During 2003, we achieved consolidated internal net sales growth of 3.8%, against a strong year-ago growth rate of 4.0%. U.S. net sales in the retail cereal channel increased approximately 7%, as the combination of brand-building activities and innovation drove higher tonnage and improved mix. A modest U.S. cereal price in- crease taken early in 2003 also contributed to the sales increase. Excluding the impact of private-label business divestitures during the past year, internal net sales of our U.S. snacks business (which includes cereal bars and other wholesome snacks, cookies, and crackers) were approximately even with the prior year. The 2003 sales performance of our U.S. snacks business was negatively im- pacted by our strategic decisions to discontinue a low-margin con- tract manufacturing relationship in May 2003 and to accelerate stock-keeping unit (SKU) rationalization, beginning in the second quarter of 2003. In addition to these strategic factors, our U.S. snacks business experienced a decline in cookie sales, which we believe is a result of aggressive price promotion by competitors, a relative lack of innovation and brand-building activities, and cur- rent trends in consumer preferences. While overshadowed during 2003, we believe continued growth in wholesome snacks and sta- ble performance in crackers should offset persisting softness in cookie sales during 2004. Internal net sales for our other U.S. busi- nesses (which include frozen waffles, toaster pastries, natural and vegetarian foods, and food-away-from-home channels) collectively increased approximately 3%. Total international net sales increased over 5% in local currencies, with growth in all geographic segments. Our European operating segment exhibited strong sales and category share performance throughout 2003, benefiting from increased brand-building invest- ment and innovation activities across the region. Internal net sales growth in Latin America was driven by a strong performance by our Mexican business unit in both cereal and snacks. Our other non-U.S. segments, which include Canada, Australia, and Asia, col- lectively delivered solid internal net sales growth, as significant pricing and mix improvements offset the tonnage impact of dis- continuing product lines in Australia and Asia in late 2002. Consolidated internal operating profit increased only 1% during 2003, as significant charges related to cost-saving initiatives par- tially offset solid underlying business growth. U.S. internal operat- ing profit declined nearly 1%, absorbing the majority of the charges, as well as higher commodity, energy, and employee bene- fit costs. International operating profit increased over 6% on a lo- cal currency basis. Brand-building expenditures increased signifi- cantly in all core markets, reaching a double-digit growth rate on a consolidated basis. During 2003, we recorded in selling, general, and administrative expense an impairment loss of $10 million to reduce the carrying value of a contract-based intangible asset. The asset is associated with a long-term licensing agreement principally in the United States and the decline in value was based on the proportionate decline in estimated future cash flows to be derived from the con- tract versus original projections. To position our Company for sustained, reliable growth in earnings and cash flow for the long term, we are undertaking a series of cost-saving initiatives. Some of these initiatives are still in the planning stages and individual actions are being announced as plans are finalized. Major actions implemented in 2003 include a wholesome snack plant consolidation in Australia, manufacturing capacity rationalization in the Mercosur region of Latin America, and plant workforce reduction in Great Britain. Additionally, manu- facturing and distribution network optimization efforts in the Company’s U.S. snacks business have been ongoing since the Company’s acquisition of Keebler in 2001. Taking into account all of these major initiatives, plus other various plant productivity and overhead reduction projects, the Company recorded total charges of approximately $71 million during 2003, comprised of $40 mil- lion in asset write-offs, $8 million for pension settlements, and $23 million in severance and other cash exit costs. These charges were recorded principally in cost of goods sold and impacted the Company’s operating segments as follows (in millions): U.S.-$36, Europe-$21, Latin America-$8, all other-$6. (Refer to Note 3 within Notes to Consolidated Financial Statements for further in- formation on these initiatives.) The cost-saving initiatives that we are undertaking could poten- tially result in a yet-undetermined amount of exit costs and as- set write-offs during 2004. Additionally, we expect to continue with manufacturing network optimization efforts in our U.S. snacks business. The following tables provide an analysis of net sales and operating profit performance for 2002 versus 2001: 2002 compared to 2001 Other United Latin operating Consoli- (dollars in millions) States Europe America (e) Corporate dated 2002 net sales  $5,525.4 $1,469.8 $631.1 $677.8 $ — $8,304.1 2001 net sales $4,889.4 $1,360.7 $650.0 $648.3 $ — $7,548.4 % change - 2002 vs. 2001: Volume (tonnage) .3% — .1% -3.2% — -.2% Pricing/mix 3.8% 2.4% 6.6% 5.6% — 4.2% Subtotal - internal business 4.1% 2.4% 6.7% 2.4% — 4.0% Integration impact (a) .4% — — — — .2% Acquisitions & dispositions (b) 8.5% — — — — 5.5% Foreign currency impact — 5.6% -9.6% 2.2% — .3% Total change 13.0% 8.0% -2.9% 4.6% — 10.0% Kellogg Company 23