Creating Our Future Delivering Results By any financial measure, we certainly earned our stripes in 2003. •  Our cash flow* was $924 million in 2003 , once again ahead of our expectations. Driving this cash flow was not only strong earnings growth, but contin- ued improvement in our management of working cap- ital and good discipline on capital expenditure. We have become a far more efficient generator of cash. For the 2001-2003 period, our compound annual growth rate for cash flow was 12%. * Cash flow is defined as cash from operating activities less capital expen- ditures. Refer to Management’s Discussion and Analysis on page 25 for reconciliation to the comparable GAAP measure. •  Our earnings per share grew by 10% in 2003 . This exceeded our high single-digit growth target, and even more impressive was the quality of these earnings. Through productivity initiatives and a favorable shift in our sales mix, we were able to offset the impact of sharply higher costs, especially for raw materials, fuel, and pension and health-care benefits. We also signifi- cantly increased our investment in brand building and innovation, and incurred substantial asset write-offs, im- pairments, and up-front costs related to improving future productivity. This growth amidst reinvestment is another sign of sustainability. For the 2001-2003 period, our compound annual growth rate for EPS was 10%. •  Our net sales increased by 6% in 2003 . Internal net sales growth, which excludes favorable foreign currency translation and the effect of two small divestitures, was a solid 4%. This came on top of a similar gain in 2002. This growth on growth, along with the fact that most of our portfolio shared in this growth, is a sign of sustainability. For the 2001-2003 period, our compound annual growth rate for net sales was 13%; on an internal basis, excluding currency and acquisitons, our growth averaged 3%. •  Our share price increased 11% in 2003 , even as in- vestors shifted toward more economically cyclical sec- tors of the stock market. Importantly, this share-price appreciation outpaced our peer group of large-cap packaged food stocks for the third consecutive year. Including dividends, our total return to share owners was more than 14% in 2003, well ahead of our peers. The performance brought our three-year compound annual return to almost 17%. This exceeds our peer group’s 3% average over that same three-year period, and it is well above the broader S&P 500 stock index, which  declined an average of 4.5%. As good as our 2003 performance was, our goal is not to deliver one year of exceptional results. We believe the best way to create value for you is to deliver consistent, dependable growth, year after year. This means contin- ually enhancing our capabilities and reinvesting in the business. In 2003, we boosted our brand-building investment by approximately 15%. We increased and improved our advertising, and we had a full calendar of promotional campaigns designed to excite consumers. Additionally, our innovation efforts yielded promising new products in all of our businesses. These activities strengthen our brands and create momentum for  the future. We also invested in cost-savings projects. Over the course of 2003, we rationalized capacity in several countries and took steps to reduce overhead. These ef- forts will generate substantial savings in future years, but they required up-front investment in 2003, in the form of asset write-offs and other costs. We also shaped the future by improving our financial flexibility. In 2003, we reduced our debt by more than $550 million. We have now paid down $1.6 billion of debt since the acquisition of Keebler Foods in March 2001. This is an outstanding accomplishment, and one that reflects our focus on the generation of cash flow. We further created financial flexibility in 2003 by again making voluntary contributions to our pension and retiree health-care benefit funds. These contributions raised our funding levels for these financial obligations, and they mitigate future benefits expense.  As good as our 2003 performance was, our goal is not to deliver one year of exceptional results. We believe the best way to create value for you is to deliver consistent, dependable growth, year after year.  Kellogg Company 3