Kellogg's Company

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Kellogg's Company
Objective: Our goal in composing a financial statement is to construct the most
comprehensive, thorough document possible, in order to attract investors and to
confirm that we have taken the time to explore as many potential issues for your
business as may arise. Summary of findings: Our level of cereal marketing
investment early in 1998 was not sufficient in the face of extremely competitive
market conditions. This situation hurt our volume performance for much of the
year and, combined with other issues in markets around the world, led to a
decline in both sales and earnings. Nonetheless, we continue to have the utmost
confidence in the future of our grain-based businesses, and we are fully
committed to return to both top-line and bottom-line growth. Appendix # 1-

Market Research Description of firm and its management: Kellogg's products are
manufactured in 20 countries on 6 Continents and distributed in more than 160
countries. Mr. Langbo has been employed by the Kellogg's Company since 1956. He
was named President and Chief Operating Officer in 1990 and became Chairman of
the Board and Chief Executive Officer in 1992. In June of 1998, Mr. Carlos M.

Gutierrez was named President and Chief Operating Officer. The competitive
environment: The Company has experienced intense competition for sales of all of
its principal products in its major markets, both domestically and
internationally. The Company's products compete with advertised and branded
products of a similar nature as well as unadvertised and private label products,
which are typically distributed at lower prices, and generally with other food
products with different characteristics. Principal methods and factors for
competition include new product introductions, product quality, composition, and
nutritional value, price, advertising and promotion. Economic climate and
outlook: Although our 1998 business results were below our performance
expectation, it was a year in which we put in place key elements of a stronger
foundation for future growth. This included investments in new product
development and a complete overhaul of our corporate headquarters and North

American organizational structure. Should suitable investment opportunities of
working capital needs arise that would require additional financing; management
believes that the Company's strong credit rating, balance sheet and earnings
history provide a base for obtaining additional financial resources at
competitive rates and terms. Based on the expectation of cereal volume growth,
and strong results from product innovation and the continued global rollout of
convenience foods, management believes the Company is well positioned to deliver
sales and earnings growth for the full year of 2000. Litigation: The Company is
not a party to any pending legal proceedings, which, if decided adversely, would
be material to the Company on a consolidated basis, nor is any of the Company's
properties or subsidiaries subject to any such proceedings. Appendix #

2-Financial Forecasts Financial overview: Kellogg Company manufactures and
markets ready-to-eat cereal and other grain-based convenience food products,
including toaster pastries, frozen waffles, cereal bars, and bagels throughout
the world. Principal markets for these products include the United States and

Great Britain. Operations are managed via four major geographic areas, North

America, Europe, Asia-Pacific and Latin America-which is the basis of the

Company's reportable operating segment information. The Company leads the global
ready-to-eat cereal category with an estimated 38% annualized share of worldwide
volume. Additionally, the Company is the North American market leader in the
toaster pastry, cereal/granola bar, frozen waffle and per-packaged bagel
categories. During 1998, the Company realized declines in earnings per share
both with and without unusual items. The Company experienced significant
competitive pressure combined with category softness in its major ready-to-eat
cereal markets, to which it responded by accelerating investment in long-term
growth strategies, in clouding product development, technology and efficiency
initiatives. Short-term liquidity: Net cash provided by operating activities was
$719.7 million during 1998, compared to $879.8 million in 1997, with the
decrease due principally to lower earnings and unfavorable working capital
movements. The ratio of current assets to current liabilities was .9 at December

31, 1998 and 1997. Capital structure and long-term solvency: Long-term debt
consists primarily of fixed rate issuances of U.S. and Euro Dollar Notes,
including $900 million due in 2001, $500 million due in 2004, and $200 million
due in 2005. The amount due in 2001 includes $400 million in Notes, which
provide an option to holders to extend the obligation. For an additional four
years at a predetermined interest rate of 5.63% plus the Company's then-current
credit spread. The increase in operating margin for the quarter primarily
reflects manufacturing efficiencies in the U.S. business and reduced overhead
spending as a result of streamlining initiatives in North American and corporate
operations.

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