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Kraft Foods Reports Strong Earnings and Free Cash Flow(1) for 2009

Financial Schedules and GAAP to Non-GAAP Information
Earnings Release
Listen to the Webcast

-- 2009 net revenues declined 3.7% to $40.4 billion due primarily to currency; organic net revenues(1) grew 1.5%
-- 2009 operating income margin expanded 450 basis points to 13.7%
-- 2009 diluted EPS was $2.03, up 7%
-- Free cash flow grew 35% to $3.8 billion
-- Q4 net revenues increased 3.2% to $11.0 billion due primarily to currency; organic net revenues increased 0.4%
-- Q4 diluted EPS was $0.48

NORTHFIELD, Ill., Feb 16, 2010 /PRNewswire via COMTEX/ -- Kraft Foods Inc. (NYSE: KFT) today reported 2009 results that demonstrated strong earnings and free cash flow growth in a continuing difficult global economic environment. Volume/mix improved sequentially throughout the year, and was a significant contributor to income growth and margin expansion.

"2009 was a strong finish to our three-year turnaround and gave us excellent momentum heading into 2010," said Irene Rosenfeld, Chairman and CEO. "Despite the challenging economic environment, we generated exceptional profit and free cash flow. We continue to benefit from investments in our iconic brands. This is driving volume/mix gains and leveraging our cost structure to deliver sustainable, profitable growth. And our top line reflected our resolve to avoid chasing unsustainable, promoted volume."

Rosenfeld continued: "We're ready to begin an exciting new chapter at Kraft Foods, with Cadbury's brands as a valuable addition to our portfolio. Together, we'll remain focused on driving sustainable top-line growth, while delivering against our cost savings and synergy opportunities. As a combined entity, we are well positioned to deliver top-tier performance and accelerate our long-term growth."

  • Net revenues in the fourth quarter increased 3.2 percent to $11.0 billion, including the favorable impact of 3.2 percentage points from currency and a negative 0.4 percentage point impact from divestitures.

Organic net revenues(1) grew 0.4 percent driven by 1.6 percentage points from volume/mix, partially offset by negative 1.2 percentage points from lower price levels. Volume/mix gains were negatively impacted by approximately 0.4 percentage points due to the discontinuation of less-profitable product lines. The lower price levels included the unfavorable impact of approximately 1.5 percentage points in response to lower dairy costs, consistent with the company's adaptive pricing model for its cheese business in the United States.

  • Operating income in the fourth quarter nearly quadrupled from the prior year to $1,306 million. Lower costs due to the completion of the Restructuring Program(2) in fourth quarter 2008 accounted for most of this increase.

Operating income margin increased 870 basis points year-over-year to 11.8 percent. Approximately 760 basis points was driven by lower costs due to the completion of the Restructuring Program and lower asset impairment costs. The remainder of the margin increase largely reflected an improved alignment of prices with input costs, including net unrealized gains from hedging activities, and improved volume/mix. These gains were partially offset by significant investments in cost savings initiatives and marketing.

  • The tax rate in the fourth quarter was 27.7 percent and included certain one-time benefits. In the prior year quarter, the company's reported tax provision was a credit, reflecting higher costs related to the company's Restructuring Program and the recognition of several specific tax benefits.
  • Earnings per share from continuing operations in the fourth quarter were $0.48, up $0.41 from the fourth quarter 2008.
                                                         Q4         Full Year
                                                        ----        ---------
    2008 Diluted EPS                                    $0.12           $1.90
    Gain from Discontinued Operations                   (0.05)          (0.69)
                                                        -----           -----
    2008 Diluted EPS from Continuing                    $0.07           $1.21
       Operations
    Increase/(Decrease) from Operations                 (0.05)           0.15
    Lower Restructuring Program Costs and
       Asset Impairment Charges                          0.37            0.55
    Change in Unrealized Gains/Losses from
       Hedging Activities                                0.11            0.18
    Gain and/or Lower Losses on
     Divestitures, net                                   0.05            0.08
    Absence of Brazilian VAT Credit                         -           (0.03)
    Favorable/(Unfavorable) Foreign Currency             0.01           (0.14)
    Higher Interest Expense                             (0.01)              -
    Changes in Taxes                                    (0.07)          (0.01)
    Fewer Shares Outstanding                                -            0.04
                                                          ---           -----
    2009 Diluted EPS                                    $0.48           $2.03

The decrease in earnings from operations of $0.05 versus fourth quarter 2008 was due to investments in cost savings initiatives of approximately $0.11 in fourth quarter 2009 as the company accelerated plans related to its European reorganization and overhead cost reduction initiatives.

  • Free cash flow(1) for 2009 increased 35 percent to approximately $3.8 billion. The increase primarily reflects gains from working capital efficiency programs and improved earnings, partially offset by incremental pension contributions.
    FOURTH QUARTER 2009 RESULTS, DISCUSSION BY SEGMENT(3)
                                                   Changes in:
    ----------------------------------------------------------------------
                                                 Organic Net     Operating
                                  Net Revenues   Revenues(1)     Income(4)
                                  ------------   -----------     ---------
    Total Kraft Foods                  3.2%          0.4%         100.0%+
    Kraft Foods North America         (1.5)         (2.7)          49.9
        U.S. Beverages                (1.9)         (1.9)          100.0+
        U.S. Cheese                  (13.7)        (13.7)            7.4
        U.S. Convenient Meals          3.9           3.9            57.8
        U.S. Grocery                   0.1           0.1            25.9
        U.S. Snacks                   (3.3)         (2.8)           82.1
        Canada & N.A. Foodservice      8.2           0.1           100.0+
    Kraft Foods Europe                 8.0          (0.3)           nm
    Kraft Foods Developing Markets    11.2          10.4            91.0

U.S. Beverages

Organic net revenues declined 1.9 percent as higher price levels were more than offset by unfavorable volume/mix. Strong growth in Capri Sun ready-to-drink beverages and Crystal Light powdered beverages was more than offset by weakness in Maxwell House and Starbucks coffee. A significant portion of the decrease in volume/mix was due to the decision to forego unprofitable volume.

Segment operating income nearly quadrupled as an improved alignment of prices with input costs and lower costs due to the completion of the Restructuring Program were partially offset by investments in cost savings initiatives and unfavorable volume/mix.

U.S. Cheese

Organic net revenues declined 13.7 percent largely due to a 12.8 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 more profitable priority brands, including Kraft Singles processed slices, Philadelphia cream cheese and Velveeta processed cheese, drove gains in volume/mix and market share. However, volume/mix gains in priority brands were more than offset by declines in natural cheese.

Segment operating income grew 7.4 percent primarily driven by lower costs due to the completion of the Restructuring Program. Lower overheads, an improved alignment of prices with input costs and favorable volume/mix were more than offset by incremental marketing investments and cost savings initiatives.

U.S. Convenient Meals

Organic net revenues increased 3.9 percent as strong volume/mix gains were partially offset by lower price levels in response to lower input costs. Oscar Mayer Deli Fresh meats delivered strong double-digit growth behind improved distribution and new product offerings, while strong growth of Oscar Mayer bacon was driven by successful holiday merchandising programs. Oscar Mayer Lunchables also had solid growth. Pizza generated strong growth behind double-digit increases in base DiGiorno and Tombstone pizza and momentum of new product platforms launched earlier in the year.

Segment operating income increased 57.8 percent as strong volume/mix gains, improved alignment of prices with input costs and lower costs due to the completion of the Restructuring Program more than offset incremental marketing investments and cost savings initiatives as well as higher overheads.

U.S. Grocery

Organic net revenues increased 0.1 percent including a negative 0.6 percentage point impact from the discontinuation of less-profitable product lines. The increase was driven by strong gains in Kraft macaroni and cheeseand in seasonal products, such as Stove-Top stuffing and Jet-Puffed marshmallows.

Segment operating income increased 25.9 percent as improved alignment of prices with input costs, together with lower costs due to the completion of the Restructuring Program, more than offset investments in cost savings initiatives and incremental marketing as well as unfavorable volume/mix.

U.S. Snacks

Organic net revenues declined 2.8 percent reflecting weaker trends in the biscuit category in the second half of the year as a result of reduced merchandising opportunities. Although biscuit revenue declined modestly in the fourth quarter, the top five biscuit brands collectively achieved solid net revenue growth behind strong performances by Ritz crackers and Oreo cookies. Snack nuts revenue declined as a result of highly aggressive promotional activity by competitors.

Segment operating income increased 82.1 percent driven by lower costs due to the completion of the Restructuring Program, lower marketing costs and a gain on the divestiture of the Balance bar operation, partially offset by increased investments in cost savings initiatives. Segment operating income also benefited from an improved alignment of prices with input costs and favorable volume/mix.

Canada & North America Foodservice

Organic net revenues increased 0.1 percent as strong volume/mix gains and higher price levels in Canada were partially offset by lower revenues in North America Foodservice. Growth in Canada was broad-based across both customers and categories, driven by marketing investments and successful customer programs. North America Foodservice declined due to the continuing industry-wide weakness in casual dining traffic.

Segment operating income more than doubled. Excluding the impact of currency, the increase in segment operating income was driven by lower costs due to the completion of the Restructuring Program, the improved alignment of prices with input costs and favorable volume/mix. Investments in cost savings initiatives partially offset these gains.

Kraft Foods Europe

Organic net revenues declined 0.3 percent as management's decision to forego unprofitable volume and the discontinuation of less-profitable product lines slowed growth by approximately 2 percentage points. Continued weak economic conditions in the region, particularly in Iberia and France, also negatively impacted revenue growth.

  • Chocolate grew despite the weak economic conditions. Strong in-store marketing activities and holiday programs drove solid growth in Milka. Growth was also driven by the solid performance of Freia and Marabou in Scandinavia.
  • Coffee declined as a result of foregoing less profitable volume. This decline was partially offset by double-digit growth of Tassimo.
  • Biscuits declined as the impact of weak economic conditions, particularly in Iberia and France, were partially offset by strong growth by Oreo, TUC and Mikado.
  • Cheese rose as strong growth in Philadelphia cream cheese was driven by the introduction of new packaging and successful new product launches.

Segment operating income increased by $386 million to $220 million from a loss of $166 million in the prior year. Lower costs due to the completion of the Restructuring Program accounted for most of this increase. Improved alignment of prices with input costs, volume/mix gains, lower asset impairment costs and lower overheads, offset by investment in cost savings initiatives and incremental marketing, also contributed to this increase.

Kraft Foods Developing Markets

Organic net revenues increased 10.4 percent driven by strong growth in volume/mix and higher price levels.

  • In Latin America, double-digit organic revenue growth was driven by higher price levels and strong volume/mix gains. The priority brands collectively grew 25 percent, led by Tang powdered beverages.
  • In Asia Pacific, double-digit organic revenue growth was driven by strong volume/mix gains, partially offset by lower price levels. The priority brands collectively grew nearly 30 percent, led by Oreo cookies, Philadelphia cream cheese and Tang powdered beverages.
  • In Central and Eastern Europe, Middle East & Africa, strong organic revenue growth was driven by both higher price levels and improved volume/mix, despite weak economic conditions. The priority brands collectively grew double-digit, including more than 20 percent growth in Jacobs coffee.

Segment operating income increased 91.0 percent. The impact from currency was neutral. Growth was driven by a combination of lower costs due to the completion of the Restructuring Program, favorable volume/mix, an improved alignment of prices with input costs and lower asset impairment costs. These gains more than offset higher investments in marketing, higher overheads and investments in cost savings initiatives.

OUTLOOK

Kraft Foods expects the strong operating momentum of its base business to carry forward into coming years. In the near term, for its base business, the company continues to target organic net revenue growth of 4 percent or more and the high end of its 7 to 9 percent long-term EPS growth objective.

The company expects to deliver this performance while:

  • investing incrementally in product quality, marketing and innovation;
  • raising productivity as a percentage of cost of goods sold to greater than 4 percent by 2011;
  • leveraging overhead costs by reducing overhead as a percentage of net revenue to approximately 12.5 percent by 2011; and
  • restoring operating income margins to industry benchmarks in the mid-teens by 2011.

In addition, Cadbury plc's results will be consolidated with those of Kraft Foods from February 2, 2010, onwards.

The combination of Kraft Foods and Cadbury is expected to provide the potential for meaningful revenue synergies over time from investments in distribution, marketing and product development. As a result, the combined company is targeting long-term organic net revenue growth of 5 percent or more.

Opportunities for significant synergies from the combination have also been identified. The combined company continues to expect that pre-tax cost savings of at least $675 million annually can be realized by the end of 2012. Total one-time implementation cash costs of approximately $1.3 billion are expected to be incurred through the end of 2012.

The combined company is targeting accretion to earnings per share in 2011 of approximately $0.05 on a cash basis, which excludes one-time expenses to achieve cost savings, expenses related to the transaction and the impact of incremental non-cash items such as the amortization of intangibles related to the acquisition. Over the long-term, the combined company is targeting EPS growth of 9 to 11 percent.

Kraft Foods' results will also be affected by the sale of the assets of its North American frozen pizza business, which is expected to close in mid- 2010. The company expects earnings to be reduced by approximately $0.05 per diluted share on an annual basis as a result of the frozen pizza business transaction.(5)

CONFERENCE CALL

Kraft Foods will host a conference call for investors with accompanying slides to review its results at 10:30 a.m. EST today. Access to a live audio webcast with accompanying slides is available at http://www.kraftfoodscompany.com/, and a replay of the event will also be available on the company's web site.

ABOUT KRAFT FOODS INC.

The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. With annual revenues of approximately $50 billion, the combined company is the world's second largest food company, making delicious products for billions of consumers in more than 160 countries. The combined company's portfolio includes 11 iconic brands with revenues exceeding $1 billion - Oreo, Nabisco and LU biscuits; Milka and Cadbury chocolates; Trident gums; Jacobs and Maxwell House coffees; Philadelphia cream cheeses; Kraft cheeses, dinners and dressings; and Oscar Mayer meats. Another 70+ brands generate annual revenues of more than $100 million. Kraft Foods (http://www.kraftfoodscompany.com/; NYSE: KFT) is a member of the Dow Jones Industrial Average, Standard & Poor's 500, Dow Jones Sustainability Index and Ethibel Sustainability Index.

FORWARD-LOOKING STATEMENTS

This press release contains a number of forward-looking statements, including but not limited to statements regarding our beliefs that 2009 gave us excellent momentum heading into 2010; we continue to benefit from investments in our iconic brands; this is driving volume/mix gains and leveraging our cost structure to deliver sustainable, profitable growth; our resolve to avoid chasing unsustainable, promoted volume; we'll remain focused on driving sustainable top-line growth while delivering against our cost savings and synergy opportunities; as a combined entity, we are well positioned to deliver top-tier performance and accelerate our long-term growth; and statements regarding our outlook, in particular, that we expect the strong operating momentum of our base business to carry forward into coming years, our near term target for organic net revenue growth and long-term EPS growth objective, we expect to deliver this performance by investing incrementally in product quality, marketing and innovation, raising productivity as a percentage of cost of goods sold, leveraging overhead costs by reducing overhead as a percentage of net revenue, restoring operating income margins to industry benchmarks, the combination of Kraft Foods and Cadbury is expected to provide the potential for meaningful revenue synergies over time from investments in distribution, marketing and product development, the combined company's target for long-term organic net revenue growth, opportunities for significant synergies from the combination have been identified, the combined company's expected pre-tax cost savings, the expected total one-time implementation cash costs, the combined company's targeted accretion to earnings per share, the combined company's long-term targeted EPS growth, that our results will be affected the sale of the assets of our frozen pizza business, our expectation of when the sale of the pizza business will close and earnings reduction as a result of the pizza business transaction. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those indicated 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 retailer brands, unanticipated expenses in connection with litigation, settlement of legal disputes, regulatory investigations or enforcement actions, our indebtedness and ability to pay our indebtedness, the shift in consumer preference to lower price products, risks from operating outside of the United States, tax law changes, failure to realize the expected benefits of the combination with Cadbury, failure to successfully integrate the Cadbury business, significant transaction costs and/or unknown liabilities and general economic and business conditions that could affect the combined companies following the combination. For additional information on these and other factors that could affect our forward-looking statements, see the risk factors as they may be amended from time to time, set forth in our filings with the Security and Exchange Commission ("SEC"), including the registration statement on Form S-4, as amended, that we filed in connection with our combination with Cadbury, 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.

NO PROFIT FORECAST

Nothing in this press release is intended to be a profit forecast and the statements in this press release should not be interpreted to mean that the earnings per Kraft Foods share for the current or any future financial period will necessarily be greater than those for any relevant preceding financial period.

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. This press release is not a prospectus for the purposes of the EU Prospectus Directive. Cadbury shareholders in the EU should not tender their shares in any offer by Kraft Foods for Cadbury plc except on the basis of information in the prospectus published pursuant to the EU Prospectus Directive on Kraft Foods' website (as supplemented from time to time).

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.

The company uses free cash flow as its primary cash flow metric as it represents the controllable cash flows from operations. Free cash flow is defined as cash flow from operations less capital expenditures. Management believes free 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 December 31, 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 the company's Outlook, the company has not provided that information.

SEGMENT OPERATING INCOME

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.

    (1)  Please see discussion of Non-GAAP Financial Measures at the end of
         this press release.
    (2)  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, but
         they do not qualify for exit cost treatment under U.S. GAAP.
    (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.
    (5)  Assumes a combination of debt reduction and share repurchases.
                    Kraft Foods Inc. and Subsidiaries
                     Condensed Statements of Earnings
                 For the Three Months Ended December 31,         Schedule 1
            (in millions, except per share data)  (Unaudited)
                                                     As Reported (GAAP)
                                                     -------------------
                                                   2009     2008  % Change
                                                 ------   ------  --------
    Net revenues                                $11,025  $10,681       3.2%
    Cost of sales                                 6,896    7,311       5.7%
                                                 ------   ------
      Gross profit                                4,129    3,370      22.5%
      Gross profit margin                          37.5%    31.6%
    Marketing, administration and research
     costs                                        2,861    2,318     (23.4)%
    Asset impairment and exit costs                 (38)     718     100.0+%
    (Gains) / losses on divestitures, net           (11)      (1)    100.0+%
    Amortization of intangibles                      11        5    (100.0+)%
                                                 ------   ------
      Operating income                            1,306      330     100.0+%
      Operating income margin                      11.8%     3.1%
    Interest and other expense, net                 322      306      (5.2)%
                                                    ---      ---
      Earnings from continuing operations
       before income taxes                          984       24     100.0+%
    Provision for income taxes                      273      (79)   (100.0+)%
    Effective tax rate                             27.7%   n / m
                                                 ------   ------
      Earnings from continuing operations          $711     $103     100.0+%
    Gain on divestiture of discontinued operations,
     net of income taxes                              -       77    (100.0)%
                                                 ------   ------
      Net earnings                                 $711     $180     100.0+%
    Noncontrolling interest                           1        2      50.0%
                                                 ------   ------
      Net earnings attributable to Kraft Foods     $710     $178     100.0+%
                                                 ======   ======
    Per share data:
      Basic earnings per share attributable to
       Kraft Foods:
      -  Continuing operations                    $0.48    $0.07     100.0+%
      -  Discontinued operations                      -     0.05    (100.0)%
                                                 ------   ------
      -  Net earnings attributable to Kraft
       Foods                                      $0.48    $0.12     100.0+%
                                                 ======   ======
      Diluted earnings per share attributable to
       Kraft Foods:
      -  Continuing operations                    $0.48    $0.07     100.0+%
      -  Discontinued operations                      -     0.05    (100.0)%
                                                 ------   ------
      -  Net earnings attributable to Kraft
       Foods                                      $0.48    $0.12     100.0+%
                                                 ======   ======
    Average shares outstanding:
      Basic                                       1,480    1,474      (0.4)%
      Diluted                                     1,487    1,481      (0.4)%

                     Kraft Foods Inc. and Subsidiaries
               Reconciliation of GAAP to Non-GAAP Information
                                Net Revenues                      Schedule 2
                  For the Three Months Ended December 31,
                        ($ in millions)  (Unaudited)
                                  As                       Impact     Organic
                               Reported    Impact of         of        (Non-
                                 (GAAP)   Divestitures    Currency     GAAP)
                              ---------  -------------   ---------    -------
    2009
    ----
      U.S. Beverages               $684             $-          $-       $684
      U.S. Cheese                 1,000              -           -      1,000
      U.S. Convenient Meals       1,078              -           -      1,078
      U.S. Grocery                  884              -           -        884
      U.S. Snacks                 1,247             (6)          -      1,241
      Canada & N.A.
       Foodservice                1,098              -         (82)     1,016
                              ---------  -------------   ---------    -------
    Kraft Foods North America    $5,991            $(6)       $(82)    $5,903
    Kraft Foods Europe            2,687              -        (225)     2,462
    Kraft Foods Developing
     Markets                      2,347              -         (31)     2,316
                              ---------  -------------   ---------    -------
    Kraft Foods                 $11,025            $(6)      $(338)   $10,681
                                =======            ===       =====    =======
    2008 (As Revised)
    -----------------
      U.S. Beverages               $697             $-          $-       $697
      U.S. Cheese                 1,159              -           -      1,159
      U.S. Convenient Meals       1,038              -           -      1,038
      U.S. Grocery                  883              -           -        883
      U.S. Snacks                 1,289            (12)          -      1,277
      Canada & N.A.
       Foodservice                1,015              -           -      1,015
                                  -----            ---         ---      -----
    Kraft Foods North America    $6,081           $(12)         $-     $6,069
    Kraft Foods Europe            2,489            (20)          -      2,469
    Kraft Foods Developing
     Markets                      2,111            (13)          -      2,098
                                  -----            ---         ---      -----
    Kraft Foods                 $10,681           $(45)         $-    $10,636
                                =======           ====         ===    =======
                                                          Organic Growth
                                    % Change                  Drivers
                                    --------              --------------
                               As
                            Reported   Organic (Non-
                             (GAAP)        GAAP)        Vol / Mix    Price
                            ---------   -------------   ---------    -----
    2009
    ----
      U.S. Beverages            (1.9)%          (1.9)%      (3.2)pp    1.3pp
      U.S. Cheese              (13.7)%         (13.7)%      (0.9)     (12.8)
      U.S. Convenient Meals      3.9%            3.9%        8.0       (4.1)
      U.S. Grocery               0.1%            0.1%       (1.3)       1.4
      U.S. Snacks               (3.3)%          (2.8)%      (0.3)      (2.5)
      Canada & N.A.
       Foodservice               8.2%            0.1%        2.6       (2.5)
                            ---------   -------------   ---------    ------
    Kraft Foods North America   (1.5)%          (2.7)%       1.1       (3.8)
    Kraft Foods Europe           8.0%           (0.3)%      (0.3)       0.0
    Kraft Foods Developing
     Markets                    11.2%           10.4%        5.5        4.9
                            ---------   -------------   ---------    ------
    Kraft Foods                  3.2%            0.4%        1.6pp     (1.2)pp
                            ========    ============      =========   ========

                     Kraft Foods Inc. and Subsidiaries
                  Operating Income by Reportable Segments
                   For the Three Months Ended December 31,      Schedule 3
                        ($ in millions)  (Unaudited)
                                                  2008 Impacts
                                   -------------------------------------------
                     2008 Operating                                (Gains) /
                         Income -                     Asset        Losses on
                       As Revised   Restructuring   Impairment   Divestitures,
                         (GAAP)     Program Costs     Costs           Net
                     -------------  -------------   ----------   -------------
    Segment Operating Income:
      U.S. Beverages          $18           $23            $-             $-
      U.S. Cheese             190            21             -              -
      U.S. Convenient Meals    64            23             -              -
      U.S. Grocery            228            39             -              -
      U.S. Snacks             106            64             -              -
      Canada & N.A.
       Foodservice             57            61             -              -
                     -------------  -------------   ----------   -------------
       Kraft Foods North
        America               663           231             -              -
       Kraft Foods Europe    (166)          358            34             (1)
       Kraft Foods Developing
        Markets               100            91            51              -
    Unrealized G/(L) on
     Hedging
     Activities              (167)            -             -              -
    HQ Pension                  -             -             -              -
    General Corporate
     Expenses                 (95)            -             -              -
    Amortization of
     Intangibles               (5)            -             -              -
                     -------------  -------------   ----------   -------------
    Kraft Foods              $330          $680           $85            $(1)
                     =============  =============   ==========   =============
                                         2009 Impacts
                    ----------------------------------------------------------
                                Asset       Gains /
                     Impact   Impairment  (Losses) on
                       of      & Exit     Divestitures,  Impact of
                    Currency   Costs *      Net        Divestitures Operations
                    --------  ---------   ------------ ------------ ----------
    Segment Operating
     Income:
      U.S. Beverages     $-       $2           $-            $-         $25
      U.S. Cheese         -        2            -             -          (9)
      U.S. Convenient
       Meals              -        2            -             -          12
      U.S. Grocery        -        2            -             -          18
      U.S. Snacks         -        2           11            (2)         12
      Canada & N.A.
        Foodservice      14        2            -             -           7
                    --------  -------    ---------    ----------  ----------
         Kraft Foods
          North
          America        14       12           11            (2)         65
         Kraft Foods
          Europe         13       16            -             2         (36)
         Kraft Foods
          Developing
             Markets      -       10            -             2         (63)
    Unrealized G/(L) on
     Hedging Activities   -        -            -             -         230
    HQ Pension            -        -            -             -         (44)
    General Corporate
     Expenses             -        -            -             -         (12)
    Amortization of
     Intangibles          1        -            -             -          (7)
                    --------  -------    ---------    ----------  ----------
    Kraft Foods         $28      $38          $11            $2        $133
                        ===      ===          ===           ===        ====

                                        2009
                                      Operating
                                       Income -
                                     As Reported
                                        (GAAP)     % Change
                                   --------------  --------
    Segment Operating Income:
      U.S. Beverages                          $68     100.0+%
      U.S. Cheese                             204       7.4%
      U.S. Convenient Meals                   101      57.8%
      U.S. Grocery                            287      25.9%
      U.S. Snacks                             193      82.1%
      Canada & N.A. Foodservice               141     100.0+%
                                              ---
          Kraft Foods North America           994      49.9%
            Kraft Foods Europe                220     100.0+%
            Kraft Foods Developing Markets    191      91.0%
    Unrealized G/(L) on Hedging Activities     63
    HQ Pension                                (44)
    General Corporate Expenses               (107)
    Amortization of Intangibles               (11)
                                           ------
    Kraft Foods                            $1,306     100.0+%
                                           ======
    *  Includes $50 million reversal of 2008 Restructuring Program costs.
                    Kraft Foods Inc. and Subsidiaries
                    Condensed Statements of Earnings
                For the Twelve Months Ended December 31,        Schedule 4
            (in millions, except per share data)  (Unaudited)
                                                    As Reported (GAAP)
                                                    -------------------
                                                   2009     2008  % Change
                                                -------  -------  --------
    Net revenues                                $40,386  $41,932      (3.7)%
    Cost of sales                                25,786   28,088       8.2%
                                                -------  -------
      Gross profit                               14,600   13,844       5.5%
      Gross profit margin                          36.2%    33.0%
    Marketing, administration and research costs  9,108    8,862      (2.8)%
    Asset impairment and exit costs                 (64)   1,024     100.0+%
    (Gains) / losses on divestitures, net             6       92      93.5%
    Amortization of intangibles                      26       23     (13.0)%
                                                -------  -------
      Operating income                            5,524    3,843      43.7%
      Operating income margin                      13.7%     9.2%
    Interest and other expense, net               1,237    1,240       0.2%
                                                -------  -------
      Earnings from continuing operations
       before income taxes                        4,287    2,603      64.7%
    Provision for income taxes                    1,259      755     (66.8)%
    Effective tax rate                             29.4%    29.0%
                                                -------  -------
      Earnings from continuing operations        $3,028   $1,848      63.9%
    Earnings from discontinued operations, net
     of income taxes                                  -      119    (100.0)%
    Gain on divestiture of discontinued operations,
     net of income taxes                              -      926    (100.0)%
                                                -------  -------
      Net earnings                               $3,028   $2,893       4.7%
    Noncontrolling interest                           7        9      22.2%
                                                -------  -------
      Net earnings attributable to Kraft Foods   $3,021   $2,884       4.8%
                                                 ======   ======
    Per share data:
      Basic earnings per share attributable to
       Kraft Foods:
      -  Continuing operations                    $2.04    $1.22      67.2%
      -  Discontinued operations                      -     0.70    (100.0)%
                                                    ---     ----
      -  Net earnings attributable to Kraft Foods $2.04    $1.92       6.3%
                                                  =====    =====
      Diluted earnings per share attributable to
       Kraft Foods:
      -  Continuing operations                    $2.03    $1.21      67.8%
      -  Discontinued operations                      -     0.69    (100.0)%
                                                    ---     ----
      -  Net earnings attributable to Kraft Foods $2.03    $1.90       6.8%
                                                  =====    =====
    Average shares outstanding:
      Basic                                       1,478    1,505       1.8%
      Diluted                                     1,486    1,515       1.9%

                      Kraft Foods Inc. and Subsidiaries
                Reconciliation of GAAP to Non-GAAP Information
                                 Net Revenues
                  For the Twelve Months Ended December 31,        Schedule 5
                         ($ in millions)  (Unaudited)
                                   As                        Impact    Organic
                                Reported     Impact of         of       (Non-
                                 (GAAP)    Divestitures    Currency     GAAP)
                                -------    ------------    --------   -------
    2009
    ----
      U.S. Beverages             $3,057              $-          $-     $3,057
      U.S. Cheese                 3,605               -           -      3,605
      U.S. Convenient Meals       4,496               -           -      4,496
      U.S. Grocery                3,453               -           -      3,453
      U.S. Snacks                 4,964             (44)          -      4,920
      Canada & N.A. Foodservice   4,087               -         199      4,286
                                -------    ------------    --------   --------
    Kraft Foods North America   $23,662            $(44)       $199    $23,817
    Kraft Foods Europe            8,768             (15)        640      9,393
    Kraft Foods Developing
     Markets                      7,956             (14)      1,058      9,000
                                -------    ------------    --------   -------
    Kraft Foods                 $40,386            $(73)     $1,897    $42,210
                                =======            ====      ======    =======
    2008 (As Revised)
    -----------------
      U.S. Beverages             $3,001              $-          $-     $3,001
      U.S. Cheese                 4,007               -           -      4,007
      U.S. Convenient Meals       4,240               -           -      4,240
      U.S. Grocery                3,389               -           -      3,389
      U.S. Snacks                 5,025             (55)          -      4,970
      Canada & N.A. Foodservice   4,294               -           -      4,294
                                --------    ------------    --------   -------
    Kraft Foods North America   $23,956            $(55)         $-    $23,901
    Kraft Foods Europe            9,728            (243)          -      9,485
    Kraft Foods Developing
     Markets                      8,248             (57)          -      8,191
                                -------    ------------    --------   --------
    Kraft Foods                 $41,932           $(355)         $-    $41,577
                                =======    ============    ========    =======
                                                            Organic Growth
                                       % Change                 Drivers
                              -------------------------   ------------------
                                   As
                               Reported    Organic
                                 (GAAP)   (Non-GAAP)      Vol / Mix    Price
                              ---------   -------------   ---------    -----
    2009
    ----
      U.S. Beverages               1.9%         1.9%        1.3pp      0.6pp
      U.S. Cheese                (10.0)%      (10.0)%      (1.2)      (8.8)
      U.S. Convenient Meals        6.0%         6.0%        4.6        1.4
      U.S. Grocery                 1.9%         1.9%       (1.6)       3.5
      U.S. Snacks                 (1.2)%       (1.0)%      (1.7)       0.7
      Canada & N.A. Foodservice   (4.8)%       (0.2)%      (0.2)       0.0
                                  ----         ----        ----        ---
    Kraft Foods North America     (1.2)%       (0.4)%       0.1       (0.5)
    Kraft Foods Europe            (9.9)%       (1.0)%      (2.8)       1.8
    Kraft Foods Developing
     Markets                      (3.5)%        9.9%        1.8        8.1
                                  ----          ---         ---        ---
    Kraft Foods                   (3.7)%        1.5%       (0.2)pp    1.7pp
                                  ====          ===     =======     =====

                   Kraft Foods Inc. and Subsidiaries
                Operating Income by Reportable Segments
               For the Twelve Months Ended December 31,        Schedule 6
                      ($ in millions)  (Unaudited)
                                                 2008 Impacts
                                    ------------------------------------------
                     2008 Operating                                (Gains) /
                         Income -                     Asset        Losses on
                       As Revised   Restructuring   Impairment   Divestitures,
                         (GAAP)     Program Costs     Costs           Net
                     -------------  -------------   ----------   -------------
    Segment Operating
     Income:
      U.S. Beverages        $381           $65              $-           $1
      U.S. Cheese            563            36               -            -
      U.S. Convenient Meals  339            40               -            -
      U.S. Grocery         1,009            46               -            -
      U.S. Snacks            638            75               -            -
      Canada & N.A.
       Foodservice           448           113               -            -
                             ---           ---             ---          ---
         Kraft Foods
          North America    3,378           375               -            1
         Kraft Foods Europe  182           474              89           91
         Kraft Foods
          Developing Markets 815           140              51            -
    Unrealized G/(L) on
     Hedging Activities     (205)            -               -            -
    HQ Pension                 -             -               -            -
    General Corporate
     Expenses               (304)            -               -            -
    Amortization of
     Intangibles             (23)            -               -            -
                          ------          ----            ----          ---
    Kraft Foods           $3,843          $989            $140          $92
                          ======          ====            ====          ===

                                          2009 Impacts
                    ----------------------------------------------------------
                                Asset       Gains /
                     Impact   Impairment  (Losses) on
                       of      & Exit     Divestitures,  Impact of
                    Currency   Costs *       Net       Divestitures Operations
                    --------  ---------   ------------ ------------ ----------
    Segment Operating
     Income:
      U.S. Beverages    $-        $2            $-            $-        $62
      U.S. Cheese        -         2             -             -         66
      U.S. Convenient
       Meals             -         2             -             -        129
      U.S. Grocery       -         2             -             -         89
      U.S. Snacks        -         2            11             1         (4)
      Canada & N.A.
       Foodservice     (36)        2             -             -          -
                    --------  ---------   ------------ ------------ ----------
        Kraft Foods
         North
         America       (36)       12            11             1        342
        Kraft Foods
         Europe       (117)       42           (17)          (10)         51
        Kraft Foods
         Developing
         Markets      (173)       10             -            (3)         96
    Unrealized G/(L) on
     Hedging Activities  -         -             -             -         408
    HQ Pension           -         -             -             -        (165)
    General Corporate
     Expenses            1         -             -             -          10
    Amortization of
     Intangibles         3         -             -             -          (6)
                    --------  ---------   ------------ ------------ ----------
    Kraft Foods      $(322)      $64           $(6)         $(12)       $736
                     =====     =====         =====         =====       =====

                                      2009 Operating
                                        Income - As
                                      Reported (GAAP)     % Change
                                      -----------------     --------
    Segment Operating Income:
      U.S. Beverages                          $511            34.1%
      U.S. Cheese                              667            18.5%
      U.S. Convenient Meals                    510            50.4%
      U.S. Grocery                           1,146            13.6%
      U.S. Snacks                              723            13.3%
      Canada & N.A. Foodservice                527            17.6%
                                               ---
          Kraft Foods North America          4,084            20.9%
          Kraft Foods Europe                   785           100.0+%
          Kraft Foods Developing Markets       936            14.8%
    Unrealized G/(L) on Hedging Activities     203
    HQ Pension                                (165)
    General Corporate Expenses                (293)
    Amortization of Intangibles                (26)
                                            ------
    Kraft Foods                             $5,524            43.7%
                                            ======
    *  Includes $85 million reversal of 2008 Restructuring Program costs
                    Kraft Foods Inc. and Subsidiaries
                               Cash Flows
                For the Twelve Months Ended December 31,       Schedule 7
                      ($ in millions)  (Unaudited)
                                                       2009    2008
                                                       ----    ----
    Net Cash Provided by Operating Activities (GAAP) $5,084  $4,141
    Capital Expenditures                             (1,330) (1,367)
                                                     ------  ------
    Free Cash Flow (Non-GAAP)                        $3,754  $2,774
    Voluntary Pension Contribution                      400       -
                                                        ---     ---
    Adjusted Free Cash Flow (Non-GAAP)               $4,154  $2,774
                                                     ======  ======

                    Kraft Foods Inc. and Subsidiaries
                         Condensed Balance Sheets            Schedule 8
                       ($ in millions)  (Unaudited)
                                                December 31,  December 31,
                                                    2009         2008
                                                    ----         ----
    ASSETS
    ------
    Cash and cash equivalents                     $2,101       $1,244
    Receivables, net                               5,197        4,704
    Inventories, net                               3,775        3,881
    Other current assets                           1,381        1,632
    Property, plant and equipment, net            10,693        9,917
    Goodwill                                      28,764       27,581
    Intangible assets, net                        13,429       12,926
    Other assets                                   1,374        1,288
                                                   -----        -----
          TOTAL ASSETS                           $66,714      $63,173
                                                 =======      =======
    LIABILITIES AND EQUITY
    ----------------------
    Short-term borrowings                           $453         $897
    Current portion of long-term debt                513          765
    Accounts payable                               3,766        3,373
    Other current liabilities                      6,759        6,009
    Long-term debt                                18,024       18,589
    Deferred income taxes                          4,508        4,064
    Accrued pension costs                          1,765        2,367
    Accrued postretirement health care
     costs                                         2,816        2,678
    Other liabilities                              2,138        2,075
                                                   -----        -----
          TOTAL LIABILITIES                       40,742       40,817
          TOTAL EQUITY                            25,972       22,356
                                                  ------       ------
          TOTAL LIABILITIES AND EQUITY           $66,714      $63,173
                                                 =======      =======

SOURCE Kraft Foods Inc.

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