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.
