Kellogg Company’s 2008 performance demonstrates the fundamental strength of our business model and our capacity to produce sustainable growth even in volatile conditions.

Guided by our K Values, Kellogg employees continued to successfully execute our focused strategy and business model in 2008. As a result, we delivered our seventh consecutive year of growth, despite facing one of the toughest economic environments in decades. In fact, we either met or exceeded all of our sustainable growth targets:

• We posted a 5 percent increase in internal net sales, outperforming our long-term target of low single-digit growth.
• We delivered a 4 percent increase in internal operating profit, meeting our long-term target of mid single-digit growth.
• We generated earnings per share of $2.99, up 8 percent from $2.76 in 2007, solidly meeting our long-term target of high single-digit growth on a currency-neutral basis.

We produced these results by continuing to drive our focused strategy: to win in cereal and expand snacks. During 2008, we met all of our internal sales targets and produced strong, broad-based performance. Our Ready-to-eat cereal business delivered mid single-digit growth, our Snacks business posted high single-digit growth, and our Frozen business also delivered high single-digit growth. Our Foodservice business grew at an impressive mid single-digit rate despite fewer consumers dining out of home due to the weak economy. In addition, we continued to expand our geographic reach through acquisitions in Russia and China, and strengthened our business through acquisitions in two of our core markets, the U.S. and Australia. We also continued to invest in growth opportunities through strong innovation.

Despite difficult economic conditions, we remained true to our Sustainable Growth and Manage for Cash operating principles and delivered another year of growth. Consistent with our Sustainable Growth principle, we drove gross profit dollar growth through price increases, innovation of higher margin products, and implementation of cost-savings initiatives. We invested in innovation and advertising, and delivered price and mix growth.

We also continued to implement our Manage for Cash operating principle. Over the past five years, the combination of our strong earnings, disciplined approach to capital expenditure and sound working capital management drove strong cash flow, giving us the financial flexibility to return cash to our shareowners, fund our retirement plans and continue to invest for sustainable and dependable growth. During 2008, we increased our dividend by 10 percent, and we returned more than $1 billion in cash to shareowners through dividends and share repurchases.

Another important element of our business model is to set realistic growth targets. This encourages our employees to make decisions that support the long-term health of our business. Furthermore, in addition to maintaining an unwavering commitment to brand building and innovation, we keep a constant watch on cost control and savings initiatives, including a multi-year focus on productivity programs and investments that require up-front costs. By remaining true to our proven business model in 2008, we set the stage for continued sustainable and dependable growth into the future.