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Kraft Foods Reports Q2 EPS From Continuing Operations Up 27% to $0.56, Fueled by Broad-Based Operating Gains

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--- Net revenues declined 5.9% due to currency; organic net revenues(1) up 2.9%--- Operating income increased 7.6%; margin expanded 190 basis points--- Outlook for 2009 diluted EPS raised to at least $1.93 from $1.88
NORTHFIELD, Ill., Aug 04, 2009 /PRNewswire-FirstCall via COMTEX/ -- Kraft Foods Inc. (NYSE: KFT) today reported strong second quarter 2009 results fueled by solid performance across all geographies. Organic net revenue growth reflected the impact of cost-driven pricing actions taken in 2008, positive volume/mix and the benefits of incremental investments in brand building. Income growth and margin expansion were driven by lower costs due to the completion of the 2004-2008 Restructuring Program, improved product mix and lower fixed manufacturing costs.

"The investments we've made over the past three years are driving solid business momentum in a challenging economic environment," said Irene Rosenfeld, Chairman and CEO. "We're on track to deliver strong top- and bottom-line results, restore our profit margins to industry averages and consistently deliver against our long-term earnings growth target of 7 to 9 percent."

  • Net revenues declined 5.9 percent to $10.2 billion, including the unfavorable impact of 8.1 percentage points from currency and 0.7 percentage points from divestitures.

    Organic net revenues grew 2.9 percent, driven by 2.7 percentage points from pricing and 0.2 percentage points from volume/mix. The favorable impact from the shift of Easter-related shipments into the second quarter this year was more than offset by the cumulative effect of the planned discontinuation of less-profitable product lines over the past year.

  • Operating income increased 7.6 percent from the prior year to $1,531 million. Lower costs due to the completion of the Restructuring Program accounted for 10.0 percentage points of growth, partially offset by a negative 8.2 percentage point impact due to currency translation.

    The company delivered this strong increase in operating income despite an unfavorable impact of about 9 percentage points from gains in second quarter 2008. Specifically, second quarter 2008 benefited from approximately $90 million(2) more of gains due to certain commodity hedging activities and a $40 million value added tax credit in Brazil.

    Operating income margin increased 190 basis points year-over-year to 15.1 percent. Approximately 130 basis points of the improvement were attributable to lower costs due to the completion of the Restructuring Program, while approximately 50 basis points were attributable to favorable product mix.

  • The tax rate of 32.0 percent was down from 37.9 percent in the prior year period due to the timing of discrete items in both years.

  • Earnings per share were $0.56, up from $0.49 in second quarter 2008.

                                                      Diluted EPS
                                                      -----------

    Second Quarter 2008 Diluted EPS                      $0.49

    Discontinued Operations                              (0.05)
                                                         -----

    Second Quarter 2008 Diluted EPS from
     Continuing Operations                               $0.44

    Operating Gains                                       0.05
    Absence of Brazilian VAT Credit                      (0.02)
    Unfavorable Foreign Currency                         (0.06)
    Lower Unrealized Gains from Commodity                (0.02)
       Hedging Activities
    Lower Restructuring Program Costs                     0.07
    Net Change in Gains/Losses on Divestitures            0.03

    Lower Interest Expense                                0.01
    Changes in Taxes                                      0.04
    Fewer Shares Outstanding                              0.02
                                                          ----

    Second Quarter 2009 Diluted EPS                      $0.56
                                                         =====



       Operating gains of $0.05 versus the prior year overcame the unfavorable
       impact of about $0.02 from incremental pension costs as well as
       approximately $0.02 of benefits in the prior year from realized gains
       from certain commodity hedging activities.

    -- Discretionary cash flow(1) for the first six months of 2009 was
       approximately $1.4 billion, nearly double that of the first six months
       of 2008.  The increase primarily reflects improved working capital
       management and lower capital expenditures.

SECOND QUARTER 2009 RESULTS, DISCUSSION BY SEGMENT(3)

                                                 Q2 2009
                                             (percent growth)
                                             ----------------
                                       Net     Organic Net   Operating
                                    Revenues    Revenues(1)    Income
                                    --------   ------------  ---------
    Total Kraft Foods                 (5.9)%       2.9%         7.6%(4)

    Kraft Foods North America          0.0         1.8         10.0

        U.S. Beverages                 6.0         6.0          9.6
        U.S. Cheese                   (8.7)       (8.7)        16.1
        U.S. Convenient Meals          7.1         7.1         36.9
        U.S. Grocery                   6.7         6.7         10.8
        U.S. Snacks                    1.3         1.3         (7.7)
        Canada & N.A. Foodservice    (10.0)       (0.5)        10.7

    Kraft Foods Europe               (17.4)        0.4         90.8

    Kraft Foods Developing Markets    (9.8)        9.3          2.8

U.S. Beverages

Organic net revenues increased 6.0 percent as volume/mix growth was partially offset by lower price levels. Ready-to-drink beverages grew at a double-digit rate behind successful quality and marketing investments in Capri Sun. Coffee grew primarily due to strong growth in Maxwell House, aided, in part, by the Easter shift.

Operating income increased 9.6 percent as improved volume/mix and lower costs due to the completion of the Restructuring Program were partially offset by incremental marketing investments.

U.S. Cheese

Organic net revenues declined 8.7 percent driven primarily by an 8.0 percentage point reduction from pricing in response to significantly lower dairy costs. Solid volume growth in Kraft Singles processed slices, Velveeta processed cheese and Philadelphia cream cheese was largely offset by declines in other cheese categories. The Easter shift favorably impacted growth by approximately two percentage points.

Operating income grew 16.1 percent as the benefits of improved alignment of prices with costs, reflecting the company's adaptive pricing model in natural cheese, more than offset higher marketing investments.

U.S. Convenient Meals

Organic net revenues increased 7.1 percent reflecting the impact of higher price levels and improved volume/mix. DiGiorno pizza and Oscar Mayer Deli Fresh meats each grew 20 percent or more. Oscar Mayer Deli Creations and new products, such as DiGiorno Crispy Flatbread pizzas and DiGiorno and California Pizza Kitchen Flatbread Melts sandwiches, also fueled the growth. The planned discontinuation of less-profitable product lines, partially offset by the impact of the Easter shift, slowed growth by approximately one percentage point.

Operating income increased 36.9 percent as improved alignment of prices with costs and favorable volume/mix more than offset higher marketing costs.

U.S. Grocery

Organic net revenues increased 6.7 percent from higher price levels and favorable volume/mix, primarily driven by double-digit volume growth in Kraft macaroni and cheese dinners.

Operating income increased 10.8 percent as the benefits of improved alignment of prices with costs more than offset higher marketing costs.

U.S. Snacks

Organic net revenues increased 1.3 percent driven by both higher price levels and improved volume/mix. Biscuits grew about five percent, driven by strong performance in the top five brands: Oreo, Chips Ahoy!, Ritz, Wheat Thins and Triscuit. Organic net revenue for both nuts and bars declined. The favorable impact of the Easter shift was offset by the unfavorable carryover impact of recalling certain products containing pistachios during the first quarter.

Operating income decreased 7.7 percent due to approximately $40 million in lower realized gains on certain commodity hedging activities. Excluding these prior year gains, operating income increased as lower overhead and marketing costs, favorable volume/mix and higher price levels more than offset higher input costs.

Canada & North America Foodservice

Organic net revenues declined 0.5 percent as growth in Canada was more than offset by lower revenues in North America Foodservice. Growth in Canada was driven by higher price levels and continued volume/mix improvements from marketing investments and more effective customer programs. North America Foodservice declined due to unfavorable volume/mix, reflecting an industrywide decrease in casual dining traffic and the planned discontinuation of a less-profitable product line.

Operating income increased 10.7 percent despite an unfavorable currency impact of approximately 13 percentage points. The increase was driven by lower costs due to the completion of the Restructuring Program, higher price levels, lower overhead and marketing costs and solid operating performance in Canada. These gains were partially offset by higher input costs as well as lower volumes in North America Foodservice.

Kraft Foods Europe

Organic net revenues increased 0.4 percent reflecting higher price levels, partially offset by lower volume/mix that was due, in part, to management's decision to forego unprofitable volume. Strong growth of Milka and Freia Marabou as well as higher price levels drove the increase in chocolate. Double-digit growth of Kenco, Gevalia and Tassimo drove growth in coffee. Biscuits declined as the impact of weakening economic conditions was partially offset by solid growth in regional priority brands and share gains in the United Kingdom and Belgium.

Operating income nearly doubled despite an approximately 28 percentage point unfavorable impact from currency. The increase was largely driven by higher price levels and lower input and manufacturing costs, lower costs due to the completion of the Restructuring Program and lower net losses on divestitures. These gains more than offset higher investments in cost-savings initiatives and marketing.

Kraft Foods Developing Markets

Organic net revenues increased 9.3 percent driven by solid gains from priority brands in each region.

    -- In Latin America, the top five brands collectively grew more than
       25 percent, including more than 30 percent growth in both Tang
       powdered beverages and Lacta chocolate.
    -- In Asia Pacific, growth was driven by higher price levels and
       strength in the priority brands, particularly Oreo cookies and
       Tang.
    -- In Central and Eastern Europe, Middle East & Africa, higher price
       levels and strength in the priority brands drove growth.  Priority
       brands collectively grew at double-digit rates, with particularly
       strong performances from Tang, Jacobs coffee and Milka chocolate.

Operating income increased 2.8 percent despite an unfavorable currency impact of approximately 18 percentage points. Excluding currency, a combination of higher price levels, lower fixed manufacturing costs, lower costs due to the completion of the Restructuring Program and improved volume/mix more than offset higher input costs, investments in marketing and selling and the absence of a $40 million benefit from a value added tax credit in Brazil in the prior year.

OUTLOOK

Kraft Foods increased its guidance for 2009 diluted earnings per share to at least $1.93 versus the prior expectation of $1.88. This guidance reflects strong year-to-date performance as well as incremental investments in marketing and cost-savings initiatives to drive future growth.

The company's outlook for 2009 organic net revenue growth of approximately 3 percent and a 31.5 percent full-year effective tax rate remain unchanged.

CONFERENCE CALL

Kraft Foods will host a conference call for investors with accompanying slides to review its results at 5 p.m. EDT today. Access to a live audio webcast with accompanying slides is available at www.kraftfoodscompany.com, and a replay of the event will be available on the company's web site.

ABOUT KRAFT FOODS INC.

Kraft Foods (www.kraftfoodscompany.com) makes today delicious in 150 countries around the globe. Our 100,000 employees work tirelessly to make delicious foods consumers can feel good about. From American brand icons like Kraft cheeses, dinners and dressings, Maxwell House coffees and Oscar Mayer meats, to global powerhouse brands like Oreo and LU biscuits, Philadelphia cream cheeses, Jacobs and Carte Noire coffees, Tang powdered beverages and Milka, Cote d'Or, Lacta and Toblerone chocolates, our brands deliver millions of smiles every day. Kraft Foods (NYSE: KFT) is the world's second largest food company with annual revenues of $42 billion. The company is a member of the Dow Jones Industrial Average, Standard & Poor's 500, the Dow Jones Sustainability Index and the Ethibel Sustainability Index.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements regarding our outlook for 2009 diluted EPS; that the investments we've made over the last three years are driving solid business momentum; that we're on track to deliver strong top- and bottom-line results, to restore our profit margins to industry averages and consistently deliver against our long-term earnings growth target of 7 to 9 percent; that our increase in 2009 diluted EPS reflects strong year-to-date performance as well as incremental investments in marketing and cost-savings initiatives to drive future growth; our outlook for 2009 net revenue growth of approximately 3 percent; and our full-year effective tax rate. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forward-looking statements. Such factors, include, but are not limited to, continued volatility in input costs, pricing actions, increased competition, increased costs of sales, a shift to private label products, risks from operating internationally, and tax law changes. For additional information on these and other factors that could affect our forward-looking statements, see our filings with the SEC, including our most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this press release.

NON-GAAP FINANCIAL MEASURES

The company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP").

The company's top-line guidance measure is organic net revenues, which excludes the impact of acquisitions, divestitures and currency. The company uses organic net revenues and corresponding growth ratios as non-GAAP financial measures. Management believes this measure better reflects revenues on a going-forward basis and provides improved comparability of results.

Management uses segment operating income to evaluate segment performance and allocate resources. The company believes it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), certain components of its U.S. pension plan cost (which is a component of cost of sales and marketing, administration and research costs), general corporate expenses (which are a component of marketing, administration and research costs) and amortization of intangibles for all periods presented. In 2009, the company began excluding certain components of its U.S. pension plan cost from segment operating income because the company centrally manages pension plan funding decisions, and determines discount rate, expected rate of return on plan assets and other actuarial assumptions. Therefore, the company allocates only the service cost component of its U.S. pension plan expense to segment operating income. The company excludes the unrealized gains and losses on hedging activities from segment operating income to provide better transparency of its segment operating results. Once realized, the gains and losses on hedging activities are recorded within segment operating results. Accordingly, the company does not present these items by segment because they are excluded from the segment profitability measure that management reviews. Additionally, "certain commodity hedging activities" include the timing impacts of realized gains and losses on commodity hedges that were intended to cover transactions outside of the current quarter.

The company's five-year Restructuring Program, which ended in 2008, included asset impairment, exit and implementation costs. Implementation costs are directly attributable to exit costs; however, they do not qualify for exit cost treatment under U.S. GAAP. Management believes this disclosure provides better transparency into the total costs of our Restructuring Program.

The company uses discretionary cash flow as its primary cash flow metric as it represents the controllable cash flows from operations. For the six months ended June 30, 2009, discretionary cash flow was $1,446 million, and is defined as cash flow from operations ($1,720 million) less capital expenditures ($474 million) plus voluntary pension contributions ($200 million). Management believes it shows the financial health of and how efficiently we are running the company.

See the attached schedules for supplemental financial data and corresponding reconciliations to certain GAAP financial measures for the quarters ended June 30, 2009 and 2008. Because GAAP financial measures on a forward-looking basis are neither accessible nor deemed to be significantly different, and reconciling information is not available without unreasonable effort, with regard to the non-GAAP financial measures in its 2009 Outlook, the company has not provided that information. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the company's results prepared in accordance with GAAP. In addition, the non-GAAP measures the company is using may differ from non-GAAP measures used by other companies.

    (1) Please see discussion of Non-GAAP Financial Measures.
    (2) This amount included approximately $40 million of lower unrealized
        gains and approximately $50 million of lower realized gains from
        certain commodity hedging activities.
    (3) Please refer to the company's Form 8-K filed March 26, 2009, for
        discussion of changes to reportable segments.
    (4) Includes the year-over-year changes in unallocated corporate expenses,
        unrealized gains/losses related to the company's hedging activities,
        certain components of its U.S. pension plan costs and the amortization
        of intangibles.

                          - make today delicious -


                                                                   Schedule 1
                                                                   ----------

                       Kraft Foods Inc. and Subsidiaries
                       Condensed Statements of Earnings
                     For the Three Months Ended June 30,
               (in millions, except per share data)  (Unaudited)

                                                    As Reported (GAAP)
                                                    -------------------
                                                 2009     2008    % Change
                                                 ----     ----    --------

    Net revenues                              $10,162  $10,804      (5.9)%

    Cost of sales                               6,497    6,936       6.3%
                                                -----    -----

      Gross profit                              3,665    3,868      (5.2)%

      Gross profit margin                        36.1%    35.8%

    Marketing, administration & research
     costs                                      2,140    2,264       5.5%

    Asset impairment and exit costs               (26)     103     100.0+%

    (Gains) / losses on divestitures, net          17       74      77.0%

    Amortization of intangibles                     3        4      25.0%
                                                  ---      ---

      Operating income                          1,531    1,423       7.6%

      Operating income margin                    15.1%    13.2%

    Interest & other expense, net                 312      331       5.7%
                                                  ---      ---

      Earnings from continuing operations
       before income taxes                      1,219    1,092      11.6%

    Provision for income taxes                    390      414       5.8%

    Effective tax rate                           32.0%    37.9%
                                                 ----     ----

      Earnings from continuing operations        $829      678      22.3%

    Earnings from discontinued operations,
     net of income taxes                            -       69    (100.0)%
                                                  ---      ---

      Net earnings                               $829     $747      11.0%

    Noncontrolling interest                         2        2         -
                                                  ---      ---

      Net earnings attributable to Kraft
       Foods                                     $827     $745      11.0%
                                                 ====     ====

    Earnings per share attributable to Kraft Foods:
      Basic
      -  Continuing operations                  $0.56    $0.44      27.3%
      -  Discontinued operations                    -     0.05    (100.0)%
                                                -----     ----
      -  Net earnings attributable to Kraft
       Foods                                    $0.56    $0.49      14.3%
                                                =====    =====

      Diluted
      -  Continuing operations                  $0.56    $0.44      27.3%
      -  Discontinued operations                    -     0.05    (100.0)%
                                                -----     ----
      -  Net earnings attributable to Kraft
       Foods                                    $0.56    $0.49      14.3%
                                                =====    =====

    Average shares outstanding:
      Basic                                     1,478    1,522       2.9%
      Diluted                                   1,484    1,532       3.1%


                                                                   Schedule 2
                                                                   ----------

                      Kraft Foods Inc. and Subsidiaries
               Reconciliation of GAAP to Non-GAAP Information
                                Net Revenues
                    For the Three Months Ended June 30,
                        ($ in millions)  (Unaudited)

                                           Impact
                                 As          of       Impact
                              Reported     Divest-      of     Organic
                               (GAAP)      itures    Currency (Non-GAAP)
                              ---------    -------   --------  --------
    2009
    ----

      U.S. Beverages               $836         $-         $-      $836
      U.S. Cheese                   887          -          -       887
      U.S. Convenient Meals       1,166          -          -     1,166
      U.S. Grocery                  973          -          -       973
      U.S. Snacks                 1,288          -          -     1,288
      Canada & N.A. Foodservice   1,027          -        108     1,135
                                  -----        ---        ---     -----
    North America                $6,177         $-       $108    $6,285

    Europe                        2,083          -        377     2,460
    Developing Markets            1,902         (5)       391     2,288
                                  -----        ---        ---     -----

    Kraft Foods                 $10,162        $(5)      $876   $11,033
                                =======        ===       ====   =======


    2008 (As Restated)
    ------------------

      U.S. Beverages               $789         $-         $-      $789
      U.S. Cheese                   972          -          -       972
      U.S. Convenient Meals       1,089          -          -     1,089
      U.S. Grocery                  912          -          -       912
      U.S. Snacks                 1,272          -          -     1,272
      Canada & N.A. Foodservice   1,141          -          -     1,141
                                  -----        ---        ---     -----
    North America                $6,175         $-         $-    $6,175

    Europe                        2,521        (72)         -     2,449
    Developing Markets            2,108        (14)         -     2,094
                                  -----        ---        ---     -----

    Kraft Foods                 $10,804       $(86)        $-   $10,718
                                =======       ====        ===   =======



                                    % Change
                                    --------              Organic
                                 As                    Growth Drivers
                              Reported    Organic      --------------
                               (GAAP)    (Non-GAAP)   Vol/Mix     Price
                              ---------   --------    -------     -----
    2009
    ----

      U.S. Beverages              6.0%       6.0%      6.5pp     (0.5)pp
      U.S. Cheese                (8.7)%     (8.7)%     (0.7)     (8.0)
      U.S. Convenient Meals       7.1%       7.1%       2.3       4.8
      U.S. Grocery                6.7%       6.7%       0.7       6.0
      U.S. Snacks                 1.3%       1.3%       0.6       0.7
      Canada & N.A. Foodservice (10.0)%     (0.5)%     (2.1)      1.6
                                -----       ----       ----       ---
    North America                 0.0%       1.8%       1.0       0.8

    Europe                      (17.4)%      0.4%      (1.6)      2.0
    Developing Markets           (9.8)%      9.3%       0.4       8.9
                                 ----        ---        ---       ---

    Kraft Foods                  (5.9)%      2.9%      0.2pp     2.7pp
                                 ====        ===       =====     =====



                                                                   Schedule 3
                                                                   ----------

                       Kraft Foods Inc. and Subsidiaries
                    Operating Income by Reportable Segments
                      For the Three Months Ended June 30,
                          ($ in millions)  (Unaudited)

                                                2008 Impacts
                                                ------------
                                     2008
                                  Operating
                                   Income -                    (Gains) /
                                      As      Restructuring    Losses on
                                   Restated      Program     Divestitures,
                                    (GAAP)         Costs          Net
                                  ----------  -------------- --------------

      U.S. Beverages                    $135              $8             $-
      U.S. Cheese                        143               2              -
      U.S. Convenient Meals              103               1              -
      U.S. Grocery                       306               4              -
      U.S. Snacks                        222               3              -
      Canada & N.A. Foodservice          131              29              -
                                         ---             ---            ---
    North America                      1,040              47              -

    Europe                               109              43             74
    Developing Markets                   246              31              -

      Unrealized G/(L) on Hedging
       Activities                         78               -              -
      HQ Pension                           -               -              -
      General Corporate Expenses         (46)              -              -
      Amortization of Intangibles         (4)              -              -

                                      ------            ----            ---
    Kraft Foods                       $1,423            $121            $74
                                      ======            ====            ===



                                    2009 Impacts
                                    ------------

                                  Gains /                     2009
                          Asset  (Losses)                   Operating
                         Impair-    on      Impact           Income -
                Impact    ment    Divest-     of                As
                  of     & Exit   itures,   Divest-   Oper-  Reported    %
               Currency  Costs *    Net     itures   ations   (GAAP)   Change
               --------  ------- ---------  -------  ------  --------- ------

     U.S.
      Beverages      $-       $-      $-       $-      $5       $148    9.6%
     U.S.
      Cheese          -        -       -        -      21        166   16.1%
     U.S.
      Convenient
      Meals           -        -       -        -      37        141   36.9%
     U.S.
      Grocery         -        -       -        -      29        339   10.8%
     U.S.
      Snacks          -        -       -        -     (20)       205   (7.7)%
     Canada
      & N.A.
      Foodservice   (21)       -       -        -       6        145   10.7%
                    ---      ---     ---      ---     ---        ---
    North America   (21)       -       -        -      78      1,144   10.0%

    Europe          (62)      26     (17)      (9)     44        208   90.8%
    Developing
     Markets        (50)       -       -       (2)     28        253    2.8%

     Unrealized
      G/ (L)
      on
      Hedging
      Activities      -        -       -        -     (44)        34
     HQ
      Pension         -        -       -        -     (54)       (54)
     General
      Corporate
      Expenses        1        -       -        -      (6)       (51)
     Amortization
      of
      Intangibles     -        -       -        -       1         (3)

                  -----      ---    ----     ----     ---     ------
    Kraft Foods   $(132)     $26    $(17)    $(11)    $47     $1,531    7.6%
                  =====      ===    ====     ====     ===     ======

    * Includes $35 million reversal of 2008 Restructuring Program costs.



                                                                   Schedule 4
                                                                   ----------

                      Kraft Foods Inc. and Subsidiaries
                      Condensed Statements of Earnings
                      For the Six Months Ended June 30,
               (in millions, except per share data)  (Unaudited)

                                                  As Reported (GAAP)
                                                  -------------------
                                                 2009     2008  % Change
                                                 ----     ----  --------

    Net revenues                              $19,558  $20,850      (6.2)%

    Cost of sales                              12,628   13,681       7.7%
                                               ------   ------

      Gross profit                              6,930    7,169      (3.3)%

      Gross profit margin                        35.4%    34.4%

    Marketing, administration & research
     costs                                      4,131    4,393       6.0%

    Asset impairment and exit costs               (26)     183     100.0+%

    (Gains) / losses on divestitures, net          17       92      81.5%

    Amortization of intangibles                     9       11      18.2%
                                                  ---      ---

      Operating income                          2,799    2,490      12.4%

      Operating income margin                    14.3%    11.9%

    Interest & other expense, net                 592      636       6.9%
                                                  ---      ---

      Earnings from continuing operations
       before income taxes                      2,207    1,854      19.0%

    Provision for income taxes                    716      629     (13.8)%

    Effective tax rate                           32.4%    33.9%
                                                 ----     ----

      Earnings from continuing operations      $1,491    1,225      21.7%

    Earnings from discontinued operations,
     net of income taxes                            -      123    (100.0)%
                                                  ---      ---

      Net earnings                             $1,491   $1,348      10.6%

    Noncontrolling interest                         4        4         -
                                                  ---      ---

      Net earnings attributable to Kraft
       Foods                                   $1,487   $1,344      10.6%
                                               ======   ======

    Earnings per share attributable to Kraft Foods:
      Basic
      -  Continuing operations                  $1.01    $0.80      26.3%
      -  Discontinued operations                    -     0.08    (100.0)%
                                                 ----     ----
      -  Net earnings attributable to Kraft
       Foods                                    $1.01    $0.88      14.8%
                                                =====    =====

      Diluted
      -  Continuing operations                  $1.00    $0.79      26.6%
      -  Discontinued operations                    -     0.08    (100.0)%
                                                -----     ----
      -  Net earnings attributable to Kraft
       Foods                                    $1.00    $0.87      14.9%
                                                =====    =====

    Average shares outstanding:
      Basic                                     1,476    1,527       3.3%
      Diluted                                   1,484    1,538       3.5%



                                                                   Schedule 5
                                                                   ----------

                       Kraft Foods Inc. and Subsidiaries
                Reconciliation of GAAP to Non-GAAP Information
                                 Net Revenues
                      For the Six Months Ended June 30,
                         ($ in millions)  (Unaudited)

                               As          Impact       Impact
                            Reported         of           of     Organic
                             (GAAP)     Divestitures   Currency (Non-GAAP)
                            ---------   ------------   --------  --------
    2009
    ----

      U.S. Beverages           $1,619             $-         $-    $1,619
      U.S. Cheese               1,781              -          -     1,781
      U.S. Convenient Meals     2,283              -          -     2,283
      U.S. Grocery              1,791              -          -     1,791
      U.S. Snacks               2,485              -          -     2,485
      Canada & N.A.
       Foodservice              1,934              -        238     2,172
                                -----            ---        ---     -----
    North America             $11,893             $-       $238   $12,131

    Europe                      4,011              -        668     4,679
    Developing Markets          3,654            (14)       753     4,393
                                -----            ---        ---     -----

    Kraft Foods               $19,558           $(14)    $1,659   $21,203
                              =======           ====     ======   =======


    2008 (As Restated)
    ------------------

      U.S. Beverages           $1,561             $-         $-    $1,561
      U.S. Cheese               1,929              -          -     1,929
      U.S. Convenient Meals     2,121              -          -     2,121
      U.S. Grocery              1,704              -          -     1,704
      U.S. Snacks               2,462              -          -     2,462
      Canada & N.A.
       Foodservice              2,170              -          -     2,170
                                -----            ---        ---     -----
    North America             $11,947             $-         $-   $11,947

    Europe                      4,901           (157)         -     4,744
    Developing Markets          4,002            (28)         -     3,974
                                -----            ---        ---     -----

    Kraft Foods               $20,850          $(185)        $-   $20,665
                              =======          =====        ===   =======



                                    % Change
                                    --------                Organic
                               As                        Growth Drivers
                            Reported      Organic        --------------
                             (GAAP)      (Non-GAAP)    Vol/Mix     Price
                            ---------     --------     -------     -----
    2009
    ----

      U.S. Beverages            3.7%           3.7%      4.3pp     (0.6)pp
      U.S. Cheese              (7.7)%         (7.7)%     (5.2)     (2.5)
      U.S. Convenient Meals     7.6%           7.6%       2.3       5.3
      U.S. Grocery              5.1%           5.1%      (1.6)      6.7
      U.S. Snacks               0.9%           0.9%      (3.4)      4.3
      Canada & N.A.
       Foodservice            (10.9)%          0.1%      (1.8)      1.9
                              -----            ---       ----       ---
    North America              (0.5)%          1.5%      (1.1)      2.6

    Europe                    (18.2)%         (1.4)%     (4.4)      3.0
    Developing Markets         (8.7)%         10.5%       0.3      10.2
                               ----           ----        ---      ----

    Kraft Foods                (6.2)%          2.6%     (1.5)pp   4.1pp
                               ====            ===      =======   =====



                                                                   Schedule 6
                                                                   ----------

                       Kraft Foods Inc. and Subsidiaries
                    Operating Income by Reportable Segments
                       For the Six Months Ended June 30,
                          ($ in millions)  (Unaudited)

                                                     2008 Impacts
                                                     ------------
                                     2008
                                  Operating
                                   Income -                    (Gains) /
                                      As      Restructuring    Losses on
                                   Restated      Program     Divestitures,
                                    (GAAP)         Costs           Net
                                  ----------  -------------- --------------

      U.S. Beverages                    $280             $16             $-
      U.S. Cheese                        225              14              -
      U.S. Convenient Meals              196              10              -
      U.S. Grocery                       545               9              -
      U.S. Snacks                        342               9              -
      Canada & N.A. Foodservice          238              40              -
                                         ---             ---            ---
    North America                      1,826              98              -

    Europe                               233              81             92
    Developing Markets                   436              40              -

      Unrealized G/(L) on Hedging
       Activities                        103               -              -
      HQ Pension                           -               -              -
      General Corporate Expenses         (97)              -              -
      Amortization of Intangibles        (11)              -              -

                                      ------            ----            ---
    Kraft Foods                       $2,490            $219            $92
                                      ======            ====            ===



                                      2009 Impacts
                                      ------------
                                  Gains /                      2009
                          Asset  (Losses)                    Operating
                         Impair-    on      Impact            Income
                Impact    ment    Divest-     of                - As
                  of     & Exit   itures,   Divest-   Oper-  Reported    %
               Currency  Costs *    Net      itures  ations    (GAAP)  Change
               --------  ------- ---------  -------  ------  --------- ------

     U.S.
      Beverages      $-       $-      $-       $-     $14       $310   10.7%
     U.S.
      Cheese          -        -       -        -      58        297   32.0%
     U.S.
      Convenient
     Meals            -        -       -        -      76        282   43.9%
     U.S.
      Grocery         -        -       -        -      47        601   10.3%
     U.S.
      Snacks          -        -       -        -     (17)       334   (2.3)%
     Canada
      & N.A.
      Foodservice   (40)       -       -        -      (8)       230   (3.4)%
                    ---      ---     ---      ---     ---        ---
    North America   (40)       -       -        -     170      2,054   12.5%

    Europe         (106)      26     (17)     (15)     60        354   51.9%
    Developing
     Markets       (110)       -       -       (3)     97        460    5.5%

     Unrealized
      G/(L) on
      Hedging
      Activities      -        -       -        -      18        121
     HQ
      Pension         -        -       -        -     (94)       (94)
     General
      Corporate
      Expenses        2        -       -        -       8        (87)
     Amortization
      of
      Intangibles     -        -       -        -       2         (9)

                  -----      ---    ----     ----    ----     ------
    Kraft Foods   $(254)     $26    $(17)    $(18)   $261     $2,799   12.4%
                  =====      ===    ====     ====    ====     ======

    * Includes $35 million reversal of 2008 Restructuring Program costs.



                                                                   Schedule 7
                                                                   ----------

                    Kraft Foods Inc. and Subsidiaries
                               Cash Flows
                   For the Six Months Ended June 30,
                      ($ in millions)  (Unaudited)



                                                       2009    2008
                                                       ----    ----
    Net Cash Provided by Operating Activities (GAAP) $1,720  $1,349
    Capital Expenditures                               (474)   (590)
    Voluntary Pension Contribution                      200       -
                                                        ---     ---
    Discretionary Cash Flow (Non-GAAP)               $1,446    $759
                                                     ======    ====


                                                                   Schedule 8
                                                                   ----------

                    Kraft Foods Inc. and Subsidiaries
                         Condensed Balance Sheets
                       ($ in millions)  (Unaudited)

                                         June 30, December 31, June 30,
                                           2009       2008       2008
                                           ----       ----       ----
    Assets
    ------
    Cash and cash equivalents            $1,731     $1,244       $708
    Receivables, net                      4,646      4,704      5,223
    Inventories, net                      4,011      3,881      4,995
    Other current assets                  1,300      1,632        877
    Property, plant and equipment, net   10,224      9,917     11,464
    Goodwill                             28,225     27,581     30,497
    Intangible assets, net               13,257     12,926     13,840
    Other assets                          1,260      1,288      3,370
                                          -----      -----      -----

          Total assets                  $64,654    $63,173    $70,974
                                        =======    =======    =======

    Liabilities and Equity
    ----------------------
    Short-term borrowings                  $856       $897     $2,217
    Current portion of long-term debt       759        765        725
    Accounts payable                      3,225      3,373      3,541
    Other current liabilities             5,463      6,009      5,360
    Long-term debt                       18,610     18,589     19,348
    Deferred income taxes                 4,266      4,064      5,675
    Accrued pension costs                 2,209      2,367        844
    Accrued postretirement health
     care costs                           2,682      2,678      2,896
    Other long-term liabilities           2,204      2,075      2,241
                                          -----      -----      -----

          Total liabilities              40,274     40,817     42,847

          Total equity                   24,380     22,356     28,127
                                         ------     ------     ------

          Total liabilities and equity  $64,654    $63,173    $70,974
                                        =======    =======    =======




SOURCE Kraft Foods Inc.

http://www.kraftfoodscompany.com

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