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Kraft Foods Reports Q3 EPS From Continuing Operations Up 62% to $0.55; Raises 2009 EPS and Cash Flow Guidance

Financial Schedules and GAAP to Non-GAAP Information
Earnings Release
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  • Net revenues declined 5.7% due to currency; organic net revenues1 up 0.5%
  • Operating income increased 38.7%; margin expanded 470 basis points
  • 2009 diluted EPS guidance raised to at least $1.97 from at least $1.932
  • Discretionary cash flow(1) outlook raised to at least $3 billion from $2.6 billion(2)
  • NORTHFIELD, Ill., Nov. 3 /PRNewswire-FirstCall/ -- Kraft Foods Inc. (NYSE: KFT) today reported solid third quarter 2009 results fueled by strong profit performance across all geographies. Volume/mix, which improved sequentially from the second quarter 2009, was the key driver of organic net revenue growth and a significant contributor to income growth and margin expansion versus the prior year.

    "We continue to build our operating and financial momentum despite the difficult consumer environment," said Irene Rosenfeld, Chairman and CEO. "Our volume/mix, profit margin and cash flow trends are strengthening as we successfully execute our growth plan. As a result, we expect to deliver higher earnings and cash flow in 2009(2), while further increasing our brand investments to drive future growth."

    Regarding the company's possible offer for Cadbury plc, Rosenfeld commented, "We remain interested but will maintain a disciplined approach. Our criteria include accretion to cash EPS in the second year, delivering a return on investment well in excess of our cost of capital, and maintaining both our investment grade credit rating and our dividend."

    Rosenfeld concluded, "We remain focused on driving sustainable top-line growth, while implementing our strong cost-savings pipeline. We are making good progress toward our goal to be at or above industry margins in the next two years, and are well-positioned to deliver top-tier performance."

    
        -- Net revenues declined 5.7 percent to $9.8 billion, including the
           unfavorable impact of 5.6 percentage points from currency and
           0.6 percentage points from divestitures.
    
           Organic net revenues grew 0.5 percent driven by 0.7 percentage points
           from volume/mix, partially offset by negative 0.2 percentage points
           from pricing.  Volume/mix gains were negatively impacted by
           approximately 0.8 percentage points due to the planned discontinuation
           of less profitable product lines over the past year.  The pricing
           decline included the unfavorable impact of approximately 1.6 percentage
           points in response to lower dairy costs, consistent with the company's
           adaptive pricing model for its cheese business in the U.S.  Pricing was
           also negatively impacted by 0.2 percentage points due to the absence of
           a value added tax credit in Brazil that benefited prior year results.
    
        -- Operating income increased 38.7 percent from the prior year to
           $1,419 million.  This increase included a negative 7.9 percentage point
           impact due to currency.
    
           Operating income margin increased 470 basis points year-over-year to
           14.5 percent.  Approximately 70 basis points of the margin increase
           were attributable to improved volume/mix.  The remainder of the margin
           increase largely reflected an improved alignment of prices with input
           costs, the year-over-year change in unrealized gains and losses on
           hedging activities, lower costs due to the completion of the
           Restructuring Program and the absence of asset impairment charges
           incurred in the prior year.  These gains were partially offset by
           higher overhead costs, including incremental investments in systems,
           increased marketing investments and the absence of the value added tax
           credit in Brazil.
    
        -- The tax rate of 24.6 percent was down from 28.3 percent in the prior
           year period.  The tax rate in each year reflected the timing of
           discrete items, primarily the settlement of tax audits.
    
        -- Earnings per share from continuing operations were $0.55, up from $0.34
           in third quarter 2008.
    
    
                                                                     Diluted EPS
                                                                     -----------
        Third Quarter 2008 Diluted EPS                                   $0.91
    
        Earnings and Gain from Discontinued Operations                  ($0.57)
                                                                        ------
    
        Third Quarter 2008 Diluted EPS from Continuing Operations        $0.34
    
        Operating Gains                                                   0.09
        Lower Restructuring Program Costs and Asset Impairment Charges    0.07
        Change in Unrealized Gains/Losses from Hedging Activities         0.07
        Absence of Brazilian VAT Credit                                  (0.01)
        Unfavorable Foreign Currency                                     (0.04)
    
        Higher Interest Expense                                          (0.01)
        Changes in Taxes, Including Tax Settlements                       0.03
        Fewer Shares Outstanding                                          0.01
                                                                          ----
    
        Third Quarter 2009 Diluted EPS                                   $0.55
                                                                         =====
    
    
    
           Operating gains of $0.09 versus the prior year include the unfavorable
           impact of approximately $0.01 from incremental pension costs.
    
        -- Discretionary cash flow(1) for the first nine months of 2009 was
           approximately $2.7 billion, up 67 percent from the prior year.  The
           increase primarily reflects improved gains from working capital
           efficiency programs and lower capital expenditures.
    
    
    
        THIRD QUARTER 2009 RESULTS, DISCUSSION BY SEGMENT(3)
    
                                                            Q3 2009
                                                        (percent growth)
                                             -------------------------------------
                                                Net       Organic Net   Operating
                                             Revenues     Revenues(1)    Income(4)
                                             --------     -----------    ---------
        Total Kraft Foods                      (5.7)%         0.5%         38.7%
    
        Kraft Foods North America              (2.5)         (1.8)         16.5
    
            U.S. Beverages                      1.5           1.5          60.2
            U.S. Cheese                       (10.3)        (10.3)         12.2
            U.S. Convenient Meals               5.0           5.0          60.8
            U.S. Grocery                       (3.0)         (3.0)          9.3
            U.S. Snacks                        (3.3)         (3.3)          3.2
            Canada & N.A. Foodservice          (4.9)         (1.0)          2.0
    
        Kraft Foods Europe                    (11.5)         (0.8)         83.5
    
        Kraft Foods Developing Markets         (8.4)          8.1           2.2
    

    U.S. Beverages

    Organic net revenues increased 1.5 percent as higher price levels were partially offset by unfavorable volume/mix. The increase in net revenue was driven by solid growth in Capri Sun ready-to-drink beverages, Kool-Aid and Country Time powdered beverages as well as Starbucks and Maxwell House coffees. Volume/mix was negatively impacted by the planned discontinuation of a less-profitable product line, management's decision to forego unprofitable volume, and the timing of a merchandising program versus the prior year.

    Segment operating income increased 60.2 percent as lower costs due to the completion of the Restructuring Program and an improved alignment of prices with input costs were partially offset by incremental marketing investments.

    U.S. Cheese

    Organic net revenues declined 10.3 percent as a 6.8 percentage point gain in volume/mix was more than offset by a 17.1 percentage point reduction from lower price levels. This price decline was in response to significantly lower dairy costs, consistent with the company's adaptive pricing model. Incremental marketing investments behind Kraft Singles processed slices and Philadelphia cream cheese drove volume/mix and market share gains.

    Segment operating income grew 12.2 percent as the benefits of improved volume/mix more than offset lower pricing net of input costs and increased marketing investments.

    U.S. Convenient Meals

    Organic net revenues increased 5.0 percent as strong volume/mix gains were partially offset by lower price levels in response to lower input costs. Pizza generated double-digit growth behind further gains in market share. Incremental investments in value-oriented consumer programs drove more than 20 percent growth in DiGiorno pizza. Oscar Mayer Deli Fresh meats also delivered double-digit growth. The planned discontinuation of less-profitable product lines slowed growth by approximately one percentage point.

    Segment operating income increased 60.8 percent as improved alignment of prices with input costs, strong volume/mix gains and lower costs due to the completion of the Restructuring Program more than offset increased marketing investments.

    U.S. Grocery

    Organic net revenues declined 3.0 percent reflecting the planned discontinuation of less-profitable product lines, which accounted for about one-half of the revenue decline, as well as the timing of a merchandising program versus the prior year. These factors more than offset solid growth from investments behind Kraft mayonnaise and Miracle Whip spoonable dressings and Jell-O dry packaged desserts.

    Segment operating income increased 9.3 percent as the benefits of improved alignment of prices with input costs more than offset incremental investments in marketing.

    U.S. Snacks

    Organic net revenues declined 3.3 percent due to lower price levels. Solid volume/mix gains in core biscuit brands and snack nuts were offset by a decline in bars and the timing of a merchandising program versus the prior year. Lower price levels reflected lower input costs and investments to better manage price gaps in snack nuts. Net revenue of the top five biscuit brands grew approximately 5 percent.

    Segment operating income increased 3.2 percent as lower investments in marketing and improved alignment of prices with input costs more than offset an increase in overhead costs.

    Canada & North America Foodservice

    Organic net revenues declined 1.0 percent as strong volume/mix gains and higher price levels in Canada were more than offset by lower revenues in North America Foodservice. Continued marketing investments and successful customer programs drove strong growth in Canada. North America Foodservice declined due to unfavorable volume/mix, reflecting an industry-wide decrease in casual dining traffic, lower pricing in response to significantly lower dairy prices and the planned discontinuation of a less-profitable product line.

    Segment operating income increased 2.0 percent including an unfavorable currency impact of approximately 6.0 percentage points. Excluding the impact of currency, the increase in segment operating income was driven by the improved alignment of prices with input costs and lower costs due to the completion of the Restructuring Program. Increased marketing investments, higher overhead costs and the impact of unfavorable volume/mix partially offset these gains.

    Kraft Foods Europe

    Organic net revenues declined 0.8 percent as higher price levels were more than offset by lower volume/mix. Management's decision to forego unprofitable volume and the planned discontinuation of less-profitable product lines slowed growth by approximately 1.7 percentage points.

        --  Coffee was flat as growth in retail, including strong performances by
            Kenco and Carte Noire, offset a decline in revenue from foodservice
            channels.  New products and incremental marketing investments drove
            Tassimo growth of more than 25 percent.
        --  Chocolate declined in response to weakening economic conditions in
            Iberia, France and Belgium as well as from the discontinuation of
            less-profitable product lines.  These factors more than offset solid
            revenue growth and market share gains by Milka, Marabou and Freia.
        --  Biscuits declined as the impact of weakening economic conditions,
            particularly in Iberia, were partially offset by growth in key brands
            such as Tuc, Mikado and Ourson.
    
        --  Cheese declined despite growth in Philadelphia cream cheese, which
            increased due to the introduction of new packaging and successful new
            product launches.
    

    Segment operating income increased 83.5 percent including an unfavorable impact from currency of more than 11 percentage points. Lower costs due to the completion of the Restructuring Program and the absence of an asset impairment charge recognized in the prior year quarter accounted for approximately 80 percentage points of the increase. Excluding these factors, segment operating income grew due to an improved alignment of prices with input costs and favorable volume/mix. Higher investments in cost-savings initiatives and marketing partially offset these gains.

    Kraft Foods Developing Markets

    Organic net revenues increased 8.1 percent driven by solid gains from each region's priority brands.

        --  In Latin America, the priority brands, which collectively grew nearly 20
            percent, drove strong organic revenue growth.  Tang powdered beverages
            increased over 45 percent.
        --  In Asia Pacific, higher price levels and volume/mix gains drove revenue
            growth.  The priority brands collectively grew more than 20 percent, led
            by Oreo cookies and Tang powdered beverages.
    
        --  In Central and Eastern Europe, Middle East & Africa, organic revenue
            increased largely due to higher price levels and strong mix.  However,
            volume/mix declined due to weakening economic conditions.  The priority
            brands collectively increased more than 9 percent, including more than
            20 percent growth in Jacobs coffee.
    

    Organic revenue growth in the quarter was negatively impacted by approximately one percentage point due to the absence of a value added tax credit in Brazil that benefited the prior year quarter.

    Segment operating income increased 2.2 percent including an unfavorable currency impact of approximately 22 percentage points. Excluding currency, a combination of volume/mix gains, improved alignment of prices with input costs and lower costs due to the completion of the Restructuring Program more than offset the impact of the absence of the Brazilian value added tax credit in the prior year and increased investments in marketing.

    OUTLOOK

    Kraft Foods increased its guidance for 2009 diluted earnings per share to at least $1.97 versus the previous expectation of at least $1.93.* This guidance reflects strong year-to-date profit performance and a reduction in its full-year effective tax rate to approximately 30.0 percent versus the previous expectation of approximately 31.5 percent.

    The new guidance also reflects further investments in marketing to drive future growth as well as an estimate for certain costs in connection with the company's possible combination with Cadbury plc.

    The company also revised its forecast for 2009 organic net revenue growth to be approximately 2 percent versus a prior expectation of approximately 3 percent. The change in outlook primarily reflects a lower contribution from pricing as a result of lower-than-expected input costs. It also reflects management's decision to forego unprofitable volume as well as weakening economic conditions in certain countries in Western and Eastern Europe.

    As a result of its increased profit guidance, as well as the benefit of improved working capital management, the company raised its outlook for full-year discretionary cash flow to at least $3.0 billion versus its previous estimate of $2.6 billion.*

    * The above diluted earnings per share and discretionary cash flow guidance constitutes profit forecasts which must be reported on under Rule 28 of the U.K. City Code on Takeovers and Mergers (the "Takeover Code"). Please refer to our Form 8-K filed with the SEC on November 3, 2009, which includes the report of our reporting accountant on those profit forecasts and the accompanying report of our financial advisers. In accordance with Rule 28.8 of the U.K. Takeover Code, please also refer to our Form 10-Q filed with the SEC on May 5, 2009, containing our first quarter 2009 results and our Form 10-Q filed with the SEC on August 5, 2009, containing our second quarter 2009 results.

    CONFERENCE CALL

    Kraft Foods will host a conference call for investors with accompanying slides to review its results at 5 p.m. EST today. Access to a live audio webcast with accompanying slides is available at www.kraftfoodscompany.com, and a replay of the event will also 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 2008 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 a number of forward-looking statements. Words such as "expects," "goals," "plans," "believes," "continues," "may," "will," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, this release contains forward-looking statements regarding our guidance for 2009 diluted EPS and discretionary cash flow; that we continue to build our operating and financial momentum; that our volume/mix, profit margin and cash flow trends are strengthening as we successfully execute our growth plan; our expectation to deliver higher earnings and cash flow in 2009, while further increasing our brand investments to drive future growth; statements regarding our possible offer for Cadbury plc, including that we remain interested but will maintain a disciplined approach; that our criteria include accretion to cash EPS in the second year, delivering a return on investment well in excess of our cost of capital and maintaining both our investment-grade credit rating and our dividend; that we remain focused on driving sustainable top-line growth while implementing our strong cost-savings pipeline; that we are making good progress toward our goal to be at or above industry margins in the next two years; that we are well-positioned to deliver top-tier performance; and our outlook for 2009, specifically that diluted EPS includes a reduction in our full-year effective tax rate, further investments in marketing to drive future growth and certain costs in connection with our possible combination with Cadbury plc, our revised forecast for 2009 organic net revenue growth based on our expectation for lower contribution from pricing, management's decision to forego unprofitable volume and weakening economic conditions in certain countries. 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 of input costs, pricing actions, increased competition, our ability to differentiate our products from private label products, our indebtedness and ability to pay our indebtedness, the shift in our product mix to lower margin offerings, risks from operating internationally, tax law changes, the possibility that our possible combination with Cadbury plc will not be pursued, failure to obtain necessary regulatory approvals or required financing or to satisfy any of the other conditions to the possible combination, adverse effects on the market price of our common stock and on our operating results because of a failure to complete the possible combination, failure to realize the expected benefits of the possible combination, negative effects of announcement or consummation of the possible combination on the market price of our common stock, significant transaction costs and/or unknown liabilities and general economic and business conditions that affect the combined companies following the possible combination. 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 except as required by applicable law or regulation.

    FURTHER INFORMATION

    This press release is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities, or the solicitation of any vote or approval in any jurisdiction, pursuant to this press release or otherwise. Any possible offer for or combination with Cadbury plc will be made solely by certain offer documentation, which will contain the full terms and conditions of any offer, including details of how it may be accepted.

    ADDITIONAL U.S.-RELATED INFORMATION

    This press release is provided for informational purposes only and is neither an offer to purchase nor a solicitation of an offer to sell shares of Cadbury plc or Kraft Foods. Subject to future developments, we may file a registration statement and/or tender offer documents with the SEC in connection with the proposed combination with Cadbury plc. Cadbury plc shareholders should read those filings and any other filings made by us with the SEC in connection with the proposed combination, as they will contain important information. Those documents, if and when filed, as well as our other public filings with the SEC may be obtained without charge at the SEC's web site at www.sec.gov and at our web site at www.kraftfoodscompany.com.

    UNAUDITED FIGURES

    This press release contains unaudited profit figures which must be reported on under Rule 28 of the U.K. Takeover Code. Please refer to our Form 8-K filed with the SEC on November 3, 2009, which includes our condensed consolidated financial statements as of and for the three and nine month periods ended September 30, 2009, and the accompanying report of our reporting accountant and financial advisers.

    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 because it excludes the volatility of currency, and the one-time impacts of acquisitions and divestitures from net revenues.

    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 determination of 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.

    The company's five-year Restructuring Program, which ended in 2008, included asset impairment, exit and implementation costs. However, even though implementation costs are directly attributable to exit costs, they do not qualify for exit cost treatment under U.S. GAAP. Management believes this disclosure of implementation costs 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. Discretionary cash flow is defined as cash flow from operations less capital expenditures plus voluntary pension contributions. Management believes discretionary cash flow shows the financial health of, and how efficiently we are running, the company.

    See the attached schedules for supplemental financial data and corresponding reconciliations of the non-GAAP financial measures referred to above to the most comparable GAAP financial measures for the quarters ended September 30, 2009 and 2008. 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. Because GAAP financial measures on a forward-looking basis are neither accessible nor deemed to be significantly different from the non-GAAP financial measures, 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.

    WEB SITE

    This press release will be available on the company's web site (www.kraftfoodscompany.com) by no later than 12 noon (London time) on November 4, 2009.

    
        (1) Please see discussion of Non-GAAP Financial Measures at the end of
            this press release.
        (2) Please see section entitled "Outlook" later in this press release for
            important information about these forecasts.
        (3) Please refer to the company's Form 8-K filed March 26, 2009, for
            discussion of changes to reportable segments.
        (4) Represents operating income for Kraft Foods and segment operating
            income for each of the reportable segments.
    
    
                                         ###
    

    
    
                                                                     Schedule 1
                                                                     ----------
                           Kraft Foods Inc. and Subsidiaries
                            Condensed Statements of Earnings
                       For the Three Months Ended September 30,
                   (in millions, except per share data)  (Unaudited)
    
                                                        As Reported (GAAP)
                                                     -------------------------
                                                     2009     2008    % Change
                                                     ----     ----    --------
    
        Net revenues                                $9,803  $10,401      (5.7)%
    
        Cost of sales                                6,262    7,096      11.8%
                                                     -----    -----
    
          Gross profit                               3,541    3,305       7.1%
    
          Gross profit margin                         36.1%    31.8%
    
        Marketing, administration & research costs   2,116    2,151       1.6%
    
        Asset impairment and exit costs                  -      123     100.0%
    
        (Gains) / losses on divestitures, net            -        1     100.0%
    
        Amortization of intangibles                      6        7      14.3%
                                                       ---      ---
    
          Operating income                           1,419    1,023      38.7%
    
          Operating income margin                     14.5%     9.8%
    
        Interest & other expense, net                  323      298      (8.4)%
                                                       ---      ---
    
          Earnings from continuing operations
           before income taxes                       1,096      725      51.2%
    
        Provision for income taxes                     270      205     (31.7)%
    
        Effective tax rate                            24.6%    28.3%
                                                      ----     ----
    
          Earnings from continuing operations         $826     $520      58.8%
    
        Loss from discontinued operations, net of
         income taxes                                    -       (4)    100.0%
    
        Gain on divestiture of discontinued
         operations, net of income taxes                 -      849    (100.0)%
                                                       ---      ---
    
          Net earnings                                $826   $1,365     (39.5)%
    
        Noncontrolling interest                          2        3      33.3%
                                                       ---      ---
    
          Net earnings attributable to Kraft Foods    $824   $1,362     (39.5)%
                                                      ====   ======
    
        Per share data:
          Basic earnings per share attributable to
           Kraft Foods:
          -  Continuing operations                   $0.56    $0.34      64.7%
          -  Discontinued operations                     -     0.57    (100.0)%
                                                       ---     ----
          -  Net earnings attributable to Kraft
              Foods                                  $0.56    $0.91     (38.5)%
                                                     =====    =====
    
          Diluted earnings per share attributable to
           Kraft Foods:
          -  Continuing operations                   $0.55    $0.34      61.8%
          -  Discontinued operations                     -     0.57    (100.0)%
                                                       ---     ----
          -  Net earnings attributable to Kraft
              Foods                                  $0.55    $0.91     (39.6)%
                                                     =====    =====
    
        Average shares outstanding:
          Basic                                      1,479    1,493       0.9%
          Diluted                                    1,487    1,503       1.1%
    
    
    
                                                                     Schedule 2
                                                                     ----------
                           Kraft Foods Inc. and Subsidiaries
                     Reconciliation of GAAP to Non-GAAP Information
                                      Net Revenues
                       For the Three Months Ended September 30,
                              ($ in millions)  (Unaudited)
    
                                     As
                                  Reported   Impact of    Impact of   Organic
                                    (GAAP)  Divestitures   Currency  (Non-GAAP)
                                  --------- ------------  ---------- ----------
        2009
        ----
    
          U.S. Beverages             $754           $-          $-       $754
          U.S. Cheese                 824            -           -        824
          U.S. Convenient Meals     1,135            -           -      1,135
          U.S. Grocery                778            -           -        778
          U.S. Snacks               1,232            -           -      1,232
          Canada & N.A.
           Foodservice              1,055            -          43      1,098
                                    -----          ---         ---      -----
        North America              $5,778           $-         $43     $5,821
    
        Europe                      2,070           (1)        199      2,268
        Developing Markets          1,955            -         336      2,291
                                    -----          ---         ---      -----
    
        Kraft Foods                $9,803          $(1)       $578    $10,380
                                   ======          ===        ====    =======
    
        2008 (As Revised)
        -----------------
    
          U.S. Beverages             $743           $-          $-       $743
          U.S. Cheese                 919            -           -        919
          U.S. Convenient Meals     1,081            -           -      1,081
          U.S. Grocery                802            -           -        802
          U.S. Snacks               1,274            -           -      1,274
          Canada & N.A.
           Foodservice              1,109            -           -      1,109
                                    -----          ---         ---      -----
        North America              $5,928           $-          $-     $5,928
    
        Europe                      2,338          (52)          -      2,286
        Developing Markets          2,135          (16)          -      2,119
                                    -----          ---         ---      -----
    
        Kraft Foods               $10,401         $(68)         $-    $10,333
                                  =======         ====         ===    =======
    
    
                                                             Organic Growth
                                         % Change                Drivers
                                  -----------------------   -----------------
                                     As
                                  Reported      Organic
                                   (GAAP)      (Non-GAAP)   Vol / Mix   Price
                                  ---------    ----------   ---------   -----
        2009
        ----
    
          U.S. Beverages              1.5%         1.5%    (1.1)pp      2.6pp
          U.S. Cheese               (10.3)%      (10.3)%       6.8      (17.1)
          U.S. Convenient
           Meals                      5.0%         5.0%        5.9       (0.9)
          U.S. Grocery               (3.0)%       (3.0)%      (2.3)      (0.7)
          U.S. Snacks                (3.3)%       (3.3)%       0.0       (3.3)
          Canada & N.A.
           Foodservice               (4.9)%       (1.0)%       0.4       (1.4)
                                     ----         ----         ---       ----
        North America                (2.5)%       (1.8)%       1.7       (3.5)
    
        Europe                      (11.5)%       (0.8)%      (2.4)       1.6
        Developing Markets           (8.4)%        8.1%        0.7        7.4
                                     ----          ---         ---        ---
    
        Kraft Foods                  (5.7)%        0.5%      0.7pp    (0.2)pp
                                     ====          ===       =====    =======
    
    
    
                                                                     Schedule 3
                                                                     ----------
                                 Kraft Foods Inc. and Subsidiaries
                              Operating Income by Reportable Segments
                             For the Three Months Ended September 30,
                                   ($ in millions)  (Unaudited)
    
                                               2008 Impacts
                          ------------------------------------------------------
                            2008
                          Operating
                           Income -                             (Gains) /
                              As     Restructuring    Asset      Losses on
                           Revised      Program     Impairment  Divestitures,
                            (GAAP)       Costs         Costs         Net
                          ---------- -------------- ----------- --------------
        Segment
        Operating
         Income:
          U.S. Beverages     $83         $26             $-             $1
          U.S. Cheese        148           1              -              -
          U.S. Convenient
           Meals              79           7              -              -
          U.S. Grocery       236          (2)             -              -
          U.S. Snacks        190           2              -              -
          Canada & N.A.
           Foodservice       153          12              -              -
                             ---         ---            ---            ---
                North
                 America     889          46              -              1
    
                Europe       115          35             55              -
                Developing
                 Markets     279           9              -              -
    
        Unrealized G/(L)
         on Hedging
         Activities         (141)          -              -              -
        HQ Pension             -           -              -              -
        General Corporate
         Expenses           (112)          -              -              -
        Amortization of
         Intangibles          (7)          -              -              -
    
                          ------         ---            ---            ---
        Kraft Foods       $1,023         $90            $55             $1
                          ======         ===            ===             ==
    
    
    
                                   2009 Impacts
                       -----------------------------------
                                                                2009
                                                              Operating
                                                               Income -
                        Impact        Impact                      As
                          of            of                     Reported     %
                       Currency    Divestitures   Operations    (GAAP)    Change
                       --------    ------------   ----------  ----------  ------
        Segment
        Operating
        Income:
          U.S. Beverages      $-          $-         $23        $133       60.2%
          U.S. Cheese          -           -          17         166       12.2%
          U.S. Convenient
           Meals               -           -          41         127       60.8%
          U.S. Grocery         -           -          24         258        9.3%
          U.S. Snacks          -           -           4         196        3.2%
          Canada & N.A.
           Foodservice       (10)          -           1         156        2.0%
                             ---         ---         ---         ---
            North America    (10)          -         110       1,036       16.5%
    
            Europe           (24)          1          29         211       83.5%
            Developing
             Markets         (63)         (2)         62         285        2.2%
    
        Unrealized G/(L)
         on Hedging
         Activities            -           -         160          19
        HQ Pension             -           -         (27)        (27)
        General
         Corporate
         Expenses              2           -          11         (99)
        Amortization of
          Intangibles         (1)          -           2          (6)
    
                            ----         ---        ----      ------
        Kraft Foods         $(96)        $(1)       $347      $1,419       38.7%
                            ====         ===        ====      ======
    
    
    
                                                                     Schedule 4
                                                                     ----------
                            Kraft Foods Inc. and Subsidiaries
                            Condensed Statements of Earnings
                        For the Nine Months Ended September 30,
                    (in millions, except per share data)  (Unaudited)
    
                                                          As Reported (GAAP)
                                                     ---------------------------
                                                     2009     2008     % Change
                                                     ----     ----      --------
    
        Net revenues                                $29,361  $31,251      (6.0)%
    
        Cost of sales                                18,890   20,777       9.1%
                                                     ------   ------
    
          Gross profit                               10,471   10,474         -
    
          Gross profit margin                          35.7%    33.5%
    
        Marketing, administration & research costs    6,247    6,544       4.5%
    
        Asset impairment and exit costs                 (26)     306     100.0+%
    
        (Gains) / losses on divestitures, net            17       93      81.7%
    
        Amortization of intangibles                      15       18      16.7%
                                                         --       --
    
          Operating income                            4,218    3,513      20.1%
    
          Operating income margin                      14.4%    11.2%
    
        Interest & other expense, net                   915      934       2.0%
                                                        ---      ---
    
          Earnings from continuing operations
           before income taxes                        3,303    2,579      28.1%
    
        Provision for income taxes                      986      834     (18.2)%
    
        Effective tax rate                             29.9%    32.3%
                                                       ----     ----
    
          Earnings from continuing operations        $2,317   $1,745      32.8%
    
        Earnings from discontinued operations, net
         of income taxes                                  -      119    (100.0)%
    
        Gain on divestiture of discontinued
         operations, net of income taxes                  -      849    (100.0)%
                                                        ---      ---
    
          Net earnings                               $2,317   $2,713     (14.6)%
    
        Noncontrolling interest                           6        7      14.3%
                                                        ---      ---
    
          Net earnings attributable to Kraft Foods   $2,311   $2,706     (14.6)%
                                                     ======   ======
    
        Per share data:
          Basic earnings per share attributable to
           Kraft Foods:
          -  Continuing operations                    $1.56    $1.15      35.7%
          -  Discontinued operations                      -     0.63    (100.0)%
                                                        ---     ----
          -  Net earnings attributable to Kraft
              Foods                                   $1.56    $1.78     (12.4)%
                                                      =====    =====
    
          Diluted earnings per share attributable to
           Kraft Foods:
          -  Continuing operations                    $1.56    $1.14      36.8%
          -  Discontinued operations                      -     0.63    (100.0)%
                                                        ---     ----
          -  Net earnings attributable to Kraft
              Foods                                   $1.56    $1.77     (11.9)%
                                                      =====    =====
    
        Average shares outstanding:
          Basic                                       1,477    1,516       2.6%
          Diluted                                     1,485    1,527       2.8%
    
    
    
                                                                     Schedule 5
                                                                     ----------
                          Kraft Foods Inc. and Subsidiaries
                   Reconciliation of GAAP to Non-GAAP Information
                                    Net Revenues
                      For the Nine Months Ended September 30,
                            ($ in millions)  (Unaudited)
    
                               As          Impact       Impact
                            Reported         of           of       Organic
                             (GAAP)     Divestitures    Currency  (Non-GAAP)
                            ---------   ------------    --------  ----------
        2009
        ----
    
          U.S. Beverages      $2,373             $-          $-      $2,373
          U.S. Cheese          2,605              -           -       2,605
          U.S. Convenient
           Meals               3,418              -           -       3,418
          U.S. Grocery         2,569              -           -       2,569
          U.S. Snacks          3,717              -           -       3,717
          Canada & N.A.
           Foodservice         2,989              -         281       3,270
                               -----            ---         ---       -----
        North America        $17,671             $-        $281     $17,952
    
        Europe                 6,081            (15)        865       6,931
        Developing Markets     5,609            (14)      1,089       6,684
                               -----            ---       -----       -----
    
        Kraft Foods          $29,361           $(29)     $2,235     $31,567
                             =======           ====      ======     =======
    
    
        2008 (As Revised)
        -----------------
    
          U.S. Beverages      $2,304             $-          $-      $2,304
          U.S. Cheese          2,848              -           -       2,848
          U.S. Convenient
           Meals               3,202              -           -       3,202
          U.S. Grocery         2,506              -           -       2,506
          U.S. Snacks          3,736              -           -       3,736
          Canada & N.A.
           Foodservice         3,279              -           -       3,279
                               -----            ---         ---       -----
        North America        $17,875             $-          $-     $17,875
    
        Europe                 7,239           (223)          -       7,016
        Developing Markets     6,137            (44)          -       6,093
                               -----            ---         ---       -----
    
        Kraft Foods          $31,251          $(267)         $-     $30,984
                             =======          =====         ===     =======
    
    
    
                                   % Change           Organic Growth Drivers
                            ------------------------- ----------------------
                               As
                            Reported        Organic
                             (GAAP)        (Non-GAAP)    Vol / Mix    Price
                            ---------      ----------    ---------    -----
        2009
        ----
    
          U.S. Beverages         3.0%           3.0%      2.6pp       0.4pp
          U.S. Cheese           (8.5)%         (8.5)%      (1.3)       (7.2)
          U.S. Convenient
           Meals                 6.7%           6.7%        3.5         3.2
          U.S. Grocery           2.5%           2.5%       (1.8)        4.3
          U.S. Snacks           (0.5)%         (0.5)%      (2.2)        1.7
          Canada & N.A.
           Foodservice          (8.8)%         (0.3)%      (1.1)        0.8
                                ----           ----        ----         ---
        North America           (1.1)%          0.4%       (0.2)        0.6
    
        Europe                 (16.0)%         (1.2)%      (3.7)        2.5
        Developing Markets      (8.6)%          9.7%        0.5         9.2
                                ----            ---         ---         ---
    
        Kraft Foods             (6.0)%          1.9%    (0.8)pp       2.7pp
                                ====            ===     =======       =====
    
    
    
                                                                     Schedule 6
                                                                     ----------
                                 Kraft Foods Inc. and Subsidiaries
                              Operating Income by Reportable Segments
                              For the Nine Months Ended September 30,
                                    ($ in millions)  (Unaudited)
    
                                                  2008 Impacts
                                --------------------------------------------------
                                  2008
                                Operating                             (Gains) /
                                 Income -  Restructuring   Asset       Losses on
                                As Revised    Program    Impairment  Divestitures,
                                  (GAAP)       Costs       Costs          Net
                                ---------    ----------  ----------  -------------
        Segment
         Operating
         Income:
          U.S. Beverages          $363             $42           $-          $1
          U.S. Cheese              373              15            -           -
          U.S. Convenient
           Meals                   275              17            -           -
          U.S. Grocery             781               7            -           -
          U.S. Snacks              532              11            -           -
          Canada & N.A.
           Foodservice             391              52            -           -
                                   ---             ---          ---         ---
            North America        2,715             144            -           1
    
            Europe                 348             116           55          92
            Developing Markets     715              49            -           -
    
        Unrealized G/(L)
         on Hedging
         Activities                (38)              -            -           -
        HQ Pension                   -               -            -           -
        General
         Corporate
         Expenses                 (209)              -            -           -
        Amortization
         of Intangibles            (18)              -            -           -
                                ------            ----          ---         ---
        Kraft Foods             $3,513            $309          $55         $93
                                ======            ====          ===         ===
    
    
    
                                              2009 Impacts
                       -----------------------------------------------------------
                                             (Gains) /
                                  Asset       Losses
                        Impact  Impairment      on           Impact
                          of      & Exit   Divestitures,       of
                       Currency   Costs *       Net       Divestitures  Operations
                       -------- ---------- -------------  ------------  ----------
        Segment
         Operating
         Income:
          U.S.
           Beverages      $-        $-              $-           $-         $37
          U.S. Cheese      -         -               -            -          75
          U.S.
           Convenient
           Meals           -         -               -            -         117
          U.S.
           Grocery         -         -               -            -          71
          U.S.
           Snacks          -         -               -            -         (13)
          Canada &
           N.A.
           Foodservice   (50)        -               -            -          (7)
                         ---       ---             ---          ---         ---
            North
             America     (50)        -               -            -         280
    
            Europe      (130)       26              17          (12)         53
            Developing
             Markets    (173)        -               -           (5)        159
    
        Unrealized
         G/(L)
         on Hedging
         Activities        -         -               -            -         178
        HQ Pension         -         -               -            -        (121)
        General
         Corporate
         Expenses          1         -               -            -          22
        Amortization of
         Intangibles       2         -               -            -           1
    
                       -----       ---             ---         ----        ----
        Kraft Foods    $(350)      $26             $17         $(17)       $572
                       =====       ===             ===         ====        ====
    
    
                                                 2009
                                               Operating
                                                Income -
                                              As Reported
                                                (GAAP)       % Change
                                              -----------    --------
        Segment Operating Income:
          U.S. Beverages                          $443         22.0%
          U.S. Cheese                              463         24.1%
          U.S. Convenient Meals                    409         48.7%
          U.S. Grocery                             859         10.0%
          U.S. Snacks                              530         (0.4)%
          Canada & N.A.
           Foodservice                             386         (1.3)%
                                                   ---
            North America                        3,090         13.8%
            Europe                                 565         62.4%
            Developing Markets                     745          4.2%
    
        Unrealized G/(L) on
         Hedging Activities                        140
        HQ Pension                                (121)
        General Corporate
         Expenses                                 (186)
        Amortization of
         Intangibles                               (15)
    
                                                ------
        Kraft Foods                             $4,218         20.1%
                                                ======
    
        *  Includes $35 million reversal of 2008 Restructuring Program costs.
    
    
    
                                                                     Schedule 7
                                                                     ----------
                        Kraft Foods Inc. and Subsidiaries
                                   Cash Flows
                    For the Nine Months Ended September 30,
                          ($ in millions)  (Unaudited)
    
                                                             2009    2008
                                                             ----    ----
        Net Cash Provided by Operating Activities (GAAP)    $3,269  $2,529
        Capital Expenditures                                  (749)   (901)
        Voluntary Pension Contribution                         200       -
                                                               ---     ---
        Discretionary Cash Flow (Non-GAAP)                  $2,720  $1,628
                                                            ======  ======
    
    
    
                                                                     Schedule 8
                                                                     ----------
                           Kraft Foods Inc. and Subsidiaries
                               Condensed Balance Sheets
                             ($ in millions)  (Unaudited)
    
                                         September 30, December 31, September 30,
                                              2009         2008          2008
                                              ----         ----          ----
        Assets
        ------
        Cash and cash equivalents            $2,996       $1,244          $737
        Receivables, net                      4,720        4,704         4,709
        Inventories, net                      4,073        3,881         4,792
        Other current assets                  1,229        1,632         1,103
        Property, plant and
         equipment, net                      10,409        9,917        10,638
        Goodwill                             28,617       27,581        28,573
        Intangible assets, net               13,319       12,926        13,496
        Other assets                          1,306        1,288         2,981
                                              -----        -----         -----
    
              Total assets                  $66,669      $63,173       $67,029
                                            =======      =======       =======
    
        Liabilities and Equity
        ----------------------
        Short-term borrowings                $1,359         $897        $1,000
        Current portion of long-term
         debt                                 1,258          765           719
        Accounts payable                      3,264        3,373         3,439
        Other current liabilities             6,175        6,009         5,141
        Long-term debt                       18,108       18,589        18,874
        Deferred income taxes                 4,314        4,064         5,439
        Accrued pension costs                 2,204        2,367           771
        Accrued postretirement health
         care costs                           2,682        2,678         2,890
        Other long-term liabilities           2,094        2,075         2,202
                                              -----        -----         -----
    
              Total liabilities              41,458       40,817        40,475
    
              Total equity                   25,211       22,356        26,554
                                             ------       ------        ------
    
              Total liabilities and
               equity                       $66,669      $63,173       $67,029
                                            =======      =======       =======
    

    SOURCE Kraft Foods Inc.

    Media, Michael Mitchell, +1-847-646-4538, news@kraft.com, or Investors, Christopher M. Jakubik, +1-847-646-5494, ir@kraft.com, both of Kraft Foods Inc.

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