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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
December 31, 1993 1-4171
KELLOGG COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 38-0710690
STATE OF INCORPORATION I.R.S. EMPLOYER IDENTIFICATION NO.
ONE KELLOGG SQUARE
BATTLE CREEK, MICHIGAN 49016-3599
(Address of Principal Executive Offices)
Registrant's Telephone Number: (616) 961-2000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
Common Stock, $0.25 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of the
registrant (assuming only for purposes of this computation that directors and
executive officers may be affiliates) was $6,132,749,157 as determined by the
March 1, 1994 closing price of $49.625 for one share of common stock on the New
York Stock Exchange.
As of March 1, 1994, 226,904,957 shares of the common stock of the registrant
were issued and outstanding.
Portions of the registrant's definitive Proxy Statement, dated March 22, 1994,
for the Annual Meeting of Stockholders to be held April 22, 1994, are
incorporated by reference into Part III of this Report.
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PART I
ITEM 1. BUSINESS
The Company. Kellogg Company, incorporated in Delaware in 1922, and its
subsidiaries are engaged in the manufacture and marketing of convenience food
products on a worldwide basis. The address of the principal business office of
Kellogg Company is One Kellogg Square, P.O. Box 3599, Battle Creek, Michigan
49016-3599. Unless otherwise indicated by the context, the term "Company" as
used in this report means Kellogg Company, its divisions and subsidiaries.
Principal Products. The Company's products are manufactured in 18 countries
and distributed in more than 150 countries. The principal products of the
Company are ready-to-eat cereals which are produced and marketed in Australia,
Canada, Japan, Mexico, South Africa, South and Central America, South Korea, the
United Kingdom, the United States, Europe and other countries. Ready-to-eat
cereals generally are marketed under the KELLOGG'S(R) name and are sold
principally to the grocery trade through direct sales forces for resale to
consumers and through broker and distribution arrangements in less developed
market areas.
Other Convenience Food Products. In the United States and Canada, in
addition to ready-to-eat cereals, the Company produces or processes and
distributes toaster pastries and frozen waffles. The Company also markets, in
the United States, cereal and granola bars, and markets a variety of other
convenience food products in various locations throughout the world. In March
1994, the Company entered into an agreement to sell the assets of its frozen pie
business to The J.M. Smucker Company.
Raw Materials. Agricultural commodities are the principal raw materials
used in the Company's products. World supplies and prices of such commodities
are constantly monitored, as are government trade policies. The cost of raw
materials used may fluctuate widely due to government policy and regulation,
weather conditions or other unforeseen circumstances. Continuous efforts are
made to maintain and improve the qualities and supplies of raw materials for
purposes of the Company's short-term and long-term requirements.
The principal ingredients in ready-to-eat cereals and cereal and granola
bars produced by the Company in the United States include corn grits, oats,
rice, various fruits, sweeteners, wheat and wheat derivatives. Ingredients are
purchased principally from sources in the United States. In producing toaster
pastries and frozen waffles, the Company may use dairy products, eggs, fruit and
other filling ingredients, flour, shortening and sweeteners, which ingredients
are obtained from various sources. Although the Company enters into some
long-term contracts, the bulk of such raw materials are purchased on the open
market. While the cost of raw materials may increase over time, the Company
believes that it will be able to purchase an adequate supply of such raw
materials as needed.
Raw materials and packaging needed for internationally based operations are
available in adequate supply and are sometimes imported from countries other
than those where used in manufacture.
Cereal processing ovens at major domestic and international facilities are
regularly fueled by natural gas or propane obtained from local utilities or
other local suppliers. Short-term standby propane storage exists at several
plants for use in the event of interruption in natural gas supplies.
Additionally, oil may be used to fuel certain plant operations in the event of
natural gas shortages at various plants or when its use presents economic
advantages.
Trademarks and Technology. The Company's products are marketed under
trademarks owned by the Company. The Company's principal trademarks are its
names and designs related to cereals and convenience food products manufactured
and marketed by the Company. These trademarks include Kellogg's(R), for cereals
and other products of the Company and the names of certain ready-to-eat cereals,
including All-Bran(R), Kellogg's(R) Squares(TM), Apple Jacks(R), Apple Raisin
Crisp(R), Apple Cinnamon Rice Krispies(TM), Bran Buds(R), Kellogg's(R)
Complete(R) Bran Flakes, Cocoa Krispies(R), Common Sense(R), Kellogg's Corn
Flakes(R), Cracklin' Oat Bran(R), Kellogg's(R) Cinnamon Mini-Buns, Crispix(R),
Double Dip Crunch(R), Froot Loops(R), Kellogg's Frosted Bran(TM), Kellogg's
Frosted Flakes(R), Frosted Krispies(R), Frosted Mini-Wheats(R), Fruitful
Bran(R), Fruity
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Marshmallow Krispies(R), Just Right(R), Kenmei(R), Kellogg's(R) Low Fat Granola,
Nut & Honey Crunch(R), Nut & Honey Crunch O's(R), Mueslix(R), Nutri-Grain(R),
Oatbake(R), Pops(R), Product 19(R), Kellogg's(R) Raisin Bran, Rice Krispies(R),
Rice Krispies Treats(TM), Smacks(R) and Special K(R). Additional Company
trademarks are the names of certain combinations of Kellogg's(R) ready-to-eat
cereals, including Handi-Pak(R), Snack-Pak(R), Fun Pak(R), Jumbo(R) and
Variety(R). Other Company trademarks include Kellogg's(R) Corn Flake Crumbs;
Croutettes(R) for herb season stuffing mix; Kellogg's(R) Nutri-Grain(R) for
cereal bars; Pop-Tarts(R) for toaster pastries; Mrs. Smith's(R) for pies and
certain other convenience foods and Old Fashioned(R) for pies; and Eggo(R),
Special K(R) and Nutri-Grain(R) for frozen waffles.
Company trademarks also include depictions of certain animated characters
in conjunction with certain cereals, including Snap!(R) Crackle!(R) Pop!(R) for
Kellogg's(R) Frosted Krispies(R), Fruity Marshmallow Krispies(R) and Rice
Krispies(R); Tony the Tiger(R) for Kellogg's Frosted Flakes(R); Toucan Sam(R)
for Froot Loops(R); Dig 'Em!(R) for Smacks(R); and Coco(TM) for Cocoa
Krispies(R).
The slogan "The Best To You Each Morning"(R), used in connection with the
Company's ready-to-eat cereals, is also an important Company trademark. The
Company's use of the advertising theme "Get A Taste For The Healthy Life"(TM)
represents part of its effort to establish throughout the United States and the
world the concept of a nutritious breakfast.
The Company considers that, taken as a whole, the rights under its various
patents, which expire from time to time, are a valuable asset, but the Company
does not believe that its businesses are materially dependent upon any single
patent or group of related patents. The Company's activities under licenses or
other franchises or concessions are not material.
Seasonality. Ready-to-eat cereals, cereal and granola bars, frozen waffles
and toaster pastries have approximately level demands throughout the year.
Working Capital. The Company generally requires payment for goods sold
eleven days subsequent to the date of invoice, with a 2% discount allowed for
payment within ten days. Receipts from goods sold, supplemented as required by
borrowings, provide for the Company's payment of dividends, capital expansion
and for other operating expenses and working capital needs.
Customers. The Company is not dependent on any single customer or a few
customers for a material part of its sales. Products of the Company are sold
through its own sales forces and through broker and distributor arrangements and
are generally resold to consumers in retail stores, restaurants and other food
service establishments.
Backlog. For the most part, orders are filled within a few days of their
receipt and are subject to cancellation at any time prior to shipment. The
backlog of any unfilled orders at any particular time is not material to the
Company.
Competition. 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 of
competition include, among others, product quality, composition and nutritional
value, price, advertising and promotion. The Company is the world's largest
manufacturer and marketer of ready-to-eat cereals.
Research and Development. Research to support and expand the use of the
Company's existing products and to develop new food products is carried on at
the Company's research laboratories and pilot plant facilities in Battle Creek,
Michigan, and at other plant locations around the world. The Company's
expenditures for research and development were approximately $40 million in
1993, $37 million in 1992 and $35 million in 1991.
Environmental Matters. The Company's facilities are subject to various
foreign, federal, state and local laws and regulations regarding the discharge
of material into the environment and the protection of the
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environment in other ways. The Company is not a party to any material
proceedings arising under these regulations. The Company believes that
compliance with existing environmental laws and regulations will not require
material capital expenditures or otherwise materially affect the financial
condition or the competitive position of the Company. The Company is currently
in substantial compliance with all material environmental regulations affecting
the Company and its properties.
Employees. At December 31, 1993, the Company had approximately 16,150
employees.
Segment and Geographic Information. The Company operates in a single
industry, which is the manufacture and marketing of convenience food products
throughout the world. Net sales and net earnings for the years 1993, 1992 and
1991, and identifiable segment assets and corporate assets, consisting
principally of cash and temporary investments, at the related year-ends are
presented in Note 13 of the financial statements captioned "Operating Segments"
and contained in Item 8 of this Report.
ITEM 2. PROPERTIES
The Company's corporate headquarters and principal research and development
facilities are located in Battle Creek, Michigan.
The Company operates manufacturing plants and warehouses totalling more
than ten million (10,000,000) square feet of building area in the United States
and other countries. The Company's plants have been designed and constructed to
meet its specific production requirements, and the Company periodically invests
money for capital and technological improvements. At the time of its selection,
each location was considered to be favorable, based on the location of markets,
sources of raw materials, availability of suitable labor, transportation
facilities, location of other Company plants producing similar products and
other factors. Manufacturing facilities of the Company in the United States
include five cereal plants and warehouses located in Battle Creek, Michigan;
Lancaster, Pennsylvania; Memphis, Tennessee; Omaha, Nebraska; and San Leandro,
California. Other of the Company's convenience foods are also manufactured in
the United States at various plant locations.
Outside the United States, the Company has additional manufacturing
locations, some with warehousing facilities, in Australia, Canada, Europe,
Japan, Mexico, South Africa, South and Central America and South Korea.
The principal properties of the Company, including its major office
facilities, are held in fee and none is subject to any major encumbrance.
Distribution centers and offices of non-plant locations generally are leased.
The Company considers its facilities generally suitable, adequate and of
sufficient capacity for its current operations.
ITEM 3. LEGAL PROCEEDINGS
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
are any of the Company's properties or subsidiaries subject to any such
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers of the Registrant - The names, ages as of March 1, 1994
and positions of the executive officers of the Company are listed below together
with their business experience. Executive officers are elected annually by the
Board of Directors at the meeting immediately following the Annual Meeting of
Stockholders.
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EXECUTIVE OFFICERS
Arnold G. Langbo
Chairman of the Board, President and Chief Executive Officer..................56
Mr. Langbo has been employed by the Company and certain of its subsidiaries
since 1956. He was named President of the Company's U.S. Food Products Division
in 1978, a Vice President of the Company in 1979, Executive Vice President in
1981 and Group Executive Vice President and President of Mrs. Smith's Frozen
Foods Co., a subsidiary of the Company, in 1983. He was named Executive Vice
President and President, Kellogg International Division, in 1986. He was named
President and Chief Operating Officer in December 1990 and became Chairman of
the Board and Chief Executive Officer on January 1, 1992.
Charles W. Elliott
Executive Vice President - Administration, Chief Financial Officer............62
Mr. Elliott joined the Company as Executive Vice President - Administration
in February 1987. Previously, Mr. Elliott was employed for thirty years by Price
Waterhouse, an independent accounting firm. At Price Waterhouse, he held various
executive positions and most recently managed the tax department in its Chicago
offices and served as a member of its Policy Board. He was named Chief Financial
Officer of the Company in December 1988.
William A. Camstra
Executive Vice President, Area Director - Kellogg Latin America...............61
Mr. Camstra has been employed by the Company and certain of its
subsidiaries since 1956. He has worked in sales and various international
operations of the Company and was named a Vice President and Director of Latin
American Operations in 1983. He was named Executive Vice President of the
Company on January 1, 1992.
Gary E. Costley
Executive Vice President, Area Director - Kellogg North America...............50
Dr. Costley has been employed by the Company since 1970. He was named Vice
President - Public Affairs in 1975, Vice President - Assistant to the President
in 1978, Senior Vice President - Corporate Development in 1980, Senior Vice
President - Science and Quality in 1981, Executive Vice President - Science and
Technology in 1985, Executive Vice President, and President, U.S. Subsidiaries,
in 1986, Executive Vice President and President, U.S. Food Products Division, in
December 1988, and President of Kellogg USA, Inc., a subsidiary of the Company,
in 1992.
Donald G. Fritz
Executive Vice President, Area Director - Kellogg Asia Pacific................46
Mr. Fritz first joined Kellogg Canada Inc., a subsidiary of the Company, in
1979. He has worked in marketing and was named General Manager - Kellogg (Aust.)
Pty. Limited, a subsidiary of the Company, in 1984, and Director of Australasia
in 1989, and a Vice President of the Company in January 1990. He was named
Executive Vice President of the Company on January 1, 1992.
Thomas A. Knowlton
Executive Vice President, Area Director - Kellogg Europe......................47
Mr. Knowlton joined Kellogg Canada Inc. as Senior Vice President - Sales
and Marketing in 1980, became its Executive Vice President in 1981, and its
President and Chief Executive Officer and also a Vice President of the Company
in 1983. In January 1989, he was named Managing Director, Kellogg Company of
Great Britain Limited, a subsidiary of the Company, and continued as a Vice
President of the Company. He was named an Executive Vice President of the
Company on January 1, 1992.
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Donald W. Thomason
Executive Vice President - Corporate Services and Technology..................50
Mr. Thomason has been employed by the Company since 1966 and has worked in
production, plant management, logistics and manufacturing. He was named a Vice
President and Executive Vice President - Operations in the Company's U.S. Food
Products Division in January 1989. He was named Executive Vice President -
Corporate Services and Technology in 1990.
Richard M. Clark
Senior Vice President, General Counsel and Secretary..........................56
Mr. Clark joined the Company as Senior Vice President, General Counsel and
Secretary in September 1989. Prior to joining the Company, Mr. Clark was Vice
President, General Counsel and Secretary of SSMC Inc.
Robert L. Creviston
Senior Vice President - Human Resources.......................................52
Mr. Creviston joined the Company as Vice President - Employee Relations in
1982. He was named Senior Vice President - Human Resources in August 1991.
Daryl R. Schaller
Senior Vice President - Research, Quality and Nutrition.......................50
Dr. Schaller has been employed by the Company since 1972. He was named Vice
President - Director of Research in 1981, Vice President - Corporate Technology
in 1983, Senior Vice President - Science and Technology in 1986, and Senior Vice
President - Research, Quality and Nutrition in January 1990.
Joseph M. Stewart
Senior Vice President - Corporate Affairs.....................................51
Mr. Stewart has been employed by the Company since 1980. He has worked in
foodservice marketing and public affairs, and was named Vice President - Public
Affairs in 1985 and Senior Vice President - Corporate Affairs in 1988.
Charles E. French
Vice President - Finance and Treasurer........................................49
Mr. French has been employed by the Company and various subsidiaries of the
Company since 1966. In 1988, he was named Director - Administration, Kellogg
Company of Great Britain. In 1992, he also became Director - Finance of Kellogg
Europe, and in September 1993, he was named Vice President - Finance and
Treasurer of the Company.
Alan Taylor
Corporate Controller..........................................................42
Mr. Taylor has been employed by the Company and certain of its subsidiaries
since 1982. In 1987, he was named Director - Finance, Kellogg Canada Inc. He
served as Director - Finance of Kellogg (Aust.) Pty. Ltd. from 1988 until 1993.
He became Controller of the Company in August 1993.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information called for by this Item is set forth in Note 12 to the
Consolidated Financial Statements on page F-16 of this Report.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this Item is set forth on page F-1 of this
Report. Such information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto of the Company included in Item 8,
incorporated by reference from Item 14, of this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STRATEGIC AND FINANCIAL OBJECTIVES
Management's primary objective is to increase shareholder value over time.
To achieve this objective, the Company has implemented a long-term business
strategy which focuses on continuing aggressive investment in new cereal
markets, increasing returns on existing investments, maximizing cash flows, and
minimizing the cost of capital through appropriate financial policies. The
success of this strategy is reflected in the Company's superior earnings, return
on equity, total return to shareholders, and its overall strong financial
condition.
GLOBAL MARKETPLACE
Because of its strong global market share leadership, the Company is
uniquely positioned to benefit from the continued increase in cereal consumption
around the world. As of December 31, 1993, the Company's market share was 43%
globally, 38% in North America, 47% in Asia-Pacific, 50% in Europe, and 78% in
Latin America. This favorable positioning in existing markets is accompanied by
leadership in entering new markets with substantial long-term potential. The
Company opened a new cereal plant in Latvia in 1993 and has plants scheduled to
begin production in India in 1994 and in China in 1995. The Company plans to
make its products available to a billion new consumers by early in the next
century, more than doubling its present reach.
Lifestyle and demographic changes in major markets around the world favor a
continued increase in consumption of ready-to-eat cereal, the Company's core
product line. Two particularly important trends are ever-increasing recognition
by consumers around the world of the nutritional value of cereal and the
accelerating move of the "baby boom" generation from young adulthood, where
cereal consumption is relatively low, to middle age, where cereal consumption
grows steadily. The Company believes it has developed the worldwide
infrastructure and financial resources needed to continue its leadership of
category growth.
RESULTS OF OPERATIONS
1993 COMPARED TO 1992
Revenues
The Company's revenues are obtained primarily from the sale of ready-to-eat
cereals in more than 150 countries. The Company has been marketing cereals since
1906 and is the global market share leader by nearly a three-to-one advantage.
Increased revenues are obtained by reaching consumers in both new and developed
markets with products that are both nutritious and superior in quality. The
introduction of new products is vital to the Company's long-term financial
strength. For 1993, the Company introduced 24 new products worldwide.
Despite intense competition, continued recessions in several major markets,
and unfavorable currency movements, worldwide revenues increased by 2% for 1993,
marking the 49th consecutive annual increase. The increase was achieved through
higher selling prices and a 2% increase in cereal volume, being negatively
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impacted by foreign currency movements. Forty percent of all revenues are
derived from outside the United States and are subject to foreign currency
fluctuations. Excluding the negative effects of currency movements, 1993 sales
would have increased 6%. During 1993, sales within the United States rose by 6%
from increased selling prices and volume for both cereal and convenience foods.
1993 European sales, which were significantly affected by unfavorable
foreign currency fluctuations, were down 8%. If the effects of foreign currency
are excluded, European sales would have risen 4%. Sales for other areas grew by
2% from increased volume and higher selling prices, being partially offset by
the negative impact of currency fluctuations. Excluding the effects of negative
currency movements, other area sales would have increased 6%.
Other revenue for 1993 includes a total pre-tax gain of $65.9 million ($.20
per share) from the sale of the Company's British carton-container division
($.10 per share) and its Argentine snack food business ($.10 per share). In
recent years the Company has divested units that do not fit with its long-term
strategic plan. Other deductions for 1993 includes pre-tax charges of $64.3
million ($.18 per share) from the write-down of certain assets in Europe and
North America.
Expenses and profit margins
Cost of goods sold as a percent of sales was 47% for the year, the lowest
in the last decade. Higher selling prices, increased volume, and worldwide
productivity gains in factory operations are among the factors that contributed
to this lower ratio.
Intense global competition requires heavy investment in value-added
marketing. Selling and administrative expense represented 36% of each sales
dollar in 1993. The Company is committed to building strong, long-term brand
franchises through effective advertising.
Gross interest expense, prior to amounts capitalized, increased to $40.4
million for 1993, compared to $33.6 million for 1992. Higher debt levels caused
the increase. The Company expects average borrowing levels and related interest
expense to be slightly higher during 1994.
The Company's effective tax rate was 34.2% for the year, compared to 36.2%
for 1992. The tax rate declined for a number of reasons. Decreased statutory
rates in countries such as Germany, Australia, Canada, and South Africa more
than offset the United States tax rate increase of 1993. The Company's 1994
effective tax rate is expected to be approximately 38%.
For 1993, earnings per share were $2.94 and earnings were $680.7 million,
compared to 1992's earnings per share of $1.81 and earnings of $431.2 million.
Excluding all one-time events for both years, earnings per share were $2.92, up
6% over $2.75 in 1992; and net earnings were $675.5 million, up 3%. Without the
negative impact of foreign currency fluctuations, earnings per share would have
been up 10% and net earnings up 6%.
Geographically, earnings before the cumulative effect of an accounting
change were lower by 1% for the United States and by 1% for Europe, and up 7%
for other areas. Excluding all one-time events for both years, the United States
would have been up 7%, Europe down 9%, and other areas up 2%. Without the
negative impact of foreign currency movements, Europe would have been up 4%
rather than down 9%.
Statement of Financial Accounting Standards 112, "Employers' Accounting for
Postemployment Benefits," was issued in November 1992. This statement had no
material effect on the Company's financial condition or results of operations.
1992 COMPARED TO 1991
Worldwide revenues for 1992 increased 7% to $6.2 billion on the strength of
a 5% gain in cereal volume and higher selling prices. During January 1992, the
Company sold Fearn International Inc., a U.S. foodservice subsidiary. Excluding
1991 sales by Fearn, 1992 sales would have increased by 9% instead of 7%.
Foreign currency fluctuations had a minimal impact on 1992 worldwide revenues.
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Sales within the United States increased by 5%; however, excluding Fearn
sales from 1991, the increase was 8%. This increase resulted from increased
volume coupled with higher selling prices. European sales were up a solid 14%
for the year due to a volume gain of 6% coupled with higher selling prices and
the positive impact of foreign currency fluctuations. Sales for other areas grew
by 6% from improved volume and selling prices, partially offset by negative
foreign currency movements.
Other revenue includes a total pre-tax gain of $58.5 million ($.16 per
share) from the sale of Fearn International Inc. Other deductions includes a
pre-tax charge of $22.4 million ($.05 per share) from the disposition of
convenience foods operations in Canada and other North America assets.
Cost of goods sold as a percent of sales was 48%, compared to 49% in 1991.
Factors such as improved volume, positive inventory management, and improved
factory productivity contributed to the decline. Selling and administrative
expense represented 35% of each sales dollar in 1992, compared to 33% in 1991.
Gross interest expense, prior to amounts capitalized, decreased to $33.6
million, compared to $60.7 million in 1991. Lower interest rates and debt levels
led to the decline. The Company's effective tax rate was 36.2%, compared to
38.4% for 1991. The decline in the rate resulted from lower effective tax rates
in certain international locations.
For 1992, earnings per share were $1.81 and earnings were $431.2 million,
compared to earnings per share of $2.51 and earnings of $606 million in 1991.
Excluding all one-time events and the accounting change, earnings per share were
$2.75, up 10%, and earnings were $657.1 million, up 8%.
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards (FAS) 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This standard requires that the estimated cost of
postretirement benefits, principally health care, be accrued over the period
earned rather than expensed as incurred. The transition effect of adopting FAS
106 on the immediate recognition basis, as of January 1, 1992, resulted in an
after-tax charge of $251.6 million or $1.05 per share.
Geographically, earnings before the cumulative effect of the accounting
change were up 18% for the United States, up 9% for Europe, and down 6% for
other areas. Excluding the sale of Fearn and the one-time asset writeoffs,
United States earnings would have been up 9% and other areas up 5%.
LIQUIDITY AND CAPITAL RESOURCES
The financial condition of the Company remained strong during 1993. Company
operations have historically provided a strong, positive cash flow which, along
with the program of issuing commercial paper and maintaining worldwide credit
facilities, provides adequate liquidity to meet the Company's operational needs.
Cash and cash equivalents totaled $98 million at December 31, 1993, compared to
$126 million at December 31, 1992.
Cash provided by operating activities amounted to $800 million in 1993,
compared to $742 million in 1992 and $934 million in 1991. The Company's current
ratio (current assets over current liabilities) was 1.0:1.0 for 1993 and 1.2:1.0
for 1992.
The Company maintains credit facilities with banking institutions in the
United States and other countries where it conducts business. At year-end, the
Company had $613 million of short-term lines of credit, of which $569 million
were available.
Funds expended for capital improvements in 1993 totaled $450 million,
compared to $474 million in 1992 and $333 million in 1991. In 1994, capital
expenditures are expected to be approximately $400 million as the Company
continues to invest globally in expansion and modernization of its facilities.
The capital program remains focused on producing the highest quality product at
the lowest possible cost.
The Company's debt to total capital ratio was 35% at December 31, 1993,
compared to 21% in 1992. The Company's increased share repurchase program led to
higher debt levels resulting in the higher ratio. The Company continues to enjoy
the highest available debt ratings on both its commercial paper and long-term
debt.
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At December 31, 1993, the Company had on file a "shelf registration" of
$200 million with the Securities and Exchange Commission to provide for the
issuance of debt in the United States. The net proceeds from any offering under
the "shelf" would be added to the Company's working capital and be available for
general corporate purposes.
In October of 1993, the Company issued $265 million Canadian Eurodollar
5-year Notes with a 6.25% interest rate. During 1992, $300 million 5-year Notes
were issued with a 5.9 % interest rate. The first two years of both notes were
swapped into variable rate debt. In March 1992, the Company's $200 million 9.5%
Eurodollar Notes matured.
Notes payable are comprised principally of floating interest rate
obligations that had an average interest rate of 4% in 1993, compared to 6%
during 1992.
Dividends paid per share of common stock rose 10% in 1993, marking the 37th
consecutive year of increase. The trend of increased dividends is expected to
continue in 1994.
During 1993, the Company purchased 9,487,508 shares of its common stock at
an average cost of $58 per share. In 1992, a total of 3,497,000 shares were
purchased at an average cost of $63 per share. Treasury stock purchases were
made under plans authorized by the Company's Board of Directors. At December 31,
1993, an additional $353 million of stock could be purchased through December
1994 under current Board authorization.
LOOKING FORWARD
Management is not aware of any adverse trends that would materially affect
the Company's strong financial position.
Should suitable investment opportunities or working capital needs arise
that would require additional financing, management believes that the Company's
triple A credit rating, strong balance sheet, and history of exceptional
earnings provides a solid base for obtaining additional financial resources at
competitive rates and terms.
The Company is a global market leader backed with a solid financial
infrastructure that provides a competitive advantage. The Company is committed
to long-term earnings per share growth with above average return on equity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in a separate section
of this Report. See Index of Consolidated Financial Statements and Consolidated
Financial Statement Schedules on page F-2 of this Report. Supplementary
quarterly financial data is set forth in Note 12 to the Consolidated Financial
Statements on page F-15 of this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
10
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors -- See the Company's Proxy Statement dated March 22, 1994 for the
Annual Meeting of Stockholders to be held on April 22, 1994, under the captions
"Nominees for Election to the Board of Directors" and "Continuing Directors of
the Company" on pages 5 through 8, which information is incorporated herein by
reference.
Executive Officers of the Registrant -- See "Executive Officers of the
Registrant" under Item 4A at pages 4 through 6 of this Report.
Compliance with Section 16(a) of the Securities Exchange Act -- See the
Company's Proxy Statement, dated March 22, 1994 for the Annual Meeting of
Stockholders to be held on April 22, 1994, at page 23, under the caption
"Compliance with Section 16(a) of the Securities Exchange Act of 1934," which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the Company's Proxy Statement dated March 22, 1994 for the Annual
Meeting of Stockholders to be held on April 22, 1994, under the captions
"Executive Compensation" and "Selected Benefit Plans and Agreements" at pages 9
and 10, 14 through 17, and 20 through 23, which information, except for those
portions captioned "Report of the Compensation Committee on Executive
Compensation" and "Stock Performance Graph," is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the Company's Proxy Statement dated March 22, 1994 for the Annual
Meeting of Stockholders to be held on April 22, 1994, under the caption "Voting
Securities And Ownership Thereof By Certain Persons" at pages 1 through 4, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the Company's Proxy Statement dated March 22, 1994 for the Annual
Meeting of Stockholders to be held on April 22, 1994, under the captions "About
The Board of Directors" at page 10, and "Selected Benefit Plans and Agreements"
at page 22, which information, is incorporated herein by reference.
11
12
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS
ON FORM 8-K
(A)1. CONSOLIDATED FINANCIAL STATEMENTS
The Index of Consolidated Financial Statements is included on page F-2 of
this Report.
(A)2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The Index of Consolidated Financial Statement Schedules is included on page
F-2 of this Report.
(A)3. EXHIBITS
EXHIBIT NO. DESCRIPTION
3.01 Restated Certificate of Incorporation of Kellogg Company, as amended,
incorporated by reference to Exhibit 3.01 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, Commission file number
1-4171.
3.02 Bylaws of Kellogg Company, as amended.
4.01 Indenture dated as of March 1, 1988 between the Company and Bankers Trust
Company, incorporated by reference to Exhibit 4(a) to the Company's
Registration Statement on Form S-3, Commission file number 33-20731.
4.02 Form of Debt Security, incorporated by reference to Exhibit 4(d) to the
Company's Registration Statement on Form S-3, Commission file number 33-20731.
4.03 Supplemental Indenture, dated January 30, 1989, between the Company and Bankers
Trust Company, incorporated by reference to Exhibit B to the Company's Current
Report on Form 8-K, Commission file number 1-4171, dated January 31, 1989.
4.04 Instrument of Resignation, Acceptance and Appointment, dated as of January 31,
1989, between the Company, Bankers Trust Company and NBD Bank, N.A. (formerly
known as National Bank of Detroit), incorporated by reference to Exhibit A to
the Company's Current Report on Form 8-K, Commission file number 1-4171, dated
January 31, 1989.
4.05 Agency Agreement, dated as of January 31, 1989, between NBD Bank, N.A.
(formerly known as National Bank of Detroit) and Bankers Trust Company,
incorporated by reference to Exhibit C to the Company's Current Report on Form
8-K, Commission file number 1-4171, dated January 31, 1989.
10.01 Employment Agreements between the Company and C. W. Elliott, made and entered
into as of January 30, 1987, incorporated by reference to Exhibit 10.02 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1987, Commission file number 1-4171.*
10.02 Kellogg Company Excess Benefit Retirement Plan, incorporated by reference to
Exhibit 10.01 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1983, Commission file number 1-4171.*
10.03 Kellogg Company Supplemental Retirement Plan, incorporated by reference to
Exhibit 10.05 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, Commission file number 1-4171.*
10.04 Kellogg Company Book Value Unit/Share Incentive Plan, incorporated by reference
to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1983, Commission file number 1-4171.*
12
13
EXHIBIT NO. DESCRIPTION
10.05 Kellogg Company 1982 Stock Option Plan, as amended on December 7, 1990,
incorporated by reference to Exhibit 10.07 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990, Commission file number
1-4171.*
10.06 Kellogg Company International Retirement Plan, incorporated by reference to
Exhibit 10.05 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1984, Commission file number 1-4171.*
10.07 Kellogg Company Executive Survivor Income Plan, incorporated by reference to
Exhibit 10.06 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1985, Commission file number 1-4171.*
10.08 Kellogg Company Key Executive Benefits Plan, incorporated by reference to
Exhibit 10.09 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, Commission file number 1-4171.*
10.09 Kellogg Company Key Employee Long Term Incentive Plan, incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, Commission file number 1-4171.*
10.10 Deferred Compensation Plan for Non-Employee Directors.*
21.01 Domestic and Foreign Subsidiaries of the Company, incorporated by reference to
Exhibit 22.01 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, Commission file number 1-4171.
23.01 Consent of Price Waterhouse.
24.01 Powers of Attorney authorizing Richard M. Clark to execute the Company's Form
10-K Annual Report for the fiscal year ended December 31, 1993 on behalf of the
Board of Directors, and each of them.
99.01 Kellogg Company American Federation of Grain Millers Savings and Investment
Plan Form 11-K Annual Report for the fiscal year ended October 31, 1993.
99.02 Kellogg Company Salaried Savings and Investment Plan Form 11-K Annual Report
for the fiscal year ended October 31, 1993.
*A management contract or compensatory plan required to be filed by Item 14(c)
of this report.
THE COMPANY AGREES TO FURNISH TO THE SECURITIES AND EXCHANGE COMMISSION, UPON
ITS REQUEST, A COPY OF ANY INSTRUMENT DEFINING THE RIGHTS OF HOLDERS OF
LONG-TERM DEBT OF THE COMPANY AND ITS SUBSIDIARIES AND ANY OF ITS UNCONSOLIDATED
SUBSIDIARIES FOR WHICH FINANCIAL STATEMENTS ARE REQUIRED TO BE FILED.
THE COMPANY WILL FURNISH ANY OF ITS STOCKHOLDERS A COPY OF ANY OF THE ABOVE
EXHIBITS NOT INCLUDED HEREIN UPON THE WRITTEN REQUEST OF SUCH STOCKHOLDER AND
THE PAYMENT TO THE COMPANY OF THE REASONABLE EXPENSES INCURRED BY THE COMPANY IN
FURNISHING SUCH COPY OR COPIES.
(B) REPORT ON FORM 8-K
No report on Form 8-K was filed during the Company's fourth quarter for the
fiscal year ended December 31, 1993.
13
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 22nd day of March
1994.
KELLOGG COMPANY
/s/ ARNOLD G. LANGBO
By: Arnold G. Langbo
Chairman of the Board
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME CAPACITY DATE
- ------------------------------------------- ------------------------------ -----------------
/s/ ARNOLD G. LANGBO Chairman of the Board, Chief March 22, 1994
Arnold G. Langbo Executive Officer; Director
(Principal Executive Officer)
/s/ CHARLES W. ELLIOTT Executive Vice President, March 22, 1994
Charles W. Elliott Chief Financial Officer;
Director
(Principal Financial Officer)
/s/ ALAN TAYLOR Corporate Controller March 22, 1994
Alan Taylor (Principal Accounting Officer)
Norman A. Brown Director
Claudio X. Gonzalez Director
Gordon Gund Director
William E. LaMothe Director
Russell G. Mawby Director
Ann McLaughlin Director
J. Richard Munro Director
Harold A. Poling Director
Donald Rumsfeld Director
Timothy P. Smucker Director
Dolores D. Wharton Director
By: /s/ Richard M. Clark March 22, 1994
Richard M. Clark
As Attorney-in-Fact
14
15
SELECTED FINANCIAL DATA (ITEM 6)
SUMMARY OF OPERATIONS
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
PER COMMON SHARE DATA
-----------------------
EARNINGS (A) EARNINGS (A)
NET % PRETAX % BEFORE ACCTG % NET % BEFORE ACCTG NET
SALES GROWTH EARNINGS GROWTH CHANGE GROWTH EARNINGS GROWTH CHANGE EARNINGS
-------- ------ -------- ------ ------------ ------ -------- ------ ------------ --------
10-year Compound
Growth Rate 10% 9% 11% 11% 14% 14%
1993 $6,295.4 2 $1,034.1 (3) $680.7 -- $680.7 58 $ 2.94 $ 2.94
1992 6,190.6 7 1,070.4 9 682.8 13 431.2 (29) 2.86 1.81
1991 5,786.6 12 984.2 21 606.0 21 606.0 21 2.51 2.51
1990 5,181.4 11 814.7 22 502.8 19 502.8 7 2.08 2.08
1989 4,651.7 7 667.0 (14) 422.1 (12) 470.2 (2) 1.73 1.93
1988 4,348.8 15 774.7 16 480.4 21 480.4 21 1.95 1.95
1987 3,793.0 14 665.7 13 395.9 24 395.9 24 1.60 1.60
1986 3,340.7 14 586.6 11 318.9 13 318.9 13 1.29 1.29
1985 2,930.1 13 527.4 11 281.1 12 281.1 12 1.14 1.14
1984 2,602.4 9 476.1 7 250.5 3 250.5 3 .84 .84
1983 2,381.1 1 444.0 8 242.7 7 242.7 7 .79 .79
AVERAGE
SHARES
CASH BOOK OUTSTANDING SHAREHOLDERS'
DIVIDENDS VALUE (MILLIONS) EQUITY
--------- ----- -------------- -------------
10-year Compound
Growth Rate 13%
1993 $ 1.32 $7.52 231.5 $ 1,713.4
1992 1.20 8.20 238.9 1,945.2
1991 1.075 8.98 241.2 2,159.8
1990 .96 7.88 241.6 1,901.8
1989 .86 6.70 244.2 1,634.4
1988 .76 6.03 246.4 1,483.2
1987 .64 4.91 247.4 1,211.4
1986 .51 3.63 247.0 898.4
1985 .45 2.77 246.6 683.0
1984 .42 1.98 298.8 487.2
1983 .40 3.20 305.8 977.9
OTHER INFORMATION AND FINANCIAL RATIOS
FINANCIAL RATIOS
---------------------------
PRETAX INTEREST
PROPERTY, CAPITAL TOTAL NUMBER OF CURRENT COVERAGE
NET EXPENDITURES DEPRECIATION ASSETS EMPLOYEES RATIO (TIMES)
--------- ------------ ------------ -------- --------- ------- ---------------
1993 $2,768.4 $449.7 $265.2 $4,237.1 16,151 1.0 27
1992 2,662.7 473.6 231.5 4,015.0 16,551 1.2 33
1991 2,646.5 333.5 222.8 3,925.8 17,017 .9 17
1990 2,595.4 320.5 200.2 3,749.4 17,239 .9 11
1989 2,406.3 508.7 167.6 3,390.4 17,268 .9 10
1988 2,131.9 538.1 139.7 3,297.9 17,461 .9 13
1987 1,738.8 478.4 113.1 2,680.9 17,762 .9 14
1986 1,281.1 329.2 92.7 2,084.2 17,383 1.1 13
1985 1,035.9 245.6 75.4 1,726.1 17,082 1.4 11
1984 856.0 228.9 63.9 1,667.1 17,239 1.1 26
1983 743.2 156.7 62.8 1,467.2 18,293 1.8 64
RETURN ON DEBT TO CASH
AVERAGE TOTAL PROVIDED BY LONG-TERM
EQUITY CAPITAL OPERATIONS DEBT
--------- ------- ----------- ---------
<
1993 37% 35% $ 800.2 $ 521.6
1992 21% 21% 741.9 314.9
1991 30% 18% 934.4 15.2
1990 28% 26% 819.2 295.6
1989 30% 34% 533.5 371.4
1988 36% 32% 492.3 272.1
1987 38% 27% 523.5 290.4
1986 40% 31% 542.7 264.1
1985 48% 38% 449.7 392.6
1984 27% 59% 331.5 364.1
1983 26% 4% 347.1 18.6
- -------------------------
(a) Net earnings for 1992 include a $251.6 million charge ($1.05 per share)
resulting from the adoption of Statement of Financial Accounting Standards
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," as of January 1, 1992. Net earnings for 1989 include a $48.1
million gain ($.20 per share) resulting from the adoption of Statement of
Financial Accounting Standards 96, "Accounting for Income Taxes," as of
January 1, 1989.
F-1
16
KELLOGG COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
Items 8, 14(a) and 14(d)
Index of Consolidated Financial Statements
and Consolidated Financial Statement Schedules
PAGE
-----
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants....................................... F-3
Consolidated Earnings and Retained Earnings for 1993, 1992 and 1991..... F-4
Consolidated Balance Sheet at December 31, 1993 and 1992................ F-5
Consolidated Statement of Cash Flows for 1993, 1992 and 1991............ F-6
Notes to Consolidated Financial Statements.............................. F-7
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II - Amounts Receivable from Employees......................... S-1
Schedule V - Property................................................... S-2
Schedule VI - Accumulated Depreciation of Property...................... S-3
Schedule VIII - Valuation Reserve....................................... S-3
Schedule IX - Short-Term Borrowings..................................... S-4
Schedule X - Supplementary Earnings Statement Information............... S-4
These Consolidated Financial Statement Schedules should be read in
conjunction with the Consolidated Financial Statements included in Item 8.
All other Consolidated financial statement schedules are omitted because
they are not applicable or the required data is shown in the Company's
Consolidated Financial Statements or the Notes thereto.
F-2
17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Kellogg Company
In our opinion, the consolidated financial statements and schedules listed
in the index on page F-2 present fairly, in all material respects, the financial
position of Kellogg Company and its subsidiaries at December 31, 1993 and 1992,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 9 and 10 to the financial statements, the Company
changed its methods of accounting for postretirement benefits other than
pensions and for income taxes during 1992.
PRICE WATERHOUSE
Battle Creek, Michigan
February 4, 1994
F-3
18
KELLOGG COMPANY AND SUBSIDIARIES
CONSOLIDATED EARNINGS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
Net sales................................................... $6,295.4 $6,190.6 $5,786.6
Other revenue (deductions), net........................... (1.5) 36.8 14.6
-------- -------- --------
6,293.9 6,227.4 5,801.2
-------- -------- --------
Cost of goods sold........................................ 2,989.0 2,987.7 2,828.7
Selling and administrative expense........................ 2,237.5 2,140.1 1,930.0
Interest expense.......................................... 33.3 29.2 58.3
-------- -------- --------
5,259.8 5,157.0 4,817.0
-------- -------- --------
Earnings before income taxes and cumulative effect of
accounting change......................................... 1,034.1 1,070.4 984.2
Income taxes.............................................. 353.4 387.6 378.2
-------- -------- --------
Earnings before cumulative effect of accounting change...... 680.7 682.8 606.0
Cumulative effect of change in method of accounting for
postretirement benefits other than pensions -- $1.05 a
share
(net of income tax benefit of $144.6).................. (251.6)
-------- -------- --------
Net earnings -- $2.94, $1.81, $2.51 a share................. 680.7 431.2 606.0
Retained earnings, beginning of year...................... 3,033.9 2,889.1 2,542.4
Dividends paid -- $1.32, $1.20, $1.075 a share............ (305.2) (286.4) (259.3)
-------- -------- --------
Retained earnings, end of year.............................. $3,409.4 $3,033.9 $2,889.1
-------- -------- --------
-------- -------- --------
See notes to consolidated financial statements.
F-4
19
KELLOGG COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31,
----------------------
1993 1992
--------- ---------
(IN MILLIONS)
CURRENT ASSETS
Cash and temporary investments......................................... $ 98.1 $ 126.3
Accounts receivable, less allowances of $6.0 and $6.2.................. 536.8 519.1
Inventories:
Raw materials and supplies........................................... 148.5 167.7
Finished goods and materials in process.............................. 254.6 248.7
Deferred income taxes.................................................. 85.5 66.2
Prepaid expenses....................................................... 121.6 108.6
--------- ---------
Total current assets............................................ 1,245.1 1,236.6
PROPERTY
Land................................................................... 40.6 40.5
Buildings.............................................................. 1,065.7 1,021.2
Machinery and equipment................................................ 2,857.6 2,629.4
Construction in progress............................................... 308.6 302.6
Accumulated depreciation............................................... (1,504.1) (1,331.0)
--------- ---------
Property, net................................................... 2,768.4 2,662.7
Intangible assets...................................................... 59.1 53.3
Other assets........................................................... 164.5 62.4
--------- ---------
Total assets.................................................... $ 4,237.1 $ 4,015.0
--------- ---------
--------- ---------
CURRENT LIABILITIES
Current maturities of long-term debt................................... $ 1.5 $ 1.9
Notes payable.......................................................... 386.7 210.0
Accounts payable....................................................... 308.8 313.8
Accrued liabilities:
Income taxes......................................................... 65.9 104.1
Salaries and wages................................................... 76.5 78.0
Advertising and promotion............................................ 233.8 228.0
Other................................................................ 141.4 135.2
--------- ---------
Total current liabilities....................................... 1,214.6 1,071.0
Long-term debt......................................................... 521.6 314.9
Nonpension postretirement benefits..................................... 450.9 407.6
Deferred income taxes.................................................. 188.9 184.6
Other liabilities...................................................... 147.7 91.7
SHAREHOLDERS' EQUITY
Common stock, $.25 par value
Authorized: 330,000,000 shares
Issued: 310,292,753 shares in 1993 and 310,193,228 in 1992........... 77.6 77.5
Capital in excess of par value......................................... 72.0 69.2
Retained earnings...................................................... 3,409.4 3,033.9
Treasury stock, at cost: 82,372,409 and 72,874,738 shares.............. (1,653.1) (1,105.0)
Minimum pension liability adjustment................................... (25.3)
Currency translation adjustment........................................ (167.2) (130.4)
--------- ---------
Total shareholders' equity...................................... 1,713.4 1,945.2
--------- ---------
Total liabilities and shareholders' equity...................... $ 4,237.1 $ 4,015.0
--------- ---------
--------- ---------
See notes to consolidated financial statements.
F-5
20
KELLOGG COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
(IN MILLIONS)
OPERATING ACTIVITIES
Net earnings..................................................... $ 680.7 $ 431.2 $ 606.0
Items in net earnings not requiring (providing) cash:
Cumulative effect of accounting change......................... 251.6
Depreciation................................................... 265.2 231.5 222.8
Pre-tax gain on sale of subsidiaries........................... (65.9) (58.5)
Deferred income taxes.......................................... 8.7 9.7 (5.4)
Other.......................................................... (19.1) 25.1 16.8
Change in operating assets and liabilities:
Accounts receivable............................................ (17.7) (99.1) 10.2
Inventories.................................................... 13.3 (15.3) (41.4)
Prepaid expenses............................................... (32.3) (0.9) (22.9)
Accounts payable............................................... (5.0) 24.0 42.7
Accrued liabilities............................................ (27.7) (57.4) 105.6
------- ------- -------
NET CASH PROVIDED FROM OPERATING ACTIVITIES................. 800.2 741.9 934.4
------- ------- -------
INVESTING ACTIVITIES
Additions to properties.......................................... (449.7) (473.6) (333.5)
Proceeds from sale of subsidiaries............................... 95.6 115.0
Property disposals............................................... 19.0 18.8 25.2
Other............................................................ (25.1) (10.6) (11.6)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES....................... (360.2) (350.4) (319.9)
------- ------- -------
FINANCING ACTIVITIES
Borrowings of notes payable...................................... 468.2 192.3 182.1
Reduction of notes payable....................................... (291.5) (170.7) (274.0)
Issuance of long-term debt....................................... 208.3 311.7 4.3
Reduction of long-term debt...................................... (1.7) (270.2) (126.0)
Issuance of common stock......................................... 2.9 13.4 17.7
Purchase of treasury stock....................................... (548.1) (224.1) (83.6)
Cash dividends................................................... (305.2) (286.4) (259.3)
Other............................................................ 2.9 11.4 1.1
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES....................... (464.2) (422.6) (537.7)
------- ------- -------
Effect of exchange rate changes on cash.......................... (4.0) (20.6) 0.7
------- ------- -------
Increase (decrease) in cash and temporary investments............ (28.2) (51.7) 77.5
Cash and temporary investments at beginning of year.............. 126.3 178.0 100.5
------- ------- -------
CASH AND TEMPORARY INVESTMENTS AT END OF YEAR............... $ 98.1 $ 126.3 $ 178.0
------- ------- -------
------- ------- -------
See notes to consolidated financial statements.
F-6
21
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Kellogg
Company and its wholly owned subsidiaries. Intercompany balances and
transactions are eliminated.
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
Cash and temporary investments
Highly liquid temporary investments with original maturities of less than
three months are considered to be cash equivalents. The carrying amount
approximates fair value.
Inventories
Inventories are valued at the lower of cost (principally average) or
market.
Property
Fixed assets are recorded at cost and depreciated over estimated useful
lives using straight-line methods for financial reporting and accelerated
methods for tax reporting. Interest cost capitalized as part of the construction
cost of capital assets amounted to $7.1 million in 1993, $4.4 million in 1992,
and $2.4 million in 1991.
Intangible assets
Intangible assets consist principally of the underfunded amount of certain
pension plans.
Notes payable and long-term debt
The carrying amounts of the Company's notes payable, long-term debt, and
other financial instruments approximate fair value. The fair values are based
primarily on quoted market prices.
Net earnings per share
Net earnings per share is determined by dividing net earnings by the
weighted average number of common shares outstanding. All per share amounts have
been restated to reflect the two-for-one stock split, effective December 4,
1991.
NOTE 2 -- LEASES
Operating leases generally are for equipment and warehouse space. Rent
expense on all operating leases, which generally are renewable at the Company's
option, amounted to $46.8 million in 1993, $42.4 million in 1992, and $39.3
million in 1991. There are no significant future minimum rental commitments
under non-cancelable leases.
NOTE 3 -- RESEARCH AND DEVELOPMENT
Research and development costs charged to earnings approximated $39.8
million in 1993, $36.6 million in 1992, and $34.7 million in 1991.
F-7
22
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- DIVESTITURES AND OTHER NONRECURRING ITEMS
All gains from divestitures and nonrecurring charges are recorded in other
revenue (deductions). None of the divestitures are significant to the Company's
consolidated revenues and earnings.
During 1993, the Company recognized a pre-tax gain of $32.2 million ($.10
per share) from the sale of Cereal Packaging Ltd., a wholly owned subsidiary of
Kellogg Company of Great Britain, Limited., and a pre-tax gain of $33.7 million
($.10 per share) from the sale of the Argentine snack food business. During
1992, the Company sold Fearn International Inc., a foodservice subsidiary,
resulting in a pre-tax gain of $58.5 million ($.16 per share).
During 1993, the Company recognized pre-tax charges of $64.3 million ($.18
per share) from the write-down of certain assets in Europe and North America.
For 1992, other deductions includes a pre-tax charge of $22.4 million ($.05 per
share) from the disposition of convenience foods operations in Canada and other
North America assets.
NOTE 5 -- SHAREHOLDERS' EQUITY
On December 3, 1991, shareholders approved an increase in the authorized
shares of common stock from 165 million to 330 million and approved a
two-for-one stock split to shareholders of record on December 4, 1991. The
stated par value per share of common stock was not changed from $.25. All share
and per share amounts have been restated to retroactively reflect the stock
split.
In 1993, the Company purchased 9,487,508 shares of its common stock at an
average cost of $58; in 1992, purchased 3,497,000 shares at an average cost of
$63; and in 1991, purchased 1,515,600 shares at an average cost of $52. All
purchases are included in treasury stock. A summary of shareholders' equity is
shown on the following page.
F-8
23
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Most effects of exchange rate changes are reflected as a currency
translation adjustment in shareholders' equity. Exchange adjustments
attributable to operations in highly inflationary economies are reflected in
earnings along with those adjustments related to foreign currency transactions
that affect cash flows.
(A)MINIMUM
CAPITAL IN PENSION CURRENCY
COMMON EXCESS OF RETAINED TREASURY LIABILITY TRANSLATION
STOCK PAR VALUE EARNINGS STOCK ADJUSTMENT ADJUSTMENT
------ ---------- -------- --------- ---------- ----------
(IN MILLIONS)
Balance, January 1, 1991........... $38.6 $ 81.2 $2,542.4 ($797.3) $ 36.9
Stock options exercised.......... 0.1 17.7
Two-for-one stock split.......... 38.7 (38.7)
Net earnings..................... 606.0
Dividends........................ (259.3)
Exchange adjustments............. (22.9)
Treasury stock purchased......... (83.6)
------ ---------- -------- --------- ---------- ----------
Balance, December 31, 1991......... 77.4 60.2 2,889.1 (880.9) 14.0
Stock options exercised.......... 0.1 9.0
Net earnings..................... 431.2
Dividends........................ (286.4)
Exchange adjustments............. (144.4)
Treasury stock purchased......... (224.1)
------ ---------- -------- --------- ---------- ----------
Balance, December 31, 1992......... 77.5 69.2 3,033.9 (1,105.0) (130.4)
Stock options exercised.......... 0.1 2.8
Net earnings..................... 680.7
Dividends........................ (305.2)
Exchange adjustments............. (36.8)
Minimum pension liability
adjustment.................... ($25.3)
Treasury stock purchased......... (548.1)
------ ---------- -------- --------- ---------- ----------
Balance, December 31, 1993......... $77.6 $ 72.0 $3,409.4 ($1,653.1) ($25.3) ($ 167.2)
------ ---------- -------- --------- ---------- ----------
------ ---------- -------- --------- ---------- ----------
- -------------------------
(a) Refer to Note 8 for an explanation of the minimum pension liability
adjustment.
NOTE 6 -- DEBT
Notes payable consist of borrowings in the United States of $352.9 million
at 3.2% at December 31, 1993, and $148.3 million at 3.4% at December 31, 1992,
and bank loans of foreign subsidiaries at competitive market rates. The majority
of the borrowings within the United States are commercial paper which has the
highest debt rating available. The Company has credit agreements providing for
borrowing an aggregate of approximately $613 million on an unsecured basis, $569
million of which was unused at December 31, 1993.
As of January 1, 1992, the Company had on file a "shelf registration" of
$300 million of debt securities with the Securities and Exchange Commission.
Under this registration statement, the Company issued $300 million of 5.9% notes
in July 1992. In August 1993, the Company filed a $200 million "shelf
registration" with the Securities and Exchange Commission which remains unused
at December 31, 1993.
F-9
24
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of long-term debt follows.
1993 1992
------ ------
(IN MILLIONS)
5.9% Five-Year Notes due 1997(a)............................................ $299.4 $299.1
6.25% Five-Year Canadian Eurodollar Note due 1998(a)........................ 200.0
Other....................................................................... 23.7 17.7
------ ------
523.1 316.8
Less current maturities..................................................... (1.5) (1.9)
------ ------
Balance, December 31,.................................................. $521.6 $314.9
------ ------
------ ------
- -------------------------
(a) The 6.25% Canadian Eurodollar Notes were issued in October 1993. The first
two years of both five-year notes were swapped into variable rate debt,
indexed to the London Interbank Offered Rate.
Principal payments are due as follows (in millions): 1995 -- $2; 1996 --
$2; 1997 -- $302; 1998 -- $207.
Interest paid, net of amounts capitalized, approximated interest expense in
each of the three years ended December 31, 1993.
NOTE 7 -- STOCK OPTIONS
In 1991, shareholders approved the adoption of the Key Employee Long-Term
Incentive Plan. The plan provides for benefits to be awarded in the form of
stock options, performance shares, performance units, incentive stock options,
restricted stock awards, and other stock-based awards. Under this plan, options
are granted at the fair market value of the Company's common stock at the time
of grant. Such options are exercisable when granted and expire ten years from
date of grant. The plan also contains a reload option feature. When Company
stock is surrendered to pay for the exercise price of a stock option, the holder
of the option is granted a new option for the number of shares surrendered. For
all options reloaded, the expiration date is not changed, but the option price
becomes the fair market value of the Company's stock on the date the new reload
option is granted.
Options for 10,756,690 and 10,620,578 shares were available for grant at
January 1, 1993, and December 31, 1993, respectively. A summary of transactions
under the plan follows.
SHARES AVERAGE PRICE
--------- -------------
Under option, January 1, 1992...................................... 1,526,972 $ 40.72
Granted.......................................................... 1,569,150 61.83
Exercised........................................................ 1,181,640 48.12
Cancelled........................................................ 5,100 25.99
--------- -------------
Under option, December 31, 1992.................................... 1,909,382 $ 52.92
Granted.......................................................... 848,885 62.40
Exercised........................................................ 293,494 45.46
Cancelled........................................................ 30,186 59.10
--------- -------------
Under option, December 31, 1993.................................... 2,434,587 $ 56.95
--------- -------------
--------- -------------
NOTE 8 -- PENSION BENEFITS
The Company has a number of U.S. and worldwide pension plans to provide
retirement benefits for its employees. Benefits for salaried employees are
generally based on salary and years of service, while union employee benefits
are generally a negotiated amount for each year of service. Plan funding
strategies are
F-10
25
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
influenced by tax regulations. Plan assets consist primarily of equity
securities with smaller holdings of bonds, real estate, and other investments.
Pension expense includes the following components.
1993 1992 1991
------ ------ ------
(IN MILLIONS)
Service cost........................................................ $ 24.9 $ 23.7 $ 23.6
Interest cost....................................................... 57.8 57.2 52.9
Actual (return) loss on plan assets................................. (76.3) (22.8) (88.0)
Net amortization and deferral....................................... 26.7 (27.3) 42.3
------ ------ ------
Pension expense -- Company plans.................................... 33.1 30.8 30.8
Pension expense -- multi-employer plans............................. 3.1 1.5 1.6
------ ------ ------
Total pension expense........................................ $ 36.2 $ 32.3 $ 32.4
------ ------ ------
------ ------ ------
The reconciliation of the funded status of the plans at year-end follows.
UNDERFUNDED OVERFUNDED
---------------- ----------------
1993 1992 1993 1992
------ ------ ------ ------
(IN MILLIONS)
Accumulated benefit obligation:
Nonvested................................................. $ 35.3 $ 23.8 $ 26.9 $ 18.1
Vested.................................................... 288.8 229.3 322.3 266.8
------ ------ ------ ------
Total....................................................... 324.1 253.1 349.2 284.9
Projected salary increases.................................. 13.8 12.3 86.3 85.0
------ ------ ------ ------
Projected benefit obligation................................ 337.9 265.4 435.5 369.9
Plan assets at fair value................................... 279.5 214.3 404.4 362.0
------ ------ ------ ------
Assets (less) greater than projected benefit obligation..... (58.4) (51.1) (31.1) (7.9)
Unrecognized net (gain) loss................................ 41.3 6.5 25.7 8.8
Unrecognized transition amount.............................. 19.3 22.0 (14.6) (18.1)
Unrecognized prior service cost............................. 46.3 30.7 21.3 21.7
Minimum liability adjustment................................ (96.0) (50.8)
------ ------ ------ ------
Prepaid (accrued) pension................................... ($47.5) ($42.7) $ 1.3 $ 4.5
------ ------ ------ ------
------ ------ ------ ------
The 1993 projected benefit obligation was impacted by plan improvements
that covered most U.S. employees.
All gains and losses are recognized over the average remaining service
period of active employees.
The unfunded liability in excess of the unamortized prior service cost and
the net transition obligation was recorded as a reduction in Shareholders'
Equity of $25.3 million, net of tax, as of December 31, 1993. Intangible assets
included $56.9 million as of December 31, 1993, and $50.8 million as of December
31, 1992, relating to the underfunded pension plans.
The weighted averages for all worldwide plans of the actuarially assumed
discount rate, long-term rate of compensation increase, and long-term rate of
return on plan assets were 7.9, 5.4, and 9.5 percent in 1993; 9.2, 6.7, and 9.6
percent in 1992; and 9.3, 6.8, and 9.7 percent in 1991, respectively.
The Company and certain of its subsidiaries sponsor 401K plans for some
active employees. These costs are not significant.
F-11
26
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- NONPENSION POSTRETIREMENT BENEFITS
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards (FAS) 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This standard requires that the estimated cost of
postretirement benefits, principally health care, be accrued over the period
earned rather than expensed as incurred.
The transition effect of adopting FAS 106 on the immediate recognition
basis, as of January 1, 1992, resulted in a charge of $251.6 million ($1.05 per
share) to 1992 earnings, net of approximately $144.6 million of income tax
benefit. The Company adopted FAS 106 on a worldwide basis; however, costs
associated with subsidiaries outside of the United States are insignificant.
The Company's U.S. subsidiaries provide health care and certain other
benefits to substantially all retired employees, their covered dependents, and
beneficiaries. Generally, employees are eligible for these benefits when one of
the following service/age requirements are met: 30 years and any age; 20 years
and age 55; 5 years and age 62. Net periodic postretirement benefit cost
includes the following components.
1993 1992
----- -----
(IN MILLIONS)
Service cost................................................... $12.1 $10.9
Interest cost.................................................. 38.6 34.9
Net amortization and deferral.................................. 1.0
----- -----
Net periodic postretirement benefit cost....................... $51.7 $45.8
----- -----
----- -----
Actuarial assumptions used to determine the accumulated postretirement
benefit obligation include a discount rate of 7.75% for 1993 and 9.0% for 1992.
The assumed health care cost trend was 9.5% for 1993, decreasing gradually to
5.25% by the year 2003 and remaining at that level thereafter. These trend rates
reflect the Company's prior experience and management's expectation that future
rates will decline. Increasing the assumed health care cost trend rates by 1
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1993 by $70.4 million and net periodic
postretirement benefit cost for 1993 by $8.5 million. All gains and losses are
recognized over the average remaining service period of active plan
participants. The Company's postretirement healthcare plans currently are not
funded.
The following table sets forth the plans' combined status with the amount
included in the consolidated balance sheet at year-end.
1993 1992
------ ------
(IN MILLIONS)
Accumulated benefit obligation:
Retirees................................................... $251.7 $211.2
Active plan participants................................... 265.0 227.9
------ ------
516.7 439.1
Unrecognized experience loss................................. (47.2) (14.3)
Unrecognized prior service cost.............................. (0.5)
------ ------
Accrued postretirement benefit cost.......................... $469.0 $424.8
------ ------
------ ------
NOTE 10 -- INCOME TAXES
Effective January 1, 1992, the Company adopted FAS 109, "Accounting for
Income Taxes." This standard requires the use of the asset and liability
approach for financial accounting and reporting of income taxes. The Company
previously accounted for income taxes in conformity with FAS 96. The effect of
the accounting change was not material except for allowing recognition of the
tax benefit associated with the
F-12
27
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
cumulative effect of adopting FAS 106 (refer to Note 9). The following table
summarizes the provision for U.S. federal, state, and foreign taxes on income.
1993 1992 1991
-------- -------- --------
(IN MILLIONS)
Earnings before income taxes and cumulative effect of
accounting change:
United States................................................ $ 703.3 $ 727.3 $ 626.0
Foreign...................................................... 330.8 343.1 358.2
-------- -------- --------
$1,034.1 $1,070.4 $ 984.2
-------- -------- --------
-------- -------- --------
Income taxes:
Currently payable:
Federal................................................... $ 233.0 $ 226.8 $ 191.0
State..................................................... 38.0 27.8 26.8
Foreign................................................... 104.7 132.9 136.1
-------- -------- --------
375.7 387.5 353.9
-------- -------- --------
Deferred:
Federal................................................... (19.4) (4.2) 7.9
State..................................................... (2.2) (1.0) 2.0
Foreign................................................... (0.7) 5.3 14.4
-------- -------- --------
(22.3) 0.1 24.3
-------- -------- --------
Total income taxes...................................... $ 353.4 $ 387.6 $ 378.2
-------- -------- --------
-------- -------- --------
The difference between the U.S. federal statutory tax rate and the
Company's effective rate is as follows.
1993 1992 1991
---- ---- ----
U.S. statutory rate....................................................... 35.0% 34.0% 34.0%
Foreign rates varying from 35%............................................ (1.5) 1.2 1.9
State income taxes, net of federal benefit................................ 2.2 1.7 1.9
Other..................................................................... (1.5) (0.7) 0.6
---- ---- ----
Effective income tax rate.......................................... 34.2% 36.2% 38.4%
---- ---- ----
---- ---- ----
F-13
28
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The deferred tax assets and deferred tax liabilities recorded on the
balance sheet as of year-end are as follows.
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
---------------- ----------------
1993 1992 1993 1992
------ ------ ------ ------
(IN MILLIONS)
Current:
Promotion and advertising................................. $ 53.4 $ 34.1
Wages and payroll taxes................................... 10.7 10.8
Pension................................................... $ 9.0 $ 10.7
Health and postretirement benefits........................ 13.0
State and property taxes.................................. 9.6 7.8 6.8 6.6
Other..................................................... 17.8 26.8 4.8 4.4
------ ------ ------ ------
104.5 79.5 20.6 21.7
------ ------ ------ ------
Noncurrent:
Depreciation and asset disposals.......................... 12.1 304.5 302.9
Postretirement benefits................................... 157.4 155.1 13.8
Capitalized interest...................................... 27.1 26.9
State taxes............................................... 8.0 5.3 15.7
Other..................................................... 6.2 7.6 13.1 7.1
------ ------ ------ ------
183.7 168.0 358.5 352.6
------ ------ ------ ------
Total deferred taxes................................... $288.2 $247.5 $379.1 $374.3
------ ------ ------ ------
------ ------ ------ ------
At December 31, 1993, $1,145 million of foreign subsidiary earnings was
considered permanently invested in those businesses. Accordingly, U.S. income
taxes have not been provided for such earnings. If all these earnings were
remitted, foreign withholding taxes would amount to $54 million.
Cash paid for income taxes was as follows (in millions): 1993 - $425; 1992
- -$361; 1991 - $334.
NOTE 11 -- FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
The Company enters into foreign exchange contracts to hedge against the
adverse impacts of fluctuations of foreign currency-denominated receivables,
payables, and other commitments. Foreign exchange contracts generally have
maturities of six months or less and are entered into with major international
financial institutions. The Company's risk in these transactions is the cost of
replacing, at current market rates, these contracts in the event of default by
the institutions. Management believes that the risk of such losses is remote. At
December 31, 1993 and 1992, the notional amounts of open forward exchange
contracts and other financial market instruments were $301 million and $168
million, respectively.
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and temporary investments and
accounts receivable. The Company places its investments in highly rated
financial institutions and investment grade short-term debt instruments, and
limits the amount of credit exposure to any one entity. Concentrations of credit
risk with respect to accounts receivable are limited due to the large number of
customers, generally short payment terms, and their dispersion across geographic
areas.
F-14
29
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
NET SALES GROSS PROFIT
-------------------- --------------------
1993 1992 1993 1992
-------- -------- -------- --------
First................................................. $1,518.4 $1,515.1 $ 793.4 $ 791.0
Second................................................ 1,541.6 1,584.0 785.7 838.9
Third................................................. 1,669.2 1,670.7 897.3 874.3
Fourth................................................ 1,566.2 1,420.8 830.0 698.7
-------- -------- -------- --------
$6,295.4 $6,190.6 $3,306.4 $3,202.9
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS BEFORE EARNINGS PER SHARE
CUMULATIVE EFFECT BEFORE CUMULATIVE
OF EFFECT OF
ACCOUNTING CHANGE ACCOUNTING CHANGE
----------------- ----------------------
1993 1992 1993 1992
------ ------ -------- ---------
First.................................................. $179.2 $191.6 $ .76 $ .80
Second................................................. 142.7 163.6 .62 .68
Third.................................................. 209.3 199.7 .90 .84
Fourth................................................. 149.5 127.9 .66 .54
------ ------ -------- ---------
$680.7 $682.8 $ 2.94 $2.86
------ ------ -------- ---------
------ ------ -------- ---------
EARNINGS
NET EARNINGS PER SHARE
----------------- ----------------------
1993 1992 1993 1992
------ ------ -------- ---------
First.................................................. $179.2 ($60.0) $ .76 ($.25)
Second................................................. 142.7 163.6 .62 .68
Third.................................................. 209.3 199.7 .90 .84
Fourth................................................. 149.5 127.9 .66 .54
------ ------ -------- ---------
$680.7 $431.2 $ 2.94 $1.81
------ ------ -------- ---------
------ ------ -------- ---------
As discussed in Note 9, the Company adopted FAS 106 in the first quarter of
1992.
F-15
30
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Dividend payments for the year totaled $1.32 per share, up 10 percent from
1992, marking the 37th consecutive year of increase. The trend of increased
dividends is expected to continue in 1994. The principal market for trading
Kellogg shares is the New York Stock Exchange. The shares are also traded on the
Boston, Cincinnati, Midwest, Pacific, and Philadelphia Stock Exchanges. The
closing price (on the NYSE) on December 31, 1993 was $56 3/4. As of December 31,
1993, there were approximately 29,381 shareholders of record. Dividends paid and
the quarterly price ranges on the New York Stock Exchange during the last two
years are as follows.
QUARTER DIVIDEND HIGH LOW
- ------------------------------------------------------------------- -------- ------ ------
1993:
Fourth........................................................... $ .34 $61.88 $48.75
Third............................................................ .34 54.88 47.25
Second........................................................... .32 61.00 51.00
First............................................................ .32 67.88 59.38
--------
$ 1.32
--------
--------
1992:
Fourth........................................................... $ .32 $75.38 $65.88
Third............................................................ .32 73.38 62.75
Second........................................................... .28 66.88 54.63
First............................................................ .28 67.00 54.38
--------
$ 1.20
--------
--------
F-16
31
KELLOGG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13 -- OPERATING SEGMENTS
The Company operates in a single industry -- manufacturing and marketing
convenience food products throughout the world. Information presented below
describes operations by geographic area. Included are the schedules of net sales
and earnings before the cumulative effect of the accounting change for the years
1993, 1992, and 1991, and the related year-end identifiable assets, including
corporate assets that are comprised principally of cash and temporary
investments.
- --------------------------------------------------------------------------------
NET SALES
(millions) 1993 % CHANGE 1992 % CHANGE 1991 % CHANGE
- -------------------------------------------------------------------------------------------------------------
United States...................... $3,783.9 +6 $3,564.9 +5 $3,411.0 +12
% of total....................... 60% 57% 59%
Europe............................. 1,505.9 -8 1,643.6 +14 1,447.0 +9
% of total....................... 24% 27% 25%
Other areas........................ 1,005.6 +2 982.1 +6 928.6 +14
% of total....................... 16% 16% 16%
- -------------------------------------------------------------------------------------------------------------
Consolidated....................... $6,295.4 +2 $6,190.6 +7 $5,786.6 +12
- -------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE CUMULATIVE EFFECT
OF
ACCOUNTING CHANGE
(millions) 1993 % CHANGE 1992 % CHANGE 1991 % CHANGE
- -------------------------------------------------------------------------------------------------------------
United States...................... $ 452.2 -1 $ 458.4 +18 $ 388.3 +19
% of total....................... 66% 67% 64%
Europe............................. 139.8 -1 141.7 +9 130.1 +20
% of total....................... 21% 21% 22%
Other areas........................ 88.7 +7 82.7 -6 87.6 +26
% of total....................... 13% 12% 14%
- -------------------------------------------------------------------------------------------------------------
Consolidated....................... $ 680.7 -- $ 682.8 +13 $ 606.0 +21
- -------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
(millions) 1993 % CHANGE 1992 % CHANGE 1991 % CHANGE
- -------------------------------------------------------------------------------------------------------------
United States...................... $2,340.4 +13 $2,064.4 +11 $1,859.6 +1
% of total....................... 55% 51% 47%
Europe............................. 1,022.6 -5 1,076.6 +3 1,110.8 +1
% of total....................... 24% 27% 28%
Other areas........................ 766.4 +4 738.4 -4 767.4 +8
% of total....................... 18% 18% 20%
Corporate assets................... 107.7 -21 135.6 -28 188.0 +72
% of total....................... 3% 4% 5%
- -------------------------------------------------------------------------------------------------------------
Consolidated....................... $4,237.1 +6 $4,015.0 +2 $3,925.8 +5
- -------------------------------------------------------------------------------------------------------------
F-17
32
FINANCIAL SCHEDULES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM EMPLOYEES
(IN MILLIONS)
Name of Balance, Addi- Collec- Balance, Addi- Collec- Balance, Addi- Collec- Balance,
Debtor 12/31/90 tions tions 12/31/91 tions tions 12/31/92 tions tions 12/31/93
- --------------------- -------- ----- ------- -------- ----- ------- -------- ----- ------- --------
D. Brett $0.2 $ 0.2
W. Camstra(1) 0.4 $0.4 $ 0.1 $0.3 $0.3
M. Cook 0.1 0.1
G. Costley(1) 0.5 0.1 0.4 0.1 0.3 0.3
C. Elliott(1) 0.2 0.2 0.2 0.2
G. Franklin 0.2 0.2 0.1 0.1 $ 0.1
C. French 0.1 0.1 0.1
A. Harris $0.1 0.1 0.1
J. Hinton(1) 0.2 0.2 0.2 0.2
P. Horekens $0.1 0.1 0.1
P. Kehoe 0.2 0.1 0.1 0.1
D. Kinnisten 0.1 0.1 0.1 0.1
T. Knowlton(1) 0.2 0.1 0.1 0.1 0.1
W. LaMothe 1.6 0.5 1.1 1.1
A. Langbo(1) 0.7 0.1 0.6 0.1 0.5 0.1 0.4
J. Maisner 0.1 0.1 0.1
T. Mobsby 0.2 0.2 0.2 0.2
B. Norton(2) 0.1 0.1 0.1 0.1
W. Rogers 0.1 0.1
D. Schaller 0.2 0.1 0.1 0.1 0.1
J. Stewart(1) 0.2 0.2 0.2 0.2
(1) Amounts receivable include certain obligations payable on demand for W.
Camstra, J. Hinton, T. Knowlton, A. Langbo, and J. Stewart. Other amounts
are payable in 120 equal monthly installments. Payments are applied first in
reduction of interest, secondly in reduction of principal. Interest accrues
at 7.11%.
(2) Interest of $7,000 due annually, principal of $100,000 due in 1997; 7%
interest.
S-1
33
SCHEDULE V - PROPERTY
(IN MILLIONS)
Balance, Currency Balance,
beginning Additions Retire- translation end of
Classification of year at cost ments adjustments year
- --------------------------------------- --------- --------- ------- ----------- --------
1993:
Land $ 40.5 $ 2.3 $ 1.1 $ (1.1) $ 40.6
Buildings 1,021.2 72.1 10.8 (16.8) 1,065.7
Machinery and equipment 2,629.4 366.8 94.9 (43.7) 2,857.6
Construction in progress 302.6 8.5 (2.5) 308.6
--------- --------- ------- ----------- --------
Totals $ 3,993.7 $ 449.7 $ 106.8 ($ 64.1) $4,272.5
--------- --------- ------- ----------- --------
--------- --------- ------- ----------- --------
1992:
Land $ 40.4 $ 3.0 $ 0.3 $ (2.6) $ 40.5
Buildings 1,045.5 63.7 15.6 (72.4) 1,021.2
Machinery and equipment 2,635.5 255.7 111.4 (150.4) 2,629.4
Construction in progress 168.3 151.2 (16.9) 302.6
--------- --------- ------- ----------- --------
Totals $ 3,889.7 $ 473.6 $ 127.3 ($242.3) $3,993.7
--------- --------- ------- ----------- --------
--------- --------- ------- ----------- --------
1991:
Land $ 41.0 $ 0.8 $ 0.2 $ 40.4
Buildings 1,026.9 $ 68.7 23.8 (26.3) 1,045.5
Machinery and equipment 2,462.8 481.1 46.7 (261.7) 2,635.5
Construction in progress 141.3 (216.4) 243.4 168.3
--------- --------- ------- ----------- --------
Totals $ 3,672.0 $ 333.4 $ 71.3 ($ 44.4) $3,889.7
--------- --------- ------- ----------- --------
--------- --------- ------- ----------- --------
The net change in construction in progress is reflected in additions at cost.
Transfers of completed construction are included in additions of other
classifications.
Depreciation is computed at annual rates averaging approximately 4% for
buildings and 9% for machinery.
S-2
34
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY
(IN MILLIONS)
Balance, Currency Balance,
beginning Additions Retire- translation end of
Classification of year at cost ments adjustments year
- -------------------------------- --------- --------- ------- ----------- --------
1993:
Buildings $ 267.7 $ 41.1 $ 2.8 ($4.2) $ 301.8
Machinery and equipment 1,063.3 224.1 66.3 (18.8) 1,202.3
--------- --------- ------- ----------- --------
Totals $ 1,331.0 $ 265.2 $69.1 ($23.0) $1,504.1
--------- --------- ------- ----------- --------
--------- --------- ------- ----------- --------
1992:
Buildings $ 248.9 $ 37.2 $ 4.9 ($13.5) $ 267.7
Machinery and equipment 994.3 194.3 62.9 (62.4) 1,063.3
--------- --------- ------- ----------- --------
Totals $ 1,243.2 $ 231.5 $67.8 ($ 75.9) $1,331.0
--------- --------- ------- ----------- --------
--------- --------- ------- ----------- --------
1991:
Buildings $ 217.1 $ 36.2 $ 4.0 ($0.4) $ 248.9
Machinery and equipment 859.5 186.6 37.5 (14.3) 994.3
--------- --------- ------- ----------- --------
Totals $ 1,076.6 $ 222.8 $41.5 ($14.7) $1,243.2
--------- --------- ------- ----------- --------
--------- --------- ------- ----------- --------
SCHEDULE VIII - VALUATION RESERVE
(IN MILLIONS)
1993 1992 1991
----- ----- -----
Balance at January 1 $ 6.2 $ 5.8 $ 4.8
Addition charged to costs and expenses 0.9 2.4 2.3
Doubtful accounts charged to reserves 0.7 1.0 1.3
Currency translation adjustments (0.4) (1.0) 0.0
----- ----- -----
Balance at December 31 $ 6.0 $ 6.2 $ 5.8
----- ----- -----
----- ----- -----
S-3
35
SCHEDULE IX - SHORT-TERM BORROWINGS
(IN MILLIONS)
Weighted
Maximum Average average
Weighted amount amount interest
Balance average outstanding outstanding rate
Category of aggregate at end interest during the during the during the
short-term borrowings (1) of year rate year year (2) year (3)
- ----------------------------------- ------- -------- ----------- ----------- ----------
1993:
Notes payable to banks $ 82.4 6% $ 129.5 $ 112.4 7%
Commercial paper $ 304.3 3% $ 511.1 $ 307.7 3%
1992:
Notes payable to banks $ 110.2 8% $ 211.9 $ 132.3 7%
Commercial paper $ 99.7 3% $ 324.6 $ 130.6 4%
1991:
Notes payable to banks $ 98.6 7% $ 208.7 $ 187.5 8%
Commercial paper $ 89.8 5% $ 254.5 $ 132.8 6%
(1) Commercial paper is generally issued for a maximum of 90 days with interest
at prevailing market rates. Notes payable at banks represent short-term
borrowings and foreign overdraft facilities which have varying interest
rates.
(2) Calculated on month-end outstanding balances during the year.
(3) Average amount outstanding during the year divided into actual interest
expense incurred.
SCHEDULE X - SUPPLEMENTARY EARNINGS STATEMENT INFORMATION
(IN MILLIONS)
Charged to costs and expenses in 1993 1992 1991
------ ------ ------
Maintenance and repairs $252.6 $244.9 $248.2
Depreciation of property $265.2 $231.5 $222.8
Advertising costs $772.4 $782.3 $708.3
S-4
36
EXHIBIT INDEX
ELECTRONIC(E)
PAPER(P)
INCORP.BY
EXHIBIT NO. DESCRIPTION REF.(IBRF)
3.01 Restated Certificate of Incorporation of Kellogg Company, as IBRF
amended, incorporated by reference to Exhibit 3.01 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, Commission file number 1-4171.
3.02 Bylaws of Kellogg Company, as amended. E
4.01 Indenture, dated as of March 1, 1988, between the Company and IBRF
Bankers Trust Company, incorporated by reference to Exhibit 4(a)
to the Company's Registration Statement on Form S-3, Commission
file number 33-20731.
4.02 Form of Debt Security, incorporated by reference to Exhibit 4(d) IBRF
to the Company's Registration Statement on Form S-3, Commission
file number 33-20731.
4.03 Supplemental Indenture, dated January 30, 1989, between the IBRF
Company and Bankers Trust Company, incorporated by reference to
Exhibit B to the Company's Current Report on Form 8-K, Commission
file number 1-4171, dated January 31, 1989.
4.04 Instrument of Resignation, Acceptance and Appointment, dated as IBRF
of January 31, 1989, between the Company, Bankers Trust Company
and NBD Bank, N.A. (formerly known as National Bank of Detroit),
incorporated by reference to Exhibit A to the Company's Current
Report on Form 8-K, Commission file number 1-4171, dated January
31, 1989.
4.05 Agency Agreement, dated as of January 31, 1989, between NBD Bank, IBRF
N.A. (formerly known as National Bank of Detroit) and Bankers
Trust Company, incorporated by reference to Exhibit C to the
Company's Current Report on Form 8-K, Commission file number
1-4171, dated January 31, 1989.
10.01 Employment Agreements between the Company and C. W. Elliott, made IBRF
and entered into as of January 30, 1987, incorporated by
reference to Exhibit 10.02 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1987, Commission file
number 1-4171.*
10.02 Kellogg Company Excess Benefit Retirement Plan, incorporated by IBRF
reference to Exhibit 10.01 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1983, Commission file
number 1-4171.*
10.03 Kellogg Company Supplemental Retirement Plan, incorporated by IBRF
reference to Exhibit 10.05 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1990, Commission file
number 1-4171.*
10.04 Kellogg Company Book Value Unit/Share Incentive Plan, IBRF
incorporated by reference to Exhibit 10.02 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1983, Commission file number 1-4171.*
10.05 Kellogg Company 1982 Stock Option Plan, as amended on December 7, IBRF
1990, incorporated by reference to Exhibit 10.07 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990, Commission file number 1-4171.*
37
ELECTRONIC(E)
PAPER(P)
INCORP.BY
EXHIBIT NO. DESCRIPTION REF.(IBRF)
10.06 Kellogg Company International Retirement Plan, incorporated by IBRF
reference to Exhibit 10.05 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1984, Commission file
number 1-4171.*
10.07 Kellogg Company Executive Survivor Income Plan, incorporated by IBRF
reference to Exhibit 10.06 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1985, Commission file
number 1-4171.*
10.08 Kellogg Company Key Executive Benefits Plan, incorporated by IBRF
reference to Exhibit 10.09 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, Commission file
number 1-4171.*
10.09 Kellogg Company Key Employee Long Term Incentive Plan, IBRF
incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1991, Commission file number 1-4171.*
10.10 Deferred Compensation Plan for Non-Employee Directors.* E
21.01 Domestic and Foreign Subsidiaries of the Company, incorporated by IBRF
reference to Exhibit 22.01 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, Commission file
number 1-4171.
23.01 Consent of Price Waterhouse. E
24.01 Powers of Attorney authorizing Richard M. Clark to execute the E
Company's Form 10-K Annual Report for the fiscal year ended
December 31, 1993 on behalf of the Board of Directors, and each
of them.
99.01 Kellogg Company American Federation of Grain Millers Savings and P**
Investment Plan Form 11-K Annual Report for the fiscal year ended
October 31, 1993.
99.02 Kellogg Company Salaried Savings and Investment Plan Form 11-K P**
Annual Report for the fiscal year ended October 31, 1993.
*A management contract or compensatory plan required to be filed by Item 14(c)
of this report.
**Required plan financial statements are filed under cover of Form SE pursuant
to Regulation S-T Item 311(c).