ALTRIA GROUP, INC. (Exact Name of Registrant As Specified in Its Charter)

Home , Lacta (Greek company), Life Savers, Michael Szymanczyk, Nutter Butter, Papastratos, Poiana (chocolate)

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

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, 2003

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

For the transition period from to

Commission File Number 1-8940

ALTRIA GROUP, INC. (Exact name of registrant as specified in its charter)

Virginia 13 -3260245 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 120 Park Avenue, New York, N.Y. 10017 (Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 917-663-4000

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange Title of each class on which registered

Common Stock, $0.33 1 / 3 par value New York Stock Exchange

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  No

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.

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  No

The aggregate market value of the shares of Common Stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock on June 30, 2003, was approximately $92 billion. As of February 27, 2004, there were 2,046,677,286 shares of the registrant’s Common Stock outstanding.

Documents Incorporated by Reference

Portions of the registrant’s annual report to shareholders for the year ended December 31, 2003 (the “2003 Annual Report”), are incorporated in Part I, Part II and Part IV hereof and made a part hereof. Portions of the registrant’s definitive proxy statement for use in connection with its annual meeting of shareholders to be held on April 29, 2004, filed with the Securities and Exchange Commission on March 15, 2004, are incorporated in Part III hereof and made a part hereof.

PART I

Item 1. Business .

(a) General Development of Business

General

Altria Group, Inc. (“ALG”), through its wholly-owned subsidiaries, Philip Morris USA Inc. (“PM USA”), Philip Morris International Inc. (“PMI”) and its majority-owned (84.6%) subsidiary, Kraft Foods Inc. (“Kraft”), is engaged in the manufacture and sale of various consumer products, including cigarettes and foods and beverages. Philip Morris Capital Corporation (“PMCC”), another wholly- owned subsidiary, is primarily engaged in leasing activities. During 2003, PMCC shifted its strategic focus from an emphasis on the growth of its portfolio of finance leases through new investments to one of maximizing investment gains and generating cash flows from its existing portfolio of leased assets. ALG’s former wholly-owned subsidiary, Miller Brewing Company (“Miller”), was engaged in the manufacture and sale of various beer products prior to the merger of Miller into South African Breweries plc (“SAB”) on July 9, 2002. As used herein, unless the context indicates otherwise, Altria Group, Inc. refers to the consolidated financial position, results of operations and cash flows of the Altria family of companies. ALG’s family of companies forms the largest consumer packaged goods business in the world. *

PM USA is engaged in the manufacture and sale of cigarettes. PM USA is the largest cigarette company in the United States. PMI is a holding company whose subsidiaries and affiliates and their licensees are engaged primarily in the manufacture and sale of tobacco products (mainly cigarettes) internationally. Marlboro, the principal cigarette brand of these companies, has been the world ’s largest-selling cigarette brand since 1972.

Kraft is engaged in the manufacture and sale of branded foods and beverages in the United States, Canada, Europe, the Middle East and Africa, Latin America and Asia Pacific. Kraft conducts its global business through its subsidiaries: Kraft Foods North America, Inc. (“KFNA”) and Kraft Foods International, Inc. (“KFI”). Kraft has operations in 68 countries and sells its products in more than 150 countries.

In January 2004, Kraft announced a multi-year restructuring program with the objectives of leveraging Kraft’s global scale, realigning and lowering its cost structure, and optimizing capacity utilization. As part of this program, Kraft anticipates the closing or sale of up to twenty plants and the elimination of approximately 6,000 positions. Over the next three years, Kraft expects to incur up to $1.2 billion in pre-tax charges, reflecting asset disposals, severance and other implementation costs, including an estimated range of $750 million to $800 million in 2004. Approximately one-half of the pre-tax charges are expected to require cash payments. In addition, Kraft expects to spend approximately $140 million in capital over the next three years to implement the program, including approximately $50 million in 2004. Annual cost savings as a result of this program are expected to approximate $120 million to $140 million in 2004 and are anticipated to reach approximately $400 million by 2006, all of which are expected to be used in supporting brand-building initiatives.

On June 13, 2001, Kraft 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. At December 31, 2003, ALG owned approximately 84.6% of the outstanding shares of Kraft’s capital stock through its ownership of 51.0% of Kraft’s Class A common stock and 100% of Kraft’s Class B common stock. Kraft’s Class A common stock has one vote per share while Kraft’s Class B common stock has ten votes per share. Therefore, at December 31, 2003, ALG held approximately 98% of the combined voting power of Kraft’s outstanding capital stock.

* References to the competitive ranking of ALG’s subsidiaries in their various businesses are based on sales data or, in the case of cigarettes, shipments, unless otherwise indicated.

2 On July 9, 2002, Miller merged into SAB and SAB changed its name to SABMiller plc (“SABMiller”). At closing, ALG received 430 million shares of SABMiller valued at approximately $3.4 billion, based upon a share price of 5.12 British pounds per share, in exchange for Miller, which had $2.0 billion of existing debt. The shares in SABMiller owned by ALG resulted in a 36% economic interest in SABMiller and a 24.9% voting interest. The transaction resulted in a pre-tax gain of $2.6 billion or $1.7 billion after-tax, which was recorded in the third quarter of 2002.

Source of Funds—Dividends

Because ALG is a holding company, its principal sources of funds are from the payment of dividends and repayment of debt from its subsidiaries. Except for minimum net worth requirements, ALG’s principal wholly-owned and majority-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

Altria Group, Inc.’s reportable segments are domestic tobacco, international tobacco, North American food, international food, beer (prior to July 9, 2002) and financial services. Net revenues and operating companies income * (together with a reconciliation to operating income) attributable to each such segment for each of the last three years (along with total assets for each of tobacco, food, beer and financial services at December 31, 2003, 2002 and 2001) are set forth in Note 14 to Altria Group, Inc.’s consolidated financial statements (“Note 14”), which is incorporated herein by reference to the 2003 Annual Report.

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

2003 2002 2001

Domestic tobacco 23.3 % 29.0 % 30.1 % International tobacco 37.6 32.8 30.9 North American food 29.5 28.6 27.4 International food 7.7 7.7 7.1 Beer 1.6 2.8 Financial services 1.9 0.3 1.7

100.0 % 100.0 % 100.0 %

The decrease in the relative percentage attributable to domestic tobacco reflects the effects of price promotions to narrow price gaps in the intensely competitive United States cigarette industry and lower volume. The decrease in the relative percentage attributable to beer is the result of the merger of Miller into SABMiller in 2002. The increase in the relative percentage attributable to financial services from 2002 to 2003 reflects a $290 million provision for leveraged lease exposure to the United States airline industry in 2002, partially offset by the shift in focus from an emphasis on the growth of PMCC’s portfolio of finance leases through new investments to one of maximizing investment gains and generating cash flows from its existing portfolio of leased assets in 2003.

* Altria Group, Inc ’s management reviews operating companies income to evaluate segment performance and allocate resources. Operating companies income for the segments excludes general corporate expenses and amortization of intangibles. The accounting policies of the segments are the same as those described in Note 2 to Altria Group, Inc’s consolidated financial statements and are incorporated herein by reference to the 2003 Annual Report.

3 (c) Narrative Description of Business

Tobacco Products

PM USA manufactures, markets and sells cigarettes in the United States and its territories, and contract manufactures cigarettes for PMI. Subsidiaries and affiliates of PMI and their licensees manufacture, market and sell tobacco products outside the United States.

Acquisitions

During 2003, PMI purchased approximately 74.2% of a tobacco business in Serbia for a cost of approximately $486 million and purchased 99% of a tobacco business in Greece for approximately $387 million. PMI also increased its ownership interest in its affiliate in Ecuador from less than 50% to approximately 98% for a cost of $70 million. During 2002, PMI acquired a sales promotion company in Japan for $25 million. During 2001, PMI increased its ownership interest in its affiliate in Argentina. The cost of this and other smaller acquisitions in 2001 was $257 million.

Domestic Tobacco Products

PM USA is the largest tobacco company in the United States, with total cigarette shipments in the United States of 187.2 billion units in 2003, a decrease of 2.3% from 2002. While PM USA’s shipment volume comparisons to 2002 continued to be affected by factors such as a weak economic environment, the decline in overall cigarette consumption, and sharp increases in state excise taxes, PM USA’s retail share improved sequentially through 2003.

PM USA’s major premium brands are Marlboro, Virginia Slims and Parliament. Its principal discount brand is Basic . All of its brands are marketed to take into account differing preferences of adult smokers. Marlboro is the largest-selling cigarette brand in the United States, with shipments of 147.9 billion units in 2003 (down 0.4% from 2002).

In the premium segment, PM USA’s 2003 shipment volume decreased 1.1% from 2002, and its shipment volume in the discount segment decreased 12.9%. Shipments of premium cigarettes accounted for 91.3% of PM USA’s total 2003 volume, up from 90.2% in 2002.

Effective with the first quarter of 2003, PM USA began reporting retail share results based on a retail tracking service, with data beginning in the fourth quarter of 2002. This service, IRI/Capstone Total Retail Panel, was developed to provide a more comprehensive measure of market share in retail stores selling cigarettes. It is not designed to capture Internet or direct mail sales. The following table summarizes sequential retail share performance for PM USA’s key brands from the fourth quarter of 2002 through the fourth quarter of 2003, and the full year 2003, based on data from the IRI/Capstone Total Retail Panel:

For the Three Months Ended For the Year Ended December 31, March 31, June 30, September 30, December 31, December 31,

2002 2003 2003 2003 2003 2003

Marlboro 37.4 % 37.5 % 37.8 % 38.1 % 38.5 % 38.0 % Parliament 1.3 1.5 1.7 1.8 1.7 1.7 Virginia Slims 2.5 2.5 2.4 2.4 2.4 2.4 Basic 4.3 4.3 4.2 4.2 4.2 4.2

Focus Brands 45.5 45.8 46.1 46.5 46.8 46.3 Other 2.6 2.5 2.4 2.3 2.3 2.4

Total PM USA 48.1 % 48.3 % 48.5 % 48.8 % 49.1 % 48.7 %

4 PM USA cannot predict future changes or rates of change in domestic tobacco industry volume, the relative sizes of the premium and discount segments or in PM USA’s shipments or retail share; however, it believes that PM USA’s results may be materially adversely affected by price increases related to increased excise taxes and tobacco litigation settlements, as well as by the other tobacco legislation discussed below.

As discussed in Note 18 to Altria Group, Inc.’s consolidated financial statements (“Note 18”), which is incorporated herein by reference to the 2003 Annual Report, in connection with obtaining a stay of execution in the Price case, PM USA placed a pre- existing 7.0%, $6 billion long-term note from ALG to PM USA into an escrow account with an Illinois financial institution. Since this note is the result of an intercompany financing arrangement, it does not appear on the consolidated balance sheet of Altria Group, Inc. In addition, PM USA agreed to make cash deposits with the clerk of the Madison County Circuit Court in the following amounts: beginning October 1, 2003, an amount equal to the interest earned by PM USA on the ALG note ($210 million every six months), an additional $800 million in four equal quarterly installments between September 2003 and June 2004 and the payments of the principal of the note which are due in April 2008, 2009 and 2010. Through December 31, 2003, PM USA made $610 million of the cash deposits due under the judge’s order. Cash deposits into the account are included in other assets on the consolidated balance sheet. If PM USA prevails on appeal, the escrowed note and all cash deposited with the court will be returned to PM USA with accrued interest, less administrative fees payable to the court.

International Tobacco Products

PMI’s total cigarette shipments increased 1.8% in 2003 to 735.8 billion units. PMI estimates that its share of the international cigarette market (which is defined as worldwide cigarette volume excluding the United States and duty-free shipments) was approximately 14.5% in 2003, up from 14.2% in 2002. PMI estimates that international cigarette market shipments were approximately 4.9 trillion units in 2003, a slight decrease from 2002. PMI’s leading brands— Marlboro, L&M, Philip Morris, Bond Street, Chesterfield, Parliament, Lark, Merit and Virginia Slims —collectively accounted for approximately 11.4% of the international cigarette market, up from 11.1% in 2002. Shipments of PMI’s principal brand, Marlboro, decreased 1.9% in 2003, and represented more than 6% of the international cigarette market in 2003 and 2002.

PMI has a cigarette market share of at least 15%, and in a number of instances substantially more than 15%, in more than 60 markets, including Argentina, Austria, Belgium, Brazil, the Czech Republic, Finland, France, Germany, Greece, Hong Kong, Israel, Italy, Japan, Malaysia, Mexico, the Netherlands, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Singapore, Spain, Switzerland, Turkey and the Ukraine.

In 2003, PMI continued to invest in and expand its international manufacturing base, including significant investments in facilities located in Germany, Korea, Malaysia, the Philippines, Poland, Portugal and Russia.

Distribution, Competition and Raw Materials

PM USA sells its tobacco products principally to wholesalers (including distributors), large retail organizations, including chain stores, and the armed services. Subsidiaries and affiliates of PMI and their licensees sell their tobacco products worldwide to distributors, wholesalers, retailers, state-owned enterprises and other customers.

The market for tobacco products is highly competitive, characterized by brand recognition and loyalty, with product quality, price, marketing and packaging constituting the significant methods of

5 competition. Promotional activities include, in certain instances and where permitted by law, allowances, the distribution of incentive items, price promotions and other discounts. The tobacco products of ALG’s subsidiaries, affiliates and their licensees are advertised and promoted through various media, although television and radio advertising of cigarettes is prohibited in the United States and is prohibited or restricted in many other countries. In addition, as discussed below in Item 3. Legal Proceedings, PM USA and other domestic tobacco manufacturers have agreed to other marketing restrictions in the United States as part of the settlements of state health care cost recovery actions.

During 2003 and 2002, weak economic conditions with resultant consumer frugality and higher state excise taxes have resulted in intense price competition in the United States cigarette industry. These factors have significantly affected shipments of PM USA’s products, which compete predominantly in the premium category. To address these issues, PM USA took actions to significantly lower the price gap between its products and its competitors’ products in 2003. PM USA believes that its enhanced sales and promotion programs are having their intended effect, as measured by the sequential improvements in its retail share.

In the United States, under a contract growing program known as the Tobacco Farmers Partnering Program, PM USA purchases burley and flue-cured leaf tobaccos of various grades and styles directly from tobacco growers. Under the terms of this program, PM USA agrees to purchase all of the tobacco that participating growers may sell without penalty under the federal tobacco program. PM USA also purchases its United States tobacco requirements through other sources.

Tobacco production in the United States is subject to government controls, including the tobacco-price support and production control programs administered by the United States Department of Agriculture (the “USDA”). In addition, oriental, flue-cured and burley tobaccos are purchased outside the United States. Tobacco production outside the United States is subject to a variety of controls and external factors, which may include tobacco subsidies and tobacco production control programs. All of those controls and programs in the United States and internationally may substantially affect market prices for tobacco.

PM USA and PMI believe there is an adequate supply of tobacco in the world markets to satisfy their current and anticipated production requirements.

Business Environment

Portions of the information called for by this Item are hereby incorporated by reference to the paragraphs captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operating Results by Business Segment—Tobacco Business Environment” on pages 23 to 26 of the 2003 Annual Report and made a part hereof.

Food Products

Acquisitions and Divestitures

During 2003, KFNA acquired trademarks associated with a small natural foods business and KFI acquired a biscuits business in Egypt. The total cost of these and other smaller businesses purchased by Kraft during 2003 was $98 million. During 2002, KFI acquired a snacks business in Turkey and a biscuits business in Australia. The total cost of these and smaller businesses purchased by Kraft during 2002 was $122 million. During 2001, KFI 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 food acquisitions during 2001 was $194 million.

6 During 2003, KFI sold a European rice business and a branded fresh cheese business in Italy. The aggregate proceeds received from the sales of businesses in 2003 were $96 million, on which pre-tax gains of $31 million were recorded. During 2002, Kraft sold several small North American food businesses, most 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 Altria Group, Inc.’s consolidated statements of earnings, and no gain or loss was recognized on these sales. In addition, Kraft sold a 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 during 2002 were $219 million, resulting in pre-tax gains of $80 million. During 2001, Kraft sold several small food businesses. The aggregate proceeds received in these transactions were $21 million, on which pre-tax gains of $8 million were recorded.

The impact of these acquisitions and divestitures has not had a material effect on Altria Group, Inc.’s consolidated results of operations.

North American Food

KFNA’s principal brands span five consumer sectors and include the following:

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; Life Savers , Creme Savers , Altoids, Gummi Savers and Fruit Snacks sugar confectionery products; Terry’s and Toblerone chocolate confectionery products; Handi-Snacks two-compartment snacks; and Milk-Bone pet snacks.

Beverages: Maxwell House, General Foods International Coffees, Starbucks (under license), Yuban, Sanka, Nabob and Gevalia coffees ; Capri Sun (under license), Tang, Kool-Aid and Crystal Light aseptic juice drinks; and Kool-Aid, Tang, Capri Sun (under license), Crystal Light and Country Time powdered beverages.

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; Knudsen and Breakstone’s cottage cheese and sour cream; and Breyers yogurt (under license).

Grocery: Jell-O dry packaged desserts; Cool Whip frozen whipped topping; Post ready-to-eat cereals; Cream of Wheat and Cream of Rice hot cereals; Kraft and Miracle Whip spoonable dressings; Kraft salad dressings; A.1. steak sauce; Kraft and Bull’s-Eye barbecue sauces; Grey Poupon premium mustards; Shake ‘N Bake coatings; Balance nutrition and energy snacks; Jell-O refrigerated gelatin and pudding snacks; and Handi-Snacks shelf-stable pudding snacks.

Convenient Meals: DiGiorno, Tombstone, Jack’s, California Pizza Kitchen (under license) and Delissio frozen pizzas; Kraft macaroni & cheese dinners; Taco Bell Home Originals (under license) and It’s Pasta Anytime meal kits; Lunchables lunch combinations; Oscar Mayer and Louis Rich cold cuts, hot dogs and bacon; Boca soy-based meat alternatives; Stove Top stuffing mix; Minute rice; and Back to Nature cereals.

International Food

KFI’s principal brands within the five consumer sectors include the following:

Snacks: Milka, Suchard, Côte d’Or, Marabou, Toblerone, Freia, Terry’s, Daim, Figaro, Korona, Poiana, Prince Polo, Alpen Gold, Siesta, Lacta and Gallito chocolate confectionery products; Estrella, Maarud, Cipso and Lux salted snacks; Oreo, Chips Ahoy!, Ritz, Terrabusi, Canale, Club Social, Cerealitas, Trakinas and Lucky biscuits; and Sugus and Artic sugar confectionery products.

7 Beverages: Jacobs, Gevalia, Carte Noire, Jacques Vabre, Kaffee HAG, Grand’ Mère, Kenco, Saimaza, Maxim, Maxwell House, Dadak, Onko, Samar and Nova Brasilia coffees; Suchard Express, O’Boy , and Kaba chocolate drinks; Tang, Clight, Kool-Aid, Royal, Verao, Fresh, Frisco, Q-Refres-Ko and Ki-Suco powdered beverages; and Maguary juice concentrate and ready-to-drink beverages.

Cheese: Philadelphia cream cheese; Sottilette , Kraft, Dairylea and El Caserío cheeses; Kraft and Eden process cheeses; and Cheez Whiz process cheese spread.

Grocery: Kraft spoonable and pourable salad dressings; Miracel Whip spoonable dressings; Royal dry packaged desserts; Kraft and ETA peanut butters; and Vegemite yeast spread.

Convenient Meals: Lunchables lunch combinations; Kraft macaroni & cheese dinners; Kraft and Mirácoli pasta dinners and sauces; and Simmenthal canned meats.

Distribution, Competition and Raw Materials

KFNA’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 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 KFI sell their food products primarily in the same manner and also engage the services of independent sales offices and agents.

Kraft is subject to competitive conditions in all aspects of its business. Competitors include large national and international companies and numerous local and regional companies. Some competitors may have different profit objectives and some competitors may be more or less susceptible to currency exchange rates. In addition, certain international competitors benefit from government subsidies. Kraft’s food products also compete with generic products and private-label products of food retailers, wholesalers and cooperatives. Kraft competes 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 is a major purchaser of milk, cheese, nuts, green coffee beans, cocoa, corn products, wheat, rice, pork, poultry, beef, vegetable oil, and sugar and other sweeteners. It also uses significant quantities of glass, plastic and cardboard to package its products. Kraft continuously monitors worldwide supply and cost trends of these commodities to enable it to take appropriate action to obtain ingredients and packaging needed for production.

Kraft purchases a substantial portion of its dairy raw material requirements, including milk and cheese, from independent third parties such as agricultural cooperatives and individual processors. 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 higher in 2003 than those seen in 2002.

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,

8 changes in the value of the United States dollar in relation to certain other currencies and consumer demand for coffee products. Coffee bean costs on average during 2003 were higher than in 2002.

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. Cocoa bean costs on average during 2003 were higher than in 2002.

The prices paid for raw materials and agricultural materials used in Kraft’s food products 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, Kraft believes such raw materials to be in adequate supply and generally available from numerous sources. Kraft uses hedging techniques to minimize the impact of price fluctuations in its principal raw materials. However, Kraft does not fully hedge against changes in commodity prices and these strategies may not protect Kraft from increases in specific raw material costs.

Regulation

All of KFNA’s United States food products and packaging materials are subject to regulations administered by the Food and Drug Administration (the “FDA”) or, with respect to products containing meat and poultry, the USDA. 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 KFNA’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 KFNA’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 Kraft’s operations outside of the United States are subject to local and national regulations similar to those applicable to KFNA’s United States businesses and, in some cases, international regulatory provisions, such as those of the European Union (the “EU”) relating to labeling, packaging, food content, pricing, marketing and advertising, and related areas.

The EU 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.

Business Environment

Portions of the information called for by this Item are hereby incorporated by reference to the paragraphs captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operating Results by Business Segment—Food Business Environment” on pages 28 to 29 of the 2003 Annual Report and made a part hereof.

9 Financial Services

PMCC is primarily engaged in leasing activities. Total assets of PMCC were $8.5 billion at December 31, 2003, down from $9.2 billion at December 31, 2002, reflecting a decrease in finance assets, net due to asset sales. During 2003, PMCC shifted its strategic focus from an emphasis on the growth of its portfolio of finance leases through new investments to one of maximizing investment gains and generating cash flows from its existing portfolio of leased assets. Accordingly, PMCC’s operating companies income will continue to decrease as lease investments mature or are sold. PMCC’s finance asset portfolio includes leases in the following investment categories: aircraft, electrical power, real estate, manufacturing, surface transportation and energy industries. Finance assets, net, are comprised of total lease payments receivable and the residual value of assets under lease, reduced by third-party nonrecourse debt and unearned income. The payment of the nonrecourse debt is collateralized only by lease payments receivable and the leased property, and is nonrecourse to all other assets of PMCC or Altria Group, Inc. As required by accounting standards generally accepted in the United States of America (“U.S. GAAP”), the third-party nonrecourse debt has been offset against the related rentals receivable and has been presented on a net basis, within finance assets, net, in Altria Group, Inc.’s consolidated balance sheets.

During 2003, PMCC received proceeds from asset sales and maturities of $507 million and recorded gains of $45 million in operating companies income.

Among its leasing activities, PMCC leases a number of aircraft, predominantly to major United States carriers. At December 31, 2003, approximately 26%, or $2.3 billion of PMCC’s investment in finance leases related to aircraft. In recognition of the economic downturn in the airline industry, PMCC increased its allowance for losses by $290 million in the fourth quarter of 2002. Developments in the airline industry during 2003 and 2002 that affected airline leases held by PMCC included the following:

income on the lease. On January 30, 2004, Atlas filed a Chapter 11 bankruptcy petition. Subsequently, PMCC, Atlas and the leveraged lease lenders have reached conditional agreements on the restructuring of PMCC’s lease. If ratified by all parties, the financial impact on PMCC will not be material.

• During May 2003, in connection with the efforts of American Airlines, Inc. (“American”) to avoid a bankruptcy filing, PMCC, American and the leveraged lease lenders entered into an agreement to restructure the leases on 14 of PMCC ’s 28 MD- 80 aircraft currently under long-term leveraged leases with American. This agreement resulted in a $28 million charge against PMCC’s allowance for losses during the second quarter of 2003 and a reduction of $30 million of lease income over the remaining terms of the leases. Leases on the remaining 14 aircraft were unchanged. As of December 31, 2003, PMCC’s aggregate exposure to American totaled $212 million, which equals 2.4% of PMCC’s portfolio of finance lease assets.

• On March 31, 2003, US Airways Group, Inc. (“US Airways”) emerged from Chapter 11 bankruptcy protection. PMCC currently leases 16 Airbus A319 aircraft to US Airways under long-term leveraged leases, which expire in 2018 and 2019. The leased aircraft represent an investment in finance lease assets of $142 million, or 1.6% of PMCC’s portfolio of finance lease assets at December 31, 2003. Pursuant to an agreement reached between US Airways and PMCC, US Airways affirmed these leases when it emerged from bankruptcy. This agreement resulted in a $13 million charge against PMCC’s allowance for losses during the first quarter of 2003 and a reduction of $7 million of lease income over the remaining terms of

10 the leases. During January 2004, US Airways’ corporate credit rating was reduced to B- (Credit Watch negative) by Standard & Poor’s. A further downgrade would result in a covenant breach under its regional jet financing commitments

from third parties other than PMCC. Successful implementation of US Airways’ turnaround plan is dependent upon this financing.

• On December 9, 2002, United Air Lines Inc. (“UAL”) filed for Chapter 11 bankruptcy protection. At that time, PMCC leased 24 Boeing 757 aircraft to UAL, 22 under long-term leveraged leases and two under long-term single investor leases. Subsequently, PMCC purchased $239 million of senior nonrecourse debt on 16 of the aircraft under leveraged leases, which were then treated as single investor leases for accounting purposes. The subordinated debt totaling $214 million was held by UAL and was recorded by PMCC in other liabilities. As of February 28, 2003, PMCC entered into an agreement with UAL to amend these 16 leases, as well as the two single investor leases. Among other modifications, the subordinated debt outstanding on these 16 leveraged leases was satisfied. As of December 31, 2003, PMCC’s aggregate exposure to UAL totaled $596 million, which equals 6.8% of PMCC’s portfolio of finance lease assets at December 31, 2003. PMCC continues to discuss its leases with UAL in its efforts to restructure and emerge from bankruptcy.

It is possible that further adverse developments in the airline industry may require PMCC to increase its allowance for losses in future periods.

Other Matters

Customers

None of the business segments of the Altria family of companies is dependent upon a single customer or a few customers, the loss of which would have a material adverse effect on Altria Group, Inc.’s consolidated results of operations. However, Kraft’s ten largest customers accounted for approximately 37% of its net revenues in 2003. One of Kraft’s customers, Wal-Mart Stores, Inc. accounted for approximately 12% of Kraft’s net revenues in 2003.

Employees

At December 31, 2003, ALG and its subsidiaries employed approximately 165,000 people worldwide. In January 2004, Kraft announced a three-year restructuring program that is expected to eliminate approximately 6,000 positions.

Trademarks

Trademarks are of material importance to ALG’s consumer products subsidiaries and are protected by registration or otherwise in the United States and most other markets where the related products are sold.

Environmental Regulation

ALG and its subsidiaries are 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 (commonly known as “Superfund”), which imposes joint and several liability on each responsible party. In 2003, subsidiaries (or former subsidiaries) of ALG were involved in approximately 105 active matters subjecting them to potential remediation costs under Superfund or otherwise. ALG’s subsidiaries

11 expect to continue to make capital and other expenditures in connection with environmental laws and regulations. Although it is not possible to predict precise levels of 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 Altria Group, Inc.’s consolidated results of operations, capital expenditures, financial position, earnings or competitive position.

Cautionary Factors That May Affect Future Results

Forward-looking And Cautionary Statements

We * may from time to time make written or oral forward-looking statements, including statements contained in filings with the Securities and Exchange Commission (the “SEC”), in reports to stockholders and in press releases and investor Webcasts. You can identify these forward-looking statements by use of words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “will,” “estimates,” “intends,” “projects,” “goals,” “targets” and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in Altria Group, Inc.’s securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and other risks we face throughout this document and in the portions of the 2003 Annual Report that are incorporated herein by reference, particularly in the “Business Environment” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time.

Tobacco -Related Litigation . There is substantial litigation related to tobacco products in the United States and certain foreign jurisdictions. We anticipate that new cases will continue to be filed. Damages claimed in some of the tobacco -related litigation range into the billions of dollars. Although, to date, our tobacco subsidiaries have never had to pay a judgment in a tobacco-related case, there are presently 13 cases on appeal in which verdicts were returned against PM USA, including a compensatory and punitive damages verdict totaling approximately $10.1 billion in the Price case in Illinois. Generally, in order to prevent a plaintiff from seeking to collect a judgment while the verdict is being appealed, the defendant must post an appeal bond, frequently in the amount of the judgment or more, or negotiate an alternative arrangement with plaintiffs. In the event of future losses at trial, we may not always be able to obtain the required bond or to negotiate an acceptable alternative arrangement.

* This section uses the terms “we,” “our” and “us” when it is not necessary to distinguish among ALG and its various operating subsidiaries or when any distinction is clear from the context.

12 enter into settlement discussions in particular cases if we believe it is in the best interest of our stockholders to do so. Please see Note 18 and Item 3. Legal Proceedings for a discussion of pending tobacco-related litigation.

Anti -Tobacco Action in the Public and Private Sectors . Our tobacco subsidiaries face significant governmental action aimed at reducing the incidence of smoking and seeking to hold us responsible for the adverse health effects associated with both smoking and exposure to environmental tobacco smoke. Governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced industry volume, and we expect this decline to continue.

Excise Taxes . Cigarettes are subject to substantial excise taxes in the United States and to substantial taxation abroad. Significant increases in cigarette-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted within the United States, the EU and in other foreign jurisdictions. These tax increases are expected to continue to have an adverse impact on sales of cigarettes by our tobacco subsidiaries, due to lower consumption levels and to a shift in sales from the premium to the non-premium or discount segments or to sales outside of legitimate channels.

Increased Competition in the Domestic Tobacco Market . Settlements of certain tobacco litigation in the United States have resulted in substantial cigarette price increases. PM USA faces increased competition from lowest priced brands sold by certain domestic and foreign manufacturers that have cost advantages because they are not parties to these settlements. These manufacturers may fail to comply with related state escrow legislation or may take advantage of certain provisions in the legislation that permit the non-settling manufacturers to concentrate their sales in a limited number of states and thereby avoid escrow deposit obligations on the majority of their sales. Additional competition has resulted from diversion into the United States market of cigarettes intended for sale outside the United States, the sale of counterfeit cigarettes by third parties, the sale of cigarettes by third parties over the Internet and by other means designed to avoid collection of applicable taxes and increased imports of foreign lowest priced brands. The competitive environment has been characterized by weak economic conditions, erosion of consumer confidence, a continued influx of cheap products, and higher prices due to higher state excise taxes and list price increases. As a result, the lowest priced products of manufacturers of numerous small share brands have increased their market share, putting pressure on the profitability of the industry’s premium segment.

Governmental Investigations . From time to time, ALG and its tobacco subsidiaries are subject to governmental investigations on a range of matters. Ongoing investigations include allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain international markets and allegations of false and misleading usage of descriptors, such as “Lights” and “Ultra Lights.” We cannot predict the outcome of those investigations or whether additional investigations may be commenced, and it is possible that our business could be materially affected by an unfavorable outcome of pending or future investigations.

New Tobacco Product Technologies . Our tobacco subsidiaries continue to seek ways to develop and to commercialize new product technologies that may reduce the risk of smoking. Their goal is to reduce constituents in tobacco smoke identified by public health authorities as harmful while continuing to offer adult smokers products that meet their taste expectations. We cannot guarantee that our tobacco subsidiaries will succeed in these efforts. If they do not succeed, but one or more of their competitors do, our tobacco subsidiaries may be at a competitive disadvantage.

Foreign Currency . Our international food and tobacco subsidiaries conduct their businesses in local currency and, for purposes of financial reporting, their results are translated into U.S. dollars based on average exchange rates prevailing during a reporting period. During times of a strengthening U.S. dollar, our reported net revenues and operating income will be reduced because the local currency will translate into fewer U.S. dollars.

13 Competition and Economic Downturns . Each of our consumer products subsidiaries is subject to intense competition, changes in consumer preferences and local economic conditions. To be successful, they must continue to:

• promote brand equity successfully;

• anticipate and respond to new consumer trends;

• develop new products and markets and to broaden brand portfolios in order to compete effectively with lower priced

products in a consolidating environment at the retail and manufacturing levels;

• improve productivity; and

• respond effectively to changing prices for their raw materials.

The willingness of consumers to purchase premium cigarette brands and premium food and beverage brands depends in part on local economic conditions. In periods of economic uncertainty, consumers tend to purchase more private label and other economy brands, and the volume of our consumer products subsidiaries could suffer accordingly.

Our finance subsidiary, PMCC, holds investments in finance leases, principally in transportation (including aircraft), power generation, real estate, manufacturing equipment and facilities. Its lessees are also subject to intense competition and economic conditions. If counterparties to PMCC’s leases fail to manage through difficult economic and competitive conditions, PMCC may have to increase its allowance for losses, which would adversely affect our profitability.

Grocery Trade Consolidation . As the retail grocery trade continues to consolidate and retailers grow larger and become more sophisticated, they demand lower pricing and increased promotional programs. Further, these customers are reducing their inventories and increasing their emphasis on private label products. If Kraft fails to use its scale, marketing expertise, branded products and category leadership positions to respond to these trends, its volume growth could slow or it may need to lower prices or increase promotional support of its products, any of which would adversely affect profitability.

Continued Need to Add Food and Beverage Products in Faster Growing and More Profitable Categories . The food and beverage industry’s growth potential is constrained by population growth. Kraft’s success depends in part on its ability to grow its business faster than populations are growing in the markets that it serves. One way to achieve that growth is to enhance its portfolio by adding products that are in faster growing and more profitable categories. If Kraft does not succeed in making these enhancements, its volume growth may slow, which would adversely affect our profitability.

Strengthening Brand Portfolios Through Acquisitions and Divestitures . One element of the growth strategy of Kraft and PMI is to strengthen their brand portfolios through active programs of selective acquisitions and divestitures. These subsidiaries are constantly investigating potential acquisition candidates. Also, from time to time, Kraft sells businesses that are outside its core categories or that do not meet their growth or profitability targets. Acquisition opportunities are limited and acquisitions present risks of failing to achieve efficient and effective integration, strategic objectives and anticipated revenue improvements and cost savings. There can be no assurance that we will be able to acquire attractive businesses on favorable terms or that future acquisitions will be quickly accretive to earnings.

Food Raw Material Prices . The raw materials used by our food businesses are largely commodities that experience price volatility caused by external conditions, commodity market fluctuations, currency fluctuations and changes in governmental agricultural programs. Commodity

14 price changes may result in unexpected increases in raw material and packaging cost, and our operating subsidiaries may be unable to increase their prices to offset these increased costs without suffering reduced volume, net revenue and operating companies income. We do not fully hedge against changes in commodity prices and our hedging strategies may not work as planned.

Food Safety, Quality and Health Concerns . We could be adversely affected if consumers in Kraft’s principal markets lose confidence in the safety and quality of certain food products. Adverse publicity about these types of concerns, like the recent publicity about genetically modified organisms and “mad cow disease” in Europe and North America, whether or not valid, may discourage consumers from buying Kraft’s products or cause production and delivery disruptions. Recent publicity concerning the health implications of obesity and trans-fatty acids could also reduce consumption of certain of Kraft’s products. In addition, Kraft may need to recall some of its products if they become adulterated or misbranded. Kraft may also be liable if the consumption of any of its products causes injury. A widespread product recall or a significant product liability judgment could cause products to be unavailable for a period of time and a loss of consumer confidence in Kraft’s food products and could have a material adverse effect on Kraft’s business.

Limited Access to Commercial Paper Market . As a result of actions by credit rating agencies during 2003, ALG currently has limited access to the commercial paper market, and may have to rely on its revolving credit facilities as well.

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

The amounts of net revenues and long-lived assets attributable to each of Altria Group, Inc.’s geographic segments and the amount of export sales from the United States for each of the last three fiscal years are set forth in Note 14.

Subsidiaries of ALG export tobacco and tobacco-related products, coffee products, grocery products, cheese and processed meats. In 2003, the value of all exports from the United States by these subsidiaries amounted to approximately $4 billion.

(e) Available Information

ALG 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 ALG 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 ALG’s SEC filings.

ALG makes available free of charge on or through its Web site (www.altria.com), its Annual Report 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 ALG electronically files such material with, or furnishes it to, the SEC. Investors can access ALG’s filings with the SEC by visiting www.altria.com/secfilings.

The information on ALG’s web site is not, and shall not be deemed to be, a part of this report or incorporated into any other filings ALG makes with the SEC.

15 Item 2. Properties .

Tobacco Products

PM USA owns and operates four tobacco manufacturing and processing facilities—three in the Richmond, Virginia area and one in Cabarrus County, North Carolina. Subsidiaries and affiliates of PMI own, lease or have an interest in 58 cigarette or component manufacturing facilities in 34 countries outside the United States, including cigarette manufacturing facilities in Bergen Op Zoom, the Netherlands; Berlin, Germany; and St. Petersburg, Russia.

Food Products

Kraft has 197 manufacturing and processing facilities, 66 of which are located in the United States. Outside the United States, Kraft has 131 manufacturing and processing facilities located in 45 countries. Kraft owns 188 and leases nine of these facilities. In addition, Kraft has 500 distribution centers and depots, of which 165 are located outside the United States. Kraft owns 62 distribution centers and depots, with the remainder being leased.

In January 2004, Kraft announced a multi-year restructuring program. As part of this program, Kraft anticipates the closing or sale of up to 20 plants.

General

The plants and properties owned and operated by ALG’s subsidiaries are maintained in good condition and are believed to be suitable and adequate for present needs.

Item 3. Legal Proceedings .

Legal proceedings covering a wide range of matters are pending or threatened in various United States and foreign jurisdictions against ALG, its subsidiaries and affiliates, including PM USA and PMI, as well as their respective indemnitees. Various types of claims are raised in these proceedings, including product liability, consumer protection, antitrust, tax, contraband shipments, patent infringement, employment matters, claims for contribution and claims of competitors and distributors.

Overview of Tobacco-Related Litigation

Types and Number of Cases

Pending claims related to tobacco products generally fall within the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs, (ii) smoking and health cases primarily alleging personal injury and purporting to be brought on behalf of a class of individual plaintiffs, including cases in which the aggregated claims of a number of individual plaintiffs are to be tried in a single proceeding, (iii) health care cost recovery cases brought by governmental (both domestic and foreign) and non-governmental plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits, and (iv) other tobacco-related litigation. Other tobacco-related litigation includes class action suits alleging that the use of the terms “Lights” and “Ultra Lights” constitutes deceptive and unfair trade practices, suits by foreign governments seeking to recover damages resulting from the allegedly illegal importation of cigarettes into various jurisdictions, suits by former asbestos manufacturers seeking contribution or reimbursement for amounts expended in connection with the defense and payment of asbestos claims that were allegedly caused in whole or in part by cigarette smoking, and various antitrust suits. Damages claimed in some of the tobacco-related litigation range into the billions of dollars. Exhibit 99.1 hereto lists certain tobacco-related actions pending as of February 13, 2004, and discusses certain developments in such cases since November 13, 2003. Plaintiffs’ theories of recovery and the defenses raised in the smoking and health and health care cost recovery cases are discussed below.

16 The table below lists the number of certain tobacco-related cases pending against PM USA and, in some instances, ALG or PMI, as of February 13, 2004, December 31, 2002 and December 31, 2001, and a page-reference to further discussions of each type of case.

Number of Number of Number of Cases Cases Cases Pending as of Pending as of Pending as of December 31, December 31, February 13, Type of Case 2004 2002 2001 Page References

Individual Smoking and 21; Exhibit 99.1, 322 250 250 Health Cases (1)(2) page 1. Smoking and Health 21; Exhibit 99.1, Class Actions and pages 2-4. Aggregated Claims Litigation (3) 13 41 37 Health Care Cost Recovery 21-24; Exhibit 99.1, Actions 13 41 45 pages 4 -7. Lights/Ultra Lights Class 24-25; Exhibit 99.1, Actions 20 11 10 pages 7-8. Tobacco Price Cases 2 39 36 25; Exhibit 99.1, pages 9-10. Cigarette Contraband Cases 26; Exhibit 99.1, 2 5 5 page 11. Asbestos Contribution Cases 26; Exhibit 99.1, 7 8 13 page 11.

(1) The increase in cases at February 13, 2004 compared to prior periods is due primarily to new cases being filed in Maryland and to the reclassification as individual cases of purported class actions filed in Nevada, following the denials of plaintiffs’ motions for class certification. (2) Does not include 2,726 cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action, which was settled in 1997. The terms of the court-approved settlement in that case allow class members to file individual lawsuits seeking compensatory damages, but prohibit them from seeking punitive damages. (3) Includes as one case the aggregated claims of 1,041 individuals that are proposed to be tried in a single proceeding in West Virginia.

There are also a number of other tobacco-related actions pending outside the United States against PMI and its affiliates and subsidiaries, including an estimated 107 smoking and health cases brought on behalf of individuals (Argentina (46), Australia (2), Brazil (40), Czech Republic (2), France, Israel (2), Italy (8), the Philippines, Poland, Scotland, Spain (2) and Venezuela), compared with approximately 86 such cases on December 31, 2002, and 64 such cases on December 31, 2001. In addition, as of February 13, 2004, there were six smoking and health putative class actions pending outside the United States (Brazil, Canada (4), and Spain), compared with eight such cases on December 31, 2002, and 11 such cases on December 31, 2001. In addition, four health care cost recovery actions are pending in Israel, Canada, France and Spain against PMI or its affiliates. In addition, a Lights/Ultra Lights case is pending in Israel.

Pending and Upcoming Trials

As set forth in Exhibit 99.2 hereto, certain cases against PM USA and, in some instances, ALG, are scheduled for trial through the end of 2004, including the second phase of the trial in the Scott, et al. v. The American Tobacco Company, Inc. et al . class action (discussed below) and the health care cost recovery case brought by the United States government (discussed below). An estimated six individual smoking and health cases are scheduled for trial through the end of 2004. In addition, two cases brought by flight attendants seeking compensatory damages for personal injuries allegedly

17 caused by ETS are scheduled for trial through the end of 2004. Cases against other tobacco companies are also scheduled for trial through the end of 2004. Trial dates are subject to change.

Recent Trial Results

Since January 1999, verdicts have been returned in 36 smoking and health, Lights/Ultra Lights and health care cost recovery cases in which PM USA was a defendant. Verdicts in favor of PM USA and other defendants were returned in 23 of the 36 cases. These 23 cases were tried in California (2), Florida (7), Mississippi, Missouri, New Hampshire, New Jersey, New York (3), Ohio (2), Pennsylvania, Rhode Island, Tennessee (2) and West Virginia. Plaintiffs’ appeals or post-trial motions challenging the verdicts are pending in California, Florida, Missouri, New Hampshire, Ohio, Pennsylvania and West Virginia. A motion for a new trial has been granted in one of the cases in Florida. In addition, in December 2002, a court dismissed an individual smoking and health case in California at the end of trial.

The chart below lists the verdicts and post-trial developments in the 13 pending cases that have gone to trial since January 1999 in which verdicts were returned in favor of plaintiffs.

Location of Court/Name of Date Plaintiff Type of Case Verdict Post-Trial Developments

November 2003 Missouri/ Thompson Individual Smoking and $2.1 million in compensatory damages In March 2004, the court denied Health against all defendants, including $837,403 defendants’ post-trial motions challenging against PM USA. the verdict. PM USA has appealed. April 2003 Florida/ Eastman Individual Smoking and $6.54 million in compensatory damages, PM USA has filed its appeal, which is Health against all defendants, including $2.62 currently pending before a Florida Court of million against PM USA. Appeal. March 2003 Illinois/ Price Lights/Ultra Lights Class $7.1005 billion in compensatory damages The Illinois Supreme Court has agreed to Action and $3 billion in punitive damages against hear PM USA’s appeal. See the discussion PM USA. of the Price case under the heading “Certain Other Tobacco-Related Litigation—Lights/Ultra Lights Cases.” October 2002 California/ Bullock Individual Smoking and $850,000 in compensatory damages and In December 2002, the trial court reduced Health $28 billion in punitive damages against PM the punitive damages award to $28 million; USA. PM USA and plaintiff have appealed. June 2002 Florida/ French Flight Attendant ETS $5.5 million in compensatory damages In September 2002, the trial court reduced Litigation against all defendants, including PM USA. the damages award to $500,000; plaintiff and defendants have appealed. June 2002 Florida/ Lukacs Individual Smoking and $37.5 million in compensatory damages In March 2003, the trial court reduced the Health against all defendants, including PM USA. damages award to $24.86 million; PM USA intends to appeal. March 2002 Oregon/ Schwarz Individual Smoking and $168,500 in compensatory damages and In May 2002, the trial court reduced the Health $150 million in punitive damages against PM punitive damages award to $100 million; USA. PM USA and plaintiff have appealed. June 2001 California/ Boeken Individual Smoking and $5.5 million in compensatory damages and In August 2001, the trial court reduced the Health $3 billion in punitive damages against PM punitive damages award to $100 million; USA. PM USA and plaintiff have appealed.

18 Location of Court/Name of Date Plaintiff Type of Case Verdict Post-Trial Developments

June 2001 New York/ Empire Blue Health Care $17.8 million in compensatory damages In February 2002, the trial court awarded Cross and Blue Shield Cost Recovery against all defendants, including $6.8 million plaintiffs $38 million in attorneys’ fees. In against PM USA. September 2003, the United States Court of Appeals for the Second Circuit reversed the portion of the judgment relating to subrogation, certified questions relating to plaintiff’s direct claims of deceptive business practices to the New York Court of Appeals and deferred its ruling on the appeal of the attorneys’ fees award pending the ruling on the certified questions. July 2000 Florida/ Engle Smoking and $145 billion in punitive damages against all In May 2003, the Florida Third District Court of Health Class defendants, including $74 billion against PM Appeal reversed the judgment entered by the Action USA. trial court and instructed the trial court to order the decertification of the class. Plaintiffs’ motion for reconsideration was denied in September 2003, and plaintiffs petitioned the Florida Supreme Court for further review. See “ Engle Class Action ” below. March 2000 California/ Whiteley Individual Smoking $1.72 million in compensatory damages In May 2000, PM USA filed its appeal, which is and Health against PM USA and another defendant, and currently pending before a California Court of $10 million in punitive damages against each Appeal. of PM USA and the other defendant. March 1999 Oregon/ Williams Individual $800,000 in compensatory damages, $21,500 The trial court reduced the punitive damages Smoking and in medical expenses and $79.5 million in award to $32 million, and PM USA and plaintiff Health punitive damages against PM USA. appealed. In June 2002, the Oregon Court of Appeals reinstated the $79.5 million punitive damages award. Following the Oregon Supreme Court’s refusal to hear PM USA’s appeal, PM USA recorded a provision of $32 million in marketing, administration and research costs on the 2002 consolidated statement of earnings as its best estimate of the probable loss in this case and petitioned the United States Supreme Court for further review. In October 2003, the United States Supreme Court set aside the Oregon appellate court’s ruling, and directed the Oregon court to reconsider the case in light of the 2003 State Farm decision by the United States Supreme Court, which limited punitive damages.

19 Location of Court/Name of Date Plaintiff Type of Case Verdict Post-Trial Developments

February 1999 California/ Henley Individual Smoking and $1.5 million in compensatory damages and The trial court reduced the punitive Health $50 million in punitive damages against PM damages award to $25 million and PM USA. USA and plaintiff appealed. In September 2003, a California Court of Appeal, citing the State Farm decision, reduced the punitive damages award to $9 million, but otherwise affirmed the trial court’s judgment with respect to compensatory damages. In January 2004, the Court of Appeal reissued its opinion to correct a procedural error, and consequently plaintiff consented to the reduced award. In March 2004, PM USA petitioned the California Supreme Court for further review.

In addition to the cases discussed above, in October 2003, an appellate court in Brazil reversed a lower court’s dismissal of an individual smoking and health case and ordered PMI’s Brazilian affiliate to pay plaintiff approximately $256,000 and other unspecified damages. PMI’s Brazilian affiliate has appealed to a larger panel of the appellate court.

With respect to certain adverse verdicts currently on appeal, excluding amounts relating to the Engle and Price cases, as of February 13, 2004, PM USA has posted various forms of security totaling $367 million, the majority of which have been collateralized with cash deposits, to obtain stays of judgments pending appeals. The cash deposits are included in other assets on the consolidated balance sheets.

Engle Class Action

In July 2000, in the second phase of the Engle smoking and health class action in Florida, a jury returned a verdict assessing punitive damages totaling approximately $145 billion against various defendants, including $74 billion against PM USA. Following entry of judgment, PM USA posted a bond in the amount of $100 million and appealed.

In May 2001, the trial court approved a stipulation providing that execution of the punitive damages component of the Engle judgment will remain stayed against PM USA and the other participating defendants through the completion of all judicial review. As a result of the stipulation, PM USA placed $500 million into a separate interest-bearing escrow account that, regardless of the outcome of the appeal, will be paid to the court and the court will determine how to allocate or distribute it consistent with Florida Rules of Civil Procedure. In July 2001, PM USA also placed $1.2 billion into an interest-bearing escrow account, which will be returned to PM USA should it prevail in its appeal of the case. (The $1.2 billion escrow account is included in the December 31, 2003 and December 31, 2002 consolidated balance sheets as other assets. Interest income on the $1.2 billion escrow account is paid to PM USA quarterly and is being recorded as earned, in interest and other debt expense, net, in the consolidated statements of earnings.) In connection with the stipulation, PM USA recorded a $500 million pre-tax charge in its consolidated statement of earnings for the quarter ended March 31, 2001.

In May 2003, the Florida Third District Court of Appeal reversed the judgment entered by the trial court and instructed the trial court to order the decertification of the class. Plaintiffs’ motion for reconsideration was denied in September 2003, and plaintiffs have petitioned the Florida Supreme Court for further review.

20 Smoking and Health Litigation

Overview

Plaintiffs’ allegations of liability in smoking and health cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violations of deceptive trade practice laws and consumer protection statutes, and claims under the federal and state RICO statutes. In certain of these cases, plaintiffs claim that cigarette smoking exacerbated the injuries caused by their exposure to asbestos. Plaintiffs in the smoking and health actions seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, statutes of limitations and preemption by the Federal Cigarette Labeling and Advertising Act.

Smoking and Health Class Actions

Since the dismissal in May 1996 of a purported nationwide class action brought on behalf of “addicted” smokers, plaintiffs have filed numerous putative smoking and health class action suits in various state and federal courts. In general, these cases purport to be brought on behalf of residents of a particular state or states (although a few cases purport to be nationwide in scope) and raise addiction claims and, in many cases, claims of physical injury as well.

Class certification has been denied or reversed by courts in 56 smoking and health class actions involving PM USA in Arkansas, the District of Columbia (2), Florida (the Engle case), Illinois (2), Iowa, Kansas, Louisiana, Maryland, Michigan, Minnesota, Nevada (29), New Jersey (6), New York (2), Ohio, Oklahoma, Pennsylvania, Puerto Rico, South Carolina, Texas and Wisconsin. A class remains certified in the Scott class action discussed below.

In July 2003, following the first phase of the trial in the Scott class action, in which plaintiffs seek creation of funds to pay for medical monitoring and smoking cessation programs, a Louisiana jury returned a verdict in favor of defendants, including PM USA, in connection with plaintiffs’ medical monitoring claims, but also found that plaintiffs could benefit from smoking cessation assistance. The jury also found that cigarettes as designed are not defective but that the defendants failed to disclose all they knew about smoking and diseases and marketed their products to minors. The jury was not permitted to award damages during this phase of the trial. The second phase of the trial is scheduled to begin in March 2004. In November 2001, in the first medical monitoring class action case to go to trial, a West Virginia jury returned a verdict in favor of all defendants, including PM USA, and plaintiffs have appealed. In February 2003, the West Virginia Supreme Court agreed to hear plaintiffs’ appeal, and the parties are awaiting the Supreme Court’s decision.

Health Care Cost Recovery Litigation

Overview

In health care cost recovery litigation, domestic and foreign governmental entities and non-governmental plaintiffs seek reimbursement of health care cost expenditures allegedly caused by tobacco products and, in some cases, of future expenditures and damages as well. Relief sought by some but not all plaintiffs includes punitive damages, multiple damages and other statutory damages and penalties, injunctions prohibiting alleged marketing and sales to minors, disclosure of research, disgorgement of profits, funding of anti-smoking programs, additional disclosure of nicotine yields, and payment of attorney and expert witness fees.

21 The claims asserted include the claim that cigarette manufacturers were “unjustly enriched” by plaintiffs’ payment of health care costs allegedly attributable to smoking, as well as claims of indemnity, negligence, strict liability, breach of express and implied warranty, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, claims under federal and state statutes governing consumer fraud, antitrust, deceptive trade practices and false advertising, and claims under federal and state anti-racketeering statutes.

Defenses raised include lack of proximate cause, remoteness of injury, failure to state a valid claim, lack of benefit, adequate remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), lack of antitrust standing and injury, federal preemption, lack of statutory authority to bring suit, and statutes of limitations. In addition, defendants argue that they should be entitled to “set off” any alleged damages to the extent the plaintiff benefits economically from the sale of cigarettes through the receipt of excise taxes or otherwise. Defendants also argue that these cases are improper because plaintiffs must proceed under principles of subrogation and assignment. Under traditional theories of recovery, a payor of medical costs (such as an insurer) can seek recovery of health care costs from a third party solely by “standing in the shoes” of the injured party. Defendants argue that plaintiffs should be required to bring any actions as subrogees of individual health care recipients and should be subject to all defenses available against the injured party.

Although there have been some decisions to the contrary, most judicial decisions have dismissed all or most health care cost recovery claims against cigarette manufacturers. Nine federal circuit courts of appeals and four state intermediate appellate courts, relying primarily on grounds that plaintiffs’ claims were too remote, have ordered or affirmed dismissals of health care cost recovery actions. The United States Supreme Court has refused to consider plaintiffs’ appeals from the cases decided by five circuit courts of appeals.

A number of foreign governmental entities have filed health care cost recovery actions in the United States. Such suits have been brought in the United States by 13 countries, a Canadian province, 11 Brazilian states and 11 Brazilian cities. Thirty-two of the cases have been dismissed, and four remain pending. In addition to the cases brought in the United States, health care cost recovery actions have also been brought in Israel, the Marshall Islands (dismissed), Canada, France and Spain, and other entities have stated that they are considering filing such actions. In September 2003, the case pending in France was dismissed, and plaintiff has appealed.

In March 1999, in the first health care cost recovery case to go to trial, an Ohio jury returned a verdict in favor of defendants on all counts. In June 2001, a New York jury returned a verdict awarding $6.83 million in compensatory damages against PM USA and a total of $11 million against four other defendants in a health care cost recovery action brought by a Blue Cross and Blue Shield plan, and defendants, including PM USA appealed. See the discussion of the Empire Blue Cross and Blue Shield case above under the heading “Recent Trial Results” for the post-trial developments in this case.

Settlements of Health Care Cost Recovery Litigation

In November 1998, PM USA and certain other United States tobacco product manufacturers entered into the Master Settlement Agreement (the “MSA”) with 46 states, the District of Columbia, Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern Marianas to settle asserted and unasserted health care cost recovery and other claims. PM USA and certain other United States tobacco product manufacturers had previously settled similar claims brought by Mississippi, Florida, Texas and Minnesota (together with the MSA, the “State Settlement Agreements”). The State Settlement Agreements require that the domestic tobacco industry make substantial annual payments in the following amounts (excluding future annual payments contemplated by the agreement

22 with tobacco growers discussed below), subject to adjustments for several factors, including inflation, market share and industry volume: 2004 through 2007, $8.4 billion each year; and, thereafter, $9.4 billion each year. In addition, the domestic tobacco industry is required to pay settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million. PM USA’s portion of ongoing adjusted payments and legal fees is based on its relative share of the settling manufacturers’ domestic cigarette shipments, including roll-your-own cigarettes, in the year preceding that in which the payment is due. PM USA records its portions of ongoing settlement payments as part of cost of sales as product is shipped. These payment obligations are the several and not joint obligations of each of the settling defendants.

The State Settlement Agreements also include provisions relating to advertising and marketing restrictions, public disclosure of certain industry documents, limitations on challenges to certain tobacco control and underage use laws, restrictions on lobbying activities and other provisions.

As part of the MSA, the settling defendants committed to work cooperatively with the tobacco-growing states to address concerns about the potential adverse economic impact of the MSA on tobacco growers and quota-holders. To that end, four of the major domestic tobacco product manufacturers, including PM USA, and the grower states, have established a trust fund to provide aid to tobacco growers and quota-holders. The trust will be funded by these four manufacturers over 12 years with payments, prior to application of various adjustments, scheduled to total $5.15 billion. Future industry payments (2004 through 2008, $500 million each year; 2009 and 2010, $295 million each year) are subject to adjustment for several factors, including inflation, United States cigarette volume and certain contingent events, and, in general are to be allocated based on each manufacturer’s relative market share. PM USA records its portion of these payments as part of cost of sales as product is shipped.

The State Settlement Agreements have materially adversely affected the volumes of PM USA and ALG believes that they may also materially adversely affect the results of operations, cash flows or financial position of PM USA and Altria Group, Inc. in future periods. The degree of the adverse impact will depend on, among other things, the rate of decline in United States cigarette sales in the premium and discount segments, PM USA’s share of the domestic premium and discount cigarette segments, and the effect of any resulting cost advantage of manufacturers not subject to the MSA and the other State Settlement Agreements.

In January, a case in New York in which PM USA was a defendant and in which plaintiffs challenged the validity of the MSA and alleged that the MSA violates antitrust laws was dismissed pursuant to the stipulation of the parties. In February 2004, the United States Supreme Court denied plaintiffs’ petition for further review of a case in Pennsylvania in which plaintiffs also alleged that the MSA violates antitrust laws.

Federal Government’s Lawsuit

In 1999, the United States government filed a lawsuit in the United States District Court for the District of Columbia against various cigarette manufacturers and others, including PM USA and ALG, asserting claims under three federal statutes, the Medical Care Recovery Act (“MCRA”), the Medicare Secondary Payer (“MSP”) provisions of the Social Security Act and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The lawsuit seeks to recover an unspecified amount of health care costs for tobacco-related illnesses allegedly caused by defendants’ fraudulent and tortious conduct and paid for by the government under various federal health care programs, including Medicare, military and veterans’ health benefits programs, and the Federal Employees Health Benefits Program. The complaint alleges that such costs total more than $20 billion annually. It also seeks what it alleges to be equitable and declaratory relief, including disgorgement of profits which arose from defendants’

23 allegedly tortious conduct, an injunction prohibiting certain actions by the defendants, and a declaration that the defendants are liable for the federal government’s future costs of providing health care resulting from defendants’ alleged past tortious and wrongful conduct. PM USA and ALG moved to dismiss this lawsuit on numerous grounds, including that the statutes invoked by the government do not provide a basis for the relief sought. In September 2000, the trial court dismissed the government’s MCRA and MSP claims, but permitted discovery to proceed on the government’s claims for relief under RICO. In January 2003, the government and defendants submitted preliminary proposed findings of fact and conclusions of law; rebuttals were filed in April. The government alleges that disgorgement by defendants of approximately $280 billion is an appropriate remedy. In May 2003, the court denied defendants’ motion for partial summary judgment seeking to dismiss the claims related to advertising, marketing, promotions and health warnings. In January 2004, the court granted one of the government’s pending motions and dismissed certain equitable defenses of defendants. In February 2004, the court denied defendant’s motion for partial summary judgment seeking to dismiss the claims relating to marketing to youth. In March 2004, the court addressed another government motion, declining to dismiss defenses that rely on the excessive fines clause of the Eighth Amendment and dismissing defenses that rely on the constitutional prohibition of retroactive application of penal laws. The remaining motions for summary judgment filed by the government and defendants are still pending. Trial of the case is currently scheduled for September 2004.

Certain Other Tobacco-Related Litigation

Lights/Ultra Lights Cases : These class actions have been brought against PM USA and, in certain instances, ALG and PMI or its subsidiaries, on behalf of individuals who purchased and consumed various brands of cigarettes, including Marlboro Lights , Marlboro Ultra Lights , Virginia Slims Lights and Superslims , Merit Lights and Cambridge Lights. Plaintiffs in these class actions allege, among other things, that the use of the terms “Lights” and/or “Ultra Lights” constitutes deceptive and unfair trade practices, and seek injunctive and equitable relief, including restitution and, in certain cases, punitive damages. Cases are pending in Arkansas, Delaware, Florida, Georgia, Illinois (2), Louisiana, Massachusetts, Minnesota, Missouri, New Hampshire (2), New Jersey, Ohio (2), Oregon, Tennessee, West Virginia (2) and Wisconsin. In addition, a case is pending in Israel. To date, trial courts in Arizona and Minnesota have refused to certify classes in these cases, and appellate courts in Florida and Massachusetts have overturned class certifications by trial courts. The decertification decision in Massachusetts is currently on appeal to Massachusetts’ highest court. Plaintiffs in the Florida case have indicated their intent to appeal. Trial courts have certified classes against PM USA in the Price case in Illinois and in Missouri and Ohio (2). PM USA has appealed or otherwise challenged these class certification orders. In January 2004, plaintiffs in a case in California voluntarily dismissed their case without prejudice.

24 consolidated balance sheet at December 31, 2003.) If PM USA prevails on appeal, the escrowed note and all cash deposited with the court will be returned to PM USA, with accrued interest less administrative fees payable to the court. Plaintiffs appealed the judge ’s order reducing the bond. In July 2003, the Illinois Fifth District Court of Appeals ruled that the trial court had exceeded its authority in reducing the bond. In September 2003, the Illinois Supreme Court upheld the reduced bond set by the trial court and announced it would hear PM USA’s appeal on the merits without the need for intermediate appellate court review. PM USA believes that the Price case should not have been certified as a class action and that the judgment should ultimately be set aside on any of a number of legal and factual grounds that it is pursuing on appeal.

Tobacco Growers ’ Case : In February 2000, a suit was filed on behalf of a purported class of tobacco growers and quota- holders who alleged that defendants, including PM USA, violated antitrust laws by bid-rigging and allocating purchases at tobacco auctions and by conspiring to undermine the tobacco quota and price-support program administered by the federal government. In 2003, PM USA and certain other defendants reached an agreement with plaintiffs to settle the lawsuit. The agreement includes a commitment by each settling manufacturer defendant to purchase a certain percentage of its leaf requirements from U.S. tobacco growers over a period of at least ten years. In October 2003, the trial court approved the settlement, and in December 2003, awarded plaintiffs attorneys’ fees and expenses. In 2003, PM USA recorded a pre-tax charge of $202 million reflecting its share of the settlement and attorneys’ fees.

Tobacco Price Cases : As of February 13, 2004, two cases were pending in Kansas and New Mexico in which plaintiffs allege that defendants, including PM USA, conspired to fix cigarette prices in violation of antitrust laws. Plaintiffs’ motions for class certification have been granted in both cases; however, the New Mexico Court of Appeals has agreed to hear defendants’ appeal of the class certification decision.

Wholesale Leaders Cases : In June 2003, certain wholesale distributors of cigarettes filed suit against PM USA seeking to enjoin the PM USA “2003 Wholesale Leaders” (“WL”) program that became available to wholesalers in June 2003. The complaint alleges that the WL program constitutes unlawful price discrimination and is an attempt to monopolize. In addition to an injunction, plaintiffs seek unspecified monetary damages, attorneys’ fees, costs and interest. The states of Tennessee and Mississippi intervened as plaintiffs in this litigation. In January 2004, Tennessee filed a motion to dismiss its complaint. In August 2003, the trial court issued a preliminary injunction, subject to plaintiffs’ posting a bond in the amount of $1 million, enjoining PM USA from implementing certain discount terms with respect to the sixteen wholesale distributor plaintiffs, and PM USA appealed. In September 2003, the United States Court of Appeals for the Sixth Circuit granted PM USA’s motion to stay the injunction pending an expedited appeal. Trial is scheduled for March 2005. In December 2003, a tobacco manufacturer filed a similar lawsuit against PM USA in Michigan alleging that the WL program constitutes unlawful price discrimination and is an attempt to monopolize. Plaintiff seeks unspecified monetary damages.

Consolidated Putative Punitive Damages Cases : In September 2000, a putative class action was filed in the federal district court in the Eastern District of New York that purported to consolidate punitive damages claims in ten tobacco-related actions then pending in federal district courts in New York and Pennsylvania. In July 2002, plaintiffs filed an amended complaint and a motion seeking certification of a punitive damages class of persons residing in the United States who smoke or smoked defendants’ cigarettes, and who have been diagnosed by a physician with an enumerated disease from April 1993 through the date notice of the certification of this class is disseminated. The following persons are excluded from the class: (1) those who have obtained judgments or settlements against any defendants; (2) those against whom any defendant has obtained judgment; (3) persons who are part of the Engle class; (4) persons who should have reasonably realized that they had an

25 enumerated disease prior to April 9, 1993; and (5) those whose diagnosis or reasonable basis for knowledge predates their use of tobacco. In September 2002, the court granted plaintiffs’ motion for class certification. Defendants petitioned the United States Court of Appeals for the Second Circuit for review of the trial court’s ruling, and the Second Circuit agreed to hear defendants’ petition. The parties are awaiting the Second Circuit’s decision. Trial of the case has been stayed pending resolution of defendants’ petition.

Case Under the California Business and Professions Code : In June 1997 and July 1998, two suits were filed in California alleging that domestic cigarette manufacturers, including PM USA and others, have violated California Business and Professions Code Sections 17200 and 17500 regarding unfair, unlawful and fraudulent business practices. Class certification was granted as to plaintiffs’ claims that class members are entitled to reimbursement of the costs of cigarettes purchased during the class periods and injunctive relief. In September 2002, the court granted defendants’ motion for summary judgment as to all claims in one of the cases. Plaintiffs have appealed. Defendants’ motion for summary judgment is pending in the other case.

Asbestos Contribution Cases : These cases, which have been brought on behalf of former asbestos manufacturers and affiliated entities against PM USA and other cigarette manufacturers, seek, among other things, contribution or reimbursement for amounts expended in connection with the defense and payment of asbestos claims that were allegedly caused in whole or in part by cigarette smoking.

Cigarette Contraband Cases : As of February 13, 2004, the European Community and ten member states, Ecuador, Belize, Honduras and various Departments of Colombia had filed suits in the United States against ALG and certain of its subsidiaries, including PM USA and PMI, and other cigarette manufacturers and their affiliates, alleging that defendants sold to distributors cigarettes that would be illegally imported into various jurisdictions. The claims asserted in these cases include negligence, negligent misrepresentation, fraud, unjust enrichment, violations of RICO and its state-law equivalents and conspiracy. Plaintiffs in these cases seek actual damages, treble damages and unspecified injunctive relief. In February 2002, the courts granted defendants’ motions to dismiss all of the actions. Plaintiffs in each of the cases appealed. In August 2003, the United States Court of Appeals for the Eleventh Circuit affirmed the trial court’s ruling in the cases brought by Ecuador, Belize and Honduras. In November 2003, Ecuador, Belize and Honduras petitioned the United States Supreme Court for further review, and in January 2004, the Supreme Court denied the petition. In January 2004, the United States Court of Appeals for the Second Circuit affirmed the dismissals of the cases brought by the European Community and ten member states and the Colombian Departments. There is the possibility that future litigation related to cigarette contraband issues may be brought by these or other parties.

Vending Machine Case : Plaintiffs, who began their case as a purported nationwide class of cigarette vending machine operators, allege that PM USA has violated the Robinson-Patman Act in connection with its promotional and merchandising programs available to retail stores and not available to cigarette vending machine operators. The initial complaint was amended to bring the total number of plaintiffs to 211 but, by stipulated orders, all claims were stayed, except those of ten plaintiffs that proceeded to pre-trial discovery. Plaintiffs request actual damages, treble damages, injunctive relief, attorneys’ fees and costs, and other unspecified relief. In June 1999, the court denied plaintiffs’ motion for a preliminary injunction. Plaintiffs have withdrawn their request for class action status. In August 2001, the court granted PM USA’s motion for summary judgment and dismissed, with prejudice, the claims of the ten plaintiffs. In October 2001, the court certified its decision for appeal to the United States Court of Appeals for the Sixth Circuit following the stipulation of all plaintiffs that the district court ’s dismissal would, if affirmed, be binding on all plaintiffs. In January 2004, the Sixth Circuit affirmed in part and reversed in part the trial court’s ruling that granted PM USA’s motion for summary judgment, and PM USA has petitioned for rehearing.

26 Certain Other Actions

Italian Tax Matters : In recent years, approximately two hundred tax assessments alleging nonpayment of the euro equivalent of $2.9 billion in taxes in Italy (value-added taxes for the years 1988 to March 1996 and income taxes for the years 1987 to March 1996) were served upon certain affiliates of PMI. In addition, the euro equivalent of $4.7 billion in interest and penalties were assessed. These assessments were in various stages of appeal. In 2003, certain affiliates of PMI invoked the amnesty provisions of a recently enacted Italian fiscal law and agreed with the Italian tax authorities to resolve all but twenty-five of the assessments issued to that date for the euro equivalent of $308 million, including statutory interest, to be paid in twelve quarterly installments over a three-year period. Of the twenty-five assessments that were not resolved, nineteen assessments (totaling the euro equivalent of $335 million with interest and penalties of $617 million) were subject to adverse decisions by the regional tax court and were duplicative of other assessments for which the amnesty was invoked. The affiliate of PMI which is subject to these assessments intends to appeal the regional tax court decisions to the Italian Supreme Court. The remaining six assessments (totaling the euro equivalent of $114 million with interest and penalties of $313 million) were not eligible for the amnesty and are being challenged in the Italian administrative tax court. PMI and its affiliates that are subject to these remaining assessments believe they have complied with applicable Italian tax laws.

In December 2003, ten assessments alleging nonpayment of the euro equivalent of $25 million in taxes in Italy (value-added and income taxes for the years 1997 and 1998) were served upon certain affiliates of PMI. In addition, the euro equivalent of $19 million in interest and penalties were assessed. Value-added and income tax assessments may also be received with respect to subsequent years.

Italian Antitrust Case : During 2001, the competition authority in Italy initiated an investigation into the pricing activities by participants in that cigarette market. In March 2003, the authority issued its findings, and imposed fines totaling € 50 million on certain affiliates of PMI. PMI’s affiliates appealed to the administrative court, which rejected the appeal in July 2003. PMI believes that its affiliates have numerous grounds for appeal, and in February 2004, its affiliates appealed to the supreme administrative court. However, under Italian law, if fines are not paid within certain specified time periods, interest and eventually penalties will be applied to the fines. Accordingly, in December 2003, pending final resolution of the case, PMI’s affiliates paid € 51 million representing the fines and any applicable interest to the date of payment. The € 51 million will be returned to PMI’s affiliates if they prevail on appeal. Accordingly, the payment has been included in other assets on Altria Group, Inc.’s consolidated balance sheet at December 31, 2003.

Kraft Wells Notice : In November 2003, Kraft received a “Wells” notice from the staff of the Fort Worth District Office of the SEC advising Kraft that the staff is considering recommending that the SEC bring a civil injunctive action against Kraft charging it with aiding and abetting Fleming Companies ( “Fleming”) in violations of the securities laws. District staff alleges that a Kraft employee, who received a similar “Wells” notice, signed documents requested by Fleming, which Fleming used in order to accelerate its revenue recognition. The notice does not contain any allegations or statements regarding Kraft’s accounting for transactions with Fleming. Kraft believes that it has properly recorded the transactions in accordance with United States GAAP. Kraft is cooperating fully with the SEC with respect to this matter.

27 adverse developments in these cases and that additional cases could be decided unfavorably. In the event of an adverse trial result in certain pending litigation, the defendant may not be able to obtain a required bond or obtain relief from bonding requirements in order to prevent a plaintiff from seeking to collect a judgment while an adverse verdict is being appealed. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation. There have also been a number of adverse legislative, regulatory, political and other developments concerning cigarette smoking and the tobacco industry that have received widespread media attention. These developments may negatively affect the perception of judges and jurors with respect to the tobacco industry, possibly to the detriment of certain pending litigation, and may prompt the commencement of additional similar litigation.

ALG and its subsidiaries record provisions in the consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. Except as discussed elsewhere in this Item 3. Legal Proceedings : (i) management has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related litigation; (ii) management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of pending tobacco-related litigation; and (iii) accordingly, management has not provided any amounts in the consolidated financial statements for unfavorable outcomes, if any.

The present legislative and litigation environment is substantially uncertain, and it is possible that the business and volume of ALG ’s subsidiaries, as well as Altria Group, Inc.’s consolidated results of operations, cash flows or financial position could be materially affected by an unfavorable outcome or settlement of certain pending litigation or by the enactment of federal or state tobacco legislation. ALG and each of its subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that it has a number of valid defenses to the litigation pending against it, as well as valid bases for appeal of adverse verdicts against it. All such cases are, and will continue to be, vigorously defended. However, ALG and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of ALG’s stockholders to do so.

Reference is made to Note 18 for a description of certain pending legal proceedings. Reference is also made to Exhibit 99.1 to this Form 10-K for a list of pending smoking and health class actions, health care cost recovery actions, and certain other actions, and for a description of certain developments in such proceedings; and Exhibit 99.2 for a schedule of the smoking and health class action, health care cost recovery action, and individual smoking and health cases, which are currently scheduled for trial through the end of 2004. Copies of Note 18 and Exhibits 99.1 and 99.2 are available upon written request to the Corporate Secretary, Altria Group, Inc., 120 Park Avenue, New York, NY 10017.

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

None.

28 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 pages 72-73 of the 2003 Annual Report and made a part hereof.

Item 6. Selected Financial Data .

The information called for by this Item is hereby incorporated by reference to the information with respect to 1999-2003 appearing under the caption “Selected Financial Data” on page 39 of the 2003 Annual Report and made a part hereof.

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” (“MD&A”) on pages 18 to 38 of the 2003 Annual Report and made a part hereof.

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 35 to 36 of the 2003 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 2003 Annual Report as set forth under the caption “Quarterly Financial Data (Unaudited)” on pages 72-73 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.

Item 9A. Controls and Procedures .

Altria Group, Inc. carried out an evaluation, with the participation of Altria Group, Inc.’s management, including ALG’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of Altria Group, Inc.’s disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, ALG’s Chief Executive Officer and Chief Financial Officer concluded that Altria Group, Inc.’s disclosure controls and procedures are effective in timely alerting them to information relating to Altria Group, Inc. (including its consolidated subsidiaries) required to be included in ALG’s reports filed or submitted under the Securities Exchange Act of 1934, as amended. There has been no change in Altria Group, Inc.’s internal control over financial reporting during the quarter ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, Altria Group, Inc.’s internal control over financial reporting.

29 PART III

Item 10. Directors and Executive Officers of the Registrant .

Executive Officers as of February 27, 2004:

Age Name Office

Bruce S. Brown Vice President, Corporate Taxes 64 André Calantzopoulos President and Chief Executive Officer of Philip Morris 47 International Inc. Louis C. Camilleri Chairman of the Board and Chief Executive Officer 49 Nancy J. De Lisi Senior Vice President, Mergers and Acquisitions 53 Roger K. Deromedi Chief Executive Officer of Kraft Foods Inc. 50 Dinyar S. Devitre Senior Vice President and Chief Financial Officer 56 Amy J. Engel Vice President and Treasurer 47 David I. Greenberg Senior Vice President and Chief Compliance Officer 49 G. Penn Holsenbeck Vice President, Associate General Counsel and Corporate 57 Secretary Kenneth F. Murphy Senior Vice President, Human Resources and 48 Administration Steven C. Parrish Senior Vice President, Corporate Affairs 53 Michael E. Szymanczyk Chairman and Chief Executive Officer of Philip Morris USA 55 Inc. Joseph A. Tiesi Vice President and Controller 45 Charles R. Wall Senior Vice President and General Counsel 58

With the exception of Dinyar S. Devitre, all of the above-mentioned officers have been employed by Altria Group, Inc. in various capacities during the past five years. Dinyar S. Devitre was appointed Senior Vice President and Chief Financial Officer effective April 25, 2002. From April 2001 to March 2002, he was a private business consultant. From January 1998 to March 2001, Mr. Devitre was Executive Vice President at Citigroup Inc. in Europe. Prior to 1998, Mr. Devitre had been employed by ALG or its subsidiaries in various capacities since 1970.

Codes of Conduct and Corporate Governance

ALG has adopted a code of ethics as defined in Item 406 of Regulation S-K, which code applies to all of its employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. This code of ethics is available free of charge on ALG’s Web site at www.altria.com and will be provided free of charge to any stockholder requesting a copy by writing to: Corporate Secretary, Altria Group, Inc., 120 Park Avenue, New York, NY 10017.

In addition, ALG has adopted corporate governance guidelines and charters for its Audit, Compensation and Nominating and Corporate Governance Committees and the other committees of the board of directors. ALG will adopt a code of business conduct and ethics that applies

30 to the members of its board of directors. All of these documents will be available free of charge on ALG’s Web site at www.altria.com by April 29, 2004 and will be provided free of charge to any stockholder requesting a copy by writing to: Corporate Secretary, Altria Group, Inc., 120 Park Avenue, New York, NY 10017.

The information on ALG’s Web site is not, and shall not be deemed to be, a part of this Report or incorporated into any other filings made with the SEC.

Item 11. Executive Compensation .

Except for the information relating to the executive officers set forth above in Item 10 and the information relating to equity compensation plans set forth in Item 12, the information called for by Items 10-14 is hereby incorporated by reference to ALG’s definitive proxy statement for use in connection with its annual meeting of stockholders to be held on April 29, 2004, to be filed with the SEC on March 15, 2004, and, except as indicated therein, made a part hereof.

Item 12. Security Ownership of Certain Beneficial Owners and Management .

The number of shares to be issued upon exercise or vesting and the number of shares remaining available for future issuance under ALG’s equity compensation plans at December 31, 2003 were as follows:

Number of Shares Number of Shares to be Issued Upon Weighted Remaining Exercise of Average Exercise Available for Outstanding Future Issuance Options and Price of under Equity Vesting of Outstanding Compensation Restricted Stock Options Plans

Equity compensation plans approved by stockholders 98,172,618 $ 38.85 90,387,322

Item 13. Certain Relationships and Related Transactions .

See Item 11.

Item 14. Principal Accounting Fees and Services .

See Item 11.

31 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 2003 Annual Report Annual Report

Page Page

Data incorporated by reference to Altria Group, Inc.’s 2003 Annual Report: Consolidated Balance Sheets at December 31, 2003 and 2002 — 40-41 Consolidated Statements of Earnings for the years ended December 31, 2003, 2002 and 2001 — 42 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2003, 2002 and 2001 — 43 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001 — 44-45 Notes to Consolidated Financial Statements — 46-73 Report of Independent Auditors — 74 Data submitted herewith: Report of Independent Auditors 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 fourth quarter of 2003, the Registrant (i) filed a Current Report on Form 8-K on October 16, 2003, covering Item 5 (Other Events and Required FD Disclosure) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits); (ii) filed a Current Report on Form 8-K on November 4, 2003, covering Item 5 (Other Events and Required FD Disclosure) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits); and (iii) furnished a Current Report on Form 8-K on November 6, 2003, covering Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits), Item 9 (Regulation FD Disclosure) and Item 12 (Results of Operations and Financial Condition). Subsequent to December 31, 2003, the Registrant filed a Current Report on Form 8-K on January 28, 2004, covering Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits), containing the Registrant’s consolidated financial statements for the year ended December 31, 2003; and the Registrant furnished a Current Report on Form 8-K on January 28, 2004 covering Item 7 (Financial Statements and Exhibits) and Item 12 (Results of Operations and Financial Condition), containing the Registrant’s earnings release dated January 28, 2004.

32 (c) The following exhibits are filed as part of this Report:

3.1 — Articles of Amendment to the Restated Articles of Incorporation of ALG and Restated Articles of Incorporation of ALG.(22)

3.2 — By -Laws, as amended, of ALG.

4.1 — Indenture dated as of August 1, 1990, between ALG and JPMorgan Chase Bank, Trustee.(1) 4.2 — First Supplemental Indenture dated as of February 1, 1991, to Indenture dated as of August 1, 1990, between ALG and JPMorgan Chase Bank (formerly known as Chemical Bank), Trustee.(2) 4.3 — Second Supplemental Indenture dated as of January 21, 1992, to Indenture dated as of August 1, 1990, between ALG and JPMorgan Chase Bank (formerly known as Chemical Bank), Trustee.(3)

4.4 — Indenture dated as of December 2, 1996, between ALG and JPMorgan Chase Bank, Trustee.(4)

4.5 — Indenture dated as of October 17, 2001, between Kraft Foods Inc. and JPMorgan Chase Bank, Trustee.(19) 4.6 — 5-Year Revolving Credit Agreement dated as of July 24, 2001, among Altria Group, Inc., the Initial Lenders named therein, The Chase Manhattan Bank and Citibank, N.A. as Administrative Agents, Credit Suisse First Boston and Deutsche Bank AG New York Branch and/or Cayman Islands Branch as Syndication Agents, ABN AMRO Bank N.V., BNP Paribas, Dresdner Bank AG, New York and Grand Cayman Branches and HSBC Bank USA as Arrangers and Documentation Agents.(21) 4.7 — The Registrant agrees to furnish copies of any instruments defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries that does not exceed 10 percent of the total assets of the Registrant and its consolidated subsidiaries to the Commission upon request.

10.1 — Financial Counseling Program.(5)

10.2 — Benefit Equalization Plan, as amended.(6)

10.3 — Form of Employee Grantor Trust Enrollment Agreement.(7)

10.4 — Automobile Policy.(5)

10.5 — Form of Employment Agreement between ALG and its executive officers.(8)

10.6 — Supplemental Management Employees ’ Retirement Plan of ALG, as amended.(5)

10.7 — 1992 Incentive Compensation and Stock Option Plan.(5)

10.8 — 1992 Compensation Plan for Non-Employee Directors, as amended.(9)

10.9 — Unit Plan for Incumbent Non -Employee Directors, effective January 1, 1996.(7)

10.10 — Form of Executive Master Trust between ALG, JPMorgan Chase Bank and Handy Associates.(8)

10.11 — 1997 Performance Incentive Plan.(10)

10.12 — Long-Term Disability Benefit Equalization Plan, as amended.(5)

10.13 — Survivor Income Benefit Equalization Plan, as amended.(5)

10.14 — 2000 Performance Incentive Plan.(17)

33 10.15 — 2000 Stock Compensation Plan for Non -Employee Directors, as amended.(22) 10.16 — Comprehensive Settlement Agreement and Release dated October 17, 1997, related to settlement of Mississippi health care cost recovery action.(5)

10.17 — Settlement Agreement dated August 25, 1997, related to settlement of Florida health care cost recovery action.(11) 10.18 — Comprehensive Settlement Agreement and Release dated January 16, 1998, related to settlement of Texas health care cost recovery action.(12) 10.19 — Settlement Agreement and Stipulation for Entry of Judgment, dated May 8, 1998, regarding the claims of the State of Minnesota.(13) 10.20 — Settlement Agreement and Release, dated May 8, 1998, regarding the claims of Blue Cross and Blue Shield of Minnesota.(13) 10.21 — Stipulation of Amendment to Settlement Agreement and For Entry of Agreed Order, dated July 2, 1998, regarding the settlement of the Mississippi health care cost recovery action.(14) 10.22 — Stipulation of Amendment to Settlement Agreement and For Entry of Consent Decree, dated July 24, 1998, regarding the settlement of the Texas health care cost recovery action.(14) 10.23 — Stipulation of Amendment to Settlement Agreement and For Entry of Consent Decree, dated September 11, 1998, regarding the settlement of the Florida health care cost recovery action.(15)

10.24 — Master Settlement Agreement relating to state health care cost recovery and other claims.(16)

10.25 — Stipulation and Agreed Order Regarding Stay of Execution Pending Review and Related Matters.(18)

10.26 — Agreement among ALG, PM USA and Michael E. Szymanczyk.(20)

10.27 — Description of Agreement with Roger K. Deromedi.

12 — Statements re: computation of ratios. 13 — Pages 17 to 74 of the 2003 Annual Report, but only to the extent set forth in Items 1, 3, 5-7, 7A, 8 and 15 hereof. With the exception of the aforementioned information incorporated by reference in this Annual Report on Form 10-K, the 2003 Annual Report is not to be deemed “filed” as part of this Report.

21 — Subsidiaries of ALG.

23 — Consent of independent auditors.

24 — Powers of attorney. 31.1 — Certifications of the Registrant’s Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes -Oxley Act of 2002. 31.2 — Certifications of the Registrant’s Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes -Oxley Act of 2002. 32.1 — Certification of the Registrant’s Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 — Certification of the Registrant’s Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1 — Certain Pending Litigation Matters and Recent Developments.

99.2 — Trial Schedule.

(1) Incorporated by reference to ALG ’s Registration Statement on Form S -3 (No. 33 -36450) dated August 22, 1990. (2) Incorporated by reference to ALG ’s Registration Statement on Form S -3 (No. 33 -39059) dated February 21, 1991. (3) Incorporated by reference to ALG’s Registration Statement on Form S-3 (No. 33-45210) dated January 22, 1992. (4) Incorporated by reference to ALG’s Registration Statement on Form S-3/A (No. 333-35143) dated January 29, 1998. (5) Incorporated by reference to ALG’s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-08940). (6) Incorporated by reference to ALG ’s Annual Report on Form 10 -K for the year ended December 31, 1996 (File No. 1 -08940). (7) Incorporated by reference to ALG ’s Annual Report on Form 10 -K for the year ended December 31, 1995 (File No. 1 -08940). (8) Incorporated by reference to ALG ’s Annual Report on Form 10 -K for the year ended December 31, 1994 (File No. 1 -08940). (9) Incorporated by reference to ALG ’s Quarterly Report on Form 10 -Q for the period ended June 30, 1997 (File No. 1 -08940). (10) Incorporated by reference to ALG’s proxy statement dated March 10, 1997 (File No. 1-08940). (11) Incorporated by reference to ALG’s Current Report on Form 8-K dated September 3, 1997 (File No. 1-08940). (12) Incorporated by reference to ALG’s Current Report on Form 8-K dated January 28, 1998 (File No. 1-08940). (13) Incorporated by reference to ALG ’s Quarterly Report on Form 10 -Q for the period ended March 31, 1998. (14) Incorporated by reference to ALG ’s Quarterly Report on Form 10 -Q for the period ended June 30, 1998. (15) Incorporated by reference to ALG ’s Quarterly Report on Form 10 -Q for the period ended September 30, 1998. (16) Incorporated by reference to ALG’s Current Report on Form 8-K dated November 25, 1998, as amended by Form 8/K-A dated December 24, 1998. (17) Incorporated by reference to ALG’s proxy statement dated March 10, 2000. (18) Incorporated by reference to ALG ’s Current Report on Form 8 -K dated May 8, 2001. (19) Incorporated by reference to Kraft Foods Inc. ’s Registration Statement on Form S -3 (No. 333 -67770) dated August 16, 2001. (20) Incorporated by reference to ALG ’s Quarterly Report on Form 10 -Q for the period ended June 30, 2002. (21) Incorporated by reference to ALG’s Quarterly Report on Form 10-Q for the period ended March 31, 2003. (22) Incorporated by reference to ALG’s Annual Report on Form 10-K for the year ended December 31, 2002.

35 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.

A LTRIA G ROUP , I NC .

By: /s/ L OUIS C. C AMILLERI

(Louis C. Camilleri Chairman of the Board and Chief Executive Officer)

Date: March 12, 2004

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/ L OUIS C. C AMILLERI Director, Chairman of the Board and March 12, 2004 Chief Executive Officer (Louis C. Camilleri)

/s/ D INYAR S. D EVITRE Senior Vice President and Chief Financial March 12, 2004 Officer (Dinyar S. Devitre)

/s/ J OSEPH A. T IESI Vice President and Controller March 12, 2004

(Joseph A. Tiesi)

*ELIZABETH E. BAILEY, Directors MATHIS CABIALLAVETTA, J. DUDLEY FISHBURN, ROBERT E. R. HUNTLEY, THOMAS W. JONES, BILLIE JEAN KING, LUCIO A. NOTO, CARLOS SLIM HELÚ, STEPHEN M. WOLF

*BY: /s/ L OUIS C. C AMILLERI March 12, 2004

(Louis C. Camilleri Attorney-in-fact)

36 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of ALTRIA GROUP, INC.:

Our audits of the consolidated financial statements referred to in our report dated January 26, 2004 appearing in the 2003 Annual Report to Shareholders of Altria Group, 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/ P RICEWATERHOUSE C OOPERS LLP

New York, New York January 26, 2004

S-1 ALTRIA GROUP, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2003, 2002 and 2001 (in millions)

Col. A Col. B Col. C Col. D Col. E

Additions

Balance at Charged to Balance at Beginning Charged to Deductions Costs and Other End Description of Period Expenses Accounts of Period

(a) (b) 2003: CONSUMER PRODUCTS: Allowance for discounts $ 12 $ 802 $ — $ 800 $ 14 Allowance for doubtful accounts 156 17 — 23 150 Allowance for returned goods 16 176 — 171 21

$ 184 $ 995 $ — $ 994 $ 185

FINANCIAL SERVICES: Allowance for losses $ 444 $ — $ — $ 48 $ 396

2002: CONSUMER PRODUCTS: Allowance for discounts $ 13 $ 710 $ 2 $ 713 $ 12 Allowance for doubtful accounts 207 32 (51 ) 32 156 Allowance for returned goods 7 166 — 157 16

$ 227 $ 908 $ (49 ) $ 902 $ 184

FINANCIAL SERVICES: Allowance for losses $ 132 $ 324 $ — $ 12 $ 444

2001: CONSUMER PRODUCTS: Allowance for discounts $ 9 $ 709 $ 4 $ 709 $ 13 Allowance for doubtful accounts 210 27 5 35 207 Allowance for returned goods 8 145 — 146 7

$ 227 $ 881 $ 9 $ 890 $ 227

FINANCIAL SERVICES: Allowance for losses $ 121 $ 11 $ — $ — $ 132

Notes: (a) Primarily related to divestitures, acquisitions and currency translation. (b) Represents charges for which allowances were created.

S-2 Exhibit 3.2

BY -LAWS of ALTRIA GROUP, INC.

ARTICLE I

Meetings of Stockholders

Section 1. Annual Meetings. - The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting, and any postponement or adjournment thereof, shall be held on such date and at such time as the Board of Directors may in its discretion determine.

Section 2. Special Meetings. - Unless otherwise provided by law, special meetings of the stockholders may be called by the chairman of the Board of Directors, or in the chairman’s absence, the deputy chairman of the Board of Directors (if any), the vice chairman of the Board of Directors (if any), the president (if one shall have been elected by the Board of Directors) or, in the absence of all of the foregoing, an executive vice president or by order of the Board of Directors, whenever deemed necessary.

Section 3. Place of Meetings. - All meetings of the stockholders shall be held at such place in the United States of America as from time to time may be fixed by the Board of Directors.

Section 4. Notice of Meetings. - Notice, stating the place, day and hour and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting (except as a different time is specified herein or by law), to each stockholder of record having voting power in respect of the business to be transacted thereat.

Notice of a stockholders’ meeting to act on an amendment of the Articles of Incorporation, a plan of merger or share exchange, a proposed sale of all, or substantially all of the Corporation’s assets, otherwise than in the usual and regular course of business, or the dissolution of the Corporation shall be given not less than twenty-five nor more than sixty days before the date of the meeting and shall be accompanied, as appropriate, by a copy of the proposed amendment, plan of merger or share exchange or sale agreement.

March 1, 2004

-1- Notwithstanding the foregoing, a written waiver of notice signed by the person or persons entitled to such notice, either before or after the time stated therein, shall be equivalent to the giving of such notice. A stockholder who attends a meeting shall be deemed to have (i) waived objection to lack of notice or defective notice of the meeting, unless at the beginning of the meeting he or she objects to holding the meeting or transacting business at the meeting, and (ii) waived objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless he or she objects to considering the matter when it is presented.

Section 5. Quorum. - At all meetings of the stockholders, unless a greater number or voting by classes is required by law, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum. If a quorum is present, action on a matter is approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the vote of a greater number or voting by classes is required by law or the Articles of Incorporation, and except that in elections of directors those receiving the greatest number of votes shall be deemed elected even though not receiving a majority. Less than a quorum may adjourn.

Section 6. Organization and Order of Business. - At all meetings of the stockholders , the chairman of the Board of Directors or, in the chairman’s absence, the deputy chairman of the Board of Directors (if any), the vice chairman of the Board of Directors (if any), the president (if one shall have been elected by the Board of Directors) or, in the absence of all of the foregoing, the most senior executive vice president, shall act as chairman. In the absence of all of the foregoing officers or, if present, with their consent, a majority of the shares entitled to vote at such meeting, may appoint any person to act as chairman. The secretary of the Corporation or, in the secretary’s absence, an assistant secretary, shall act as secretary at all meetings of the stockholders. In the event that neither the secretary nor any assistant secretary is present, the chairman may appoint any person to act as secretary of the meeting.

The chairman shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the dismissal of business not properly presented, the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof and the opening and closing of the voting polls.

At each annual meeting of stockholders, only such business shall be conducted as shall have been properly brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who shall be entitled to

-2- vote at such meeting and who complies with the notice procedures set forth in this Section 6. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation. To be timely, a stockholder’s notice must be given, either by personal delivery or by United States certified mail, postage prepaid, and received at the principal executive offices of the Corporation (i) not less than 120 days nor more than 150 days before the first anniversary of the date of the Corporation’s proxy statement in connection with the last annual meeting of stockholders or (ii) if no annual meeting was held in the previous year or the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, not less than 60 days before the date of the applicable annual meeting. A stockholder’s notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting, including the complete text of any resolutions to be presented at the annual meeting, and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation’s stock transfer books, of such stockholder proposing such business, (c) a representation that such stockholder is a stockholder of record and intends to appear in person or by proxy at such meeting to bring the business before the meeting specified in the notice, (d) the class and number of shares of stock of the Corporation beneficially owned by the stockholder and (e) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 6. The chairman of an annual meeting shall, if the facts warrant, determine that the business was not brought before the meeting in accordance with the procedures prescribed by this Section 6 . If the chairman should so determine, he or she shall so declare to the meeting and the business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 6, a stockholder seeking to have a proposal included in the Corporation’s proxy statement shall comply with the requirements of Regulation 14A under the Securities Exchange Act of 1934, as amended (including, but not limited to, Rule 14a-8 or its successor provision). The secretary of the Corporation shall deliver each such stockholder’s notice that has been timely received to the Board of Directors or a committee designated by the Board of Directors for review.

Section 7. Voting. - A stockholder may vote his or her shares in person or by proxy. Any proxy shall be delivered to the secretary of the meeting at or prior to the time designated by the chairman or in the order of business for so delivering such proxies. No proxy shall be valid after eleven months from its date, unless otherwise provided in the proxy. Each holder of record of stock of any class shall, as to all matters in respect of which stock of such class has voting power, be entitled to such vote as is provided in the Articles of Incorporation for each share of stock of such class standing

-3- in the holder’s name on the books of the Corporation. Unless required by statute or determined by the chairman to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting or by such stockholder’s proxy, if there be such proxy.

Section 8. Written Authorization. - A stockholder or a stockholder’s duly authorized attorney-in-fact may execute a writing authorizing another person or persons to act for him or her as proxy. Execution may be accomplished by the stockholder or such stockholder’s duly authorized attorney-in-fact or authorized officer, director, employee or agent signing such writing or causing such stockholder’s signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature.

Section 9. Electronic Authorization. - The secretary or any vice president may approve procedures to enable a stockholder or a stockholder’s duly authorized attorney-in-fact to authorize another person or persons to act for him or her as proxy by transmitting or authorizing the transmission of a telegram, cablegram, internet transmission, telephone transmission or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such transmission must either set forth or be submitted with information from which the inspectors of election can determine that the transmission was authorized by the stockholder or the stockholder’s duly authorized attorney-in-fact. If it is determined that such transmissions are valid, the inspectors shall specify the information upon which they relied. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Section 9 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

Section 10. Inspectors. - At every meeting of the stockholders for election of directors, the proxies shall be received and taken in charge, all ballots shall be received and counted and all questions concerning the qualifications of voters, the validity of proxies, and the acceptance or rejection of votes shall be decided, by two or more inspectors. Such inspectors shall be appointed by the chairman of the meeting. They shall be sworn faithfully to perform their duties and shall in writing certify to the returns. No candidate for election as director shall be appointed or act as inspector.

-4- ARTICLE II

Board of Directors

Section 1. General Powers. - The business and affairs of the Corporation shall be managed under the direction of the Board of Directors.

Section 2. Number. - The number of directors shall be ten (10).

Section 3. Term of Office and Qualification. - Each director shall serve for the term for which he or she shall have been elected and until a successor shall have been duly elected.

Section 4. Nomination and Election of Directors. - At each annual meeting of stockholders, the stockholders entitled to vote shall elect the directors. No person shall be eligible for election as a director unless nominated in accordance with the procedures set forth in this Section 4. Nominations of persons for election to the Board of Directors may be made by the Board of Directors or any committee designated by the Board of Directors or by any stockholder entitled to vote for the election of directors at the applicable meeting of stockholders who complies with the notice procedures set forth in this Section 4. Such nominations, other than those made by the Board of Directors or any committee designated by the Board of Directors, may be made only if written notice of a stockholder ’s intent to nominate one or more persons for election as directors at the applicable meeting of stockholders has been given, either by personal delivery or by United States certified mail, postage prepaid, to the secretary of the Corporation and received (i) not less than 120 days nor more than 150 days before the first anniversary of the date of the Corporation’s proxy statement in connection with the last annual meeting of stockholders, or (ii) if no annual meeting was held in the previous year or the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, not less than 60 days before the date of the applicable annual meeting, or (iii) with respect to any special meeting of stockholders called for the election of directors, not later than the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such stockholder’s notice shall set forth (a) as to the stockholder giving the notice, (i) the name and address, as they appear on the Corporation’s stock transfer books, of such stockholder, (ii) a representation that such stockholder is a stockholder of record and intends to appear in person or by proxy at such meeting to nominate the person or persons specified in the notice, (iii) the class and number of shares of stock of the Corporation beneficially owned by such stockholder, and (iv) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder; and (b) as to each person whom the stockholder proposes to nominate for

-5- election as a director, (i) the name, age, business address and, if known, residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of stock of the Corporation which are beneficially owned by such person, (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors or is otherwise required by the rules and regulations of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934, as amended, and (v) the written consent of such person to be named in the proxy statement as a nominee and to serve as a director if elected. The secretary of the Corporation shall deliver each such stockholder’s notice that has been timely received to the Board of Directors or a committee designated by the Board of Directors for review. Any person nominated for election as director by the Board of Directors or any committee designated by the Board of Directors shall, upon the request of the Board of Directors or such committee, furnish to the secretary of the Corporation all such information pertaining to such person that is required to be set forth in a stockholder’s notice of nomination. The chairman of the meeting of stockholders shall, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed by this Section 4 . If the chairman should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

Section 5. Organization. - At all meetings of the Board of Directors, the chairman of the Board of Directors or, in the chairman’s absence, the deputy chairman of the Board of Directors (if any), the vice chairman of the Board of Directors (if any), the president (if one shall have been elected by the Board of Directors) or, in the absence of all of the foregoing, the senior most executive vice president, shall act as chairman of the meeting. The secretary of the Corporation or, in the secretary’s absence, an assistant secretary, shall act as secretary of meetings of the Board of Directors. In the event that neither the secretary nor any assistant secretary shall be present at such meeting, the chairman of the meeting shall appoint any person to act as secretary of the meeting.

Section 6. Vacancies. - Any vacancy occurring in the Board of Directors, including a vacancy resulting from amending these By-Laws to increase the number of directors by thirty percent or less, may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors.

Section 7. Place of Meeting. - Meetings of the Board of Directors, regular or special, may be held either within or without the Commonwealth of Virginia.

Section 8. Organizational Meeting. - The annual organizational meeting of the Board of Directors shall be held immediately following adjournment of the annual meeting of stockholders and at the same place, without the requirement of any notice other than this provision of the By-Laws.

-6- Section 9. Regular Meetings: Notice. - Regular meetings of the Board of Directors shall be held at such times and places as it may from time to time determine. Notice of such meetings need not be given if the time and place have been fixed at a previous meeting.

Section 10. Special Meetings. - Special meetings of the Board of Directors shall be held whenever called by order of the chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any), the vice chairman of the Board of Directors (if any), the president (if any) or two of the directors. Notice of each such meeting, which need not specify the business to be transacted thereat, shall be mailed to each director, addressed to his or her residence or usual place of business, at least two days before the day on which the meeting is to be held, or shall be sent to such place by telegraph, telex or telecopy or be delivered personally or by telephone, not later than the day before the day on which the meeting is to be held.

Section 11. Waiver of Notice. - Whenever any notice is required to be given to a director of any meeting for any purpose under the provisions of law, the Articles of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, either before or after the time stated therein, shall be equivalent to the giving of such notice. A director’s attendance at or participation in a meeting waives any required notice to him or her of the meeting unless at the beginning of the meeting or promptly upon the director’s arrival, he or she objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

Section 12. Quorum and Manner of Acting. - Except where otherwise provided by law, a majority of the directors fixed by these By-Laws at the time of any regular or special meeting shall constitute a quorum for the transaction of business at such meeting, and the act of a majority of the directors present at any such meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of those present may adjourn the meeting from time to time until a quorum be had. Notice of any such adjourned meeting need not be given.

Section 13. Order of Business. - At all meetings of the Board of Directors business may be transacted in such order as from time to time the Board of Directors may determine.

Section 14. Committees. - In addition to the executive committee authorized by Article III of these By-Laws, other committees, consisting of two or more directors, may be designated by the Board of Directors by a resolution adopted by the greater number of (i) a majority of all directors in office at the time the action is being taken or (ii) the number of directors required to take action under Article II, Section 12 hereof.

-7- Any such committee, to the extent provided in the resolution of the Board of Directors designating the committee, shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, except as limited by law.

ARTICLE III

Executive Committee

Section 1. How Constituted and Powers. - The Board of Directors, by resolution adopted pursuant to Article II, Section 14 hereof, may designate, in addition to the chairman of the Board of Directors, one or more directors to constitute an executive committee, who shall serve during the pleasure of the Board of Directors. The executive committee, to the extent provided in such resolution and permitted by law, shall have and may exercise all of the authority of the Board of Directors.

Section 2. Organization, Etc. - The executive committee may choose a chairman and secretary. The executive committee shall keep a record of its acts and proceedings and report the same from time to time to the Board of Directors.

Section 3. Meetings. - Meetings of the executive committee may be called by any member of the committee. Notice of each such meeting, which need not specify the business to be transacted thereat, shall be mailed to each member of the committee, addressed to his or her residence or usual place of business, at least two days before the day on which the meeting is to be held or shall be sent to such place by telegraph, telex or telecopy or be delivered personally or by telephone, not later than the day before the day on which the meeting is to be held.

Section 4. Quorum and Manner of Acting. - A majority of the executive committee shall constitute a quorum for transaction of business, and the act of a majority of those present at a meeting at which a quorum is present shall be the act of the executive committee. The members of the executive committee shall act only as a committee, and the individual members shall have no powers as such.

Section 5. Removal. - Any member of the executive committee may be removed, with or without cause, at any time, by the Board of Directors.

Section 6. Vacancies. - Any vacancy in the executive committee shall be filled by the Board of Directors.

-8- ARTICLE IV

Officers

Section 1. Number. - The officers of the Corporation shall be a chairman of the Board of Directors, a deputy chairman of the Board of Directors (if elected by the Board of Directors), a president (if elected by the Board of Directors), one or more vice chairmen of the Board of Directors (if elected by the Board of Directors), a chief operating officer (if elected by the Board of Directors), one or more vice presidents (one or more of whom may be designated executive vice president or senior vice president), a treasurer, a controller, a secretary, one or more assistant treasurers, assistant controllers and assistant secretaries and such other officers as may from time to time be chosen by the Board of Directors. Any two or more offices may be held by the same person.

Section 2. Election, Term of Office and Qualifications. - All officers of the Corporation shall be chosen annually by the Board of Directors, and each officer shall hold office until a successor shall have been duly chosen and qualified or until the officer resigns or is removed in the manner hereinafter provided. The chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any), the president (if any) and the vice chairmen of the Board of Directors (if any) shall be chosen from among the directors.

Section 3. Vacancies. - If any vacancy shall occur among the officers of the Corporation, such vacancy shall be filled by the Board of Directors.

Section 4. Other Officers, Agents and Employees - Their Powers and Duties. - The Board of Directors may from time to time appoint such other officers as the Board of Directors may deem necessary, to hold office for such time as may be designated by it or during its pleasure, and the Board of Directors or the chairman of the Board of Directors may appoint, from time to time, such agents and employees of the Corporation as may be deemed proper, and may authorize any officers to appoint and remove agents and employees. The Board of Directors or the chairman of the Board of Directors may from time to time prescribe the powers and duties of such other officers, agents and employees of the Corporation.

Section 5. Removal. - Any officer, agent or employee of the Corporation may be removed, either with or without cause, by a vote of a majority of the Board of Directors or, in the case of any agent or employee not appointed by the Board of Directors, by a superior officer upon whom such power of removal may be conferred by the Board of Directors or the chairman of the Board of Directors.

-9- Section 6. Chairman of the Board of Directors and Chief Executive Officer. - The chairman of the Board of Directors shall preside at meetings of the stockholders and of the Board of Directors and shall be a member of the executive committee. The chairman shall be the Chief Executive Officer of the Corporation and shall be responsible to the Board of Directors. He or she shall be responsible for the general management and control of the business and affairs of the Corporation and shall see to it that all orders and resolutions of the Board of Directors are implemented. The chairman shall, from time to time, report to the Board of Directors on matters within his or her knowledge which the interests of the Corporation may require be brought to its notice. The chairman shall do and perform such other duties as from time to time the Board of Directors may prescribe .

Section 7. Deputy Chairman of the Board of Directors. - In the absence of the chairman of the Board of Directors, the deputy chairman of the Board of Directors (if elected by the Board of Directors) shall preside at meetings of the stockholders and of the Board of Directors. The deputy chairman shall be responsible to the chairman of the Board of Directors and shall perform such duties as shall be assigned to him or her by the chairman of the Board of Directors. The deputy chairman shall from time to time report to the chairman of the Board of Directors on matters within the deputy chairman’s knowledge which the interests of the Corporation may require be brought to the chairman’s notice.

Section 8. President. - In the absence of the chairman of the Board of Directors and the deputy chairman of the Board of Directors (if any), the president (if one shall have been elected by the Board of Directors) shall preside at meetings of the stockholders and of the Board of Directors. The president shall be responsible to the chairman of the Board of Directors. Subject to the authority of the chairman of the Board of Directors, the president shall be devoted to the Corporation’s business and affairs under the basic policies set by the Board of Directors and the chairman of the Board of Directors. He or she shall, from time to time, report to the chairman of the Board of Directors on matters within the president’s knowledge which the interests of the Corporation may require be brought to the chairman’s notice. In the absence of the chairman of the Board of Directors and the deputy chairman of the Board of Directors (if any), the president (if any) shall, except as otherwise directed by the Board of Directors, have all of the powers and the duties of the chairman of the Board of Directors. The president (if any) shall do and perform such other duties as from time to time the Board of Directors or the chairman of the Board of Directors may prescribe.

Section 9. Vice Chairmen of the Board of Directors. - In the absence of the chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any) and the president (if any), the vice chairman of the Board of Directors designated for such purpose by the chairman of the Board of Directors (if any) shall preside at meetings of the stockholders and of the Board of Directors. Each vice chairman of the

-10- Board of Directors shall be responsible to the chairman of the Board of Directors. Each vice chairman of the Board of Directors shall from time to time report to the chairman of the Board of Directors on matters within the vice chairman’s knowledge which the interests of the Corporation may require be brought to the chairman’s notice. In the absence or inability to act of the chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any) and the president (if any), such vice chairman of the Board of Directors as the chairman of the Board of Directors may designate for the purpose shall have the powers and discharge the duties of the chairman of the Board of Directors. In the event of the failure or inability of the chairman of the Board of Directors to so designate a vice chairman of the Board of Directors, the Board of Directors may designate a vice chairman of the Board of Directors who shall have the powers and discharge the duties of the chairman of the Board of Directors.

Section 10. Chief Operating Officer. - The chief operating officer (if any) shall be responsible to the chairman of the Board of Directors for the principal operating businesses of the Corporation and shall perform those duties that may from time to time be assigned.

Section 11. Vice Presidents. - The vice presidents of the Corporation shall assist the chairman of the Board of Directors, the deputy chairman of the Board of Directors, the president (if any) and the vice chairmen (if any) of the Board of Directors in carrying out their respective duties and shall perform those duties which may from time to time be assigned to them. The chief financial officer shall be a vice president of the Corporation (or more senior) and shall be responsible for the management and supervision of the financial affairs of the Corporation.

Section 12. Treasurer. - The treasurer shall have charge of the funds, securities, receipts and disbursements of the Corporation. He or she shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositaries as the Board of Directors may from time to time designate. The treasurer shall render to the Board of Directors, the chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any), the president (if any), the vice chairmen of the Board of Directors (if any), and the chief financial officer, whenever required by any of them, an account of all of his transactions as treasurer. If required, the treasurer shall give a bond in such sum as the Board of Directors may designate, conditioned upon the faithful performance of the duties of the treasurer’s office and the restoration to the Corporation at the expiration of his or her term of office or in case of death, resignation or removal from office, of all books, papers, vouchers, money or other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. The treasurer shall perform such other duties as from time to time may be assigned to him or her.

-11- Section 13. Assistant Treasurers. - In the absence or disability of the treasurer, one or more assistant treasurers shall perform all the duties of the treasurer and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the treasurer. Assistant treasurers shall also perform such other duties as from time to time may be assigned to them.

Section 14. Secretary. - The secretary shall keep the minutes of all meetings of the stockholders and of the Board of Directors in a book or books kept for that purpose. He or she shall keep in safe custody the seal of the Corporation, and shall affix such seal to any instrument requiring it. The secretary shall have charge of such books and papers as the Board of Directors may direct. He or she shall attend to the giving and serving of all notices of the Corporation and shall also have such other powers and perform such other duties as pertain to the secretary’s office, or as the Board of Directors, the chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any), the president (if any) or any vice chairman of the Board of Directors may from time to time prescribe.

Section 15. Assistant Secretaries. - In the absence or disability of the secretary, one or more assistant secretaries shall perform all of the duties of the secretary and, when so acting, shall have all of the powers of, and be subject to all the restrictions upon, the secretary. Assistant secretaries shall also perform such other duties as from time to time may be assigned to them.

Section 16. Controller. - The controller shall be administrative head of the controller’s department. He or she shall be in charge of all functions relating to accounting and the preparation and analysis of budgets and statistical reports and shall establish, through appropriate channels, recording and reporting procedures and standards pertaining to such matters. The controller shall report to the chief financial officer and shall aid in developing internal corporate policies whereby the business of the Corporation shall be conducted with the maximum safety, efficiency and economy. The controller shall be available to all departments of the Corporation for advice and guidance in the interpretation and application of policies that are within the scope of his or her authority. The controller shall perform such other duties as from time to time may be assigned to him or her.

Section 17. Assistant Controllers. - In the absence or disability of the controller, one or more assistant controllers shall perform all of the duties of the controller and, when so acting, shall have all of the powers of, and be subject to all the restrictions upon, the controller. Assistant controllers shall also perform such other duties as from time to time may be assigned to them.

-12 - ARTICLE V

Contracts, Checks, Drafts, Bank Accounts, Etc.

Section 1. Contracts. - The chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any), the president (if any), any vice chairman of the Board of Directors (if any), any vice president, the treasurer and such other persons as the chairman of the Board of Directors may authorize shall have the power to execute any contract or other instrument on behalf of the Corporation; no other officer, agent or employee shall, unless otherwise in these By-Laws provided, have any power or authority to bind the Corporation by any contract or acknowledgement, or pledge its credit or render it liable pecuniarily for any purpose or to any amount.

Section 2. Loans. - The chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any), the president (if any), any vice chairman of the Board of Directors (if any), any vice president, the treasurer and such other persons as the Board of Directors may authorize shall have the power to effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any corporation, firm or individual, and for such loans and advances may make, execute and deliver promissory notes or other evidences of indebtedness of the Corporation, and, as security for the payment of any and all loans, advances, indebtedness and liability of the Corporation, may pledge, hypothecate or transfer any and all stocks, securities and other personal property at any time held by the Corporation, and to that end endorse, assign and deliver the same.

Section 3. Voting of Stock Held. - The chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any), the president (if any), any vice chairman of the Board of Directors (if any), any vice president or the secretary may from time to time appoint an attorney or attorneys or agent or agents of the Corporation to cast the votes that the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose stock or securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing to any action by any other such corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation such written proxies, consents, waivers or other instruments as such officer may deem necessary or proper in the premises; or the chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any), the president (if any), any vice chairman of the Board of Directors (if any), any vice president or the secretary may attend in person any meeting of the holders of stock or other securities of such other corporation and thereat vote or exercise any and all powers of the Corporation as the holder of such stock or other securities of such other corporation.

-13- ARTICLE VI

Certificates Representing Shares

Certificates representing shares of the Corporation shall be signed by the chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any), or the vice chairman of the Board of Directors (if any), or the president of the Corporation (if any) and the secretary or an assistant secretary. Any and all signatures on such certificates, including signatures of officers, transfer agents and registrars, may be facsimile.

ARTICLE VII

Dividends

The Board of Directors may declare dividends from funds of the Corporation legally available therefor.

ARTICLE VIII

Seal

The Board of Directors shall provide a suitable seal or seals, which shall be in the form of a circle, and shall bear around the circumference the words “Altria Group, Inc.” and in the center the word and figures “Virginia, 1985.”

ARTICLE IX

Fiscal Year

The fiscal year of the Corporation shall be the calendar year.

-14 - ARTICLE X

Amendment

The power to alter, amend or repeal the By-Laws of the Corporation or to adopt new By-Laws shall be vested in the Board of Directors, but By-Laws made by the Board of Directors may be repealed or changed by the stockholders, or new By-Laws may be adopted by the stockholders, and the stockholders may prescribe that any By-Laws made by them shall not be altered, amended or repealed by the directors.

ARTICLE XI

Emergency By -Laws

If a quorum of the Board of Directors cannot be readily assembled because of some catastrophic event, and only in such event, these By-Laws shall, without further action by the Board of Directors, be deemed to have been amended for the duration of such emergency, as follows:

Section 1. Section 6 of Article II shall read as follows:

Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the directors present at a meeting of the Board of Directors called in accordance with these By-Laws.

Section 2. The first sentence of Section 10 of Article II shall read as follows:

Special meetings of the Board of Directors shall be held whenever called by order of the chairman of the Board of Directors or a deputy chairman (if any), or of the president (if any) or any vice chairman of the Board of Directors (if any) or any director or of any person having the powers and duties of the chairman of the Board of Directors, the deputy chairman, the president or any vice chairman of the Board of Directors.

Section 3. Section 12 of Article II shall read as follows:

The directors present at any regular or special meeting called in accordance with these By-Laws shall constitute a quorum for the transaction of business at such meeting, and the action of a majority of such directors shall be the act of the Board of Directors, provided, however, that in the event that only one director is present at any such meeting no action except the election of directors shall be taken until at least two additional directors have been elected and are in attendance.

-15- Exhibit 10.27

Description of Agreement with Roger K. Deromedi

In recognition of Roger K. Deromedi’s promotion in 2003 to Chief Executive Officer of Kraft Foods Inc., and in connection with his previous pension benefit earned at General Foods Corporation, Kraft Foods Inc. has agreed to use his final average earnings at retirement for purposes of calculating his pension benefit.

Exhibit 12

ALTRIA GROUP, INC. AND SUBSIDIARIES Computation of Ratios of Earnings to Fixed Charges (in millions of dollars)

For the Years Ended December 31,

2003 2002 2001 2000 1999

Earnings before income taxes, minority interest and cumulative effect of accounting change $ 14,760 $ 18,098 $ 14,284 $ 14,087 $ 12,821

Add (deduct): Equity in net earnings of less than 50% owned affiliates (205 ) (235 ) (228 ) (228 ) (197 ) Dividends from less than 50% owned affiliates 45 32 29 70 56 Fixed charges 1,731 1,643 1,945 1,348 1,363 Interest capitalized, net of amortization 10 10 10 7 (2 )

Earnings available for fixed charges $ 16,341 $ 19,548 $ 16,040 $ 15,284 $ 14,041

Fixed charges: Interest incurred: Consumer products $ 1,370 $ 1,331 $ 1,665 $ 1,087 $ 1,118 Financial services 105 100 102 114 89

1,475 1,431 1,767 1,201 1,207

Portion of rent expense deemed to represent interest factor 256 212 178 147 156

Fixed charges $ 1,731 $ 1,643 $ 1,945 $ 1,348 $ 1,363

Ratio of earnings to fixed charges (A) 9.4 11.9 8.2 11.3 10.3

(A) Earnings before income taxes and minority interest for the year ended December 31, 2002, include a non-recurring pre-tax gain of $2,631 million related to the Miller transaction disclosed in Note 3 to Altria Group, Inc.’s consolidated financial statements. Excluding this gain, the ratio of earnings to fixed charges would have been 10.3 for the year ended December 31, 2002.

Exhibit 13

[Altria mosaic logo] Altria

Financial Review

Financial Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations page 18

Selected Financial Data — Five -Year Review page 39

Consolidated Balance Sheets page 40

Consolidated Statements of Earnings page 42

Consolidated Statements of Stockholders ’ Equity page 43

Consolidated Statements of Cash Flows page 44

Notes to Consolidated Financial Statements page 46

Report of Independent Auditors page 74

Company Report on Financial Statements page 74

Guide to Select Disclosures

For easy reference, areas that may be of interest to investors are highlighted in the index below.

Benefit Plans Note 15 includes a discussion of pension plans page 58

Contingencies Note 18 includes a discussion of litigation page 64

Finance Assets, net Note 7 includes a discussion of leasing activities page 50

Segment Reporting Note 14 page 56

Stock Plans Note 11 includes a discussion of stock compensation page 54

17 Exhibit 13

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

Description of the Company

Altria Group, Inc. ( “ALG”), through its wholly-owned subsidiaries, Philip Morris USA Inc. (“PM USA”), Philip Morris International Inc. (“PMI”) and its majority-owned (84.6%) subsidiary, Kraft Foods Inc. (“Kraft”), is engaged in the manufacture and sale of various consumer products, including cigarettes, packaged grocery products, snacks, beverages, cheese and convenient meals. Philip Morris Capital Corporation (“PMCC”), another wholly-owned subsidiary, is primarily engaged in leasing activities. ALG’s former wholly -owned subsidiary, Miller Brewing Company (“Miller”), was merged into South African Breweries plc (“SAB”) on July 9, 2002 (see Note 3 to the consolidated financial statements). Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, the term “Altria Group, Inc.” refers to the consolidated financial position, results of operations and cash flows of the Altria family of companies and the term “ALG” refers solely to the parent company. ALG’s access to the operating cash flows of its subsidiaries consists of cash received from the payment of dividends and interest, and the repayment of amounts borrowed from ALG by its subsidiaries.

Executive Summary

The following executive summary is intended to provide significant highlights of the Discussion and Analysis that follows.

• Consolidated Operating Results — The change in Altria Group, Inc.’s net earnings and diluted earnings per share (“EPS”) for the year ended December 31, 2003 from the year ended December 31, 2002 was due primarily to the following (in millions, except per share data):

Net Diluted Earnings EPS

For the year ended December 31, 2002 $ 11,102 $ 5.21 2002 Gain on Miller Brewing Company transaction (1,697 ) (0.81 ) 2002 Gains on sales of businesses (44 ) (0.02 ) 2002 Provision for airline industry exposure 187 0.09 2002 Asset impairment, exit and integration costs 189 0.10

Subtotal 2002 items (1,365 ) (0.64 ) 2003 Domestic tobacco legal settlement (132 ) (0.06 ) 2003 Domestic tobacco headquarters relocation charges (45 ) (0.02 ) 2003 Gains on sales of businesses 17 0.01 2003 Asset impairment, exit and integration costs (48 ) (0.03 )

Subtotal 2003 items (208 ) (0.10 ) Currency 363 0.17 Lower effective tax rate 90 0.04 Lower shares outstanding 0.20 Operations (778 ) (0.36 )

For the year ended December 31, 2003 $ 9,204 $ 4.52

See discussion of events affecting the comparability of statement of earnings amounts in the Consolidated Operating Results section of the following Discussion and Analysis.

The favorable currency impact on earnings is due primarily to the weakness of the U.S. dollar versus the euro.

During 2003, the effective tax rate decreased by 0.6 percentage points to 34.9% reflecting favorable state tax rulings and the mix of foreign versus domestic pre-tax earnings.

Lower shares outstanding during 2003 reflect the impact of share repurchases during 2002 and the first quarter of 2003.

The decrease in results from operations was due primarily to the following:

• Lower domestic tobacco income reflecting PM USA’s programs to narrow price gaps with competition and enhance its selling and promotional programs. The programs had their intended effect as PM USA’s retail share of the market increased sequentially during the year.

• Lower North American food income reflecting higher commodity and benefit costs, increased promotional programs and

unfavorable volume/mix.

• Lower international food income reflecting higher benefit costs and unfavorable volume/mix reflecting the impact of an

unusually hot summer in Europe on confectionery and coffee.

Partially offset by:

• Higher pricing in PMI.

For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections of the following Discussion and Analysis.

• Liquidity — Following a $10.1 billion judgment against PM USA in the Price case, the major rating agencies reduced ALG’s credit ratings in March 2003, temporarily eliminating its access to the commercial paper market. This lack of borrowing flexibility resulted in borrowings against ALG’s revolving credit agreements and the maintenance of higher cash balances. Following the actions of the credit rating agencies, ALG suspended its repurchase of common stock. Beginning in November 2003, ALG regained limited access to the commercial paper market. For further details, see the Debt and Liquidity section of the following Discussion and Analysis.

• 2004 Projected Results — In January 2004, Altria Group, Inc. announced that it expects projected 2004 full-year diluted EPS in a range of $4.57 to $4.67, including anticipated charges of $0.23 for costs related to a restructuring at Kraft and the relocation of PM USA’s headquarters from New York City to Richmond, Virginia. The factors described in the Cautionary Factors That May Affect Future Results section of the following Discussion and Analysis represent continuing risks to this projection.

18 Exhibit 13

Discussion and Analysis

Critical Accounting Policies

Note 2 to the consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of Altria Group, Inc.’s consolidated financial statements. In most instances, Altria Group, Inc. 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 financial statements includes the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of net revenues and expenses during the reporting periods. If actual amounts are ultimately different from previous estimates, the revisions are included in Altria Group, Inc.’s consolidated results of operations for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between Altria Group, Inc.’s estimates and actual amounts in any year, have not had a significant impact on its consolidated financial statements.

The selection and disclosure of Altria Group, Inc.’s critical accounting policies and estimates have been discussed with Altria Group, Inc.’s Audit Committee. 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 Altria Group, Inc.’s consolidated financial statements:

• Revenue Recognition — As required by U.S. GAAP, Altria Group, Inc.’s consumer products businesses recognize 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. ALG’s tobacco subsidiaries also include excise taxes billed to customers in revenues. Shipping and handling costs paid by ALG’s subsidiaries are classified as part of cost of sales.

• Depreciation and Amortization — Altria Group, Inc. depreciates property, plant and equipment and amortizes its definite life intangible assets using straight-line methods over the estimated useful lives of the assets. As discussed in Note 2 to the consolidated financial statements, on January 1, 2002, Altria Group, Inc. adopted the provisions of a new accounting standard and as a result, stopped recording the amortization of goodwill and indefinite life intangible assets as a charge to earnings as of January 1, 2002.

• Marketing and Advertising Costs — As required by U.S. GAAP, Altria Group, Inc. records marketing costs as an expense in the year to which such costs relate. Altria Group, Inc. does not defer amounts on its year-end consolidated balance sheets with respect to marketing costs. Altria Group, Inc. expenses advertising costs in the year incurred. Consumer incentive and trade promotion costs are recorded 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.

• Contingencies — As discussed in Note 18 to the consolidated financial statements (“Note 18”), legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against ALG, its subsidiaries and affiliates, including PM USA and PMI, as well as their respective indemnitees. In 1998, PM USA and certain other United States tobacco product manufacturers entered into the Master Settlement Agreement (the “MSA”) with 46 states and various other governments and jurisdictions to settle asserted and unasserted health care cost recovery and other claims. PM USA and certain other United States tobacco product manufacturers had previously settled similar claims brought by Mississippi, Florida, Texas and Minnesota (together with the MSA, the “State Settlement Agreements”). PM USA’s portion of ongoing adjusted payments and legal fees is based on its relative share of the settling manufacturers’ domestic cigarette shipments, including roll-your-own cigarettes, in the year preceding that in which the payment is due. PM USA records its portion of ongoing settlement payments as part of cost of sales as product is shipped. During the years ended December 31, 2003, 2002 and 2001, PM USA recorded expenses of $4.4 billion, $5.3 billion and $5.9 billion, respectively, as part of cost of sales for the payments under the State Settlement Agreements and to fund the trust for tobacco growers and quota-holders.

ALG and its subsidiaries record provisions in the consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. Except as discussed in Note 18: (i) management has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related litigation; (ii) management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of pending tobacco-related litigation; and (iii) accordingly, management has not provided any amounts in the consolidated financial statements for unfavorable outcomes, if any.

• Employee Benefit Plans — As discussed in Note 15. Benefit Plans (“Note 15”) of the notes to the consolidated financial statements, Altria Group, Inc. provides a range of benefits to its employees and retired employees, including pensions, postretirement health care and postemployment benefits (primarily severance). Altria Group, Inc. records annual 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. Altria Group, Inc. 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 amortized over future periods. Altria Group, Inc. believes that the assumptions utilized in recording its obligations under its plans, which are presented in Note 15, are reasonable based on advice from its actuaries.

19 Exhibit 13

In December 2003, the United States enacted into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act establishes a prescription drug benefit under Medicare, known as “Medicare Part D,” and a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.

In January 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-1”). Altria Group, Inc. has elected to defer accounting for the effects of the Act, as permitted by FSP 106-1. Therefore, in accordance with FSP 106 -1, Altria Group, Inc.’s accumulated postretirement benefit obligation and net postretirement health care costs included in the consolidated financial statements and accompanying notes do not reflect the effects of the Act on the plans. Specific authoritative guidance on the accounting for the federal subsidy is pending; however, the new accounting is expected to result in lower expense.

At December 31, 2003, for its U.S. pension and postretirement plans, Altria Group, Inc. reduced its discount rate assumption to 6.25% and increased its health care cost trend rate assumption. Altria Group, Inc.’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. A fifty basis point decline in Altria Group, Inc.’s discount rate would increase Altria Group, Inc.’s pension and postretirement expense by approximately $102 million, while a fifty basis point increase in the discount rate would decrease pension and postretirement expense by approximately $91 million. Similarly, a fifty basis point decrease (increase) in the expected return on plan assets would increase (decrease) Altria Group, Inc.’s pension expense by approximately $51 million. See Note 15 for a sensitivity discussion of the assumed health care cost trend rates.

• Income Taxes — Altria Group, Inc. accounts for income taxes in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. The provision for income taxes is based on domestic and international statutory income tax rates and tax planning opportunities available in the jurisdictions in which Altria Group, Inc. operates. Significant judgment is required in determining income tax provisions and in evaluating tax positions. ALG and its subsidiaries establish additional provisions for income taxes when, despite the belief that their tax positions are fully supportable, there remain certain positions that are likely to be challenged and that may not be sustained on review by tax authorities. ALG and its subsidiaries adjust these additional accruals in light of changing facts and circumstances. The consolidated tax provision includes the impact of changes to accruals that are considered appropriate, as well as the related net interest. If ALG’s and its subsidiaries’ filing positions are ultimately upheld under audits by respective taxing authorities, it is possible that the provision for income taxes in future years may reflect significant favorable adjustments.

• Hedging — As discussed below in “Market Risk,” Altria Group, Inc. uses derivative financial instruments principally to reduce exposures to fluctuations in foreign exchange rates and commodity prices. Altria Group, Inc. conforms with the requirements of U.S. GAAP in order to account for a substantial portion of its derivative financial instruments as hedges. As a result, gains and losses on these derivatives are deferred in accumulated other comprehensive earnings (losses) and recognized in the consolidated statement of earnings in the periods when the related hedged transaction is also recognized in operating results. If Altria Group, Inc. had elected not to use and comply with the hedge accounting provisions permitted under U.S. GAAP, gains (losses) deferred as of December 31, 2003, 2002 and 2001, would have been recorded in net earnings.

• Leasing — More than 75% of PMCC’s net revenues in 2003 related to leveraged leases. Income relating to leveraged leases is recorded initially as unearned income, which is included in finance assets, net, on Altria Group, Inc.’s consolidated balance sheets, and is subsequently recorded as net revenues over the life of the related leases at a constant after-tax rate of return. The remainder of PMCC’s net revenues consist primarily of amounts related to direct finance leases, with income initially recorded as unearned and subsequently recognized in net revenues over the life of the leases at a constant pre-tax rate of return. As discussed further in Note 7. Finance Assets, net , PMCC leases a number of aircraft which were affected by developments in the airline industry during 2003 and 2002.

PMCC’s investment in leases is included in finance assets, net, on the consolidated balance sheets as of December 31, 2003 and 2002. At December 31, 2003, PMCC’s net finance receivable of $7.8 billion in leveraged leases, which is included in Altria Group, Inc.’s consolidated balance sheet as finance assets, net, consists of lease receivables ($28.6 billion) and the residual value of assets under lease ($2.2 billion), reduced by third-party nonrecourse debt ($19.4 billion) and unearned income ($3.6 billion). The payment of the nonrecourse debt is collateralized only by lease payments receivable and the leased property, and is nonrecourse to all other assets of PMCC. As required by U.S. GAAP, the third-party nonrecourse debt has been offset against the related rentals receivable and has been presented on a net basis, within finance assets, net, in Altria Group, Inc.’s consolidated balance sheets. Finance assets, net, at December 31, 2003 also includes net finance receivables for direct finance leases of $0.9 billion and an allowance for losses ($0.4 billion).

Estimated residual values represent PMCC’s estimate at lease inception as to the fair value of assets under lease at the end of the lease term. The estimated residual values are reviewed annually by PMCC’s management based on a number of factors, including appraisals on certain assets, and activity in the relevant industry. If necessary, revisions to reduce the residual values are recorded. Such reviews have not resulted in adjustments to Altria Group, Inc.’s consolidated net revenues or operating results for any of the periods presented. To the extent that lease receivables due PMCC may be uncollectible, PMCC records an allowance for losses against its finance assets. During 2002, PMCC increased this allowance by $290 million for leases with the airline industry. PMCC’s investment in finance leases includes an aggregate of approximately $2.3 billion relating to the airline industry as of December 31, 2003. It is possible that further adverse developments in the airline industry may occur, which might require PMCC to record an additional allowance for losses in future periods.

20 Exhibit 13

Consolidated Operating Results

See pages 37–38 for a discussion of Cautionary Factors That May Affect Future Results.

(in millions) 2003 2002 2001

Net Revenues Domestic tobacco $ 17,001 $ 18,877 $ 19,902 International tobacco 33,389 28,672 26,517 North American food 21,907 21,485 20,970 International food 9,103 8,238 8,264 Beer 2,641 4,791 Financial services 432 495 435

Net revenues $ 81,832 $ 80,408 $ 80,879

(in millions) 2003 2002 2001

Operating Income Operating companies income: Domestic tobacco $ 3,889 $ 5,011 $ 5,264 International tobacco 6,286 5,666 5,406 North American food 4,920 4,953 4,796 International food 1,282 1,330 1,239 Beer 276 481 Financial services 313 55 296 Amortization of intangibles (9 ) (7 ) (1,014 ) General corporate expenses (771 ) (683 ) (766 )

Operating income $ 15,910 $ 16,601 $ 15,702

The following events occurred during 2003, 2002 and 2001 that affected the comparability of statement of earnings amounts.

• Domestic Tobacco Legal Settlement — As discussed in Note 18. Contingencies , during 2003, PM USA and certain other defendants reached an agreement with a class of U.S. tobacco growers and quota-holders to resolve a lawsuit related to tobacco leaf purchases. During 2003, PM USA recorded pre-tax charges of $202 million for its obligations under the agreement.

• Domestic Tobacco Headquarters Relocation Charges — During the first quarter of 2003, PM USA announced that it will be moving its corporate headquarters from New York City to Richmond, Virginia, by June 2004. PM USA estimates that the total cost of the relocation will be approximately $120 million, including compensation to those employees who do not relocate. Approximately 270 or 40% of the eligible employees elected to relocate. Pre -tax charges of $69 million were recorded in 2003 for relocation charges. The relocation will require total cash payments of approximately $70 million in 2004 and $20 million in 2005 and beyond. Cash payments of approximately $30 million have been made through December 31, 2003.

• Gains on Sales of Businesses — During 2003, Kraft Foods International, Inc. (“KFI”) sold a European rice business and a branded fresh cheese business in Italy and recorded aggregate pre-tax gains of $31 million. During 2002, KFI sold a Latin American yeast and industrial bakery ingredients business resulting in a pre -tax gain of $69 million, and Kraft sold several small businesses, resulting in pre-tax gains of $11 million. During 2001, Kraft sold a few small food businesses on which pre-tax gains of $8 million were recorded.

21 Exhibit 13

• Integration Costs and a Loss on Sale of a Food Factory — Altria Group, Inc.’s consolidated statements of earnings disclose the following items as integration costs, which are costs incurred by Kraft as it integrated the operations of Nabisco Holdings Corp. (“Nabisco”), and a loss on sale of a food factory. During 2003, Kraft reversed $13 million related to the previously recorded integration charges.

(in millions) For the years ended December 31, 2003 2002 2001

Closing a facility and other consolidation programs North American food $ (13 ) $ 98 $ 53 Consolidation of production lines and distribution networks in Latin America International food 17 Loss on sale of a food factory North American food (4 ) 29

Total $ (13 ) $ 111 $ 82

• Asset Impairment and Exit Costs — For the years ended December 31, 2003, 2002 and 2001, asset impairment and exit costs were comprised of the following:

(in millions) 2003 2002 2001

Voluntary separation program Domestic tobacco $ 13 Voluntary early retirement North American food $ 135 Voluntary early retirement International food 7 Separation program International tobacco 58 Separation program Beer 8 Separation program General corporate* 26 Asset impairment International food 6 Asset impairment Beer 15 $ 19 Asset impairment General corporate* 41

Total $ 86 $ 223 $ 19

* During January 2004, Altria Group, Inc. announced plans to sell its office facility in Rye Brook, New York. Approximately 1,000 employees currently working at the facility will either be relocated to other office facilities or their positions will be eliminated. In 2003, Altria Group, Inc. recorded a pre -tax charge of $41 million to write down the facility and the related fixed assets to fair value. During 2003, Altria Group, Inc. also recorded a pre-tax charge of $26 million, primarily for severance benefits related to the streamlining of various corporate functions.

• Provision for Airline Industry Exposure — As discussed in Note 7. Finance Assets, net , during 2002, in recognition of the economic downturn in the airline industry, PMCC increased its allowance for losses by $290 million.

• Litigation Related Expense — As discussed in Note 18. Contingencies , in connection with obtaining a stay of execution in May 2001 in the Engle class action, PM USA placed $500 million into a separate interest-bearing escrow account that, pursuant to the terms of a court approved stipulation and agreed order, will be paid to the court regardless of the outcome of the appeal, and the court will determine how to allocate or distribute it consistent with the Florida Rules of Civil Procedure. As a result, PM USA recorded a $500 million pre-tax charge in its operating results for the year ended December 31, 2001.

• Miller Transaction — As more fully discussed in Note 3. Miller Brewing Company Transaction , on July 9, 2002, Miller was merged into SAB to form SABMiller plc (“SABMiller”). The transaction resulted in a pre-tax gain of $2.6 billion, or $1.7 billion after- tax.

• Amortization of Intangibles — As previously discussed, Altria Group, Inc. stopped recording the amortization of goodwill and indefinite life intangible assets as a charge to earnings as of January 1, 2002.

• Businesses Previously Held for Sale — During 2001, certain small Nabisco businesses were reclassified to businesses held for sale, including their estimated results of operations through anticipated dates of sales. 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 the 2003 and 2002 consolidated operating results of Kraft Foods North America, Inc. (“KFNA”).

• Kraft IPO — On June 13, 2001, Kraft 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. As of December 31, 2003, 2002 and 2001, Altria Group, Inc. held approximately 98% of the combined voting power of Kraft’s outstanding capital stock. At December 31, 2003, Altria Group, Inc. owned approximately 84.6% of the outstanding shares of Kraft’s capital stock.

As discussed in Note 14. Segment Reporting , management reviews operating companies income, which is defined as operating income before general corporate expenses and amortization of intangibles, to evaluate segment performance and allocate resources. Management believes it is appropriate to disclose this measure to help investors analyze the business performance and trends of the various business segments.

22 Exhibit 13

2003 compared with 2002

Net revenues for 2003 increased $1.4 billion (1.8%) over 2002, due primarily to favorable currency and higher net revenues from the food and international tobacco businesses, partially offset by the impact of the Miller transaction and a decrease in net revenues from the domestic tobacco business.

Operating income for 2003 decreased $691 million (4.2%) from 2002, due primarily to lower operating results from the domestic tobacco and food businesses, the impact of the Miller transaction, and the 2003 pre-tax charges for the domestic tobacco legal settlement and headquarters relocation, partially offset by higher operating results from the international tobacco business, the favorable impact of currency, a 2002 provision for airline industry exposure and the impact of the 2002 pre-tax charges for asset impairment and exit costs, and integration costs.

Currency movements increased net revenues by $3.4 billion ($1.8 billion, after excluding the impact of currency movements on excise taxes) and operating income by $563 million over 2002. Increases in net revenues and operating income are due primarily to the weakness versus prior year of the U.S. dollar against the euro and other currencies, partially offset by the impact of certain Latin American currencies.

Interest and other debt expense, net, of $1.2 billion for 2003 increased $16 million over 2002. This increase was due primarily to higher average debt outstanding during 2003, partially offset by lower average interest rates during 2003 and higher interest income.

During 2003, Altria Group, Inc.’s effective tax rate decreased by 0.6 percentage points to 34.9%, due primarily to favorable state tax rulings, as well as the mix of foreign versus domestic pre-tax earnings.

Net earnings of $9.2 billion for 2003 decreased $1.9 billion (17.1%) from 2002, due primarily to the $1.7 billion after-tax gain from the Miller transaction in 2002 and lower operating income in 2003. Diluted and basic EPS of $4.52 and $4.54, respectively, for 2003, decreased by 13.2% and 13.7%, respectively, from 2002, as the adverse impact of lower operating income and the impact of the gain from the Miller transaction in 2002 were partially offset by the favorable impact of share repurchases and a lower effective tax rate.

2002 compared with 2001

Net revenues for 2002 decreased $471 million (0.6%) from 2001, due primarily to the impact of the Miller transaction and a decrease in net revenues from the domestic tobacco business, partially offset by higher net revenues from the North American food and international tobacco businesses.

Operating income for 2002 increased $899 million (5.7%) over 2001, due primarily to the cessation of intangible asset amortization in 2002, the 2001 pre-tax Engle litigation related expense, higher operating results from the food and international tobacco businesses, lower corporate expenses and gains on sales of businesses, partially offset by lower operating results from the domestic tobacco business, the 2002 provision for airline industry exposure, the impact of the pre-tax charges for integration costs, and asset impairment and exit costs, and the exclusion of Miller’s operating results during the second half of 2002.

Currency movements decreased net revenues by $850 million ($530 million, after excluding the impact of currency movements on excise taxes) and operating income by $235 million from 2001. Declines in net revenues and operating income were due primarily to the strength of the U.S. dollar against the Japanese yen, the Russian ruble and certain Latin American currencies, partially offset by the weakness of the U.S. dollar against the euro.

Interest and other debt expense, net, of $1.1 billion for 2002 decreased $284 million from 2001. This decrease was due primarily to higher average debt outstanding in 2001, as a result of the Nabisco acquisition, and lower average interest rates in 2002. The net proceeds of the Kraft IPO of $8.4 billion were used to retire a portion of the Nabisco acquisition debt in June 2001.

During 2002, Altria Group, Inc.’s effective tax rate decreased by 2.4 percentage points to 35.5%. This change was due primarily to the adoption of SFAS No. 141 and SFAS No. 142, under which Altria Group, Inc. is no longer required to amortize goodwill and indefinite life intangible assets as a charge to earnings.

Net earnings of $11.1 billion for 2002 increased $2.5 billion (29.7%) over 2001, due primarily to the $1.7 billion after-tax gain from the Miller transaction and higher operating income. Diluted and basic EPS of $5.21 and $5.26, respectively, for 2002, increased by 34.6% and 34.2%, respectively, over 2001, due primarily to higher operating income, the after-tax gain from the Miller transaction and the favorable impact of share repurchases during 2002.

Operating Results by Business Segment

Tobacco

Business Environment

Taxes, Legislation, Regulation and Other Matters Regarding Tobacco and Smoking

The tobacco industry, both in the United States and abroad, faces a number of challenges that may continue to adversely affect the business, volume, results of operations, cash flows and financial position of PM USA, PMI and ALG. These challenges, which are discussed below, include:

• a compensatory and punitive damages judgment totaling approximately $10.1 billion against PM USA in the Price Lights/Ultra Lights class action, and punitive damages verdicts against PM USA in other smoking and health cases

discussed in Note 18. Contingencies (“Note 18 ”);

• the civil lawsuit filed by the United States federal government seeking disgorgement of approximately $289 billion from

various cigarette manufacturers, including PM USA, and others discussed in Note 18;

• pending and threatened litigation and bonding requirements as discussed in Note 18;

• price increases in the United States related to the settlement of certain tobacco litigation, and the effect of any resulting

cost advantage of manufacturers not subject to these settlements;

• actual and proposed excise tax increases as well as changes in tax structure in foreign markets;

• the sale of counterfeit cigarettes by third parties;

• the sale of cigarettes by third parties over the Internet and by other means designed to avoid the collection of applicable

taxes;

23 Exhibit 13

• price gaps and changes in price gaps between premium and lowest price brands;

• diversion into the United States market of products intended for sale outside the United States;

• the outcome of proceedings and investigations involving contraband shipments of cigarettes;

• governmental investigations;

• actual and proposed requirements regarding the use and disclosure of cigarette ingredients and other proprietary

information;

• actual and proposed restrictions on imports in certain jurisdictions outside the United States;

• actual and proposed restrictions affecting tobacco manufacturing, marketing, advertising and sales inside and outside the

United States;

• governmental and private bans and restrictions on smoking;

• the diminishing prevalence of smoking and increased efforts by tobacco control advocates to further restrict smoking;

• governmental regulations setting fire safety standards for cigarettes; and

• other actual and proposed tobacco legislation both inside and outside the United States.

• Excise Taxes: Cigarettes are subject to substantial excise taxes in the United States and to substantial taxation abroad. Significant increases in cigarette-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted within the United States, the European Union (the “EU”) and in other foreign jurisdictions.

These tax increases are expected to continue to have an adverse impact on sales of cigarettes by PM USA and PMI, due to lower consumption levels and to a shift in sales from the premium to the non-premium or discount segments or to sales outside of legitimate channels.

• Tar and Nicotine Test Methods and Brand Descriptors: Authorities in several jurisdictions have questioned the utility of standardized test methods to measure average tar and nicotine yields of cigarettes. In 2001, the National Cancer Institute issued its Monograph 13 stating that there was no meaningful evidence of a difference in smoke exposure or risk to smokers between cigarettes with different machine-measured tar and nicotine yields. In 2002, PM USA petitioned the FTC to promulgate new rules governing the disclosure of average tar and nicotine yields of cigarette brands. In response to evolving scientific evidence about machine-measured low-yield cigarettes, which represents a fundamental departure from the scientific and public health community’s prior thinking about the health effects of low-yield cigarettes, public health officials in other countries have stated that the use of terms such as “Lights” to describe low-yield cigarettes is misleading. The EU Commission has been directed to establish a committee to address, among other things, alternative methods for measuring tar, nicotine and carbon monoxide yields. Public health officials in the EU and Brazil have prohibited the use of brand descriptors such as “Lights” and “Ultra Lights,” and public health authorities in other jurisdictions have called for such prohibitions. PMI has communicated to national governments, including the EU, as well as the World Health Organization (“WHO”), its views on the need for regulation of how tar and nicotine yields in cigarettes are measured and how this information is communicated to consumers. See Note 18, which describes pending litigation concerning the use of brand descriptors.

• Food and Drug Administration (“FDA”) Regulations: PM USA has stated that while it opposes FDA regulation over cigarettes as “drugs” or “medical devices” under the Food, Drug and Cosmetic Act (“FDCA”), it would support new legislation that would provide for meaningful and effective regulation by the FDA of tobacco products. Currently, bills are pending in Congress that, if enacted, would give the FDA authority to regulate tobacco products; PM USA has expressed support for one of the bills. The pending legislation could result in substantial federal regulation of the design, performance, manufacture and marketing of cigarettes. In addition, some of the proposed legislation would impose fees to pay for the cost of regulation and other matters. The ultimate outcome of any Congressional action regarding the pending bills cannot be predicted.

• Tobacco Quota Buy-Out: Bills are pending in Congress which, if enacted, would result in a “buy-out” of U.S. tobacco quotas. These bills would fund a quota buy-out by imposing new fees or assessments on all manufacturers of tobacco products sold in the United States. PM USA has voiced support for certain buy-out proposals if they are part of legislation granting the FDA authority to regulate tobacco products.

• Ingredient Disclosure Laws: Jurisdictions inside and outside the United States have enacted or proposed legislation or regulations that would require cigarette manufacturers to disclose the ingredients used in the manufacture of cigarettes and, in certain cases, to provide toxicological information. In some jurisdictions, proposals have also been discussed that would permit governments to prohibit the use of certain ingredients. Under an EU tobacco product directive, tobacco companies are now required to disclose ingredients and toxicological information to each Member State. In implementing the EU tobacco product directive, the Netherlands has issued a decree that would require tobacco companies to disclose the ingredients used in each brand of cigarettes, including quantities used. PMI and others have challenged this decree in the Dutch District Court of The Hague on the grounds of a lack of appropriate protection for proprietary information.

• Health Effects of Smoking and Exposure to ETS: Reports with respect to the health risks of cigarette smoking have been publicized for many years, and the sale, promotion, and use of cigarettes continue to be subject to increasing governmental regulation.

It is the policy of PM USA and PMI to support a single, consistent public health message on the health effects of cigarette smoking in the development of diseases in smokers and on smoking and addiction. It is also their policy to defer to the judgment of public health authorities as to the content of warnings in advertisements and on product packaging regarding the health effects of smoking, addiction and exposure to ETS.

In 1999, PM USA and PMI each established Web sites that include, among other things, the views of public health authorities on smoking, disease causation in smokers, addiction and ETS. In October 2000, the sites were updated to reflect PM USA’s and PMI’s agreement with the medical and scientific consensus that cigarette smoking is addictive, and causes lung cancer, heart disease, emphysema and other serious diseases in smokers. The Web sites advise smokers, and those considering smoking, to rely on the messages of public health authorities in making all smoking-related decisions.

24 Exhibit 13

The sites also state that:

• public health officials have concluded that ETS causes or increases the risk of disease — including lung cancer and heart disease — in non-smoking adults, and causes conditions in children such as asthma, respiratory infections, cough,

wheeze, otitis media (middle ear infection) and Sudden Infant Death Syndrome ( “SIDS”) and that it can exacerbate adult asthma and cause eye, throat and nasal irritation;

• the public should be guided by the conclusions of public health officials regarding the health effects of ETS in deciding

whether to be in places where ETS is present or, if they are smokers, when and where to smoke around others;

• particular care should be exercised with regard to children, and that adults should avoid smoking around children;

• the conclusions of the public health officials concerning ETS are sufficient to warrant measures that regulate smoking in public places, and that where smoking is permitted, the government should require the posting of warning notices that communicate public health officials’ conclusions that second-hand smoke causes diseases in non-smokers; and

• women who smoke have increased risks for delay in conceiving, infertility, pregnancy complications, premature birth, spontaneous abortion and stillbirth. Infants born to women who smoke during pregnancy have a lower average birth weight than infants born to women who do not smoke. The risks for SIDS are increased among the infants of women who

smoke during pregnancy. Women who quit smoking before or during pregnancy reduce the risk of such adverse reproductive outcomes. For pregnant women, smoking is also likely to put their babies at risk for poor lung development, asthma and respiratory infections.

• The World Health Organization ’s Framework Convention for Tobacco Control: In May 2003, the Framework Convention for Tobacco Control was adopted by the World Health Assembly and has been signed by more than 40 countries, and the EU. The treaty recommends (and in certain instances, requires) signatory nations to enact legislation that would, among other things, establish specific actions to prevent youth smoking; restrict and gradually eliminate tobacco product marketing; inform the public about the health consequences of smoking and the benefits of quitting; regulate the ingredients of tobacco products; impose new package warning requirements that would include the use of pictures or graphic images; adopt measures that would eliminate cigarette smuggling and counterfeit cigarettes; restrict smoking in public places; increase cigarette taxes; prohibit the use of terms that suggest one brand of cigarettes is safer than another; phase out duty-free tobacco sales; and encourage litigation against tobacco product manufacturers.

Each country that ratifies the treaty is expected to implement legislation reflecting the treaty’s provisions and principles. PM USA and PMI have stated that they hope that the adoption of the treaty will lead to the implementation of meaningful, effective regulation of tobacco products around the world.

• Cigarette Fire-Safety Requirements: In December 2003, the New York State Office of Fire Prevention and Control (the “OFPC”) published final regulations that implement fire-safety standards for cigarettes sold in New York. Beginning June 28, 2004, all cigarettes sold or offered for sale in New York (except for certain cigarettes that already are in the stream of commerce on that date) must meet standards established in the OFPC’s final regulations. PM USA will comply with these New York regulatory requirements. Similar regulation or legislation is being considered in other states and localities, at the federal level, and in jurisdictions outside the United States.

• Other Legislation and Legislative Initiatives: Legislative and regulatory initiatives affecting the tobacco industry have been adopted or are being considered in a number of countries and jurisdictions. In 2001, the EU adopted a directive on tobacco product regulation requiring EU Member States to implement regulations that reduce maximum permitted levels of tar, nicotine and carbon monoxide yields; require manufacturers to disclose ingredients and toxicological data; require cigarette packs to carry health warnings covering no less than 30% of the front panel and no less than 40% of the back panel; gives Member States the option of introducing graphic warnings as of 2005; require tar, nicotine and carbon monoxide data to cover at least 10% of the side panel; and prohibit the use of texts, names, trademarks and figurative or other signs suggesting that a particular tobacco product is less harmful than others.

Current EU Member States have implemented these regulations and prospective EU Member States are required to implement them by May 1, 2004. The European Commission has issued guidelines for optional graphic warnings on cigarette packaging that Member States may apply as of 2005. Graphic warning requirements have also been proposed or adopted in a number of other jurisdictions. In 2003, the EU adopted a new directive prohibiting radio, press and Internet tobacco marketing and advertising. EU Member States must implement this directive by July 31, 2005. Tobacco control legislation addressing the manufacture, marketing and sale of tobacco products has been proposed in numerous other jurisdictions.

In the United States in recent years, various members of Congress have introduced legislation that would: subject cigarettes to various regulations; establish educational campaigns relating to tobacco consumption or tobacco control programs, or provide additional funding for governmental tobacco control activities; further restrict the advertising of cigarettes; require additional warnings, including graphic warnings, on packages and in advertising; eliminate or reduce the tax deductibility of tobacco advertising; provide that the Federal Cigarette Labeling and Advertising Act and the Smoking Education Act not be used as a defense against liability under state statutory or common law; and allow state and local governments to restrict the sale and distribution of cigarettes.

It is not possible to predict what, if any, additional governmental legislation or regulations will be adopted relating to the manufacturing, advertising, sale or use of cigarettes, or the tobacco industry generally. If, however, any of the foregoing were to be implemented, the business, volume, results of operations, cash flows and financial position of PM USA, PMI and their parent, ALG could be materially adversely affected.

25 Exhibit 13

• Governmental Investigations: ALG and its subsidiaries are subject to governmental investigations on a range of matters, including those discussed below.

• Australia: In 2001, authorities in Australia initiated an investigation into the use of descriptors, in order to determine whether their use is false and misleading. The investigation is directed at one of PMI ’s Australian affiliates and other cigarette manufacturers. • Canada: ALG believes that Canadian authorities are contemplating a legal proceeding based on an investigation of ALG entities relating to allegations of contraband shipments of cigarettes into Canada in the early to mid - 1990s. • Greece: In 2003, the competition authorities in Greece initiated an investigation into recent cigarette price increases in that market. PMI ’s Greek affiliates have responded to the authorities ’ request for information. • Italy: Review of Proposed Retail Sales Data Agreement: In February 2003, in accordance with Italian legal procedures, PMI’s Italian affiliate, Philip Morris Italia S.p.A., requested that Italy’s competition authority review its proposed agreement with retailers to purchase retail sales data. In July 2003, the Italian competition authority announced that it would review that request. “Lights” Cases: Pursuant to two separate requests from a consumer advocacy group, the Italian competition authorities held that the use of the “lights” descriptors such as Marlboro Lights , Merit Ultra Lights , and Diana Leggere brands to be misleading advertising, but took no action because an EU directive prohibited the use of the descriptors in October 2003. PMI has appealed the decisions to the administrative court.

ALG and its subsidiaries cannot predict the outcome of these investigations or whether additional investigations may be commenced.

• State Settlement Agreements: As discussed in Note 18, during 1997 and 1998, PM USA and other major domestic tobacco product manufacturers entered into agreements with states and various United States jurisdictions settling asserted and unasserted health care cost recovery and other claims. These settlements require PM USA to make substantial annual payments. They also place numerous restrictions on PM USA’s business operations, including prohibitions and restrictions on the advertising and marketing of cigarettes. Among these are prohibitions of outdoor and transit brand advertising; payments for product placement; and free sampling. Restrictions are also placed on the use of brand name sponsorships and brand name non-tobacco products. The State Settlement Agreements also place prohibitions on targeting youth and the use of cartoon characters. In addition, the settlement agreements require companies to affirm corporate principles directed at reducing underage use of cigarettes; imposing requirements regarding lobbying activities; mandating public disclosure of certain industry documents; limiting the industry’s ability to challenge certain tobacco control and underage use laws; and providing for the dissolution of certain tobacco-related organizations and placing restrictions on the establishment of any replacement organizations.

Operating Results

Net Revenues Operating Companies Income

(in millions) 2003 2002 2001 2003 2002 2001

Domestic tobacco $ 17,001 $ 18,877 $ 19,902 $ 3,889 $ 5,011 $ 5,264 International tobacco 33,389 28,672 26,517 6,286 5,666 5,406

Total tobacco $ 50,390 $ 47,549 $ 46,419 $ 10,175 $ 10,677 $ 10,670

2003 compared with 2002

The following discussion compares tobacco operating results for 2003 with 2002.

• Domestic tobacco: PM USA’s net revenues, which include excise taxes billed to customers, decreased $1.9 billion (9.9%). Excluding excise taxes, net revenues decreased $1.8 billion (11.9%), due primarily to price promotions to narrow price gaps ($1.5 billion) and lower volume ($335 million).

Operating companies income decreased $1.1 billion (22.4%), due primarily to price promotions to narrow price gaps, net of lower costs under the State Settlement Agreements (aggregating $620 million), lower volume ($186 million), higher marketing, administration and research costs, and the 2003 pre-tax charges for a legal settlement ($202 million) and headquarters relocation ($69 million).

Marketing, administration and research costs include PM USA’s cost of administering and litigating product liability claims. Litigation defense costs are influenced by a number of factors, as more fully discussed in Note 18. Principal among these factors are the number and types of cases filed, the number of cases tried annually, the results of trials and appeals, the development of the law controlling relevant legal issues, and litigation strategy and tactics. For the years ended December 31, 2003, 2002 and 2001, product liability defense costs were $307 million, $358 million and $387 million, respectively, reflecting an overall improvement in the above factors since January 1, 2001. The factors that have influenced past product liability defense costs are expected to continue to influence future costs. While PM USA does not expect that product liability defense costs will increase significantly in the future, it is possible that adverse developments among the factors discussed above could have a material adverse effect on PM USA’s operating companies income.

PM USA’s shipment volume was 187.2 billion units, a decrease of 2.3%. In the premium segment, PM USA’s shipment volume decreased 1.1%, while Marlboro shipment volume decreased 636 million units (0.4%) to 147.9 billion units. In the discount segment, PM USA’s shipment volume decreased 12.9%, while Basic shipment volume was down 11.6% to 15.8 billion units. While PM USA’s shipment volume comparisons to 2002 continued to be affected by factors such as a weak economic environment and sharp increases in state excise taxes, PM USA’s sequential retail share has improved.

26 Exhibit 13

For the Three Months Ended For the Year Ended December 31, December 31, March 31, June 30, September 30, December 31, 2002 2003 2003 2003 2003 2003

Marlboro 37.4 % 37.5 % 37.8 % 38.1 % 38.5 % 38.0 % Parliament 1.3 1.5 1.7 1.8 1.7 1.7 Virginia Slims 2.5 2.5 2.4 2.4 2.4 2.4 Basic 4.3 4.3 4.2 4.2 4.2 4.2

Focus Brands 45.5 45.8 46.1 46.5 46.8 46.3 Other 2.6 2.5 2.4 2.3 2.3 2.4

Total PM USA 48.1 % 48.3 % 48.5 % 48.8 % 49.1 % 48.7 %

PM USA cannot predict future changes or rates of change in domestic tobacco industry volume, the relative sizes of the premium and discount segments or in PM USA’s shipments or retail share; however, it believes that PM USA’s results may be materially adversely affected by price increases related to increased excise taxes and tobacco litigation settlements, as well as by the other items discussed under the caption “Tobacco — Business Environment.”

• International tobacco: International tobacco net revenues, which include excise taxes billed to customers, increased $4.7 billion (16.5%). Excluding excise taxes, net revenues increased $1.3 billion (8.7%), due primarily to favorable currency ($1.1 billion), price increases ($212 million), the impact of acquisitions in Serbia and Greece, and higher volume.

Operating companies income increased $620 million (10.9%), due primarily to favorable currency ($469 million), price increases ($212 million) and the pre-tax charges for asset impairment and exit costs in 2002 ($58 million), partially offset by higher marketing, administration and research costs, and unfavorable volume/mix, reflecting lower volume in the higher margin markets of France, Germany and Italy.

PMI’s volume of 735.8 billion units increased 12.7 billion units (1.8%). In Western Europe, volume declined, due primarily to decreases in France, Germany and Italy, partially offset by increases in Spain and Austria. Shipment volume decreased in France, although market share was higher, reflecting contraction of the entire market following tax-driven price increases in January 2002, January 2003 and October 2003. In Germany, volume declined, reflecting a lower total market and consumer down-trading to low- priced tobacco portions following tax-driven price increases. In Italy, volume decreased 14.3% and market share fell 7.1 share points to 54.1%, as PMI’s brands remain under pressure from low-priced competitive brands. In Central and Eastern Europe, Middle East and Africa, volume increased, due to gains in Russia, the Ukraine, Romania and Turkey, and acquisitions in Greece and Serbia, partially offset by declines in Hungary and Poland, due to intense price competition, and declines in Lithuania and the Slovak Republic, due to lower markets as a result of tax-driven price increases. In Asia, volume declined slightly as decreases in the Philippines and Indonesia were partially offset by increases in Japan, Korea, Taiwan and Thailand. In Latin America, volume increased, driven by gains in Argentina and Mexico.

PMI achieved market share gains in a number of important markets including Argentina, Austria, France, Germany, Greece, Japan, Poland, Russia, Singapore, the Slovak Republic, Spain, Turkey, the Ukraine and the United Kingdom.

Volume for Marlboro declined 1.9%, due primarily to tax-driven price increases in France and Germany, intense price competition in Italy, consumer down-trading in Turkey and difficult economic conditions and price competition in Egypt and Indonesia, partially offset by higher volume in Argentina, Austria, Brazil, the Czech Republic, Japan, Romania, Russia, Serbia, the Slovak Republic, Spain and the Ukraine.

During 2003, PMI purchased approximately 74.2% of a tobacco business in Serbia for a cost of approximately $486 million and purchased 99% of a tobacco business in Greece for approximately $387 million. PMI also increased its ownership interest in its affiliate in Ecuador from less than 50% to approximately 98% for a cost of $70 million. In addition, during the third quarter of 2003, PMI announced that its license agreement with Japan Tobacco Inc. for the manufacture and sale of Marlboro cigarettes in Japan will not be renewed when the current term of the agreement expires in April 2005.

2002 compared with 2001

The following discussion compares tobacco operating results for 2002 with 2001.

• Domestic tobacco: PM USA’s net revenues, which include excise taxes billed to customers, decreased $1.0 billion (5.2%). Excluding excise taxes, net revenues decreased $1.2 billion (7.6%), due primarily to lower volume ($1.6 billion), partially offset by higher pricing, net of higher promotional spending ($288 million).

Operating companies income decreased $253 million (4.8%), due primarily to lower volume ($998 million), partially offset by price increases and lower costs under the State Settlement Agreements, net of higher promotional spending (aggregating $283 million) and the 2001 Engle litigation related expense ($500 million).

27 Exhibit 13

PM USA’s shipment volume was 191.6 billion units, a decrease of 7.5%. In the premium segment, PM USA’s shipment volume decreased 6.5%, while Marlboro shipment volume decreased 9.2 billion units (5.8%) to 148.6 billion units. In the discount segment, PM USA’s shipment volume decreased 15.6% to 18.8 billion units, while Basic shipment volume decreased 12.8% to 17.8 billion units. PM USA’s volume comparisons for 2002 versus 2001 were affected by factors such as a weak economic environment, increases in state excise taxes, the growth of deep-discount cigarettes, increased competitive promotional activity, the increased incidence of counterfeit product and increased sales of some manufacturers, both domestic and foreign, that are not complying with either the MSA or related state legislation.

• International tobacco: International tobacco net revenues, which include excise taxes billed to customers, increased $2.2 billion (8.1%). Excluding excise taxes, net revenues increased $949 million (6.9%), due primarily to higher volume/mix ($543 million) and price increases ($420 million), partially offset by unfavorable currency movements.

Operating companies income increased $260 million (4.8%), due primarily to price increases ($420 million) and higher volume/mix ($156 million), partially offset by unfavorable currency ($231 million) and the 2002 pre-tax charges for asset impairment and exit costs ($58 million).

PMI’s volume of 723.1 billion units increased 24.2 billion units (3.5%), due primarily to volume increases in most markets of Western, Central and Eastern Europe, as well as Asia and Latin America, partially offset by lower volume resulting from a decline in the total industry in France; increased competition in Italy, Hong Kong, Korea and Singapore; and economic weakness in Egypt, Lebanon and Venezuela. In addition, volume declined in Poland, due primarily to intense price competition. Volume advanced in a number of important markets, including Argentina, Austria, Brazil, Germany, Indonesia, Japan, Malaysia, Mexico, the Philippines, Romania, Russia, Spain, Taiwan, Thailand, Turkey and the Ukraine.

PMI recorded market share gains in most of its major markets.

Volume for Marlboro declined 0.6%, due primarily to consumer down-trading in Argentina, the Czech Republic, Egypt, Hungary, Lebanon, Poland, Russia, Saudi Arabia and Turkey, partially offset by higher volumes in Western Europe and Asia.

Food

Business Environment

Kraft is the largest branded food and beverage company headquartered in the United States and conducts its global business through two subsidiaries. KFNA, which represents the North American food segment, manufactures and markets a wide variety of snacks, beverages, cheese, grocery products and convenient meals in the United States, Canada, Mexico and Puerto Rico. KFI, which represents the international food segment, manufactures and markets a wide variety of snacks, beverages, cheese, grocery products and convenient meals in Europe, the Middle East and Africa, as well as the Latin America and Asia Pacific regions. During January 2004, Kraft announced a new global organization structure. Beginning in 2004, results for the Mexico and Puerto Rico businesses, which were previously included in the North American food segment, will be included in the international food segment and historical amounts will be restated.

KFNA and KFI are subject to a number of challenges that may adversely affect their businesses. These challenges, which are discussed below and under the “Forward-Looking and Cautionary Statements” section include:

• fluctuations in commodity prices;

• movements of foreign currencies against the U.S. dollar;

• competitive challenges in various products and markets, including price gaps with competitor products and the increasing

price-consciousness of consumers;

• a rising cost environment;

• a trend toward increasing consolidation in the retail trade and consequent inventory reductions;

• changing consumer preferences;

• competitors with different profit objectives and less susceptibility to currency exchange rates; and

• consumer concerns about food safety, quality and health, including concerns about genetically modified organisms, trans-

fatty acids and obesity.

To confront these challenges, Kraft continues to take steps to build the value of its brands, to improve its food business portfolio with new product and marketing initiatives, to reduce costs through productivity, and to address consumer concerns about food safety, quality and health. In July 2003, Kraft announced a range of initiatives addressing product nutrition, marketing practices, consumer information, and public advocacy and dialogue.

During 2003, several factors contributed to lower than anticipated volume growth. These factors included higher price gaps in some key categories and countries, trade inventory reductions resulting from several customers experiencing financial difficulty, warehouse consolidations, store closings and retailers ’ stated initiatives to reduce working capital, as well as the combined adverse affect of global economic weakness. To improve volume and share trends, Kraft increased spending behind certain businesses during the second half of 2003 by approximately $200 million more than had previously been planned. Kraft also anticipates $500 million to $600 million of increased spending in 2004 over 2003 across all its businesses.

In January 2004, Kraft announced a three-year restructuring program with the objectives of leveraging Kraft’s global scale, realigning and lowering the cost structure, and optimizing capacity utilization. As part of this program, Kraft anticipates the closing or sale of up to twenty plants and the elimination of approximately six thousand positions. Over the next three years, Kraft expects to incur up to $1.2 billion in pre-tax charges, reflecting asset disposals, severance and other implementation costs, including an estimated range of $750 million to $800 million in 2004. Approximately one-half of the pre-tax charges are expected to require cash payments. In addition, Kraft expects to spend approximately $140 million in capital over the next three years to implement the program, including approximately $50 million in 2004. Cost savings as a result of this program in 2004 are expected to be approximately $120 million to $140 million and are anticipated to reach annual cost savings of approximately $400 million by 2006, all of which are expected to be used in supporting brand-building initiatives.

28 Exhibit 13

Fluctuations in commodity costs can cause retail price volatility and intensive price competition, and can influence consumer and trade buying patterns. The North American and international food businesses are subject to fluctuating commodity costs, including dairy, coffee and cocoa costs. In 2003, Kraft’s commodity costs on average were higher than those incurred in 2002 and adversely affected earnings.

During 2003, KFI sold a European rice business and a branded fresh cheese business in Italy. The aggregate proceeds received from sales of businesses were $96 million, on which pre-tax gains of $31 million were recorded.

During 2002, Kraft sold several small North American food businesses, most 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 Altria Group, Inc.’s consolidated statements of earnings, and no gain or loss was recognized on these sales. In addition, KFI sold a 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 the sales of these businesses during 2002 were $219 million, on which pre -tax gains of $80 million were recorded.

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

The operating results of businesses acquired and divested were not material to Altria Group, Inc.’s consolidated financial position, results of operations or cash flows in any of the years presented.

In November 2003, Kraft received a “Wells” notice from the staff of the Fort Worth District Office of the Securities and Exchange Commission (“SEC”) advising Kraft that the staff is considering recommending that the SEC bring a civil injunctive action against Kraft charging it with aiding and abetting Fleming Companies (“Fleming”) in violations of the securities laws. District staff alleges that a Kraft employee, who received a similar “Wells” notice, signed documents requested by Fleming, which Fleming used in order to accelerate its revenue recognition. The notice does not contain any allegations or statements regarding Kraft’s accounting for transactions with Fleming. Kraft believes that it has properly recorded the transactions in accordance with U.S. GAAP. Kraft is cooperating fully with the SEC with respect to this matter.

Operating Results

Net Revenues Operating Companies Income

(in millions) 2003 2002 2001 2003 2002 2001

North American food $ 21,907 $ 21,485 $ 20,970 $ 4,920 $ 4,953 $ 4,796 International food 9,103 8,238 8,264 1,282 1,330 1,239

Total food $ 31,010 $ 29,723 $ 29,234 $ 6,202 $ 6,283 $ 6,035

2003 compared with 2002

The following discussion compares food operating results for 2003 with 2002.

• North American food: Net revenues increased $422 million (2.0%), due primarily to higher volume/mix ($170 million), higher pricing, net of increased promotional spending ($151 million), and favorable currency ($120 million), partially offset by the divestiture of a small confectionery business in the fourth quarter of 2002.

Operating companies income decreased $33 million (0.7%), due primarily to cost increases, net of higher pricing ($161 million, including higher commodity costs and increased promotional spending), higher fixed manufacturing costs ($79 million, including higher benefit costs) and unfavorable volume/mix, partially offset by the 2002 pre-tax charges for asset impairment and exit costs, and integration charges (aggregating $242 million).

Volume increased 1.6%. Volume gains were achieved in Beverages, Desserts and Cereals, driven primarily by new product momentum in ready-to-drink beverages and higher desserts volume, partially offset by lower shipments of coffee. In Cheese, Meals and Enhancers, volume increased, due primarily to improved consumption and share trends in cheese from increased marketing spending, and higher shipments in Canada and Mexico. Volume in KFNA’s food service business in the United States increased, due to higher shipments to national accounts. In Oscar Mayer and Pizza, volume increased, due primarily to higher shipments of cold cuts, hot dogs, bacon, soy-based meat alternatives and frozen pizza. Volume decreased in Biscuits, Snacks and Confectionery, due primarily to weakness in cookies resulting from the impact of consumers’ health and wellness focus, lower contributions from new products and higher pricing.

• International food: Net revenues increased $865 million (10.5%), due to favorable currency ($610 million), higher pricing ($320 million, reflecting higher commodity and currency devaluation-driven cost increases in Latin America) and the impact of acquisitions ($57 million), partially offset by the impact of divestitures ($66 million) and lower volume/mix ($56 million).

Operating companies income decreased $48 million (3.6%), due primarily to higher marketing, administration and research costs ($98 million, including higher benefit costs and infrastructure investment in developing markets), the net impact of gains on sales of businesses ($41 million), lower volume/mix ($29 million) and the impact of divestitures, partially offset by favorable currency ($72 million), higher pricing, net of cost increases ($36 million, including fixed manufacturing costs), the 2002 pre-tax charges for integration costs ($17 million) and the impact of acquisitions ($7 million).

29 Exhibit 13

Volume decreased 1.6%, due primarily to the impact of divestitures, the adverse impact of the summer heat wave in Europe on the coffee and confectionery businesses, and price competition, partially offset by growth in developing markets and the impact of acquisitions.

In Europe, Middle East and Africa, volume increased, driven by growth in the Central and Eastern Europe, Middle East and Africa region, benefiting from the impact of acquisitions and new product introductions, partially offset by the adverse impact of the summer heat wave across Europe, price competition and the impact of divestitures. Snacks volume increased, benefiting from acquisitions, partially offset by the adverse impact of the summer heat wave on confectionery shipments and price competition. Beverages volume declined, due primarily to the summer heat wave across Europe (which had an adverse impact on coffee shipments) and price competition. These declines were partially offset by increased coffee shipments in Russia, benefiting from expanded distribution, and Poland, aided by new product introductions. In convenient meals, volume declined, due primarily to the divestiture of a European rice business, partially offset by higher shipments of canned meats in Italy. In cheese, volume decreased, due primarily to the impact of price competition in Germany and Spain, partially offset by higher shipments of cream cheese in Italy.

Volume decreased in the Latin America and Asia Pacific region, due primarily to the divestiture of a Latin American bakery ingredients business in 2002, partially offset by growth in Argentina, Brazil, China and Australia. In grocery, volume declined in Latin America, due primarily to the divestiture of a bakery ingredients business in the fourth quarter of 2002. Snacks volume increased, due primarily to new product introductions in Brazil, Argentina, China and Australia, partially offset by lower confectionery volume due to trade inventory reductions, price competition and economic weakness in Brazil. In beverages, volume increased, driven by growth in Brazil, Venezuela and China, aided by new product introductions. In cheese, volume increased due to higher shipments to the Philippines and Australia, partially offset by declines in the Latin American region. Convenient meals volume also grew, benefiting from gains in Argentina.

2002 compared with 2001

The following discussion compares food operating results for 2002 with 2001.

• North American food: Net revenues increased $515 million (2.5%), 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 net pricing ($154 million).

Operating companies income increased $157 million (3.3%), due primarily to favorable margins ($176 million, driven by lower commodity-related costs and productivity savings) and higher volume/mix ($174 million), partially offset by higher benefit expenses, including the 2002 pre-tax charges for asset impairment and exit costs ($135 million).

Volume increased 8.2%. In Cheese, Meals and Enhancers, volume increased, due primarily to the inclusion in 2002 of a business that was previously held for sale, increases in Kraft pourable dressings, barbecue sauce, higher shipments of macaroni & cheese dinners and the 2001 acquisition of It’s Pasta Anytime , partially offset by lower shipments of cheese. Cheese volume declined, as lower dairy costs in 2002 resulted in aggressive competitive activity by private label manufacturers in the form of reduced prices and increased merchandising levels. Volume increased slightly in Biscuits, Snacks and Confectionery, driven primarily by higher shipments of biscuits, which benefited from new product introductions, and higher shipments of snacks, due primarily to promotional initiatives, partially offset by lower confectionery shipments due to competitive activity in the breath- freshening category. Volume gains were achieved in Beverages, Desserts and Cereals, driven primarily by the strength of ready-to- drink beverages, coffee and desserts . In Oscar Mayer and Pizza, volume increased due primarily to hot dogs, bacon, soy-based meat alternatives and frozen pizza.

• International food: Net revenues decreased $26 million (0.3%), due primarily to unfavorable currency ($271 million), lower volume/mix ($36 million) and the impact of divested businesses, partially offset by the impact of acquisitions ($181 million) and higher net pricing ($122 million).

Operating companies income increased $91 million (7.3%), due primarily to pre-tax 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), the 2002 pre-tax charge for integration costs ($17 million) and the impact of businesses divested since the beginning of 2001.

Volume increased 2.8%, benefiting from acquisitions, new product introductions, geographic expansion and marketing programs, partially offset by the impact of economic weakness in several Latin American countries and the impact of divested businesses since the beginning of 2001.

In Europe, Middle East and Africa, volume increased, benefiting from acquisitions and from growth in most markets across the region, including Italy, the United Kingdom, Sweden, the Ukraine, the Middle East and Poland, partially offset by declines in Germany and Romania. 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 geographic expansion and new product introductions. Snacks volume increased, benefiting from confectionery acquisitions in Russia and Poland, a snacks acquisition in Turkey and new product introductions. Snacks volume growth was moderated by lower volume in Germany, due to increased price competition, and in Romania, due to lower consumer purchasing power. Cheese volume increased, due primarily to cream cheese growth across the region. In convenient meals, volume increased, due primarily to introductions of new lunch combinations in the United Kingdom and higher shipments of canned meats in Italy against a weak comparison in 2001.

Volume increased in the Latin America and Asia Pacific region driven by the acquisition of a biscuits business in Australia and gains across a number of markets, partially offset by a volume decline in Argentina due to economic weakness, lower results in China and the impact of businesses sold. Beverages volume increased, due primarily to growth in powdered beverages in Latin America and Asia Pacific, benefiting from new product introductions. Snacks volume increased, driven primarily by new biscuit product introductions, geographic expansion, and by the 2002 acquisition of a biscuits business in Australia, partially offset by the negative impact of continued economic weakness in Argentina and distributor inventory reductions in China. In grocery, volume declined in both Latin America and Asia Pacific.

30 Exhibit 13

Beer

Operating Results

Operating Net Revenues Companies Income

(in millions) 2002 2001 2002 2001

Beer $ 2,641 $ 4,791 $ 276 $ 481

On July 9, 2002, Miller merged into SAB to form SABMiller. The transaction, which is discussed more fully in Note 3 to the consolidated financial statements, resulted in a pre-tax gain of $2.6 billion, or $1.7 billion after-tax. Beginning with the third quarter of 2002, ALG ceased consolidating the operating results and balance sheet of Miller and began to account for its ownership interest in SABMiller under the equity method. The decline in 2002 net revenues and operating companies income from the 2001 levels reflects the exclusion of Miller’s operating results during the second half of 2002.

Financial Services

Business Environment

During 2003, PMCC shifted its strategic focus from an emphasis on the growth of its portfolio of finance leases through new investments to one of maximizing investment gains and generating cash flows from its existing portfolio of leased assets. Accordingly, PMCC ’s operating companies income will continue to decrease as lease investments mature or are sold. During 2003, PMCC received proceeds from asset sales and maturities of $507 million and recorded gains of $45 million in operating companies income.

Among its leasing activities, PMCC leases a number of aircraft, predominantly to major U.S. carriers. At December 31, 2003, approximately 26%, or $2.3 billion of PMCC’s investment in finance lease assets related to aircraft. In recognition of the economic downturn in the airline industry, PMCC increased its allowance for losses by $290 million in the fourth quarter of 2002. Developments in the airline industry during 2003 and 2002 that affected aircraft leases held by PMCC included the following:

allowance for losses during the first quarter of 2003 and a reduction of $7 million of lease income over the remaining terms of the leases. During January 2004, US Airways’ corporate credit rating was reduced to B- (Credit Watch negative) by Standard & Poor’s. A further downgrade would result in a covenant breach under its regional jet financing commitments from third parties other than PMCC. Successful implementation of US Airways’ turnaround plan is dependent upon this financing.

It is possible that further adverse developments in the airline industry may require PMCC to increase its allowance for losses in future periods.

31 Exhibit 13

Operating Results

Operating Companies Net Revenues Income

(in millions) 2003 2002 2001 2003 2002 2001

Financial Services $ 432 $ 495 $ 435 $ 313 $ 55 $ 296

PMCC’s net revenues for 2003 decreased $63 million (12.7%) from 2002, due primarily to the previously discussed change in strategy which resulted in lower income from leasing activities. PMCC’s operating companies income for 2003 increased $258 million over 2002, due primarily to the previously discussed 2002 provision for airline industry exposure, partially offset by the impact of lower investment balances as a result of PMCC’s change in strategic direction.

PMCC’s net revenues for 2002 increased $60 million (13.8%) over 2001, due primarily to growth in leasing activities and gains derived from PMCC’s finance asset portfolio, including a significant gain during the second quarter of 2002 from the early termination of a lease. Operating companies income for 2002 decreased $241 million (81.4%) from 2001, due primarily to the previously discussed provision for exposure related to the airline industry.

Financial Review

• Net Cash Provided by Operating Activities: During 2003, net cash provided by operating activities was $10.8 billion compared with $10.6 billion during 2002. The increase of $204 million was due primarily to a lower use of cash to fund working capital, partially offset by a use of cash to fund the Price escrow.

During 2002, net cash provided by operating activities was higher than 2001, due primarily to PM USA’s 2001 establishment of an escrow account related to the Engle case (see Note 18) and an increase in deferred taxes in 2002 (due primarily to the Miller transaction), partially offset by 2002 contributions to U.S. and non-U.S. pension funds.

• Net Cash Used in Investing Activities: One element of the growth strategy of ALG’s subsidiaries is to strengthen their brand portfolios through active programs of selective acquisitions and divestitures. ALG’s subsidiaries are constantly investigating potential acquisition candidates and from time to time sell businesses that are outside their core categories or that do not meet their growth or profitability targets.

During 2003, 2002 and 2001, net cash used in investing activities was $2.4 billion, $2.5 billion and $2.9 billion, respectively. The decrease in 2003 reflects fewer investments in finance assets during 2003, partially offset by a higher level of acquisitions made in 2003. The decrease in 2002 primarily reflects lower levels of cash used for acquisitions and an increase in cash provided by the sales of businesses.

Capital expenditures for 2003 decreased 1.7% to $2.0 billion. Approximately 40% related to tobacco operations and approximately 50% related to food operations; the expenses were primarily for modernization and consolidation of manufacturing facilities, and expansion of certain production capacity. In 2004, capital expenditures are expected to be at or slightly above 2003 expenditures and are expected to be funded by operating cash flows.

• Net Cash Used in Financing Activities: During 2003, net cash used in financing activities was $5.5 billion, compared with $8.2 billion in 2002 and $6.4 billion in 2001. The decrease of $2.7 billion from 2002 was due primarily to a lower level of ALG payments for common stock repurchases in 2003 ($5.4 billion), partially offset by a lower net issuance of consumer products debt in 2003. The increase in net cash used in financing activities in 2002 over 2001 was due primarily to the use of approximately $1.7 billion of cash flow from the Miller transaction to repurchase shares of ALG common stock.

• Debt and Liquidity:

Credit Ratings: Following a $10.1 billion judgment on March 21, 2003 against PM USA in the Price litigation, which is discussed in Note 18, the three major credit rating agencies took a series of ratings actions resulting in the lowering of ALG’s short-term and long-term debt ratings. During 2003, Moody’s lowered ALG’s short-term debt rating from “P-1” to “P-3” and its long-term debt rating from “A2” to “Baa2.” Standard & Poor’s lowered ALG’s short-term debt rating from “A-1” to “A-2” and its long-term debt rating from “A-” to “BBB.” Fitch Rating Services lowered ALG’s short-term debt rating from “F-1” to “F-2” and its long-term debt rating from “A” to “BBB.”

While Kraft is not a party to, and has no exposure to, this litigation, its credit ratings were also lowered, but to a lesser degree. As a result of the rating agencies ’ actions, borrowing costs for ALG and Kraft have increased. None of ALG’s or Kraft’s debt agreements require accelerated repayment as a result of a decrease in credit ratings.

Credit Lines: ALG and Kraft each maintain separate revolving credit facilities that they have historically used to support the issuance of commercial paper. However, as a result of the rating agencies’ actions discussed above, ALG’s and Kraft’s access to the commercial paper market was temporarily eliminated. Subsequently, in April 2003, ALG and Kraft began to borrow against existing credit facilities to repay maturing commercial paper and to fund normal working capital needs. By the end of May 2003, Kraft regained its access to the commercial paper market, and in November 2003, ALG regained limited access to the commercial paper market.

At December 31, 2003, credit lines for ALG and Kraft, and the related activity were as follows (in billions of dollars):

ALG

Commercial

Paper Lines Outstanding Available Credit Amount Type Lines Drawn

364-day $ 1.3 $ — $ — $ 1.3 Multi-year 5.0 0.5 0.5 4.0

$ 6.3 $ 0.5 $ 0.5 $ 5.3

Kraft

Commercial

Paper Lines Outstanding Available Credit Amount Type Lines Drawn

364-day $ 2.5 $ — $ 0.3 $ 2.2 Multi-year 2.0 1.9 0.1

$ 4.5 $ — $ 2.2 $ 2.3

32 Exhibit 13

The ALG multi-year revolving credit facility requires the maintenance of a fixed charges coverage ratio. The Kraft multi-year revolving credit facility, which is for the sole use of Kraft, requires the maintenance of a minimum net worth. ALG and Kraft met their respective covenants at December 31, 2003, and expect to continue to meet their respective covenants. The multi-year facilities both expire in July 2006 and enable the respective companies to reclassify short-term debt on a long-term basis. At December 31, 2003, $1.9 billion of commercial paper borrowings that Kraft intends to refinance were reclassified as long-term debt. The ALG 364- day revolving credit facility expires in July 2004. It requires the maintenance of a fixed charges coverage ratio and prohibits ALG from repurchasing its common stock while borrowings are outstanding against either ALG’s 364-day or multi-year facility. In addition, the size of the 364-day facility will be reduced by 50% of the amount of the net proceeds of any long-term capital markets transactions completed by ALG. As a result of ALG’s issuance of $1.5 billion of long-term debt in November 2003, the ALG 364-day revolving credit facility was reduced from $2.0 billion to $1.3 billion. The Kraft 364-day revolving credit facility also expires in July 2004. It requires the maintenance of a minimum net worth. These facilities do not include any additional financial tests, any credit rating triggers or any provisions that could require the posting of collateral.

In addition to the above, certain international subsidiaries of ALG and Kraft maintain uncommitted credit lines to meet their respective working capital needs. These credit lines, which amounted to approximately $1.4 billion for ALG subsidiaries (other than Kraft) and approximately $0.7 billion for Kraft subsidiaries, are for the sole use of these international businesses. Borrowings on these lines amounted to approximately $0.4 billion at December 31, 2003.

Debt: Altria Group, Inc.’s total debt (consumer products and financial services) was $24.5 billion and $23.3 billion at December 31, 2003 and 2002, respectively. Total consumer products debt was $22.3 billion and $21.2 billion at December 31, 2003 and 2002, respectively. At December 31, 2003 and 2002, Altria Group, Inc.’s ratio of consumer products debt to total equity was 0.89 and 1.09, respectively. The ratio of total debt to total equity was 0.98 and 1.20 at December 31, 2003 and 2002, respectively. Fixed-rate debt constituted approximately 80% of total consumer products debt at December 31, 2003 and 2002. The weighted average interest rate on total consumer products debt, including the impact of swap agreements, was approximately 5.2% and 5.1% at December 31, 2003 and 2002, respectively.

In November 2003, ALG completed the issuance of $1.5 billion in long-term notes under an existing shelf registration statement. The borrowings included $500 million of 5-year notes bearing interest at a rate of 5.625% and $1.0 billion of 10-year notes bearing interest at a rate of 7.0%. The net proceeds from this transaction were used to retire borrowings against the ALG revolving credit facilities. At December 31, 2003, ALG had $2.8 billion of capacity remaining under its shelf registration.

In April 2002, Kraft filed a Form S-3 shelf registration statement with the SEC, under which Kraft 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 September 2003, Kraft issued $1.5 billion of fixed rate notes under the shelf registration. At December 31, 2003, Kraft had $250 million of capacity remaining under its shelf registration.

In May 2002, Miller borrowed $2.0 billion under a one-year bank term loan agreement. At the closing of the Miller transaction on July 9, 2002, ALG received 430 million shares of SABMiller in exchange for Miller. The Miller borrowing was outstanding as of the closing of the Miller transaction. ALG does not guarantee the debt of Miller or Kraft.

• Off -Balance Sheet Arrangements and Aggregate Contractual Obligations: Altria Group, Inc. has no off-balance sheet arrangements, including special purpose entities, other than guarantees and contractual obligations that are discussed below.

Guarantees: As discussed in Note 18, at December 31, 2003, Altria Group, Inc. had third-party guarantees, which are primarily derived from acquisition and divestiture activities, approximating $256 million, of which $212 million have no specified expiration dates. The remainder expire through 2023, with $13 million expiring during 2004. Altria Group, Inc. is required to perform under these guarantees in the event that a third party fails to make contractual payments or achieve performance measures. Altria Group, Inc. has a liability of $55 million on its consolidated balance sheet at December 31, 2003, relating to these guarantees. In the ordinary course of business, certain subsidiaries of ALG have agreed to indemnify a limited number of third parties in the event of future litigation. At December 31, 2003, subsidiaries of ALG were also contingently liable for $1.4 billion of guarantees related to their own performance, consisting of the following:

• $1.1 billion of guarantees of excise tax and import duties related primarily to international shipments of tobacco products. In these agreements, a financial institution provides a guarantee of tax payments to the respective governments. PMI then issues a guarantee to the respective financial institution for the payment of the taxes. These are revolving facilities that are integral to the shipment of tobacco products in international markets, and the underlying taxes payable are recorded on Altria Group, Inc. ’s consolidated balance sheet.

• $0.3 billion of other guarantees related to the tobacco and food businesses.

Although Altria Group, Inc. ’s guarantees of its own performance are frequently short term in nature, the short-term guarantees are expected to be replaced, upon expiration, with similar guarantees of similar amounts. These items have not had, and are not expected to have, a significant impact on Altria Group, Inc.’s liquidity.

33 Exhibit 13

Aggregate Contractual Obligations: The following table summarizes Altria Group, Inc. ’s contractual obligations at December 31, 2003:

Payments Due

2009 and Thereafter 2005 - 2007 - (in millions) Total 2004 2006 2008

Long-term debt (1) : Consumer products $ 18,757 $ 1,661 $ 5,029 $ 4,677 $ 7,390 Financial services 2,210 184 950 577 499

20,967 1,845 5,979 5,254 7,889 Operating leases (2) 2,043 552 676 365 450 Purchase obligations (3) : Inventory and production costs 8,694 3,940 2,909 617 1,228 Other 3,065 1,961 930 165 9

11,759 5,901 3,839 782 1,237 Other long-term liabilities (4) 205 171 13 21

$ 34,974 $ 8,298 $ 10,665 $ 6,414 $ 9,597

(1) Amounts represent the expected cash payments of Altria Group, Inc. ’s long-term debt and do not include short-term borrowings reclassified as long-term debt, bond premiums or discounts, or nonrecourse debt issued by PMCC.

(2) Amounts represent the minimum rental commitments under non -cancelable operating leases. Altria Group, Inc. has no significant capital lease obligations.

(3) Purchase obligations for inventory and production costs (such as raw materials, indirect materials and supplies, packaging, co-manufacturing arrangements, storage and distribution) are commitments for projected needs to be utilized in the normal course of business. Other purchase obligations include commitments for marketing, advertising, capital expenditures, information technology and professional services. Arrangements are considered purchase obligations if a contract specified all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty, and with short notice (usually 30 days). Any amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.

(4) Other long-term liabilities primarily consist of tax assessment payments relating to Italian tax matters at PMI (as discussed in Note 18) and specific severance and incentive compensation arrangements. The following long-term liabilities included on the consolidated balance sheet are excluded from the table above: accrued pension, postretirement health care and postemployment costs, income taxes, minority interest, insurance accruals and other accruals. Altria Group, Inc. is unable to estimate the timing of payments for these items. Currently, Altria Group, Inc. anticipates making U.S. pension contributions of approximately $100 million in 2004, based on current tax law (as discussed in Note 15).

The State Settlement Agreements and related legal fee payments, and payments to a tobacco-growers trust fund, as discussed below and in Note 18, are excluded from the table above, as the payments are subject to adjustment for several factors, including inflation, market share and industry volume. Litigation escrow deposits due in 2004 and thereafter, as discussed below and in Note 18, are also excluded from the table above since these deposits will be returned to PM USA should it prevail on appeal.

Tobacco Litigation Settlement Payments: As discussed previously and in Note 18 , PM USA, along with other domestic tobacco companies, has entered into State Settlement Agreements that require the domestic tobacco industry to make substantial annual payments in the following amounts (excluding future annual payments contemplated by the agreement with tobacco growers discussed below), subject to adjustment for several factors, including inflation, market share and industry volume: 2004 through 2007, $8.4 billion each year; and thereafter, $9.4 billion each year. In addition, the domestic tobacco industry is required to pay settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million. PM USA and the other settling defendants also agreed to make payments to a trust fund to provide aid to tobacco growers and quota-holders. The trust will be funded by four of the major domestic tobacco product manufacturers, including PM USA, over 12 years with payments, prior to application of various adjustments, scheduled to total $5.15 billion. Future industry payments (in 2004 through 2008, $500 million each year; and 2009 and 2010, $295 million each year) are subject to adjustment for several factors, including inflation, industry volume and certain other contingent events, and, in general, are to be allocated based on each manufacturer’s relative market share.

Litigation Escrow Deposits: As discussed in Note 18, in connection with obtaining a stay of execution in May 2001 in the Engle class action, PM USA placed $1.2 billion into an interest-bearing escrow account. The $1.2 billion escrow account and a deposit of $100 million related to the bonding requirement are included in the December 31, 2003 and 2002 consolidated balance sheets as other assets. These amounts will be returned to PM USA should it prevail in its appeal of the case. Interest income on the $1.2 billion escrow account is paid to PM USA quarterly and is being recorded as earned in interest and other debt expense, net, in the consolidated statements of earnings.

In addition, in connection with obtaining a stay of execution in the Price case, PM USA placed a pre-existing 7.0%, $6 billion long-term note from ALG to PM USA into an escrow account with an Illinois financial institution. Since this note is the result of an intercompany financing arrangement, it does not appear on the consolidated balance sheet of Altria Group, Inc. In addition, PM USA agreed to make cash deposits with the clerk of the Madison County Circuit Court in the following amounts: beginning October 1, 2003, an amount equal to the interest earned by PM USA on the ALG note ($210 million every six months), an additional $800 million in four equal quarterly installments between September 2003 and June 2004 and the payments of the principal of the note which are due in April 2008, 2009 and 2010. Through December 31, 2003, PM USA made $610 million of the cash deposits due under the judge’s order. Cash deposits into the account are included in other assets on the consolidated balance sheet. If PM USA prevails on appeal, the escrowed note and all cash deposited with the court will be returned to PM USA, with accrued interest less administrative fees payable to the court.

34 Exhibit 13

With respect to certain adverse verdicts currently on appeal, other than the Engle and the Price cases discussed above, as of December 31, 2003, PM USA has posted various forms of security totaling $367 million, the majority of which have been collateralized with cash deposits, to obtain stays of judgments pending appeals. In addition, as discussed in Note 18, PMI placed € 51 million in an escrow account pending appeal of an adverse verdict in Italy. These cash deposits are included in other assets on the consolidated balance sheets.

As discussed above under “Tobacco — Business Environment,” the present legislative and litigation environment is substantially uncertain and could result in material adverse consequences for the business, financial condition, cash flows or results of operations of ALG, PM USA and PMI. Assuming there are no material adverse developments in the legislative and litigation environment, Altria Group, Inc. expects its cash flow from operations to provide sufficient liquidity to meet the ongoing needs of the business.

• Equity and Dividends: During 2003 and 2002, ALG repurchased 18.7 million and 134.4 million shares, respectively, of its common stock at a cost of $0.7 billion and $6.3 billion, respectively. During 2003, ALG completed its three-year, $10 billion share repurchase program and began a one-year, $3 billion share repurchase program. At December 31, 2003, cumulative repurchases under the $3 billion authority totaled approximately 7.0 million shares at an aggregate cost of $241 million. Following the rating agencies’ actions in the first quarter of 2003, discussed above in “Credit Ratings,” ALG suspended its share repurchase program. During the second half of 2002, ALG accelerated its rate of share repurchases by utilizing approximately $1.7 billion of cash flow to Altria Group, Inc. resulting from the Miller transaction.

During 2003, Kraft completed its $500 million share repurchase program and began a $700 million share repurchase program. During 2003 and 2002, Kraft repurchased 12.5 million and 4.4 million shares of its Class A common stock at a cost of $380 million and $170 million, respectively. As of December 31, 2003, Kraft had repurchased 1.6 million shares of its Class A common stock, under the new $700 million authority, at a cost of $50 million.

Altria Group, Inc. purchased 1.6 million shares of Kraft’s Class A common stock in open market transactions during 2002 in order to completely satisfy a one-time grant of Kraft options to employees of Altria Group, Inc. at the time of the Kraft IPO.

As discussed in Note 11 to the consolidated financial statements, in January 2003 Altria Group, Inc. granted approximately 2.3 million shares of restricted stock to eligible U.S.-based employees and Directors of Altria Group, Inc. and also issued to eligible non-U.S. employees rights to receive approximately 1.5 million equivalent shares. Restrictions on the shares lapse in the first quarter of 2006.

Dividends paid in 2003 and 2002 were $5.3 billion and $5.1 billion, respectively, an increase of 4.3%, reflecting a higher dividend rate in 2003, partially offset by a lower number of shares outstanding as a result of share repurchases. During the third quarter of 2003, Altria Group, Inc.’s Board of Directors approved a 6.3% increase in the quarterly dividend rate to $0.68 per share. As a result, the annualized dividend rate increased to $2.72 from $2.56.

Market Risk

ALG ’s subsidiaries operate globally, with manufacturing and sales facilities in various locations around the world. ALG and its subsidiaries utilize certain financial instruments to manage foreign currency and commodity exposures. Derivative financial instruments are used by ALG and its subsidiaries, principally to reduce exposures to market risks resulting from fluctuations in foreign exchange rates and commodity prices, by creating offsetting exposures. Altria Group, Inc. is not a party to leveraged derivatives and, by policy, does not use derivative financial instruments for speculative purposes.

A substantial portion of Altria Group, Inc.’s derivative financial instruments is effective as hedges. Hedging activity affected accumulated other comprehensive earnings (losses), net of income taxes, during the years ended December 31, 2003, 2002 and 2001, as follows:

(in millions) 2003 2002 2001

(Loss) gain as of January 1, $ (77 ) $ 33 $ — Impact of SFAS No. 133 adoption 15 Derivative (gains) losses transferred to earnings (42 ) 1 (84 ) Change in fair value 36 (111 ) 102

(Loss) gain as of December 31, $ (83 ) $ (77 ) $ 33

The fair value of all derivative financial instruments has been calculated based on market quotes.

• Foreign exchange rates: Altria Group, Inc. uses forward foreign exchange contracts and foreign currency options to mitigate its exposure to changes in exchange rates from third-party and intercompany forecasted transactions and balances. The primary currencies to which Altria Group, Inc. is exposed include the Japanese yen, Swiss franc and the euro. At December 31, 2003 and 2002, Altria Group, Inc. had option and forward foreign exchange contracts with aggregate notional amounts of $13.6 billion and $10.1 billion, respectively, which are comprised of contracts for the purchase and sale of foreign currencies. Included in the foreign currency aggregate notional amounts at December 31, 2003 and 2002, were $3.4 billion and $2.6 billion, respectively, of equal and offsetting foreign currency positions, which do not qualify as hedges and that will not result in any significant gain or loss. In addition, Altria Group, Inc. uses foreign currency swaps to mitigate its exposure to changes in exchange rates related to foreign currency denominated debt. These swaps typically convert fixed-rate foreign currency denominated debt to fixed-rate debt denominated in the functional currency of the borrowing entity. A substantial portion of the foreign currency swap agreements are accounted for as cash flow hedges. The unrealized gain (loss) relating to foreign currency swap agreements that do not qualify for hedge accounting treatment under U.S. GAAP was insignificant as of December 31, 2003 and 2002. At December 31, 2003 and 2002, the notional amounts of foreign currency swap agreements aggregated $2.5 billion.

35 Exhibit 13

Altria Group, Inc. also designates certain foreign currency denominated debt as net investment hedges of foreign operations. During the years ended December 31, 2003 and 2002, losses of $121 million, net of income taxes, and losses of $163 million, net of income taxes, respectively, which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive earnings (losses) within currency translation adjustments.

• Commodities: Kraft is exposed to price risk related to forecasted purchases of certain commodities used as raw materials. Accordingly, Kraft 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. At December 31, 2003 and 2002, Kraft had net long commodity positions of $255 million and $544 million, respectively. In general, commodity forward contracts qualify for the normal purchase exception under U.S. GAAP. 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 when the related inventory is sold. Unrealized gains or losses on net commodity positions were immaterial at December 31, 2003 and 2002.

• Value at Risk: Altria Group, Inc. 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 price-sensitive derivative financial instruments. The VAR computation includes Altria Group, Inc.’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. Altria Group, Inc. 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, 2003 and 2002, 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 Altria Group, Inc.’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

Average At (in millions) 12/31/03 High Low

Instruments sensitive to: Foreign currency rates $ 20 $ 35 $ 74 $ 20 Commodity prices 5 5 7 3

Fair Value Impact

At 12/31/03 Average (in millions) High Low

Instruments sensitive to: Interest rates $ 119 $ 139 $ 171 $ 113

Pre-Tax Earnings Impact

Average At (in millions) 12/31/02 High Low

Instruments sensitive to: Foreign currency rates $ 33 $ 47 $ 69 $ 29 Commodity prices 4 6 9 4

Fair Value Impact

Average At (in millions) 12/31/02 High Low

Instruments sensitive to: Interest rates $ 99 $ 95 $ 114 $ 75

The 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 Altria Group, Inc., nor does it consider the effect of favorable changes in market rates. Altria Group, Inc. 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.

36 Exhibit 13

New Accounting Standards

See Note 2 to the consolidated financial statements for a discussion of recently adopted accounting standards.

Contingencies

See Note 18 to the consolidated financial statements for a discussion of contingencies.

Cautionary Factors That May Affect Future Results

Forward -Looking and Cautionary Statements

We * may from time to time make written or oral forward-looking statements, including statements contained in filings with the SEC, in reports to stockholders and in press releases and investor Webcasts. You can identify these forward-looking statements by use of words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “will,” “estimates,” “intends,” “projects,” “goals,” “targets” and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in Altria Group, Inc.’s securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and other risks we face throughout this document, particularly in the “Business Environment” sections preceding our discussion of operating results of our subsidiaries’ businesses. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time.

• Tobacco -Related Litigation: There is substantial litigation related to tobacco products in the United States and certain foreign jurisdictions. We anticipate that new cases will continue to be filed. Damages claimed in some of the tobacco-related litigation range into the billions of dollars. Although, to date, our tobacco subsidiaries have never had to pay a judgment in a tobacco related case, there are presently 13 cases on appeal in which verdicts were returned against PM USA, including a compensatory and punitive damages verdict totaling approximately $10.1 billion in the Price case in Illinois. Generally, in order to prevent a plaintiff from seeking to collect a judgment while the verdict is being appealed, the defendant must post an appeal bond, frequently in the amount of the judgment or more, or negotiate an alternative arrangement with plaintiffs. In the event of future losses at trial, we may not always be able to obtain the required bond or to negotiate an acceptable alternative arrangement.

The present litigation environment is substantially uncertain, and it is possible that our business, volume, results of operations, cash flows or financial position could be materially affected by an unfavorable outcome of pending litigation, including certain of the verdicts against us that are on appeal. We intend to continue vigorously defending all tobacco-related litigation, although we may enter into settlement discussions in particular cases if we believe it is in the best interest of our stockholders to do so. Please see Note 18 for a discussion of pending tobacco-related litigation.

• Anti -Tobacco Action in the Public and Private Sectors: Our tobacco subsidiaries face significant governmental action aimed at reducing the incidence of smoking and seeking to hold us responsible for the adverse health effects associated with both smoking and exposure to environmental tobacco smoke. Governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced industry volume, and we expect this decline to continue.

These tax increases are expected to continue to have an adverse impact on sales of cigarettes by our tobacco subsidiaries, due to lower consumption levels and to a shift in sales from the premium to the non-premium or discount segments or to sales outside of legitimate channels.

• Increased Competition in the Domestic Tobacco Market: Settlements of certain tobacco litigation in the United States have resulted in substantial cigarette price increases. PM USA faces increased competition from lowest priced brands sold by certain domestic and foreign manufacturers that have cost advantages because they are not parties to these settlements. These manufacturers may fail to comply with related state escrow legislation or may take advantage of certain provisions in the legislation that permit the non-settling manufacturers to concentrate their sales in a limited number of states and thereby avoid escrow deposit obligations on the majority of their sales. Additional competition has resulted from diversion into the United States market of cigarettes intended for sale outside the United States, the sale of counterfeit cigarettes by third parties, the sale of cigarettes by third parties over the Internet and by other means designed to avoid collection of applicable taxes and increased imports of foreign lowest priced brands. The competitive environment has been characterized by weak economic conditions, erosion of consumer confidence, a continued influx of cheap products, and higher prices due to higher state excise taxes and list price increases. As a result, the lowest priced products of manufacturers of numerous small share brands have increased their market share, putting pressure on the industry’s premium segment.

• Governmental Investigations: From time to time, ALG and its tobacco subsidiaries are subject to governmental investigations on a range of matters. Ongoing investigations include allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain international markets and allegations of false and misleading usage of descriptors,

37 Exhibit 13 such as “Lights” and “Ultra Lights.” We cannot predict the outcome of those investigations or whether additional investigations may be commenced, and it is possible that our business could be materially affected by an unfavorable outcome of pending or future investigations.

• New Tobacco Product Technologies: Our tobacco subsidiaries continue to seek ways to develop and to commercialize new product technologies that may reduce the risk of smoking. Their goal is to reduce harmful constituents in tobacco smoke while continuing to offer adult smokers products that meet their taste expectations. We cannot guarantee that our tobacco subsidiaries will succeed in these efforts. If they do not succeed, but one or more of their competitors do, our tobacco subsidiaries may be at a competitive disadvantage.

• Foreign Currency: Our international food and tobacco subsidiaries conduct their businesses in local currency and, for purposes of financial reporting, their results are translated into U.S. dollars based on average exchange rates prevailing during a reporting period. During times of a strengthening U.S. dollar, our reported net revenues and operating income will be reduced because the local currency will translate into fewer U.S. dollars.

• Competition and Economic Downturns: Each of our consumer products subsidiaries is subject to intense competition, changes in consumer preferences and local economic conditions. To be successful, they must continue to:

• promote brand equity successfully;

• anticipate and respond to new consumer trends;

• develop new products and markets and to broaden brand portfolios in order to compete effectively with lower priced

products in a consolidating environment at the retail and manufacturing levels;

• improve productivity; and

• respond effectively to changing prices for their raw materials.

The willingness of consumers to purchase premium cigarette brands and premium food and beverage brands depends in part on local economic conditions. In periods of economic uncertainty, consumers tend to purchase more private label and other economy brands and the volume of our consumer products subsidiaries could suffer accordingly.

Our finance subsidiary, PMCC, holds investments in finance leases, principally in transportation, power generation and manufacturing equipment and facilities. Its lessees are also subject to intense competition and economic conditions. If counterparties to PMCC’s leases fail to manage through difficult economic and competitive conditions, PMCC may have to increase its allowance for losses, which would adversely affect our profitability.

• Grocery Trade Consolidation: As the retail grocery trade continues to consolidate and retailers grow larger and become more sophisticated, they demand lower pricing and increased promotional programs. Further, these customers are reducing their inventories and increasing their emphasis on private label products. If Kraft fails to use its scale, marketing expertise, branded products and category leadership positions to respond to these trends, its volume growth could slow or it may need to lower prices or increase promotional support of its products, any of which would adversely affect profitability.

• Continued Need to Add Food and Beverage Products in Faster Growing and More Profitable Categories: The food and beverage industry’s growth potential is constrained by population growth. Kraft’s success depends in part on its ability to grow its business faster than populations are growing in the markets that it serves. One way to achieve that growth is to enhance its portfolio by adding products that are in faster growing and more profitable categories. If Kraft does not succeed in making these enhancements, its volume growth may slow, which would adversely affect our profitability.

• Strengthening Brand Portfolios Through Acquisitions and Divestitures: One element of the growth strategy of Kraft and PMI is to strengthen their brand portfolios through active programs of selective acquisitions and divestitures. These subsidiaries are constantly investigating potential acquisition candidates and from time to time sell businesses that are outside their core categories or that do not meet their growth or profitability targets. Acquisition opportunities are limited and acquisitions present risks of failing to achieve efficient and effective integration, strategic objectives and anticipated revenue improvements and cost savings. There can be no assurance that we will be able to continue to acquire attractive businesses on favorable terms or that all future acquisitions will be quickly accretive to earnings.

• Raw Material Prices: The raw materials used by our consumer products subsidiaries are largely commodities that experience price volatility caused by external conditions, commodity market fluctuations, currency fluctuations and changes in governmental agricultural programs. Commodity price changes may result in unexpected increases in raw material and packaging cost, and our operating subsidiaries may be unable to increase their prices to offset these increased costs without suffering reduced volume, net revenue and operating companies income. We do not fully hedge against changes in commodity prices and our hedging strategies may not work as planned.

• Food Safety, Quality and Health Concerns: We could be adversely affected if consumers in Kraft’s principal markets lose confidence in the safety and quality of certain food products. Adverse publicity about these types of concerns, like the recent publicity about genetically modified organisms and “mad cow disease” in Europe and North America, whether or not valid, may discourage consumers from buying Kraft’s products or cause production and delivery disruptions. Recent publicity concerning the health implications of obesity and trans-fatty acids could also reduce consumption of certain of Kraft’s products. In addition, Kraft may need to recall some of its products if they become adulterated or misbranded. Kraft may also be liable if the consumption of any of its products causes injury. A widespread product recall or a significant product liability judgment could cause products to be unavailable for a period of time and a loss of consumer confidence in Kraft’s food products and could have a material adverse effect on Kraft ’s business.

• Limited Access to Commercial Paper Market: As a result of actions by credit rating agencies during 2003, ALG currently has limited access to the commercial paper market, and may have to rely on its revolving credit facilities instead.

38 Exhibit 13

Selected Financial Data –Five -Year Review

(in millions of dollars, except per share data)

2003 2002 2001 2000 1999

Summary of Operations: Net revenues $ 81,832 $ 80,408 $ 80,879 $ 73,503 $ 72,685 United States export sales 3,529 3,658 3,866 4,347 5,061 Cost of sales 31,870 32,748 33,900 29,687 29,913 Federal excise taxes on products 3,698 4,229 4,418 4,537 3,390 Foreign excise taxes on products 17,430 13,997 12,791 12,733 13,555

Operating income 15,910 16,601 15,702 14,806 13,616 Interest and other debt expense, net 1,150 1,134 1,418 719 795 Earnings before income taxes, minority interest and cumulative effect of accounting change 14,760 18,098 14,284 14,087 12,821 Pre-tax profit margin 18.0 % 22.5 % 17.7 % 19.2 % 17.6 % Provision for income taxes 5,151 6,424 5,407 5,450 5,020

Earnings before minority interest and cumulative effect of accounting change 9,609 11,674 8,877 8,637 7,801 Minority interest in earnings and other, net 405 572 311 127 126 Earnings before cumulative effect of accounting change 9,204 11,102 8,566 8,510 7,675 Cumulative effect of accounting change (6 ) Net earnings 9,204 11,102 8,560 8,510 7,675

Basic EPS before cumulative effect of accounting change 4.54 5.26 3.93 3.77 3.21 Per share cumulative effect of accounting change (0.01 ) Basic EPS 4.54 5.26 3.92 3.77 3.21 Diluted EPS before cumulative effect of accounting change 4.52 5.21 3.88 3.75 3.19 Per share cumulative effect of accounting change (0.01 ) Diluted EPS 4.52 5.21 3.87 3.75 3.19 Dividends declared per share 2.64 2.44 2.22 2.02 1.84 Weighted average shares (millions) — Basic 2,028 2,111 2,181 2,260 2,393 Weighted average shares (millions) — Diluted 2,038 2,129 2,210 2,272 2,403

Capital expenditures 1,974 2,009 1,922 1,682 1,749 Depreciation 1,431 1,324 1,323 1,126 1,120 Property, plant and equipment, net (consumer products) 16,067 14,846 15,137 15,303 12,271 Inventories (consumer products) 9,540 9,127 8,923 8,765 9,028 Total assets 96,175 87,540 84,968 79,067 61,381 Total long -term debt 21,163 21,355 18,651 19,154 12,226 Total debt — consumer products 22,329 21,154 20,098 27,196 13,522 — financial services 2,210 2,166 2,004 1,926 946

Total deferred income taxes 10,943 9,739 8,622 4,750 3,751 Stockholders ’ equity 25,077 19,478 19,620 15,005 15,305 Common dividends declared as a % of Basic EPS 58.1 % 46.4 % 56.6 % 53.6 % 57.3 % Common dividends declared as a % of Diluted EPS 58.4 % 46.8 % 57.4 % 53.9 % 57.7 % Book value per common share outstanding 12.31 9.55 9.11 6.79 6.54 Market price per common share — high/low 55.03 -27.70 57.79-35.40 53.88-38.75 45.94-18.69 55.56-21.25

Closing price of common share at year end 54.42 40.53 45.85 44.00 23.00 Price/earnings ratio at year end — Basic 12 8 12 12 7 Price/earnings ratio at year end — Diluted 12 8 12 12 7 Number of common shares outstanding at year end (millions) 2,037 2,039 2,153 2,209 2,339 Number of employees 165,000 166,000 175,000 178,000 137,000

39 Exhibit 13

Consolidated Balance Sheets

(in millions of dollars, except share and per share data) at December 31, 2003 2002

Assets Consumer products Cash and cash equivalents $ 3,777 $ 565 Receivables (less allowances of $135 and $142) 5,256 5,139 Inventories: Leaf tobacco 3,591 3,605 Other raw materials 2,009 1,935 Finished product 3,940 3,587

9,540 9,127 Other current assets 2,809 2,610

Total current assets 21,382 17,441 Property, plant and equipment, at cost: Land and land improvements 840 710 Buildings and building equipment 6,917 6,219 Machinery and equipment 18,230 16,127 Construction in progress 1,246 1,497

27,233 24,553 Less accumulated depreciation 11,166 9,707

16,067 14,846 Goodwill 27,742 26,037 Other intangible assets, net 11,803 11,834 Other assets 10,641 8,151

Total consumer products assets 87,635 78,309 Financial services Finance assets, net 8,393 9,075 Other assets 147 156

Total financial services assets 8,540 9,231

Total Assets $ 96,175 $ 87,540

See notes to consolidated financial statements.

40 Exhibit 13 at December 31, 2003 2002

Liabilities Consumer products Short -term borrowings $ 1,715 $ 407 Current portion of long-term debt 1,661 1,558 Accounts payable 3,198 3,088 Accrued liabilities: Marketing 2,443 3,192 Taxes, except income taxes 2,325 1,735 Employment costs 1,363 1,099 Settlement charges 3,530 3,027 Other 2,455 2,563 Income taxes 1,316 1,103 Dividends payable 1,387 1,310

Total current liabilities 21,393 19,082 Long -term debt 18,953 19,189 Deferred income taxes 7,295 6,112 Accrued postretirement health care costs 3,216 3,128 Minority interest 4,760 4,366 Other liabilities 7,161 8,004

Total consumer products liabilities 62,778 59,881 Financial services Long -term debt 2,210 2,166 Deferred income taxes 5,815 5,521 Other liabilities 295 494

Total financial services liabilities 8,320 8,181

Total liabilities 71,098 68,062 Contingencies (Note 18) Stockholders ’ Equity Common stock, par value $0.33 1 / 3 per share (2,805,961,317 shares issued) 935 935 Additional paid-in capital 4,813 4,642 Earnings reinvested in the business 47,008 43,259 Accumulated other comprehensive losses (including currency translation of $1,578 and $2,951) (2,125 ) (3,956 ) Cost of repurchased stock (768,697,895 and 766,701,765 shares) (25,554 ) (25,402 )

Total stockholders ’ equity 25,077 19,478

Total Liabilities and Stockholders ’ Equity $ 96,175 $ 87,540

41 Exhibit 13

Consolidated Statements of Earnings

(in millions of dollars, except per share data) for the years ended December 31, 2003 2002 2001

Net revenues $ 81,832 $ 80,408 $ 80,879 Cost of sales 31,870 32,748 33,900 Excise taxes on products 21,128 18,226 17,209

Gross profit 28,834 29,434 29,770 Marketing, administration and research costs 12,602 12,282 12,461 Domestic tobacco legal settlement 202 Domestic tobacco headquarters relocation charges 69 Gains on sales of businesses (31 ) (80 ) (8 ) Integration costs and a loss on sale of a food factory (13 ) 111 82 Asset impairment and exit costs 86 223 19 Provision for airline industry exposure 290 Litigation related expense 500 Amortization of intangibles 9 7 1,014

Operating income 15,910 16,601 15,702 Gain on Miller Brewing Company transaction (2,631 ) Interest and other debt expense, net 1,150 1,134 1,418

Earnings before income taxes, minority interest and cumulative effect of accounting change 14,760 18,098 14,284 Provision for income taxes 5,151 6,424 5,407

Earnings before minority interest and cumulative effect of accounting change 9,609 11,674 8,877 Minority interest in earnings and other, net 405 572 311

Earnings before cumulative effect of accounting change 9,204 11,102 8,566 Cumulative effect of accounting change (6 )

Net earnings $ 9,204 $ 11,102 $ 8,560

Per share data: Basic earnings per share before cumulative effect of accounting change $ 4.54 $ 5.26 $ 3.93 Cumulative effect of accounting change (0.01 )

Basic earnings per share $ 4.54 $ 5.26 $ 3.92

Diluted earnings per share before cumulative effect of accounting change $ 4.52 $ 5.21 $ 3.88 Cumulative effect of accounting change (0.01 )

Diluted earnings per share $ 4.52 $ 5.21 $ 3.87

See notes to consolidated financial statements.

42 Exhibit 13

Consolidated Statements of Stockholders’Equity

(in millions of dollars, except per share data)

Accumulated Other Comprehensive Earnings (Losses)

Additional Earnings Currency Cost of Total Common Paid-in Reinvested in Translation Repurchased Stockholders’ Stock Capital the Business Adjustments Other Total Stock Equity

Balances, January 1, 2001 $ 935 $ — $ 33,481 $ (2,864 ) $ (86 ) $ (2,950 ) $ (16,461 ) $ 15,005 Comprehensive earnings: Net earnings 8,560 8,560 Other comprehensive earnings (losses), net of income taxes: Currency translation adjustments (753 ) (753 ) (753 ) Additional minimum pension liability (89 ) (89 ) (89 ) Change in fair value of derivatives accounted for as hedges 33 33 33

Total other comprehensive losses (809 )

Total comprehensive earnings 7,751

Exercise of stock options and issuance of other stock awards 138 70 747 955 Cash dividends declared ($2.22 per share) (4,842 ) (4,842 ) Stock repurchased (4,000 ) (4,000 ) Sale of Kraft Foods Inc. common stock 4,365 379 7 386 4,751

Balances, December 31, 2001 935 4,503 37,269 (3,238 ) (135 ) (3,373 ) (19,714 ) 19,620 Comprehensive earnings: Net earnings 11,102 11,102 Other comprehensive earnings (losses), net of income taxes: Currency translation adjustments 287 287 287 Additional minimum pension liability (760 ) (760 ) (760 ) Change in fair value of derivatives accounted for as hedges (110 ) (110 ) (110 )

Total other comprehensive losses (583 )

Total comprehensive earnings 10,519

Exercise of stock options and issuance of other stock awards 139 15 563 717 Cash dividends declared ($2.44 per share) (5,127 ) (5,127 ) Stock repurchased (6,251 ) (6,251 )

Balances, December 31, 2002 935 4,642 43,259 (2,951 ) (1,005 ) (3,956 ) (25,402 ) 19,478 Comprehensive earnings: Net earnings 9,204 9,204 Other comprehensive earnings (losses), net of income taxes: Currency translation adjustments 1,373 1,373 1,373 Additional minimum pension liability 464 464 464 Change in fair value of derivatives accounted for as hedges (6 ) (6 ) (6 )

Total other comprehensive earnings 1,831

Total comprehensive earnings 11,035

Exercise of stock options and issuance of other stock awards 171 (93 ) 537 615 Cash dividends declared ($2.64 per share) (5,362 ) (5,362 ) Stock repurchased (689 ) (689 )

Balances, December 31, 2003 $ 935 $ 4,813 $ 47,008 $ (1,578 ) $ (547 ) $ (2,125 ) $ (25,554 ) $ 25,077

See notes to consolidated financial statements.

43 Exhibit 13

Consolidated Statements of Cash Flows

(in millions of dollars) for the years ended December 31, 2003 2002 2001

Cash Provided by (Used in) Operating Activities Net earnings – Consumer products $ 8,934 $ 11,072 $ 8,382 – Financial services 270 30 178

Net earnings 9,204 11,102 8,560 Adjustments to reconcile net earnings to operating cash flows: Consumer products Cumulative effect of accounting change 6 Depreciation and amortization 1,440 1,331 2,337 Deferred income tax provision 717 1,310 277 Minority interest in earnings and other, net 405 572 311 Domestic tobacco legal settlement, net of cash paid 57 Domestic tobacco headquarters relocation charges, net of cash paid 35 Escrow bonds for Price and Engle domestic tobacco cases (610 ) (1,200 ) Integration costs and a loss on sale of a food factory, net of cash paid (26 ) 91 79 Asset impairment and exit costs, net of cash paid 62 195 Gain on Miller Brewing Company transaction (2,631 ) Gains on sales of businesses (31 ) (80 ) (8 ) Cash effects of changes, net of the effects from acquired and divested companies: Receivables, net 295 (161 ) (320 ) Inventories 251 38 (293 ) Accounts payable (220 ) (640 ) (309 ) Income taxes (119 ) (151 ) 782 Accrued liabilities and other current assets (791 ) 305 (1,375 ) Settlement charges 497 (189 ) 480 Pension plan contributions (1,169 ) (1,104 ) (350 ) Other 500 86 (500 ) Financial services Deferred income tax provision 267 275 408 Provision for airline industry exposure 290 Other 52 (27 ) 8

Net cash provided by operating activities 10,816 10,612 8,893

Cash Provided by (Used in) Investing Activities Consumer products Capital expenditures (1,974 ) (2,009 ) (1,922 ) Purchase of businesses, net of acquired cash (1,041 ) (147 ) (451 ) Proceeds from sales of businesses 96 221 21 Other 125 54 139 Financial services Investments in finance assets (140 ) (950 ) (960 ) Proceeds from finance assets 507 360 257

Net cash used in investing activities (2,427 ) (2,471 ) (2,916 )

See notes to consolidated financial statements.

44 Exhibit 13 for the years ended December 31, 2003 2002 2001

Cash Provided by (Used in) Financing Activities Consumer products Net repayment of short -term borrowings $ (419 ) $ (473 ) $ (5,678 ) Long-term debt proceeds 3,077 5,325 4,079 Long-term debt repaid (1,871 ) (2,024 ) (5,215 ) Financial services Net repayment of short -term borrowings (512 ) (515 ) Long -term debt proceeds 440 557 Long -term debt repaid (147 ) Repurchase of Altria Group, Inc. common stock (777 ) (6,220 ) (3,960 ) Repurchase of Kraft Foods Inc. common stock (372 ) (170 ) Dividends paid on Altria Group, Inc. common stock (5,285 ) (5,068 ) (4,769 ) Issuance of Altria Group, Inc. common stock 443 724 779 Issuance of Kraft Foods Inc. common stock 8,425 Other (108 ) (187 ) (143 )

Net cash used in financing activities (5,459 ) (8,165 ) (6,440 )

Effect of exchange rate changes on cash and cash equivalents 282 136 (21 )

Cash and cash equivalents: Increase (decrease) 3,212 112 (484 ) Balance at beginning of year 565 453 937

Balance at end of year $ 3,777 $ 565 $ 453

Cash paid: Interest – Consumer products $ 1,336 $ 1,355 $ 1,689

– Financial services $ 120 $ 88 $ 76

Income taxes $ 4,158 $ 4,818 $ 3,775

45 Exhibit 13

Notes to Consolidated Financial Statements

Note 1.

Background and Basis of Presentation:

• Background: Altria Group, Inc. (“ALG”), through its wholly-owned subsidiaries, Philip Morris USA Inc. (“PM USA”), Philip Morris International Inc. (“PMI”) and its majority-owned (84.6%) subsidiary, Kraft Foods Inc. (“Kraft”), is engaged in the manufacture and sale of various consumer products, including cigarettes, packaged grocery products, snacks, beverages, cheese and convenient meals. Philip Morris Capital Corporation (“PMCC”), another wholly-owned subsidiary, is primarily engaged in leasing activities. During 2003, PMCC shifted its strategic focus from an emphasis on the growth of its portfolio of finance leases through new investments to one of maximizing investment gains and generating cash flows from its existing portfolio of leased assets. ALG ’s former wholly-owned subsidiary, Miller Brewing Company (“Miller”), was engaged in the manufacture and sale of various beer products prior to the merger of Miller into South African Breweries plc (“SAB”) on July 9, 2002 (see Note 3. Miller Brewing Company Transaction ). Throughout these financial statements, the term “Altria Group, Inc.” refers to the consolidated financial position, results of operations and cash flows of the Altria family of companies and the term “ALG” refers solely to the parent company. ALG’s access to the operating cash flows of its subsidiaries is comprised of cash received from the payment of dividends and interest, and the repayment of amounts borrowed from ALG by its subsidiaries.

• Basis of presentation: The consolidated financial statements include ALG, as well as its wholly-owned and majority-owned subsidiaries. Investments in which ALG exercises significant influence (20%-50% ownership interest), are accounted for under the equity method of accounting. Investments in which ALG has an ownership interest of less than 20%, or does not exercise significant influence, are accounted for with the cost method of accounting. All intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ( “U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent 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, income taxes, and the allowance for loan losses and estimated residual values of finance leases. Actual results could differ from those estimates.

Balance sheet accounts are segregated by two broad types of business. Consumer products assets and liabilities are classified as either current or non-current, whereas financial services assets and liabilities are unclassified, in accordance with respective industry practices.

Certain prior years’ amounts have been reclassified to conform with the current year’s presentation, due primarily to the disclosure of more detailed information on the consolidated balance sheets 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 50 years.

On January 1, 2002, Altria Group, Inc. adopted Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” As a result, Altria Group, Inc. 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, 2001:

(in millions, except per share data) For the year ended December 31, 2001

Net earnings, as previously reported $ 8,560 Adjustment for amortization of: Goodwill 919 Other intangible assets 13

Net earnings, as adjusted $ 9,492

Diluted EPS, as previously reported $ 3.87 Adjustment for amortization of: Goodwill 0.42 Other intangible assets 0.01

Diluted EPS, as adjusted $ 4.30

In addition, Altria Group, Inc. is required to conduct an annual review of goodwill and intangible assets for potential impairment. Goodwill impairment testing requires a comparison between the carrying value and fair value of a reportable goodwill asset. If the carrying value exceeds the fair value, goodwill is considered impaired. The amount of impairment loss is measured as the difference between the carrying value and implied fair value of goodwill, which is determined using discounted cash flows. Impairment testing for non-amortizable intangible assets requires a comparison between fair value and carrying value of the intangible asset. If the carrying value exceeds fair value, the intangible asset is considered impaired and is reduced to fair value. In 2003, Altria Group, Inc. did not have to record a charge to earnings for an impairment of goodwill or other intangible assets as a result of its annual review.

46 Exhibit 13

Goodwill by segment was as follows:

December 31, December 31,

(in millions) 2003 2002

International tobacco $ 2,016 $ 981 North American food 20,877 20,722 International food 4,849 4,334

Total goodwill $ 27,742 $ 26,037

Intangible assets were as follows:

December 31, 2003 December 31, 2002

Accumulated Accumulated

Gross Amortization Gross Amortization Carrying Carrying (in millions) Amount Amount

Non -amortizable intangible assets $ 11,758 $ 11,810 Amortizable intangible assets 84 $ 39 54 $ 30

Total intangible assets $ 11,842 $ 39 $ 11,864 $ 30

Non-amortizable intangible assets substantially consist 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 during the years ended December 31, 2003 and 2002, was $9 million and $7 million, respectively. Amortization expense for each of the next five years is estimated to be $10 million or less.

The movement in goodwill and intangible assets from December 31, 2002 is as follows:

Intangible (in millions) Goodwill Assets

Balance at December 31, 2002 $ 26,037 $ 11,864 Changes due to: Acquisitions 996 30 Currency 602 (38 ) Other 107 (14 )

Balance at December 31, 2003 $ 27,742 $ 11,842

As a result of Kraft’s common stock repurchases, ALG’s ownership percentage of Kraft has increased, thereby resulting in an increase in goodwill, which is reflected in Other, above.

• Environmental costs: Altria Group, Inc. is subject to laws and regulations relating to the protection of the environment. Altria Group, Inc. 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 Altria Group, Inc. 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 Altria Group, Inc.’s consolidated financial position, results of operations or cash flows.

• Finance leases: Income attributable to leveraged leases is initially recorded as unearned income and subsequently recognized as revenue over the terms of the respective leases at a constant after-tax rate of return on the positive net investment balances.

Income attributable to direct finance leases is initially recorded as unearned income and subsequently recognized as revenue over the terms of the respective leases at a constant pre-tax rate of return on the net investment balances.

Finance leases include unguaranteed residual values that represent PMCC’s estimate at lease inception as to the fair values of assets under lease at the end of the non-cancelable lease term. The estimated residual values are reviewed annually by PMCC’s management based on a number of factors, including appraisals on certain assets and activity in the relevant industry. If necessary, revisions to reduce the residual values are recorded. Such reviews have not resulted in adjustments to PMCC’s net revenues or results of operations for any of the periods presented.

Investments in leveraged leases are stated net of related nonrecourse debt obligations.

• Foreign currency translation: Altria Group, Inc. 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 stockholders’ equity. Transaction gains and losses are recorded in the consolidated statements of earnings and were not significant for any of the periods presented.

• Guarantees: Effective January 1, 2003, Altria Group, Inc. 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 were initiated or modified after December 31, 2002. Accordingly, Altria Group, Inc. has applied the recognition provisions of Interpretation No. 45 to guarantee activities initiated after December 31, 2002. Adoption of Interpretation No. 45 as of January 1, 2003, did not have a material impact on Altria Group, Inc.’s consolidated financial statements. See Note 18. Contingencies for a further discussion of guarantees.

• Hedging instruments: Effective January 1, 2001, Altria Group, Inc. 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.” These standards require that all derivative financial instruments be recorded at fair value on the consolidated balance sheets as either assets or liabilities. Changes in the fair value of derivatives are recorded each period either in accumulated other comprehensive earnings (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 statements of earnings in the periods in which operating results are affected by the hedged item. Cash flows from hedging instruments are classified in the same manner as the

47 Exhibit 13 affected hedged item in the consolidated statements of cash flows. As of January 1, 2001, the adoption of these new standards resulted in a cumulative effect of an accounting change that reduced net earnings by $6 million, net of income taxes of $3 million, and decreased accumulated other comprehensive losses by $15 million, net of income taxes of $8 million.

Effective July 1, 2003, Altria Group, Inc. adopted 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. The adoption of this standard did not have a material impact on the consolidated financial position, results of operations or cash flows of Altria Group, Inc. Collectively, SFAS No. 133, SFAS No. 138 and SFAS No. 149 are referred to as “SFAS No. 133.”

• Impairment of long -lived assets: Altria Group, Inc. 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. Altria Group, Inc. 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.

• Income taxes: Altria Group, Inc. accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant judgment is required in determining income tax provisions and in evaluating tax positions. ALG and its subsidiaries establish additional provisions for income taxes when, despite the belief that their tax positions are fully supportable, there remain certain positions that are likely to be challenged and that may not be sustained on review by tax authorities. ALG and its subsidiaries adjust these additional accruals in light of changing facts and circumstances. The consolidated tax provision includes the impact of changes to accruals that are considered appropriate, as well as the related net interest.

• 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. It is a generally recognized industry practice to classify leaf tobacco inventory as a current asset although part of such inventory, because of the duration of the aging process, ordinarily would not be utilized within one year.

• Marketing costs: ALG’s subsidiaries promote their products with 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 consumer products businesses recognize 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. ALG’s tobacco subsidiaries also include excise taxes billed to customers in revenues. Shipping and handling costs are classified as part of cost of sales.

Effective July 1, 2003, Altria Group, Inc. adopted Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables, ” which addresses certain aspects of a vendor’s accounting 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. The adoption of this EITF Issue did not have a material impact on the consolidated financial position, results of operations or cash flows of Altria Group, Inc.

• Software costs: Altria Group, Inc. capitalizes certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs are included in property, plant and equipment on the consolidated balance sheets and are amortized on a straight-line basis over the estimated useful lives of the software, which do not exceed five years.

• Stock -based compensation: Altria Group, Inc. 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 does not result in compensation cost for stock options. The market value at date of grant of shares of restricted stock and rights to receive shares of stock is recorded as compensation expense over the period of restriction.

At December 31, 2003, Altria Group, Inc. had stock-based employee compensation plans, which are described more fully in Note 11. Stock Plans . Altria Group, Inc. 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 stock options within those plans. No compensation expense for employee stock options is reflected in net earnings, as all stock options granted under those plans had an exercise price not less than the market value of the common stock on the date of the grant. Net earnings, as reported, includes pre-tax compensation expense related to restricted stock and rights of $90 million, $13 million and $89 million for the years ended December 31, 2003, 2002 and 2001, respectively. The following table illustrates the effect on net earnings and EPS if Altria Group, Inc. had applied the fair value recognition provisions of

48 Exhibit 13

SFAS No. 123 to measure stock-based compensation expense for outstanding stock option awards for the years ended December 31, 2003, 2002 and 2001:

(in millions, except per share data) 2003 2002 2001

Net earnings, as reported $ 9,204 $ 11,102 $ 8,560 Deduct: Total stock-based employee compensation expense determined under fair value method for all stock option awards, net of related tax effects 19 137 202

Pro forma net earnings $ 9,185 $ 10,965 $ 8,358

Earnings per share: Basic — as reported $ 4.54 $ 5.26 $ 3.92

Basic — pro forma $ 4.53 $ 5.19 $ 3.83

Diluted — as reported $ 4.52 $ 5.21 $ 3.87

Diluted — pro forma $ 4.51 $ 5.15 $ 3.78

• New accounting pronouncements: Several recent accounting pronouncements not previously discussed herein became effective during 2003. The adoption of these pronouncements did not have a material impact on consolidated financial position, results of operations or cash flows. The pronouncements were as follows:

• SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity; ”

• EITF Issue No. 03-3, “Applicability of EITF Abstracts, Topic No. D-79, ‘Accounting for Retroactive Insurance Contracts

Purchased by Entities Other Than Insurance Enterprises, ’ to Claims -Made Insurance Policies; ”

• EITF Issue No. 01 -8, “Determining Whether an Arrangement Contains a Lease; ”

• SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities; ” and

• FASB Interpretation No. 46, “Consolidation of Variable Interest Entities. ”

Note 3.

Miller Brewing Company Transaction:

On July 9, 2002, Miller merged into SAB and SAB changed its name to SABMiller plc (“SABMiller”). At closing, ALG received 430 million shares of SABMiller valued at approximately $3.4 billion, based upon a share price of 5.12 British pounds per share, in exchange for Miller, which had $2.0 billion of existing debt. The shares in SABMiller owned by ALG resulted in a 36% economic interest in SABMiller and a 24.9% voting interest. The transaction resulted in a pre-tax gain of $2.6 billion or $1.7 billion after-tax, which was recorded in the third quarter of 2002. Beginning with the third quarter of 2002, ALG ’s ownership interest in SABMiller is being accounted for under the equity method. Accordingly, ALG’s investment in SABMiller of approximately $2.1 billion and $1.9 billion is included in other assets on the consolidated balance sheets at December 31, 2003 and 2002, respectively. In addition, ALG records its share of SABMiller ’s net earnings, based on its economic ownership percentage, in minority interest in earnings and other, net, on the consolidated statements of earnings.

Note 4.

Divestitures:

During 2003, Kraft Foods International (“KFI”) sold a European rice business and a branded fresh cheese business in Italy. The aggregate proceeds received from the sales of businesses in 2003 were $96 million, on which pre-tax gains of $31 million were recorded.

During 2002, Kraft Foods North America, Inc. (“KFNA”) sold several small North American food businesses, most 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 Altria Group, Inc. ’s consolidated statements of earnings and no gain or loss was recognized on these sales. In addition, KFI sold a 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 the sales of these businesses, as well as a small beer operation, were $221 million, resulting in pre-tax gains of $80 million.

During 2001, KFI sold two small food businesses and KFNA sold one small food business. The aggregate proceeds received in these transactions were $21 million, on which pre-tax gains of $8 million were recorded.

The operating results of the businesses sold were not material to Altria Group, Inc.’s consolidated operating results in any of the periods presented.

49 Exhibit 13

Kraft Initial Public Offering (“IPO”)

On June 13, 2001, Kraft completed an IPO of 280,000,000 shares of its Class A common stock at a price of $31.00 per share. Altria Group, Inc. used the IPO proceeds, net of underwriting discount and expenses, of $8.4 billion to retire a portion of the debt incurred to finance the acquisition of Nabisco. After the completion of the IPO, Altria Group, Inc. owned approximately 83.9% of the outstanding shares of Kraft’s capital stock through Altria Group, Inc.’s ownership of 49.5% of Kraft’s Class A common stock and 100% of Kraft’s Class B common stock. Kraft’s Class A common stock has one vote per share while Kraft’s Class B common stock has ten votes per share. As of December 31, 2003, 2002 and 2001, Altria Group, Inc. held approximately 98% of the combined voting power of Kraft’s outstanding capital stock. As a result of the IPO, an adjustment of $8.4 billion to the carrying amount of Altria Group, Inc.’s investment in Kraft has been reflected on Altria Group, Inc.’s consolidated balance sheets as an increase to additional paid-in capital of $4.4 billion (net of the recognition of cumulative currency translation adjustments and other comprehensive losses) and minority interest of $3.7 billion. At December 31, 2003, Altria Group, Inc. owned approximately 84.6% of the outstanding shares of Kraft’s capital stock.

Note 5.

Acquisitions:

During 2003, PMI purchased approximately 74.2% of a tobacco business in Serbia for a cost of $486 million and purchased 99% of a tobacco business in Greece for approximately $387 million. PMI also increased its ownership interest in its affiliate in Ecuador from less than 50% to approximately 98% for a cost of $70 million. In addition, KFI acquired a biscuits business in Egypt and KFNA acquired trademarks associated with a small natural foods business. The total cost of acquisitions during 2003 was $1,041 million.

During 2002, KFI acquired a snacks business in Turkey and a biscuits business in Australia. The total cost of these and other smaller acquisitions, including a PMI acquisition, was $147 million.

During 2001, PMI increased its ownership interest in its Argentine tobacco subsidiary for an aggregate cost of $255 million. In addition, KFI 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 $451 million.

The effects of these acquisitions were not material to Altria Group, Inc.’s consolidated financial position, results of operations or cash flows in any of the periods presented.

Note 6.

Inventories:

The cost of approximately 38% and 44% of inventories in 2003 and 2002, respectively, was determined using the LIFO method. The stated LIFO amounts of inventories were approximately $0.7 billion and $0.6 billion lower than the current cost of inventories at December 31, 2003 and 2002, respectively.

Note 7.

Finance Assets, net:

In the second quarter of 2003, PMCC shifted its strategic focus from an emphasis on the growth of its portfolio of finance leases through new investments to one of maximizing investment gains and generating cash flows from its existing portfolio of leased assets. Accordingly, PMCC’s operating companies income will continue to decrease as lease investments mature or are sold. During 2003, PMCC received proceeds from asset sales and maturities of $507 million and recorded gains of $45 million in operating companies income.

At December 31, 2003, finance assets, net, of $8,393 million were comprised of investment in finance leases of $8,720 million and other receivables of $69 million, reduced by allowance for losses of $396 million. At December 31, 2002, finance assets, net, of $9,075 million were comprised of investment in finance leases of $9,358 million and other receivables of $161 million, reduced by allowance for losses of $444 million.

A summary of the net investment in finance leases at December 31, before allowance for losses, was as follows:

Leveraged Leases Direct Finance Leases Total

(in millions) 2003 2002 2003 2002 2003 2002

Rentals receivable, net $ 9,225 $ 9,381 $ 1,081 $ 2,110 $ 10,306 $ 11,491 Unguaranteed residual values 2,235 2,267 120 148 2,355 2,415 Unearned income (3,646 ) (3,953 ) (249 ) (546 ) (3,895 ) (4,499 ) Deferred investment tax credits (46 ) (49 ) (46 ) (49 )

Investment in finance leases 7,768 7,646 952 1,712 8,720 9,358 Deferred income taxes (5,502 ) (5,163 ) (381 ) (434 ) (5,883 ) (5,597 )

Net investment in finance leases $ 2,266 $ 2,483 $ 571 $ 1,278 $ 2,837 $ 3,761

50 Exhibit 13

For leveraged leases, rentals receivable, net, represents unpaid rentals, net of principal and interest payments on third-party nonrecourse debt. PMCC’s rights to rentals receivable are subordinate to the third-party nonrecourse debt-holders, and the leased equipment is pledged as collateral to the debt-holders. The payment of the nonrecourse debt is collateralized only by lease payments receivable and the leased property, and is nonrecourse to all other assets of PMCC. As required by U.S. GAAP, the third-party nonrecourse debt of $19.4 billion and $20.0 billion at December 31, 2003 and 2002, respectively, has been offset against the related rentals receivable. There were no leases with contingent rentals in 2003 and 2002.

At December 31, 2003, PMCC’s investment in finance leases was principally comprised of the following investment categories: aircraft (26%), electric power (22%), surface transport (20%), real estate (15%), manufacturing (13%) and energy (4%). Investments located outside the United States, which are primarily dollar-denominated, represent 21% and 20% of PMCC’s investment in finance leases in 2003 and 2002, respectively.

Among its leasing activities, PMCC leases a number of aircraft, predominantly to major United States carriers. In recognition of the economic downturn in the airline industry, PMCC increased its allowance for losses by $290 million in the fourth quarter of 2002. Developments in the airline industry during 2003 and 2002 that affected aircraft leases held by PMCC included the following:

• PMCC leases a Boeing 747-400 freighter aircraft to Atlas Air, Inc. (“Atlas”) under a long-term leveraged lease. The aircraft represents an investment in a leveraged lease of $42 million, which equals 0.5% of PMCC’s portfolio of finance lease assets at December 31, 2003. In July 2003, Atlas defaulted on its lease payments to PMCC, and PMCC ceased recording income on the lease. Atlas is currently negotiating a restructuring plan with its creditors and has announced that it plans to file a pre -packaged bankruptcy in February 2004. PMCC continues to negotiate with Atlas regarding its lease.

allowance for losses during the first quarter of 2003 and a reduction of $7 million of lease income over the remaining terms of the leases. During January 2004, US Airways’ corporate credit rating was reduced to B- (Credit Watch negative) by Standard & Poor’s. A further downgrade would result in a covenant breach under their regional jet financing commitments from third parties other than PMCC. Successful implementation of US Airways’ turnaround plan is dependent upon this financing.

It is possible that further adverse developments in the airline industry may require PMCC to increase its allowance for losses in future periods.

Rentals receivable in excess of debt service requirements on third-party nonrecourse debt related to leveraged leases and rentals receivable from direct finance leases at December 31, 2003, were as follows:

Leveraged Direct (in millions) Leases Finance Leases Total

2004 $ 232 $ 147 $ 379 2005 217 129 346 2006 279 93 372 2007 262 77 339 2008 375 44 419 2009 and thereafter 7,860 591 8,451

Total $ 9,225 $ 1,081 $ 10,306

Included in net revenues for the years ended December 31, 2003, 2002 and 2001, were leveraged lease revenues of $333 million, $363 million and $284 million, respectively, and direct finance lease revenues of $90 million, $99 million and $102 million, respectively. Income tax expense on leveraged lease revenues for the years ended December 31, 2003, 2002 and 2001, was $120 million, $142 million and $110 million, respectively.

Income from investment tax credits on leveraged leases and initial direct costs and executory costs on direct finance leases were not significant during the years ended December 31, 2003, 2002 and 2001.

51 Exhibit 13

Note 8.

Short -Term Borrowings and Borrowing Arrangements:

At December 31, 2003 and 2002, Altria Group, Inc. ’s short-term borrowings and related average interest rates consisted of the following:

2003 2002

Amount Outstanding Average Average Year -End Amount Year-End (in millions) Rate Outstanding Rate

Consumer products: Bank loans $ 915 4.6 % $ 443 7.1 % Commercial paper 2,700 1.5 3,562 1.4 Amount reclassified as long-term debt (1,900 ) (3,598 )

$ 1,715 $ 407

The fair values of Altria Group, Inc.’s short-term borrowings at December 31, 2003 and 2002, based upon current market interest rates, approximate the amounts disclosed above.

Following a $10.1 billion judgment on March 21, 2003, against PM USA in the Price litigation, which is discussed in Note 18. Contingencies , the three major credit rating agencies took a series of ratings actions resulting in the lowering of ALG’s short-term and long-term debt ratings. During 2003, Moody’s lowered ALG’s short-term debt rating from “P-1” to “P-3” and its long-term debt rating from “A2” to “Baa2.” Standard & Poor’s lowered ALG’s short-term debt rating from “A-1” to “A-2” and its long-term debt rating from “A-” to “BBB.” Fitch Rating Services lowered ALG’s short-term debt rating from “F-1” to “F-2” and its long-term debt rating from “A” to “BBB.”

ALG and Kraft each maintain separate revolving credit facilities that they have historically used to support the issuance of commercial paper. However, as a result of the rating agencies’ actions discussed above, ALG’s and Kraft’s access to the commercial paper market was eliminated. Subsequently, in April 2003, ALG and Kraft began to borrow against existing credit facilities to repay maturing commercial paper and to fund normal working capital needs. By the end of May 2003, Kraft regained its access to the commercial paper market, and in November 2003, ALG regained limited access to the commercial paper market.

At December 31, 2003, credit lines for ALG and Kraft, and the related activity, were as follows:

ALG

Commercial

Paper Lines Outstanding Available Type Credit Amount (in billions of dollars) Lines Drawn

364-day $ 1.3 $ — $ — $ 1.3 Multi -year 5.0 0.5 0.5 4.0

$ 6.3 $ 0.5 $ 0.5 $ 5.3

Kraft

Commercial

Paper Lines Outstanding Available Type Credit Amount (in billions of dollars) Lines Drawn

364 -day $ 2.5 $ — $ 0.3 $ 2.2 Multi-year 2.0 1.9 0.1

$ 4.5 $ — $ 2.2 $ 2.3

The ALG multi-year revolving credit facility requires the maintenance of a fixed charges coverage ratio. The Kraft multi-year revolving credit facility, which is for the sole use of Kraft, requires the maintenance of a minimum net worth. ALG and Kraft met their respective covenants at December 31, 2003, and expect to continue to meet their respective covenants. The multi-year facilities both expire in July 2006 and enable Altria Group, Inc. to reclassify short-term debt on a long-term basis. The ALG 364-day revolving credit facility expires in July 2004. It requires the maintenance of a fixed charges coverage ratio and prohibits ALG from repurchasing its common stock while borrowings are outstanding against either ALG’s 364-day or multi-year facility. In addition, the size of the 364-day facility will be reduced by 50% of the amount of any long-term capital markets transactions completed by ALG. As a result of ALG ’s issuance of $1.5 billion of long-term debt in November 2003, the ALG 364-day revolving credit facility was reduced from $2.0 billion to $1.3 billion. The Kraft 364-day revolving credit facility also expires in July 2004. It requires the maintenance of a minimum net worth. Neither of these facilities, nor the multi-year facilities, includes any additional financial tests, any credit rating triggers or any provisions that could require the posting of collateral.

52 Exhibit 13

Note 9.

Long -Term Debt:

At December 31, 2003 and 2002, Altria Group, Inc. ’s long-term debt consisted of the following:

(in millions) 2003 2002

Consumer products: Short-term borrowings, reclassified as long-term debt $ 1,900 $ 3,598 Notes, 4.00% to 7.65% (average effective rate 5.88%), due through 2035 15,190 13,686 Debentures, 7.00% to 7.75% (average effective rate 8.37%), $950 million face amount, due through 2027 907 904 Foreign currency obligations: Euro, 4.50% to 5.63% (average effective rate 5.07%), due through 2008 2,427 2,083 Other foreign 17 120 Other 173 356

20,614 20,747 Less current portion of long-term debt (1,661 ) (1,558 )

$ 18,953 $ 19,189

Financial services: Eurodollar bonds, 7.50%, due 2009 $ 499 $ 498 Swiss franc, 4.00%, due 2006 and 2007 1,345 1,223 Euro, 5.38% to 6.88% (average effective rate 6.12%), due through 2006 366 445

$ 2,210 $ 2,166

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

Financial

Consumer Services

(in millions) Products

2004 $ 1,661 $ 184 2005 1,737 2006 3,292 950 2007 1,898 577 2008 2,779 2009 -2013 5,501 499 2014-2018 389 Thereafter 1,500

Based on market quotes, where available, or interest rates currently available to Altria Group, Inc. for issuance of debt with similar terms and remaining maturities, the aggregate fair value of consumer products and financial services long-term debt, including the current portion of long-term debt, at December 31, 2003 and 2002, was $24.1 billion and $24.2 billion, respectively.

Note 10.

Capital Stock:

Shares of authorized common stock are 12 billion; issued, repurchased and outstanding shares were as follows:

Shares Shares Shares Issued Repurchased Outstanding

Balances, January 1, 2001 2,805,961,317 (597,064,937 ) 2,208,896,380

Exercise of stock options and issuance of other stock awards 28,184,943 28,184,943

Repurchased (84,578,106 ) (84,578,106 )

Balances, December 31, 2001 2,805,961,317 (653,458,100 ) 2,152,503,217

Exercise of stock options and issuance of other stock awards 21,155,477 21,155,477

Repurchased (134,399,142 ) (134,399,142 )

Balances, December 31, 2002 2,805,961,317 (766,701,765 ) 2,039,259,552

Exercise of stock options and issuance of other stock awards 16,675,270 16,675,270

Repurchased (18,671,400 ) (18,671,400 )

Balances, December 31, 2003 2,805,961,317 (768,697,895 ) 2,037,263,422

At December 31, 2003, 188,559,940 shares of common stock were reserved for stock options and other stock awards under Altria Group, Inc. ’s stock plans, and 10 million shares of Serial Preferred Stock, $1.00 par value, were authorized, none of which have been issued.

ALG repurchases its stock in open market transactions. On March 12, 2001, ALG completed an $8 billion repurchase program, which resulted in the purchase of 256,967,772 shares at an average price of $31.13 per share. On March 7, 2003, ALG completed a $10 billion repurchase program, which resulted in the purchase of 215,721,057 shares at an average price of $46.36 per share, and commenced repurchasing shares under a $3 billion repurchase program. Through December 31, 2003, cumulative repurchases under the $3 billion program were 6,953,135 shares at a cost of $241 million, or $34.59 per share. During 2003, 2002 and 2001, ALG repurchased $0.7 billion, $6.3 billion and $4.0 billion, respectively, of its common stock. Following the rating agencies’ actions in the first quarter of 2003, discussed in Note 8. Short-Term Borrowings and Borrowing Arrangements , ALG suspended its share repurchase program. Kraft began to repurchase its Class A common stock in 2002 to satisfy the requirements of its stock-based compensation programs. During 2003 and 2002, Kraft repurchased 12.5 million and 4.4 million of its Class A common stock at a cost of $380 million and $170 million, respectively.

53 Exhibit 13

Note 11.

Stock Plans:

Under the Altria Group, Inc. 2000 Performance Incentive Plan (the “2000 Plan”), Altria Group, Inc. may grant to eligible employees stock options, stock appreciation rights, restricted stock, reload options and other stock-based awards, as well as cash-based annual and long-term incentive awards. Up to 110 million shares of common stock may be issued under the 2000 Plan, of which no more than 27.5 million shares may be awarded as restricted stock. In addition, Altria Group, Inc. may grant up to one million shares of common stock to members of the Board of Directors who are not employees of Altria Group, Inc. under the 2000 Stock Compensation Plan for Non-Employee Directors (the “2000 Directors Plan”). Shares available to be granted under the 2000 Plan and the 2000 Directors Plan at December 31, 2003, were 89,576,230 and 811,092, respectively.

Stock options are granted at an exercise price of not less than fair value on the date of the grant. Stock options granted under the 2000 Plan or the 2000 Directors Plan (collectively, “the Plans”) generally become exercisable on the first anniversary of the grant date and have a maximum term of ten years.

In addition, Kraft may grant stock options, stock appreciation rights, restricted stock, reload options and other awards of its Class A common stock to its employees under the terms of the Kraft Performance Incentive Plan. Up to 75 million shares of Kraft’s Class A common stock may be issued under the Kraft plan. At December 31, 2003, Kraft’s employees held options to purchase 18,281,777 shares of Kraft’s Class A common stock.

Concurrent with Kraft’s IPO, certain Altria Group, Inc. employees received a one-time grant of options to purchase shares of Kraft’s Class A common stock held by Altria Group, Inc. at the IPO price of $31.00 per share. At December 31, 2003, employees held options to purchase approximately 1.6 million shares of Kraft’s Class A common stock from Altria Group, Inc. In order to completely satisfy the obligation, Altria Group, Inc. purchased 1.6 million shares of Kraft’s Class A common stock in open market transactions during 2002.

Altria Group, Inc. and Kraft apply the intrinsic value-based methodology in accounting for the various stock plans. Accordingly, no compensation expense has been recognized other than for restricted stock awards. Had compensation cost for stock option awards been determined by using the fair value at the grant date, Altria Group, Inc.’s net earnings and basic and diluted EPS would have been $9,185 million, $4.53 and $4.51, respectively, for the year ended December 31, 2003; $10,965 million, $5.19 and $5.15, respectively, for the year ended December 31, 2002; and $8,358 million, $3.83 and $3.78, respectively, for the year ended December 31, 2001. The foregoing impact of compensation cost was determined using a modified Black-Scholes methodology and the following assumptions for Altria Group, Inc. and Kraft Class A common stock:

Expected Risk-Free Expected Fair Value Interest Weighted Average Dividend at Grant Rate Expected Life Volatility Yield Date

2003 Altria Group, Inc. 2.72 % 4 years 37.33 % 6.26 % $ 8.20

2002 Altria Group, Inc. 3.89 5 31.73 4.54 10.17 2002 Kraft 4.27 5 28.72 1.41 10.65 2001 Altria Group, Inc. 4.85 5 33.75 4.67 10.71 2001 Kraft 4.81 5 29.70 1.68 9.13

Altria Group, Inc. stock option activity was as follows for the years ended December 31, 2001, 2002 and 2003:

Weighted

Average Shares Subject Exercise Options to Option Price Exercisable

Balance at January 1, 2001 132,998,938 $ 31.11 92,266,885 Options granted 35,636,252 45.64 Options exercised (30,276,835 ) 25.71 Options canceled (1,223,518 ) 42.45

Balance at December 31, 2001 137,134,837 35.98 103,155,954 Options granted 3,245,480 53.08 Options exercised (24,115,829 ) 30.33 Options canceled (1,941,148 ) 38.22

Balance at December 31, 2002 114,323,340 37.62 105,145,417 Options granted 1,317,224 42.72 Options exercised (15,869,797 ) 28.57 Options canceled (3,072,139 ) 47.91

Balance at December 31, 2003 96,698,628 38.85 95,229,316

The weighted average exercise prices of Altria Group, Inc. options exercisable at December 31, 2003, 2002 and 2001, were $38.78, $36.57 and $32.74, respectively.

The following table summarizes the status of Altria Group, Inc. stock options outstanding and exercisable as of December 31, 2003, by range of exercise price:

Options Outstanding Options Exercisable

Average Weighted Weighted Remaining Range of Contractual Average Average Exercise Number Exercise Number Exercise Prices Outstanding Life Price Exercisable Price

$21.34 –$31.90 18,186,762 5 years $ 22.36 18,186,762 $ 22.36 33.58 –50.35 76,424,279 5 42.34 75,158,964 42.35 50.43–65.00 2,087,587 6 54.41 1,883,590 54.58

96,698,628 95,229,316

54 Exhibit 13

Altria Group, Inc. and Kraft may grant shares of restricted stock and rights to receive shares of stock 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 2003, 2002 and 2001, Altria Group, Inc. granted 2,327,320, 6,000 and 889,680 shares, respectively, of restricted stock to eligible U.S.- based employees and Directors, and during 2003 and 2001, also issued to eligible non-U.S. employees and Directors rights to receive 1,499,920 and 36,210 equivalent shares, respectively. The market value per restricted share or right was $36.61 on the date of the 2003 grant. At December 31, 2003, restrictions on the Altria Group, Inc. stock, net of forfeitures, lapse as follows: 2004– 141,210 shares; 2005–39,000 shares; 2006–3,539,490 shares; 2007–44,100 shares; and 2008 and thereafter–437,600 shares. During 2003, Kraft granted 3,659,751 restricted Class A shares to eligible U.S.-based employees and issued rights to receive 1,651,717 restricted Class A equivalent shares to eligible non-U.S. employees. Restrictions on the Kraft Class A shares 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. Altria Group, Inc. recorded compensation expense related to restricted stock and other stock awards of $90 million (including $48 million related to Kraft awards), $13 million and $89 million for the years ended December 31, 2003, 2002 and 2001, respectively. The unamortized portion related to Altria Group, Inc. restricted stock, which is reported as a reduction of earnings reinvested in the business, was $101 million and $8 million at December 31, 2003 and 2002, respectively.

Note 12.

Earnings per Share:

Basic and diluted EPS were calculated using the following for the years ended December 31, 2003, 2002 and 2001:

(in millions) 2003 2002 2001

Net earnings $ 9,204 $ 11,102 $ 8,560

Weighted average shares for basic EPS 2,028 2,111 2,181 Plus incremental shares from assumed conversions: Restricted stock and stock rights 2 1 7 Stock options 8 17 22

Weighted average shares for diluted EPS 2,038 2,129 2,210

Incremental shares from assumed conversions are calculated as the number of shares that would be issued, net of the number of shares that could be purchased in the marketplace with the cash received upon stock option exercise or, in the case of restricted stock, the amount of the related unamortized compensation expense. For the 2003, 2002 and 2001 computations, 43 million, 11 million and 5 million stock options, respectively, were excluded from the calculation of weighted average shares for diluted EPS because their effects were antidilutive (i.e., the cash that would be received upon exercise is greater than the average market price of the stock during the year).

Note 13.

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, 2003, 2002 and 2001:

(in millions) 2003 2002 2001

Pre-tax earnings: United States $ 8,201 $ 12,179 $ 9,105 Outside United States 6,559 5,919 5,179

Total pre -tax earnings $ 14,760 $ 18,098 $ 14,284

Provision for income taxes: United States federal: Current $ 1,970 $ 2,633 $ 2,722 Deferred 742 1,493 570

2,712 4,126 3,292 State and local 383 459 484

Total United States 3,095 4,585 3,776

Outside United States: Current 1,814 1,747 1,516 Deferred 242 92 115

Total outside United States 2,056 1,839 1,631

Total provision for income taxes $ 5,151 $ 6,424 $ 5,407

At December 31, 2003, applicable United States federal income taxes and foreign withholding taxes have not been provided on approximately $8.6 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, 2003, 2002 and 2001:

2003 2002 2001

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 1.3 1.7 2.3 Goodwill amortization 2.3 Other (including reversal of taxes no longer required) (1.4) (1.2 ) (1.7)

Effective tax rate 34.9 % 35.5 % 37.9 %

The effective tax rate impact of state and local income taxes in 2003 reflects reversals of $74 million of state tax liabilities, net of federal tax benefit, that are no longer needed due to published rulings during 2003.

55 Exhibit 13

The tax effects of temporary differences that gave rise to consumer products deferred income tax assets and liabilities consisted of the following at December 31, 2003 and 2002:

(in millions) 2003 2002

Deferred income tax assets: Accrued postretirement and postemployment benefits $ 1,392 $ 1,291 Settlement charges 1,240 1,066 Other 415 733

Total deferred income tax assets 3,047 3,090

Deferred income tax liabilities: Trade names (3,839 ) (3,839 ) Unremitted earnings (862 ) (651 ) Property, plant and equipment (2,275 ) (2,158 ) Prepaid pension costs (1,199 ) (660 )

Total deferred income tax liabilities (8,175 ) (7,308 )

Net deferred income tax liabilities $ (5,128 ) $ (4,218 )

Financial services deferred income tax liabilities are primarily attributable to temporary differences relating to net investments in finance leases.

Note 14.

Segment Reporting:

The products of ALG’s subsidiaries include cigarettes, food (consisting principally of a wide variety of snacks, beverages, cheese, grocery products and convenient meals) and beer, prior to the merger of Miller into SAB on July 9, 2002. Another subsidiary of ALG, PMCC, is primarily engaged in leasing activities. The products and services of these subsidiaries constitute Altria Group, Inc.’s reportable segments of domestic tobacco, international tobacco, North American food, international food, beer (prior to July 9, 2002) and financial services.

Altria Group, Inc.’s management reviews operating companies income to evaluate segment performance and allocate resources. Operating companies income for the segments excludes general corporate expenses and amortization of intangibles. Interest and other debt expense, net (consumer products), and provision for income taxes are centrally managed at the ALG level and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by Altria Group, Inc.’s management. Altria Group, Inc.’s assets are managed on a worldwide basis by major products and, accordingly, asset information is reported for the tobacco, food and financial services segments, and for 2001, the beer segment. Intangible assets and related amortization are principally attributable to the food businesses. Other assets consist primarily of cash and cash equivalents and the investment in SABMiller. The accounting policies of the segments are the same as those described in Note 2. Summary of Significant Accounting Policies .

Segment data were as follows:

(in millions) 2003 2002 2001

Net revenues: Domestic tobacco $ 17,001 $ 18,877 $ 19,902 International tobacco 33,389 28,672 26,517 North American food 21,907 21,485 20,970 International food 9,103 8,238 8,264 Beer 2,641 4,791 Financial services 432 495 435

Net revenues $ 81,832 $ 80,408 $ 80,879

Earnings before income taxes, minority interest and cumulative effect of accounting change: Operating companies income: Domestic tobacco $ 3,889 $ 5,011 $ 5,264 International tobacco 6,286 5,666 5,406 North American food 4,920 4,953 4,796 International food 1,282 1,330 1,239 Beer 276 481 Financial services 313 55 296 Amortization of intangibles (9 ) (7 ) (1,014 ) General corporate expenses (771 ) (683 ) (766 )

Operating income 15,910 16,601 15,702 Gain on Miller transaction 2,631 Interest and other debt expense, net (1,150 ) (1,134 ) (1,418 )

Earnings before income taxes, minority interest and cumulative effect of accounting change $ 14,760 $ 18,098 $ 14,284

Items affecting comparability of results were as follows:

• Domestic Tobacco Legal Settlement — As discussed in Note 18. Contingencies , on May 16, 2003, PM USA and certain other defendants reached an agreement with a class of U.S. tobacco growers and quota-holders to resolve a lawsuit related to tobacco leaf purchases. During 2003, PM USA recorded pre-tax charges of $202 million for its obligations under the agreement. The pre-tax charges are included in the operating companies income of the domestic tobacco segment.

• Domestic Tobacco Headquarters Relocation Charges — During the first quarter of 2003, PM USA announced that it will be moving its corporate headquarters from New York City to Richmond, Virginia, by June 2004. PMUSA estimates that the total cost of the relocation will be approximately $120 million, including compensation to those employees who do not relocate. Approximately 270 or 40% of the eligible employees elected to relocate. In accordance with SFAS No. 146, pre -tax charges of $69 million were recorded in operating companies income of the domestic tobacco segment in 2003 for relocation charges. The relocation will require total cash payments of approximately $70 million in 2004 and $20 million in 2005 and beyond. Cash payments of approximately $30 million have been made through December 31, 2003.

56 Exhibit 13

• Gains on Sales of Businesses — During 2003, KFI sold a European rice business and a branded fresh cheese business in Italy and recorded aggregate pre-tax gains of $31 million. During 2002, KFI sold a Latin American yeast and industrial bakery ingredients business, resulting in a pre-tax gain of $69 million, and Kraft sold several small businesses, resulting in pre-tax gains of $11 million.

• Integration Costs and a Loss on Sale of a Food Factory — Altria Group, Inc.’s consolidated statements of earnings disclose the following items as integration costs, which are costs incurred by Kraft as it integrated the operations of Nabisco, and a loss on sale of a food factory. During 2003, Kraft reversed $13 million related to the previously recorded integration charges.

(in millions) For the years ended December 31, 2003 2002 2001

Total $ (13 ) $ 111 $ 82

• Asset Impairment and Exit Costs — For the years ended December 31, 2003, 2002 and 2001, asset impairment and exit costs were comprised of the following:

(in millions) 2003 2002 2001

Total $ 86 $ 223 $ 19

* During January 2004, Altria Group, Inc. announced plans to sell its office facility in Rye Brook, New York. Approximately 1,000 employees currently work at the facility and these employees will either be relocated to other office facilities or will be severed. In connection with the decision to sell the facility, Altria Group, Inc. recorded a pre-tax charge of $41 million to write down the facility and the related fixed assets to fair value. During 2003, Altria Group, Inc. also recorded a pre-tax charge of $26 million, primarily for severance benefits related to the streamlining of various corporate functions.

• Litigation Related Expense — As discussed in Note 18. Contingencies , in connection with obtaining a stay of execution in May 2001 in the Engle class action, PM USA placed $500 million into a separate interest-bearing escrow account that, regardless of the outcome of the appeal, will be paid to the court and the court will determine how to allocate or distribute it consistent with the Florida Rules of Civil Procedure. As a result, PM USA recorded a $500 million pre-tax charge in its operating results for the year ended December 31, 2001.

• Miller Transaction — As more fully discussed in Note 3. Miller Brewing Company Transaction , on July 9, 2002, Miller was merged into SAB to form SABMiller. The transaction resulted in a pre-tax gain of $2.6 billion or $1.7 billion after-tax.

57 Exhibit 13

See Notes 3, 4 and 5, respectively, regarding the Miller Brewing Company transaction, divestitures and acquisitions.

(in millions) For the years ended December 31, 2003 2002 2001

Depreciation expense: Domestic tobacco $ 194 $ 194 $ 187 International tobacco 370 307 294 North American food 542 506 483 International food 262 203 197 Beer 61 119

1,368 1,271 1,280 Other 63 53 43

Total depreciation expense $ 1,431 $ 1,324 $ 1,323

Assets: Tobacco $ 23,298 $ 18,329 $ 17,791 Food 59,735 57,245 55,798 Beer 1,782 Financial services 8,540 9,231 8,864

91,573 84,805 84,235 Other 4,602 2,735 733

Total assets $ 96,175 $ 87,540 $ 84,968

Capital expenditures: Domestic tobacco $ 154 $ 140 $ 166 International tobacco 586 497 418 North American food 713 808 761 International food 372 376 340 Beer 84 132

1,825 1,905 1,817 Other 149 104 105

Total capital expenditures $ 1,974 $ 2,009 $ 1,922

Altria Group, Inc.’s operations outside the United States, which are principally in the tobacco and food businesses, are organized into geographic regions within each segment, with Europe being the most significant. Total tobacco and food segment net revenues attributable to customers located in Germany, Altria Group, Inc.’s largest European market, were $8.5 billion, $7.4 billion and $6.8 billion for the years ended December 31, 2003, 2002 and 2001, respectively.

Geographic data for net revenues and long-lived assets (which consist of all financial services assets and non-current consumer products assets, other than goodwill and other intangible assets) were as follows:

(in millions) For the years ended December 31, 2003 2002 2001

Net revenues: United States — domestic $ 36,769 $ 41,067 $ 43,876 — export 3,529 3,658 3,866 Europe 30,842 26,118 22,737 Other 10,692 9,565 10,400

Total net revenues $ 81,832 $ 80,408 $ 80,879

Long-lived assets: United States $ 25,825 $ 24,308 $ 22,864 Europe 6,048 4,939 4,328 Other 3,375 2,981 2,953

Total long -lived assets $ 35,248 $ 32,228 $ 30,145

Note 15.

Benefit Plans:

In December 2003, the FASB issued a revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” In 2003, Altria Group, Inc. adopted the revised disclosure requirements of this pronouncement, except for certain disclosures about non-U.S. plans and estimated future benefit payments which are not required until 2004.

Altria Group, Inc. sponsors noncontributory defined benefit pension plans covering substantially all U.S. employees. Pension coverage for employees of ALG’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, ALG and its 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.

The plan assets and benefit obligations of Altria Group, Inc.’s U.S. pension plans are measured at December 31 of each year.

58 Exhibit 13

Pension Plans

Obligations and Funded Status

The benefit obligations, plan assets and funded status of Altria Group, Inc.’s pension plans at December 31, 2003 and 2002, were as follows:

U.S. Plans Non-U.S. Plans

(in millions) 2003 2002 2003 2002

Benefit obligation at January 1 $ 9,002 $ 8,818 $ 4,074 $ 3,404 Service cost 234 215 140 105 Interest cost 579 590 217 183 Benefits paid (604 ) (845 ) (209 ) (179 ) Miller transaction (650 ) Termination, settlement and curtailment 46 126 11 Actuarial losses 428 756 236 208 Currency 626 301 Other (2 ) (8 ) 72 41

Benefit obligation at December 31 9,683 9,002 5,156 4,074

Fair value of plan assets at January 1 7,535 9,448 2,548 2,272 Actual return on plan assets 1,821 (1,304 ) 351 (156 ) Contributions 853 705 316 399 Benefits paid (648 ) (858 ) (164 ) (137 ) Miller transaction (476 ) Currency 382 170 Actuarial (losses) gains (6 ) 20

Fair value of plan assets at December 31 9,555 7,535 3,433 2,548

Funded status (plan assets less than benefit obligations) at December 31 (128 ) (1,467 ) (1,723 ) (1,526 ) Unrecognized actuarial losses 3,615 4,052 1,482 1,213 Unrecognized prior service cost 130 134 105 72 Additional minimum liability (196 ) (1,096 ) (618 ) (493 ) Unrecognized net transition obligation 7 7

Net prepaid pension asset (liability) recognized $ 3,421 $ 1,623 $ (747 ) $ (727 )

The combined U.S. and non-U.S. pension plans resulted in a net prepaid pension asset of $2.7 billion and $0.9 billion at December 31, 2003 and 2002, respectively. These amounts were recognized in Altria Group, Inc.’s consolidated balance sheets at December 31, 2003 and 2002, as other assets of $4.5 billion and $3.0 billion, respectively, for those plans in which plan assets exceeded their accumulated benefit obligations, and as other liabilities of $1.8 billion and $2.1 billion, respectively, for those plans in which the accumulated benefit obligations exceeded their plan assets.

For U.S. and non-U.S. pension plans, the change in the additional minimum liability in 2003 and 2002 was as follows:

U.S. Plans Non-U.S. Plans

(in millions) 2003 2002 2003 2002

Decrease (increase) in minimum liability included in other comprehensive earnings (losses), net of tax $ 508 $ (531 ) $ (44 ) $ (229 )

The accumulated benefit obligation for the U.S. pension plans was $8.5 billion and $7.8 billion at December 31, 2003 and 2002, respectively.

For U.S. plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $557 million, $396 million and $17 million, respectively, as of December 31, 2003, and $4,026 million, $3,442 million and $2,615 million, respectively, as of December 31, 2002. At December 31, 2003, the majority of these relate to plans for salaried employees that cannot be funded under I.R.S. regulations. For non-U.S. plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $3,780 million, $3,307 million and $2,048 million, respectively, as of December 31, 2003, and $2,904 million, $2,512 million and $1,433 million, respectively, as of December 31, 2002.

59 Exhibit 13

The following weighted-average assumptions were used to determine Altria Group, Inc.’s benefit obligations under the plans at December 31:

U.S. Plans Non-U.S. Plans

2003 2002 2003 2002

Discount rate 6.25 % 6.50 % 4.87 % 4.99 % Rate of compensation increase 4.20 4.20 3.40 3.30

Components of Net Periodic Benefit Cost

Net periodic pension (income) cost consisted of the following for the years ended December 31, 2003, 2002 and 2001:

U.S. Plans Non-U.S. Plans

(in millions) 2003 2002 2001 2003 2002 2001

Service cost $ 234 $ 215 $ 189 $ 140 $ 105 $ 100 Interest cost 579 590 595 217 183 174 Expected return on plan assets (936 ) (943 ) (961 ) (257 ) (209 ) (205 ) Amortization: Net gain on adoption of SFAS No. 87 (1 ) (10 ) Unrecognized net loss (gain) from experience differences 46 23 (34 ) 29 7 (3 ) Prior service cost 16 14 22 11 9 7 Termination, settlement and curtailment 68 133 (12 ) 28

Net periodic pension cost (income) $ 7 $ 31 $ (211 ) $ 140 $ 123 $ 73

During 2003, 2002 and 2001, employees left Altria Group, Inc. under voluntary early retirement and workforce reduction programs, and through the Miller transaction. These events resulted in settlement losses, curtailment losses and termination benefits of $17 million and $112 million for the U.S. plans in 2003 and 2002, respectively. In addition, retiring employees of KFNA elected lump-sum payments, resulting in settlement losses of $51 million and $21 million in 2003 and 2002, respectively, and settlement gains of $12 million in 2001. During 2002, early retirement programs in the international tobacco business resulted in additional termination benefits of $28 million for the non-U.S. plans.

The following weighted-average assumptions were used to determine Altria Group, Inc.’s net pension cost for the years ended December 31:

U.S. Plans Non-U.S. Plans

2003 2002 2001 2003 2002 2001

Discount rate 6.50 % 7.00 % 7.75 % 4.99 % 5.38 % 5.52 % Expected rate of return on plan assets 9.00 9.00 9.00 7.81 7.94 7.93 Rate of compensation increase 4.20 4.50 4.50 3.30 3.68 3.81

Altria Group, Inc.’s expected rate of return on plan assets is determined by the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class.

ALG and certain of its subsidiaries sponsor deferred profit-sharing plans covering certain salaried, non-union and union employees. Contributions and costs are determined generally as a percentage of pre-tax earnings, as defined by the plans. Certain other subsidiaries of ALG also maintain defined contribution plans. Amounts charged to expense for defined contribution plans totaled $235 million, $222 million and $231 million in 2003, 2002 and 2001, respectively.

Plan Assets

Altria Group, Inc.’s U.S. pension plans asset allocation at December 31, 2003 and 2002, was as follows:

Percentage of Fair Value of Plan Assets at December 31

U.S. Plans Asset Category 2003 2002

Equity securities 71 % 61 % Debt securities 26 34 Real estate 1 1 Other 2 4

Total 100 % 100 %

Altria Group, Inc.’s investment strategy is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, the composition of Altria Group, Inc.’s plan assets is broadly characterized as a 70%/30% allocation between equity and debt securities. The strategy utilizes indexed U.S. equity securities and actively managed investment grade debt securities (which constitute 80% or more of debt securities) with lesser allocations to high-yield and international debt securities.

Altria Group, Inc. attempts to mitigate investment risk by rebalancing between equity and bond asset classes as Altria Group, Inc.’s contributions and monthly benefit payments are made.

Altria Group, Inc. presently plans to make contributions, to the extent that they are tax deductible, in order to maintain plan assets in excess of the accumulated benefit obligation of its funded domestic plans. Currently, Altria Group, Inc. anticipates making contributions of approximately $100 million in 2004, based on current tax law. However, this estimate is subject to change as a result of current tax proposals before Congress, as

60 Exhibit 13 well as asset performance significantly above or below the assumed long -term rate of return on pension assets.

Postretirement Benefit Plans

Net postretirement health care costs consisted of the following for the years ended December 31, 2003, 2002 and 2001:

(in millions) 2003 2002 2001

Service cost $ 80 $ 68 $ 64 Interest cost 270 272 270 Amortization: Unrecognized net loss (gain) from experience differences 47 24 1 Unrecognized prior service cost (27 ) (24 ) (12 ) Other expense 7 16

Net postretirement health care costs $ 377 $ 356 $ 323

During 2003 and 2002, Altria Group, Inc. instituted early retirement programs. These actions resulted in special termination benefits and curtailment losses of $7 million and $16 million in 2003 and 2002, respectively, which are included in other expense above.

In January 2004, the FASB issued FASB Staff Position No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-1”). Altria Group, Inc. has elected to defer accounting for the effects of the Act, as permitted by FSP 106-1. Therefore, in accordance with FSP 106-1, Altria Group, Inc.’s accumulated postretirement benefit obligation and net postretirement health care costs included in the consolidated financial statements and accompanying notes do not reflect the effects of the Act on the plans. Specific authoritative guidance on the accounting for the federal subsidy is pending, and that guidance, when issued, could require Altria Group, Inc. to change previously reported information.

The following weighted-average assumptions were used to determine Altria Group, Inc.’s net postretirement cost for the years ended December 31:

U.S. Plans Canadian Plans

2003 2002 2001 2003 2002 2001

Discount rate 6.50 % 7.00 % 7.75 % 6.75 % 6.75 % 7.00 % Health care cost trend rate 8.00 5.90 6.50 7.00 8.00 9.00

Altria Group, Inc.’s postretirement health care plans are not funded. The changes in the accumulated benefit obligation and net amount accrued at December 31, 2003 and 2002, were as follows:

(in millions) 2003 2002

Accumulated postretirement benefit obligation at January 1 $ 4,249 $ 3,966 Service cost 80 68 Interest cost 270 272 Benefits paid (246 ) (260 ) Miller transaction (322 ) Curtailments 7 21 Plan amendments (28 ) (180 ) Currency 18 Assumption changes 253 348 Actuarial (gains) losses (4 ) 336

Accumulated postretirement benefit obligation at December 31 4,599 4,249

Unrecognized actuarial losses (1,326 ) (1,098 ) Unrecognized prior service cost 202 199

Accrued postretirement health care costs $ 3,475 $ 3,350

The current portion of Altria Group, Inc.’s accrued postretirement health care costs of $259 million and $222 million at December 31, 2003 and 2002, respectively, are included in other accrued liabilities on the consolidated balance sheets.

The following weighted-average assumptions were used to determine Altria Group, Inc.’s postretirement benefit obligations at December 31:

U.S. Plans Canadian Plans

2003 2002 2003 2002

Discount rate 6.25 % 6.50 % 6.50 % 6.75 % Health care cost trend rate assumed for next year 8.90 8.00 8.00 7.00 Ultimate trend rate 5.00 5.00 5.00 4.00 Year that the rate reaches the ultimate trend rate 2006 2006 2010 2006

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one- percentage-point change in assumed health care cost trend rates would have the following effects as of December 31, 2003:

One- One- Percentage- Percentage- Point Point Increase Decrease

Effect on total of service and interest cost 13.4 % (10.8 )% Effect on postretirement benefit obligation 9.6 (8.0 )

61 Exhibit 13

Postemployment Benefit Plans

ALG and certain of its subsidiaries sponsor postemployment benefit plans covering substantially all salaried and certain hourly employees. The cost of these plans is charged to expense over the working life of the covered employees. Net postemployment costs consisted of the following for the years ended December 31, 2003, 2002 and 2001:

(in millions) 2003 2002 2001

Service cost $ 24 $ 48 $ 34 Amortization of unrecognized net loss 11 3 8 Other expense 69 40

Net postemployment costs $ 104 $ 91 $ 42

During 2002, certain salaried employees left Altria Group, Inc. under voluntary early retirement and integration programs. These programs resulted in incremental postemployment costs, which are included in other expense above.

Altria Group, Inc.’s postemployment plans are not funded. The changes in the benefit obligations of the plans at December 31, 2003 and 2002, were as follows:

(in millions) 2003 2002

Accumulated benefit obligation at January 1 $ 473 $ 788 Service cost 24 48 Benefits paid (196 ) (220 ) Miller transaction (35 ) Actuarial losses (gains) 179 (108 )

Accumulated benefit obligation at December 31 480 473 Unrecognized experience losses (14 ) (8 )

Accrued postemployment costs $ 466 $ 465

The accumulated benefit obligation was determined using an assumed ultimate annual turnover rate of 0.5% and 0.3% in 2003 and 2002, respectively, assumed compensation cost increases of 4.2% in 2003 and 2002, 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 16.

Additional Information:

(in millions) For the years ended December 31, 2003 2002 2001

Research and development expense $ 762 $ 686 $ 647

Advertising expense $ 1,657 $ 1,869 $ 2,196

Interest and other debt expense, net: Interest expense $ 1,367 $ 1,327 $ 1,659 Interest income (217 ) (193 ) (241 )

$ 1,150 $ 1,134 $ 1,418

Interest expense of financial services operations included in cost of sales $ 108 $ 97 $ 99

Rent expense $ 767 $ 741 $ 650

Minimum rental commitments under non-cancelable operating leases in effect at December 31, 2003, were as follows:

(in millions)

2004 $ 552 2005 399 2006 277 2007 208 2008 157 Thereafter 450

$ 2,043

Note 17.

Financial Instruments:

• Derivative financial instruments: Altria Group, Inc. 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. Derivative financial instruments are used by Altria Group, Inc., principally to reduce exposures to market risks resulting from fluctuations in foreign exchange rates and commodity prices, by creating offsetting exposures. Altria Group, Inc. is not a party to leveraged derivatives and, by policy, does not use derivative 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. Altria Group, Inc. formally documents the nature 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 the forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it was deemed probable that the forecasted transaction will not occur, the gain or loss would be recognized in earnings currently.

62 Exhibit 13

Altria Group, Inc. uses forward foreign exchange contracts and foreign currency options to mitigate its exposure to changes in exchange rates from third-party and intercompany forecasted transactions and balances. A substantial portion of Altria Group, Inc.’s derivative financial instruments is effective as hedges. The primary currencies to which Altria Group, Inc. is exposed include the Japanese yen, Swiss franc and the euro. At December 31, 2003 and 2002, Altria Group, Inc. had option and forward foreign exchange contracts with aggregate notional amounts of $13.6 billion and $10.1 billion, respectively, which are comprised of contracts for the purchase and sale of foreign currencies. Included in the foreign currency aggregate notional amounts at December 31, 2003 and 2002 were $3.4 billion and $2.6 billion, respectively, of equal and offsetting foreign currency positions, which do not qualify as hedges and that will not result in any significant gain or loss. The effective portion of unrealized gains and losses associated with forward contracts and option contracts is deferred as a component of accumulated other comprehensive earnings (losses) until the underlying hedged transactions are reported on Altria Group, Inc.’s consolidated statement of earnings.

In addition, Altria Group, Inc. uses foreign currency swaps to mitigate its exposure to changes in exchange rates related to foreign currency denominated debt. These swaps typically convert fixed-rate foreign currency denominated debt to fixed-rate debt denominated in the functional currency of the borrowing entity. A substantial portion of the foreign currency swap agreements are accounted for as cash flow hedges. The unrealized gain (loss) relating to foreign currency swap agreements that do not qualify for hedge accounting treatment under SFAS No. 133 was insignificant as of December 31, 2003 and 2002. At December 31, 2003 and 2002, the notional amounts of foreign currency swap agreements aggregated $2.5 billion. Aggregate maturities of foreign currency swap agreements at December 31, 2003, were as follows:

(in millions)

2004 $ 197 2006 1,064 2008 1,282

$ 2,543

Altria Group, Inc. also designates certain foreign currency denominated debt as net investment hedges of foreign operations. During the years ended December 31, 2003, 2002 and 2001, losses of $121 million, net of income taxes, $163 million, net of income taxes, and $18 million, net of income taxes, respectively, which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive earnings (losses) within currency translation adjustments.

Kraft is exposed to price risk related to forecasted purchases of certain commodities used as raw materials. Accordingly, Kraft 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. At December 31, 2003 and 2002, Kraft had net long commodity positions of $255 million and $544 million, respectively. In general, commodity forward contracts qualify for the normal purchase exception under U.S. GAAP. 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 when the related inventory is sold. Unrealized gains or losses on net commodity positions were immaterial at December 31, 2003 and 2002.

During the year ended December 31, 2003, ineffectiveness related to fair value hedges and cash flow hedges was a gain of $13 million, which was recorded in cost of sales on the consolidated statement of earnings. Ineffectiveness related to fair value and cash flow hedges during the year ended December 31, 2002 was not material. Altria Group, Inc. is hedging forecasted transactions for periods not exceeding the next two years. At December 31, 2003, Altria Group, Inc. estimates that derivative losses of $73 million, net of income taxes, reported in accumulated other comprehensive earnings (losses) will be reclassified to the consolidated statement of earnings within the next twelve months.

Derivative gains or losses reported in accumulated other comprehensive earnings (losses) are a result of qualifying hedging activity. Transfers of gains or losses from accumulated other comprehensive earnings (losses) to earnings are offset by the corresponding gains or losses on the underlying hedged item. Hedging activity affected accumulated other comprehensive earnings (losses), net of income taxes, during the years ended December 31, 2003, 2002 and 2001, as follows:

(in millions) 2003 2002 2001

(Loss) gain as of January 1 $ (77 ) $ 33 $ — Impact of SFAS No. 133 adoption 15 Derivative (gains) losses transferred to earnings (42 ) 1 (84 ) Change in fair value 36 (111 ) 102

(Loss) gain as of December 31 $ (83 ) $ (77 ) $ 33

• Credit exposure and credit risk: Altria Group, Inc. is exposed to credit loss in the event of nonperformance by counterparties. Altria Group, Inc. does not anticipate nonperformance within its consumer products businesses. However, see Note 7. Finance Assets, net regarding certain aircraft leases.

• Fair value: The aggregate fair value, based on market quotes, of Altria Group, Inc.’s total debt at December 31, 2003, was $25.8 billion, as compared with its carrying value of $24.5 billion. The aggregate fair value of Altria Group, Inc.’s total debt at December 31, 2002, was $24.6 billion, as compared with its carrying value of $23.3 billion.

The fair value, based on market quotes, of Altria Group, Inc.’s equity investment in SABMiller at December 31, 2003, was $4.4 billion, as compared with its carrying value of $2.1 billion. The fair value of Altria Group, Inc.’s equity investment in SABMiller at December 31, 2002, was $3.1 billion, as compared with its carrying value of $1.9 billion.

See Notes 8 and 9 for additional disclosures of fair value for short-term borrowings and long-term debt.

63 Exhibit 13

Note 18.

Contingencies:

Overview of Tobacco-Related Litigation

• Types and Number of Cases: Pending claims related to tobacco products generally fall within the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs, (ii) smoking and health cases primarily alleging personal injury and purporting to be brought on behalf of a class of individual plaintiffs, including cases in which the aggregated claims of a number of individual plaintiffs are to be tried in a single proceeding, (iii) health care cost recovery cases brought by governmental (both domestic and foreign) and non-governmental plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits, and (iv) other tobacco-related litigation. Other tobacco-related litigation includes class action suits alleging that the use of the terms “Lights” and “Ultra Lights” constitutes deceptive and unfair trade practices, suits by foreign governments seeking to recover damages resulting from the allegedly illegal importation of cigarettes into various jurisdictions, suits by former asbestos manufacturers seeking contribution or reimbursement for amounts expended in connection with the defense and payment of asbestos claims that were allegedly caused in whole or in part by cigarette smoking, and various antitrust suits. Damages claimed in some of the tobacco-related litigation range into the billions of dollars. Plaintiffs’ theories of recovery and the defenses raised in the smoking and health and health care cost recovery cases are discussed below.

The table below lists the number of certain tobacco-related cases pending against PM USA and, in some instances, ALG or PMI, as of December 31, 2003, December 31, 2002 and December 31, 2001, and a page-reference to further discussions of each type of case. Number of Cases Number of Cases Number of Cases Pending as of Pending as of Pending as of Type of Case December 31, 2003 December 31, 2002 December 31, 2001 Page References

Individual Smoking and Health Cases (1) (2) 423 250 250 67 Smoking and Health Class Actions and Aggregated Claims Litigation (3) 12 41 37 67 Health Care Cost Recovery Actions 13 41 45 67 -68 Lights/Ultra Lights Class Actions 21 11 10 69 Tobacco Price Cases (4) 28 39 36 69 Cigarette Contraband Cases (5) 5 5 5 70 Asbestos Contribution Cases 7 8 13 70

(1) The increase in cases at December 31, 2003 compared to prior periods is due primarily to new cases being filed in Maryland and to the reclassification as individual cases of purported class actions filed in Nevada, following the denials of plaintiffs’ motions for class certification.

(2) Does not include 2,740 cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action, which was settled in 1997. The terms of the court-approved settlement in that case allow class members to file individual lawsuits seeking compensatory damages, but prohibit them from seeking punitive damages.

(3) Includes as one case the aggregated claims of 1,026 individuals that are proposed to be tried in a single proceeding in West Virginia.

(4) Includes 26 cases that were dismissed in January 2004 on plaintiffs’ motions.

(5) Includes three cases in which dismissals became final in January 2004, following the United States Supreme Court’s refusal to grant further review of these cases.

There are also a number of other tobacco-related actions pending outside the United States against PMI and its affiliates and subsidiaries, including an estimated 99 smoking and health cases brought on behalf of individuals (Argentina (45), Australia (2), Brazil (35), Czech Republic (2), Israel (2), Italy (7), the Philippines, Poland, Scotland, Spain (2) and Venezuela), compared with approximately 86 such cases on December 31, 2002, and 64 such cases on December 31, 2001. In addition, as of December 31, 2003, there were six smoking and health putative class actions pending outside the United States (Brazil, Canada (4) and Spain), compared with eight such cases on December 31, 2002, and 11 such cases on December 31, 2001. In addition, four health care cost recovery actions are pending in Israel, Canada, France and Spain against PMI or its affiliates.

• Pending and Upcoming Trials: Certain cases against PM USA and, in some instances, ALG, are scheduled for trial through the end of 2004, including the second phase of the trial in the Scott, et al. v. The American Tobacco Company, Inc. et al . medical monitoring class action (discussed below) and the health care cost recovery case brought by the United States government (discussed below) and an estimated 11 individual smoking and health cases. In addition, four cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by ETS are scheduled for trial through the end of 2004, including one trial scheduled to begin during the next three months. Cases against other tobacco companies are also scheduled for trial through the end of 2004. Trial dates are subject to change.

• Recent Trial Results: Since January 1999, verdicts have been returned in 36 smoking and health, Lights/Ultra Lights and health care cost recovery cases in which PM USA was a defendant. Verdicts in favor of PM USA and other defendants were returned in 23 of the 36 cases. These 23 cases were tried in California (2), Florida (7), Mississippi, Missouri, New Hampshire, New Jersey, New York (3), Ohio (2), Pennsylvania, Rhode Island, Tennessee (2) and West Virginia. Plaintiffs’ appeals or post-trial motions challenging the verdicts are pending in California, Florida, Missouri, New Hampshire,

64 Exhibit 13

Ohio, Pennsylvania and West Virginia. A motion for a new trial has been granted in one of the cases in Florida. In addition, in December 2002, a court dismissed an individual smoking and health case in California at the end of trial.

The chart below lists the verdicts and post-trial developments in the 13 pending cases that have gone to trial since January 1999 in which verdicts were returned in favor of plaintiffs.

Location of Court/ Date Name of Plaintiff Type of Case Verdict Post-Trial Developments

November Missouri/ Individual Smoking $2.1 million in compensatory In December 2003, PM USA filed 2003 Thompson and Health damages against all post-trial motions challenging the defendants, including verdict. $837,403 against PM USA.

April 2003 Florida/ Eastman Individual Smoking $6.54 million in PM USA has filed its appeal, which and Health compensatory damages, is currently pending before a Florida against all defendants, Court of Appeal. including $2.62 million against PM USA.

March 2003 Illinois/ Price Lights/Ultra Lights $7.1005 billion in The Illinois Supreme Court has Class Action compensatory damages and agreed to hear PM USA’s appeal. $3 billion in punitive See the discussion of the Price case damages against PM USA. under the heading Certain Other Tobacco-Related Litigation Lights/Ultra Lights Cases.

October 2002 California/ Bullock Individual Smoking $850,000 in compensatory In December 2002, the trial court and Health damages and $28 billion in reduced the punitive damages punitive damages against award to $28 million; PM USA and PM USA. plaintiff have appealed.

June 2002 Florida/ French Flight Attendant $5.5 million in compensatory In September 2002, the trial court ETS Litigation damages against all reduced the damages award to defendants, including PM $500,000; plaintiff and defendants USA. have appealed.

June 2002 Florida/ Lukacs Individual Smoking $37.5 million in In March 2003, the trial court and Health compensatory damages reduced the damages award to against all defendants, $24.86 million; PM USA intends to including PM USA. appeal.

March 2002 Oregon/ Schwarz Individual Smoking $168,500 in compensatory In May 2002, the trial court reduced and Health damages and $150 million in the punitive damages award to $100 punitive damages against million; PM USA and plaintiff have PM USA. appealed.

June 2001 California/ Boeken Individual Smoking $5.5 million in compensatory In August 2001, the trial court and Health damages and $3 billion in reduced the punitive damages punitive damages against award to $100 million; PM USA and PM USA. plaintiff have appealed.

June 2001 New York/ Empire Health Care Cost $17.8 million in In February 2002, the trial court Blue Cross and Recovery compensatory damages awarded plaintiffs $38 million in Blue Shield against all defendants, attorneys’ fees. In September 2003, including $6.8 million against the United States Court of Appeals PM USA. for the Second Circuit reversed the portion of the judgment relating to subrogation, certified questions relating to plaintiff’s direct claims of deceptive business practices to the New York Court of Appeals and deferred its ruling on the appeal of the attorneys’ fees award pending the ruling on the certified questions. July 2000 Florida/ Engle Smoking and $145 billion in punitive In May 2003, the Florida Third Health Class Action damages against all District Court of Appeal reversed the defendants, including $74 judgment entered by the trial court billion against PM USA. and instructed the trial court to order the decertification of the class. Plaintiffs’ motion for re-consideration was denied in September 2003, and plaintiffs petitioned the Florida Supreme Court for further review. See “ Engle Class Action ” below.

65 Exhibit 13

Location of Court/ Date Name of Plaintiff Type of Case Verdict Post-Trial Developments

March 2000 California/ Whiteley Individual Smoking $1.72 million in In May 2000, PM USA filed its and Health compensatory damages appeal, which is currently pending against PM USA and before a California Court of Appeal. another defendant, and $10 million in punitive damages against each of PM USA and the other defendant.

March 1999 Oregon/ Williams Individual Smoking $800,000 in compensatory The trial court reduced the punitive and Health damages, $21,500 in damages award to $32 million, and medical expenses and $79.5 PM USA and plaintiff appealed. In million in punitive damages June 2002, the Oregon Court of against PM USA. Appeals reinstated the $79.5 million punitive damages award. Following the Oregon Supreme Court’s refusal to hear PM USA’s appeal, PM USA recorded a provision of $32 million in marketing, administration and research costs on the 2002 consolidated statement of earnings as its best estimate of the probable loss in this case and petitioned the United States Supreme Court for further review. In October 2003, the United States Supreme Court set aside the Oregon appellate court’s ruling, and directed the Oregon court to reconsider the case in light of the recent State Farm decision by the United States Supreme Court, which limited punitive damages.

February 1999 California/ Henley Individual Smoking $1.5 million in compensatory The trial court reduced the punitive and Health damages and $50 million in damages award to $25 million and punitive damages against PM USA and plaintiff appealed. A PM USA. California Court of Appeal affirmed the trial court’s ruling, and PM USA appealed to the California Supreme Court, which vacated the decision of the Court of Appeal. In September 2003, the Court of Appeal, citing the State Farm decision, reduced the punitive damages award to $9 million. In November 2003, PM USA petitioned the California Supreme Court for further review.

With respect to certain adverse verdicts currently on appeal, excluding amounts relating to the Engle and Price cases, as of December 31, 2003, PM USA has posted various forms of security totaling $367 million, the majority of which have been collateralized with cash deposits, to obtain stays of judgments pending appeals. The cash deposits are included in other assets on the consolidated balance sheets.

• Engle Class Action: In July 2000, in the second phase of the Engle smoking and health class action in Florida, a jury returned a verdict assessing punitive damages totaling approximately $145 billion against various defendants, including $74 billion against PM USA. Following entry of judgment, PM USA posted a bond in the amount of $100 million and appealed.

In May 2003, the Florida Third District Court of Appeal reversed the judgment entered by the trial court with instructions for the trial court to order the decertification of the class. Plaintiffs’ motion for reconsideration was denied in September 2003, and plaintiffs have petitioned the Florida Supreme Court for further review.

66 Exhibit 13

Smoking and Health Litigation

• Overview: Plaintiffs’ allegations of liability in smoking and health cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violations of deceptive trade practice laws and consumer protection statutes, and claims under the federal and state RICO statutes. In certain of these cases, plaintiffs claim that cigarette smoking exacerbated the injuries caused by their exposure to asbestos. Plaintiffs in the smoking and health actions seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, statutes of limitations and preemption by the Federal Cigarette Labeling and Advertising Act.

• Smoking and Health Class Actions: Since the dismissal in May 1996 of a purported nationwide class action brought on behalf of “addicted” smokers, plaintiffs have filed numerous putative smoking and health class action suits in various state and federal courts. In general, these cases purport to be brought on behalf of residents of a particular state or states (although a few cases purport to be nationwide in scope) and raise addiction claims and, in many cases, claims of physical injury as well.

Health Care Cost Recovery Litigation

• Overview: In health care cost recovery litigation, domestic and foreign governmental entities and non-governmental plaintiffs seek reimbursement of health care cost expenditures allegedly caused by tobacco products and, in some cases, of future expenditures and damages as well. Relief sought by some but not all plaintiffs includes punitive damages, multiple damages and other statutory damages and penalties, injunctions prohibiting alleged marketing and sales to minors, disclosure of research, disgorgement of profits, funding of anti-smoking programs, additional disclosure of nicotine yields, and payment of attorney and expert witness fees.

The claims asserted include the claim that cigarette manufacturers were “unjustly enriched” by plaintiffs’ payment of health care costs allegedly attributable to smoking, as well as claims of indemnity, negligence, strict liability, breach of express and implied warranty, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, claims under federal and state statutes governing consumer fraud, antitrust, deceptive trade practices and false advertising, and claims under federal and state anti-racketeering statutes.

67 Exhibit 13 defendants in a health care cost recovery action brought by a Blue Cross and Blue Shield plan, and defendants, including PM USA appealed. See the discussion of the Empire Blue Cross and Blue Shield case above under the heading Recent Trial Results for the post-trial developments in this case.

• Settlements of Health Care Cost Recovery Litigation: In November 1998, PM USA and certain other United States tobacco product manufacturers entered into the Master Settlement Agreement (the “MSA”) with 46 states, the District of Columbia, Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern Marianas to settle asserted and unasserted health care cost recovery and other claims. PM USA and certain other United States tobacco product manufacturers had previously settled similar claims brought by Mississippi, Florida, Texas and Minnesota (together with the MSA, the “State Settlement Agreements”). The State Settlement Agreements require that the domestic tobacco industry make substantial annual payments in the following amounts (excluding future annual payments contemplated by the agreement with tobacco growers discussed below), subject to adjustments for several factors, including inflation, market share and industry volume: 2004 through 2007, $8.4 billion each year; and, thereafter, $9.4 billion each year. In addition, the domestic tobacco industry is required to pay settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million. PM USA’s portion of ongoing adjusted payments and legal fees is based on its relative share of the settling manufacturers’ domestic cigarette shipments, including roll-your-own cigarettes, in the year preceding that in which the payment is due. PM USA records its portions of ongoing settlement payments as part of cost of sales as product is shipped. These payment obligations are the several and not joint obligations of each of the settling defendants.

Two cases are pending in New York and Pennsylvania in which plaintiffs challenge the validity of the MSA and allege that the MSA violates antitrust laws. In the case pending in New York, in which PM USA is a defendant, defendants’ motions to dismiss have been granted in part and denied in part. In July 2003, an appellate court affirmed the dismissal of the case in Pennsylvania, and plaintiffs have petitioned the United States Supreme Court for further review.

• Federal Government ’s Lawsuit: In 1999, the United States government filed a lawsuit in the United States District Court for the District of Columbia against various cigarette manufacturers and others, including PM USA and ALG, asserting claims under three federal statutes, the Medical Care Recovery Act (“MCRA”), the Medicare Secondary Payer (“MSP”) provisions of the Social Security Act and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The lawsuit seeks to recover an unspecified amount of health care costs for tobacco-related illnesses allegedly caused by defendants’ fraudulent and tortious conduct and paid for by the government under various federal health care programs, including Medicare, military and veterans’ health benefits programs, and the Federal Employees Health Benefits Program. The complaint alleges that such costs total more than $20 billion annually. It also seeks what it alleges to be equitable and declaratory relief, including disgorgement of profits which arose from defendants’ allegedly tortious conduct, an injunction prohibiting certain actions by the defendants, and a declaration that the defendants are liable for the federal government’s future costs of providing health care resulting from defendants’ alleged past tortious and wrongful conduct. PM USA and ALG moved to dismiss this lawsuit on numerous grounds, including that the statutes invoked by the government do not provide a basis for the relief sought. In September 2000, the trial court dismissed the government’s MCRA and MSP claims, but permitted discovery to proceed on the government’s claims for relief under RICO. In January 2003, the government and defendants submitted preliminary proposed findings of fact and conclusions of law; rebuttals were filed in April. The government alleges that disgorgement by defendants of approximately $280 billion is an appropriate remedy. In May 2003, the court denied defendants’ motion for partial summary judgment seeking to dismiss the claims related to advertising, marketing, promotions and health warnings. Additional motions for summary judgment have been filed by the government and defendants. In January 2004, the court granted one of the government’s pending motions and dismissed certain equitable defenses of defendants. The remaining motions for summary judgment filed by the government and defendants are still pending. Trial of the case is currently scheduled for September 2004.

68 Exhibit 13

Certain Other Tobacco-Related Litigation

• Lights/Ultra Lights Cases: These class actions have been brought against PM USA and, in certain instances, ALG and PMI, on behalf of individuals who purchased and consumed various brands of cigarettes, including Marlboro Lights, Marlboro Ultra Lights, Virginia Slims Lights and Superslims, Merit Lights and Cambridge Lights . Plaintiffs in these class actions allege, among other things, that the use of the terms “Lights” and/or “Ultra Lights” constitutes deceptive and unfair trade practices, and seek injunctive and equitable relief, including restitution and, in certain cases, punitive damages. Cases are pending in Arkansas, California, Delaware, Florida, Georgia, Illinois (2), Louisiana, Massachusetts, Minnesota, Missouri, New Hampshire (2), New Jersey, Ohio (2), Oregon, Tennessee, West Virginia (2) and Wisconsin. To date, trial courts in Arizona and Minnesota have refused to certify classes in these cases, and appellate courts in Florida and Massachusetts have overturned class certifications by trial courts. The decertification decision in Massachusetts is currently on appeal to Massachusetts’ highest court. Plaintiffs in the Florida case have indicated their intent to appeal. Trial courts have certified classes against PM USA in the Price case in Illinois and in Missouri and Ohio (2). PM USA has appealed or intends to appeal or otherwise challenge these class certification orders. In January 2004, the trial court granted PM USA’s motion to dismiss the case in California.

With respect to the Price case, trial commenced in January 2003, and in March 2003, the judge found in favor of the plaintiff class and awarded approximately $7.1 billion in compensatory damages and $3 billion in punitive damages against PM USA. In April 2003, the judge reduced the amount of the appeal bond that PM USA must provide and ordered PM USA to place a pre - existing 7.0%, $6 billion long-term note from ALG to PM USA in an escrow account with an Illinois financial institution. (Since this note is the result of an intercompany financing arrangement, it does not appear on the consolidated balance sheet of Altria Group, Inc.) The judge’s order also requires PM USA to make cash deposits with the clerk of the Madison County Circuit Court in the following amounts: beginning October 1, 2003, an amount equal to the interest earned by PM USA on the ALG note ($210 million every six months), an additional $800 million in four equal quarterly installments between September 2003 and June 2004 and the payments of principal of the note, which are due in April 2008, 2009 and 2010. Through December 31, 2003, PM USA paid $610 million of the cash payments due under the judge’s order. (Cash payments into the account are included in other assets on Altria Group, Inc.’s consolidated balance sheet at December 31, 2003.) If PM USA prevails on appeal, the escrowed note and all cash deposited with the court will be returned to PM USA, with accrued interest less administrative fees payable to the court. Plaintiffs appealed the judge’s order reducing the bond. In July 2003, the Illinois Fifth District Court of Appeals ruled that the trial court had exceeded its authority in reducing the bond. In September 2003, the Illinois Supreme Court upheld the reduced bond set by the trial court and announced it would hear PM USA’s appeal on the merits without the need for intermediate appellate court review. PM USA believes that the Price case should not have been certified as a class action and that the judgment should ultimately be set aside on any of a number of legal and factual grounds that it is pursuing on appeal.

• Tobacco Growers ’ Case: In February 2000, a suit was filed on behalf of a purported class of tobacco growers and quota- holders who alleged that defendants, including PM USA, violated antitrust laws by bid-rigging and allocating purchases at tobacco auctions and by conspiring to undermine the tobacco quota and price-support program administered by the federal government. In 2003, PM USA and certain other defendants reached an agreement with plaintiffs to settle the lawsuit. The agreement includes a commitment by each settling manufacturer defendant to purchase a certain percentage of its leaf requirements from U.S. tobacco growers over a period of at least ten years. In October 2003, the trial court approved the settlement, and in December 2003, awarded plaintiffs attorneys’ fees and expenses. In 2003, PM USA recorded a pre-tax charge of $202 million in 2003 reflecting its share of the settlement and attorneys’ fees.

• Tobacco Price Cases: Plaintiffs in these cases allege that defendants, including PM USA and, in certain instances, ALG and PMI, conspired to fix cigarette prices in violation of antitrust laws. Seven of the putative class actions were filed in various federal district courts by direct purchasers of tobacco products, and the remaining 29 were filed in 13 states and the District of Columbia by retail purchasers of tobacco products. The seven federal class actions were consolidated and subsequently dismissed on defendants’ motion for summary judgment, and this dismissal is now final. Plaintiffs’ motions for class certification have been granted in two cases pending in state courts in Kansas and New Mexico; however, the New Mexico Court of Appeals has agreed to hear defendants’ appeal of the class certification decision. Plaintiffs’ motions for class certification have been denied in two cases pending in state courts in Michigan and Minnesota. Defendants’ motion to dismiss was granted in a case pending in state court in Florida, and final judgment has been entered for defendants. Defendants’ motion for summary judgment has been granted in the case pending in state court in Michigan, and plaintiffs have decided not to pursue an appeal. In addition, defendants’ motion to dismiss was granted in a case pending in state court in Arizona and the Arizona Court of Appeals reversed the trial court’s decision. In August 2003, the Arizona Supreme Court affirmed the ruling of the Court of Appeals and remanded the case to the trial court. The plaintiffs in the Arizona case, as well as the cases in state courts in California, the District of Columbia, Maine, Michigan, Minnesota, Nevada, North Dakota, South Dakota, Tennessee, West Virginia, and Wisconsin, have agreed to dismiss their cases.

• Wholesale Leaders Case: In June 2003, certain wholesale distributors of cigarettes filed suit against PM USA seeking to enjoin the PM USA “2003 Wholesale Leaders” (“WL”) program that became available to wholesalers in June 2003. The complaint alleges that the WL program constitutes unlawful price discrimination and is an attempt to monopolize. In addition to an injunction, plaintiffs seek unspecified monetary damages, attorneys’ fees, costs and interest. The states of Tennessee and Mississippi intervened as plaintiffs in this litigation. In August 2003, the trial court issued a preliminary injunction, subject to plaintiffs’ posting a bond in the amount of $1 million, enjoining PM USA from implementing certain discount terms with respect to the sixteen wholesale distributor plaintiffs, and PM USA appealed. In September 2003, the United States Court of Appeals for the Sixth Circuit granted PM USA’s motion to stay the injunction pending an expedited appeal. Trial is scheduled for March 2005. In December 2003, a tobacco manufacturer filed a similar lawsuit against PM USA in Michigan alleging that the WL program constitutes unlawful price discrimination and is an attempt to monopolize. Plaintiff seeks unspecified monetary damages.

69 Exhibit 13

• Consolidated Putative Punitive Damages Cases: In September 2000, a putative class action was filed in the federal district court in the Eastern District of New York that purported to consolidate punitive damages claims in ten tobacco-related actions then pending in federal district courts in New York and Pennsylvania. In July 2002, plaintiffs filed an amended complaint and a motion seeking certification of a punitive damages class of persons residing in the United States who smoke or smoked defendants’ cigarettes, and who have been diagnosed by a physician with an enumerated disease from April 1993 through the date notice of the certification of this class is disseminated. The following persons are excluded from the class: (1) those who have obtained judgments or settlements against any defendants; (2) those against whom any defendant has obtained judgment; (3) persons who are part of the Engle class; (4) persons who should have reasonably realized that they had an enumerated disease prior to April 9, 1993; and (5) those whose diagnosis or reasonable basis for knowledge predates their use of tobacco. In September 2002, the court granted plaintiffs’ motion for class certification. Defendants petitioned the United States Court of Appeals for the Second Circuit for review of the trial court ’s ruling, and the Second Circuit has agreed to hear defendant’s petition. Trial of the case has been stayed pending resolution of defendants’ petition.

• Cases Under the California Business and Professions Code: In June 1997 and July 1998, two suits were filed in California alleging that domestic cigarette manufacturers, including PM USA and others, have violated California Business and Professions Code Sections 17200 and 17500 regarding unfair, unlawful and fraudulent business practices. Class certification was granted as to plaintiffs’ claims that class members are entitled to reimbursement of the costs of cigarettes purchased during the class periods and injunctive relief. In September 2002, the court granted defendants’ motion for summary judgment as to all claims in one of the cases. Plaintiffs have appealed. Defendants’ motion for summary judgment is pending in the other case.

• Asbestos Contribution Cases: These cases, which have been brought on behalf of former asbestos manufacturers and affiliated entities against PM USA and other cigarette manufacturers, seek, among other things, contribution or reimbursement for amounts expended in connection with the defense and payment of asbestos claims that were allegedly caused in whole or in part by cigarette smoking.

• Cigarette Contraband Cases: As of December 31, 2003, the European Community and ten member states, Ecuador, Belize, Honduras and various Departments of Colombia had filed suits in the United States against ALG and certain of its subsidiaries, including PM USA and PMI, and other cigarette manufacturers and their affiliates, alleging that defendants sold to distributors cigarettes that would be illegally imported into various jurisdictions. The claims asserted in these cases include negligence, negligent misrepresentation, fraud, unjust enrichment, violations of RICO and its state-law equivalents and conspiracy. Plaintiffs in these cases seek actual damages, treble damages and unspecified injunctive relief. In February 2002, the courts granted defendants’ motions to dismiss all of the actions. Plaintiffs in each of the cases appealed. In August 2003, the United States Court of Appeals for the Eleventh Circuit affirmed the trial court’s ruling in the cases brought by Ecuador, Belize and Honduras. In November 2003, Ecuador, Belize and Honduras petitioned the United States Supreme Court for further review, and in January 2004 the Supreme Court denied the petition. In January 2004, the United States Court of Appeals for Second Circuit affirmed the dismissals of the cases brought by the European Community and ten member states and the Colombian Departments. There is the possibility that future litigation related to cigarette contraband issues may be brought by these or other parties.

• Vending Machine Case: Plaintiffs, who began their case as a purported nationwide class of cigarette vending machine operators, allege that PM USA has violated the Robinson-Patman Act in connection with its promotional and merchandising programs available to retail stores and not available to cigarette vending machine operators. The initial complaint was amended to bring the total number of plaintiffs to 211 but, by stipulated orders, all claims were stayed, except those of ten plaintiffs that proceeded to pre-trial discovery. Plaintiffs request actual damages, treble damages, injunctive relief, attorneys’ fees and costs, and other unspecified relief. In June 1999, the court denied plaintiffs’ motion for a preliminary injunction. Plaintiffs have withdrawn their request for class action status. In August 2001, the court granted PM USA’s motion for summary judgment and dismissed, with prejudice, the claims of the ten plaintiffs. In October 2001, the court certified its decision for appeal to the United States Court of Appeals for the Sixth Circuit following the stipulation of all plaintiffs that the district court ’s dismissal would, if affirmed, be binding on all plaintiffs. In January 2004, the Sixth Circuit reversed the trial court’s ruling that granted PM USA’s motion for summary judgment.

Certain Other Actions

• Italian Tax Matters: In recent years, approximately two hundred tax assessments alleging nonpayment of the euro equivalent of $2.9 billion in taxes in Italy (value-added taxes for the years 1988 to March 1996 and income taxes for the years 1987 to March 1996) were served upon certain affiliates of PMI. In addition, the euro equivalent of $4.7 billion in interest and penalties were assessed. These assessments were in various stages of appeal. In 2003, certain affiliates of PMI invoked the amnesty provisions of a recently enacted Italian fiscal law and agreed with the Italian tax authorities to resolve all but twenty-five of the assessments issued to that date for the euro equivalent of $308 million, including statutory interest, to be paid in twelve quarterly installments over a three-year period. Of the twenty-five assessments that were not resolved, nineteen assessments (totaling the euro equivalent of $335 million with interest and penalties of $617 million) were subject to adverse decisions by the regional tax court and were duplicative of other assessments for which the amnesty was invoked. The affiliate of PMI which is subject to these assessments intends to appeal the regional tax court decisions to the Italian Supreme Court. The remaining six assessments (totaling the euro equivalent of $114 million with interest and penalties of $313 million) were not eligible for the amnesty and are being challenged in the Italian administrative tax court. PMI and its affiliates that are subject to these remaining assessments believe they have complied with applicable Italian tax laws.

70 Exhibit 13

• Italian Antitrust Case: During 2001, the competition authority in Italy initiated an investigation into the pricing activities by participants in that cigarette market. In March 2003, the authority issued its findings, and imposed fines totaling € 50 million on certain affiliates of PMI. PMI’s affiliates appealed to the administrative court, which rejected the appeal in July 2003. PMI believes that its affiliates have numerous grounds for appeal, and its affiliates will appeal to the supreme administrative court. However, under Italian law, if fines are not paid within certain specified time periods, interest and eventually penalties will be applied to the fines. Accordingly, in December 2003, pending final resolution of the case, PMI’s affiliates paid € 51 million representing the fines and any applicable interest to the date of payment. The € 51 million will be returned to PMI if it prevails on appeal. Accordingly, the payment has been included in other assets on Altria Group, Inc.’s consolidated balance sheet at December 31, 2003.

It is not possible to predict the outcome of the litigation pending against ALG and its subsidiaries. Litigation is subject to many uncertainties. As discussed above under “Recent Trial Results,” unfavorable verdicts awarding substantial damages against PM USA have been returned in 13 cases in recent years and these cases are in various post-trial stages. It is possible that there could be further adverse developments in these cases and that additional cases could be decided unfavorably. In the event of an adverse trial result in certain pending litigation, the defendant may not be able to obtain a required bond or obtain relief from bonding requirements in order to prevent a plaintiff from seeking to collect a judgment while an adverse verdict is being appealed. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation. There have also been a number of adverse legislative, regulatory, political and other developments concerning cigarette smoking and the tobacco industry that have received widespread media attention. These developments may negatively affect the perception of judges and jurors with respect to the tobacco industry, possibly to the detriment of certain pending litigation, and may prompt the commencement of additional similar litigation.

ALG and its subsidiaries record provisions in the consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. Except as discussed elsewhere in this Note 18. Contingencies : (i) management has not concluded that it is probable that a loss has incurred in any of the pending tobacco-related litigation; (ii) management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of pending tobacco-related litigation; and (iii) accordingly, management has not provided any amounts in the consolidated financial statements for unfavorable outcomes, if any.

Guarantees

At December 31, 2003, Altria Group, Inc. ’s third-party guarantees, which are primarily derived from acquisition and divestiture activities, approximated $256 million, of which $212 million have no specified expiration dates. The remainder expire through 2023, with $13 million expiring during 2004. Altria Group, Inc. is required to perform under these guarantees in the event that a third party fails to make contractual payments or achieve performance measures. Altria Group, Inc. has a liability of $55 million on its consolidated balance sheet at December 31, 2003, relating to these guarantees. In the ordinary course of business, certain subsidiaries of ALG have agreed to indemnify a limited number of third parties in the event of future litigation.

Note 19.

Subsequent Event:

In January 2004, Kraft announced a three-year restructuring program in order to leverage its global scale, realign and lower its cost structure, and to optimize its system-wide capacity utilization. As part of this program, Kraft anticipates the closing of up to twenty plants and the elimination of approximately six thousand positions. Over the next three years, Kraft expects to incur up to $1.2 billion in pre-tax charges, reflecting asset disposals, severance and other implementation costs, including an estimated range of $750 million to $800 million in 2004. Approximately one-half of the pre-tax charges are expected to require cash payments.

71 Exhibit 13

Note 20.

Quarterly Financial Data (Unaudited):

2003 Quarters

(in millions, except per share data) 1st 2nd 3rd 4th

Net revenues $ 19,371 $ 20,831 $ 20,939 $ 20,691

Gross profit $ 6,919 $ 7,496 $ 7,402 $ 7,017

Net earnings $ 2,186 $ 2,437 $ 2,490 $ 2,091

Per share data: Basic EPS $ 1.08 $ 1.20 $ 1.23 $ 1.03

Diluted EPS $ 1.07 $ 1.20 $ 1.22 $ 1.02

Dividends declared $ 0.64 $ 0.64 $ 0.68 $ 0.68

Market price — high $ 42.09 $ 46.20 $ 47.07 $ 55.03 — low $ 27.70 $ 27.75 $ 38.72 $ 43.85

2002 Quarters

(in millions, except per share data) 1st 2nd 3rd 4th

Net revenues $ 20,535 $ 21,103 $ 19,996 $ 18,774

Gross profit $ 7,428 $ 8,019 $ 7,564 $ 6,423

Net earnings $ 2,365 $ 2,610 $ 4,359 $ 1,768

Per share data: Basic EPS $ 1.10 $ 1.22 $ 2.07 $ 0.86

Diluted EPS $ 1.09 $ 1.21 $ 2.06 $ 0.85

Dividends declared $ 0.58 $ 0.58 $ 0.64 $ 0.64

Market price — high $ 54.48 $ 57.79 $ 52.00 $ 44.09 — low $ 45.40 $ 42.24 $ 37.52 $ 35.40

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 for the year.

72 Exhibit 13

During 2003 and 2002, Altria Group, Inc. recorded the following pre-tax charges or (gains):

2003 Quarters

(in millions) 1st 2nd 3rd 4th

Domestic tobacco legal settlement $ 182 $ 20 Domestic tobacco headquarters relocation charges 9 $ 27 33 Gains on sales of businesses (23 ) (8 ) Integration costs (13 ) Asset impairment and exit costs 6 80

$ — $ 191 $ 10 $ 112

2002 Quarters

(in millions) 1st 2nd 3rd 4th

Asset impairment and exit costs $ 165 $ 25 $ 33 Gain on Miller transaction (2,653 ) $ 22 Integration costs and a loss on sale of a food factory 27 92 (8 ) Provision for airline industry exposure 290 Gains on sales of businesses (3 ) (77 )

$ 192 $ 114 $ (2,620 ) $ 227

The principal stock exchange, on which Altria Group, Inc.’s common stock (par value $0.33 1 / 3 per share) is listed, is the New York Stock Exchange. At January 30, 2004, there were approximately 124,200 holders of record of Altria Group, Inc.’s common stock.

73 Exhibit 13

Report of Independent Auditors

To the Board of Directors and Stockholders of Altria Group, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, stockholders’ equity and cash flows present fairly, in all material respects, the consolidated financial position of Altria Group, Inc. and its subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Altria Group, Inc.’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, Altria Group, Inc. adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

PricewaterhouseCoopers LLP

New York, New York January 26, 2004

Company Report on Financial Statements

The consolidated financial statements and all related financial information herein are the responsibility of Altria Group, Inc. and its subsidiaries (“Altria Group, Inc.”). The financial statements, which include amounts based on judgments, have been prepared in accordance with accounting principles generally accepted in the United States of America. Other financial information in the annual report is consistent with that in the financial statements.

Altria Group, Inc. maintains a system of internal controls that, it believes, provide 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 Altria Group, Inc., which includes written policies and procedures, careful selection and training of personnel, and audits by a professional staff of internal auditors.

PricewaterhouseCoopers LLP, independent auditors, have audited and reported on Altria Group, Inc.’s consolidated financial statements. Their audits were performed in accordance with auditing standards generally accepted in the United States of America.

The Audit Committee of the Board of Directors, composed of five non-management directors, meets periodically with PricewaterhouseCoopers LLP, Altria Group, Inc.’s internal auditors and management representatives to review internal accounting controls, 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.

74 Exhibit 21

ALTRIA GROUP, INC. SUBSIDIARIES

Certain active subsidiaries of the Company and their subsidiaries as of December 31, 2003, 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

152999 Canada Inc. Canada 3072440 Nova Scotia Company Canada AB Kraft Foods Lietuva Lithuania Abal Hermanos S.A. Uruguay Aberdare Developments Ltd. British Virgin Islands AGF Pack, Inc. Japan AGF SP, Inc. Japan Agrotab Empreendimentos Agro -Industriais, S.A. Portugal Airco IHC, Inc. Delaware Ajinomoto General Foods, Inc. Japan Alimentos Especiales, Sociedad Anonima Guatemala Altria Corporate Services International, Inc. Delaware Altria Corporate Services, Inc. New York Altria Finance (Cayman Islands) Ltd. Cayman Islands Altria Finance (Europe) AG Switzerland Altria Insurance (Ireland) Limited Ireland Altria ITSC Europe, sarl Switzerland Altria Reinsurance (Ireland) Limited Ireland B. Muratti Sons & Co. Inc. New York Balance Bar Company Delaware Beijing Nabisco Food Company Ltd. China Biscuits Delacre B.V. Netherlands Boca Foods Company Delaware C.A. Tabacalera Nacional Venezuela 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 Charles Stewart & Company (Kirkcaldy) Limited United Kingdom Chrysalis Technologies Incorporated Virginia Churny Company, Inc. Delaware Closed Joint Stock Company Kraft Foods Rus Russia Closed Joint Stock Company Kraft Foods Ukraine Ukraine Compania Venezolana de Conservas C.A. Venezuela Consiber, S.A. Spain Corporativo Kraft, S. de R.L. de C.V. Mexico Cote d ’Or Italia S.r.l. Italy Covenco Holding C.A. Venezuela Croky Chips B.V. Netherlands Dart Resorts Inc. Delaware Deluxestar Limited United Kingdom Dong Suh Foods Corporation Korea Dong Suh Oil & Fats Co., Ltd. Korea Exhibit 21

State or Country of Name Organization

Duvanska Industrija Nis (DIN) Serbia El Gallito Industrial, S.A. Costa Rica Estrella A/S Denmark Fabrica de Cigarrillos El Progreso S.A. (El Progreso) Ecuador Family Nutrition Company S.A.E. Egypt 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 FTR Holding S.A. Switzerland Gelatinas Ecuatoriana S.A. Ecuador Gellatas United Biscuits, S.A. Spain General Foods Credit Corporation Delaware General Foods Credit Investors No. 1 Corporation Delaware General Foods Credit Investors No. 2 Corporation Delaware General Foods Foreign Sales Corporation U.S. Virgin Islands Godfrey Phillips (Malaysia) Sendirian Berhad Malaysia Grant Holdings, Inc. Pennsylvania Grant Transit Co. Delaware Grundstucksgemeinschaft Kraft Foods Germany HAG-Coffex SNC France Hervin Holdings, Inc. Delaware HNB Investment Corp. Delaware IKM S. de R.L. de C.V. Mexico Industrias Alimenticias Maguary Ltda. Brazil Industrias Del Tabaco, Alimentos y Bebidas S.A. (Itabsa) Ecuador International Tobacco Co. Inc., New York Delaware International Tobacco Marketing Ltda Chile International Trademarks Incorporated Delaware Intertaba S.p.A. Italy ITSC Asia Pacific Pty Ltd. Australia Jacobs Suchard Alimentos do Brasil Ltda. Brazil JSC Philip Morris Ukraine Ukraine KFI-USLLC I Delaware KFI-USLLC IX Delaware KFI -USLLC V Delaware KFI -USLLC VII Delaware KFI -USLLC XI Delaware KFI-USLLC XVII Delaware KJS India Private Limited India Koninklijke Verkade N.V. Netherlands KP Ireland Ltd. Ireland Kraft Canada Inc. Canada Kraft Food Ingredients Corp. Delaware Kraft Foods (Australia) Limited Australia Kraft Foods (China) Company Limited China Kraft Foods (Middle East & Africa) Ltd. United Kingdom Kraft Foods (New Zealand) Limited New Zealand Kraft Foods (Philippines), Inc. Philippines

2 Exhibit 21

State or Country of Name Organization

Kraft Foods (Puerto Rico), Inc. Puerto Rico Kraft Foods (Singapore) Pte Ltd. Singapore Kraft Foods (Thailand) Limited Thailand Kraft Foods Argentina S.A. Argentina Kraft Foods AS Norway Kraft Foods Asia Pacific Holding LLC Delaware 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. Czech Republic 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 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 Ireland Limited Ireland Kraft Foods Italia S.p.A. Italy Kraft Foods Jamaica Limited Jamaica Kraft Foods Jaya (Malaysia) Sdn Bhd Malaysia Kraft Foods Latin America Holding LLC Delaware Kraft Foods Laverune SNC France Kraft Foods Limited Australia Kraft Foods Limited (Asia) Hong Kong 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

3 Exhibit 21

State or Country of Name Organization

Kraft Foods Namur S.A. Belgium Kraft Foods Nederland B.V. Netherlands Kraft Foods Nicaragua S.A. Nicaragua 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 Puerto Rico Holding LLC Delaware 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 South Africa Pty Ltd. South Africa Kraft Foods Strasbourg SNC France Kraft Foods Sverige AB Sweden Kraft Foods Sverige Holding AB Sweden Kraft Foods Taiwan Holdings LLC Delaware Kraft Foods Taiwan Limited Taiwan Kraft Foods UK Ltd. United Kingdom Kraft Foods Venezuela, C.A. Venezuela Kraft Gida Sanayi ve Ticaret Anonim Sirketi Turkey Kraft Guangtong Food Company, Limited China Kraft Jacobs Suchard (Australia) Pty Ltd. Australia Kraft Japan, K.K. Japan Kraft Korea Inc. Korea Kraft Pizza Company Delaware Kraft Tianmei Food (Tianjin) Co., Ltd. China Krema Limited (A) Ireland KTL S. de R.L. de C.V. (A) Mexico La Loire Investment Corp. Delaware La Seine Investment Corp. Delaware Landers y Cia. S.A. Colombia Lanes Biscuits Pty Ltd Australia Lanes Food (Australia) Pty Ltd Australia Lanes Food Group Limited New Zealand Le Rhône Investment Corp. Delaware Limited Liability Company Kraft Foods Russia LLC (000) Kraft Foods Sales and Marketing Russia Lowney Inc. Canada Management Financial Services LLC Delaware Management Subsidiary Holdings Inc. Virginia Marsa Kraft Foods Sabanci Gida Sanayi ve Ticaret A.S. Turkey Massalin Particulares S.A. Argentina Michigan Investment Corp. Delaware Mirabell Salzburger Confiserie-Und Bisquit GmbH Austria

4 Exhibit 21

State or Country of Name Organization

N.V. Biscuits Delacre S.A. Belgium N.V. Westimex Belgium S.A. Belgium 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 Inversiones S.R.L. Argentina Nabisco Investments, Inc. Delaware Nabisco Philippines, Inc. Philippines Nabisco Royal de Honduras, S.A. Honduras Nabisco Taiwan Corporation Taiwan Nabisco, Inc. Foreign Sales Corporation U.S. Virgin Islands NISA Holdings LLC Delaware OAO Philip Morris Kuban Russia OJSS Philip Morris Kazakhstan Kazakhstan One Channel Corp. Delaware Orecla Realty, Inc. Phillipines Oy Kraft Foods Finland Ab Finland P.M. Beverage Holdings, Inc. Delaware P.T. Kraft Ultrajaya Indonesia Indonesia Papastratos Cigarette Manufacturing S.A. Greece Papastratos Romania SRL Romania Park (U.K.) Limited United Kingdom Park 1989 B.V. Netherlands Park International S.A. Switzerland Pavlides S.A. Chocolate Manufacturers Greece Phenix Leasing Corporation Delaware Phenix Management Corporation Delaware Philip Morris (China) Investments Co., Ltd. China Philip Morris (Malaysia) Snd. Bhd. Malaysia Philip Morris (Portugal) Empresa Comercial de Tabacos, Limitada Portugal Philip Morris (Thailand) Ltd. Delaware Philip Morris AB Sweden Philip Morris ApS Denmark Philip Morris Asia Limited Hong Kong Philip Morris Belgium S.A. Belgium Philip Morris Belgrade D.o.o. Yugoslavia Philip Morris Brasil Industria e Comercio Ltda. Brasil Philip Morris Brasil S.A. Delaware Philip Morris Capital Corporation Delaware Philip Morris China Holdings Sarl Switzerland Philip Morris China Management Company Ltd China Philip Morris Colombia S.A. Colombia Philip Morris Cote d’Ivoire S.A.R.L. Ivory Coast Philip Morris CR a.s. Czech Republic Philip Morris Duty Free Inc. Delaware Philip Morris Eesti Osauhing Estonia Philip Morris Exports Sarl Switzerland

5 Exhibit 21

State or Country of Name Organization

Philip Morris Finance Europe B.V. Netherlands Philip Morris France S.A.S. France Philip Morris GmbH Germany Philip Morris Hellas A.E.B.E. Greece Philip Morris Holland B.V. Netherlands Philip Morris Hungary Cigarette Manufacturing and Trading Ltd. Hungary Philip Morris India Private Ltd. India Philip Morris Information Services Limited Australia Philip Morris International Finance Corporation Delaware Philip Morris International Inc. Delaware Philip Morris International Management SA Switzerland Philip Morris International Services Sarl Switzerland Philip Morris Italia S.p.A. Italy Philip Morris Japan Kabushiki Kaisha Japan Philip Morris Korea C.H. Korea Philip Morris Kuwait Company W.L.L. Kuwait Philip Morris LA Holding Inc. Delaware Philip Morris Latin America Inc. Delaware Philip Morris Latvia Ltd. Latvia Philip Morris Limited Australia Philip Morris Limited United Kingdom Philip Morris Ljubljana d.o.o. Slovenia Philip Morris Management Services B.V. Netherlands Philip Morris Management Services SA Switzerland Philip Morris Mexico, S.A. de C.V. Mexico Philip Morris Nicaragua S.A. Nicaragua Philip Morris Overseas Investment Corp. Delaware Philip Morris Peru S.A. Peru Philip Morris Philippines Manufacturing, Inc. Philippines Philip Morris Polska S.A. Poland Philip Morris Products Inc. Virginia Philip Morris Products S.A. Switzerland Philip Morris Research Laboratories BVBA Belgium Philip Morris Research Laboratories GmbH Germany Philip Morris Reunion s.a.r.l. Le Réunion Philip Morris Romania S.R.L. Romania Philip Morris SA, Philip Morris Sabanci Pazarlama ve Satis A.S. Turkey Philip Morris Sales & Marketing Ltd. Russia Philip Morris Sdn Bhd Brunei Philip Morris Services S.A. Switzerland Philip Morris Singapore Pte. Ltd. Singapore Philip Morris Skopje d.o.o.e.l. Macedonia Philip Morris Slovakia s.r.o. Slovak Republic Philip Morris Spain, S.A., Sociedad Unipersonal Spain Philip Morris Taiwan S.A. Switzerland Philip Morris USA Inc. Virginia Philip Morris Vietnam S.A. Switzerland Philip Morris World Trade S.à r.l. Switzerland PHILSA Philip Morris Sabanci Sigara ve Tütüncülük Sanayi ve Ticaret A.S. Turkey PMCC Europe GmbH Germany PMCC Investors No. 1 Corporation Delaware PMCC Investors No. 2 Corporation Delaware PMCC Investors No. 3 Corporation Delaware PMCC Investors No. 4 Corporation Delaware

6 Exhibit 21

State or Country of Name Organization

PMCC Leasing Corporation Delaware PMI Aviation Services SA Switzerland PMI Global Services Inc. Delaware PMM-S.G.P.S., S.A. Portugal PMSI Beteiligungen GmbH Switzerland Productos Kraft, S. de R.L. de C.V. Mexico Productos y Alimentos, S.A. de C.V. El Salvador Produtos Alimenticios Pilar Ltda. Brazil Proveedora Ecuatoriana S.A. (Proesa) Ecuador PT Nabisco Foods Indonesia PT Philip Morris Indonesia Indonesia Regentrealm Limited United Kingdom Ross Young ’s Holdings Limited United Kingdom Runecorp Limited United Kingdom SB Leasing Inc. Delaware Seven Seas Foods, Inc. Delaware Stella D’oro Biscuit Co., Inc. New York Suchard Limited United Kingdom Suchard Schokolade Ges. MbH Austria Tabacalera Andina SA (Tanasa) Ecuador Tabacalera Centroamericana, S.A. Guatemala Tabacalera Costarricense S.A. Costa Rica Tabacalera de El Salvador S.A. de C.V. El Salvador Tabaqueira, S.A. Portugal Taloca AG Switzerland Taloca Cafe Ltda. Brazil Taloca y Cia Ltda. Colombia Tanasec Panama Sociedad en Comandita por Acciones Panama Technology Enterprise Computing Works, LLC Virginia Tevalca Holding C.A. Venezuela The Hervin Company Oregon The United Kingdom Tobacco Company Limited United Kingdom Trademarks LLC Delaware Trimaran Leasing Investors, L.L.C.-II Delaware U. B. Europe, Middle East and Africa Trading, S.A. Spain UAB Philip Morris Lietuva Lithuania UB China Ltd. China UB Finance B.V. Netherlands UB Foods US Limited United Kingdom UB Group Limited United Kingdom UB Humber Limited United Kingdom UB International Sales Limited United Kingdom UB Investment plc 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 (Holdings) Limited United Kingdom United Biscuits (UK) Limited United Kingdom United Biscuits Asia Pacific Limited Hong Kong

7 Exhibit 21

State or Country of Name Organization

United Biscuits Finance plc United Kingdom United Biscuits France S.A.S. 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 Wolverine Investment Corp. Delaware Yili-Nabisco Biscuit & Food Company Limited China ZAO Philip Morris Izhora Russia

8 Exhibit 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in Post-Effective Amendment No. 13 to the Registration Statement of Altria Group, Inc. on Form S-14 (File No. 2-96149) and in Altria Group, Inc.’s Registration Statements on Form S-3 (File No. 333-35143) and Form S-8 (File Nos. 333-28631, 333-20747, 333-16127, 33-1479, 33-10218, 33-13210, 33-14561, 33-1480, 33-17870, 33- 38781, 33-39162, 33-37115, 33-40110, 33-48781, 33-59109, 333-43478, 333-43484 and 333-71268), of our report dated January 26, 2004 relating to the consolidated financial statements of Altria Group, Inc., 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 26, 2004 relating to the financial statement schedule, which appears in this Form 10-K.

/s/ P RICEWATERHOUSE C OOPERS LLP

New York, New York March 12, 2004

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of Altria Group, Inc., a Virginia corporation (the “Company”), does hereby constitute and appoint Louis C. Camilleri, Dinyar S. Devitre and Charles R. Wall, 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, 2003 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 25 th day of February, 2004.

/s/ E LIZABETH E. B AILEY

Elizabeth E. Bailey Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of Altria Group, Inc., a Virginia corporation (the “Company”), does hereby constitute and appoint Louis C. Camilleri, Dinyar S. Devitre and Charles R. Wall, 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, 2003 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 26 th day of February, 2004.

/s/ M ATHIS C ABIALLAVETTA

Mathis Cabiallavetta Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of Altria Group, Inc., a Virginia corporation (the “Company”), does hereby constitute and appoint Louis C. Camilleri, Dinyar S. Devitre and Charles R. Wall, 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, 2003 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 25 th day of February, 2004.

/s/ J. D UDLEY F ISHBURN

J. Dudley Fishburn Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of Altria Group, Inc., a Virginia corporation (the “Company”), does hereby constitute and appoint Louis C. Camilleri, Dinyar S. Devitre and Charles R. Wall, 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, 2003 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 25 th day of February, 2004.

/s/ R OBERT E. R. H UNTLEY

Robert E. R. Huntley Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of Altria Group, Inc., a Virginia corporation (the “Company”), does hereby constitute and appoint Louis C. Camilleri, Dinyar S. Devitre and Charles R. Wall, 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, 2003 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 25 th day of February, 2004.

/s/ T HOMAS W. J ONES

Thomas W. Jones Exhibit 24

POWER OF ATTORNEY

IN WITNESS WHEREOF , the undersigned has hereunto set her hand and seal this 29 th day of February, 2004.

/s/ B ILLIE J EAN K ING

Billie Jean King Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of Altria Group, Inc., a Virginia corporation (the “Company”), does hereby constitute and appoint Louis C. Camilleri, Dinyar S. Devitre and Charles R. Wall, 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, 2003 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 25 th day of February, 2004.

/s/ L UCIO A. N OTO

Lucio A. Noto Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of Altria Group, Inc., a Virginia corporation (the “Company”), does hereby constitute and appoint Louis C. Camilleri, Dinyar S. Devitre and Charles R. Wall, 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, 2003 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 25 th day of February, 2004.

/s/ C ARLOS S LIM H ELÚ

Carlos Slim Helú Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT THAT the undersigned, a Director of Altria Group, Inc., a Virginia corporation (the “Company”), does hereby constitute and appoint Louis C. Camilleri, Dinyar S. Devitre and Charles R. Wall, 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, 2003 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 25 th day of February, 2004.

/s/ S TEPHEN M. W OLF

Stephen M. Wolf Exhibit 31.1

Certifications

I, Louis C. Camilleri, Chairman and Chief Executive Officer of Altria Group, Inc., certify that:

1. I have reviewed this annual report on Form 10 -K of Altria Group, Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) [Omitted in reliance on SEC Release No. 33-8238; 34-47986 Section III.E.]

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant ’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the

registrant ’s internal control over financial reporting.

Date: March 12, 2004

/s/ L OUIS C. C AMILLERI

Louis C. Camilleri Chairman and Chief Executive Officer Exhibit 31.2

Certifications

I, Dinyar S. Devitre, Senior Vice President and Chief Financial Officer of Altria Group, Inc., certify that:

1. I have reviewed this annual report on Form 10 -K of Altria Group, Inc.;

subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [Omitted in reliance on SEC Release No. 33-8238; 34-47986 Section III.E.]

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the

registrant ’s internal control over financial reporting.

Date: March 12, 2004

/s/ D INYAR S. D EVITRE

Dinyar S. Devitre Senior Vice President and Chief Financial Officer Exhibit 32.1

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 Altria Group, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Louis C. Camilleri, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 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/ L OUIS C. C AMILLERI

Louis C. Camilleri Chairman and Chief Executive Officer March 12, 2004

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Altria Group, Inc. and will be retained by Altria Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 32.2

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 Altria Group, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dinyar S. Devitre, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 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/ D INYAR S. D EVITRE

Dinyar S. Devitre Senior Vice President and Chief Financial Officer March 12, 2004

CERTAIN PENDING LITIGATION MATTERS AND RECENT DEVELOPMENTS

As described in Item 3. Legal Proceedings of this Annual Report on Form 10-K and Note 18 to Altria Group, Inc.’s Consolidated Financial Statements included as Exhibit 13 hereto, there are legal proceedings covering a wide range of matters pending in various U.S. and foreign jurisdictions against ALG, its subsidiaries and affiliates, including PM USA and PMI, and their respective indemnitees. Various types of claims are raised in these proceedings, including product liability, consumer protection, antitrust, tax, contraband shipments, patent infringement, employment matters, claims for contribution and claims of competitors and distributors. Pending claims related to tobacco products generally fall within the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs, (ii) smoking and health cases alleging personal injury and purporting to be brought on behalf of a class of individual plaintiffs, including cases in which the aggregated claims of a number of individual plaintiffs are to be tried in a single proceeding, (iii) health care cost recovery cases brought by governmental (both domestic and foreign) and non-governmental plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits, and (iv) other tobacco-related litigation. Other tobacco-related litigation includes class action suits alleging that the use of the terms “Lights” and “Ultra Lights” constitutes deceptive and unfair trade practices, suits by foreign governments seeking to recover damages resulting from the allegedly illegal importation of cigarettes into various jurisdictions, suits by former asbestos manufacturers seeking contribution or reimbursement for amounts expended in connection with the defense and payment of asbestos claims that were allegedly caused in whole or in part by cigarette smoking, and various antitrust suits.

The following lists certain of the pending claims included in these categories and certain other pending claims. Certain developments in these cases since November 13, 2003 are also described.

SMOKING AND HEALTH LITIGATION

The following lists the consolidated individual smoking and health cases as well as smoking and health class actions pending against PM USA and, in some cases, ALG and/or its other subsidiaries and affiliates, including PMI, as of February 13, 2004, and describes certain developments in these cases since November 13, 2003.

Consolidated Individual Smoking and Health Cases

In re Tobacco Litigation (Individual Personal Injury cases), Circuit Court, Ohio County, West Virginia, consolidated January 11, 2000 . In West Virginia, all smoking and health cases in state court alleging personal injury have been transferred to the State’s Mass Litigation Panel. The transferred cases include individual cases and putative class actions. All pending individual cases filed in or transferred to the court by September 13, 2000 are to be included in a single consolidated trial. One thousand and forty-one (1041) individual cases are pending. The trial court’s order provides for the trial to be conducted in two phases. The issues to be tried in phase one are “general liability issues common to all defendants including, if appropriate, defective product theory, negligence theory, warranty theory; and any other theories supported by pretrial development” as well as entitlement to punitive damages and a punitive damages multiplier. Pursuant to the court’s order, the individual claims of the plaintiffs whose cases have been consolidated will be tried on an individual basis or “in reasonably sized trial groups” during the second phase of the trial. The first phase of the trial is scheduled to begin in March 2005.

Flight Attendant Litigation

The settlement agreement entered into in the case of Broin, et al. v. Philip Morris Companies Inc., et al., permitted members of the purported class to bring individual suits as to their alleged injuries. As of February 13, 2004, 2,726 of these suits were pending in the Circuit Court of Dade County, Florida against PM USA and three other cigarette manufacturers. The court has held that the flight attendants will not be required to prove the substantive liability elements of their claims for negligence, strict liability and breach of implied warranty in order to recover damages, if any, other than establishing that the plaintiffs’ alleged

1 Exhibit 99.1 injuries were caused by their exposure to environmental tobacco smoke and, if so, the amount of damages to be awarded. To date, an estimated two such cases are scheduled for trial through the end of 2004.

Domestic Class Actions

Engle, et al. v. R.J. Reynolds Tobacco Co., et al., Circuit Court, Eleventh Judicial Circuit, Dade County, Florida, filed May 5, 1994 . See Item 3. Legal Proceedings for a discussion of this case.

Scott, et al. v. The American Tobacco Company, et al., Civil District Court, Orleans Parish, Louisiana, filed May 24, 1996 . The court granted plaintiffs’ motion for class certification on behalf of current and former Louisiana cigarette smokers seeking the creation of funds to pay the costs of monitoring the medical conditions of members of the purported class and providing class members with smoking cessation programs. In July 2003, following the first phase of the trial the jury returned a verdict in favor of defendants, including PM USA, in connection with plaintiffs’ medical monitoring claims, but also found that plaintiffs could benefit from smoking cessation assistance. The jury also found that cigarettes as designed are not defective but that the defendants failed to disclose all they knew about smoking and diseases and marketed their products to minors. The jury was not permitted to award damages during this phase of the trial, and the trial is expected to proceed to additional phases. The second phase of the trial is scheduled to begin in March 2004.

In re: Tobacco Litigation (Medical Monitoring cases) (formerly McCune, et al. v. The American Tobacco Company, et al.), Circuit Court, Kanawha County, West Virginia, filed January 31, 1997 . In November 2001, the jury returned a verdict in favor of all defendants, and plaintiffs appealed. In February 2003, the West Virginia Supreme Court agreed to hear plaintiffs’ appeal.

Young, et al. v. The American Tobacco Company, et al., Civil District Court, Orleans Parish, Louisiana, filed November 12, 1997 .

Jackson, et al. v. Philip Morris Incorporated, et al., United States District Court, Central District, Utah, filed February 13, 1998 . In January 2004, the court dismissed the case.

Parsons, et al. v. A C & S, Inc., et al., Circuit Court, Kanawha County, West Virginia, filed February 27, 1998 .

Cleary, et al. v. Philip Morris Incorporated, et al., Circuit Court, Cook County, Illinois, filed June 3, 1998 .

Cypret (formerly Jones), et al. v. The American Tobacco Company, et al., Circuit Court, Jackson County, Missouri, filed December 22, 1998 .

Julian, et al. v. Philip Morris Companies Inc., et al., Circuit Court, Montgomery County, Alabama, filed April 14, 1999 .

Simms, et al. v. Philip Morris Incorporated, et al., United States District Court, District of Columbia, filed May 23, 2001 . Proceedings in the case have been stayed until September 2004.

Lowe, et al. v. Philip Morris Incorporated, et al., Circuit Court, Multomah, Oregon, filed November 19, 2001 . In September 2003, the court granted defendants’ motion to dismiss the complaint, and plaintiffs have appealed.

Birchall, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed July 10, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification.

Goldfarb, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed July 25, 2002. In October 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Ellington, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed July 31, 2002 . In July 2003, the court denied plaintiffs’ motion for class certification.

Vandina, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed July 31, 2002. In October 2003 , the court denied plaintiffs’ motion for class certification.

2 Exhibit 99.1

Vavrek, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed July 31, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification.

Martinez, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed September 4, 2002 . In July 2003, the court denied plaintiffs’ motion for class certification.

Ginsburg, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed September 6, 2002. In October 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Hamil, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed September 6, 2002. In October 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Ramsden, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed September 6, 2002 . In July 2003, the court denied plaintiffs’ motion for class certification.

Deller, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed September 9, 2002. In July 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Hudson, et al. v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed September 9, 2002. In July 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Buffman v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002. In October 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Eben v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002. In October 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Gagne v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification.

Garnier v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification.

Goodman v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification.

Griffin v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification.

Huckeby v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification.

Lee v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Lee v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002. In October 2003, the court denied plaintiffs’ motion for class certification. In January 2004, the court entered the parties stipulation of dismissal.

Raimo v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification.

Ramstetter v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 29, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification.

3 Exhibit 99.1

Baker v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 31, 2002. In October 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Page v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 31, 2002. In October 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Sampson v. Philip Morris Incorporated, et al., United States District Court, Nevada, filed October 31, 2002 . In October 2003, the court denied plaintiffs’ motion for class certification.

Brown v. Philip Morris Incorporated, et al., Circuit Court, Campbell County, Kentucky, filed January 2, 2003. In November 2003, the court denied plaintiffs’ motion for class certification. In December 2003, the court entered the parties’ stipulation of dismissal.

Martinez, et al., v. Philip Morris Incorporated, et al., United States District Court, Utah, filed January 7, 2003 .

Brown, et al. v. Philip Morris Incorporated, et al., United States District Court, Massachusetts, filed January 10, 2003 . In December 2003, the court entered the parties’ stipulation of dismissal.

Elliott, et al. v. Philip Morris USA Inc., et al., United States District Court, Western District, Oklahoma, filed July 17, 2003 .

International Class Actions

Caputo (formerly LeTourneau) v. Imperial Tobacco Limited, et al., Ontario Court of Justice, Toronto, Canada, filed January 13, 1995 . In February 2004, the court denied plaintiff’s motion for class certification.

The Smoker Health Defense Association (ADESF) v. Souza Cruz, S.A. and Philip Morris Marketing, S.A., Nineteenth Lower Civil Court of the Central Courts of the Judiciary District of Sao Paulo, Brazil, filed July 25, 1995 . In February 2004, the trial court issued an order finding that the action was valid under the Brazilian Consumer Defense Code. The order contemplates a second stage of the case in which individuals are to file their claims. Defendants have filed a motion seeking clarification of the order.

Fortin, et al. v. Imperial Tobacco Ltd., et al., Quebec Superior Court, Canada, filed on or about September 11, 1998 .

Conseil Quebecois sur le Tabac v. RJR-Macdonald Inc., et al., Quebec Superior Court, Canada, filed November 20, 1998 .

Ragoonanan, et al. v. Imperial Tobacco Limited, et al., Superior Court of Justice, Ontario, Canada, filed January 11, 2000 .

Asociacion Viscaina de Laringectomizados v. Altadis S.A., et al., Court of First Instance, Bilbao, Spain, filed January 5, 2001 . In September 2002, the case was dismissed, and plaintiffs appealed. In December 2003, an appellate court affirmed the dismissal.

Asociacion de Laringectomizados de Leon v. Altadis S.A., et al., Court of First Instance, Leon, Spain, filed January 3, 2001 . In 2003, the case was dismissed, and plaintiff has appealed.

HEALTH CARE COST RECOVERY LITIGATION

The following lists the health care cost recovery actions pending against PM USA and, in some cases, ALG and/or its other subsidiaries and affiliates as of February 13, 2004 and describes certain developments in these cases since November 13, 2003. As discussed in Item 3. Legal Proceedings , in 1998 PM USA and certain other United States tobacco product manufacturers entered into a Master Settlement Agreement (the “MSA”) settling the health care cost recovery claims of 46 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern

4 Exhibit 99.1

Marianas. Settlement agreements settling similar claims had previously been entered into with the states of Mississippi, Florida, Texas and Minnesota. PM USA believes that the claims in the city/county, taxpayer and certain of the other health care cost recovery actions listed below are released in whole or in part by the MSA or that recovery in any such actions should be subject to the offset provisions of the MSA.

City/County Cases

County of Cook v. Philip Morris Incorporated, et al., Circuit Court, Cook County, Illinois, filed April 18, 1997 . Defendants’ motion to dismiss the case was granted by the trial court, and plaintiffs’ appeal is pending.

City of St. Louis, et al. v. American Tobacco, et al., Circuit Court, City of St. Louis, Missouri, filed November 23, 1998 . In November 2001, the court granted in part and denied in part defendants’ motion to dismiss and dismissed three of plaintiffs’ 11 claims. Trial is scheduled for June 2005.

County of St. Louis v. American Tobacco, et al., Circuit Court, City of St. Louis, Missouri, filed December 3, 1998 . In November 2003, the case was voluntarily dismissed.

County of McHenry, et al. v. Philip Morris Incorporated, et al., Circuit Court, Cook County, Illinois, filed July 13, 2000 . The case has been stayed pending the outcome of the appeal in County of Cook v. Philip Morris Incorporated, et al. , discussed above.

Department of Justice Case

The United States of America v. Philip Morris Incorporated, et al., United States District Court, District of Columbia, filed September 22, 1999 . See Item 3. Legal Proceedings , for a discussion of this case.

International Cases

The Republic of Panama v. The American Tobacco Company, Inc., United States District Court, District of Columbia, filed September 11, 1998 . In July 2000, the United States Court of Appeals for the Fifth Circuit vacated the ruling by the United States District Court for the Eastern District of Louisiana that granted plaintiff’s motion to remand the case to the Civil District Court, Orleans Parish, Louisiana. In November 2000, the case was transferred to the Multidistrict Litigation Proceeding pending before the United States District Court for the District of Columbia (see In re: Tobacco/Government Health Care Cost Litigation (MDL No. 1279 ) (the “MDL Proceeding,” discussed below)). Plaintiff’s motion to remand this case is pending before the court hearing the MDL Proceeding.

Kupat Holim Clalit v. Philip Morris USA, et al., Jerusalem District Court, Israel, filed September 28, 1998 .

The Republic of Bolivia v. Philip Morris Companies Inc., et al., United States District Court, District of Columbia, filed January 20, 1999 . In February 1999, this case was removed to federal court by defendants and subsequently transferred on the court’s own motion to the federal district court for the District of Columbia in March 1999. It is currently pending in the MDL Proceeding discussed below.

The Caisse Primaire d’Assurance Maladie of Saint-Nazaire v. SEITA, et al., Civil Court of Saint-Nazaire, France, filed June 1999 . In September 2003, the court dismissed the case, and plaintiff has appealed.

In re: Tobacco/Governmental Health Care Costs Litigation (MDL No. 1279), United States District Court, District of Columbia, consolidated June 1999 . In June 1999, the United States Judicial Panel on Multidistrict Litigation transferred foreign government health care cost recovery actions brought by Nicaragua, Venezuela, and Thailand to the District of Columbia for coordinated pretrial proceedings with two such actions brought by Bolivia and Guatemala already pending in that court. Subsequently, the resulting proceeding has also included filed cases brought by the following foreign governments: the Ukraine; the Brazilian States of Espirito Santo, Goias, Mato Grosso do Sul, Para, Parana, Pernambuco, Piaui, Rondonia, Sao Paulo and Tocantins; Panama; the Province of Ontario, Canada; Ecuador; the Russian Federation; Honduras; Tajikistan; Belize; the Kyrgyz Republic and 11 Brazilian cities. The cases brought by Thailand and the Kyrgyz Republic were voluntarily dismissed. The complaints filed by Guatemala, Nicaragua, the Ukraine and the Province of Ontario, have been dismissed, and the dismissals are now final. The district court remanded the cases brought by Belize, Ecuador, Honduras, the Russian Federation,

5 Exhibit 99.1

Tajikistan, Venezuela, nine Brazilian states listed and the 11 Brazilian cities to Florida state courts and remanded the case brought by one Brazilian state to Louisiana state court. Subsequent to remand, the Ecuador case was voluntarily dismissed. In November 2001, the Venezuela and Espirito Santo actions were dismissed, and Venezuela appealed. In September 2002, a Florida intermediate appellate court affirmed the ruling dismissing the case brought by Venezuela. In June 2003, the Florida Supreme Court denied Venezuela’s petition for further review. In August 2003, the trial court granted defendants’ motions to dismiss the cases brought by Tajikistan and one Brazilian state, and plaintiffs in the other 21 cases pending in Florida voluntarily dismissed their claims without prejudice.

The State of Rio de Janeiro of the Federal Republic of Brazil v. Philip Morris Companies Inc., et al., District Court, Angelina County, Texas, filed July 12, 1999 . In December 2002, the court granted defendants’ motion to dismiss the case, and plaintiff has appealed.

The State of Sao Paulo of the Federal Republic of Brazil v. Philip Morris Companies Inc., et al., Civil District Court, Orleans Parish, Louisiana, filed February 9, 2000 .

Her Majesty the Queen in Right of British Columbia v. Imperial Tobacco Limited, et al., Supreme Court, British Columbia, Vancouver Registry, Canada, filed January 24, 2001 . In June 2003, the court granted defendants’ motion to dismiss the case, and plaintiff has appealed.

Junta de Andalucia, et al. v. Philip Morris Spain, et al., Court of First Instance, Madrid, Spain, filed February 21, 2002 .

Native American Cases

Navajo Nation v. Philip Morris Incorporated, et al., District Court, Window Rock, Arizona, filed August 11, 1999. In January 2002, the court granted in part defendants’ motion to dismiss the case and dismissed all of plaintiff’s claims, except one, and plaintiff has moved for reconsideration.

Insurer and Self – Insurer Cases

Blue Cross and Blue Shield of New Jersey, Inc., et al. v. Philip Morris Incorporated, et al., United States District Court, Eastern District, New York, filed April 29, 1998 . In September 2000, the court severed the claims of one plaintiff, Empire Blue Cross and Blue Shield (“Empire”), from those of the other plaintiffs. Trial of Empire’s claims commenced March 2001, and in June 2001, the jury returned a verdict in favor of Empire on two of its claims and awarded Empire up to approximately $17.8 million in compensatory damages, including $6.8 million against PM USA, and no punitive damages. In July 2001, the court stayed the remaining Blue Cross plans’ cases pending the outcome of Empire’s appeal, and denied plaintiff’s motion to treble the damage award. In October 2001, the court denied defendants’ post-trial motions challenging the verdict, and in November 2001, entered judgment. Defendants, including PM USA, appealed. In February 2002, the court awarded plaintiff approximately $38 million for attorneys’ fees. In September 2003, the United States Court of Appeals for the Second Circuit reversed the portion of the judgment relating to subrogation, certified questions relating to plaintiff’s direct claims of deceptive business practices to the New York Court of Appeals and deferred its ruling on the appeal of the attorneys’ fees award pending the ruling on the certified questions.

Taxpayer Cases

Temple, et al. v. The State of Tennessee, et al., United States District Court, Middle District, Tennessee, filed September 11, 2000 . Plaintiffs’ complaint seeks class certification of those individuals who are Medicaid/TennCare recipients and who have allegedly suffered from smoking-related injuries. Plaintiffs claim that the putative class is entitled to a portion of the MSA funds under Tennessee’s “made whole” doctrine. Plaintiffs’ motion for a preliminary injunction seeking to enjoin the State of Tennessee from receiving the MSA payments and asking that the MSA proceeds be paid into the court was denied in March 2002. In July 2002, the court granted the State’s motion to dismiss on the grounds of sovereign immunity. In December 2002, the trial court granted the remaining defendants’ motion to dismiss for failure to state a claim, and plaintiffs have appealed. This case has been consolidated with Anderson, et al., v. The American Tobacco Company, Inc., et al ., discussed below for appeal. PM USA and several other appellees filed a

6 Exhibit 99.1 motion to dismiss the appeal based on appellants’ failure to file a timely notice of appeal, and the motion was denied.

Anderson, et al. v. The American Tobacco Company, Inc., et al., United States District Court, Middle District, Tennessee, filed May 23, 1997 . In October 2002, an order was entered that consolidated this case with Temple, et al. v. The State of Tennessee, et al. (“Temple ”) discussed above and granted plaintiffs’ motion to amend the complaint to make the allegations in this case similar to those in Temple . In November 2002, the trial court granted defendants’ motion to dismiss for failure to state a claim, and plaintiffs have appealed. See Temple, et al., v. The State of Tennessee, et al ., discussed above.

Other Cases

Mason, et al. v. The American Tobacco Company, et al., United States District Court, Eastern District, New York, filed December 23, 1997 . In July 2002, the court denied plaintiffs’ motion for class certification, and granted defendants’ motion to dismiss the case, and plaintiffs appealed. In September 2003, the United States Court of Appeals for the Second Circuit affirmed the trial court’s ruling. In December 2003, the Second Circuit denied plaintiffs’ petition for rehearing.

CERTAIN OTHER TOBACCO-RELATED ACTIONS

The following lists certain other tobacco-related litigation pending against ALG and/or its various subsidiaries and others as of February 13, 2004, and describes certain developments since November 13, 2003.

Lights/Ultra Lights Cases

Aspinall, et al. v. Philip Morris Companies Inc. and Philip Morris Incorporated, Superior Court, Suffolk County, Massachusetts, filed November 24, 1998 . In October 2001, the court granted plaintiffs’ motion for class certification, and defendants have appealed. In May 2003, the Single Justice sitting on behalf of the Massachusetts Court of Appeals decertified the class. In June 2003, plaintiffs petitioned for reconsideration or, in the alternative, for the decision to be reported to an appellate panel for further consideration. In October 2003, Massachusetts’ highest court granted plaintiffs’ application for direct appeal to that court.

McClure, et al. v. Philip Morris Companies Inc. and Philip Morris Incorporated, Circuit Court, Davidson County, Tennessee, filed January 19, 1999 .

Marrone, et al. v. Philip Morris Companies Inc. and Philip Morris Incorporated, Court of Common Pleas, Medina County, Ohio, filed November 8, 1999 . In September 2003, plaintiffs’ motion for class certification was granted as to plaintiffs’ claims that defendants violated Ohio’s Consumer Sales Practices Act pursuant to which plaintiffs allege that class members are entitled to reimbursement of the costs of cigarettes purchased during the class periods. Class membership is limited to the residents of six Ohio counties. Defendants have appealed the class certification order.

Price, et al. v. Philip Morris Incorporated, Circuit Court, Madison County, Illinois, filed February 10, 2000 . See Item 3. Legal Proceedings , for a discussion of this case.

Craft (formerly, Ratliff), et al. v. Philip Morris Companies Inc., et al., Circuit Court, City of St. Louis, Missouri, filed February 15, 2000 . In December 2003, the court granted plaintiffs’ motions for class certification, and defendants have moved for reconsideration.

Hines, et al. v. Philip Morris Companies Inc., et al., Circuit Court, Fifteenth Judicial Circuit, Palm Beach County, Florida, filed February 23, 2001 . In February 2002, the court granted plaintiffs’ motion for class certification, and defendants appealed. In December 2003, a Florida District Court of Appeal decertified the class, and plaintiffs have indicated their intent to seek reconsideration.

Philipps, et al. v. Philip Morris Incorporated, et al., Court of the Common Pleas, Medina County, Ohio, filed May 1, 2001 . In September 2003, plaintiffs’ motion for class certification was granted as to plaintiffs’ claims that defendants violated Ohio’s Consumer Sales Practices Act pursuant to which plaintiffs allege

7 Exhibit 99.1 that class members are entitled to reimbursement of the costs of cigarettes purchased during the class periods. Class membership is limited to the residents of six Ohio counties. Defendants have appealed the class certification order.

Moore, et al. v. Philip Morris Incorporated, et al., Circuit Court, Marshall County, West Virginia, filed August 10, 2001 .

In re: Tobacco Cases II (Daniel Fischer, Jr., individually and on behalf of those similarly situated and the general public) v. Philip Morris Incorporated, et al., Superior Court, San Diego County, California, filed October 31, 2001 . In August 2002, plaintiff stipulated to the dismissal of ALG as a defendant. In October 2002, plaintiffs amended their complaint to add PMI as a defendant. Also, in October 2002, defendants’ motion to coordinate the case with a case pending in state court in San Diego, California was granted. In January 2004, the case was voluntarily dismissed without prejudice.

Curtis, et al. v. Philip Morris Companies Inc., et al., Fourth Judicial District Court, Hennepin County, Minnesota, filed November 28, 2001 . In January 2004, the court denied plaintiffs’ motion for class certification and defendants’ motions for summary judgment.

Tremblay, et al. v. Philip Morris Incorporated, Superior Court, Rockingham County, New Hampshire, filed March 29, 2002 . The case has been consolidated with Peters v. Philip Morris Incorporated .

Peters v. Philip Morris Incorporated, Superior Court, Rockingham County, New Hampshire, filed April 22, 2002 . This case has been consolidated with Tremblay, et al. v. Philip Morris Incorporated .

Pearson v. Philip Morris Incorporated, et al., Circuit Court, Multnomah County, Oregon, filed November 20, 2002 .

Sullivan v. Philip Morris USA, Inc., et al., Circuit Court, Western District, Louisiana, filed March 28, 2003 .

Virden v. Altria Group, Inc., et al., United States District Court, Northern District, West Virginia, filed March 28, 2003 .

Stern, et al. v. Philip Morris USA, Inc. et al., Superior Court, Middlesex County, New Jersey, filed April 4, 2003 .

Piscetta, et al. v. Philip Morris Incorporated, State Court, Fulton County, Georgia, filed April 10, 2003 .

Arnold, et al. v. Philip Morris USA Inc., United States District Court, Southern District, Illinois, filed May 5, 2003 .

Watson, et al. v. Altria Group, Inc., et al. United States District Court, Eastern District, Arkansas, filed May 29, 2003 .

Paldrmic, et al. v. Altria Group, Inc., et al., United States District Court, Eastern District, Wisconsin, filed June 5, 2003 .

Holmes, et al. v. Philip Morris USA Inc., et al., Superior Court, New Castle, Delaware, filed August 18, 2003 .

El Roy v. Philip Morris Incorporated, et al., Tel Aviv-Jaffa District Court, Israel, filed January 18, 2004 .

Tobacco Growers ’ Case

DeLoach, et al. v. Philip Morris Incorporated, et al., United States District Court, Middle District, North Carolina, filed February 16, 2000 . See Item 3. Legal Proceedings , for a discussion of this case.

8 Exhibit 99.1

Tobacco Price Cases

The following are the cases filed by tobacco wholesalers/distributors and by smokers, alleging that defendants conspired to fix cigarette prices in violation of antitrust laws.

DelSeronne, et al. v. Philip Morris Companies Inc., et al., Circuit Court, Wayne County, Michigan, filed February 8, 2000 . In January 2004, the case was dismissed.

Greer, et al. v. R. J. Reynolds, et al., Superior Court, San Francisco, California, filed February 9, 2000 . In December 2003, the case was dismissed.

Munoz, et al. v. R. J. Reynolds, et al., Superior Court, San Francisco County, California, filed February 9, 2000 . In December 2003, the case was dismissed.

Smith, et al. v. Philip Morris Companies Inc., et al., District Court, Seward County, Kansas, filed February 9, 2000 . In November 2001, the court granted plaintiffs’ motion for class certification.

Gray, M.D., et al. v. Philip Morris Companies Inc., et al., Superior Court, Pima County, Arizona, filed February 11, 2000 . In January 2004, the case was dismissed.

Morse v. R. J. Reynolds, et al., Superior Court, Alameda County, California, filed February 14, 2000 . In December 2003, the case was dismissed.

Ulan v. R. J. Reynolds, et al., Superior Court, Alameda County, California, filed February 17, 2000 . In December 2003, the case was dismissed.

Shafer v. Philip Morris Companies Inc., et al., District Court, Morton County, North Dakota, filed February 16, 2000 . In January 2004, the case was dismissed.

Sullivan v. R. J. Reynolds, et al., Superior Court, Alameda County, California, filed February 22, 2000 . In December 2003, the case was dismissed.

Teitler v. R. J. Reynolds, et al., Superior Court, Alameda County, California, filed February 22, 2000 . In December 2003, the case was dismissed.

Peirona v. Philip Morris Companies Inc., et al., Superior Court, San Francisco County, California, filed February 28, 2000 . In December 2003, the case was dismissed.

Cusatis v. Philip Morris Companies Inc., et al., Circuit Court, Milwaukee County, Wisconsin, filed February 28, 2000 . In January 2004, the case was dismissed.

Sand v. Philip Morris Companies Inc., et al., Superior Court, Los Angeles County, California, filed February 28, 2000 . In December 2003, the case was dismissed.

Taylor, et al. v. Philip Morris Companies Inc., et al., Superior Court, Cumberland County, Maine, filed March 24, 2000 . In January 2004, the case was dismissed.

Romero, et al. v. Philip Morris Companies Inc., et al., First Judicial District Court, Rio Arriba County, New Mexico, filed April 10, 2000 . Plaintiffs’ motion for class certification was granted in April 2003. The New Mexico Court of Appeals has agreed to hear defendants’ appeal of the class certification decision.

Belch, et al. v. Philip Morris Companies Inc., et al., Superior Court, Alameda County, California, filed April 11, 2000 . In December 2003, the case was dismissed.

Belmonte, et al. v. R. J. Reynolds, et al., Superior Court, Alameda County, California, filed April 11, 2000 . In December 2003, the case was dismissed.

Aguayo, et al. v. R.J. Reynolds, et al., Superior Court, Alameda County, California, filed April 11, 2000 . In December 2003, the case was dismissed.

Swanson, et al. (formerly Vetter, et al.) v. Philip Morris Companies Inc., et al., District Court, Hughes County, South Dakota, filed April 18, 2000 . In December 2003, the case was dismissed.

9 Exhibit 99.1

Ludke, et al. v. Philip Morris Companies Inc., et al., District Court, Hennepin County, Minnesota, filed April 20, 2000 . In December 2003, the case was dismissed.

Kissel, et al. (formerly Quickle, et al.) v. Philip Morris Companies Inc., et al., First Judicial Circuit Court, Ohio County, West Virginia, filed May 2, 2000 . In January 2004, the case was dismissed.

Baker, et al. v. R.J. Reynolds, et al., Superior Court, Alameda County, California, filed May 15, 2000 . In December 2003, the case was dismissed.

Campe, et al. v. R.J. Reynolds, et al., Superior Court, Alameda County, California, filed May 15, 2000 . In December 2003, the case was dismissed.

Barnes v. Philip Morris Companies Inc., et al., Superior Court, District of Columbia, filed May 18, 2000 . In December 2003, the case was dismissed.

Lau, et al. v. R.J. Reynolds, et al., Superior Court, Alameda County, California, filed May 25, 2000 . In December 2003, the case was dismissed.

Philips, et al. v. R.J. Reynolds, et al., Superior Court, Alameda County, California, filed June 9, 2000 . In December 2003, the case was dismissed.

Pooler/Unruh, et al. v. R.J. Reynolds, et al., Second Judicial District, Washoe County, Nevada, filed June 9, 2000 . In December 2003, the case was dismissed.

Saylor, et al. v. Philip Morris Companies Inc., et al., Circuit Court, Washington County, Tennessee, filed August 15, 2001 . In January 2004, the case was dismissed.

Wholesale Leaders Cases

Smith Wholesale Company, Inc., et al. v. Philip Morris USA Inc., United States District Court, Eastern District, Tennessee, filed July 10, 2003 . See Item 3. Legal Proceedings for a discussion of this case.

Victory Brand, L.L.C., Michigan v. Philip Morris USA Inc., et al., United States District Court, Eastern District, Michigan, filed December 10, 2003 .

Consolidated Putative Punitive Damages Cases

Simon, et al. v. Philip Morris Incorporated, et al. (Simon II), United States District Court, Eastern District, New York, filed September 6, 2000 . See Item 3. Legal Proceedings for a discussion of this case.

Cases Under the California Business and Professions Code

Brown, et al. v. The American Tobacco Company, Inc., et al., Superior Court, San Diego County, California, filed June 10, 1997. In April 2001, the court granted in part plaintiffs ’ motion for class certification and certified a class comprised of residents of California who smoked at least one of defendants ’ cigarettes between June 1993 and April 2001 and who were exposed to defendants’ marketing and advertising activities in California. Certification was granted as to plaintiffs’ claims that defendants violated California Business and Professions Code Sections 17200 and 17500 pursuant to which plaintiffs allege that class members are entitled to reimbursement of the costs of cigarettes purchased during the class period and injunctive relief barring activities allegedly in violation of the Business and Professions Code. Defendants’ motions for summary judgment are pending.

Daniels, et al. v. Philip Morris Companies Inc., et al., Superior Court, San Diego County, California, filed April 2, 1998. In November 2000, the court granted the plaintiffs’ motion for class certification on behalf of minor California residents who smoked at least one cigarette between April 1994 and December 1999. Certification was granted as to plaintiffs’ claims that defendants violated California Business and Professions Code Section 17200 pursuant to which plaintiffs allege that class members are entitled to reimbursements of the costs of cigarettes purchased during the class period and injunctive relief barring activities allegedly in violation of the Business and Professions Code. In September 2002, the court granted defendants’ motions for summary judgment as to all claims in the case. Plaintiffs have appealed.

10 Exhibit 99.1

Asbestos Contribution Cases

Fibreboard Corporation, et al. v. The American Tobacco Company, Inc., et al., Superior Court, Alameda County, California, filed December 11, 1997 .

Owens Corning v. R.J. Reynolds Tobacco Company, et al., Circuit Court, Fayette County, Mississippi, filed August 30, 1998 . In July 2001, the court granted defendants’ motion for summary judgment dismissing the claims of the asbestos company plaintiff, and plaintiff has appealed.

Combustion Engineering, Inc., et al. v. RJR Nabisco, Inc., et al., Circuit Court, Jefferson County, Mississippi, filed December 18, 2000 (not yet served).

Gasket Holdings, et al. v. RJR Nabisco, Inc., et al., Circuit Court, Jefferson County, Mississippi, filed December 18, 2000 (not yet served).

Kaiser Aluminum & Chemical Corporation, et al. v. RJR Nabisco, Inc., et al., Circuit Court, Jefferson County, Mississippi, filed December 18, 2000 .

T&N, Ltd., et al. v. RJR Nabisco, Inc., et al., Circuit Court, Jefferson County, Mississippi, filed December 18, 2000 (not yet served).

W.R. Grace & Co. Conn., et al. v. RJR Nabisco, Inc., et al., Circuit Court, Jefferson County, Mississippi, filed April 24, 2001 .

Cigarette Contraband Cases

Department of Amazonas, et al. v. Philip Morris Companies Inc., et al., United States District Court, Eastern District, New York, filed May 19, 2000 . Defendants’ motion to dismiss the complaint for failure to state a claim was granted by the trial court and plaintiffs appealed. In January 2004, the United States Court of Appeals for the Second Circuit affirmed the trial court’s ruling.

The Republic of Ecuador v. Philip Morris Incorporated, et al., United States District Court, Southern District, Florida, filed June 5, 2000 . Defendants’ motion to dismiss the complaint for failure to state a claim was granted by the trial court and plaintiff appealed. In August 2003, the United States Court of Appeals for the Eleventh Circuit affirmed the trial court’s ruling, and plaintiff petitioned the United States Supreme Court for further review. In January 2004, the Supreme Court denied plaintiff’s petition.

The Republic of Belize v. Philip Morris Companies Inc., et al., United States District Court, Southern District, Florida, filed May 8, 2001 . Defendants’ motion to dismiss the complaint for failure to state a claim was granted by the trial court and plaintiff appealed. In August 2003, the United States Court of Appeals for the Eleventh Circuit affirmed the trial court’s ruling, and plaintiff petitioned the United States Supreme Court for further review. In January 2004, the Supreme Court denied plaintiff’s petition.

The Republic of Honduras v. Philip Morris Companies Inc., et al., United States District Court, Southern District, Florida, filed May 8, 2001 . Defendants’ motion to dismiss the complaint for failure to state a claim was granted by the trial court and plaintiff appealed. In August 2003, the United States Court of Appeals for the Eleventh Circuit affirmed the trial court’s ruling, and plaintiff petitioned the United States Supreme Court for further review. In January 2004, the Supreme Court denied plaintiff’s petition.

The European Community, et al. v. RJR Nabisco, Inc., et al., United States District Court, Eastern District, New York, filed August 6, 2001 . Defendants’ motion to dismiss the complaint for failure to state a claim was granted by the trial court, and plaintiffs appealed. In January 2004, the United States Court of Appeals for the Second Circuit affirmed the trial court’s ruling.

Vending Machine Case

Lewis d/b/a B&H Vendors v. Philip Morris Incorporated, United States District Court, Middle District, Tennessee, filed February 3, 1999 . See Item 3. Legal Proceedings for a discussion of this case.

11 Exhibit 99.1

MSA -Related Cases

The following are cases in which plaintiffs have challenged the validity of the Master Settlement Agreement described in Item 3. Legal Proceedings.

A.D. Bedell Company, Inc. v. Philip Morris Incorporated, et al., Supreme Court, Cattaraugus County, New York, filed October 18, 1999 . In November 1999, the court denied a motion to dismiss the complaint and denied a motion to vacate the temporary restraining order enjoining PM USA from refusing to sell products to plaintiff. Defendants filed an appeal from the court’s denial of their motion to dismiss and motion to vacate. In May 2000, the appellate court granted in part and denied in part defendants’ motion to dismiss the case. In January 2004, the case was dismissed by stipulation.

Mariana, et al. v. William, et al., United States District Court, Middle District, Pennsylvania, filed October 31, 2001 . Plaintiffs, seeking to enjoin the Commonwealth of Pennsylvania’s receipt of funds pursuant to the MSA, allege that enforcement of the MSA is unconstitutional and violates antitrust laws. The trial court granted defendants’ motion to dismiss the case, and in July 2003, the appellate court affirmed the dismissal. In February 2004, the United States Supreme Court denied plaintiffs’ petition for further review.

CERTAIN OTHER ACTIONS

The following lists certain other actions pending against subsidiaries of ALG and others as of February 13, 2004.

In May 2001, the Attorney General for the State of Ohio notified KFNA that it may be subject to an enforcement action for alleged violations of the state’s water pollution control law at its production facility in Farmdale, Ohio. The Ohio Attorney General has alleged that this facility has exceeded its water permit effluent limits and violated its reporting requirements. The State has offered to attempt to negotiate a settlement of this matter, and the parties currently are involved in settlement negotiations.

In October 2002, Mr. Mustapha Gaouar filed suit in the Commercial Court of Casablanca against Kraft Foods Maroc (“KFM”), a subsidiary of Kraft, and Mr. Omar Berrada claiming damages of approximately $31 million arising from a non-compete undertaking signed by Mr. Gaouar allegedly under duress. In June 2003, the court issued a preliminary judgment against KFM and Mr. Berrada holding that Mr. Gaouar is entitled to damages for being deprived of the possibility of engaging in coffee roasting from 1986 due to such non-compete undertaking. At that time, the court appointed two experts to assess the amount of damages to be awarded, which assessment has not yet been completed. KFM believes that it has various grounds for appeal of this judgment and intends to pursue such an appeal after damages have been finally assessed. KFM also believes that in the event that it is ultimately found liable for damages to plaintiff in this case, it may have claims against Mr. Berrada for recovery of all or a portion of the amount of any damages awarded to plaintiff.

12 Exhibit 99.2

TRIAL SCHEDULE FOR CERTAIN CASES

Set forth below is a listing of the smoking and health class action against PM USA and the health care cost recovery case against PM USA and ALG currently scheduled for trial through 2004.

Case (Jurisdiction) Type of Action Trial Date

Scott, et al. v. The American Tobacco Company, et Smoking and Health Class Action (Second Phase March 29, 2004 al. (Louisiana) of Trial) The United States of America v. Philip Morris Health Care Cost Recovery Case September 13, 2004 Incorporated, et al. (Washington, D.C.)

Below is a schedule setting forth by month the number of individual smoking and health cases, including cases brought by current and former flight attendants claiming personal injuries allegedly related to ETS, against PM USA and, in some cases, ALG, that are currently scheduled for trial through the end of 2004.

2004

May (1) June (1) July (1) September (2) October (2) November (1)