FREE ESSAY ON KELLOGGS A MICHIGAN TRADED COMPANY

KELLOGGS A MICHIGAN TRADED COMPANY

Financial Statement Analysis
Executive Summary
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. The year-to-date
operating margin was flat versus the prior year as increased spending on promotional
activities offset the benefits discussed above. This level of spending is consistent with
management's strategy to drive growth through increased marketing investment in the
Company's established cereal markets, as well as supporting the accelerated introduction
of new convenience food products around the world. 
Market measures: The Company is exposed to certain market risks, which exist as a part of
its ongoing business operations and uses derivative financial and 
commodity instruments, where appropriate, to manage these risks. The Company, as a matter
for policy, does not engage in trading or speculative transaction. 
Investment potential: We are pleased to report that the Kellogg Company dividend rose in
1998 for the 42nd consecutive year, with an increase of 5 cents per share to $.92. In
1999 Kellogg's is well positioned to deliver double-digit earnings per share growth
(excluding restructuring and disposition-related charges). We also continued our program
of purchasing Kellogg share, with 1998 purchases totaling $239.7 million. It is currently
offering 80,000 new stock options.
Outlook, Summary, and Conclusions
Outlook for performance, earnings projection: The Company's streamlining initiatives will
continue throughout 1999. The aforementioned overhead activity analysis will be extended
to Europe and Latin America during the first half of 1999. Management believes these
initiatives will result in the elimination of several hundred-employee positions,
requiring separation benefit costs to be incurred. Since the number of employees
affected, their job functions, and their locations have not yet been identified. The
costs that may have resulted are not known yet.
Investment potential: We are pleased to report that the Kellogg Company dividend rose in
1998 for the 42nd consecutive year, with an increase of 5 cents per share to $.92. We
also continued our program of purchasing Kellogg share, with 1998 purchases totaling
$239.7 million.
Credit assessment: counter parties on derivative financial and commodity contracts expose
The Company to credit loss in the event of nonperformance. This credit loss is limited to
the cost for replacing these contracts at current market rates. Management believes that
the probability of such loss is remote.
Summary and conclusion: The seeking out, training, and retention of a diverse, highly
talented workforce is central to Kellogg Company's commitment to be a results-oriented
organization ready for the challenges for the future and focused on creating value for
you, our shareowners.
Bibliography
The Kellogg Company is the world's leading producer of ready-to- Kellogg Company,
incorporated in Delaware in 1922. The subsidiaries that are engaged is the manufacturer
and marketing company of ready-to eat cereal and a leading producer of grain-based
convenience foods, including toaster pastries, frozen waffles, cereal bars, and bagels.
Among the latest new products now arriving on grocery shelves nationwide are Rice
Krispies Treats Squares, Scotcheroos, Nutri-Grain Twists, S'Mores and Pop-Tarts Pastry
Swirls, Cheese & Cherry.
Headquartered in Battle Creek, Michigan, Kellogg Company has a 92-year heritage of
excellence and a reputation for products that provide value and contribute to a healthy
diet. 
The Company's renewed commitment to growth in the marketplace is the primary driver for
our governing long-term shareowner value. Current global investment opportunities are
considerable and require a balancing of future profitable growth with competitive returns
in the near term.
Kellogg products are manufactured in 20 countries on 6 continents and distributed in more
than 160 countries.