Kraft Foods Inc.

Kraft Foods Inc. (Kraft), a global leader in branded food and beverages, reported strong top-line growth, particularly in North America, and good progress against its Sustainable Growth Plan. Net revenues increased 5.5% to $32.2 billion, driven by new products, the impact of increased marketing spending, favorable currency of $838 million and commodity-driven pricing. Volume was up 2.8%, due to ongoing growth of 3.0% including acquisitions. Operating income declined 21.3% to $4.6 billion, driven by restructuring program and impairment charges, higher commodity costs and increased marketing spending, partially offset by volume growth, pricing, cost reduction initiatives and favorable currency of $98 million. During 2004, Kraft increased its quarterly dividend by 13.9% to $0.205 per common share and delivered a total shareholder return of 13.2%.

In January 2004, Kraft introduced its Sustainable Growth Plan and is on track to deliver long-term improvements in revenues, earnings and cash flow. The plan includes a global restructuring program to improve the company’s cost structure and utilization of assets. As part of the plan, Kraft increased marketing spending by approximately $460 million during 2004 to improve price gaps and build brand equity. Positive trends in sequential revenue growth, market share and product mix show that its investments are working. Reflecting its strategy to transform its portfolio, Kraft acquired Veryfine Products Inc. and reached agreements during 2004 to divest its sugar confectionery, U.K. desserts and U.S. yogurt businesses.

Innovation drove growth in markets around the world. In North America, new products such as DiGiorno Thin Crispy Crust Pizza, Nabisco 100 Calorie Packs and Lunchables Chicken Dunks contributed to strong top-line growth. Internationally, Milka M-joy chocolate tablets were launched in key markets across Europe and the Tassimo hot beverage system was introduced in France.

Kraft has embraced the responsible marketing of its products as a key strategy for sustainable growth, and is making broad efforts to address consumers’ health and wellness concerns, including the global public health challenge of rising obesity rates. Steps announced by Kraft include shifting the mix of products it advertises in television, radio and print media viewed primarily by children ages 6 to 11; introducing a Sensible Solution labeling program in the U.S.; improving nutrition labels to make it easier for consumers to choose portion sizes; enhancing the nutrition profile of its portfolio by reformulating existing products and creating new products; and supporting and developing community-based health and wellness programs.

North American Food

Kraft North America Commercial (KNAC) net revenues grew 5.4% to $22.1 billion, driven by volume, positive mix, net pricing, the Veryfine beverage acquisition and favorable currency of $164 million. Volume was up 4.3% (including 2.6 percentage points from acquisitions) with growth across much of the portfolio, including cheese, convenient meals and snacks. Operating companies income declined 16.9% to $3.9 billion, due to restructuring program and impairment charges of $431 million, higher commodity costs, increased marketing spending and higher post-employment benefit costs, partially offset by the contributions from revenue growth and productivity.

International Food

Kraft International Commercial (KIC) net revenues grew 5.7% to $10.1 billion, driven by favorable currency of $674 million and positive mix, partially offset by lower volume and net price reductions. Volume was down 1.1%, due primarily to divestitures. Operating companies income decreased 33.0% to $933 million, as restructuring program and impairment charges of $269 million, a gain on the sale of businesses in 2003, higher marketing spending and increased commodity costs were partially offset by favorable currency of $69 million.

A separate Kraft Foods Inc. Annual Report is available at www.kraft.com.