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

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2003

OR

For the transition period from                               to                              

Commission file number 1-16483

Kraft Foods Inc.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code (847) 646-2000

Former name, former address and former fiscal year, if changed since last report

        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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ý    No o

        At April 30, 2003, there were 551,465,897 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.

KRAFT FOODS INC.

TABLE OF CONTENTS

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Kraft Foods Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of dollars)
(Unaudited)

See notes to condensed consolidated financial statements.

Continued

3

Kraft Foods Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
(in millions of dollars)
(Unaudited)

See notes to condensed consolidated financial statements.

4

Kraft Foods Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of dollars, except per share data)
(Unaudited)

See notes to condensed consolidated financial statements.

5

Kraft Foods Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders' Equity
For the Year Ended December 31, 2002 and
the Three Months Ended March 31, 2003
(in millions of dollars, except per share data)
(Unaudited)

Total comprehensive earnings were $624 million for the quarter ended March 31, 2002.

See notes to condensed consolidated financial statements.

6

Kraft Foods Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of dollars)
(Unaudited)

See notes to condensed consolidated financial statements.

Continued

7

Kraft Foods Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
(Unaudited)

See notes to condensed consolidated financial statements.

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Kraft Foods Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Accounting Policies:

Basis of Presentation

The interim condensed consolidated financial statements of Kraft Foods Inc. ("Kraft"), together with its subsidiaries (collectively referred to as the "Company"), are unaudited. It is the opinion of the Company's management that all adjustments necessary for a fair statement of the interim results presented have been reflected therein. All such adjustments were of a normal recurring nature. Net revenues and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year.

These statements should be read in conjunction with the Company's consolidated financial statements and related notes, and management's discussion and analysis of financial condition and results of operations, which appear in the Company's Annual Report to Shareholders and which are incorporated by reference into the Company's Annual Report on Form 10-K for the year ended December 31, 2002 (the "2002 Form 10-K").

Certain prior year amounts have been reclassified to conform with the current year's presentation, due primarily to the disclosure of more detailed information on the condensed consolidated statements of earnings and the condensed consolidated statements of cash flows, as well as the transfer of Canadian biscuits and pet snacks from the Biscuits, Snacks and Confectionery segment to the Cheese, Meals and Enhancers segment, which contains the Company's other Canadian businesses.

Stock-Based Compensation Expense

The Company accounts for employee stock compensation plans in accordance with the intrinsic value-based method permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which did not result in compensation cost for stock options. The market value of restricted stock at date of grant is recorded as compensation expense over the period of restriction.

During the first quarter of 2003, the Company granted shares of restricted stock and rights to receive shares of stock under its 2001 Performance Incentive Plan to eligible employees, giving them in most instances all of the rights of stockholders, except that they may not sell, assign, pledge or otherwise encumber such shares and rights. Such shares and rights are subject to forfeiture if certain employment conditions are not met. During the first quarter of 2003, the Company granted approximately 3.7 million Class A shares to eligible U.S. – based employees and also issued to eligible non – U.S. employees rights to receive approximately 1.6 million Class A equivalent shares. Restrictions on the stock lapse in the first quarter of 2006.

The fair value of the restricted shares and rights at the date of grant is amortized to expense ratably over the restriction period. The Company recorded compensation expense related to restricted stock and other stock awards of $11 million for the quarter ended March 31, 2003. The unamortized portion, which is reported on the condensed consolidated balance sheets as a reduction of earnings reinvested in the business, was $182 million at March 31, 2003.

At March 31, 2003, the Company had stock-based employee compensation 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 the after-tax impact of compensation expense related to restricted stock. The following table illustrates the effect on net earnings and earnings per share ("EPS") if the Company had applied the fair value

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Kraft Foods Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

recognition provisions of SFAS No. 123 to stock-based employee compensation for the quarters ended March 31, 2003 and 2002:

Note 2. Recently Adopted Accounting Standards:

Effective January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" for exit or disposal activities initiated after December 31, 2002. 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. The adoption of SFAS No. 146 did not have a material impact on the Company's consolidated financial position, results of operations or cash flows for the period ended March 31, 2003.

Effective January 1, 2003, the Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45 required the disclosure of certain guarantees existing at December 31, 2002. In addition, Interpretation No. 45 required 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 has applied the recognition provisions of Interpretation No. 45 to guarantees initiated after December 31, 2002. Adoption of Interpretation No. 45 as of January 1, 2003 did not have a material impact on the Company's consolidated financial statements. See Note 6. Contingencies for a further discussion of guarantees.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity's residual return or both. Interpretation No. 46 also provides criteria for determining whether an entity is a variable interest entity subject to consolidation. Interpretation No. 46 requires immediate consolidation of variable interest entities created after January 31, 2003. For variable interest entities created

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Kraft Foods Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

prior to February 1, 2003, consolidation is required on July 1, 2003. The adoption of Interpretation No. 46 on January 1, 2003 did not have a material impact on the Company's consolidated financial statements.

Note 3. Related Party Transactions:

At March 31, 2003, Altria Group, Inc. owned approximately 84.1% of the Company's outstanding shares of capital stock. 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. Billings for these services, which were based on the cost to Altria Corporate Services, Inc. to provide such services and a management fee, were $83 million and $81 million for the three months ended March 31, 2003 and 2002, respectively.

Notes payable to Altria Group, Inc. and affiliates consisted of the following:

During the first three months of 2003, the Company repaid the remaining $1,150 million to Altria Group, Inc. on the 7.0% note. In addition, at March 31, 2003, the Company had short-term debt totaling $2,823 million payable to Altria Group, Inc. Interest on these borrowings is based on the applicable London Interbank Offered Rate. As noted in the table above, a portion of the debt, totaling $1,499 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.

Note 4. Acquisitions and Divestitures:

In April 2003, the Company completed the acquisition of a biscuits business in Egypt. During the first quarter of 2002, the Company acquired a biscuits business in Australia for $62 million.

During the first quarter of 2002, the Company sold several small North American food businesses which were previously classified as businesses held for sale. The aggregate proceeds received in these transactions during the first quarter of 2002 were $81 million. The net revenues and operating results of the businesses held for sale, which were not significant, were excluded from the Company's condensed consolidated statements of earnings and no gain or loss was recognized on these sales.

In April 2003, the Company announced an agreement to sell its retail rice business in Germany, Austria and Denmark. This transaction is subject to approval by the German competition authorities.

The operating results of businesses acquired and divested were not material to the consolidated financial position or results of operations of the Company in any of the periods presented.

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Kraft Foods Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 5. Earnings Per Share:

Basic and diluted EPS were calculated using the following:

Note 6. 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 March 31, 2003, the Company's third-party guarantees, which are primarily derived from acquisition and divestiture activities, approximated $37 million. Substantially all of these guarantees expire through 2012, with $26 million expiring through March 31, 2004. 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 $24 million at March 31, 2003 relating to these guarantees.

Note 7. Goodwill and Other Intangible Assets, Net:

Goodwill by reportable segment was as follows:

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Kraft Foods Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Intangible assets were as follows:

Non-amortizable intangible assets consist substantially 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 $2 million for the quarter ended March 31, 2003. Based upon the amortizable intangible assets recorded in the condensed consolidated balance sheet at March 31, 2003, 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 three months ended March 31, 2003 of $195 million is primarily related to currency translation.

Note 8. 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 Kraft Foods North America, Inc. ("KFNA") and Kraft Foods International, Inc. ("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 uses operating companies income, which is defined as operating income before general corporate expenses and amortization of intangibles, to evaluate segment performance and allocate resources.

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 not included in the measure of segment profitability reviewed by management.

During the first quarter of 2003, the Company transferred management responsibility of its Canadian Biscuits and Pet Snacks operations from the Biscuits, Snacks and Confectionery segment to the Cheese, Meals and Enhancers segment, which contains the Company's other Canadian businesses. Accordingly, all prior period amounts have been reclassified to reflect the transfer.

13

Kraft Foods Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Reportable segment data were as follows:

Within its two geographic regions, KFI's brand portfolio spans five core consumer sectors. The following table shows net revenues for KFI by consumer sector:

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Kraft Foods Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

During the first quarter of 2002, the Company recorded a pre-tax charge of $142 million related to employee acceptances under a voluntary retirement program. In addition, during the first quarter of 2002, the Company recorded a pre-tax integration related charge of $27 million to consolidate production lines in North America. These items were included in the operating companies income of the following segments:

Note 9. Financial Instruments:

During the quarters ended March 31, 2003 and 2002, ineffectiveness related to cash flow hedges was not material. At March 31, 2003, the Company was hedging forecasted transactions for periods not exceeding the next twenty 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, as follows:

Note 10. Recently Issued Accounting Pronouncements:

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In general, SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not currently expect the adoption of SFAS No. 149 to have a material impact on its 2003 consolidated financial statements.

In November 2002, the Emerging Issues Task Force ("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.

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Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Environment

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. At March 31, 2003, Altria Group, Inc. held 97.8% of the combined voting power of the Company's outstanding capital stock and owned approximately 84.1% 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.

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 prices 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 prices in the first quarter of 2003 on average were lower than those incurred in the first quarter of 2002, while cocoa bean prices increased significantly and coffee bean prices were also higher than in the first quarter of 2002.

On December 11, 2000, the Company acquired all of the outstanding shares of Nabisco Holdings Corp. ("Nabisco"). The closure of a number of Nabisco domestic and international facilities resulted in severance and other exit costs of $379 million, which were 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 $200 million has been spent through March 31, 2003. 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. During the first quarter of 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 during the first quarter of 2002 related to these programs. In addition, during the first quarter of 2002, the Company recorded pre-tax integration related charges of $27 million to consolidate production lines in North America.

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As more fully discussed in the Debt and Liquidity section, during the first quarter of 2003, as a result of a judgment against Altria Group, Inc.'s domestic tobacco subsidiary, the Company's credit ratings were lowered with the resultant effect of eliminating access to the commercial paper market. As a result, in April 2003, the Company began to borrow on its revolving credit agreements, having the impact of increasing borrowing costs.

In April 2003, the Company completed the acquisition of a biscuits business in Egypt. During the first quarter of 2002, the Company acquired a biscuits business in Australia for $62 million.

During the first quarter of 2002, the Company sold several small North American food businesses which were previously classified as businesses held for sale. The aggregate proceeds received in these transactions during the first quarter of 2002 were $81 million. The net revenues and operating results of the businesses held for sale, which were not significant, were excluded from the Company's condensed consolidated statements of earnings and no gain or loss was recognized on these sales.

In April 2003, the Company announced an agreement to sell its retail rice business in Germany, Austria and Denmark. This transaction is subject to approval by the German competition authorities.

The operating results of businesses acquired and divested were not material to the consolidated financial position or results of operations of the Company in any of the periods presented.

Consolidated Operating Results

The following events occurred during the first three months of 2002 that affected the comparability of statement of earnings amounts:

•

Integration Costs- During the first quarter of 2002, the Company recorded $27 million of pre-tax integration charges to consolidate production lines in North America. This charge was included in the operating companies income of the Cheese, Meals and Enhancers segment.

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•

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 of $142 million in the first quarter of 2002. This charge was included in the operating companies income of the following segments (in millions):

Volume for the first quarter of 2003 increased 0.1% over the comparable 2002 period due primarily to increased shipments in the Beverages, Desserts & Cereals segment, aided by new product introductions, partially offset by the shift in shipments supporting the Easter holiday, which falls into the second quarter of 2003 versus the first quarter of 2002, a reduction in trade inventories, the impact of divested businesses and a national strike in Venezuela.

Net revenues for the first quarter of 2003 increased $212 million (3.0%) over the comparable 2002 period due primarily to higher pricing ($116 million, driven by higher commodity and currency devaluation-driven costs), favorable currency movements ($81 million) and higher volume/mix ($28 million), partially offset by the impact of 2002 divested businesses ($22 million).

Operating income for the first quarter of 2003 increased $184 million (14.1%) over the comparable 2002 period, due primarily to the 2002 pre-tax charges for separation programs ($142 million) and integration costs ($27 million), higher pricing, net of cost increases ($104 million, including productivity and synergy savings) and favorable currency movements ($6 million), partially offset by higher marketing, administration and research costs ($52 million, including higher benefit costs) and unfavorable volume/mix ($34 million). The higher benefit costs were primarily related to pensions and stock compensation costs relating to the issuance of restricted stock awards to employees.

As discussed in Note 8. Segment Reporting, management reviews operating companies income, which is defined as operating income before corporate expenses and amortization of intangibles, to evaluate segment performance and allocate resources. Management believes it is appropriate to disclose this measure to help investors analyze business performance and trends. Operating companies income increased $184 million (13.6%) over the first quarter of 2002, due to the same factors discussed above for operating income.

Currency movements have increased net revenues by $81 million and operating companies income by $6 million over the first quarter of 2002. These increases in net revenues and operating companies income are due primarily to the weakness of the U.S. dollar against the euro and other currencies, partially offset by the strength of the U.S. dollar against certain Latin American currencies.

Interest and other debt expense, net, decreased $51 million from the first quarter of 2002. This decrease is due to the Company's refinancing of notes payable to Altria Group, Inc., lower short-term interest rates and the use of free cash flow to pay down debt.

Net earnings of $848 million for the first quarter of 2003 increased $155 million (22.4%) over the comparable period of 2002, due primarily to growth in operating companies income and lower interest expense. Diluted and basic earnings per share ("EPS"), which were both $0.49 for the first quarter of 2003, increased by 22.5% over 2002.

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Operating Results by Business Segment

Kraft Foods North America, Inc.

Operating Results

During the first quarter of 2003, the Company transferred management responsibility of its Canadian Biscuits and Pet Snacks operations from the Biscuits, Snacks and Confectionery segment to the Cheese, Meals and Enhancers segment, which contains the Company's other Canadian businesses. Accordingly, all prior period amounts have been reclassified to reflect the transfer.

Volume for the first quarter of 2003 increased 1.3% over the comparable period of 2002, due primarily to new products and increased shipments in the Beverages, Desserts and Cereals and Oscar Mayer and Pizza segments, partially offset by the shift in Easter timing and trade inventory reductions.

During the first quarter of 2003, net revenues increased $86 million (1.6%) over the first quarter of 2002, due primarily to higher volume/mix ($53 million) and higher pricing ($43 million), partially offset by unfavorable currency movements and the divestiture of a small confectionery business in 2002.

Operating companies income for the first quarter of 2003 increased $199 million (18.1%) over the comparable period of 2002, due primarily to the absence of the 2002 pre-tax charges for separation programs ($135 million) and integration costs ($27 million), and higher pricing, net of cost increases on certain businesses, lower cheese commodity costs and productivity and synergy savings ($87 million), partially offset by higher marketing, administration and research costs ($27 million, including higher benefit costs) and unfavorable volume/mix.

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

Cheese, Meals and Enhancers.    Volume in the first quarter of 2003 decreased 0.4% from the comparable period of 2002, due primarily to the shift in Easter timing and lower trade inventories, which particularly impacted the cheese and enhancers businesses. Volume in Canada and Mexico increased, driven by new product introductions in beverages. Volume in the food service business in the United States also increased due to higher shipments to national accounts.

During the first quarter of 2003, net revenues decreased $29 million (1.3%) from the first quarter of 2002, due to lower volume/mix ($35 million) and unfavorable currency movements ($6 million), partially offset by higher pricing ($12 million).

Operating companies income for the first quarter of 2003 increased $86 million (18.7%) over the comparable period of 2002, due primarily to the 2002 pre-tax charges for separation programs ($60 million) and integration costs ($27 million), higher pricing in certain businesses and lower cheese commodity costs and productivity savings ($50 million), partially offset by lower volume/mix ($35 million) and higher benefit costs.

Biscuits, Snacks and Confectionery.    Volume in the first quarter of 2003 decreased 1.8% from the comparable period of 2002, due primarily to trade inventory reductions, a planned shift to lower-weight, higher-revenue-per-pound new products and a 2002 confectionery divestiture.

During the first quarter of 2003, net revenues increased $47 million (4.3%) over the first quarter of 2002, due primarily to higher volume/mix ($42 million) and higher pricing ($9 million), partially offset by a 2002 divested confectionery business.

Operating companies income for the first quarter of 2003 increased $20 million (10.3%) over the comparable period of 2002, due primarily to higher pricing and favorable costs ($25 million), higher volume/mix ($8 million) and synergy savings, partially offset by higher marketing, administration and research costs.

Beverages, Desserts and Cereals.    Volume in the first quarter of 2003 increased 5.1% over the comparable period in 2002, due primarily to higher shipments of ready-to-drink beverages and cereals, which were aided by new product introductions. Volume declined in coffee, dry packaged desserts and frozen whipped toppings due primarily to the shift in the timing of Easter.

During the first quarter of 2003, net revenues increased $34 million (2.9%) over the first quarter of 2002, due to higher volume/mix ($19 million) and higher pricing ($15 million).

Operating companies income for the first quarter of 2003 increased $67 million (21.8%) over the comparable period of 2002, due primarily to the 2002 pre-tax charge for separation programs ($47 million), lower marketing, administration and research costs ($18 million) and higher volume/mix, partially offset by higher benefit costs.

Oscar Mayer and Pizza.    Volume in the first quarter of 2003 increased 2.3% over the comparable period of 2002, due to volume gains in frozen pizza, bacon, hot dogs, lunch combinations and soy-based meat alternatives.

During the first quarter of 2003, net revenues increased $34 million (4.5%) over the first quarter of 2002 due primarily to higher volume/mix ($27 million) and higher pricing.

Operating companies income for the first quarter of 2003 increased $26 million (19.4%) over the comparable period of 2002 due to the 2002 pre-tax charge for separation programs ($25 million), and higher

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volume/mix ($11 million), partially offset by higher marketing, administration and research costs ($10 million, including higher benefit costs).

Kraft Foods International, Inc.

Operating Results