Altria Group to Spin-off Kraft Foods

01/02/07 The Board of Directors of Altria Group, Inc. has voted to authorize the spin-off of all shares of Kraft Foods Inc. owned by Altria to Altria's shareholders. The distribution of the approximately 89% of Kraft's outstanding shares owned by Altria will be made on March 30, 2007, to Altria shareholders. Altria will distribute approximately 0.7 of a share of Kraft for every share of Altria common stock outstanding as of the record date, based on the number of Altria shares outstanding on that date.

Altria said that the separation of Altria and Kraft will benefit both parties and will achieve the following benefits:

• Enhance Kraft's ability to make acquisitions, including by using Kraft stock as acquisition currency, to compete more effectively in the food industry;

• Allow management of Altria and Kraft to focus more effectively on their respective businesses and improve Kraft's ability to recruit and retain management and independent directors;

• Provide greater aggregate debt capacity to both Altria and Kraft; and

• Permit Altria and Kraft to target their respective shareholder bases more effectively and improve capital allocation within each company.

"I am extremely pleased to announce the spin-off of Kraft today, a major step in our commitment, announced more than two years ago, to deliver superior shareholder value," said Louis C. Camilleri, Altria Chairman and Chief Executive Officer. "I believe that an independent Kraft will enjoy enhanced flexibility to grow its business and be in a substantially stronger position to create enduring shareholder value."

Following Altria Group, Inc.'s announcement regarding the spin-off of Kraft Foods Inc., Kraft's Board of Directors announced changes to its composition, effective March 30, 2007. Camilleri will step down as Chairman of Kraft but, at the request of the Kraft Board, continue to serve on Kraft's Board of Directors. Kraft CEO Irene Rosenfeld will be elected to the additional post of Chairman. Dinyar Devitre and Charles Wall will step down from the Board. A Lead Director will be appointed from among the Board's independent directors.

The news of the spin-off came as Kraft reported mixed fourth-quarter results. Kraft Foods Inc. reported that net revenues decreased 3.0% for the fourth quarter 2006 and increased 0.7% for the full-year, reflecting one less shipping week in 2006 compared to 2005. Having one less week in 2006 negatively impacted reported net revenues by approximately 7 percentage points on the quarter and 2 percentage points on the full year.

"While we've made progress in 2006 on both the top and the bottom lines, the overall turnaround is not broad-based enough and the foundation for sustainable top-tier performance is not yet in place. This is likely to continue into the first half of 2007 as we get the business on a path to predictable growth," said Irene Rosenfeld, Chief Executive Officer.

Net revenues for the fourth quarter declined 3.0% to $9.4 billion. Excluding a negative 1.7 percentage point impact from divestitures, a favorable 1.1 percentage point impact from the United Biscuits Iberia acquisition, and a favorable 1.6 percentage point impact from currency, organic net revenues decreased 4.0%. The decline reflected one less shipping week in 2006. Strong results were generated by biscuits, meats, and powdered beverages in North America; chocolate in EU; and by many categories in Latin America and Eastern Europe.

Product mix improved across all segments, contributing 2.0 percentage points to organic net revenue growth, including gains in sugar-free Crystal Light powdered beverages and strong growth in developing markets. Pricing added 0.3 percentage points to revenue growth and included increases in Latin America, Eastern Europe, and cereals in North America that were partially offset by lower prices related to dairy costs in North America Cheese & Foodservice and increased promotional spending in European coffee.

Total ongoing volume declined 4.4%, reflecting the estimated 7 percentage point impact of one less week in 2006 partially offset by 2 percentage points from the UB Iberia acquisition. A number of products performed well, including Oscar Mayer meats and Nabisco cookies and snack crackers in North America, Milka chocolate in the EU, Jacobs soluble coffee in Russia and Ukraine, and Lacta chocolate in Brazil. Gains by these products were partially offset by product item pruning and the discontinuation of select product lines, primarily in North America Foodservice and in the Canadian ready-to-drink beverage business, as well as by share declines in Maxwell House coffee, Kraft salad dressings and Planters snack nuts.