1. THE TIGER INSIDE
KELLOGG COMPANY ANNUAL REPORT 2005

2. Net Sales (millions $) Operating Profit (millions $) Cash Flow (a) (millions $) Net Earnings Per Share (diluted) Total Share Owner Return
950 $2.36
924
1,750 856
10,177 $2.14 20%
1,681 19%
9,614 17%
769
1,544 $1.92
1,508 746
8,812 15%
$1.75
8,304
7,548
1,168
18%
Kellogg
$1.16
S&P Packaged
2% 5%
Foods Index
3% -1%
-8%
01 02 03 04 05 01 02 03 04 05 01 02 03 04 05 01 02 03 04 05 01 02 03 04 05
Net sales increased again in Operating profit increased Cash flow was $769 million Earnings per share of $2.36 For the fifth consecutive year,
2005, the fifth consecutive despite significant investment including $400 million in were 10% higher than in Kellogg Company’s total return to
year of growth. in future growth. contributions to benefit plans. 2004. share owners has exceeded that of
the S&P Packaged Foods Index.
Financial Highlights
(dollars in millions, except per share data) 2005 Change 2004 Change 2003 Change
$10,177.2 6% $9,613.9 9% $8,811.5 6%
Net sales
44.9% — 44.9% .5 pts 44.4% -.6 pts
Gross profit as a % of net sales
1750.3 4% 1,681.1 9% 1,544.1 2%
Operating profit
980.4 10% 890.6 13% 787.1 9%
Net earnings
Net earnings per share
2.38 10% 2.16 12% 1.93 9%
Basic
2.36 10% 2.14 11% 1.92 10%
Diluted
769.1 -19% 950.4 3% 923.8 24%
Cash flow (a)
$1.06 5% $1.01 — $1.01 —
Dividends per share
(a) Cash flow is defined as net cash provided by operating activities, reduced by capital expenditure. The Company uses
this non-GAAP financial measure to focus management and investors on the amount of cash available for debt repayment,
dividend distributions, acquisition opportunities, and share repurchase. Refer to Management’s Discussion and Analysis
within Form 10-K for reconciliation to the comparable GAAP measure.

3. In 2005, Kellogg Company delivered another year of strong performance. We met or exceeded our goals while
investing in our brands, our people, and our future. We have a proven, focused strategy and pragmatic operating
principles in Volume to Value and Manage for Cash that keep us focused on the right metrics. All of this, in
combination with our realistic growth targets, drives sustainable and dependable performance. We really do have
The Tiger Inside.
2005 Annual Report Table of Contents
2 Letter to Share Owners 22 Operating Principles
With 2005 sales in excess of $10 billion, Kellogg Company is
8 Global Infrastructure 24 Sustainable Performance
the world’s leading producer of cereal and a leading producer of
10 North American 26 Social Responsibility and K Values
convenience foods, including cookies, crackers, toaster pastries,
Retail Cereal 28 Board of Directors and Officers
cereal bars, frozen waffles, meat alternatives, pie crusts, and ice
12 North American 30 Manufacturing Locations and Brands
cream cones. The Company’s brands include Kellogg’s®, Keebler®,
Retail Snacks
Pop-Tarts®, Eggo®, Cheez-It®, Nutri-Grain®, Rice Krispies®, Murray®,
14 North American Frozen & Form 10-K
Austin®, Morningstar Farms®, Famous Amos®, and KashiTM.
Specialty Channels Corporate & Share Owner Information
Kellogg products are manufactured in 17 countries and
16 Europe
marketed in more than 180 countries around the world.
18 Latin America
20 Asia Pacific

4. To Our Share Owners
As we enter our 100th year, I believe and earnings per share growth for the Revenue Growth. In 2005, we
fourth consecutive year; we gained posted reported revenue growth of
the foundation of Kellogg Company
share in the U.S. ready-to-eat cereal six percent. Our long-term internal
is strong. Our heritage, and focus
category for the sixth consecutive revenue growth target is for low
on health and wellness, are highly
year; and we held or gained category single-digit growth. Internal revenue
relevant to consumers today. There
share in nine of our ten focus busi- growth, which excludes the effect of
is no doubt in my mind that Mr.
nesses outside the U.S. This broad- foreign currency translation, acquisi-
Kellogg would be very proud of this
based growth gives us confidence for tions, divestitures, and differences
wonderful, thriving company and the
the future and proves the viability in the number of shipping days, was
thousands of dedicated Kellogg
of our strategy, operating principles, also six percent. Both of these results
employees who, over the years,
and business model. In 2005, we were significantly greater than our
believed in and nurtured his vision
made significant investment in brand targets and are testament to the
and were guided and inspired by his
building, innovation, and cost-saving strength of our brand-building cam-
values. It is a deep privilege for me
initiatives, which provide us ongoing paigns, the excellent new products
to work for Kellogg Company. With
visibility. introduced during the year, and flaw-
The Tiger Inside and driving us, I have
“Our strategy is aimed
less execution by our employees.
every confidence that our 26,000
at providing sustainable employees and our board of directors RELIABLE GROWTH
rates of performance for will continue our success and will de- We manage our Company for the
liver sustainable, dependable growth. long-term and having realistic perfor-
the foreseeable future.”
mance targets is a core component
Our performance in 2005 was the of our business model. In fact, these
strongest since we implemented our targets provide us the flexibility neces-
focused strategy. In fact, we met or sary to make significant investments
exceeded all of our long-term targets: in the business and are crucial
we exceeded our targets for revenue to our continued success.
2

5. we repurchased $664 million of our
Operating Profit Growth. We con- and only through continuous cash
shares in 2005 and we have a $650
tinuously focus on profitable revenue flow growth can a company generate
million repurchase authorization
growth; our long-term target is for mid increasing value. That is why one of
for 2006.
single-digit internal operating profit our core operating principles, Manage
growth. We achieved this goal and for Cash, focuses the entire organiza-
Share Owner Return. We have had
posted five percent growth in 2005 tion on maximizing cash flow. In
excellent success over the last five
despite increased investment in future 2005, we generated $769 million of
years and this has been reflected in
growth and significantly higher input cash flow including contributions to
our share price. The total return to
costs which affected the entire industry. benefit plans of approximately $400
investors since the end of 2000 has
million, which was approximately
Earnings Growth. Our long-term
been approximately 90%, or a 14%
$200 million more than in 2004.
target is for earnings per share to
compound annual growth rate, signifi-
This amount of cash flow provides
increase at a high single-digit rate.
cantly greater than the industry’s four
us with significant financial flexibil-
We exceeded this goal again in 2005
percent compound annual growth
ity. Since 2001, we have paid down
and posted ten percent growth; this
rate. The Company’s total return in
approximately $2 billion of the debt
was the fourth consecutive year
2005 of negative one percent was
taken on to fund the Keebler
of double-digit earnings per share
dramatically greater than the aver-
acquisition. In recent years we have
growth. This performance primarily
age return of the entire industry,
shifted our focus from debt repay-
resulted from strong revenue growth,
measured by the S&P Packaged Food
ment alone, to a balance between
a focus on cost-containment, lower
index, which declined by eight per-
debt reduction and other uses of cash
interest expense, a lower tax rate, and
cent. So, our total return, again, far
flow. As a result, in 2005, we also
fewer shares outstanding.
exceeded the industry average.
increased the dividend for the first
time in four years and increased the
Cash Flow. Cash flow is the ulti-
share repurchase program. In fact,
mate measure of a company’s success
3

6. globally and responds well to news innovation. For example, our Kashi
THE TIGER INSIDE
Organizational focus is one of in the form of either innovation or brand posted strong double-digit
Kellogg Company’s competitive brand building. We define brand growth in revenues in 2005. We also
advantages. We operate in only a building as advertising and consumer introduced new products such as
few categories and we know them promotion, or any activity that adds Cran-Vanilla Crunch and Toasted
well. We recognize that share owners to the desirability of the brand. It Honey Crunch, which joined the suc-
do not need or want us to diversify cessful Raisin Bran Crunch brand in
does not include price-related pro-
for them; they want us to maximize the U.S. and All-Bran became our fast-
motions, discounts, or coupons, as
the value of our Company through est growing global brand as a result
these activities, while they may drive
superior execution and the genera- of strong innovation including
volume gains in the short-term, do
tion of consistent, dependable rates All-Bran Flakes with Yoghurt in the
not add to the value of the brand or
of growth. To this end, a few years U.K. and in various other countries.
generate sustainable category share
ago we adopted a strategy which Brand building is also a very im-
gains. We performed very well in
“To this end, a few years ago
keeps us focused on the right metrics portant driver of sales growth and
cereal categories around the world in
we adopted a simple strategy
and categories: grow our cereal busi- we made significant investment in
2005 and we gained share in nine of
which keeps us focused on the ness, expand our snack business, and compelling advertising and consumer
our ten focus businesses including the
pursue selected growth opportunities. promotion around the world in 2005.
U.S., the U.K., Canada, and Mexico.
right metrics and categories:
We also continued to encourage the
These businesses represent more than
grow our cereal business, expand
transfer of proven ideas from one
Grow Our Cereal Business. More 80% of sales outside the U.S. In
our snack business, and pursue Kellogg business to another. For
than half of Kellogg Company’s an- many others, where we have signifi-
example, the Special K two-week chal-
nual revenue comes from the ready- cantly greater category share than
selected growth opportunities.”
lenge, which encourages consumers
to-eat cereal category. We have to our nearest competitors, we benefited
to eat Special K cereal twice a day for
win in this important category if the from very strong category growth. In
two weeks, has been very successfully
Company is to succeed. Fortunately, all of the regions we generated sales
adapted by many of our businesses
the cereal category is growing growth through our focus on
4

7. snack business is a logical extension Europe to Latin America to the U.S.
around the world. This program,
of our cereal business as many of our to Australia. We remain very pleased
which was developed in Venezuela,
cereal brands travel easily into snack with the excellent growth posted by
helped Special K become our larg-
categories around the world. So, our snack businesses and see signifi-
est global brand and added to sales
while the cost synergies are obvious, cant potential for further develop-
growth in 2005. We also extended
we have benefited in many other ment, expansion, and growth.
this concept into an All-Bran two-
ways from the combination of these
week challenge which has been a real
global success accompanied by power- complementary businesses. The Pursue Selected Growth Opportunities.
ful advertising campaigns. Using global snack business had another The final part of our strategy is to
concepts that have been developed very successful year in 2005 after an pursue selected growth opportunities.
in different regions helps reduce the equally strong 2004. We continued We do not believe that the Company
time to market and increases the pos- to focus on the right metrics. In all of needs to make a transformational
sibility of success. Cereal remains a the snack businesses, as with cereal, acquisition to remain competitive.
growth category with strong econom- innovation, brand building, and sales Rather, we believe that most large ac-
ics and is a priority for the Company; execution are of primary importance. quisitions can dilute focus and can be a
we are encouraged by our prospects For example, All-Bran bars proved distraction. For these reasons, we look
for 2006 and the years to come. to be an on-trend innovation that to invest capital in small complemen-
continues to post strong sales growth tary acquisitions that add to, and can
Expand Our Snack Business. Our around the world. This product was benefit from, our existing competencies
global snack business is also a very an excellent idea that was developed and brand orientation. For example,
important part of the Company. We in Mexico and that has become a during 2005, we purchased a fruit
expanded the scale of this business a success in many other countries. In snacks plant in Chicago. We entered
few years ago and have worked very addition, Special K bars have been the fruit snacks business in the U.S.
hard recently to drive sales growth and a significant driver of that brand’s in early 2004 and quickly gained the
improve profitability. Expansion of the growth around the world, from number two category share position.
5

8. Purchasing production capabilities and it benefits both the individual from experts in subjects as diverse as
has improved the margin structure and the Company’s results. Conse- category management, innovation,
and has allowed us considerably more quently, we initiated a process in and corporate finance.
flexibility in the innovation process. 2005 designed to strengthen the
entire organization. We also added new affinity groups
This is a very attractive, high-return
as a further development opportuni-
use of capital and we intend to pursue
ty for employees. In addition to the
similar opportunities in the future. Learning and Development.
Through our performance review Kellogg African American Resource
process, each employee is challenged Group, Women of Kellogg, and the
The Employer of Choice.
Having a direct and workable strat- to improve their skills and develop Young Professionals, we supported
egy is simply not enough. We have new strengths. We recognize that this the formation of the Kellogg Multi-
to focus constantly on our employees process is a marathon, not a sprint, national Employee Resource Group,
“We continued to focus on
and their development. As a result, in and are committed to the long-term and ¡HOLA!, the Latino Employee
improvement, we generated
2005, we devoted far more time and success of the program. Improving Resource Group in 2005. These
sales growth and increasing groups provide additional training
increased resources to make Kellogg the corporate identity through inclu-
and networking opportunities and
Company the employer of choice. sion, the formation of affinity groups,
profitability which provided
and extensive training is a multi-year exposure to all parts of the
the flexibility to make greater
organization.
We increased our already strong program. Corporate sponsorship of
investments in future growth.” commitment to diversity and inclu- internal and external training oppor-
tunities received far greater attention Growth. We have spent a consid-
sion in 2005. This improvement was
in 2005 through such programs as erable amount of time aligning the
a direct result of increasing invest-
the Career Development Week. This development of our employees to
ment and our focus on the process.
program, which was open to all the growth strategy of the organiza-
Improving the cohesion of our team
employees, provided internal training tion. Expansion into related
of employees is an ongoing process
6

9. stronger and better positioned. The
categories, new product develop- A number of years ago, we made
core of the leadership team that
ment, and geographical expansion some significant changes to the way
engineered our success remains
all require additional skills and we run the Company. We adopted
unchanged. They, and all 26,000
expertise. Having a process which realistic targets, operating principles
Kellogg employees around the
stresses individual development that concentrated on profitable
world, remain committed to our
enables us to capitalize on any revenue growth and cash flow, and a
values and the successful execution
growth opportunities as they arise focused strategy for growth. As we
of our operating principles
without straining the organization. continued to focus on improvement,
and strategy. We believe that it
In addition, we initiated a Leader- we generated sales growth and
is this dedication that will drive
ship Development program in 2005. increasing profitability which pro-
dependable, sustainable rates of
vided the flexibility to make greater
growth in the future and that
investments in future growth. These
Simplification. Simplification is
makes Kellogg Company an
are processes that have evolved but
one of our core corporate values.
attractive long-term investment.
that remain as relevant today as
Making the development process
We hope you agree and thank you
they were then. Over this period,
understandable and easy to utilize
for your continued support.
we have faced considerable cost
was an essential step. In 2005,
inflation and competitive environ-
we made significant progress in
ments around the world and have
streamlining processes across re-
still managed to meet, and in many
gions and providing easy access to
cases exceed, our long-term targets.
resources for all employees. While
So, as we consider the future, we
we are pleased with our progress, James M. Jenness
remain encouraged and confident. Chairman of the Board
we remain committed to making
We made some difficult decisions Chief Executive Officer
continual improvement.
and the Company has emerged
7

10. Global Infrastructure
David Mackay One of Kellogg Company’s greatest Focus and Brands. Kellogg popular advertising campaign featur-
President
competitive advantages is our global Company competes in relatively few ing William Shatner. This concept
Chief Operating
Officer was then used in various other coun-
infrastructure. Our founder, W.K. categories. In addition, we have been
Kellogg, started the Company almost careful to leverage similar products, tries including the U.K. and Australia.
100 years ago and quickly instituted and more importantly, similar brands
in different regions. This focus Innovation. As many of our brands
a program of geographic expansion.
provides us the opportunity to spread are similar around the world, much
A significant amount of time and
ideas quickly around our businesses. of our successful innovation can also
effort was expended building our
businesses, and the cereal category, For example, advertisements used be introduced in various countries.
We have a number of global brands
around the world. The early adoption successfully in one country can often
including our largest, Special K and
of this growth plan has provided us be used in another as the products
our fastest growing, All-Bran.
with a truly global business today. In and the positioning of the brands are
“A significant amount of time All-Bran has grown so
2005, we posted improved ready-to- similar. This has two benefits: often
eat cereal category share in the U.S. costly programs can be inexpensively
and effort was expended building
and held or gained share in business- tailored to another region, thus low-
our businesses, and the cereal es that account for more than 80% ering overall expenses; and, we can
category, around the world.” of our sales outside the U.S. This utilize already tested and proven
resulted from our increased competi- programs, so the chances of success
tiveness and led to category expan- are greater. For example, our
sion in many regions. This category Mexican business pioneered the
share improvement simply reflects the idea of a health-oriented All-Bran
growth potential we have around two-week challenge. Then our
the world. Canadian business developed a
8

11. global basis, regions that would not we do not yet compete. However, any
successfully, in part, because of good
be able to participate on their own investment will be carefully consid-
innovation. We developed All-Bran
can afford the costs. These partner- ered and we will evaluate the relative
Flakes with yogurt, varieties of which
returns of all potential projects. In-
ships with studios are symbiotic as we
have been introduced in the U.K. and
vesting significant amounts of capital
continental Europe. In addition, we promote the movie in question while
in the hope that a market will develop
have taken these products to Latin increasing our own sales.
is risky, so we will explore alternatives
America and introduced a version in
that are much more cost effective.
the U.S. in early 2006.
We will continue to make addi-
Promotions. In addition to tradi- Growth Potential. While we have
tional investments in those regions
tional advertising, we also execute been investing resources in global
in which we already compete. For
global brand-building programs. In expansion for almost 100 years, we
example, we built a direct-store-door
2005, we ran a Star Wars-themed do still have opportunities for expan-
delivery capability in Mexico in recent
program timed to coincide with the sion and development around the
years. Investment in projects such as
release of Star Wars Episode III, world. Five years ago we decided to
this has a higher risk-adjusted return
Revenge of the Sith. This global pro- limit the resources expended to create
than many others and will continue
motion ran in more than 30 countries categories in emerging markets and
to be a focus for our Company.
and contributed to our strong second to use the funds to invest in our core
quarter results. Programs such as regions. Now, from a much stronger
this bring news to the categories foundation, it is possible for us to con-
and help drive sales. Our global sider additional investment in regions
infrastructure again allows us to with developing categories in which
spread the cost over a broad base. In we already compete and to consider
addition, because we negotiate on a expansion into those regions in which
9

12. North American Retail Cereal
Smart Start Healthy Heart joined
Our North American Retail Cereal positioning and effective support.
business had a very successful year In addition, Kellogg’s Frosted Flakes the Antioxidant and Soy Protein ver-
in 2005. Internal net sales, which benefited from the successful Earn sions already on the market.
exclude the effect of foreign Your Stripes campaign. We also Smart Start Healthy Heart is a
currency translation, acquisitions, benefited from the introduction of great-tasting cereal that helps
divestitures, and different numbers some excellent new products dur- reduce cholesterol and lowers blood
of shipping days, increased by ing the year. Early in the year we pressure. This introduction was also
North American Retail Cereal eight percent after increasing by introduced new Frosted Mini-Wheats supported with strong advertising
two percent in 2004. This result Vanilla Crème which joined the and the product has done very well
was significantly greater than our already popular original version and in the months since its introduction.
“Mini-Wheats is an on- long-term target of low single-digit the maple and brown sugar flavor.
Mini-Wheats is an on-trend brand We introduced two new versions of
growth and also far exceeded the
trend brand which provides
which provides consumers with a our Kellogg’s Crunch cereals to add
growth rate of the broader industry.
consumers with a combination
combination of great taste and to the existing, popular Raisin Bran
This led to U.S. retail cereal category
of great taste and fiber. This fiber. This positioning, in combina- Crunch. While it is still early, we are
share gains of 0.4 points in 2005
tion with an excellent advertising encouraged by the new versions’
after gains of 0.4 points in 2004.*
positioning, in combination
campaign, led to the brand’s strong initial results; the existing Raisin
with an excellent advertising
performance in 2005. Bran Crunch has also performed
In the U.S., many of our exist-
campaign, led to the brand’s well, primarily as a result of a
ing cereal brands, including Mini-
strong performance in 2005.” popular advertising campaign.
Wheats, Kashi, and Raisin Bran We also introduced two new
Crunch, posted good rates of flavors of Mini-Swirlz in 2005 and
sales growth as a result of strong a new version of Smart Start.
* Source: Information Resources, Inc FDM Ex. Wal-Mart. Rolling 52-Week Periods, Ended January 1, 2006
10

13. Finally, shape management con- Mini-Wheats, and strong brand- Cinnamon Harvest cereal in the third
tinues to be a growing segment of building programs. Our business in quarter and increased its focus on
the category and Special K is well Canada faced a very competitive en- hot cereal with the successful launch
positioned to benefit. Consequently, vironment early in the year. However, of Go-Lean hot cereal in the fourth
we introduced a new Special K Fruit we continued to execute our plans for quarter. Kashi is well positioned for
& Yogurt cereal at the end of the the introduction of innovative new future growth in a growing category
second quarter of 2005; this great- products and support via strong brand- and we remain confident regarding
tasting cereal has posted excellent building programs. Our business its potential.
Outlook. Our North American
initial results. It combines Special K responded and we again gained share
Retail Cereal business posted impres-
flakes with clusters of oats and fruit in this region during 2005.
sive internal rates of growth in 2005.
and yogurt-coated clusters. With
While we would never target high
one-half of a cup of fat-free milk, a Our natural and organic Kashi
single-digit rates of internal sales
serving has only 160 calories. brand also had a very good year in
2005. This stand-alone business growth, we are justifiably pleased
that our focus on innovation and
Our Club business posted strong posted double-digit internal sales
brand building led to such strong
double-digit sales growth in 2005 as growth and currently holds U.S.
results. In 2006, we expect that
a result of highly successful product ready-to-eat cereal category share
our internal sales growth will be in
and packaging innovation. of more than two percent. Consum-
ers’ continuing health concerns and line with our long-term target of low
single-digit growth, despite the very
Our Canadian retail cereal busi- desire for convenience also drove
high base set during 2005.
ness also posted very strong internal sales growth in 2005. Kashi has a
growth as a result of new product strong organic presence supported by
introductions, such as maple flavored the launch of Kashi Organic Promise
11

14. North American Retail Snacks
Our North American Retail Snacks increase of 1.7 points since 2004. introduced over the last two years.
business also posted very strong Early in the year we introduced We also introduced new Club Snack
growth in 2005. Internal net sales Cinnamon Roll Pop-Tarts toaster Sticks in 2005. These uniquely-
growth was seven percent; this result pastries, followed by a strawberry shaped crackers are ideal for dips
is more impressive given the eight milkshake flavor at the end of the and have been very well accepted by
percent growth posted in 2004. The second quarter. In addition, Pop-Tarts consumers. We have much more
growth was also greater than our has benefited from a very successful, innovation planned for 2006 and
long-term target and resulted from long-term advertising campaign which look forward to another good year.
North American Retail Snacks
effective innovation, brand building, has increased awareness and added Our wholesome snack business con-
and excellent in-store execution. The to sales growth. tinues to post strong growth, even in a
toaster pastry, cracker, and whole- competitive category. Early in 2004 we
some snack businesses all posted Our cracker business posted strong entered the fruit snack category and
“We have strong brand good rates of growth. The cookie sales growth during the year. A num-
business posted lower sales, although ber of major brands, including our
equity in Keebler and the Hollow
the brands on which we focused largest, Cheez-It crackers, contributed
Tree and we will continue to performed well. to this performance. We introduced
focus on this in the future.” new Cheez-It Fiesta during the sum-
Pop-Tarts toaster pastries continued mer. This corn-based cracker innova-
to post strong results in 2005. tion comes in two distinctive flavors:
Pop-Tarts is a truly unique brand and cheddar nacho and cheesy taco. Both
has generated increased sales in each products did very well in 2005 as did
of the last 26 years. This year the base Cheez-It product in its
Pop-Tarts reached an 86% share* of various flavors and the Cheez-It
the toaster pastry category, an Twisterz products which were
12

15. earned strong category share during and a greater focus on our leading and the introduction of new products,
the first year. In 2005, we followed our brands. We introduced new Fudge including Kashi Chewy Granola bars.
early success with the introduction of Shoppe and Chips Deluxe cookies in
new flavors of the Twistables brand 2005 and we also saw good growth Our Canadian snack business
and new Disney fruit snacks. In addi- from new versions of Sandies and posted sales growth significantly
tion, we launched Fruit Streamers rolled Murray Sugar Free cookies. We have greater than our long-term target in
fruit snacks. strong brand equity in Keebler and 2005. Sales growth was driven by the
the Hollow Tree and we will continue introduction of various new products
We also hold the number one to focus on this in the future. We including a Two Scoops Raisin Bran
category share* in the wholesome have additional innovation planned bar and new Froot Loops Winders
snack bar category with such brands for each of the leading brands in fruit snacks.
as Special K bars, Rice Krispies Treats 2006, as well as additional brand-
squares, Nutri-Grain bars, and All-Bran building programs and a continued Outlook. We expect that internal
bars. Special K bars posted strong focus on strong sales execution. sales in our North America Retail
double-digit sales growth in 2005 and Snacks business will increase at a
were one of our fastest growing prod- The club store business posted low single-digit rate in 2006, even
ucts. In addition, we introduced a new double-digit internal sales growth for after two years of high single-digit
Oatmeal Raisin version of the popular the second consecutive year. This growth. We expect 2006’s growth to
All-Bran bars in 2005. All-Bran bars result was driven by selected innova- be driven by continued strong sales
are a great-tasting source of fiber and tion, increased distribution, and a execution from our direct-store-door
will complement the cereal brand. focus on our most profitable products. delivery system, strong innovation, and
The team developed club-specific effective brand-building campaigns. * Source: Information Resources, Inc. FDM
Ex. Wal-Mart. Rolling 52-Week Periods, Ended
We addressed the current weakness items including differentiated packag-
January 1, 2006.
in the cookie category with innovation ing innovation, new mixes of products,
13

16. North American Frozen and Specialty Channels
The North American Frozen and and half vanilla flavored, new flavors 2006. We have additional innovation
Specialty Channels business, in the of Eggo Toaster Swirlz, and Eggo planned including a new flavor of Flip
aggregate, posted internal net sales Pancake products. Eggo ended the Flop waffles, which will be supported
growth of eight percent in 2005; this year with 32% share of the frozen with a strong advertising campaign.
built on strong four percent growth breakfast category;* this represents We also have a Lego-themed promo-
last year. The growth was driven by an increase of more than one point tion planned for 2006.
strength in the Eggo and Morningstar from 2004. We remain optimistic
Frozen and Specialty Channels lines and the Specialty Channels regarding the outlook for Eggo in
business, which is comprised of the
food service, convenience store, vend-
ing, and drug store businesses.
“The Frozen and Specialty
Channels business, in the Frozen Foods. Our Eggo brand had
aggregate, posted internal net another very successful year. Existing
products such as French Toaster Sticks
sales growth of eight percent
and base Eggo waffles continued to
in 2005; this built on strong
do well, with excellent innovation
four percent growth last year.” helping fuel the growth. During the
year we introduced Flip Flop waffles,
which are half chocolate flavored
* Source: Information Resources, Inc.
FDM Ex. Wal-Mart. Rolling 52-Week
Periods, Ended January 1, 2006
14

17. Morningstar, our frozen vegetarian Both our Drug Channel and Con- partnered with large restaurant
food brand, also posted good results venience Channel businesses posted chains by emphasizing Morningstar
in 2005. We introduced Honey strong internal net sales growth in veggie foods. The success with both
Mustard Chik’n Tenders and a popu- 2005, building on strong growth in casual-themed and quick-service
lar new Meal Starters product during 2004. In these channels, where con- restaurants led to significant net
the year. Meal Starters is different sumers desire convenience, we have sales growth in 2005.
from most veggie food offerings in focused on packaging innovation,
that it is a meat alternative used in new products, and in-store execution.
Outlook. Our Frozen and
the preparation of meals such as Each of these initiatives is good for
Specialty Channels businesses, in
fajitas. Morningstar Meal Starters, our businesses and for our customers.
combination, posted excellent
and new Veggie Bites, vegetable
results in 2005 after strong growth
appetizers planned for introduc- Our Food Away From Home busi-
in 2004. We expect that these
tion in 2006, are targeted at both ness (FAFH) continued its leadership
businesses will post low single-digit
vegetarians and non-vegetarians who position through the introduction of
internal sales growth in 2006, in
recognize the health benefits of a new products, including Cinnamania,
a portfolio of whole grain products line with our long-term targets.
vegetarian lifestyle.
designed for the primary Schools
Specialty Channels. The Spe- business. This has been FAFH’s most
cialty Channels business continued successful product launch in three
its success of recent years in 2005. years and was recognized as best in
Internal sales growth was driven by class by the International Foodservice
strength across the businesses. Distributors Association. In addition,
the FAFH business successfully
15

18. Europe
Our European business posted relatively small base. In Spain, the In 2005, we gained ready-to-eat
internal sales growth of two percent cereal category grew at a double-digit cereal category share in the U.K.,*
in 2005, in line with our long-term rate in 2005. The Company held our largest business in Europe. We
target of low single-digit growth. This a 51% share of the Spanish cereal are very pleased with this result as it
year’s results built on the strong four category in 2005, an increase of 1.0 reflects the success of our brand- build-
percent growth posted last year and points from 2004.* ing and innovation programs in this
are notable as the operating important region. Our internal cereal
Europe
environment in Europe as a whole, sales were essentially unchanged from
and some countries in particular, We initially invested in Italy in 2004 due to competitive activity.
remains challenging. 1967 and currently have a 55% cat- However, a majority of our innovation
egory share.* The breakfast habit is for the year was timed to be intro-
“We introduced numerous new
Many of our businesses in Europe well developed in Italy and the cereal duced later in the year, so
products across Europe in 2005.
performed very well in 2005. Kellogg category is growing far more quickly
Special K Yoghurty in Spain, Company initially invested in south- than the pastry category; pastries
All-Bran with Yoghurt in Italy, ern Europe in the 1960s and 1970s; are the traditional breakfast food. In
certain of these countries had a fact, the cereal category grew eight
and Special K Milk Chocolate
well established breakfast habit, but percent in 2005; we benefited from
and new versions of Coco Pops in
no cereal category. Over time, the this category growth and posted
France were all well received.” Company has developed the category, increased sales as a result of strong
which in some cases today is growing results from effective branding and
at a double-digit rate, albeit from a innovation.
* Source: Information Resources, Inc. Rolling 52-Week Periods, Ended December 2005.
16

19. during 2005 and was a great success. of Europe; this is just one example of
we began to see the benefits in the
In addition, most of the countries in the benefits of global coordination
fourth quarter. Innovation in 2005
Europe participated in the global Star and a global brand portfolio.
included Crunchy Nut Nutty, a new
Wars promotion in the second quarter
version of Coco Pops cereal, and
of 2005. This promotion was very Outlook. While we are never satis-
Special K Purple Berries, which has
successful globally and involved fied, 2005’s performance in Europe
done very well in the short time since
existing brands and products developed was relatively strong and among
its introduction. We also benefited
specifically for the promotion. the best in the industry. That we
throughout the year from some strong
Our snack business across Europe achieved this result after posting
marketing programs supporting both
posted a good rate of growth in excellent growth in 2004 and while
Special K and All-Bran.
2005. Many of the existing products, facing significant headwinds is a
and the new introductions, lever- testament to our focus and strategy.
We also gained share in France and
age our existing cereal brands. For In 2006, we expect to post low
Benelux in 2005,* driven by strong in-
example, Special K bars have been single-digit growth as a result of the
novation and brand-building programs.
enormously successful in the U.K. and introduction of new products and
We introduced numerous new products
across Europe. The snack businesses continued growth from products
across Europe in 2005. Special K
in both Italy and Spain grew at strong introduced late in 2005. In addition,
Yoghurty in Spain, All-Bran with Yoghurt
double-digit rates in 2005 as consum- we expect to benefit from category
in Italy, and Special K Milk Chocolate
ers continued to seek added conve- growth in certain regions and
and new versions of Coco-Pops in
nience and portability. All-Bran bars, effective brand-building programs.
France were all well received. Our new
an idea developed in Mexico, have
Coco Pops Straws product was also in-
also been a success in various parts
troduced in various countries in Europe
17

20. Latin America
Our business in Latin America In Mexico, as with a majority of the from excellent new innovation and
posted internal sales growth of 11% other countries in the region, we strong brand-building programs.
in 2005, significantly greater than benefit from a growing category, Early in the year we introduced an
All-Bran cereal containing flaxseed,
our corporate-wide, long-term target category leading share, and strong
a very popular ingredient in Mexico
of low single-digit growth. This year’s brands and positioning. In Mexico our
due to the health benefits it provides.
double-digit growth also exceeded category share is 71 percent.* While
We followed this with an All-Bran bar
our expectations and built on the category continued to post strong
growth in 2005, we also benefited containing flaxseed in the second
double-digit internal sales growth in
Latin America
both 2003 and 2004. In fact, inter-
nal sales in both our cereal and snack
businesses increased at a double-digit
“ In Mexico, as with a
rate for the full year. Importantly, we
majority of the other countries
gained ready-to-eat cereal category
in the region, we benefit share in much of the region in 2005,
from a growing category, including in Mexico, Venezuela, the
Caribbean, and Colombia.* The
category leading share, and
benefit from these strong share gains
strong brands and positioning.” is significant.
We started our business in Mexico
in 1951 and it now accounts for
most of the business in the region.
* Source: AC Nielsen Data. Rolling 52-Week Periods,
Ended December 2005.
18

21. Special K, Choco Krispies, Extra, products, special packaging, and
quarter and both products have
Zucaritas, and Corn Flakes and saw included in-the-box premiums in many
performed very well. Then, in the
excellent results. Children and parents of the packages.
third quarter, we introduced two fla-
alike love our products for the taste
vors of a new brand of bars, NutriDía,
and the nutritional content. Parents A majority of our other businesses in
containing amaranth. Amaranth is
can take comfort in knowing that Latin America also did very well
another grain favored by consum-
children who eat a breakfast including in 2005. Venezuela, Brazil, and the
ers in Mexico for its health benefits.
cereal have lower body mass indices Caribbean all posted strong
While NutriDía is new, we are
and generally enjoy improved perfor- double-digit internal sales growth. In
encouraged by its early success and
mance at school. Consequently, we many of these other markets in Latin
its potential.
continued to highlight the nutritional America our snacks business also grew
content and fortification of both at very strong rates off a small base.
Also in Mexico, during the year, we
existing and newly introduced
introduced new flavors of Special K
products in 2005. In addition, we Outlook. We again expect that our
bars, a chocolate flavored Special K
supported this year’s strong innova- Latin American business will post mid
cereal, an All-Bran cereal with yogurt,
tion program with health-oriented single-digit sales growth in 2006, even
Nutri-Grain bars, a Choco-Krispies bar,
campaigns for All-Bran with flaxseed after posting double-digit growth in re-
and Kellogg’s Go!, a coffee flavored
and NutriDía. Our Latin American cent years. A combination of category
cereal targeted at adults.
business also participated in the growth, strong innovation and health
global Star Wars promotion. The event news, and excellent brand-building
The Latin American business also
provided an excellent opportunity to support make us confident that we will
significantly increased its investment
increase our retail presence and many reach our targets in 2006.
in brand building during 2005.
of our customers participated. We
We ran programs supporting many
introduced special Star Wars-themed
of our existing brands including
19

22. Asia Pacific
Brown Rice Flakes, and Black Bean
The Asia Pacific region consists of also introduced our largest global
Flakes. The brand has proven to be
businesses in various countries in Asia, brand, Special K, in Japan during
very popular and has already gained
such as Japan and Korea, in combina- 2005. We continued to support new
significant category share. In addi-
tion with the Australian business. Asia and existing brands with significant
tion, our Frosties brand did well and
levels of brand building, including
Pacific posted increased internal sales
our Chex brand posted significant,
a campaign for the new Special K,
of one percent in 2005, driven by inno-
double-digit sales growth for the full
which began late in the year. Our
vation and brand-building programs in
Asia Pacific year, driven, in part, by a highly
Frosties brand posted mid single-digit
each of the constituent countries. This
sales growth in 2005 as a result of
growth built on two percent growth
the introduction of Frosties with
in 2004 and was achieved despite an
Amino Acids and strong brand-
increasingly competitive environment
building programs in conjunction
in the region, a continued difficult
”In Japan, we posted increased with the summer’s Star Wars-
operating environment in Korea, and
category share and we themed promotion.
comparisons to higher-than-targeted
growth in 2004 in Australia.
saw good growth in adult
In Korea, internal net sales
cereal brands such as increased slightly in 2005
In Asia, internal sales increased at
All-Bran and Bran Flakes.“ after a difficult operating
a mid single-digit rate as a result of
environment in 2004. We
growth in each of the region’s constit-
introduced a new brand,
uent countries. In Japan, we posted
Grain Story, in 2005. This
increased category share* and we saw
brand encompasses three
good growth in adult cereal brands
products: Five-Grain Flakes,
such as All-Bran and Bran Flakes. We
20

23. posted slight full-year sales growth in We also committed resources to
effective interactive television advertis-
cereal in 2005. brand building in 2005 in Australia.
ing campaign.
This continued our trend and was
We introduced a broad array of very much in line with our broader
In India, we continued to see excel-
new products during the year includ- corporate operating principles. We
lent double-digit growth, albeit from
ing Guardian Oat Puffs, Crunchy Nut supported many of the new product
a relatively small base. Kellogg’s Corn
Clusters, Just Right Tropical, and new introductions, but also supported ex-
Flakes posted strong growth as the
versions of K-Time bars, Nutri-Grain isting products using health-oriented
result of a nutrition-based advertising
bars, and Special K bars. Most of this programs for All-Bran and Guardian
campaign, the global Star Wars-
innovation launched relatively later and we also saw good growth from
themed promotion, and innovation.
Our Choco brand also posted good in the year. Importantly, cereal share Sultana Bran.
performance as the result of the Star on a range of well-established brands
such as All-Bran, Guardian, and Outlook. We expect to post low
Wars promotion and a strong, differ-
single-digit internal revenue growth
entiated brand-building program. We Sultana Bran increased significantly.
in Asia Pacific in 2006. Continued
now have three brands in India and In addition, we launched into the
emphasis will be placed on innova-
plan to continue our focus on this rapidly growing muesli segment with
very important region in 2006. Be Natural muesli. Full-year growth tion and brand building in the region
for the region included double-digit and we expect to benefit from
sales growth in our business in strong execution.
Our Australian business posted
essentially unchanged internal sales New Zealand.
despite a heightened competitive
* Source: AC Nielsen Data. Rolling 52-Week Periods,
environment during the year. We Ended December 2005.
21

24. Operating Principles
We manage our business using two We now focus on generating gross years; this is significantly more than
operating principles which support profit through cost-saving initiatives, the 33.7% category share* we hold.
the execution of our strategy. The supply chain efficiency programs, We believe that successful innova-
two principles, Volume to Value and and mix improvement. Mix improve- tion is essential for success in all the
Manage for Cash keep our entire ment is the sale of a value-added categories in which we compete. We
organization focused on the right product with a higher retail price, have also been very successful with
metrics: metrics that drive profitable higher gross margin, and higher gross brand-building programs. We have
revenue growth and cash flow. profit in place of a less value-added significantly increased our investment
“ Volume to Value and
Manage for Cash keep our entire
organization focused on the right
metrics: metrics that drive profitable
revenue growth and cash flow.”
Volume to Value. Volume to Value, product. For example, sales of Raisin in this area and sales have responded
the first half of our operational focus, Bran Crunch are preferable to sales accordingly. However, despite these
drives revenue growth, gross profit, and of traditional Kellogg’s Raisin Bran recent increases, the absolute amount
reinvestment. A number of years ago as the revenue and profit from sales spent on advertising by the Com-
our Company measured its success by of Raisin Bran Crunch are higher. pany in 2005 was still less than the
tonnage growth and the incentives in We take the gross profit and invest amount spent ten years ago. This is
place at the time drove managers and it into two main areas: innovation because the Company dramatically
employees to pursue this growth. We and brand building. We have been decreased advertising spending in the
made dramatic changes to this process successful in both areas in recent late 1990s.
four years ago and the improvement years. We currently hold more than
has been significant. 50% share* of sales from all the new Our innovation produces value-
products introduced in the U.S. cereal added products for which the con-
category over the last three sumer is willing to pay more and the
* Source: Information Resources, Inc. FDM
Ex. Wal-Mart. Rolling 52-Week Periods, Ended
January 1, 2006.
22