primarily to the devaluation driven cost
increase in Latin America and lower volume/mix, partially offset by synergy
savings.

2001 compared with 2000

KFI's reported volume for 2001 increased 34.4% over 2000, due primarily to the
acquisition of Nabisco. On a pro forma basis, volume for 2001 increased 3.5%
over 2000. Excluding the 53rd week of shipments in 2000, volume increased 4.8%,
benefiting from gains across most consumer sectors and driven by growth in the
developing markets of Central and Eastern Europe, Latin America and Asia
Pacific.

During 2001, reported net revenues increased $654 million (8.6%) over 2000, due
primarily to the acquisition of Nabisco ($1.2 billion) and the shift in CDC
revenues ($26 million), partially offset by unfavorable currency movements ($431
million) and the revenues of divested businesses. On a pro forma basis, net
revenues decreased 4.5%, primarily reflecting unfavorable currency movements.

Reported operating companies income for 2001 increased $31 million (2.6%) over
2000, due primarily to the acquisition of Nabisco ($128 million), lower
marketing, administration and research costs ($131 million) and the shift in CDC
income ($13 million), partially offset by the gain on the sale of a French
confectionery business in 2000 ($139 million), unfavorable currency movements
($51 million), unfavorable margins ($14 million) and income of divested
businesses. On a pro forma basis, operating companies income increased 8.5%.

The following discusses operating results within each of KFI's reportable
segments.

Europe, Middle East and Africa: Reported and pro forma volume for 2001 decreased
slightly from 2000, due primarily to the 53rd week of shipments in 2000.
Excluding the 53rd week of shipments in 2000, volume increased 1.3%, due
primarily to volume gains in the developing markets of Central and Eastern
Europe and growth in many Western European markets, partially offset by lower
volume in Germany, reflecting increased price competition and trade inventory
reductions, and lower canned meats volume in Italy. In beverages, volume
increased in both coffee and refreshment beverages. Coffee volume grew in many
markets, driven by new product introductions and recent acquisitions in Romania,
Morocco and Bulgaria. In Germany, coffee volume increased despite trade
inventory reductions. Refreshment beverages volume increased, driven by higher
sales to the Middle East. Snacks volume increased, driven by confectionery and
salted snacks, particularly in Central and Eastern Europe. Snacks volume in
Germany was lower due to increased price competition and trade inventory
reductions. Cheese volume increased, due primarily to Philadelphia cream cheese
growth across the region, partially offset by lower volume in Germany. In
convenient meals and grocery, volume declined as lower canned meats volume in
Italy and a decline in grocery volume in Germany were partially offset by higher
shipments of lunch combinations and pourable dressings in the United Kingdom.

Reported net revenues for 2001 decreased $462 million (7.2%) from 2000, due
primarily to unfavorable currency movements ($231 million), revenues from
divested businesses, lower net pricing ($122 million, primarily commodity-driven
coffee price decreases) and lower volume/mix ($69 million), partially offset by
the acquisition of Nabisco ($46 million), the 2001 acquisitions of coffee
businesses in Romania, Morocco and Bulgaria ($28 million) and the shift in CDC
revenues ($14 million). On a pro forma basis, net revenues decreased 6.2%,
reflecting unfavorable currency movements and commodity-related coffee price
decreases.

Reported operating companies income for 2001 decreased $158 million (15.5%) from
2000, due primarily to the gain on the sale of a French confectionery business
in 2000 ($139 million), unfavorable currency movements ($19 million), income
from divested businesses, lower volume/mix ($12 million) and unfavorable margins
($7 million), partially offset by lower marketing, administration and research
costs ($42 million) and the shift in CDC income. On a pro forma basis, operating
companies income increased 0.5%.

Latin America and Asia Pacific: Reported volume for 2001 increased more than
100% from 2000, due primarily to the acquisition of Nabisco. On a pro forma
basis, volume for 2001 increased 10.3% over 2000. Excluding the 53rd week of
shipments in 2000, volume increased 10.6%, due to gains across most consumer
sectors. Beverages volume increased, due primarily to growth in refreshment
beverages in Latin America and Asia Pacific, and coffee in Asia Pacific. Cheese
volume increased, due primarily to cream cheese and process cheese. Grocery
volume was higher, due primarily to new product introductions. Snacks volume
increased, driven primarily by new biscuit product introductions and geographic
expansion, partially offset by lower volume in Argentina, due to economic
weakness.


                                       37


                                Kraft Foods Inc.

During 2001, reported net revenues increased $1,116 million (92.1%) over 2000,
due primarily to the acquisition of Nabisco, partially offset by unfavorable
currency movements. On a pro forma basis, net revenues increased 0.3%.

Reported operating companies income for 2001 increased $189 million (100.0%)
over 2000, due primarily to the acquisition of Nabisco ($128 million), lower
marketing, administration and research costs ($89 million) and the shift in CDC
income, partially offset by unfavorable currency movements ($32 million). On a
pro forma basis, operating companies income increased 34.9%, due primarily to
productivity savings and Nabisco synergies.

Financial Review

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $3.7 billion in 2002 and $3.3
billion in 2001 and 2000. The increase in 2002 operating cash flows over 2001
primarily reflected cash flow from increased net earnings.

Net Cash Used in Investing Activities

One element of the growth strategy of the Company is to strengthen its brand
portfolios through disciplined programs of selective acquisitions and
divestitures. The Company is constantly investigating potential acquisition
candidates and from time to time sells businesses that are outside its core
categories or that do not meet its growth or profitability targets.

During 2002, 2001 and 2000, net cash used in investing activities was $1.1
billion, $1.2 billion and $16.1 billion, respectively. The decrease in 2002
primarily reflected lower purchases of businesses and higher cash received from
the sales of businesses, partially offset by higher capital expenditures related
to the integration of Nabisco. The cash used in 2000 primarily reflected cash
used for the acquisition of Nabisco.

Capital expenditures, which were funded by operating activities, were $1.2
billion, $1.1 billion and $906 million in 2002, 2001 and 2000, respectively. The
capital expenditures were primarily to modernize the manufacturing facilities,
lower cost of production and expand production capacity for growing product
lines. In 2003, capital expenditures are expected to be at or slightly below
2002 expenditures and are expected to be funded from operations.

Net Cash Used in Financing Activities

During 2002, net cash of $2.6 billion was used in financing activities, compared
with $2.1 billion during 2001. The increase in cash used was due primarily to
dividends paid during 2002 and repurchases of the Company's Class A common
stock. During 2002, the Company issued $2.5 billion of global bonds and $750
million of floating rate notes, the proceeds of which were used to repay
outstanding indebtedness. Financing activities included net debt repayments of
approximately $1.5 billion in 2002.

During 2001, net cash of $2.1 billion was used in financing activities, compared
with $13.0 financing activities during 2000. During 2001, financing activities
included net debt repayments of $2.0 billion, debt repayments of made with IPO
proceeds. The net proceeds from the IPO were used to repay debt to Altria Group,
Inc. and affiliates, and, as a result, had no impact on financing cash flows. In
2000, the Company's financing activities provided cash, as additional borrowings
to finance the acquisition of Nabisco exceeded the cash used to pay dividends.

Debt and Liquidity

The SEC issued Financial Reporting Release No. 61, which sets forth the views of
the SEC regarding enhanced disclosures relating to liquidity and capital
resources. The information provided below about the Company's debt, credit
facilities, guarantees and future commitments is included here to facilitate a
review of the Company's liquidity.

Debt: The Company's total debt, including amounts due to Altria Group, Inc. and
affiliates, was $14.4 billion at December 31, 2002 and $16.0 billion at December
31, 2001. Aggregate prepayments of $3.9 billion on the 7.0% note payable to
Altria Group, Inc. and affiliates and repayments of short-term borrowings were
partially offset by an increase in long-term debt.

In April 2002, the Company filed a Form S-3 shelf registration statement with
the Securities and Exchange Commission, under which the Company may sell debt
securities and/or warrants to purchase debt securities in one or more offerings
up to a total amount of $5.0 billion. In May 2002, the Company issued
$2.5 billion of global bonds under the shelf registration. The bond offering
included $1.0 billion of five-year notes bearing interest at a rate of 5.25% and
$1.5 billion of ten-year notes bearing interest at a rate of 6.25%. The net
proceeds from the offering were used to retire maturing long-term debt in the
amount of $400 million and to prepay a portion (approximately $2.1 billion) of
the Company's 7.0% long-term note payable to Altria Group, Inc. and affiliates.
In November 2002, the Company issued $750 million of floating rate notes due in
2004 under the shelf registration. The interest rate on the notes is based on
the three-month London Interbank Offered Rate plus 0.20% and will be reset
quarterly. The net proceeds from the offering were used to prepay a portion of
the Company's 7.0% long-term note payable to Altria Group, Inc. and affiliates.
At December 31, 2002, the Company had $1,750 million of capacity remaining under
its existing $5.0 billion shelf registration statement.

During 2002, the Company prepaid $3,850 million of the 7.0% long-term notes
payable to Altria Group, Inc. and affiliates. In addition, at December 31, 2002,
the Company had short-term debt totaling $2,305 million to Altria Group, Inc.
and affiliates. Interest on these borrowings is based on the average one-month
London Interbank Offered Rate. A portion of the short-term debt, totaling $1,410
million, was reclassified on the consolidated balance sheet as long-term notes
due to Altria Group, Inc. and affiliates based upon the Company's ability and
intention to refinance such amounts on a long-term basis.


                                       38


                                Kraft Foods Inc.

As discussed in Notes 3, 7 and 8 to the consolidated financial statements, the
Company's total debt of $14.4 billion at December 31, 2002, which includes
borrowings from Altria Group, Inc. and affiliates, is due to be repaid as
follows: in 2003, $4.3 billion; in 2004-2005, $1.6 billion; in 2006-2007, $2.6
billion; and thereafter, $5.9 billion. Debt obligations due to be repaid in 2003
will be satisfied with a combination of short-term borrowings, long-term
borrowings and operating cash flows. The Company's debt-to-equity ratio was 0.56
at December 31, 2002 and 0.68 at December 31, 2001.

Credit Ratings: The Company's credit ratings by Moody's at December 31, 2002
were "P-1" in the commercial paper market and "A2" for long-term debt
obligations. The Company's credit ratings by Standard & Poor's at December 31,
2002 were "A-1" in the commercial paper market and "A-" for long-term debt
obligations. The Company's credit ratings by Fitch Rating Services at December
31, 2002 were "F-1" in the commercial paper market and "A" for long-term debt
obligations. Changes in the Company's credit ratings, although none are
currently anticipated, could result in corresponding changes in the Company's
borrowing costs. However, none of the Company's debt agreements require
accelerated repayment in the event of a decrease in credit ratings.

Credit Lines: The Company and its subsidiaries maintain credit lines with a
number of lending institutions, amounting to $5.6 billion at December 31, 2002.
Approximately $5.4 billion of these lines were undrawn at December 31, 2002.
Certain of these credit lines were used to support commercial paper borrowings
of $1.4 billion at December 31, 2002, the proceeds of which were used for
general corporate purposes. Approximately $600 million of these credit lines are
available to meet the short-term working capital needs of the Company's
international businesses. At December 31, 2002, the Company's credit lines also
include a $2.0 billion, five-year revolving credit facility expiring in July
2006 and a $3.0 billion 364-day revolving credit facility expiring in July 2003.
These credit facilities require the maintenance of a minimum net worth, as
defined in the credit facility, of $18.2 billion, which the Company met at
December 31, 2002. The Company does not currently anticipate any difficulty in
continuing to meet this covenant requirement. The foregoing revolving credit
facilities do not include any other financial tests, any credit rating triggers
or any provisions that could require the posting of collateral. The five-year
revolving credit facility enables the Company to reclassify short-term debt on a
long-term basis. At December 31, 2002, $1.4 billion of commercial paper
borrowings that the Company intends to refinance were reclassified as long-term
debt. The Company expects to continue to refinance long-term and short-term debt
from time to time. The nature and amount of the Company's long-term and
short-term debt and the proportionate amount of each can be expected to vary as
a result of future business requirements, market conditions and other factors.

Guarantees and Commitments: As discussed in Note 17 to the consolidated
financial statements, the Company had third-party guarantees, which are
primarily derived from acquisition and divestiture activities, of $36 million at
December 31, 2002. Substantially all of these guarantees expire through 2012,
with $12 million expiring in 2003. The Company is required to perform under
these guarantees in the event that a third fails to make contractual payments or
achieve performance measures. The Company has recorded a liability of $21
million at December 31, 2002 relating to these guarantees. In addition, at
December 31, 2002, the Company was contingently liable for $58 million of
guarantees related to its own performance. These include surety bonds related to
dairy commodity purchases and guarantees related to letters of credit.
Guarantees do not have, and are not expected to have, a significant impact on
the Company's liquidity.

The Company's consolidated rent expense for 2002 was $437 million. Accordingly,
the Company does not consider its lease commitments to be a significant
determinant of the Company's liquidity.

                                -----------------

The Company believes that its cash from operations, existing credit facilities
and access to global capital markets will provide sufficient liquidity to meet
its working capital needs, planned capital expenditures and payment of its
anticipated quarterly dividends.

Equity and Dividends

Dividends paid in 2002 and 2001 were $936 million and $225 million,
respectively, reflecting the payment of four quarterly dividends during 2002,
compared with one during 2001, as well as a higher dividend rate in 2002. During
the third quarter of 2002, the Company's Board of Directors approved a 15.4%
increase in the quarterly dividend rate to $0.15 per share on its Class A and
Class B common stock. As a result, the present annualized dividend rate is $0.60
per common share. The declaration of dividends is subject to the discretion of
the Company's Board of Directors and will depend on various factors, including
the Company's net earnings, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Company's Board of Directors.

On June 21, 2002, the Company's Board of Directors approved the repurchase from
time to time of up to $500 million of the Company's Class A common stock solely
to satisfy the obligations of the Company to provide shares under its 2001
Performance Incentive Plan, 2001 Director Plan for non-employee directors, and
other plans where options to purchase the Company's Class A common stock are
granted to employees of the Company. During 2002, the Company repurchased
approximately 4.4 million shares of its Class A common stock at a cost of $170
million.

Concurrently with the IPO, certain employees of Altria Group, Inc. and its
subsidiaries (other than the Company) received a one-time grant of options to
purchase shares of the Company's Class A common stock held by Altria Group, Inc.
at the IPO price of $31.00 per share. In order to completely satisfy this
obligation and maintain its current percentage ownership of the Company, Altria
Group, Inc. purchased 1.6 million shares of the Company's Class A common stock
in open market transactions during 2002.


                                       39


                                Kraft Foods Inc.

Market Risk

The Company operates globally, with manufacturing and sales facilities in
various locations around the world, and utilizes certain financial instruments
to manage its foreign currency and commodity exposures, which primarily relate
to forecasted transactions. Derivative financial instruments are used by the
Company, principally to reduce exposures to market risks resulting from
fluctuations in foreign exchange rates and commodity prices by creating
offsetting exposures. The Company is not a party to leveraged derivatives and,
by policy, does not use financial instruments for speculative purposes.

Substantially all of the Company's derivative financial instruments are
effective as hedges under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." During the years ended December 31, 2002 and 2001,
ineffectiveness related to cash flow hedges was not material. At December 31,
2002, the Company is hedging forecasted transactions for periods not exceeding
fifteen months and expects substantially all amounts reported in accumulated
other comprehensive earnings (losses) to be reclassified to the consolidated
statement of earnings within the next twelve months.

Foreign Exchange Rates: The Company uses forward foreign exchange contracts and
foreign currency options to mitigate its exposure to changes in foreign currency
exchange rates from third-party and intercompany forecasted transactions. The
primary currencies to which the Company is exposed, based on the size and
location of its operations, include the euro, British pound and Canadian dollar.
At December 31, 2002 and 2001, the Company had option and forward foreign
exchange contracts with aggregate notional amounts of $575 million and $431
million, respectively, which are comprised of contracts for the purchase and
sale of foreign currencies. The effective portion of unrealized gains and losses
associated with forward contracts is deferred as a component of accumulated
other comprehensive earnings (losses) until the underlying hedged transactions
are reported on the Company's consolidated statement of earnings.

Commodities: The Company is exposed to price risk related to forecasted
purchases of certain commodities used as raw materials by the Company's
businesses. Accordingly, the Company uses commodity forward contracts, as cash
flow hedges, primarily for coffee, cocoa, milk and cheese. Commodity futures and
options are also used to hedge the price of certain commodities, including milk,
coffee, cocoa, wheat, corn, sugar and soybean oil. In general, commodity forward
contracts qualify for the normal purchase exception under SFAS No. 133 and are,
therefore, not subject to the provisions of SFAS No.133. At December 31, 2002
and 2001, the Company had net long commodity positions of $544 million and $589
million, respectively. Unrealized gains or losses on net commodity positions
were immaterial at December 31, 2002 and 2001. The effective portion of
unrealized gains and losses on commodity futures and option contracts is
deferred as a component of accumulated other comprehensive earnings (losses) and
is recognized as a component of cost of sales in the Company's consolidated
statement of earnings when the related inventory is sold.

Value at Risk: The Company uses a value at risk ("VAR") computation to estimate
the potential one-day loss in the fair value of its interest rate-sensitive
financial instruments and to estimate the potential one-day loss in pre-tax
earnings of its foreign currency and commodity component of cost sales in the
Company's consolidated price-sensitive derivative financial instruments. The VAR
statement of earnings when the related inventory is sold. computation includes
the Company's debt; short-term investments; foreign currency forwards, swaps and
options; and commodity futures, forwards and options. Anticipated transactions,
foreign currency trade payables and receivables, and net investments in foreign
subsidiaries, which the foregoing instruments are intended to hedge, were
excluded from the computation.

The VAR estimates were made assuming normal market conditions, using a 95%
confidence interval. The Company used a "variance/co-variance" model to
determine the observed interrelationships between movements in interest rates
and various currencies. These interrelationships were determined by observing
interest rate and forward currency rate movements over the preceding quarter for
the calculation of VAR amounts at December 31, 2002 and 2001, and over each of
the four preceding quarters for the calculation of average VAR amounts during
each year. The values of foreign currency and commodity options do not change on
a one-to-one basis with the underlying currency or commodity, and were valued
accordingly in the VAR computation.

The estimated potential one-day loss in fair value of the Company's interest
rate-sensitive instruments, primarily debt, under normal market conditions and
the estimated potential one-day loss in pre-tax earnings from foreign currency
and commodity instruments under normal market conditions, as calculated in the
VAR model, were as follows:



                                               Pre-Tax Earnings Impact
                                 -------------------------------------------------
(in millions)                    At 12/31/02     Average        High          Low
- ----------------------------------------------------------------------------------
                                                                
Instruments sensitive to:
  Foreign currency rates          $    5        $    2        $    5        $    1
  Commodity prices                     4             6             9             4
==================================================================================





                                                  Fair Value Impact
                                 -------------------------------------------------
(in millions)                    At 12/31/02     Average        High          Low
- ----------------------------------------------------------------------------------
                                                                
Instruments sensitive to:
  Interest rates                  $   76        $   74        $   76        $   70
==================================================================================




                                            Pre-Tax Earnings Impact
                                 -------------------------------------------------
(in millions)                    At 12/31/02     Average        High          Low
- ----------------------------------------------------------------------------------
                                                                
Instruments sensitive to:
  Foreign currency rates          $    2        $    6        $   13        $    2
  Commodity prices                     5             7            11             5
==================================================================================




                                                 Fair Value Impact
                                 -------------------------------------------------
(in millions)                    At 12/31/02     Average        High          Low
- ----------------------------------------------------------------------------------
                                                                
Instruments sensitive to:
  Interest rates                  $  122        $   79        $  122        $   56
==================================================================================



                                       40


                                Kraft Foods Inc.

This VAR computation is a risk analysis tool designed to statistically estimate
the maximum probable daily loss from adverse movements in interest rates,
foreign currency rates and commodity prices under normal market conditions. The
computation does not purport to represent actual losses in fair value or
earnings to be incurred by the Company, nor does it consider the effect of
favorable changes in market rates. The Company cannot predict actual future
movements in such market rates and does not present these VAR results to be
indicative of future movements in such market rates or to be representative of
any actual impact that future changes in market rates may have on its future
results of operations or financial position.

New Accounting Standards

As previously discussed, on January 1, 2002, the Company adopted SFAS No. 141,
"Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets,"
Emerging Issues Task Force ("EITF") Issue No. 00-14, "Accounting for Certain
Sales Incentives" and EITF Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products."

Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of." SFAS No. 144 provides updated guidance concerning the recognition
and measurement of an impairment loss for certain types of long-lived assets,
expands the scope of a discontinued operation to include a component of an
entity and eliminates the exemption to consolidation when control over a
subsidiary is likely to be temporary. The adoption of this new standard did not
have a material impact on the Company's consolidated financial position, results
of operations or cash flows.

In July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS
No. 146 requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Costs covered by SFAS No. 146 include lease termination
costs and certain employee severance costs that are associated with a
restructuring, discontinued operation, plant closing or other exit or disposal
activity. This statement is effective for exit or disposal activities that are
initiated after December 31, 2002. Accordingly, the Company will apply the
provisions of SFAS No. 146 prospectively to exit or disposal activities
initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." Interpretation No. 45 requires the disclosure of
certain guarantees existing at December 31, 2002. In addition, Interpretation
No. 45 requires the recognition of a liability for the fair value of the
obligation of qualifying guarantee activities that are initiated or modified
after December 31, 2002. Accordingly, the Company will apply the recognition
provisions of Interpretation No. 45 prospectively to guarantee activities
initiated after December 31, 2002.

In November 2002, the EITF issued EITF Issue No. 00-21, "Revenue Arrangements
with Multiple Deliverables," which addresses certain aspects of the accounting
by a vendor for arrangements under which it will perform multiple
revenue-generating activities. Specifically, EITF Issue No. 00-21 addresses how
to determine whether an arrangement involving multiple deliverables contains
more than one unit of accounting. EITF Issue No. 00-21 is effective for the
Company for revenue arrangements entered into beginning July 1, 2003. The
Company does not expect the adoption of EITF Issue No. 00-21 to have a material
impact on its 2003 consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation No. 46 requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the company that has the
controlling financial interest. Interpretation No. 46 also provides the
framework for determining whether a variable interest entity should be
consolidated based on voting interests or significant financial support provided
to it. Interpretation No. 46 will be effective for the Company on February 1,
2003 for variable interest entities created after January 31, 2003, and on July
1, 2003 for variable interest entities created prior to February 1, 2003. The
Company does not expect the adoption of Interpretation No. 46 to have a material
impact on its 2003 consolidated financial statements.

Contingencies

See Note 17 to the consolidated financial statements for a discussion of
contingencies.


                                       41


                                Kraft Foods Inc.

Forward-Looking and Cautionary Statements

The Company and its representatives may from time to time make written or oral
forward-looking statements, including statements contained in the Company's
filings with the SEC and in its reports to shareholders. One can identify these
forward-looking statements by use of words such as "strategy," "expects,"
"plans," "anticipates," "believes," "will," "continues," "estimates," "intends,"
"projects," "goals," "targets" and other words of similar meaning. One can also
identify them by the fact that they do not relate strictly to historical or
current facts. These statements are based on our assumptions and estimates and
are subject to risks and uncertainties. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
is hereby identifying important factors that could cause actual results and
outcomes to differ materially from those contained in any forward-looking
statement made by or on behalf of the Company; any such statement is qualified
by reference to the following cautionary statements.

Each of the Company's segments is subject to intense competition, changes in
consumer preferences, the effects of changing prices for its raw materials
and local economic conditions. Their results are dependent upon their
continued ability to promote brand equity successfully, to anticipate and
respond to new consumer trends, to develop new products and markets, to
broaden brand portfolios in order to compete effectively with lower priced
products in a consolidating environment at the retail and manufacturing
levels, and to improve productivity. The Company's results are also dependent
on its ability to consummate and successfully integrate acquisitions,
including its ability to derive cost savings from the integration of
Nabisco's operations with the Company. In addition, the Company is subject to
the effects of foreign economies, currency movements and fluctuations in
levels of customer inventories. The Company's benefit expense is subject to
the investment performance of pension plan assets, interest rates and cost
increases for medical benefits offered to employees and retirees. The food
industry continues to be subject to recalls if products become adulterated or
misbranded, liability if product consumption causes injury, ingredient
disclosure and labeling laws and regulations and the possibility that
consumers could lose confidence in the safety and quality of certain food
products. Developments in any of these areas, which are more fully described
elsewhere in this document and which descriptions are incorporated into this
section by reference, could cause the Company's results to differ materially
from results that have been or may be projected by or on behalf of the
Company. The Company cautions that the foregoing list of important factors is
not exclusive. Any forward-looking statements are made as of the date of the
document in which they appear. The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on behalf
of the Company.


                                       42


                                Kraft Foods Inc.

Selected Financial Data -- Five-Year Review



(in millions of dollars, except per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                  2002          2001          2000             1999            1998
- -----------------------------------------------------------------------------------------------------------------------------------

                                                                                                        
Summary of Operations:
   Net revenues*                                            $   29,723    $   29,234    $   22,922    $      23,430    $     24,140
   Cost of sales*                                               17,720        17,566        13,959           14,615          15,586
   Operating income                                              6,114         4,884         4,012            3,579           3,535
   Interest and other debt expense, net                            847         1,437           597              539             536
   Earnings before income taxes and minority interest            5,267         3,447         3,415            3,040           2,999
   Pre-tax profit margin                                          17.7%         11.8%         14.9%            13.0%           12.4%
   Provision for income taxes                                    1,869         1,565         1,414            1,287           1,367
- -----------------------------------------------------------------------------------------------------------------------------------
   Net earnings                                                  3,394         1,882         2,001            1,753           1,632
   Basic EPS                                                      1.96          1.17          1.38             1.20            1.12
   Diluted EPS                                                    1.96          1.17          1.38             1.20            1.12
   Dividends declared per share                                   0.56          0.26            --               --              --
   Weighted average shares (millions)--Basic                     1,734         1,610         1,455            1,455           1,455
   Weighted average shares (millions)--Diluted                   1,736         1,610         1,455            1,455           1,455
- -----------------------------------------------------------------------------------------------------------------------------------
   Capital expenditures                                          1,184         1,101           906              860             841
   Depreciation                                                    709           680           499              491             494
   Property, plant and equipment, net                            9,559         9,109         9,405            6,526           6,494
   Inventories                                                   3,382         3,026         3,041            2,563           2,570
   Total assets                                                 57,100        55,798        52,071           30,336          31,391
   Long-term debt                                               10,416         8,134         2,695              433             483
   Notes payable to Altria Group, Inc. and affiliates            2,560         5,000        21,407            6,602           6,234
   Total debt                                                   14,443        16,007        25,826            7,828           7,168
- -----------------------------------------------------------------------------------------------------------------------------------
   Total deferred income taxes                                   4,917         4,565           942              789             707
   Shareholders' equity                                         25,832        23,478        14,048           13,461          15,134
   Common dividends declared as a % of Basic EPS                  28.6%         22.2%           --               --              --
   Common dividends declared as a % of Diluted EPS                28.6%         22.2%           --               --              --
   Book value per common share outstanding                       14.92         13.53          9.65             9.25           10.40
   Market price per Class A common share--high/low         43.95-32.50   35.57-29.50            --               --              --
- -----------------------------------------------------------------------------------------------------------------------------------
   Closing price of Class A common share at year end             38.93         34.03            --               --              --
   Price/earnings ratio at year end--Basic                          20            29            --               --              --
   Price/earnings ratio at year end--Diluted                        20            29            --               --              --
   Number of common shares outstanding at
     year end (millions)                                         1,731         1,735         1,455            1,455           1,455
   Number of employees                                         109,000       114,000       117,000           71,000          78,000
===================================================================================================================================


*Kraft Foods Inc. adopted Emerging Issues Task Force ("EITF") statements
relating to the classification of vendor consideration and certain sales
incentives resulting in a reclassification of prior period data. The adoption of
the EITF statements had no impact on operating income, net earnings, or basic
and diluted EPS.


                                       43


                                Kraft Foods Inc.

Consolidated Balance Sheets



(in millions of dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31,                                                                                                    2002        2001
- -----------------------------------------------------------------------------------------------------------------------------------

                                                                                                                     
Assets
  Cash and cash equivalents                                                                                    $    215    $    162
  Receivables (less allowances of $119 and $151)                                                                  3,116       3,131
  Inventories:
    Raw materials                                                                                                 1,372       1,281
    Finished product                                                                                              2,010       1,745
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  3,382       3,026
  Deferred income taxes                                                                                             511         466
  Other current assets                                                                                              232         221
- -----------------------------------------------------------------------------------------------------------------------------------
    Total current assets                                                                                          7,456       7,006

  Property, plant and equipment, at cost:
    Land and land improvements                                                                                      387         387
    Buildings and building equipment                                                                              3,153       2,915
    Machinery and equipment                                                                                      10,108       9,264
    Construction in progress                                                                                        802         706
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 14,450      13,272
    Less accumulated depreciation                                                                                 4,891       4,163
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  9,559       9,109
  Goodwill and other intangible assets, net                                                                      36,420      35,957
  Prepaid pension assets                                                                                          2,814       2,675
  Other assets                                                                                                      851       1,051
- -----------------------------------------------------------------------------------------------------------------------------------
  Total Assets                                                                                                 $ 57,100    $ 55,798
===================================================================================================================================

Liabilities
  Short-term borrowings                                                                                        $    220    $    681
  Current portion of long-term debt                                                                                 352         540
  Due to Altria Group, Inc. and affiliates                                                                          895       1,652
  Accounts payable                                                                                                1,939       1,897
  Accrued liabilities:
    Marketing                                                                                                     1,474       1,398
    Employment costs                                                                                                610         658
    Other                                                                                                         1,316       1,821
  Income taxes                                                                                                      363         228
- -----------------------------------------------------------------------------------------------------------------------------------
    Total current liabilities                                                                                     7,169       8,875
  Long-term debt                                                                                                 10,416       8,134
  Deferred income taxes                                                                                           5,428       5,031
  Accrued postretirement health care costs                                                                        1,889       1,850
  Notes payable to Altria Group, Inc. and affiliates                                                              2,560       5,000
  Other liabilities                                                                                               3,806       3,430
- -----------------------------------------------------------------------------------------------------------------------------------
    Total liabilities                                                                                            31,268      32,320
- -----------------------------------------------------------------------------------------------------------------------------------

Contingencies (Note 17)

Shareholders' Equity
  Class A common stock, no par value (555,000,000 shares issued in 2002 and 2001)
  Class B common stock, no par value (1,180,000,000 shares issued and outstanding)
  Additional paid-in capital                                                                                     23,655      23,655
  Earnings reinvested in the business                                                                             4,814       2,391
  Accumulated other comprehensive losses (primarily currency translation adjustments)                            (2,467)     (2,568)
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 26,002      23,478
  Less cost of repurchased stock (4,381,150 Class A shares)                                                        (170)
- -----------------------------------------------------------------------------------------------------------------------------------
    Total shareholders' equity                                                                                   25,832      23,478
- -----------------------------------------------------------------------------------------------------------------------------------
  Total Liabilities and Shareholders' Equity                                                                   $ 57,100    $ 55,798
===================================================================================================================================

See notes to consolidated financial statements.


                                       44


                                Kraft Foods Inc.

Consolidated Statements of Earnings



(in millions of dollars, except per share data)

- -----------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31,                                                                       2002        2001        2000
- -----------------------------------------------------------------------------------------------------------------------------------

                                                                                                                  
Net revenues                                                                                       $ 29,723    $ 29,234    $ 22,922
Cost of sales                                                                                        17,720      17,566      13,959
- -----------------------------------------------------------------------------------------------------------------------------------

  Gross profit                                                                                       12,003      11,668       8,963
Marketing, administration and research costs                                                          5,709       5,748       4,588
Integration costs and a loss on sale of a food factory                                                  111          82
Separation programs                                                                                     142
Gains on sales of businesses                                                                            (80)         (8)       (172)
Amortization of intangibles                                                                               7         962         535
- -----------------------------------------------------------------------------------------------------------------------------------

  Operating income                                                                                    6,114       4,884       4,012
Interest and other debt expense, net                                                                    847       1,437         597
- -----------------------------------------------------------------------------------------------------------------------------------

  Earnings before income taxes and minority interest                                                  5,267       3,447       3,415
Provision for income taxes                                                                            1,869       1,565       1,414
- -----------------------------------------------------------------------------------------------------------------------------------

  Earnings before minority interest                                                                   3,398       1,882       2,001
Minority interest in earnings, net                                                                        4
- -----------------------------------------------------------------------------------------------------------------------------------
  Net earnings                                                                                     $  3,394    $  1,882    $  2,001
===================================================================================================================================

Per share data:
  Basic earnings per share                                                                         $   1.96    $   1.17    $   1.38
===================================================================================================================================
  Diluted earnings per share                                                                       $   1.96    $   1.17    $   1.38
===================================================================================================================================


See notes to consolidated financial statements.


                                       45


                                Kraft Foods Inc.

Consolidated Statements of Cash Flows



(in millions of dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31,                                                            2002             2001              2000
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   
Cash Provided By (Used In) Operating Activities
 Net earnings                                                                            $ 3,394          $ 1,882           $ 2,001
 Adjustments to reconcile net earnings to operating cash flows:
  Depreciation and amortization                                                              716            1,642             1,034
  Deferred income tax provision                                                              278              414               245
  Gains on sales of businesses                                                               (80)              (8)             (172)
  Integration costs and a loss on sale of a food factory                                     111               82
  Separation programs                                                                        142
  Cash effects of changes, net of the effects from acquired and
   divested companies:
   Receivables, net                                                                          116               23               204
   Inventories                                                                              (220)            (107)              175
   Accounts payable                                                                         (116)             (73)               13
   Income taxes                                                                              277               74                35
  Other working capital items                                                               (552)            (407)             (195)
  Increase in pension assets and postretirement liabilities, net                             (34)            (245)             (215)
  (Decrease) increase in amount due to Altria Group, Inc. and affiliates                    (244)             138               104
  Other                                                                                      (68)             (87)               25
- -----------------------------------------------------------------------------------------------------------------------------------
   Net cash provided by operating activities                                               3,720            3,328             3,254
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Provided By (Used In) Investing Activities
 Capital expenditures                                                                     (1,184)          (1,101)             (906)
 Purchase of Nabisco, net of acquired cash                                                                                  (15,159)
 Purchases of other businesses, net of acquired cash                                        (122)            (194)             (365)
 Proceeds from sales of businesses                                                           219               21               300
 Other                                                                                        35               52                (8)
- -----------------------------------------------------------------------------------------------------------------------------------
   Net cash used in investing activities                                                  (1,052)          (1,222)          (16,138)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Provided By (Used In) Financing Activities
 Net (repayment) issuance of short-term borrowings                                        (1,036)           2,505              (816)
 Long-term debt proceeds                                                                   3,325            4,077                87
 Long-term debt repaid                                                                      (609)            (705)             (112)
 Net proceeds from sale of Class A common stock                                                             8,425
 Proceeds from issuance of notes payable to Altria Group, Inc. and affiliates                                                 15,000
 Repayment of notes payable to Altria Group, Inc. and affiliates                          (3,850)         (16,350)             (124)
 Increase in amounts due to Altria Group, Inc. and affiliates                                660              142               143
 Repurchase of Class A common stock                                                         (170)
 Dividends paid                                                                             (936)            (225)           (1,009)
 Other                                                                                                                         (187)
- -----------------------------------------------------------------------------------------------------------------------------------
   Net cash (used in) provided by financing activities                                    (2,616)          (2,131)           12,982
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents                                   1               (4)               (2)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents:
   Increase (decrease)                                                                        53              (29)               96
   Balance at beginning of year                                                              162              191                95
- -----------------------------------------------------------------------------------------------------------------------------------
   Balance at end of year                                                                $   215          $   162           $   191
===================================================================================================================================
Cash paid:
   Interest                                                                              $   825          $ 1,433           $   605
===================================================================================================================================
   Income taxes                                                                          $ 1,368          $ 1,058           $ 1,051
===================================================================================================================================

See notes to consolidated financial statements.


                                       46

                                Kraft Foods Inc.

Consolidated Statements of Shareholders' Equity



(in millions of dollars, except per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                             Accumulated Other
                                                                     Comprehensive Earnings (Losses)
                                                                    --------------------------------
                                   Class A               Earnings
                                     and B  Additional Reinvested      Currency                           Cost of             Total
                                    Common     Paid-in     in the   Translation                         Repurchased   Shareholders'
                                     Stock     Capital   Business   Adjustments      Other     Total        Stock            Equity
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
Balances, January 1, 2000              $--     $15,230     $   --       $(1,741)     $ (28)  $(1,769)       $  --           $13,461

Comprehensive earnings:
 Net earnings                                               2,001                                                             2,001
 Other comprehensive losses,
  net of income taxes:
  Currency translation
   adjustments                                                             (397)                (397)                          (397)
  Additional minimum
   pension liability                                                                    (8)       (8)                            (8)
- -----------------------------------------------------------------------------------------------------------------------------------
 Total other comprehensive losses                                                                                              (405)
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive earnings                                                                                                  1,596
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends declared                                         (1,009)                                                           (1,009)
- -----------------------------------------------------------------------------------------------------------------------------------
 Balances, December 31, 2000            --      15,230        992        (2,138)       (36)   (2,174)          --            14,048

Comprehensive earnings:
 Net earnings                                               1,882                                                             1,882
 Other comprehensive losses,
  net of income taxes:
  Currency translation
   adjustments                                                             (298)                (298)                          (298)
  Additional minimum
   pension liability                                                                   (78)      (78)                           (78)
  Change in fair value of
   derivatives accounted
   for as hedges                                                                       (18)      (18)                           (18)
- -----------------------------------------------------------------------------------------------------------------------------------
 Total other comprehensive losses                                                                                              (394)
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive earnings                                                                                                  1,488
- -----------------------------------------------------------------------------------------------------------------------------------
Sale of Class A common stock
 to public                                       8,425                                                                        8,425
Dividends declared
 ($0.26 per share)                                           (483)                                                             (483)
- -----------------------------------------------------------------------------------------------------------------------------------
 Balances, December 31, 2001            --      23,655      2,391        (2,436)      (132)   (2,568)          --            23,478

Comprehensive earnings:
 Net earnings                                               3,394                                                             3,394
 Other comprehensive earnings
  (losses), net of income taxes:
  Currency translation
   adjustments                                                              187                  187                            187
  Additional minimum
   pension liability                                                                  (117)     (117)                          (117)
  Change in fair value of
   derivatives accounted
   for as hedges                                                                        31        31                             31
- -----------------------------------------------------------------------------------------------------------------------------------
 Total other comprehensive earnings                                                                                             101
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive earnings                                                                                                  3,495
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends declared
 ($0.56 per share)                                           (971)                                                             (971)
Class A common stock
 repurchased                                                                                                 (170)             (170)
- -----------------------------------------------------------------------------------------------------------------------------------
 Balances, December 31, 2002           $--     $23,655     $4,814       $(2,249)     $(218)  $(2,467)       $(170)          $25,832
- -----------------------------------------------------------------------------------------------------------------------------------

See notes to consolidated financial statements.


                                       47


                                Kraft Foods Inc.

Notes to Consolidated Financial Statements

NOTE 1. Background and Basis of Presentation:

Background: Kraft Foods Inc. ("Kraft") was incorporated in 2000 in the
Commonwealth of Virginia. Following Kraft's formation, Altria Group, Inc.
(formerly Philip Morris Companies Inc.), transferred to Kraft its ownership
interest in Kraft Foods North America, Inc. ("KFNA"), a Delaware corporation,
through a capital contribution. In addition, during 2000, a subsidiary of Altria
Group, Inc. transferred management responsibility for its food businesses in
Latin America to KFNA and its wholly-owned subsidiary, Kraft Foods
International, Inc. ("KFI"). Kraft, through its subsidiaries (Kraft and its
subsidiaries are hereinafter referred to as the "Company"), is engaged in the
manufacture and sale of branded foods and beverages in the United States,
Canada, Europe, Latin America, Asia Pacific and Middle East and Africa.

On December 11, 2000, the Company acquired all of the outstanding shares of
Nabisco Holdings Corp. ("Nabisco") for $55 per share in cash. See Note 5.
Acquisitions for a complete discussion of this transaction.

Prior to June 13, 2001, the Company was a wholly-owned subsidiary of Altria
Group, Inc. On June 13, 2001, the Company completed an initial public offering
("IPO") of 280,000,000 shares of its Class A common stock at a price of $31.00
per share. The IPO proceeds, net of the underwriting discount and expenses, of
$8.4 billion were used to retire a portion of an $11.0 billion long-term note
payable to Altria Group, Inc., incurred in connection with the acquisition of
Nabisco. After the IPO, Altria Group, Inc. owned approximately 83.9% of the
outstanding shares of the Company's capital stock through its ownership of 49.5%
of the Company's Class A common stock and 100% of the Company's Class B common
stock. The Company's Class A common stock has one vote per share, while the
Company's Class B common stock has ten votes per share. At December 31, 2002,
Altria Group, Inc. held 97.8% of the combined voting power of the Company's
outstanding capital stock and owned approximately 84.2% of the outstanding
shares of the Company's capital stock.

Basis of Presentation: The consolidated financial statements include Kraft and
its subsidiaries. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
net revenues and expenses during the reporting periods. Significant estimates
and assumptions include, among other things, pension and benefit plan
assumptions and income taxes. Actual results could differ from those estimates.
The Company's operating subsidiaries report year-end results as of the Saturday
closest to the end of each year. This resulted in fifty-three weeks of operating
results in the Company's consolidated statement of earnings for the year ended
December 31, 2000.

Certain prior years' amounts have been reclassified to conform with the current
year's presentation, due primarily to the adoption of new accounting rules
regarding revenues, as well as the disclosure of more detailed information on
the consolidated statements of earnings and the consolidated statements of cash
flows.

Note 2. Summary of Significant Accounting Policies:

Cash and cash equivalents: Cash equivalents include demand deposits with banks
and all highly liquid investments with original maturities of three months or
less.

Depreciation, amortization and goodwill valuation: Property, plant and equipment
are stated at historical cost and depreciated by the straight-line method over
the estimated useful lives of the assets. Machinery and equipment are
depreciated over periods ranging from 3 to 20 years and buildings and building
improvements over periods up to 40 years.

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill
and Other Intangible Assets." As a result, the Company stopped recording the
amortization of goodwill and indefinite life intangible assets as a charge to
earnings as of January 1, 2002. Net earnings and diluted earnings per share
("EPS") would have been as follows had the provisions of the new standards been
applied as of January 1, 2000:



                                        (in millions, except per share amounts)
- -------------------------------------------------------------------------------
For the years ended December 31,                             2001          2000
- -------------------------------------------------------------------------------
                                                                   
Net earnings, as previously reported                       $1,882        $2,001
Adjustment for amortization of goodwill and
  indefinite life intangibles                                 955           530
- -------------------------------------------------------------------------------
Net earnings, as adjusted                                  $2,837        $2,531
===============================================================================
Diluted EPS, as previously reported                        $ 1.17        $ 1.38
Adjustment for amortization of goodwill and
  indefinite life intangibles                                0.59          0.36
- -------------------------------------------------------------------------------
Diluted EPS, as adjusted                                   $ 1.76        $ 1.74
===============================================================================


In addition, the Company is required to conduct an annual review of goodwill and
intangible assets for potential impairment. In 2002, the Company completed its
review and did not have to record a charge to earnings for an impairment of
goodwill or other intangible assets.

At December 31, 2002, goodwill by reportable segment was as follows:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                                      
Cheese, Meals and Enhancers                                              $ 8,556
Biscuits, Snacks and Confectionery                                         9,262
Beverages, Desserts and Cereals                                            2,143
Oscar Mayer and Pizza                                                        616
- --------------------------------------------------------------------------------
   Total Kraft Foods North America                                        20,577
- --------------------------------------------------------------------------------
Europe, Middle East and Africa                                             4,082
Latin America and Asia Pacific                                               252
- --------------------------------------------------------------------------------
   Total Kraft Foods International                                         4,334
- --------------------------------------------------------------------------------
Total goodwill                                                           $24,911
================================================================================



                                       48


                                Kraft Foods Inc.

Intangible assets as of December 31, 2002 were as follows:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                        Gross
                                                     Carrying        Accumulated
                                                       Amount       Amortization
- --------------------------------------------------------------------------------
                                                                       
Non-amortizable intangible assets                     $11,485
Amortizable intangible assets                              54                $30
- --------------------------------------------------------------------------------
Total intangible assets                               $11,539                $30
================================================================================


Non-amortizable intangible assets are substantially comprised of brand names
purchased through the Nabisco acquisition. Amortizable intangible assets consist
primarily of certain trademark licenses and non-compete agreements. Pre-tax
amortization expense for intangible assets was $7 million for the year ended
December 31, 2002. Based upon the amortizable intangible assets recorded on the
consolidated balance sheet at December 31, 2002, amortization expense for each
of the next five years is estimated to be $8 million or less.

The increase in goodwill and other intangible assets, net, during the year ended
December 31, 2002, of $463 million is primarily related to currency translation,
partially offset by a $76 million decrease in goodwill relating to the favorable
completion of severance and exit programs associated with the Nabisco
acquisition.

Environmental costs: The Company is subject to laws and regulations relating to
the protection of the environment. The Company provides for expenses associated
with environmental remediation obligations on an undiscounted basis when such
amounts are probable and can be reasonably estimated. Such accruals are adjusted
as new information develops or circumstances change.

While it is not possible to quantify with certainty the potential impact of
actions regarding environmental remediation and compliance efforts that the
Company may undertake in the future, in the opinion of management, environmental
remediation and compliance costs, before taking into account any recoveries from
third parties, will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

Foreign currency translation: The Company translates the results of operations
of its foreign subsidiaries using average exchange rates during each period,
whereas balance sheet accounts are translated using exchange rates at the end of
each period. Currency translation adjustments are recorded as a component of
shareholders' equity. Transaction gains and losses are recorded in the
consolidated statements of earnings and were not significant for any of the
periods presented.

Guarantees: In November 2002, the Financial Accounting Standards Board
("FASB") issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." Interpretation No. 45 requires the disclosure of certain guarantees
existing at December 31, 2002. In addition, Interpretation No. 45 requires the
recognition of a liability for the fair value of the obligation of qualifying
guarantee activities that are initiated or modified after December 31, 2002.
Accordingly, the Company will apply the recognition provisions of
Interpretation No. 45 prospectively to guarantee activities initiated after
December 31, 2002. See Note 17. Contingencies for a further discussion of
guarantees.

Hedging instruments: Effective January 1, 2001, the Company adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," and its
related amendment, SFAS No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities" (collectively referred to as "SFAS No. 133").
These standards require that all derivative financial instruments be recorded on
the consolidated balance sheets at their fair value as either assets or
liabilities. Changes in the fair value of derivatives are recorded each period
either in accumulated other comprehensive losses or in earnings, depending on
whether a derivative is designated and effective as part of a hedge transaction
and, if it is, the type of hedge transaction. Gains and losses on derivative
instruments reported in accumulated other comprehensive earnings (losses) are
reclassified to the consolidated statement of earnings in the periods in which
operating results are affected by the hedged item. Cash flow hedging instruments
are classified in the same manner as the affected hedged item in the
consolidated statements of cash flows. As of January 1, 2001, the adoption
of these new standards did not have a material effect on net earnings (less than
$1 million) or accumulated other comprehensive losses (less than $1 million).

Impairment of long-lived assets: The Company reviews long-lived assets,
including amortizable intangible assets, for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. The Company performs undiscounted operating
cash flow analyses to determine if an impairment exists. If an impairment is
determined to exist, any related impairment loss is calculated based on fair
value. Impairment losses on assets to be disposed of, if any, are based on the
estimated proceeds to be received, less costs of disposal.

Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of." SFAS No. 144 provides updated guidance concerning the
recognition and measurement of an impairment loss for certain types of
long-lived assets, expands the scope of a discontinued operation to include a
component of an entity and eliminates the exemption to consolidation when
control over a subsidiary is likely to be temporary. The adoption of this new
standard did not have a material impact on the Company's consolidated financial
position, results of operations or cash flows.


                                        49


                                Kraft Foods Inc.

Income taxes: The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." The accounts of the Company are included in
the consolidated federal income tax return of Altria Group, Inc. Income taxes
are generally computed on a separate company basis. To the extent that foreign
tax credits, capital losses and other credits generated by the Company, which
cannot be utilized on a separate company basis, are utilized in Altria Group,
Inc.'s consolidated federal income tax return, the benefit is recognized in the
calculation of the Company's provision for income taxes. The Company utilized
tax benefits that it would otherwise not have been able to use of $193 million,
$185 million and $139 million for the years ended December 31, 2002, 2001 and
2000, respectively. The Company makes payments to, or is reimbursed by, Altria
Group, Inc., for the tax effects resulting from its inclusion in Altria Group,
Inc.'s consolidated federal income tax return.

Inventories: Inventories are stated at the lower of cost or market. The last-in,
first-out ("LIFO") method is used to cost substantially all domestic
inventories. The cost of other inventories is principally determined by the
average cost method.

Marketing costs: The Company promotes its products with significant marketing
activities, including advertising, consumer incentives and trade promotions.
Advertising costs are expensed as incurred. Consumer incentive and trade
promotion activities are recorded as a reduction of revenues based on amounts
estimated as being due to customers and consumers at the end of a period, based
principally on historical utilization and redemption rates.

Revenue recognition: The Company recognizes revenues, net of sales incentives
and including shipping and handling charges billed to customers, upon shipment
of goods when title and risk of loss pass to customers. Shipping and handling
costs are classified as part of cost of sales.

Effective January 1, 2002, the Company adopted the Emerging Issues Task Force
("EITF") Issue No. 00-14, "Accounting for Certain Sales Incentives" and EITF
Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid
to a Reseller of the Vendor's Products." Prior period consolidated statements of
earnings have been reclassified to reflect the adoption. The adoption of these
EITF Issues resulted in a reduction of revenues of approximately $4.6 billion
and $3.6 billion in 2001 and 2000, respectively. In addition, the adoption
reduced marketing, administration and research costs by $4.7 billion and $3.7
billion in 2001 and 2000, respectively, while cost of sales increased by an
insignificant amount. The adoption of these EITF Issues had no impact on
operating income, net earnings or basic and diluted EPS.

Software costs: The Company capitalizes certain computer software and software
development costs incurred in connection with developing or obtaining
computer software for internal use. Capitalized software costs are amortized
on a straight-line basis over the estimated useful lives of the software,
which do not exceed five years.

Stock-based compensation: The Company accounts for employee stock compensation
plans in accordance with the intrinsic value-based method permitted by SFAS No.
123, "Accounting for Stock-Based Compensation," which did not result in
compensation cost for stock options.

At December 31, 2002, the Company had stock-based employee compensation plans,
which are described more fully in Note 10. Stock Plans. The Company applies the
recognition and measurement principles of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related Interpretations
in accounting for those plans. No compensation expense for employee stock
options is reflected in net earnings as all options granted under those plans
had an exercise price equal to the market value of the common stock on the date
of the grant. Net earnings, as reported, includes compensation expense related
to restricted stock. The following table illustrates the effect on net earnings
and EPS if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock-based employee compensation for the years ended December 31,
2002, 2001 and 2000:



                                            (in millions, except per share data)
- --------------------------------------------------------------------------------
                                                     2002       2001       2000
- --------------------------------------------------------------------------------
                                                                 
Net earnings, as reported                          $3,394     $1,882      $2,001
Deduct:
Total stock-based employee
 compensation expense determined
 under fair value method for all
 stock option awards, net of related
 tax effects                                           78         97          54
- --------------------------------------------------------------------------------
Pro forma net earnings                             $3,316     $1,785      $1,947
================================================================================
Earnings per share:
 Basic--as reported                                $ 1.96     $ 1.17      $ 1.38
================================================================================
 Basic--pro forma                                  $ 1.91     $ 1.11      $ 1.34
================================================================================
 Diluted--as reported                              $ 1.96     $ 1.17      $ 1.38
================================================================================
 Diluted--pro forma                                $ 1.91     $ 1.11      $ 1.34
================================================================================


New accounting pronouncements: In July 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Costs covered by SFAS No. 146 include lease termination
costs and certain employee severance costs that are associated with a
restructuring, discontinued operation, plant closing or other exit or disposal
activity. This statement is effective for exit or disposal activities that are
initiated after December 31, 2002. Accordingly, the Company will apply the
provisions of SFAS No. 146 prospectively to exit or disposal activities
initiated after December 31, 2002.

In November 2002, the EITF issued EITF Issue No. 00-21, "Revenue Arrangements
with Multiple Deliverables," which addresses certain aspects of the accounting
by a vendor for arrangements under which it will perform multiple
revenue-generating activities. Specifically, EIT Issue No. 00-21 addresses how
to determine whether an arrangement involving multiple


                                       50


                                Kraft Foods Inc.

deliverables contains more than one unit of accounting. EITF Issue No. 00-21 is
effective for the Company for revenue arrangements entered into beginning July
1, 2003. The Company does not expect the adoption of EITF Issue No. 00-21 to
have a material impact on its 2003 consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation No. 46 requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the company that has the
controlling financial interest. Interpretation No. 46 also provides the
framework for determining whether a variable interest entity should be
consolidated based on voting interests or significant financial support provided
to it. Interpretation No. 46 will be effective for the Company on February 1,
2003 for variable interest entities created after January 31, 2003, and on July
1, 2003 for variable interest entities created prior to February 1, 2003. The
Company does not expect the adoption of Interpretation No. 46 to have a material
impact on its 2003 consolidated financial statements.

Note 3. Related Party Transactions:

Altria Group, Inc.'s subsidiary, Altria Corporate Services, Inc., provides the
Company with various services, including planning, legal, treasury, accounting,
auditing, insurance, human resources, office of the secretary, corporate
affairs, information technology and tax services. In 2001, the Company entered
into a formal agreement with Altria Corporate Services, Inc., providing for a
continuation of these services, the cost of which increased $91 million during
2001 as Altria Corporate Services, Inc., provided information technology and
financial services, all of which were previously performed by the Company at
approximately the same cost. Billings for these services, which were based on
the cost to Altria Corporate Services, Inc. to provide such services and a
management fee, were $327 million, $339 million and $248 million for the years
ended December 31, 2002, 2001 and 2000, respectively. These costs were paid to
Altria Corporate Services, Inc. monthly. Although the cost of these services
cannot be quantified on a standalone basis, management believes that the
billings are reasonable based on the level of support provided by Altria
Corporate Services, Inc., and that they reflect all services provided. The cost
and nature of the services are reviewed annually by the Company's audit
committee, which is comprised of independent directors. The effects of these
transactions are included in operating cash flows in the Company's consolidated
statements of cash flows.

In addition, the Company's daily net cash or overdraft position is transferred
to Altria Group, Inc., or its European subsidiary. The Company pays or receives
interest based upon the applicable London Interbank Offered Rate, on the amounts
payable to, or receivable from, Altria Group, Inc., or its European subsidiary.

The Company also has long-term notes payable to Altria Group, Inc. and its
affiliates as follows:



                                                                   (in millions)
- --------------------------------------------------------------------------------
At December 31,                                              2002           2001
- --------------------------------------------------------------------------------
                                                                    
Notes payable in 2009, interest at 7.0%                    $1,150         $5,000
Short-term due to Altria Group, Inc. and
 affiliates reclassified as long-term                       1,410
- --------------------------------------------------------------------------------
                                                           $2,560         $5,000
================================================================================


The 7.0% notes have no prepayment penalty. During 2002, the Company prepaid
$3,850 million of the 7.0% long-term notes payable. In addition, at December 31,
2002, the Company has short-term debt totaling $2,305 million to Altria Group,
Inc. Interest on these borrowings is based on the average one-month London
Interbank Offered Rate. A portion of the debt, totaling $1,410 million, was
reclassified on the consolidated balance sheet as long-term notes due to Altria
Group, Inc. and affiliates based upon the Company's ability and intention to
refinance on a long-term basis.

Based on interest rates available to the Company for issuances of debt with
similar terms and remaining maturities, the aggregate fair value of the
Company's long-term notes payable to Altria Group, Inc. and affiliates, at
December 31, 2002 and 2001, were $2,764 million and $5,325 million,
respectively. The fair values of the Company's current amounts due to Altria
Group, Inc. and affiliates approximate carrying amounts.

Note 4. Divestitures:

During 2002, the Company sold several small North American food businesses, some
of which were previously classified as businesses held for sale. The net
revenues and operating results of the businesses held for sale, which were not
significant, were excluded from the Company's consolidated statements
of earnings, and no gain or loss was recognized on these sales. In addition, the
Company sold its Latin American yeast and industrial bakery ingredients business
for approximately $110 million and recorded a pre-tax gain of $69 million. The
aggregate proceeds received from sales of businesses were $219 million, on which
the Company recorded pretax gains of $80 million.

During 2001, the Company sold several small food businesses. The aggregate
proceeds received in these transactions were $21 million, on which the Company
recorded pre-tax gains of $8 million.

During 2000, the Company sold a French confectionery business for proceeds of
$251 million, on which a pre-tax gain of $139 million was recorded. Several
small international and North American food businesses were also sold in 2000.
The aggregate proceeds received from sales of businesses were $300 million, on
which the Company recorded pre-tax gains of $172 million.

The operating results of the businesses sold were not material to the Company's
consolidated operating results in any of the periods presented.


                                       51


                                Kraft Foods Inc.

Note 5. Acquisitions:

Nabisco: On December 11, 2000, the Company acquired all of the outstanding
shares of Nabisco for $55 per share in cash. The purchase of the outstanding
shares, retirement of employee stock options and other payments totaled
approximately $15.2 billion. In addition, the acquisition included the
assumption of approximately $4.0 billion of existing Nabisco debt. The
Company financed the acquisition through the issuance of two long-term notes
payable to Altria Group, Inc., totaling $15.0 billion, and short-term
intercompany borrowings of $255 million. The acquisition has been accounted
for as a purchase. Beginning January 1, 2001, Nabisco's earnings have been
included in the consolidated operating results of the Company. The Company's
interest cost associated with acquiring Nabisco has been included in interest
and other debt expense, net, on the Company's consolidated statements of
earnings for the years ended December 31, 2002, 2001 and 2000.

During 2001, the Company completed the allocation of excess purchase price
relating to Nabisco. As a result, the Company recorded, among other things, the
final valuations of property, plant and equipment and intangible assets,
primarily trade names, amounts relating to the closure of Nabisco facilities and
related deferred income taxes. The final allocation of excess purchase price at
December 31, 2001 was as follows:




                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                                      
Purchase price                                                           $15,254
Historical value of tangible assets acquired and
 liabilities assumed                                                      (1,271)
- --------------------------------------------------------------------------------
Excess of purchase price over assets acquired and
 liabilities assumed at the date of acquisition                           16,525
Increases for allocation of purchase price:
 Property, plant and equipment                                               367
 Other assets                                                                347
 Accrued postretirement health care costs                                    230
 Pension liabilities                                                         190
 Debt                                                                         50
 Legal, professional, lease and contract termination costs                   129
 Other liabilities, principally severance                                    602
 Deferred income taxes                                                     3,583
- --------------------------------------------------------------------------------
Goodwill and other intangible assets at December 31, 2001                $22,023
================================================================================


Goodwill and other intangible assets at December 31, 2001 included approximately
$11.7 billion related to trade names. The Company also recorded deferred federal
income taxes of $3.9 billion related to trade names. During 2002, the Company
decreased goodwill by $76 million due primarily to the favorable completion of
the severance and exit programs.

The closure of a number of Nabisco domestic and international facilities
resulted in severance and other exit costs of $379 million, which are included
in the above adjustments for the allocation of the Nabisco purchases price. The
closures will result in the termination of approximately 7,500 employees and
will require total cash payments of $373 million, of which approximately $190
million has been spent through December 31, 2002. Substantially all of the
closures were completed as of December 31, 2002, and the remaining payments
relate to salary continuation payments for severed employees and lease
payments.

The integration of Nabisco into the operations of the Company has also resulted
in the closure or reconfiguration of several of the Company's existing
facilities. The aggregate charges to the Company's consolidated statement of
earnings to close or reconfigure its facilities and integrate Nabisco were
originally estimated to be in the range of $200 million to $300 million. During
2002, the Company recorded pre-tax integration related charges of $115 million
to consolidate production lines, close facilities and for other consolidation
programs. In addition, during 2001, the Company incurred pre-tax integration
costs of $53 million for site reconfigurations and other consolidation programs
in the United States. The integration related charges of $168 million included
$27 million relating to severance, $117 million relating to asset write-offs and
$24 million relating to other cash exit costs. Cash payments relating to these
charges will approximate $51 million, of which $21 million has been paid through
December 31, 2002. In addition, during 2002, approximately 700 salaried
employees elected to retire or terminate employment under voluntary retirement
programs. As a result, the Company recorded a pre-tax charge of $142 million
related to these programs. As of December 31, 2002, the aggregate pre-tax
charges to close or reconfigure the Company's facilities, including charges for
early retirement programs, were $310 million, slightly above the original
estimate. No additional pre-tax charges are expected to be recorded for these
programs.

During 2001, certain small Nabisco businesses were reclassified to businesses
held for sale, including their estimated results of operations through
anticipated sale dates. These businesses have subsequently been sold, with the
exception of one business that had been held for sale since the acquisition of
Nabisco. This business, which is no longer held for sale, has been included in
2002 consolidated operating results.

Assuming the acquisition of Nabisco occurred at the beginning of 2000, pro forma
net revenues would have been approximately $30 billion and pro forma net
earnings would have been $1.4 billion in 2000; while 2000 basic and diluted EPS
would have been $0.96. These pro forma results, which are unaudited, do not give
effect to any synergies expected to result from the merger of Nabisco's
operations with those of the Company, nor do they give effect to the reduction
of interest expense from the repayment of borrowings with the proceeds from the
IPO. The pro forma results also do not reflect the effects of SFAS No. 141 and
142 on the amortization of goodwill or other intangible assets. The pro forma
results are not necessarily indicative of what actually would have occurred if
the acquisition had been consummated and the IPO completed at the beginning of
2000, nor are they necessarily indicative of future consolidated operating
results.


                                       52


                                Kraft Foods Inc.

Other Acquisitions: During 2002, the Company acquired a snacks business in
Turkey and a biscuits business in Australia. The total cost of these and other
smaller acquisitions was $122 million.

During 2001, the Company purchased coffee businesses in Romania, Morocco and
Bulgaria and also acquired confectionery businesses in Russia and Poland. The
total cost of these and other smaller acquisitions was $194 million.

During 2000, the Company purchased Balance Bar Co. and Boca Burger, Inc. The
total cost of these and other smaller acquisitions was $365 million.

The effects of these acquisitions were not material to the Company's
consolidated financial position or results of operations in any of the periods
presented.

Note 6. Inventories:

The cost of approximately 49% and 54% of inventories in 2002 and 2001,
respectively, was determined using the LIFO method. The stated LIFO amounts of
inventories were approximately $215 million and $150 million higher than the
current cost of inventories at December 31, 2002 and 2001, respectively.

Note 7. Short-Term Borrowings and Borrowing Arrangements:

At December 31, 2002 and 2001, the Company had short-term borrowings of $1,621
million and $2,681 million, respectively, consisting principally of commercial
paper borrowings with an average year-end interest rate of 1.3% and 1.9%,
respectively. Of these amounts, the Company reclassified $1,401 million and
$2,000 million, respectively, of the commercial paper borrowings to long-term
debt based upon its intent and ability to refinance these borrowings on a
long-term basis.

The fair values of the Company's short-term borrowings at December 31, 2002 and
2001, based upon current market interest rates, approximate the amounts
disclosed above.

The Company has a $2.0 billion 5-year revolving credit facility maturing in July
2006 and a $3.0 billion 364-day revolving credit facility maturing in July 2003.
The Company intends to use these credit facilities to support commercial paper
borrowings, the proceeds of which will be used for general corporate purposes.
None of these facilities were drawn at December 31, 2002. These facilities
require the maintenance of a minimum net worth. The Company met this covenant at
December 31, 2002. In addition, the Company maintains credit lines with a number
of lending institutions amounting to approximately $577 million. The Company
maintains these credit lines primarily to meet the short-term working capital
needs of its international businesses. The foregoing revolving credit facilities
do not include any other financial tests, any credit rating triggers or any
provisions that could require the posting of collateral.

Note 8. Long-Term Debt:

At December 31, 2002 and 2001, the Company's long-term debt consisted of the
following:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                             2002           2001
- --------------------------------------------------------------------------------
                                                                    
Short-term borrowings, reclassified as
 long-term debt                                           $ 1,401         $2,000
Notes, 4.63% to 7.55% (average effective
 rate 5.53%), due through 2035                              9,053          6,229
7% Debenture (effective rate 11.32%),
 $200 million face amount, due 2011                           153            258
Foreign currency obligations                                  117            136
Other                                                          44             51
- --------------------------------------------------------------------------------
                                                           10,768          8,674
Less current portion of long-term debt                       (352)          (540)
- --------------------------------------------------------------------------------
                                                          $10,416         $8,134
================================================================================


Aggregate maturities of long-term debt, excluding short-term borrowings
reclassified as long-term debt, are as follows:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                                        
2003                                                                       $ 352
2004                                                                         838
2005                                                                         732
2006                                                                       1,255
2007                                                                       1,395
2008-2012                                                                  3,701
Thereafter                                                                 1,141
- --------------------------------------------------------------------------------


Based on market quotes, where available, or interest rates currently available
to the Company for issuance of debt with similar terms and remaining maturities,
the aggregate fair value of the Company's long-term debt, including the current
portion of long-term debt, was $11,544 million and $8,679 million at
December 31, 2002 and 2001, respectively.

Note 9. Capital Stock:

The Company's articles of incorporation authorize 3.0 billion shares of Class A
common stock, 2.0 billion shares of Class B common stock and 500 million shares
of preferred stock. On June 21, 2002, the Company's Board of Directors
approved the repurchase from time to time of up to $500 million of the Company's
Class A common stock solely to satisfy the obligations of the Company under the
2001 Kraft Performance Incentive Plan, the Kraft Director Plan for non-employee
directors, and other plans where options to purchase the Company's Class A
common stock are granted. During 2002, the Company repurchased approximately 4.4
million shares of its Class A common stock at a cost of $170 million.


                                       53


                                Kraft Foods Inc.

Shares of Class A common stock issued, repurchased and outstanding were as
follows:



- -------------------------------------------------------------------------------
                                                        Shares       Net Shares
                                  Shares Issued    Repurchased      Outstanding
- -------------------------------------------------------------------------------
                                                           
Balance at
 January 1, 2002                    555,000,000             --      555,000,000
Repurchase of
 shares                                             (4,383,150)      (4,383,150)
Exercise of stock
 options                                                 2,000            2,000
- -------------------------------------------------------------------------------
Balance at
 December 31, 2002                  555,000,000     (4,381,150)     550,618,850
================================================================================


In addition, 1.18 billion Class B common shares were issued and outstanding at
December 31, 2002 and 2001. Altria Group, Inc. holds 276.6 million Class A
common shares and all of the Class B common shares at December 31, 2002. There
are no preferred shares issued and outstanding. Class A common shares are
entitled to one vote each, while Class B common shares are entitled to ten votes
each. Therefore, Altria Group, Inc. holds 97.8% of the combined voting power of
the Company's outstanding capital stock at December 31, 2002. At December 31,
2002, 75,911,430 shares of common stock were reserved for stock options and
other stock awards.

Concurrent with the IPO, certain employees of Altria Group, Inc. and its
subsidiaries received a one-time grant of options to purchase shares of the
Company's Class A common stock held by Altria Group, Inc. at the IPO price of
$31.00 per share. In order to completely satisfy this obligation and maintain
its current percentage ownership of the Company, Altria Group, Inc. purchased
1.6 million shares of the Company's Class A common stock in open market
transactions during 2002.

Note 10. Stock Plans:

The Company's Board of Directors adopted the 2001 Kraft Performance Incentive
Plan (the "Plan"), which was established concurrently with the IPO. Under the
Plan, the Company may grant stock options, stock appreciation rights, restricted
stock, reload options and other awards based on the Company's Class A common
stock, as well as performance-based annual and long-term incentive awards. A
maximum of 75 million shares of the Company's Class A common stock may be issued
under the Plan. The Company's Board of Directors granted options for 21,029,777
shares of Class A common stock concurrent with the closing date of the IPO (June
13, 2001) at an exercise price equal to the IPO price of $31.00 per share. A
portion of the shares granted (18,904,637) becomes exercisable on January 31,
2003, and will expire ten years from the date of the grant. The remainder of the
shares granted (2,125,140) may become exercisable on a schedule based on total
shareholder return for the Company's Class A common stock during the three years
following the date of the grant, or will become exercisable five years from the
date of the grant. These options will also expire ten years from the date of the
grant. Shares available to be granted under the Plan at December 31, 2002 were
56,135,543.

The Company's Board of Directors has also adopted the Kraft Director Plan. Under
the Kraft Director Plan, awards are granted only to members of the Board of
Directors who are not full-time employees of the Company or Altria Group, Inc.,
or their subsidiaries. Up to 500,000 shares of Class A common stock may be
awarded under the Kraft Director Plan. During 2002 and 2001, 6,840 and 8,945
stock options were granted under the Kraft Director Plan, respectively. Shares
available to be granted under the Kraft Director Plan at December 31, 2002 were
484,215.

The Company accounts for the plans in accordance with the intrinsic value-based
method permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
which did not result in compensation cost for stock options.

Option activity was as follows for the years ended December 31, 2001 and 2002:



- --------------------------------------------------------------------------------
                             Shares Subject    Weighted Average          Options
                                  to Option      Exercise Price      Exercisable
- --------------------------------------------------------------------------------
                                                                
Balance at
 January 1, 2001                         --              $   --               --
 Options granted                 21,038,722               31.00
 Options canceled                  (268,420)              31.00
- --------------------------------------------------------------------------------
Balance at
 December 31, 2001               20,770,302               31.00               --
 Options granted                     14,030               37.10
 Options exercised                   (2,000)              31.00
 Options canceled                (1,490,660)              31.00
- --------------------------------------------------------------------------------
Balance at
 December 31, 2002               19,291,672               31.00          696,615
================================================================================


The following table summarizes the status of the Company's stock options
outstanding and exercisable as of December 31, 2002:



                           Options Outstanding             Options Exercisable
                   ------------------------------------  -----------------------
                                    Average    Weighted                 Weighted
Range of                          Remaining     Average                  Average
Exercise                Number  Contractual    Exercise       Number    Exercise
Prices             Outstanding         Life       Price  Exercisable       Price
- --------------------------------------------------------------------------------
                                                           
$30.54 - $39.51     19,291,672      8 years      $31.00      696,615      $31.08
================================================================================


Prior to the IPO, certain employees of the Company participated in Altria Group,
Inc.'s stock compensation plans. Altria Group, Inc. does not currently intend to
issue additional Altria Group, Inc. stock compensation to the Company's
employees, except for reloads of previously issued options. Altria Group, Inc.
accounts for its plans in accordance with the intrinsic value-based method
permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," which did
not result in compensation cost for stock options.


                                       54


                                Kraft Foods Inc.

The Company's employees held options to purchase the following number of shares
of Altria Group, Inc. stock: 46,615,162 shares at an average exercise price of
$35.78 per share at December 31, 2002; 57,349,595 shares at an average exercise
price of $34.66 per share at December 31, 2001; and 56,977,329 shares at an
average exercise price of $30.46 per share at December 31, 2000. Of these
amounts, the following were exercisable at each date: 46,231,629 at an average
exercise price of $35.69 per share at December 31, 2002; 44,930,609 at an
average exercise price of $31.95 per share at December 31, 2001; and 38,444,963
at an average exercise price of $34.82 per share at December 31, 2000.

Had compensation cost for stock option awards under the Kraft plans and Altria
Group, Inc. plans been determined by using the fair value at the grant date, the
Company's net earnings and EPS (basic and diluted) would have been $3,316
million and $1.91 for the year ended December 31, 2002, respectively; $1,785
million and $1.11 for the year ended December 31, 2001, respectively; and $1,947
million and $1.34 for the year ended December 31, 2000, respectively. The
foregoing impact of compensation cost was determined using a modified
Black-Scholes methodology and the following assumptions:



- --------------------------------------------------------------------------------
                                     Weighted
                       Risk-Free      Average               Expected  Fair Value
                        Interest     Expected    Expected   Dividend    at Grant
                            Rate         Life  Volatility      Yield        Date
- --------------------------------------------------------------------------------
                                                           
2002 Kraft                 4.27%     5 years       28.72%      1.41%      $10.65
2002 Altria Group,Inc.     3.44      5             33.57       4.96        10.02
2001 Kraft                 4.81      5             29.70       1.68         9.13
2001 Altria Group,Inc.     4.86      5             33.88       4.78        10.36
2000 Altria Group,Inc.     6.58      5             31.71       9.00         3.19
- --------------------------------------------------------------------------------


In addition, certain of the Company's employees held shares of Altria Group,
Inc. restricted stock and rights to receive shares of stock, giving these
employees in most instances all of the rights of shareholders, except that they
may not sell, assign, pledge or otherwise encumber such shares and rights. These
shares and rights are subject to forfeiture if certain employment conditions are
not met. During 2001 and 2000, Altria Group, Inc. granted to certain of the
Company's U.S. employees restricted stock of 279,120 shares and 2,113,570
shares, respectively. Altria Group, Inc. also issued to certain of the Company's
non-U.S. employees rights to receive 31,310 and 683,790 equivalent shares during
2001 and 2000, respectively. At December 31, 2002, restrictions on the stock,
net of forfeitures, lapse as follows: 2003--84,000 shares. The fair value of the
restricted shares and rights at the date of grant is amortized to expense
ratably over the restriction period through a charge from Altria Group, Inc. In
2002, 2001 and 2000, the Company recorded compensation expense related to
restricted stock awards of $4 million, $39 million and $23 million,
respectively.

Note 11. Earnings Per Share:

Basic and diluted EPS were calculated using the following for the years ended
December 31, 2002, 2001 and 2000:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                 2002          2001         2000
- --------------------------------------------------------------------------------
                                                                 
Net earnings                                   $3,394        $1,882       $2,001
- --------------------------------------------------------------------------------
Weighted average shares for
 basic EPS                                      1,734         1,610        1,455
Plus: Incremental shares from
 assumed conversions of
 stock options                                      2
- --------------------------------------------------------------------------------
Weighted average shares for
 diluted EPS                                    1,736         1,610        1,455
================================================================================


During June 2001, the Company completed an IPO of 280,000,000 shares of its
Class A common stock. Immediately following the IPO, the Company had
1,735,000,000 Class A and B common shares outstanding.

Note 12. Pre-Tax Earnings and Provision for Income Taxes:

Pre-tax earnings and provision for income taxes consisted of the following for
the years ended December 31, 2002, 2001 and 2000:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                               2002          2001           2000
- --------------------------------------------------------------------------------
                                                                 
Pre-tax earnings:
- --------------------------------------------------------------------------------
 United States                                $3,692        $2,282        $2,188
 Outside United States                         1,575         1,165         1,227
- --------------------------------------------------------------------------------
Total pre-tax earnings                        $5,267        $3,447        $3,415
================================================================================
Provision for income taxes:
 United States federal:
  Current                                     $  825        $  594        $  572
  Deferred                                       265           299           218
- --------------------------------------------------------------------------------
                                               1,090           893           790
 State and local                                 138           112           120
- --------------------------------------------------------------------------------
 Total United States                           1,228         1,005           910
- --------------------------------------------------------------------------------
 Outside United States:
  Current                                        628           445           477
  Deferred                                        13           115            27
- --------------------------------------------------------------------------------
 Total outside United States                     641           560           504
- --------------------------------------------------------------------------------
Total provision for income taxes              $1,869        $1,565        $1,414
================================================================================



                                       55



                               Kraft Foods Inc.

At December 31, 2002, applicable United States federal income taxes and foreign
withholding taxes have not been provided on approximately $2.4 billion of
accumulated earnings of foreign subsidiaries that are expected to be permanently
reinvested. It is not practical to estimate the amount of additional taxes that
might be payable on such undistributed earnings.

The effective income tax rate on pre-tax earnings differed from the U.S. federal
statutory rate for the following reasons for the years ended December 31, 2002,
2001 and 2000:



- --------------------------------------------------------------------------------
                                                   2002        2001         2000
- --------------------------------------------------------------------------------
                                                                   
U.S. federal statutory rate                       35.0%       35.0%         35.0%
Increase (decrease) resulting from:
  State and local income taxes,
    net of federal tax benefit                     1.7         2.0           2.2
  Goodwill amortization                                        9.4           5.2
  Other                                           (1.2)       (1.0)         (1.0)
- --------------------------------------------------------------------------------
Effective tax rate                                35.5%       45.4%         41.4%
================================================================================


The tax effects of temporary differences that gave rise to deferred income tax
assets and liabilities consisted of the following at December 31, 2002 and 2001:




                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                            2002             2001
 --------------------------------------------------------------------------------
                                                                   
Deferred income tax assets:
  Accrued postretirement and
    postemployment benefits                               $   759        $   774
  Other                                                       519            737
- --------------------------------------------------------------------------------
  Total deferred income tax assets                          1,278          1,511
- --------------------------------------------------------------------------------
Deferred income tax liabilities:
  Trade names                                              (3,839)        (3,847)
  Property, plant and equipment                            (1,515)        (1,379)
  Prepaid pension costs                                      (841)          (850)
- --------------------------------------------------------------------------------
  Total deferred income tax liabilities                    (6,195)        (6,076)
- --------------------------------------------------------------------------------
Net deferred income tax liabilities                       $(4,917)       $(4,565)
================================================================================


Note 13. Segment Reporting:

The Company manufactures and markets packaged retail food products, consisting
principally of beverages, cheese, snacks, convenient meals and various packaged
grocery products through KFNA and KFI. Reportable segments for KFNA are
organized and managed principally by product category. KFNA's segments are
Cheese, Meals and Enhancers; Biscuits, Snacks and Confectionery; Beverages,
Desserts and Cereals; and Oscar Mayer and Pizza. KFNA's food service business
within the United States and its businesses in Canada and Mexico are reported
through the Cheese, Meals and Enhancers segment. KFI's operations are organized
and managed by geographic location. KFI's segments are Europe, Middle East and
Africa; and Latin America and Asia Pacific.

The Company's management reviews operating companies income to evaluate segment
performance and allocate resources. Operating companies income excludes general
corporate expenses and amortization of intangibles. Interest and other
debt expense, net, and provision for income taxes are centrally managed and,
accordingly, such items are not presented by segment since they are excluded
from the measure of segment profitability reviewed by management. The Company's
assets, which are principally in the United States and Europe, are managed
geographically. The accounting policies of the segments are the same as those
described in the Summary of Significant Accounting Policies.

Reportable segment data were as follows:



                                                                   (in millions)
- --------------------------------------------------------------------------------
For the Years Ended December 31,                   2002        2001         2000
- --------------------------------------------------------------------------------
                                                                
Net revenues:
  Cheese, Meals and Enhancers                  $  8,877     $ 8,732      $ 7,923
  Biscuits, Snacks and Confectionery              5,182       5,071          293
  Beverages, Desserts and Cereals                 4,412       4,237        4,267
  Oscar Mayer and Pizza                           3,014       2,930        2,829
- --------------------------------------------------------------------------------
    Total Kraft Foods North America              21,485      20,970       15,312
- --------------------------------------------------------------------------------
  Europe, Middle East and Africa                  6,203       5,936        6,398
  Latin America and Asia Pacific                  2,035       2,328        1,212
- --------------------------------------------------------------------------------
    Total Kraft Foods International               8,238       8,264        7,610
- --------------------------------------------------------------------------------
    Net revenues                               $ 29,723     $29,234      $22,922
================================================================================
Operating companies income:
  Cheese, Meals and Enhancers                  $  2,168     $ 2,099      $ 1,845
  Biscuits, Snacks and Confectionery              1,093         966          100
  Beverages, Desserts and Cereals                 1,136       1,192        1,090
  Oscar Mayer and Pizza                             556         539          512
- --------------------------------------------------------------------------------
    Total Kraft Foods North America               4,953       4,796        3,547
- --------------------------------------------------------------------------------
Europe, Middle East and Africa                      962         861        1,019
Latin America and Asia Pacific                      368         378          189
- --------------------------------------------------------------------------------
  Total Kraft Foods International                 1,330       1,239        1,208
- --------------------------------------------------------------------------------
  Total operating companies income                6,283       6,035        4,755
Amortization of intangibles                          (7)       (962)        (535)
General corporate expenses                         (162)       (189)        (208)
- --------------------------------------------------------------------------------
  Operating income                                6,114       4,884        4,012
Interest and other debt expense, net               (847)     (1,437)        (597)
- --------------------------------------------------------------------------------
  Earnings before income taxes and
    minority interest                          $  5,267     $ 3,447      $ 3,415
================================================================================



                                       56


                               Kraft Foods Inc.

As previously noted, the Company's international operations are managed by
geographic location. Within its two geographic regions, KFI's brand portfolio
spans five core consumer sectors. Net revenues by consumer sector for KFI were
as follows:

Consumer Sector



                                                                   (in millions)
- --------------------------------------------------------------------------------
For the Years Ended December 31,                  2002        2001         2000
- --------------------------------------------------------------------------------
                                                                 
Snacks                                           $3,179      $3,077       $2,565
Beverages                                         2,832       2,900        3,034
Cheese                                            1,202       1,208        1,193
Grocery                                             752         826          544
Convenient Meals                                    273         253          274
- --------------------------------------------------------------------------------
  Total                                          $8,238      $8,264       $7,610
================================================================================


During 2002, the Company sold its Latin American yeast and industrial bakery
ingredients business at a pre-tax gain of $69 million. This pre-tax gain was
included in the operating companies income of the Latin America and Asia Pacific
segment.

In addition, during 2002, the Company recorded a pre-tax charge of $142 million
related to employee acceptances under a voluntary retirement program. During
2002, the Company also recorded pre-tax integration related charges of $115
million to consolidate production lines in North America, close a Kraft facility
and for other consolidation programs. In addition, during 2002, the Company
reversed $4 million related to the loss on sale of a food factory. These items
were included in the operating companies income of the following segments:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                               Integration costs
                                                Separation    and a loss on sale
                                                  Programs     of a food factory
- --------------------------------------------------------------------------------
                                                                      
Cheese, Meals and Enhancers                           $ 60                  $ 30
Biscuits, Snacks and Confectionery                       3                     1
Beverages, Desserts and Cereals                         47                    56
Oscar Mayer and Pizza                                   25                     7
Europe, Middle East and Africa                           5
Latin America and Asia Pacific                           2                    17
- --------------------------------------------------------------------------------
                                                      $142                  $111
================================================================================


During 2001, the Company recorded pre-tax charges of $53 million for site
reconfigurations and other consolidation programs in the United States. In
addition, the Company recorded a pre-tax charge of $29 million to close a North
American food factory. These pre-tax charges, which aggregate $82 million, were
included in the operating companies income of the following segments: Cheese,
Meals and Enhancers, $63 million; Biscuits, Snacks and Confectionery, $2
million; Beverages, Desserts and Cereals, $12 million; and Oscar Mayer and
Pizza, $5 million.

See Notes 4 and 5 regarding divestitures and acquisitions. The acquisition of
Nabisco primarily affected the reported results of the Biscuits, Snacks and
Confectionery and the Latin America and Asia Pacific segments.



                                                                   (in millions)
- --------------------------------------------------------------------------------
For the Years Ended December 31,                  2002         2001         2000
- --------------------------------------------------------------------------------
                                                                  
Depreciation expense:
  Cheese, Meals and Enhancers                    $  177      $  163         $150
  Biscuits, Snacks and Confectionery                156         152
  Beverages, Desserts and Cereals                   115         113          109
  Oscar Mayer and Pizza                              58          55           51
- --------------------------------------------------------------------------------
    Total Kraft Foods North America                 506         483          310
- --------------------------------------------------------------------------------
  Europe, Middle East and Africa                    167         158          163
  Latin America and Asia Pacific                     36          39           26
- --------------------------------------------------------------------------------
    Total Kraft Foods International                 203         197          189
- --------------------------------------------------------------------------------
    Total depreciation expense                   $  709      $  680         $499
================================================================================
Capital expenditures:
  Cheese, Meals and Enhancers                    $  249      $  257         $247
  Biscuits, Snacks and Confectionery                232         171
  Beverages, Desserts and Cereals                   194         202          193
  Oscar Mayer and Pizza                             133         131          148
- --------------------------------------------------------------------------------
    Total Kraft Foods North America                 808         761          588
- --------------------------------------------------------------------------------
  Europe, Middle East and Africa                    265         231          239
  Latin America and Asia Pacific                    111         109           79
- --------------------------------------------------------------------------------
    Total Kraft Foods International                 376         340          318
- --------------------------------------------------------------------------------
    Total capital expenditures                   $1,184      $1,101         $906
================================================================================


Geographic data for net revenues, total assets and long-lived assets (which
consist of all non-current assets, other than goodwill and other intangible
assets and prepaid pension assets) were as follows:



                                                                   (in millions)
- --------------------------------------------------------------------------------
For the Years Ended December 31,                2002         2001          2000
- --------------------------------------------------------------------------------
                                                                 
Net revenues:
  United States                               $19,395      $19,193       $13,947
  Europe                                        5,908        5,667         6,222
  Other                                         4,420        4,374         2,753
- --------------------------------------------------------------------------------
    Total net revenues                        $29,723      $29,234       $22,922
================================================================================
Total assets:
  United States                               $44,406      $44,420       $40,454
  Europe                                        8,738        7,362         7,630
  Other                                         3,956        4,016         3,987
- --------------------------------------------------------------------------------
    Total assets                              $57,100      $55,798       $52,071
================================================================================
Long-lived assets:
  United States                               $ 6,382      $ 6,360       $ 6,684
  Europe                                        2,432        2,132         2,116
  Other                                         1,596        1,668         1,912
- --------------------------------------------------------------------------------
    Total long-lived assets                   $10,410      $10,160       $10,712
================================================================================



                                       57


                               Kraft Foods Inc.

Note 14. Benefit Plans:

The Company sponsors noncontributory defined benefit pension plans covering
substantially all U.S. employees. Pension coverage for employees of Kraft's
non-U.S. subsidiaries is provided, to the extent deemed appropriate, through
separate plans, many of which are governed by local statutory requirements. In
addition, Kraft's U.S. and Canadian subsidiaries provide health care and other
benefits to substantially all retired employees. Health care benefits for
retirees outside the United States and Canada are generally covered through
local government plans.

PENSION PLANS: Net pension (income) cost consisted of the following for the
years ended December 31, 2002, 2001 and 2000:



(In Millions)                           U.S. Plans             Non-U.S. Plans
- --------------------------------------------------------------------------------
                                   2002     2001    2000    2002    2001    2000
- --------------------------------------------------------------------------------
                                                           
Service cost                      $ 120    $ 107   $ 69    $  49   $  45    $ 37
Interest cost                       339      339     213     120     112      98
Expected return on
  plan assets                      (631)    (648)   (523)   (134)   (126)   (103)
Amortization:
  Net gain on adoption
    of SFAS No. 87                                   (11)                     (1)
  Unrecognized net
    loss (gain)
    from experience
    differences                       8      (21)    (36)      5      (1)     (1)
  Prior service cost                  1        8       7       7       5       4
Other expense (income)              130      (12)    (34)
- --------------------------------------------------------------------------------
  Net pension
    (income) cost                 $ (33)   $(227)  $(315)  $  47   $  35    $ 34
================================================================================


During 2002, certain salaried employees in the United States left the Company
under a voluntary early retirement program instituted in 2001. This resulted in
special termination benefits and curtailment and settlement losses of $109
million in 2002. In addition, retiring employees elected lump-sum payments,
resulting in settlement losses of $21 million in 2002 and settlement gains of
$12 million and $34 million in 2001 and 2000, respectively.

The changes in benefit obligations and plan assets, as well as the funded status
of the Company's pension plans at December 31, 2002 and 2001, were as follows:



(In Millions)                             U.S. Plans         Non-U.S. Plans
- --------------------------------------------------------------------------------
                                        2002      2001       2002          2001
- --------------------------------------------------------------------------------
                                                           
Benefit obligation at
  January 1                             $4,964    $4,327     $2,021       $1,915
  Service cost                             120       107         49           45
  Interest cost                            339       339        120          112
  Benefits paid                           (624)     (403)      (115)        (108)
  Acquisitions                                        71                     (22)
  Settlements                              127        14
  Actuarial losses                         367       500         85           22
  Currency                                                      144           18
  Other                                    (48)        9         13           39
- --------------------------------------------------------------------------------
Benefit obligation at
  December 31                            5,245     4,964      2,317        2,021
- --------------------------------------------------------------------------------
Fair value of plan assets at
  January 1                              6,359     7,039      1,329        1,589
  Actual return on plan assets            (914)     (386)       (56)        (227)
  Contributions                             26        37         81           63
  Benefits paid                           (636)     (394)       (87)         (76)
  Acquisitions                                       (45)                    (41)
  Currency                                                       70           18
  Actuarial gains                          130       108                       3
- --------------------------------------------------------------------------------
Fair value of plan assets at
  December 31                            4,965     6,359      1,337        1,329
- --------------------------------------------------------------------------------
(Deficit) excess of plan assets
  versus benefit obligations at
    December 31                           (280)    1,395      (980)         (692)
  Unrecognized actuarial
    losses                               2,487       756        394          226
  Unrecognized prior
    service cost                            13        56         50           49
  Unrecognized net transition
    obligation                                        (1)         7            7
- --------------------------------------------------------------------------------
Net prepaid pension
  asset (liability)                     $2,220    $2,206     $ (529)      $ (410)
================================================================================


The combined U.S. and non-U.S. pension plans resulted in a net prepaid asset of
$1,691 million and $1,796 million at December 31, 2002 and 2001, respectively.
These amounts were recognized in the Company's consolidated balance sheets at
December 31, 2002 and 2001, as prepaid pension assets of $2,814 million and
$2,675 million, respectively, for those plans in which plan assets exceeded
their accumulated benefit obligations and as other liabilities of $1,123 million
and $879 million at December 31, 2002 and 2001, respectively, for plans in which
the accumulated benefit obligations exceeded their plan assets.


                                       58


                               Kraft Foods Inc.

At December 31, 2002 and 2001, certain of the Company's U.S. plans were
underfunded, with projected benefit obligations, accumulated benefit obligations
and the fair value of plan assets of $269 million, $217 million and $45 million,
respectively, in 2002 and $213 million, $164 million and $15 million,
respectively, in 2001. For certain non-U.S. plans, which have accumulated
benefit obligations in excess of plan assets, the projected benefit obligation,
accumulated benefit obligation and fair value of plan assets were $1,375
million, $1,250 million and $424 million, respectively, as of December 31, 2002
and $1,165 million, $1,073 million and $416 million, respectively, as of
December 31, 2001.

The following weighted-average assumptions were used to determine the Company's
obligations under the plans:



                                            U.S. Plans           Non-U.S. Plans
- --------------------------------------------------------------------------------
                                         2002       2001        2002        2001
- --------------------------------------------------------------------------------
                                                                
Discount rate                            6.50%      7.00%       5.56%       5.80%
Expected rate of return on
  plan assets                            9.00       9.00        8.41        8.49
Rate of compensation increase            4.00       4.50        3.12        3.36
- --------------------------------------------------------------------------------


SFAS No. 87, "Employers' Accounting for Pensions," permits the delayed
recognition of pension fund gains and losses in ratable periods of up to five
years. The Company uses a four-year period wherein pension fund gains and losses
are reflected in the pension calculation at 25% per year, beginning the year
after the gains or losses occur. Recent stock market declines have resulted in
deferred losses. The amortization of these deferred losses will result in higher
pension cost in future periods.

Kraft and certain of its subsidiaries sponsor employee savings plans, to which
the Company contributes. These plans cover certain salaried, non-union and union
employees. The Company's contributions and costs are determined by the matching
of employee contributions, as defined by the plans. Amounts charged to expense
for defined contribution plans totaled $64 million, $63 million and $43 million
in 2002, 2001 and 2000, respectively.

Postretirement Benefit Plans: Net postretirement health care costs consisted of
the following for the years ended December 31, 2002, 2001 and 2000:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                  2002        2001         2002
- --------------------------------------------------------------------------------
                                                                  
Service cost                                      $ 32        $ 34         $ 23
Interest cost                                      168         168          109
Amortization:
  Unrecognized net loss from
     experience differences                         21           5            2
  Unrecognized prior service cost                  (20)         (8)          (8)
Other expense                                       16
- --------------------------------------------------------------------------------
Net postretirement health
  care cost                                       $217        $199         $126
================================================================================


During 2002, certain salaried employees in the United States left the Company
under a voluntary early retirement program instituted in 2001. This resulted in
curtailment losses of $16 million, which are included in other expense above.

The Company's postretirement health care plans are not funded. The changes in
the benefit obligations of the plans at December 31, 2002 and 2001 were as
follows:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                             2002           2001
- --------------------------------------------------------------------------------
                                                                 
Accumulated postretirement benefit
  obligation at January 1                                  $2,436         $2,102
  Service cost                                                 32             34
  Interest cost                                               168            168
  Benefits paid                                              (199)          (172)
  Curtailments                                                 21
  Acquisitions                                                                 8
  Plan amendments                                            (164)             1
  Assumption changes                                          193            180
  Actuarial losses                                            225            115
- --------------------------------------------------------------------------------
Accumulated postretirement benefit
  obligation at December 31                                 2,712          2,436
  Unrecognized actuarial losses                              (848)          (464)
  Unrecognized prior service cost                             197             53
- --------------------------------------------------------------------------------
Accrued postretirement health care costs                   $2,061         $2,025
================================================================================


The current portion of the Company's accrued postretirement health care costs of
$172 million and $175 million at December 31, 2002 and 2001, respectively, are
included in other accrued liabilities on the consolidated balance sheets.

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation for U.S. plans was 6.8% in 2001, 6.2% in 2002
and 8.0% in 2003, gradually declining to 5.0% by the year 2006 and remaining at
that level thereafter. For Canadian plans, the assumed health care cost trend
rate was 9.0% in 2001, 8.0% in 2002 and 7.0% in 2003, gradually declining to
4.0% by the year 2006 and remaining at that level thereafter.
A one-percentage-point increase in the assumed health care cost trend rates for
each year would increase the accumulated postretirement benefit obligation as of
December 31, 2002, and postretirement health care cost (service cost and
interest cost) for the year then ended by approximately 8.8% and 11.9%,
respectively. A one-percentage-point decrease in the assumed health care cost
trend rates for each year would decrease the accumulated postretirement benefit
obligation as of December 31, 2002, and postretirement health care cost (service
cost and interest cost) for the year then ended by approximately 7.3% and 10.0%,
respectively.

The accumulated postretirement benefit obligations for U.S. plans at December
31, 2002 and 2001 were determined using an assumed discount rate of 6.5% and
7.0%, respectively. The accumulated postretirement benefit obligations for
Canadian plans at December 31, 2002 and 2001 were determined using an assumed
discount rate of 6.75%.


                                       59


                               Kraft Foods Inc.

Assumption changes of $193 million at December 31, 2002 relate primarily to
lowering the discount rate from 7.0% to 6.5% and to increasing the medical trend
rate for the years 2003 through 2005 in consideration of current medical
inflation trends. Assumption changes of $180 million at December 31, 2001 relate
primarily to lowering the discount rate from 7.75% to 7.0%.

Postemployment Benefit Plans: Kraft and certain of its affiliates sponsor
postemployment benefit plans covering substantially all salaried and certain
hourly employees. The cost of these plans is charged to expense over the working
lives of the covered employees. Net postemployment costs consisted of the
following for the years ended December 31, 2002, 2001 and 2000:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                    2002       2001         2000
- --------------------------------------------------------------------------------
                                                                    
Service cost                                         $19        $20          $13
Amortization of unrecognized
  net gains                                           (7)        (8)          (4)
Other expense                                         23
- --------------------------------------------------------------------------------
Net postemployment costs                             $35        $12          $ 9
================================================================================


During 2002, certain salaried employees in the United States left the Company
under voluntary early retirement and integration programs. These programs
resulted in incremental postemployment costs of $23 million, which are included
in other expense above.

The Company's postemployment plans are not funded. The changes in the benefit
obligations of the plans at December 31, 2002 and 2001 were as follows:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                             2002           2001
- --------------------------------------------------------------------------------
                                                                     
Accumulated benefit obligation at January 1                 $ 520          $ 373
  Service cost                                                 19             20
  Benefits paid                                              (141)          (156)
  Acquisitions                                                               269
  Actuarial (gains) losses                                   (103)            14
- --------------------------------------------------------------------------------
Accumulated benefit obligation
  at December 31                                              295            520
  Unrecognized experience gains                               112             52
- --------------------------------------------------------------------------------
Accrued postemployment costs                                $ 407          $ 572
================================================================================


The accumulated benefit obligation was determined using an assumed ultimate
annual turnover rate of 0.3% in 2002 and 2001, assumed compensation cost
increases of 4.0% in 2002 and 4.5% in 2001, and assumed benefits as defined in
the respective plans. Postemployment costs arising from actions that offer
employees benefits in excess of those specified in the respective plans are
charged to expense when incurred.

Note 15. Additional Information:



                                                                   (in millions)
- --------------------------------------------------------------------------------
For the Years Ended December 31,                       2002     2001        2000
- --------------------------------------------------------------------------------
                                                                 
Research and development
  expense                                            $  360   $  358      $  270
- --------------------------------------------------------------------------------
Advertising expense                                  $1,145   $1,190      $1,198
================================================================================
Interest and other debt
  expense, net:
  Interest expense, Altria Group, Inc.
    and affiliates                                   $  243   $1,103      $  531
  Interest expense, external debt                       611      349          84
  Interest income                                        (7)     (15)        (18)
- --------------------------------------------------------------------------------
                                                     $  847   $1,437      $  597
================================================================================
Rent expense                                         $  437   $  372      $  277
================================================================================


Minimum rental commitments under non-cancelable operating leases in effect at
December 31, 2002 were as follows:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                                        
2003                                                                       $ 245
2004                                                                         197
2005                                                                         156
2006                                                                         111
2007                                                                          95
Thereafter                                                                   200
- --------------------------------------------------------------------------------
                                                                          $1,004
================================================================================


Note 16. Financial Instruments:

Derivative Financial Instruments: The Company operates globally, with
manufacturing and sales facilities in various locations around the world, and
utilizes certain financial instruments to manage its foreign currency and
commodity exposures, which primarily relate to forecasted transactions.
Derivative financial instruments are used by the Company, principally to reduce
exposures to market risks resulting from fluctuations in foreign exchange rates
and commodity prices by creating offsetting exposures. The Company is not a
party to leveraged derivatives and, by policy, does not use financial
instruments for speculative purposes. Financial instruments qualifying for hedge
accounting must maintain a specified level of effectiveness between the hedging
instrument and the item being hedged, both at inception and throughout the
hedged period. The Company formally documents the nature of and relationships
between the hedging instruments and hedged items, as well as its risk-management
objectives, strategies for undertaking the various hedge transactions and method
of assessing hedge effectiveness. Additionally, for hedges of forecasted
transactions, the significant characteristics and expected terms of a forecasted
transaction must be specifically identified, and it must be probable that each
forecasted transaction will occur. If it were deemed probable that the
forecasted transaction will not occur, the gain or loss would be recognized in
earnings currently.


                                       60


                               Kraft Foods Inc.

Substantially all of the Company's derivative financial instruments are
effective as hedges under SFAS No. 133. The fair value of all derivative
financial instruments has been calculated based on market quotes.

The Company uses forward foreign exchange contracts and foreign currency options
to mitigate its exposure to changes in foreign currency exchange rates from
third-party and intercompany forecasted transactions. The primary currencies to
which the Company is exposed include the Euro, British pound and Canadian
dollar. At December 31, 2002 and 2001, the Company had option and forward
foreign exchange contracts with aggregate notional amounts of $575 million and
$431 million, respectively, which are comprised of contracts for the purchase
and sale of foreign currencies. The effective portion of unrealized gains and
losses associated with forward contracts is deferred as a component of
accumulated other comprehensive earnings (losses) until the underlying hedged
transactions are reported on the Company's consolidated statement of earnings.

The Company is exposed to price risk related to forecasted purchases of certain
commodities used as raw materials by the Company's businesses. Accordingly, the
Company uses commodity forward contracts, as cash flow hedges, primarily for
coffee, cocoa, milk and cheese. Commodity futures and options are also used to
hedge the price of certain commodities, including milk, coffee, cocoa, wheat,
corn, sugar and soybean oil. In general, commodity forward contracts qualify for
the normal purchase exception under SFAS No. 133 and are, therefore, not subject
to the provisions of SFAS No. 133. At December 31, 2002 and 2001, the Company
had net long commodity positions of $544 million and $589 million, respectively.
Unrealized gains or losses on net commodity positions were immaterial at
December 31, 2002 and 2001. The effective portion of unrealized gains and losses
on commodity futures and option contracts is deferred as a component of
accumulated other comprehensive earnings (losses) and is recognized as a
component of cost of sales in the Company's consolidated statement of earnings
when the related inventory is sold.

Derivative gains or losses reported in accumulated other comprehensive earnings
(losses) are a result of qualifying hedging activity. Transfers of these gains
or losses from accumulated other comprehensive earnings (losses) to earnings are
offset by corresponding gains or losses on the underlying hedged items. During
the years ended December 31, 2002 and 2001, ineffectiveness related to cash flow
hedges was not material. At December 31, 2002, the Company is hedging forecasted
transactions for periods not exceeding fifteen months and expects substantially
all amounts reported in accumulated other comprehensive earnings (losses) to be
reclassified to the consolidated statement of earnings within the next twelve
months.

Hedging activity affected accumulated other comprehensive earnings (losses), net
of income taxes, during the years ended December 31, 2002 and 2001, as follows:



                                                                   (in millions)
- --------------------------------------------------------------------------------
                                                                         
Balance as of January 1, 2001                                               $ --
Derivative losses transferred to earnings                                     15
Change in fair value                                                         (33)
- --------------------------------------------------------------------------------
Balance as of December 31, 2001                                              (18)
Derivative losses transferred to earnings                                     21
Change in fair value                                                          10
- --------------------------------------------------------------------------------
Balance as of December 31, 2002                                             $ 13
================================================================================


Credit Exposure and Credit Risk: The Company is exposed to credit loss in the
event of nonperformance by counterparties. However, the Company does not
anticipate nonperformance, and such exposure was not material at December 31,
2002.

Fair Value: The aggregate fair value, based on market quotes, of the Company's
third-party debt at December 31, 2002 was $11,764 million as compared with its
carrying value of $10,988 million. The aggregate fair value of the Company's
third-party debt at December 31, 2001 was $9,360 million as compared with its
carrying value of $9,355 million. Based on interest rates available to the
Company for issuances of debt with similar terms and remaining maturities, the
aggregate fair value and carrying value of the Company's long-term notes payable
to Altria Group, Inc. and its affiliates were $2,764 million and $2,560 million,
respectively, at December 31, 2002 and $5,325 million and $5,000 million,
respectively, at December 31, 2001.

See Notes 3, 7 and 8 for additional disclosures of fair value for short-term
borrowings and long-term debt.

Note 17. Contingencies:

The Company and its subsidiaries are parties to a variety of legal proceedings
arising out of the normal course of business, including a few cases in which
substantial amounts of damages are sought. While the results of litigation
cannot be predicted with certainty, management believes that the final outcome
of these proceedings will not have a material adverse effect on the Company's
consolidated financial position or results of operations.

Guarantees: At December 31, 2002, the Company's third-party guarantees, which
are primarily derived from acquisition and divestiture activities, approximated
$36 million. Substantially all of these guarantees expire through 2012, with $12
million expiring in 2003. The Company is required to perform under these
guarantees in the event that a third-party fails to make contractual payments or
achieve performance measures. The Company has recorded a liability of $21
million at December 31, 2002 relating to these guarantees.


                                       61


                               Kraft Foods Inc.

Note 18. Quarterly Financial Data (Unaudited):



(in millions, except per share data)              2002 Quarters
- --------------------------------------------------------------------------------
                                 First     Second        Third       Fourth
- --------------------------------------------------------------------------------
                                                         
Net revenues                     $7,147    $ 7,513      $ 7,216      $7,847
- --------------------------------------------------------------------------------
Gross profit                     $2,864    $ 3,127      $ 2,971      $3,041
- --------------------------------------------------------------------------------
Net earnings                     $  693    $   901      $   869         931
- --------------------------------------------------------------------------------
Weighted average
         shares for
         diluted EPS              1,737      1,738        1,737       1,734
- --------------------------------------------------------------------------------
Per share data:
         Basic EPS               $ 0.40    $  0.52      $  0.50      $ 0.54
- --------------------------------------------------------------------------------
         Diluted EPS             $ 0.40    $  0.52      $  0.50      $ 0.54
- --------------------------------------------------------------------------------
         Dividends declared      $ 0.13    $  0.13      $  0.15      $ 0.15
- --------------------------------------------------------------------------------
         Market price--high      $39.70    $ 43.95      $ 41.70      $41.30
                     --low       $32.50    $ 38.32      $ 33.87      $36.12
- --------------------------------------------------------------------------------


(in millions, except per share data)                2001 Quarters
- --------------------------------------------------------------------------------
                                  First     Second        Third      Fourth
- --------------------------------------------------------------------------------

Net revenues                      $7,197   $ 7,473      $ 7,018      $7,546
- --------------------------------------------------------------------------------
Gross profit                      $2,922   $ 3,071      $ 2,785      $2,890
- --------------------------------------------------------------------------------
Net earnings                      $  326   $   505      $   503      $  548
- --------------------------------------------------------------------------------
Weighted average shares
         for diluted EPS           1,455     1,510        1,735       1,736
- --------------------------------------------------------------------------------
Per share data:
         Basic EPS                $ 0.22   $  0.33      $  0.29      $ 0.32
- --------------------------------------------------------------------------------
         Diluted EPS              $ 0.22   $  0.33      $  0.29      $ 0.32
- --------------------------------------------------------------------------------
         Dividends declared                             $  0.13      $ 0.13
- --------------------------------------------------------------------------------
         Market price--high                $ 32.00      $ 34.81      $35.57
                     --low                 $ 29.50      $ 30.00      $31.50
- --------------------------------------------------------------------------------


Basic and diluted EPS are computed independently for each of the periods
presented. Accordingly, the sum of the quarterly EPS amounts may not agree to
the total year.

During the first quarter of 2002, the Company recorded a pre-tax charge of $142
million related to employee acceptances of a voluntary retirement program and a
pretax integration related charge of $27 million to consolidate production lines
in North America.

During the second quarter of 2002, the Company recorded a pre-tax integration
related charge of $92 million to close a facility and for other consolidation
programs. Also, during the second quarter of 2002, the Company sold a small
business at a pre-tax gain of $3 million.

During the fourth quarter of 2002, the Company sold two small businesses at an
aggregate pre-tax gain of $77 million. Also, during the fourth quarter of 2002,
the Company reversed $4 million of previously recorded integration related
liabilities and $4 million related to the loss on sale of a food factory to the
consolidated statement of earnings.

During the first quarter of 2001, the Company recorded a pre-tax loss of $29
million for the sale of a North American food factory.

On June 13, 2001, the Company completed an IPO by issuing 280 million shares of
its Class A common stock. Also, during the second quarter of 2001, the Company
sold a small business at a pre-tax gain of $8 million.

During the third quarter of 2001, the Company recorded a pre-tax integration
related charge of $37 million to consolidate production lines in the United
States.

During the fourth quarter of 2001, the Company recorded a pre-tax integration
related charge of $16 million for site reconfigurations and other consolidation
programs in the United States.


                                       62


                               Kraft Foods Inc.

Report of Independent Accountants

To the Board of Directors and Shareholders of Kraft Foods Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, shareholders' equity and cash flows present
fairly, in all material respects, the consolidated financial position of Kraft
Foods Inc. and its subsidiaries (the "Company") at December 31, 2002 and 2001,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, on January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets."

                                               /s/ PricewaterhouseCoopers LLP

Chicago, Illinois
January 27, 2003





Company Report on Financial Statements

The consolidated financial statements and all related financial information
herein are the responsibility of the Company. The financial statements, which
include amounts based on judgments, have been prepared in accordance with
generally accepted accounting principles. Other financial information in the
annual report is consistent with that in the financial statements.

The Company maintains a system of internal controls that it believes provides
reasonable assurance that transactions are executed in accordance with
management's authorization and properly recorded, that assets are
safeguarded, and that accountability for assets is maintained. The system of
internal controls is characterized by a control-oriented environment within
the Company, which includes written policies and procedures, careful
selection and training of personnel, and audits by a professional staff of
internal auditors.

PricewaterhouseCoopers LLP, independent accountants, have audited and reported
on the Company's consolidated financial statements. Their audits were performed
in accordance with generally accepted auditing standards.

The Audit Committee of the Board of Directors, composed of four non-employee
directors, meets periodically with PricewaterhouseCoopers LLP, the Company's
internal auditors and management representatives to review internal accounting
control, auditing and financial reporting matters. Both PricewaterhouseCoopers
LLP and the internal auditors have unrestricted access to the Audit Committee
and may meet with it without management representatives being present.


                                       63

                                                                      Exhibit 21

                           SUBSIDIARIES OF THE COMPANY

         Certain active subsidiaries of the Company and their subsidiaries as of
December 31, 2002, are listed below. The names of certain subsidiaries, which
considered in the aggregate would not constitute a significant subsidiary, have
been omitted.



                                                                                           State or
                                                                                          Country of
                  Name                                                                   Organization
                  ----                                                                   ------------

                                          KRAFT FOODS INC
                                          ---------------
                                                                                        
152999 Canada Inc ....................................................................     Canada
AB Kraft Foods Lietuva ...............................................................     Lithuania
Aberdare Developments Ltd ............................................................     Virgin Islands (British)
AGF Pack, Inc. .......................................................................     Japan
AGF SP, Inc. .........................................................................     Japan
Airco IHC, Inc. ......................................................................     Delaware
Ajinomoto General Foods, Inc. ........................................................     Japan
Alimentos Especiales, Sociedad Anonima ...............................................     Guatemala
Balance Bar Company ..................................................................     Delaware
Beijing Nabisco Food Company Ltd .....................................................     China
Biscuits Delacre B.V..................................................................     Netherlands
Boca Foods Company....................................................................     Delaware
Burlington Foods, Inc ................................................................     Delaware
Cafe Grand 'Mere S.A.S. ..............................................................     France
Callard & Bowser-Suchard, Inc. .......................................................     Delaware
Capri Sun, Inc. ......................................................................     Delaware
Carlton Lebensmittelvertriebs GmbH ...................................................     Germany
Carnes y Conservas Espanolas, S.A. ...................................................     Spain
Churny Company, Inc. .................................................................     Delaware
Closed Joint Stock Company Kraft Foods Rus ...........................................     Russian Federation
Closed Joint Stock Company Kraft Foods Ukraine .......................................     Ukraine
Compania Venezolana de Conservas C.A. ................................................     Venezuela
Consiber, S.A. .......................................................................     Spain
Convenco Holding C.A. ................................................................     Venezuela
Corporativo Kraft, S. de R.L. de C.V. ................................................     Mexico
Cote d'Or Italia S.r.l. ..............................................................     Italy
Croky Chips B.V.  ....................................................................     Netherlands
Deluxestar Limited ...................................................................     United Kingdom
Dong Suh Foods Corporation ...........................................................     Korea, Republic of
Dong Suh Oil & Fats Co., Ltd. ........................................................     Korea, Republic of
El Gallito Industrial, S.A. ..........................................................     Costa Rica
Estrella A/S  ........................................................................     Denmark
Estrella Eesti Osauhing   ............................................................     Estonia
Fattorie Osella S.p.A. ...............................................................     Italy
Finalrealm Ltd. ......................................................................     United Kingdom
Fleischmann Nabisco Uruguay S.A. .....................................................     Uruguay
Franklin Baker Company of the Philippines ............................................     Philippines
Freezer Queen Foods (Canada) Limited .................................................     Canada
FRN Alimentos do Nordeste Ltda. ......................................................     Brazil
Fulmer Corporation Limited ...........................................................     Bahamas




Gellatas United Biscuits, S.A. .......................................................     Spain
Gelatinas Ecuatoriana S.A. ...........................................................     Ecuador
General Foods Foreign Sales Corporation ..............................................     Virgin Islands (U.S.)
Grundstucksgemeinschaft Kraft Foods ..................................................     Germany
HAG GF AG ............................................................................     Germany
HAG-Coffex SNC .......................................................................     France
Hervin Holdings, Inc. ................................................................     Delaware
Industrias Alimenticias Maguary Ltda. ................................................     Brazil
Iracema Industrias de Caju Ltda. .....................................................     Brazil
Jacobs Suchard Alimentos do Brasil Ltda.  ............................................     Brazil
Kar Gida Sanayi Ve Ticaret Anonim Sirketi  ...........................................     Turkey
KFI-USLLC I ..........................................................................     Delaware
KFI-USLLC II  ........................................................................     Delaware
KFI-USLLC IX .........................................................................     Delaware
KFI-USLLC V ..........................................................................     Delaware
KFI-USLLC VII  .......................................................................     Delaware
KFI-USLLC XI .........................................................................     Delaware
Koninklijke Verkade N.V. .............................................................     Netherlands
KP Foods France S.A. .................................................................     France
Kraft Canada Inc. ....................................................................     Canada
Kraft Direct, Inc. ...................................................................     Delaware
Kraft Food Ingredients Corp. .........................................................     Delaware
Kraft Foods (New Zealand) Limited  ...................................................     New Zealand
Kraft Foods (Philippines), Inc. ......................................................     Philippines
Kraft Foods (Puerto Rico), Inc. ......................................................     Puerto Rico
Kraft Foods (Thailand) Limited .......................................................     Thailand
Kraft Foods Argentina S.A. ...........................................................     Argentina
Kraft Foods AS .......................................................................     Norway
Kraft Foods Belgium S.A. .............................................................     Belgium
Kraft Foods Brasil S.A. ..............................................................     Brazil
Kraft Foods Bulgaria AD ..............................................................     Bulgaria
Kraft Foods Caribbean Sales Corp.  ...................................................     Delaware
Kraft Foods Central & Eastern Europe Service BV ......................................     Netherlands
Kraft Foods Chile S.A. ...............................................................     Chile
Kraft Foods Colombia S.A. ............................................................     Colombia
Kraft Foods Costa Rica, S.A. .........................................................     Costa Rica
Kraft Foods CR s.r.o. ................................................................     Czechoslovakia
Kraft Foods Danmark ApS ..............................................................     Denmark
Kraft Foods Danmark Holding A/S ......................................................     Denmark
Kraft Foods de Mexico, S. de R.L. de C.V. ............................................     Mexico
Kraft Foods Deutschland GmbH & Co. KG.................................................     Germany
Kraft Foods Deutschland Holding GmbH .................................................     Germany
Kraft Foods Dominicana, S.A. .........................................................     Dominican Republic
Kraft Foods Ecuador S.A. .............................................................     Ecuador
Kraft Foods Egypt LLC ................................................................     Egypt
Kraft Foods Espana, S.A. .............................................................     Spain
Kraft Foods France ...................................................................     France
Kraft Foods Hellas S.A. ..............................................................     Greece
Kraft Foods Holding (Europa) GmbH ....................................................     Switzerland
Kraft Foods Holdings, Inc. ...........................................................     Delaware
Kraft Foods Holland Holding B.V. .....................................................     Netherlands




Kraft Foods Honduras, S.A. ...........................................................     Honduras
Kraft Foods Hors Domicile ............................................................     France
Kraft Foods Hungaria Kft. ............................................................     Hungary
Kraft Foods Inc. .....................................................................     Virginia
Kraft Foods International (EU) Ltd. ..................................................     United Kingdom
Kraft Foods International Inc ........................................................     Delaware
Kraft Foods Investments Inc ..........................................................     Delaware
Kraft Foods Ireland Limited ..........................................................     Ireland
Kraft Foods Italia S.p.A. ............................................................     Italy
Kraft Foods Jamaica Limited ..........................................................     Jamaica
Kraft Foods Laverune SNC .............................................................     France
Kraft Foods Limited ..................................................................     Australia
Kraft Foods Limited (Asia) ...........................................................     Hong Kong
Kraft Foods Manufacturing Corporation ................................................     Delaware
Kraft Foods Manufacturing GmbH & Co. KG ..............................................     Germany
Kraft Foods Manufacturing Midwest, Inc. ..............................................     Delaware
Kraft Foods Manufacturing West, Inc. .................................................     Delaware
Kraft Foods Maroc SA .................................................................     Morocco
Kraft Foods Mexico Holding I B.V. ....................................................     Netherlands
Kraft Foods Mexico Holding II B.V. ...................................................     Netherlands
Kraft Foods Namur S.A. ...............................................................     Belgium
Kraft Foods Nederland B.V. ...........................................................     Netherlands
Kraft Foods Norge AS .................................................................     Norway
Kraft Foods North America, Inc. ......................................................     Delaware
Kraft Foods Oesterreich GmbH .........................................................     Austria
Kraft Foods Panama, S.A. .............................................................     Panama
Kraft Foods Peru S.A. ................................................................     Peru
Kraft Foods Polska Sp.z o.o. .........................................................     Poland
Kraft Foods Portugal Produtos Alimentares Lda. .......................................     Portugal
Kraft Foods Produktion GmbH ..........................................................     Germany
Kraft Foods R & D, Inc. ..............................................................     Delaware
Kraft Foods Romania SA ...............................................................     Romania
Kraft Foods Schweiz AG ...............................................................     Switzerland
Kraft Foods Schweiz Holding AG .......................................................     Switzerland
Kraft Foods Slovakia, a.s. ...........................................................     Slovak Republic
Kraft Foods Strasbourg SNC ...........................................................     France
Kraft Foods Sverige AB ...............................................................     Sweden
Kraft Foods Sverige Holding AB .......................................................     Sweden
Kraft Foods Taiwan Limited ...........................................................     Taiwan, Province of China
Kraft Foods UK Ltd. ..................................................................     United Kingdom
Kraft Foods Uruguay, S.A. ............................................................     Uruguay
Kraft Foods Venezuela, C.A. ..........................................................     Venezuela
Kraft Gida Pazarlama ve Ticaret A.S. .................................................     Turkey
Kraft Guangtong Food Company, Limited ................................................     China
Kraft Japan, K.K. ....................................................................     Japan
Kraft Korea Inc. .....................................................................     Korea, Republic of
Kraft Pizza Company ..................................................................     Delaware
Kraft Suchard Nicaragua S.A. .........................................................     Nicaragua
Kraft Tianmei Food (Tianjin) Co., Ltd. ...............................................     China
Krema Limited ........................................................................     Ireland
KTL S. de R.L. de C.V. ...............................................................     Mexico




Landers y Cia. S.A. ..................................................................     Colombia
Lanes Biscuits Pty Ltd ...............................................................     Australia
Lanes Food (Australia) Pty Ltd .......................................................     Australia
Lanes Food Group Limited .............................................................     New Zealand
Limited Liability Company Kraft Foods ................................................     Russian Federation
LLC (000) Kraft Foods Sales and Marketing  ...........................................     Russian Federation
Lowney Inc. ..........................................................................     Canada
Marsa Kraft Foods Sabanci Gida Sanayi ve Ticaret A.S. ................................     Turkey
Merola Finance B.V. ..................................................................     Netherlands
Mirabell Salzburger Confiserie-Und Bisquit GmbH ......................................     Austria
N.V. Biscuits Delacre S.A. ...........................................................     Belgium
N.V. Westimex Belgium S.A. ...........................................................     Belgium
Nabisco (China) Limited ..............................................................     China
Nabisco (Thailand) Limited ...........................................................     Thailand
Nabisco Arabia Co. Ltd. ..............................................................     Saudi Arabia
Nabisco Caribbean Export, Inc. .......................................................     Delaware
Nabisco de Nicaragua, S.A. ...........................................................     Nicaragua
Nabisco Euro Holdings Ltd. ...........................................................     Cayman Islands
Nabisco Food (Suzhou) Co. Ltd. .......................................................     China
Nabisco Group Ltd. ...................................................................     Delaware
Nabisco Hong Kong Limited ............................................................     Hong Kong
Nabisco International, Inc. ..........................................................     Delaware
Nabisco International, S.A. ..........................................................     Panama
Nabisco Inversiones S.R.L. ...........................................................     Argentina
Nabisco Investments, Inc. ............................................................     Delaware
Nabisco Philippines, Inc. ............................................................     Philippines
Nabisco Royal Argentina LLC ..........................................................     Delaware
Nabisco Royal de Honduras, S.A. ......................................................     Honduras
Nabisco Royal, Inc. ..................................................................     New York
Nabisco Taiwan Corporation ...........................................................     Taiwan, Province of China
Nabisco, Inc. Foreign Sales Corporation ..............................................     Virgin Islands (U.S.)
NISA Holdings LLC ....................................................................     Delaware
Oy Kraft Foods Finland Ab ............................................................     Finland
P.T. Kraft Ultrajaya Indonesia .......................................................     Indonesia
Pavlides S.A. Chocolate Manufacturers ................................................     Greece
Pers Gida Sanayi ve Ticaret Anonim Sirketi ...........................................     Turkey
Phenix Leasing Corporation ...........................................................     Delaware
Phenix Management Corporation ........................................................     Delaware
Philip Morris (China) Investments Co., Ltd. ..........................................     China
Productos Kraft, S. de R.L.de C.V ....................................................     Mexico
Productos y Alimentos, S.A. de C.V.  .................................................     El Salvador
PT Nabisco Foods .....................................................................     Indonesia
Regentrealm Limited ..................................................................     United Kingdom
Riespri, S.A. ........................................................................     Spain
Runecorp Limited .....................................................................     United Kingdom
Seven Seas Foods, Inc. ...............................................................     Delaware
Stella D'oro Biscuit Co., Inc. .......................................................     New York
Suchard Limited ......................................................................     United Kingdom
Suchard Schokolade Ges. MbH ..........................................................     Austria
Taloca AG ............................................................................     Switzerland
Taloca Cafe Ltda  ....................................................................     Brazil




Taloca y Cia Ltda. ...................................................................     Colombia
Tevalca Holding C.A. .................................................................     Venezuela
The Fleischmann Corporation ..........................................................     Delaware
The Hervin Company ...................................................................     Oregon.
U. B. Europe, Middle East and Africa Trading, S.A. ...................................     Spain
UB China Ltd. ........................................................................     China
UB Finance B.V. ......................................................................     Netherlands
UB Group Limited .....................................................................     United Kingdom
UB Humber Limited ....................................................................     United Kingdom
UB International Sales Limited .......................................................     United Kingdom
UB Investments (Netherlands) B.V. ....................................................     Netherlands
UB Limited ...........................................................................     United Kingdom
UB Overseas Limited ..................................................................     United Kingdom
United Biscuits (East China) Limited .................................................     China
United Biscuits (Properties) Limited .................................................     United Kingdom
United Biscuits Asia Pacific Limited .................................................     Hong Kong
United Biscuits Finance plc ..........................................................     United Kingdom
United Biscuits France S.A. ..........................................................     France
United Biscuits Iberia Limitada ......................................................     Portugal
United Biscuits Iberia, S.L.  ........................................................     Spain
United Biscuits Industries S.A.S. ....................................................     France
United Biscuits Tunisia S.A. .........................................................     Tunisia
Vict. Th. Engwall & Co., Inc. ........................................................     Delaware
Votesor BV ...........................................................................     Netherlands
Yili-Nabisco Biscuit & Food Company Limited ..........................................     China

                                                                      Exhibit 23


                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements of Kraft Foods Inc (the "Company") on Form S-8 (File Nos. 333-71266
and 333-84616) and Form S-3 (File Nos. 333-67770, 333-86478 and 333-101829), of
our report dated January 27, 2003 relating to the consolidated financial
statements of the Company, which appears in the Annual Report to Shareholders,
which is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated January 27, 2003 relating to the
financial statement schedule, which appears in this Form 10-K.

/s/  PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
March 25, 2003

                                                                      Exhibit 24


                                POWER OF ATTORNEY


            KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of
Kraft Foods Inc., a Virginia corporation (the "Company"), does hereby constitute
and appoint Louis C. Camilleri, Calvin J. Collier and James P. Dollive, or any
one or more of them, his true and lawful attorney, for him and in his name,
place and stead, to execute, by manual or facsimile signature, electronic
transmission or otherwise, the Annual Report on Form 10-K of the Company for the
year ended December 31, 2002 and any amendments or supplements to said Annual
Report and to cause the same to be filed with the Securities and Exchange
Commission, together with any exhibits, financial statements and schedules
included or to be incorporated by reference therein, hereby granting to said
attorneys full power and authority to do and perform all and every act and thing
whatsoever requisite or desirable to be done in and about the premises as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things which said attorneys may do
or cause to be done by virtue of these present.

            IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal this 4th day of March, 2003.


                                                       /s/ Louis C. Camilleri
                                                       -------------------------
                                                       Louis C. Camilleri


                                POWER OF ATTORNEY


            KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of
Kraft Foods Inc., a Virginia corporation (the "Company"), does hereby constitute
and appoint Louis C. Camilleri, Calvin J. Collier and James P. Dollive, or any
one or more of them, his true and lawful attorney, for him and in his name,
place and stead, to execute, by manual or facsimile signature, electronic
transmission or otherwise, the Annual Report on Form 10-K of the Company for the
year ended December 31, 2002 and any amendments or supplements to said Annual
Report and to cause the same to be filed with the Securities and Exchange
Commission, together with any exhibits, financial statements and schedules
included or to be incorporated by reference therein, hereby granting to said
attorneys full power and authority to do and perform all and every act and thing
whatsoever requisite or desirable to be done in and about the premises as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things which said attorneys may do
or cause to be done by virtue of these present.

            IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal this 4th day of March, 2003.


                                                       /s/ Dinyar S. Devitre
                                                       -------------------------
                                                       Dinyar S. Devitre


                                POWER OF ATTORNEY


            KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of
Kraft Foods Inc., a Virginia corporation (the "Company"), does hereby constitute
and appoint Louis C. Camilleri, Calvin J. Collier and James P. Dollive, or any
one or more of them, his true and lawful attorney, for him and in his name,
place and stead, to execute, by manual or facsimile signature, electronic
transmission or otherwise, the Annual Report on Form 10-K of the Company for the
year ended December 31, 2002 and any amendments or supplements to said Annual
Report and to cause the same to be filed with the Securities and Exchange
Commission, together with any exhibits, financial statements and schedules
included or to be incorporated by reference therein, hereby granting to said
attorneys full power and authority to do and perform all and every act and thing
whatsoever requisite or desirable to be done in and about the premises as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things which said attorneys may do
or cause to be done by virtue of these present.

            IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal this 4th day of March, 2003.


                                                       /s/ W. James Farrell
                                                       -------------------------
                                                       W. James Farrell


                                POWER OF ATTORNEY


            KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of
Kraft Foods Inc., a Virginia corporation (the "Company"), does hereby constitute
and appoint Louis C. Camilleri, Calvin J. Collier and James P. Dollive, or any
one or more of them, his true and lawful attorney, for him and in his name,
place and stead, to execute, by manual or facsimile signature, electronic
transmission or otherwise, the Annual Report on Form 10-K of the Company for the
year ended December 31, 2002 and any amendments or supplements to said Annual
Report and to cause the same to be filed with the Securities and Exchange
Commission, together with any exhibits, financial statements and schedules
included or to be incorporated by reference therein, hereby granting to said
attorneys full power and authority to do and perform all and every act and thing
whatsoever requisite or desirable to be done in and about the premises as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things which said attorneys may do
or cause to be done by virtue of these present.

            IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal this 4th day of March, 2003.


                                                       /s/ John C. Pope
                                                       -------------------------
                                                       John C. Pope


                                POWER OF ATTORNEY


            KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of
Kraft Foods Inc., a Virginia corporation (the "Company"), does hereby constitute
and appoint Louis C. Camilleri, Calvin J. Collier and James P. Dollive, or any
one or more of them, her true and lawful attorney, for her and in her name,
place and stead, to execute, by manual or facsimile signature, electronic
transmission or otherwise, the Annual Report on Form 10-K of the Company for the
year ended December 31, 2002 and any amendments or supplements to said Annual
Report and to cause the same to be filed with the Securities and Exchange
Commission, together with any exhibits, financial statements and schedules
included or to be incorporated by reference therein, hereby granting to said
attorneys full power and authority to do and perform all and every act and thing
whatsoever requisite or desirable to be done in and about the premises as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things which said attorneys may do
or cause to be done by virtue of these present.

            IN WITNESS WHEREOF, the undersigned has hereunto set her hand and
seal this 4th day of March, 2003.


                                                       /s/ Mary L. Schapiro
                                                       -------------------------
                                                       Mary L. Schapiro


                                POWER OF ATTORNEY


            KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of
Kraft Foods Inc., a Virginia corporation (the "Company"), does hereby constitute
and appoint Louis C. Camilleri, Calvin J. Collier and James P. Dollive, or any
one or more of them, his true and lawful attorney, for him and in his name,
place and stead, to execute, by manual or facsimile signature, electronic
transmission or otherwise, the Annual Report on Form 10-K of the Company for the
year ended December 31, 2002 and any amendments or supplements to said Annual
Report and to cause the same to be filed with the Securities and Exchange
Commission, together with any exhibits, financial statements and schedules
included or to be incorporated by reference therein, hereby granting to said
attorneys full power and authority to do and perform all and every act and thing
whatsoever requisite or desirable to be done in and about the premises as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things which said attorneys may do
or cause to be done by virtue of these present.

            IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal this 4th day of March, 2003.


                                                       /s/ Charles R. Wall
                                                       -------------------------
                                                       Charles R. Wall


                                POWER OF ATTORNEY


            KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of
Kraft Foods Inc., a Virginia corporation (the "Company"), does hereby constitute
and appoint Louis C. Camilleri, Calvin J. Collier and James P. Dollive, or any
one or more of them, her true and lawful attorney, for her and in her name,
place and stead, to execute, by manual or facsimile signature, electronic
transmission or otherwise, the Annual Report on Form 10-K of the Company for the
year ended December 31, 2002 and any amendments or supplements to said Annual
Report and to cause the same to be filed with the Securities and Exchange
Commission, together with any exhibits, financial statements and schedules
included or to be incorporated by reference therein, hereby granting to said
attorneys full power and authority to do and perform all and every act and thing
whatsoever requisite or desirable to be done in and about the premises as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things which said attorneys may do
or cause to be done by virtue of these present.

            IN WITNESS WHEREOF, the undersigned has hereunto set her hand and
seal this 4th day of March, 2003.


                                                       /s/ Deborah C. Wright
                                                       -------------------------
                                                       Deborah C. Wright

                                                                      EXHIBIT 99
                                                              ADDITIONAL EXHIBIT

                          CERTIFICATION PURSUANT TO
                           18 U.S.C. SECTION 1350,
                            AS ADOPTED PURSUANT TO
                SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Kraft Foods Inc. (the "Company") on Form
10-K for the year ended December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Roger K. Deromedi,
Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:

     (1)  The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/ Roger K. Deromedi
- ------------------------------
Roger K. Deromedi
Co-Chief Executive Officer
March 25, 2003

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN
PROVIDED TO KRAFT FOODS INC. AND WILL BE RETAINED BY KRAFT FOODS INC. AND
FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

                           18 U.S.C. SECTION 1350,
                            AS ADOPTED PURSUANT TO
                SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Kraft Foods Inc. (the "Company") on Form
10-K for the year ended December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Betsy D. Holden,
Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:

     (1)  The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/ Betsy D. Holden
- ------------------------------
Betsy D. Holden
Co-Chief Executive Officer
March 25, 2003

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN
PROVIDED TO KRAFT FOODS INC. AND WILL BE RETAINED BY KRAFT FOODS INC. AND
FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

                          CERTIFICATION PURSUANT TO
                           18 U.S.C. SECTION 1350,
                            AS ADOPTED PURSUANT TO
                SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Kraft Foods Inc. (the "Company") on Form
10-K for the year ended December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, James P. Dollive,
Senior Vice President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

     (1)  The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/ James P. Dollive
- ------------------------------
James P. Dollive
Senior Vice President and
Chief Financial Officer
March 25, 2003

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN
PROVIDED TO KRAFT FOODS INC. AND WILL BE RETAINED BY KRAFT FOODS INC. AND
FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.