Mondelez International (MDLZ) 10-Q 7 May 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010	Apr. 30, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Trading Symbol	KFT
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Entity Registrant Name	KRAFT FOODS INC
Entity Central Index Key	0001103982
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		1,743,483,521

Condensed Consolidated Statemen

Condensed Consolidated Statements of Earnings (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Net revenues	$11,318	$8,979
Cost of sales	7,229	5,879
Gross profit	4,089	3,100
Marketing, administration and research costs	2,850	1,919
Amortization of intangibles	33	6
Operating income	1,206	1,175
Interest and other expense, net	624	280
Earnings from continuing operations before income taxes	582	895
Provision for income taxes	333	292
Earnings from continuing operations	249	603
Earnings and gain from discontinued operations, net of income taxes (Note 2)	1,644	59
Net earnings	1,893	662
Noncontrolling interest	10	2
Net earnings attributable to Kraft Foods	$1,883	$660
Basic earnings per share attributable to Kraft Foods:
Continuing operations	0.15	0.41
Discontinued operations	1.02	0.04
Net earnings attributable to Kraft Foods	1.17	0.45
Diluted earnings per share attributable to Kraft Foods:
Continuing operations	0.15	0.41
Discontinued operations	1.01	0.04
Net earnings attributable to Kraft Foods	1.16	0.45
Dividends declared	0.29	0.29

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (USD $)
In Millions	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
ASSETS
Cash and cash equivalents	$3,878	$2,101
Receivables (less allowances of $181 in 2010 and $121 in 2009)	6,575	5,197
Inventories, net	5,097	3,775
Deferred income taxes	839	730
Other current assets	826	651
Total current assets	17,215	12,454
Property, plant and equipment, net	13,896	10,693
Goodwill	37,119	28,764
Intangible assets, net	25,648	13,429
Prepaid pension assets	140	115
Other assets	1,691	1,259
TOTAL ASSETS	95,709	66,714
LIABILITIES
Short-term borrowings	891	453
Current portion of long-term debt	633	513
Accounts payable	5,422	3,766
Accrued marketing	2,154	2,181
Accrued employment costs	1,223	1,175
Other current liabilities	5,258	3,403
Total current liabilities	15,581	11,491
Long-term debt	29,496	18,024
Deferred income taxes	7,561	4,508
Accrued pension costs	2,565	1,765
Accrued postretirement health care costs	2,878	2,816
Other liabilities	3,134	2,138
TOTAL LIABILITIES	61,215	40,742
Contingencies (Note 13)
EQUITY
Common Stock, no par value (1,990,695,311 shares issued in 2010 and 1,735,000,000 shares in issued 2009)
Additional paid-in capital	30,915	23,611
Retained earnings	15,971	14,636
Accumulated other comprehensive losses	(4,422)	(3,955)
Treasury stock, at cost	(8,286)	(8,416)
Total Kraft Foods Shareholders' Equity	34,178	25,876
Noncontrolling interest	316	96
TOTAL EQUITY	34,494	25,972
TOTAL LIABILITIES AND EQUITY	$95,709	$66,714

1_Condensed Consolidated Balanc

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data	Mar. 31, 2010	Dec. 31, 2009
Receivables, allowances	$181	$121
Common Stock, no par value	$0	$0
Common Stock, shares issued	1,990,695,311	1,735,000,000

2_Condensed Consolidated Statem

Condensed Consolidated Statements of Equity (USD $)
In Millions	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Earnings/(Losses)	Treasury Stock	Noncontrolling Interest		Total
Balances at Dec. 31, 2008		$23,563	$13,440	($5,994)	($8,714)	$61		$22,356
Comprehensive earnings / (losses):
Net earnings			3,021			7		3,028
Other comprehensive earnings / (losses), net of income taxes				2,039		34		2,073
Total comprehensive earnings /(losses)						41	[1]	5,101	[1]
Exercise of stock options and issuance of other stock awards		49	(110)		298			237
Cash dividends declared ($1.16 per share in 2009, $0.29 per share in 2010)			(1,715)					(1,715)
Dividends paid on noncontrolling interest and other activities		(1)				(6)		(7)
Balances at Dec. 31, 2009		23,611	14,636	(3,955)	(8,416)	96		25,972
Comprehensive earnings / (losses):
Net earnings			1,883			10		1,893
Other comprehensive earnings / (losses), net of income taxes				(467)		(19)		(486)
Total comprehensive earnings /(losses)						(9)	[2]	(1,407)	[2]
Exercise of stock options and issuance of other stock awards		(14)	(43)		130			73
Cash dividends declared ($1.16 per share in 2009, $0.29 per share in 2010)			(505)					(505)
Noncontrolling interest recorded upon Cadbury acquisition						5,420		5,420
Acquisition of noncontrolling interest		38				(5,191)		(5,153)
Issuance of Common Stock		7,280						7,280
Balances at Mar. 31, 2010		$30,915	$15,971	($4,422)	($8,286)	$316		$34,494
[1]For the quarter ended March 31, 2009, total comprehensive earnings were $510 million, and comprehensive earnings attributable to Kraft Foods were $508 million.
[2]For the quarter ended March 31, 2010, comprehensive earnings attributable to Kraft Foods were $1,416 million.

3_Condensed Consolidated Statem

Condensed Consolidated Statements of Equity (Parenthetical) (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010		3 Months Ended Mar. 31, 2009
Cash dividends declared, per share	0.29		0.29
Comprehensive earnings attributable to Kraft Foods	$1,416		$508
Total comprehensive earnings /(losses)	($1,407)	[1]	$510
[1]For the quarter ended March 31, 2010, comprehensive earnings attributable to Kraft Foods were $1,416 million.

4_Condensed Consolidated Statem

Condensed Consolidated Statements of Cash Flows (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES
Net earnings	$1,893	$662
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	313	215
Stock-based compensation expense	40	40
Deferred income tax provision	116	7
Gain on discontinued operations (Note 2)	(1,596)
Other non-cash (income) / expense, net	(166)	104
Change in assets and liabilities, excluding the effects of acquisitions and divestitures:
Receivables, net	(176)	251
Inventories, net	(163)	(232)
Accounts payable	24	(174)
Other current assets	168	49
Other current liabilities	(498)	(530)
Change in pension and postretirement assets and liabilities, net	40	31
Net cash (used in) / provided by operating activities	(5)	423
CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES
Capital expenditures	(241)	(207)
Acquisitions, net of cash received	(9,591)
Proceeds from divestitures, net of disbursements	3,700
Other	2	33
Net cash used in investing activities	(6,130)	(174)
CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES
Net (repayment) / issuance of short-term borrowings	(708)	145
Long-term debt proceeds	9,432
Long-term debt repaid	(6)	(9)
Dividends paid	(653)	(426)
Other	(72)	(4)
Net cash provided by / (used in) financing activities	7,993	(294)
Effect of exchange rate changes on cash and cash equivalents	(81)	(15)
Cash and cash equivalents:
Increase / (decrease)	1,777	(60)
Balance at beginning of period	2,101	1,244
Balance at end of period	$3,878	$1,184

Summary of Significant Accounti

Summary of Significant Accounting Policies
	3 Months Ended Mar. 31, 2010
Summary of Significant Accounting Policies:	Note 1.Summary of Significant Accounting Policies: Basis of Presentation: Our interim condensed consolidated financial statements are unaudited. We prepared the condensed consolidated financial statements following SEC rules for interim reporting. As permitted under those rules, we have condensed or omitted a number of footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). It is management's opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of our financial position and operating results. Net revenues and net earnings for any interim period are not necessarily indicative of future or annual results. You should read these statements in conjunction with our consolidated financial statements and related notes in our Form 10-K for the year ended December 31, 2009. Principles of Consolidation: Our domestic operating subsidiaries report results as of the last Saturday of the quarter, and our international operating subsidiaries generally report results two weeks prior to the last Saturday of the quarter. The results of operations of the newly acquired Cadbury plc ("Cadbury") are reported on the last day of the calendar month. Highly Inflationary Accounting: In the fourth quarter of 2009, the Venezuelan economy was classified as highly inflationary under U.S. GAAP. Effective January 1, 2010, we are accounting for our Venezuelan subsidiaries under highly inflationary accounting rules, which principally means all transactions are recorded in U.S. dollars. Venezuela has three exchange rates: the official rate, the consumer staples rate and the secondary (or parallel) rate. We have historically used both the official rate and the secondary rate to translate our Venezuelan operations, based on the nature of the operations of each individual subsidiary. Additionally, we previously carried cash that we had exchanged into U.S. dollars using the secondary market at that rate. Upon the change to highly inflationary accounting, we were then required to translate those U.S. dollars on hand using the official rate, which resulted in a charge of $34 million in the first quarter of 2010. On January 8, 2010, the Venezuelan government devalued its currency. Accordingly, we were required to revalue our net assets in Venezuela, and we recorded an insignificant loss in the first quarter of 2010. New Accounting Pronouncements: In June 2009, new guidance was issued on the consolidation of variable interest entities. We adopted the guidance effective January 1, 2010. This guidance increases the likelihood of an enterprise being classified as a variable interest entity. The adoption of this guidance did not have a material impact on our financial statements.

Acquisitions and Divestitures

Acquisitions and Divestitures
	3 Months Ended Mar. 31, 2010
Acquisitions and Divestitures:	Note 2.Acquisitions and Divestitures: Cadbury Acquisition: On January 19, 2010, we announced the terms of our final offer for each outstanding ordinary share of Cadbury, including each ordinary share represented by an American Depositary Share ("Cadbury ADS"), and the Cadbury Board of Directors recommended that Cadbury shareholders accept the terms of the final offer. On February 2, 2010, all of the conditions to the offer were satisfied or validly waived, the initial offer period expired and a subsequent offer period immediately began. At that point, we had received acceptances of 71.73% of the outstanding Cadbury ordinary shares, including those represented by Cadbury ADSs ("Cadbury Shares"). The combination of Kraft Foods and Cadbury will create a global powerhouse in snacks, confectionery and quick meals with a rich portfolio of iconic brands. Under the terms of our final offer and the subsequent offer, we agreed to pay Cadbury shareholders 500 pence in cash and 0.1874 shares of Kraft Foods Common Stock per Cadbury ordinary share validly tendered and 2,000 pence in cash and 0.7496 shares of Kraft Foods Common Stock per Cadbury ADS validly tendered. This valued Cadbury at $18.5 billion, or approximately 11.6 billion (based on the average price of $28.36 for a share of Kraft Foods Common Stock on February 2, 2010 and an exchange rate of $1.595 per 1.00). The subsequent offer period closed on April 16, 2010, at which time we owned 99.95% of the outstanding Cadbury Shares. As we have received acceptances of over 90% of Cadbury Shares, we are in the process of acquiring the remaining Cadbury Shares that were not tendered during the offer period through a compulsory acquisition procedure under the United Kingdom Companies Act of 2006, as amended. The EU Commission requires, as a condition of the offer, that we divest the Cadbury confectionary operations in Poland and Romania. We are in the process of divesting these operations. As part of our Cadbury acquisition, we expensed and incurred $203 million in transaction related fees in the first quarter of 2010. We recorded these expenses within marketing, administration and research costs. We also incurred $96 million in acquisition financing fees in the first quarter of 2010. We recorded these expenses within interest and other expense, net. Cadbury contributed net revenues of $1,693 million and net earnings of $60 million from February 2, 2010 through March 31, 2010. The following unaudited pro forma summary presents Kraft Foods' consolidated information as if Cadbury had been acquired on January 1, 2009. These amounts were calculated after conversion to U.S. GAAP, applying our accounting policies, and adjusting Cadbury's results to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment, and intangible assets had been applied from January 1, 2009, together with the consequential tax effects. These adjustments also reflect the additional interest expense incurred on the debt to finance the purchase. Pro forma for the Three M

Inventories

Inventories
	3 Months Ended Mar. 31, 2010
Inventories:	Note3.Inventories: Inventories at March31, 2010 and December31, 2009 were: March31, December31, 2010 2009 (in millions) Raw materials $ 1,894 $ 1,410 Finished product 3,203 2,365 Inventories, net $ 5,097 $ 3,775

Property, Plant and Equipment

Property, Plant and Equipment
	3 Months Ended Mar. 31, 2010
Property, Plant and Equipment:	Note4.Property, Plant and Equipment: Property, plant and equipment at March31, 2010 and December31, 2009 were: March31, December31, 2010 2009 (in millions) Land and land improvements $ 769 $ 492 Buildings and building equipment 4,736 4,231 Machinery and equipment 16,187 13,872 Construction in progress 1,236 828 22,928 19,423 Accumulated depreciation (9,032 ) (8,730 ) Property, plant and equipment, net $ 13,896 $ 10,693

Goodwill and Intangible Assets

Goodwill and Intangible Assets
	3 Months Ended Mar. 31, 2010
Goodwill and Intangible Assets:	Note 5.Goodwill and Intangible Assets: Goodwill by reportable segment at March 31, 2010 and December 31, 2009 was: March31, December31, 2010 2009 (in millions) Kraft Foods North America: U.S. Beverages $ 1,290 $ 1,290 U.S. Cheese 3,000 3,000 U.S. Convenient Meals 985 1,460 U.S. Grocery 3,046 3,046 U.S. Snacks 8,845 6,948 Canada N.A. Foodservice 3,352 2,340 Kraft Foods Europe 8,985 6,756 Kraft Foods Developing Markets 7,616 3,924 Total goodwill $ 37,119 $ 28,764 Intangible assets at March31, 2010 and December31, 2009 were: March31, December31, 2010 2009 (in millions) Non-amortizable intangible assets $ 22,966 $ 13,262 Amortizable intangible assets 2,825 278 25,791 13,540 Accumulated amortization (143 ) (111 ) Intangible assets, net $ 25,648 $ 13,429 Non-amortizable intangible assets consist substantially of brand names purchased through our acquisitions of Nabisco Holdings Corp., the Spanish and Portuguese operations of United Biscuits, the global LU biscuit business of Groupe Danone S.A. and Cadbury. Amortizable intangible assets consist primarily of trademark licenses, customer-related intangibles and non-compete agreements. At March31, 2010, the weighted-average life of our amortizable intangible assets was 17.0 years. The movements in goodwill and intangible assets were: Goodwill IntangibleAssets,at Cost (in millions) Balance at January1, 2010 $ 28,764 $ 13,540 Changes due to: Foreign currency (321 ) (386 ) Acquisitions 9,151 12,637 Divestitures (475 ) Balance at March31, 2010 $ 37,119 $ 25,791 Changes to goodwill and intangible assets during the first quarter of 2010 were: * Acquisitions We increased goodwill by $9,151 million and intangible assets by $12,637 million related to preliminary allocations of purchase price for our Cadbury acquisition. The allocations are based upon preliminary estimates and assumptions and are subject to revision when appraisals are finalized, which will occur during2010. We assigned $1,897 million of the acquired goodwill to our U.S. Snacks segment, $945 million to our Canada N.A. Foodservice segment, $2,576 million to our Kraft Foods Europe segment and $3,733 million to our Kraft Foods Developing Markets segment. * Divestitures We reduced goodwill by $475 milliondue to ourFrozen Pizzabusiness divestiture.

Restructuring Costs

Restructuring Costs
	3 Months Ended Mar. 31, 2010
Restructuring Costs:	Note 6.Restructuring Costs: Integration Charges: We believe our combination with Cadbury has the potential for meaningful revenue synergies over time from investments in distribution, marketing and product development. We expect to incur total integration charges of approximately $1.3 billion in the first three years following the acquisition to combine and integrate the two businesses. Integration costs include the costs associated with combining the operations of Kraft Foods and Cadbury and are separate from those costs related to the acquisition. In the first quarter of 2010, we incurred $43 million of the $1.3 billion in expected charges, which were primarily recorded within general corporate expenses. Cost Savings Initiatives: Cost savings initiatives generally include exit, disposal and other project savings costs. In the first quarter of 2010, we incurred $24 million in charges associated with our cost savings initiatives. We recorded these charges in operations, primarily within the segment operating income of Kraft Foods Europe and Canada N.A. Foodservice. These charges primarily included other project savings costs associated with the Kraft Foods Europe Reorganization. Even though other project savings costs were directly attributable to exit and disposal costs, they did not qualify for special accounting treatment as exit or disposal activities. Cadbury VIA Program: In 2007, Cadbury initiated a Vision into Action ("VIA") restructuring program that was planned to run through 2011. We are evaluating the previous expectation of the remaining $250 million in pre-tax charges associated with the VIA restructuring program. We may modify the program in future quarters as we evaluate it in conjunction with the overall integration program. In the first quarter of 2010, we incurred $15 million in charges related to the program. We recorded these charges in operations, primarily within the segment operating income of Kraft Foods Europe and Kraft Foods Developing Markets. At March 31, 2010, we had an accrual of $158 million related to the program. Liability activity for the VIA program in the first quarter of 2010 was (in millions): Liability assumed upon acquisition $ 190 Charges 15 Cash spent (39 ) Write-offs (1 ) Currency (7 ) Liability balance, March 31, 2010 $ 158 2004 2008 Restructuring Program: In 2008, we completed our five-year restructuring program (the "Restructuring Program"). The Restructuring Program's objectives were to leverage our global scale, realign and lower our cost structure, and optimize capacity. As part of the Restructuring Program, we: * incurred $3.0 billion in pre-tax charges reflecting asset disposals, severance and implementation costs; * announced the closure of 35 facilities and the elimination of approximately 18,600 positions; and * will use cash to pay for $2.0 billion of the $3.0 billion in charges. Since the inception of the Restructuring Program, we ha

Debt

Debt
	3 Months Ended Mar. 31, 2010
Debt	Note 7.Debt: Short-Term Borrowings: At March31, 2010 and December31, 2009, our short-term borrowings and related weighted-average interest rates consisted of: March31, 2010 December31, 2009 Amount Weighted- Amount Weighted- Outstanding AverageRate Outstanding AverageRate (in millions) (in millions) Commercial paper $ 604 0.5% $ 262 0.5% Bank loans 287 6.0% 191 10.5% Total short-term borrowings $ 891 $ 453 The fair values of our short-term borrowings at March 31, 2010 and December 31, 2009, based upon current market interest rates, approximate the amounts disclosed above. Borrowing Arrangements: We maintain a revolving credit facility that we have historically used for general corporate purposes, including for working capital purposes, and to support our commercial paper issuances. Our $4.5 billion three-year senior unsecured revolving credit facility expires in November 2012. No amounts have been drawn on the facility. The revolving credit facility agreement includes a covenant that we maintain a minimum total shareholders' equity, excluding accumulated other comprehensive earnings / (losses), of at least $28.5 billion. This covenant increased by $5.5 billion due to our Cadbury acquisition. It will continue to increase by 75% of any increase in our total shareholders' equity if we refinance certain indebtedness. At March 31, 2010, our total shareholders' equity, excluding accumulated other comprehensive earnings / (losses), was $38.6 billion. We expect to continue to meet this covenant. The revolving credit facility agreement also contains customary representations, covenants and events of default. However, there are no other financial covenants, credit rating triggers or provisions that could require us to post collateral as security. Cadbury maintains a three-year, 450 million senior unsecured revolving credit facility that expires in June 2012. No amounts have been drawn on the facility, and we currently maintain it for general corporate purposes. This revolving credit agreement includes a covenant that our subsidiary, Cadbury plc Group, maintain a minimum EBITDA to adjusted net interest ratio of 3.5 to 1 and a maximum net debt to adjusted EBITDA ratio of 3.6 to 1. At March 31, 2010, we were in compliance with and expect to continue to meet these covenants. In addition to the above, some of our international subsidiaries maintain primarily uncommitted credit lines to meet short-term working capital needs. Collectively, these credit lines amounted to $2.2 billion at March 31, 2010. Borrowings on these lines amounted to $287 million at March 31, 2010 and $191 million at December 31, 2009. As part of our Cadbury acquisition, on November 9, 2009, we entered into an agreement for a 364-day senior unsecured bridge facility (the "Cadbury Bridge Facility"). During the first quarter of 2010, we borrowed 807 million under the Cadbury Bridge Facility, and later repaid it ($1,205 million at the time of repayment) wit

Capital Stock

Capital Stock
	3 Months Ended Mar. 31, 2010
Capital Stock:	Note8.Capital Stock: Our articles of incorporation authorize 3.0 billion shares of Class A common stock, 2.0 billion shares of Class B common stock and 500 million shares of preferred stock. There were no Class B common shares or preferred shares issued and outstanding at March 31, 2010. Shares of Class A common stock issued, repurchased and outstanding were: Shares Shares SharesIssued Repurchased Outstanding Balance at January1, 2010 1,735,000,000 (257,115,097 ) 1,477,884,903 Shares issued 255,695,311 255,695,311 Exercise of stock options andissuance of other stock awards 3,796,755 3,796,755 Balance at March31, 2010 1,990,695,311 (253,318,342 ) 1,737,376,969 In the first quarter of 2010, we issued 256million additional shares of our Common Stock as part of the Cadbury acquisition. The issued stock had a total fair value of $7,280 million based on the average of the high and low market prices on the dates of issuance.

Accumulated Other Comprehensive

Accumulated Other Comprehensive Earnings / (Losses)
	3 Months Ended Mar. 31, 2010
Accumulated Other Comprehensive Earnings / (Losses):	Note 9.Accumulated Other Comprehensive Earnings / (Losses): The components of accumulated other comprehensive earnings / (losses) were: Currency Derivatives Translation Pension and Accountedfor Adjustments OtherBenefits as Hedges Total (in millions) Balances at December31, 2009 $ (506 ) $ (3,550 ) $ 101 $ (3,955 ) Other comprehensive earnings /(losses), net of income taxes: Currencytranslationadjustments (447 ) 7 (440 ) Amortization of experiencelosses and prior service costs 45 45 Settlement losses 44 44 Net actuarial loss arising duringperiod (83 ) (83 ) Changeinfairvalueofcashflowhedges (33 ) (33 ) Total other comprehensive losses (467 ) Balances at March31, 2010 $ (953 ) $ (3,537 ) $ 68 $ (4,422 )

Stock Plans

Stock Plans
	3 Months Ended Mar. 31, 2010
Stock Plans:	Note 10.Stock Plans: Restricted and Deferred Stock: In January 2010, we granted 1.6 million shares of stock in connection with our long-term incentive plan, and the market value per share was $27.33 on the date of grant. In February 2010, as part of our annual equity program, we issued 2.5 million shares of restricted and deferred stock to eligible employees, and the market value per restricted or deferred share was $29.15 on the date of grant. During the first quarter of 2010, we issued an additional 0.6 million shares of restricted and deferred stock, and the weighted-average market value per restricted or deferred share was $29.22 on the date of grant. In aggregate, we issued 4.7 million restricted and deferred shares during the first quarter of 2010, including those issued as part of our long-term incentive plan. During the first quarter of 2010, 3.8 million shares of restricted and deferred stock vested at a market value of $110 million. Stock Options: In February 2010, as part of our annual equity program, we granted 15.0 million stock options to eligible employees at an exercise price of $29.15. During the first quarter of 2010, we granted an additional 0.7 million stock options at a weighted-average exercise price of $29.54. In aggregate, we granted 15.7 million stock options in the first quarter of 2010. There were 2.3 million stock options exercised during the first quarter of 2010 with a total intrinsic value of $34 million.

Benefit Plans

Benefit Plans
	3 Months Ended Mar. 31, 2010
Benefit Plans:	Note 11.Benefit Plans: Pension Plans Components of Net Periodic Pension Cost: Net periodic pension cost consisted of the following for the three months ended March 31, 2010: U.S. Plans Non-U.S. Plans For the Three Months Ended For the Three Months Ended March31, March31, 2010 2009 2010 2009 (in millions) Service cost $ 37 $ 39 $ 36 $ 15 Interest cost 92 92 86 51 Expected return on plan assets (121 ) (121 ) (97 ) (57 ) Amortization: Net loss from experience differences 43 39 18 5 Prior service cost 1 2 2 1 Other expenses 47 26 Net periodic pension cost $ 99 $ 77 $ 45 $ 15 A significant portion of the 2010 increase in non-U.S. net periodic pension cost related to the Cadbury acquisition. Other expenses above included settlement losses under our U.S. plans from lump-sum payments made to retired employees of $42 million in the first quarter of 2010 and $26 million in the first quarter of 2009, and a $5 million curtailment charge in the first quarter of 2010 related to the divestiture of our Frozen Pizza business. Employer Contributions: We make contributions to our U.S. and non-U.S. pension plans, primarily to the extent that they are tax deductible and do not generate an excise tax liability. During the first quarter of 2010, we contributed $11 million to our U.S. plans and $80 million to our non-U.S. plans. Based on current tax law, we plan to make further contributions of approximately $40 million to our U.S. plans and approximately $200 million to our non-U.S. plans during the remainder of 2010. However, our actual contributions may differ due to many factors, including changes in tax and other benefit laws, or significant differences between expected and actual pension asset performance or interest rates. Postretirement Benefit Plans Net postretirement health care costs consisted of the following for the three months ended March 31, 2010 and 2009: For the Three Months Ended March31, 2010 2009 (in millions) Service cost $ 10 $ 9 Interest cost 42 44 Amortization: Net loss from experience differences 13 11 Prior service credit (8 ) (8 ) Net postretirement health care costs $ 57 $ 56 Postemployment Benefit Plans Net postemployment costs consisted of the following for the three months ended March31, 2010 and 2009: For the Three Months Ended March31, 2010 2009 (in millions) Service cost $ 3 $ 2 Interest cost 2 3

Financial Instruments

Financial Instruments
	3 Months Ended Mar. 31, 2010
Financial Instruments:	Note 12.Financial Instruments: Fair Value of Derivative Instruments: The fair values of derivative instruments recorded in the condensed consolidated balance sheet as of March31, 2010 and December31, 2009 were: March31, 2010 December31, 2009 Asset Liability Asset Liability Derivatives Derivatives Derivatives Derivatives (in millions) Derivatives designated ashedging instruments: Foreign exchange contracts $ 10 $ 137 $8 $158 Commodity contracts 15 38 25 14 Interest rate contracts 139 153 $ 164 $ 175 $186 $172 Derivatives not designatedas hedging instruments: Foreign exchange contracts $ 124 $ 149 $2 $ Commodity contracts 97 88 71 62 Interest rate contracts 88 16 $ 309 $ 253 $73 $62 Total fair value $ 473 $ 428 $259 $234 The majority of the increase in derivatives not designated as hedging instruments was a result of the Cadbury acquisition as we did not re-designate them for hedge accounting. We include the fair value of our asset derivatives within other current assets and the fair value of our liability derivatives within other current liabilities. The fair values (asset / (liability)) of our derivative instruments at March 31, 2010 were determined using: QuotedPricesin ActiveMarkets Significant Significant for Identical OtherObservable Unobservable Total Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) (in millions) Foreign exchange contracts $ (152 ) $ $ (152 ) $ Commodity contracts (14 ) (19 ) 4 1 Interest rate contracts 211 211 Total derivatives $ 45 $ (19 ) $ 63 $ 1 Cash Flow Hedges: Cash flow hedges affected accumulated other comprehensive earnings / (losses), net of income taxes, as follows: For the Three Months Ended March31, 2010 2009 (in millions) Accumulated gain / (loss) at beginningof period $ 101 $ (23 ) Transfer of realized (gains) / losses infair value to earnings (3 ) 35 Unrealized loss in fair value (30 ) (17 ) Accumulated gain / (loss) at March31 $ 68 $ (5 ) The effects of cash flow hedges for the three months ended March31, 2010 and 2009 were: For the Three Months Ended For the Three Months Ended March31, 2010 March31, 2009

Commitments and Contingencies

Commitments and Contingencies
	3 Months Ended Mar. 31, 2010
Commitments and Contingencies:	Note 13.Commitments and Contingencies: Legal Proceedings: We routinely are involved in legal proceedings, claims and governmental inspections or investigations ("Legal Matters") arising in the ordinary course of our business. Currently, we do not believe that the ultimate costs to resolve any of the Legal Matters will have a material effect on our financial results. Third-Party Guarantees: We have third-party guarantees primarily covering the long-term obligations of our vendors. As part of those transactions, we guarantee that third parties will make contractual payments or achieve performance measures. At March 31, 2010, the carrying amount of our third-party guarantees on our condensed consolidated balance sheet and the maximum potential payment under these guarantees was $29 million. Substantially all of these guarantees expire at various times through 2018. Leases: As of March 31, 2010, minimum rental commitments under non-cancelable operating leases in effect at quarter-end were (in millions): 2011 $ 363 2012 301 2013 238 2014 171 2015 146 Thereafter 335

Income Taxes

Income Taxes
	3 Months Ended Mar. 31, 2010
Income Taxes:	Note14.Income Taxes: As of January 1, 2010, our unrecognized tax benefits were $829 million. If we had recognized all of these benefits, the net impact on our income tax provision would have been $661 million. Our unrecognized tax benefits were $1,217 million at March 31, 2010, and if we had recognized all of these benefits, the net impact to our income tax provision would have been $1,017 million. We expect that the amount of unrecognized tax benefits will decrease by approximately $50 million during the next 12 months due to the potential resolution of certain foreign, U.S. federal and state examinations. Furthermore, we recorded $319 million of unrecognized tax benefits and $33 million of accrued interest and penalties as part of our preliminary purchase price allocations for Cadbury, which are subject to revision when the purchase price allocations are finalized in 2010. We include accrued interest and penalties related to uncertain tax positions in our tax provision. We had accrued interest and penalties of $210 million as of January 1, 2010 and $248 million as of March 31, 2010. The changes in our unrecognized tax benefits for the three months ended March 31, 2010 and 2009 were (in millions): 2010 2009 January1 $ 829 $ 807 Increases from positions taken during prior periods 2 Decreases from positions taken during prior periods (10 ) (8 ) Increases from positions taken during the current period 99 36 Increases from acquisition adjustments 319 Decreases relating to settlements with taxing authorities (2 ) Reductions resulting from the lapse of theapplicable statute of limitations (7 ) (7 ) Currency / other (11 ) (9 ) March31 $ 1,217 $ 821 The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following at March 31, 2010 and December 31, 2009: March31,2010 December31,2009 (in millions) Deferred income tax assets: Accrued postretirement and postemployment benefits $ 1,356 $ 1,472 Accrued pension costs 717 456 Other 2,086 1,997 Total deferred income tax assets 4,159 3,925 Valuation allowance (307 ) (97 ) Net deferred income tax assets $ 3,852 $ 3,828 Deferred income tax liabilities: Trade names $ (7,451 ) $ (4,431 ) Property, plant and equipment (2,141 ) (2,029 ) Other (689 ) (1,055 ) Total deferred income tax liabilities (10,281 ) (7,515 ) Net deferred income t

Earnings Per Share

Earnings Per Share
	3 Months Ended Mar. 31, 2010
Earnings Per Share:	Note 15.Earnings Per Share: Basic and diluted EPS were calculated using the following: For the Three Months EndedMarch31, 2010 2009 (in millions, except per share data; 2009 revised) Earnings from continuing operations $ 249 $ 603 Earnings and gain from discontinuedoperations, net of income taxes 1,644 59 Net earnings 1,893 662 Noncontrolling interest 10 2 Net earnings attributable to KraftFoods $ 1,883 $ 660 Weighted-average shares for basic EPS 1,614 1,475 Plus incremental shares from assumedconversions of stock options andlong-term incentive plan shares 6 8 Weighted-average shares for diluted EPS 1,620 1,483 Basic earnings per share attributableto Kraft Foods: Continuing operations $ 0.15 $ 0.41 Discontinued operations 1.02 0.04 Net earnings attributable to Kraft Foods $ 1.17 $ 0.45 Diluted earnings per share attributableto Kraft Foods: Continuing operations $ 0.15 $ 0.41 Discontinued operations 1.01 0.04 Net earnings attributable to Kraft Foods $ 1.16 $ 0.45 We exclude antidilutive Kraft Foods stock options from our calculation of weighted-average shares for diluted EPS. We excluded 37.9 million antidilutive stock options for the three months March 31, 2010, and we excluded 24.2 million antidilutive stock options for the three months ended March 31, 2009.

Segment Reporting

Segment Reporting
	3 Months Ended Mar. 31, 2010
Segment Reporting:	Note 16.Segment Reporting: We manufacture and market packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products. We manage and report operating results through three geographic units: Kraft Foods North America, Kraft Foods Europe and Kraft Foods Developing Markets. We manage the operations of Kraft Foods North America and Kraft Foods Europe by product category, and we manage the operations of Kraft Foods Developing Markets by location. Our reportable segments are U.S. Beverages, U.S. Cheese, U.S. Convenient Meals, U.S. Grocery, U.S. Snacks, Canada N.A. Foodservice, Kraft Foods Europe and Kraft Foods Developing Markets. The results from our Cadbury acquisition are reflected within our U.S. Snacks, Canada N.A. Foodservice, Kraft Foods Europe and Kraft Foods Developing Markets segments. Management uses segment operating income to evaluate segment performance and allocate resources. We believe 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 our 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. We exclude certain components of our U.S. pension plan cost from segment operating income because we centrally manage pension plan funding decisions and the determination of discount rate, expected rate of return on plan assets and other actuarial assumptions. Therefore, we allocate only the service cost component of our U.S. pension plan expense to segment operating income. We exclude the unrealized gains and losses on hedging activities from segment operating income in order to provide better transparency of our segment operating results. Once realized, we record gains and losses on hedging activities within segment operating results. Furthermore, we centrally manage interest and other expense, net. Accordingly, we do not present these items by segment because they are excluded from the segment profitability measure that management reviews. Segment data were: For the Three MonthsEndedMarch31, 2010 2009 (in millions; 2009 revised) Net revenues: Kraft Foods North America: U.S. Beverages $ 821 $ 783 U.S. Cheese 845 894 U.S. Convenient Meals 770 735 U.S. Grocery 816 818 U.S. Snacks 1,392 1,197 Canada N.A. Foodservice 1,044 872 Kraft Foods Europe 2,709 1,928 Kraft Foods Developing Markets 2,921 1,752 Net revenues $ 11,318 $ 8,979 For the Three Months Ended March31, 20

Subsequent Events

Subsequent Events
	3 Months Ended Mar. 31, 2010
Subsequent Events:	Note 17. Subsequent Events: We evaluated subsequent events and included all accounting and disclosure requirements related to subsequent events in our financial statements.