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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 DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-4171
---------------------------
KELLOGG COMPANY
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 38-0710690
State of Incorporation I.R.S. Employer Identification No.
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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:
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Title of each class: Name of each exchange on which registered:
COMMON STOCK, $0.25 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
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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 $8,225,111,147 as determined by the
March 1, 1999 closing price of $37.75 for one share of common stock on the New
York Stock Exchange.
As of March 1, 1999, 405,090,425 shares of the common stock of the registrant
were issued and outstanding.
Portions of the registrant's Annual Report to Stockholders for the fiscal year
ended December 31, 1998, are incorporated by reference into Part I, II, and Part
IV of this Report.
Portions of the registrant's definitive Proxy Statement, dated March 12, 1999,
for the Annual Meeting of Stockholders to be held April 23, 1999, 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 ready-to-eat cereal
and other grain-based 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.
Financial Information About Segments. The information called for by this
Item is incorporated herein by reference from Note 13 to the Consolidated
Financial Statements on pages 31 and 32 of the Company's Annual Report.
Principal Products. The principal products of the Company are ready-to-eat
cereals and other convenience food products which are manufactured in 20
countries and distributed in more than 160 countries. The Company's products are
generally marketed under the KELLOGG'S(R) name and are sold principally to the
grocery trade through direct sales forces for resale to consumers. The Company
uses broker and distribution arrangements for certain products as well as in
less developed market areas. Additional information pertaining to the relative
sales of ready-to-eat cereals and the Company's other convenience food products
is found in Note 13 to the Consolidated Financial Statements on pages 31 and 32
of the Company's Annual Report.
Other Convenience Food Products. In the United States and Canada, in
addition to ready-to-eat cereals, the Company produces and distributes toaster
pastries, bagels, frozen waffles, crispy marshmallow squares, and cereal bars.
The Company also markets these and other convenience food products in various
locations throughout the world.
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 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 the products 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, bagels, frozen waffles, and cereal
bars, the Company may use flour, shortening, sweeteners, dairy products, eggs,
fruit, and other filling ingredients, 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. The Company also
uses commodity futures and options to hedge some of its raw material costs.
Refer to Note 11 to the Consolidated Financial Statements contained in the
Company's Annual Report on page 30.
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. Generally, the Company's products are marketed
under trademarks owned by the Company. The Company's principal trademarks are
its housemark, brand names, slogans, and designs related to cereals and other
convenience food products manufactured and marketed by the Company. These
2
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trademarks include Kellogg's(R), for cereals and other products of the Company
and the brand names of certain ready-to-eat cereals, including All-Bran(R),
Kellogg's Squares(TM), Apple Jacks(R), Apple Raisin Crisp(R), Apple Cinnamon
Rice Krispies(R), Bran Buds(R), Complete(R) Bran Flakes, Cocoa Krispies(R),
Common Sense(R), Cruncheroos(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(R), Kellogg's Frosted Flakes(R), Frosted
Krispies(R), Frosted Mini-Wheats(R), Fruitful Bran(R), Fruity Marshmallow
Krispies(R), Just Right(R), Kellogg's(R) Low Fat Granola, Nut & Honey Crunch(R),
Nut & Honey Crunch O's(TM), Muesli(R), Nutri-Grain(R), Corn Pops(R), Product
19(R), Kellogg's(R) Two Scoops(R) Raisin Bran, Rice Krispies(R), Rice Krispies
Treats(R), Smacks(R), Smart Start(R), Special K(R), Kellogg's Cocoa Frosted
Flakes(TM), Razzle Dazzle Rice Krispies(TM), and Kellogg's(R) Honey Crunch Corn
Flakes(TM). Additional Company trademarks are the names of certain combinations
of Kellogg's(R) ready-to-eat cereals, including Breakfast Mates(TM),
Handi-Pak(R), Snack-Pak(R), Fun Pak(R), Jumbo(R) and Variety(R) Pak. Other
Company brand names 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
Pastry Swirls(TM) for toaster danish; Pop-Tarts(R) for toaster pastries;
Eggo(R), Special K(R) and Nutri-Grain(R) for frozen waffles; Lender's(R) for
Bagels; and Rice Krispies Treats(TM) for crispy marshmallow squares.
Company trademarks also include depictions of certain animated characters
in conjunction with the Company's products, including
Snap!(R)Crackle!(R)Pop!(R)for Kellogg's(R) Frosted Krispies(R), Fruity
Marshmallow Krispies(R), Razzle Dazzle Rice Krispies(TM), and Rice Krispies(R);
Tony the Tiger(TM) for Kellogg's Frosted Flakes(R) and Kellogg's Cocoa Frosted
Flakes(TM); Toucan Sam(R)for Froot Loops(R); Dig 'Em!(R) for Smacks(R); Coco(TM)
for Cocoa Krispies(R); and Cornelius(R) and Corny(TM) for Kellogg's Corn
Flakes(R).
The slogans "The Best To You Each Morning"(R), "The Original and Best(R),"
and "They're Gr-r-reat!"(R), used in connection with the Company's ready-to-eat
cereals, are also important Company trademarks. The Company's use of the
advertising themes "Better Breakfast"(TM), "Get A Taste For The Healthy
Life"(TM), and "Cereal...Eat It For Life"(TM) represent 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 on any single
patent or group of related patents. The Company's activities under licenses or
other franchises or concessions are not material.
Seasonality. Demand for the Company's products is approximately level
throughout the year.
Working Capital. Although terms vary around the world, in the United States
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 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 new product introductions, product quality, composition and
nutritional value, price, advertising, and promotion.
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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 W.K. Kellogg Institute for Food and Nutrition Research in Battle Creek,
Michigan, and at other locations around the world. The Company's expenditures
for research and development were approximately $121.9 million in 1998, $106.1
million in 1997, and $84.3 million in 1996.
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 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 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, 1998, the Company had 14,498 employees.
Financial Information About Geographic Areas. The information called for by
this Item is incorporated herein by reference from Note 13 to the Consolidated
Financial Statements on pages 31 and 32 of the Company's Annual 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 totaling 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 four cereal plants and warehouses located in Battle Creek, Michigan;
Lancaster, Pennsylvania; Memphis, Tennessee; and Omaha, Nebraska. The Company's
other convenience foods plants are located in San Jose, California; New Haven,
Connecticut; West Haven, Connecticut; Atlanta, Georgia; Mattoon, Illinois;
Pikeville, Kentucky; Blue Anchor, New Jersey; West Seneca, New York; Muncy,
Pennsylvania; and Rossville, Tennessee.
Outside the United States, the Company has additional manufacturing
locations, some with warehousing facilities, in Argentina, Australia, Brazil,
Canada, China, Colombia, Ecuador, Germany, Great Britain, Guatemala, India,
Japan, Malaysia, Mexico, South Africa, South Korea, Spain, Thailand, and
Venezuela.
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 typically 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.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages as of February 28, 1999, 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.
Arnold G. Langbo
Chairman of the Board and Chief Executive Officer.............................61
Mr. Langbo has been employed by the Company since 1956. He was named
President and Chief Operating Officer in 1990 and became Chairman of the Board
and Chief Executive Officer in 1992. In June of 1998, Mr. Carlos M. Gutierrez
was named President and Chief Operating Officer. Mr. Langbo retained his
positions as Chairman of the Board and Chief Executive Officer.
Carlos M. Gutierrez
President and Chief Operating Officer.........................................45
Mr. Gutierrez joined Kellogg de Mexico in 1975. In 1993, Mr. Gutierrez was
promoted to Executive Vice President, Kellogg USA Inc. and General Manager,
Kellogg USA Cereal Division. He was appointed Executive Vice President and
President, Kellogg Asia-Pacific in 1994, and Executive Vice President - Business
Development in 1996. In June of 1998, Mr. Gutierrez was named President and
Chief Operating Officer.
John D. Cook
Executive Vice President, President, Kellogg North America....................45
Mr. Cook joined Kellogg Company as Executive Vice President, President,
Kellogg North America in February of 1999. From 1988 to 1999 Mr. Cook was a
director with McKinsey and Company, Inc., a leading corporate strategy group.
Jean-Louis Gourbin
Executive Vice President, President, Kellogg Europe...........................51
Mr. Gourbin joined Kellogg France in 1983. He was promoted to President and
CEO - Kellogg Canada Inc. in 1990. In 1995, he was named Managing
Director - Kellogg (Aust.) Pty. Ltd. Mr. Gourbin was appointed Executive Vice
President and President, Kellogg Asia-Pacific in 1996. Mr. Gourbin was appointed
President, Kellogg Europe in September of 1998.
Jacobus Groot
Executive Vice President, President, Kellogg Asia Pacific.....................48
Mr. Groot joined Kellogg Company as Executive Vice President, President,
Kellogg Asia Pacific in January of 1999. Prior to joining Kellogg Company, Mr.
Groot was employed by The Procter and Gamble Company for 17 years. His most
recent position was Group Vice President (President-Asia, North, and President,
Paper Products-Asia, Procter and Gamble Asia), a position he held since 1995.
Alan F. Harris
Executive Vice President, President, Kellogg Latin America....................44
Mr. Harris joined Kellogg Company of Great Britain Limited in 1984. In
1993, he was appointed President, Kellogg Canada Inc. In 1994, he was promoted
to Executive Vice President - Marketing and Sales - Kellogg USA Inc. Mr. Harris
was promoted to Executive Vice President and President, Kellogg Latin America in
1997.
John R. Hinton
Executive Vice President - Administration and Chief Financial Officer.........53
Mr. Hinton joined the Company as Assistant to the Vice President - Finance
in 1979. He was appointed Executive Vice President - Financial Administration
and Treasurer for Kellogg USA Inc. in 1993. In 1995, Mr. Hinton was named Senior
Vice President - Administration and Chief Financial Officer. In 1997, Mr. Hinton
was named Executive Vice President - Administration and Chief Financial Officer
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Donald W. Thomason
Executive Vice President - Services and Technology............................55
Mr. Thomason has been employed by the Company since 1966. He was named
Executive Vice President - Services and Technology in 1990.
Donna J. Banks
Senior Vice President - Research and Development..............................42
Dr. Banks joined the Company in 1983. In 1991, she was promoted to Vice
President - Research and Development Dr. Banks became Senior Vice
President - Research and Development in 1997.
Richard M. Clark
Senior Vice President, General Counsel and Secretary..........................61
Mr. Clark joined the Company as Senior Vice President, General Counsel and
Secretary in 1989.
Robert L. Creviston
Senior Vice President - Human Resources.......................................57
Mr. Creviston joined the Company as Vice President - Employee Relations in
1982. He was named Senior Vice President - Human Resources in 1991.
Jay W. Shreiner
Senior Vice President.........................................................49
Mr. Shreiner joined the Company as Assistant Treasurer in 1983. He was
named Vice President - Information Services in 1990 and Senior Vice President
and Chief Information Officer in 1995. In January of 1999, Mr. Shreiner accepted
an interim assignment as Chief Financial Officer of Kellogg Europe.
Joseph M. Stewart
Senior Vice President - Corporate Affairs.....................................56
Mr. Stewart has been employed by the Company since 1980. He was named
Senior Vice President - Corporate Affairs in 1988.
Michael J. Teale
Senior Vice President - Global Supply Chain...................................54
Mr. Teale joined Kellogg Company of Great Britain Limited in 1966. He was
named Vice President - Cereal Manufacturing of the Company's U.S. Food Products
Division in 1990, Senior Vice President - Worldwide Operations and Technology in
1994, and Senior Vice President - Global Supply Chain in February of 1999.
Alan Taylor
Vice President - Corporate Controller.........................................47
Mr. Taylor has been employed by the Company since 1982. He served as
Director - Finance of Kellogg (Aust.) Pty. Ltd. from 1988 until 1993. He became
Controller of the Company in 1993, and was named a Vice President in 1994.
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 on page 31 of the
Company's Annual Report in Note 12 to the Consolidated Financial Statements of
the Company which is incorporated by reference into Item 8 of this Report.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this Item is incorporated herein by reference
from the chart entitled "Selected Financial Data" on pages 14 and 15 of the
Company's Annual Report. Such information should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto included in
Item 8 of this Report.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information called for by this Item is incorporated herein by reference
from pages 16 through 21 of the Company's Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information called for by this Item is incorporated herein by reference
from pages 33 and 34 of the Company's Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is incorporated herein by reference
from pages 22 through 32 of the Company's Annual Report. Supplementary quarterly
financial data, also incorporated herein by reference, is set forth in Note 12
to the Consolidated Financial Statements on page 31 of the Company's Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors -- Refer to the Company's Proxy Statement dated March 12, 1999,
for the Annual Meeting of Stockholders to be held on April 23, 1999, under the
caption "Election of Directors" on pages 4 through 6, which information is
incorporated herein by reference.
Executive Officers of the Registrant -- Refer to "Executive Officers of the
Registrant" under Item 4A at pages 5 through 6 of this Report.
For information concerning Section 16(a) of the Securities Exchange Act of
1934, refer to the Company's Proxy Statement dated March 12, 1999, for the
Annual Meeting of Stockholders to be held on April 23, 1999, under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" at page 3, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Refer to the Company's Proxy Statement dated March 12, 1999, for the Annual
Meeting of Stockholders to be held on April 23, 1999, under the caption
"Executive Compensation" at pages 7 through 11, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Refer to the Company's Proxy Statement dated March 12, 1999, for the Annual
Meeting of Stockholders to be held on April 23, 1999, under the caption
"Security Ownership" at pages 2 through 3, which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS
ON FORM 8-K
The following Consolidated Financial Statements and related Notes, together
with the Report thereon of PricewaterhouseCoopers LLP dated January 29, 1999,
appearing on pages 22 through 33 of the Company's
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Annual Report to Stockholders for the fiscal year ended December 31, 1998, are
incorporated herein by reference:
(A)1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Earnings for the years ended December 31, 1998,
1997, and 1996.
Consolidated Statement of Shareholders' Equity for the years ended December
31, 1998, 1997, and 1996.
Consolidated Balance Sheet at December 31, 1998 and 1997.
Consolidated Statement of Cash Flows for the years ended December 31, 1998,
1997, and 1996.
Notes to Consolidated Financial Statements.
(A)2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The Financial Schedule and related Report of Independent Accountants filed
as part of this Report are as follows:
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Schedule II -- Valuation Reserve............................ 11
Report of Independent Accountants........................... 12
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This Consolidated Financial Statement Schedule should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1998.
All other financial statement schedules are omitted because they are not
applicable.
(A)3. EXHIBITS
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EXHIBIT NO. DESCRIPTION
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3.01 Amended Restated Certificate of Incorporation of Kellogg
Company, incorporated by reference to Exhibit 3.01 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, Commission file number 1-4171.
3.02 Bylaws of Kellogg Company, as amended, incorporated by
reference to Exhibit 3.02 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995,
Commission file number 1-4171.
4.01 Fiscal Agency Agreement dated as of January 29, 1997,
between the Company and Citibank, N.A., Fiscal Agent,
incorporated by reference to Exhibit 4.01 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission file number 1-4171.
4.02 Form of Debt Security related to the Fiscal Agency Agreement
described in Exhibit 4.01 above, incorporated by reference
to Exhibit 4.02 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, Commission file
number 1-4171.
4.03 Indenture dated as of August 5, 1997, between the Company
and Citibank, N.A., Trustee and Collateral Agent,
incorporated by reference to Exhibit 4.03 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission file number 1-4171.
4.04 Form of Debt Security related to the Indenture described in
Exhibit 4.03 above, incorporated by reference to Exhibit
4.04 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, Commission file number
1-4171.
4.05 Indenture dated August 1, 1993 between the Company and
Harris Trust and Savings Bank, incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-3, Commission file number 33-49875.
4.06 Kellogg Company 4 7/8% Notes Due 2005; US $200,000,000.
4.07 Kellogg Company 5 3/4% Extendible Notes Due 2001; US
$200,000,000.
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EXHIBIT NO. DESCRIPTION
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10.01 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.*
10.02 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.*
10.03 Kellogg Company Supplemental Savings and Investment Plan,
incorporated by reference to Exhibit 10.03 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, Commission file number 1-4171.*
10.04 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.*
10.05 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, 1997,
Commission file number 1-4171.*
10.06 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.*
10.07 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.*
10.08 Kellogg Company Key Employee Long Term Incentive Plan,
incorporated by reference to Exhibit 10.08 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission file number 1-4171.*
10.09 Deferred Compensation Plan for Non-Employee Directors,
incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Commission file number 1-4171.*
10.10 Kellogg Company Senior Executive Officer Performance Bonus
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, 1995, Commission file number 1-4171.*
10.11 Stock Compensation Program for Non-Employee Directors of
Kellogg Company, as amended.*
10.12 Kellogg Company Bonus Replacement Stock Option Plan,
incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission file number 1-4171.*
10.13 Kellogg Company Executive Compensation Deferral Plan, ,
incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission file number 1-4171.*
10.14 Agreement between the Company and T. A. Knowlton dated
October 1, 1998.*
10.15 Agreement between the Company and D. G. Fritz dated October
1, 1998.*
13.01 Pages 14 through 34 of the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1998.
21.01 Domestic and Foreign Subsidiaries of the Company.
23.01 Consent of PricewaterhouseCoopers LLP.
23.02 Consent of PricewaterhouseCoopers LLP.
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EXHIBIT NO. DESCRIPTION
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24.01 Powers of Attorney authorizing Richard M. Clark to execute
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, on behalf of the Board of
Directors, and each of them.
27.01 Financial Data Schedule.
99.01 Kellogg Company American Federation of Grain Millers Savings
and Investment Plan Annual Report on Form 11-K for the
fiscal year ended October 31, 1998.
99.02 Kellogg Company Salaried Savings and Investment Plan Annual
Report on Form 11-K for the fiscal year ended October 31,
1998.
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* A management contract or compensatory plan required to be filed with 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) REPORTS ON FORM 8-K
The Company filed a Form 8-K on October 16, 1998, and on December 7, 1998.
10
<PAGE> 11
SCHEDULE II -- VALUATION RESERVES
(in millions)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE
Balance at January 1........................................ $ 7.5 $ 6.6 $ 6.4
Additions charged to cost and expenses...................... 5.7 2.4 0.7
Doubtful accounts charged to reserve........................ (0.5) (1.0) (0.4)
Currency translation adjustments............................ 0.2 (0.5) (0.1)
------ ------- -------
Balance at December 31...................................... $ 12.9 $ 7.5 $ 6.6
====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NON-RECURRING CHARGES
Balance at January 1........................................ $ 51.9 $ 54.3 $ 94.0
Additions charged to cost and expenses...................... 70.5 161.1 121.1
Amounts utilized............................................ (70.9) (163.5) (160.8)
------ ------- -------
Balance at December 31...................................... $ 51.5 $ 51.9 $ 54.3
====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE
Balance at January 1........................................ $ 45.9 $ 31.6 $ 32.7
Additions charged to cost and expenses...................... 23.0 25.5 2.5
Deductions credited to cost and expenses.................... (0.3) (11.2) (3.6)
------ ------- -------
Balance at December 31...................................... $ 68.6 $ 45.9 $ 31.6
====== ======= =======
</TABLE>
11
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
of Kellogg Company
Our audits of the consolidated financial statements referred to in our
report dated January 29, 1999, appearing in the 1998 Annual Report to
Stockholders of Kellogg Company (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Battle Creek, Michigan
January 29, 1999
12
<PAGE> 13
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 25th day of March
1999.
KELLOGG COMPANY
By: /s/ ARNOLD G. LANGBO
------------------------------------
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.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<C> <S> <C>
/s/ ARNOLD G. LANGBO Chairman of the Board, Chief March 25, 1999
--------------------------------------------- Executive Officer; Director
Arnold G. Langbo (Principal Executive Officer)
/s/ JOHN R. HINTON Executive Vice March 25, 1999
--------------------------------------------- President-Administration and Chief
John R. Hinton Financial Officer (Principal
Financial Officer)
/s/ ALAN TAYLOR Vice President and Corporate March 25, 1999
--------------------------------------------- Controller (Principal Accounting
Alan Taylor Officer)
Director
---------------------------------------------
Benjamin S. Carson
Director
---------------------------------------------
Carleton S. Fiorina
Director
---------------------------------------------
Claudio X. Gonzalez
Director
---------------------------------------------
Gordon Gund
Director
---------------------------------------------
Carlos M. Gutierrez
Director
---------------------------------------------
Dorothy A. Johnson
Director
---------------------------------------------
William E. LaMothe
Director
---------------------------------------------
Ann McLaughlin
Director
---------------------------------------------
J. Richard Munro
Director
---------------------------------------------
Harold A. Poling
Director
---------------------------------------------
William C. Richardson
Director
---------------------------------------------
Donald H. Rumsfeld
Director
---------------------------------------------
John L. Zabriskie
By: /s/ RICHARD M. CLARK March 25, 1999
---------------------------------------
Richard M. Clark
As Attorney-in-Fact
</TABLE>
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
ELECTRONIC(E)
PAPER(P)
INCORP. BY
EXHIBIT NO. DESCRIPTION REF.(IBRF)
- ----------- ----------- -------------
<C> <S> <C>
3.01 Amended Restated Certificate of Incorporation of Kellogg
Company, incorporated by reference to Exhibit 3.01 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, Commission file number 1-4171. IBRF
3.02 Bylaws of Kellogg Company, as amended, incorporated by
reference to Exhibit 3.02 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995,
Commission file number 1-4171. IBRF
4.01 Fiscal Agency Agreement dated as of January 29, 1997,
between the Company and Citibank, N.A., Fiscal Agent,
incorporated by reference to Exhibit 4.01 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission file number 1-4171. IBRF
4.02 Form of Debt Security related to the Fiscal Agency Agreement
described in Exhibit 4.01 above, incorporated by reference
to Exhibit 4.02 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, Commission file
number 1-4171. IBRF
4.03 Indenture dated as of August 5, 1997, between the Company
and Citibank, N.A., Trustee and Collateral Agent,
incorporated by reference to Exhibit 4.03 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission file number 1-4171. IBRF
4.04 Form of Debt Security related to the Indenture described in
Exhibit 4.03 above, incorporated by reference to Exhibit
4.04 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, Commission file number
1-4171. IBRF
4.05 Indenture dated August 1, 1993 between the Company and
Harris Trust and Savings Bank, incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-3, Commission file number 33-49875. IBRF
4.06 Kellogg Company 4 7/8% Notes Due 2005; US $200,000,000. E
4.07 Kellogg Company 5 3/4% Extendible Notes Due 2001; US
$200,000,000. E
10.01 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.* IBRF
10.02 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.* IBRF
10.03 Kellogg Company Supplemental Savings and Investment Plan,
incorporated by reference to Exhibit 10.03 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, Commission file number 1-4171.* IBRF
10.04 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.* IBRF
10.05 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, 1997,
Commission file number 1-4171.* IBRF
10.06 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.* IBRF
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
ELECTRONIC(E)
PAPER(P)
INCORP. BY
EXHIBIT NO. DESCRIPTION REF.(IBRF)
- ----------- ----------- -------------
<C> <S> <C>
10.07 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.* IBRF
10.08 Kellogg Company Key Employee Long Term Incentive Plan,
incorporated by reference to Exhibit 10.08 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission file number 1-4171.* IBRF
10.09 Deferred Compensation Plan for Non-Employee Directors,
incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Commission file number 1-4171.* IBRF
10.10 Kellogg Company Senior Executive Officer Performance Bonus
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, 1995, Commission file number 1-4171.* IBRF
10.11 Stock Compensation Program for Non-Employee Directors of
Kellogg Company, as amended.* E
10.12 Kellogg Company Bonus Replacement Stock Option Plan,
incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission file number 1-4171.* IBRF
10.13 Kellogg Company Executive Compensation Deferral Plan,
incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Commission file number 1-4171.* IBRF
10.14 Agreement between the Company and T. A. Knowlton dated
October 1, 1998.* E
10.15 Agreement between the Company and D. G. Fritz dated October
1, 1998.* E
13.01 Pages 14 through 34 of the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1998. E
21.01 Domestic and Foreign Subsidiaries of the Company. E
23.01 Consent of PricewaterhouseCoopers LLP. E
23.02 Consent of PricewaterhouseCoopers LLP. E
24.01 Powers of Attorney authorizing Richard M. Clark to execute
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, on behalf of the Board of
Directors, and each of them. E
27.01 Financial Data Schedule. E
99.01 Kellogg Company American Federation of Grain Millers Savings
and Investment Plan Annual Report on Form 11-K for the
fiscal year ended October 31, 1998. E
99.02 Kellogg Company Salaried Savings and Investment Plan Annual
Report on Form 11-K for the fiscal year ended October 31,
1998. E
</TABLE>
- -------------------------
* A management contract or compensatory plan required to be filed with this
Report.
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.
15
<PAGE> 1
REGISTERED REGISTERED
EXHIBIT 4.06
KELLOGG COMPANY
4-7/8% NOTES DUE 2005
CUSIP NO. 487836 AK 4
No. R-1 US$200,000,000
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITORY") TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.,
OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
KELLOGG COMPANY, a Delaware corporation (herein called the "Issuer",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to CEDE & CO. or
registered assigns, the principal sum of TWO HUNDRED MILLION (U.S.$200,000,000)
(or such other amount as is provided herein) on October 15, 2005, in such coin
or currency of the United States as at the time of payment shall be legal tender
for the payment of public and private debts, and to pay interest, semiannually
on April 15 and October 15 of each year, commencing April 15, 1999, on said
principal sum, in such coin or currency of the United States as at the time of
payment shall be legal tender for the payment of public and private debts, at
the rate per annum specified in the title of this Note, from the April 15 or the
October 15, as the case may be, next preceding the date of this Note to which
interest has been paid, unless the date hereof is a date to which interest has
been paid, in which case from the date of this Note, or unless no interest has
been paid on this Note, in which case from October 13, 1998, until payment of
said principal sum has been made or duly provided for. Payments of such
principal and interest shall be made at the office or agency of the Issuer in
Chicago, Illinois, which, subject to the right of the Issuer to vary or
terminate the appointment of such agency, shall initially be at the principal
office of Harris Bank and Trust Company, 111 West Monroe Street, Chicago,
Illinois 60603; provided, that payment of interest may be made at the option of
the Issuer by check mailed to the address of the person entitled thereto as such
address shall appear on the Security register; provided further that so long as
CEDE & CO. or another nominee of the Depository is the registered owner of this
Note, payments of principal and interest will be made in immediately available
funds through the Depository's Same-Day Funds Settlement System. Notwithstanding
the foregoing, if the date hereof is after April 1 or October 1, as the case may
be, and before the following April 15 or October 15 this Note shall bear
interest from such April 15 or October 15; provided, that if the Issuer shall
default in the payment
<PAGE> 2
of interest due on such April 15 or October 15, then this Note shall bear
interest from the next preceding April 15 or October 15, to which interest has
been paid or, if no interest has been paid on this Note, from October 13, 1998.
The interest so payable on any April 15 or October 15, will, subject to certain
exceptions provided in the Indenture referred to on the reverse hereof, be paid
to the person in whose name this Note is registered at the close of business on
the April 1 or October 1, as the case may be, next preceding such April 15 or
October 15.
Reference is made to the further provisions of this Note set forth on
the reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the Trustee
under the Indenture referred to on the reverse hereof.
[Signatures appear on next page]
2
<PAGE> 3
IN WITNESS WHEREOF, KELLOGG COMPANY has caused this instrument to be
signed by facsimile by its duly authorized officers and has caused a facsimile
of its corporate seal to be affixed hereunto or imprinted hereon.
Dated: October 13, 1998 KELLOGG COMPANY
[SEAL] By: J.H. Bolt
-----------------------------
Title: Vice President and
Treasurer
By: Edward J. Gildea
-----------------------------
Title: Vice President - Legal;
Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred to in the
within-mentioned Indenture.
Harris Trust and Savings Bank,
as Trustee
By:
----------------------------
Authorized Officer
3
<PAGE> 4
KELLOGG COMPANY
4-7/8% NOTES DUE 2005
General. This Note is one of a duly authorized issue of debentures,
notes, bonds or other evidences of indebtedness of the Issuer (hereinafter
called the "Securities") of the series hereinafter specified, all issued or to
be issued under and pursuant to an indenture dated as of August 1, 1993 (herein
called the "Indenture"), duly executed and delivered by the Issuer to Harris
Trust and Savings Bank, as Trustee (herein called the "Trustee"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Issuer and the Holders of the
Securities. The Securities may be issued in one or more series, which different
series may be issued in registered or bearer form, or both, in various aggregate
principal amounts, may be denominated and payable in United States Dollars,
foreign currencies or currency units, may mature at different times, may bear
interest at different rates, which may be fixed or variable, may be subject to
different redemption provisions (if any), may be subject to different sinking,
purchase or analogous funds (if any) and may otherwise vary as provided in the
Indenture. This Note is one of a series designated as the 4-7/8% Notes due 2005
of the Issuer, limited in aggregate principal amount to $200,000,000.
Events of Default. In case an Event of Default with respect to the
Notes shall have occurred and be continuing, the principal hereof may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
Modifications and Waivers; Obligation of the Company Absolute. The
Indenture contains provisions permitting the Issuer and the Trustee, with the
consent of the Holders of a majority of the aggregate principal amount of the
Securities at the time Outstanding (as defined in the Indenture) of all series
to be affected (treated as one class), evidenced as provided in the Indenture,
to execute supplemental indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or modifying in any manner the rights of the Holders of
the Securities of each such series or of any coupons; provided, however, that no
such supplemental indenture shall (i) extend the final maturity of any Security,
or reduce the principal amount thereof or any premium thereon, or reduce the
rate or extend the time of payment of interest thereon, or reduce any amount
payable upon redemption thereof, or impair or affect the right of any Holder to
institute suit for the payment thereof or, if the Securities provide therefor,
any right of repayment at the option of the Securityholder, without the consent
of the Holder of each Security so affected, or (ii) reduce the aforesaid
percentage of Securities of any series, the Holders of which are required to
consent to any such supplemental indenture, without the consent of the Holder of
each Security affected. It is also provided in the Indenture that, with respect
to certain defaults or Events of Default regarding the Securities of any series,
prior to any declaration accelerating the maturity of such Securities, the
Holders of a majority in aggregate principal amount Outstanding of the
Securities
4
<PAGE> 5
of such series (or, in the case of certain defaults or Events of Default, all or
certain series of the Securities) may on behalf of the Holders of all the
Securities of such series (or all or certain series of the Securities, as the
case may be) waive any such past default or Event of Default and its
consequences. The preceding sentence shall not, however, apply to a default in
the payment of the principal of or premium, if any, or interest on any of the
Securities. Any such consent or waiver by the Holder of this Note (unless
revoked as provided in the Indenture) shall be conclusive and binding upon such
Holder and upon all future Holders and owners of this Note and any Note which
may be issued in exchange or substitution herefor, irrespective of whether or
not any notation thereof is made upon this Note or such other Notes.
No reference herein to the Indenture, and no provision of this Note or
of the Indenture, shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Note in the manner, at the respective times, at the rate, and in the
coin or currency herein prescribed.
Authorized Denominations. The Notes are issuable in registered form
without coupons in denominations of $1,000 and any multiple of $1,000. As
provided in the Indenture, and subject to certain limitations set forth therein,
Notes in registered form are exchangeable for a like aggregate principal amount
of Notes in registered form of other authorized denominations, as requested by
the Holder surrendering the same at the agency of the Issuer in Chicago,
Illinois. No service charge shall be made for any such exchange, but the Issuer
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
Redemption. The Notes may not be redeemed at the option of the Issuer
prior to maturity.
Sinking Fund. The Notes are not subject to any sinking fund.
Registration of Transfer. Upon due presentment for registration of
transfer of this Note at the office or agency of the Issuer in Chicago,
Illinois, a new Note or Notes of authorized denominations for an equal aggregate
principal amount will be issued to the transferee in exchange therefor, subject
to the limitations provided in the Indenture, without charge except for any tax
or other governmental charge imposed in connection therewith.
THIS SECURITY IS EXCHANGEABLE ONLY IF (X) THE DEPOSITORY NOTIFIES THE
ISSUER THAT IT IS UNWILLING OR UNABLE TO CONTINUE AS DEPOSITORY FOR THIS GLOBAL
DEBENTURE OR IF AT ANY TIME THE DEPOSITORY CEASES TO BE A CLEARING AGENCY
REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, (Y) THE ISSUER
IN ITS SOLE DISCRETION DETERMINES THAT THIS DEBENTURE SHALL BE EXCHANGEABLE FOR
CERTIFICATED DEBENTURES IN REGISTERED FORM OR (Z) AN EVENT OF DEFAULT, OR AN
EVENT WHICH WITH THE PASSAGE OF TIME OR THE GIVING OF NOTICE WOULD BECOME AN
EVENT OF DEFAULT, WITH RESPECT TO THE DEBENTURES REPRESENTED HEREBY HAS OCCURRED
AND IS CONTINUING, PROVIDED THAT THE DEFINITIVE DEBENTURES SO ISSUED IN EXCHANGE
FOR THIS PERMANENT GLOBAL DEBENTURE SHALL BE IN DENOMINATIONS OF $1,000 AND ANY
INTEGRAL MULTIPLE OF $1,000 IN EXCESS THEREOF AND BE OF LIKE AGGREGATE PRINCIPAL
AMOUNT AND TENOR AS THE PORTION OF THIS
5
<PAGE> 6
PERMANENT GLOBAL DEBENTURE TO BE EXCHANGED, AND PROVIDED FURTHER THAT, UNLESS
THE ISSUER AGREES OTHERWISE, DEBENTURES OF THIS SERIES IN CERTIFICATED
REGISTERED FORM WILL BE ISSUED IN EXCHANGE FOR THIS PERMANENT GLOBAL DEBENTURE,
OR ANY PORTION HEREOF, ONLY IF SUCH DEBENTURES IN CERTIFICATED REGISTERED FORM
WERE REQUESTED BY WRITTEN NOTICE TO THE TRUSTEE OR THE SECURITIES REGISTRAR BY
OR ON BEHALF OF A PERSON WHO IS BENEFICIAL OWNER OF AN INTEREST HEREOF GIVEN
THROUGH THE HOLDER HEREOF. EXCEPT AS PROVIDED ABOVE, OWNERS OF BENEFICIAL
INTERESTS IN THIS PERMANENT GLOBAL DEBENTURE WILL NOT BE ENTITLED TO RECEIVE
PHYSICAL DELIVERY OF DEBENTURES IN CERTIFICATED REGISTERED FORM AND WILL NOT BE
CONSIDERED THE HOLDERS THEREOF FOR ANY PURPOSE UNDER THE INDENTURE.
Owners. The Issuer, the Trustee and any authorized agent of the Issuer
or the Trustee may deem and treat the registered Holder hereof as the absolute
owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon), for the
purpose of receiving payment of, or on account of, the principal hereof and
premium, if any, and interest hereon, and for all other purposes, and neither
the Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee
shall be affected by any notice to the contrary.
No Recourse Against Certain Persons. No recourse under or upon any
obligation, covenant or agreement of the Issuer in the Indenture or any
indenture supplemental thereto or in this Note, or because of the creation of
any indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer or director, as such, of the Issuer or of any successor
corporation, either directly or through the Issuer or any successor corporation,
under any rule of law, statute or constitutional provision or by the enforcement
of any assessment or by any legal or equitable proceeding or otherwise, all such
liability being expressly waived and released by the acceptance hereof and as
part of the consideration for the issue hereof.
Defeasance. The Indenture with respect to any series will be discharged
and canceled except for certain Sections thereof, subject to the terms of the
Indenture, upon the payment of all the Securities of such series or upon the
irrevocable deposit with the Trustee of cash or U.S. Government Obligations (or
a combination thereof) sufficient for such payment in accordance with Article
Ten of the Indenture.
Governing Law. The Indenture and this Note shall be deemed to be
contracts made under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of such state.
Defined Terms. Terms used herein which are defined in the Indenture
shall have the respective meanings assigned thereto in the Indenture.
6
<PAGE> 7
-------------
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT ...........Custodian...........
(Cust) (Minor)
Under Uniform Gifts to Minors Act
..........................
(State)
Additional abbreviations may also be used though not in the above list.
------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably
constituting and appointing _________________________________ attorney to
transfer said Security on the books of the Issuer, with full power of
substitution in the premises.
DATED:
-----------------------------------------------
Signature
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN INSTRUMENT IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
7
<PAGE> 1
REGISTERED REGISTERED
EXHIBIT 4.07
KELLOGG COMPANY
5-3/4% EXTENDIBLE NOTES DUE 2001
CUSIP NO. 487836 AJ 7
No. R-2 US$200,000,000
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITORY") TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.,
OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
KELLOGG COMPANY, a Delaware corporation (herein called the "Issuer",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to CEDE & CO. or
registered assigns, the principal sum of TWO HUNDRED MILLION (U.S.$200,000,000)
(or such other amount as is provided herein) on February 2, 2001 or, if the
maturity date of this Note is extended as provided herein, February 2, 2005, in
such coin or currency of the United States as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest,
semiannually on February 2 and August 2 of each year, commencing August 2, 1998,
on said principal sum, in such coin or currency of the United States as at the
time of payment shall be legal tender for the payment of public and private
debts, at the rate per annum specified in the title of this Note or, if the
maturity date of this Note is extended, at the rate determined as provided
herein, from the February 2 or the August 2, as the case may be, next preceding
the date of this Note to which interest has been paid, unless the date hereof is
a date to which interest has been paid, in which case from the date of this
Note, or unless no interest has been paid on this Note, in which case from
February 4, 1998, until payment of said principal sum has been made or duly
provided for. Payments of such principal and interest shall be made at the
office or agency of the Issuer in Chicago, Illinois, which, subject to the right
of the Issuer to vary or terminate the appointment of such agency, shall
initially be at the principal office of Harris Bank and Trust Company, 111 West
Monroe Street, Chicago, Illinois 60603; provided, that payment of interest may
be made at the option of the Issuer by check mailed to the address of the person
entitled thereto as such address shall appear on the Security register; provided
further that so long as CEDE & CO. or another nominee of the Depository is the
registered owner of this Note, payments of principal and interest will be made
in immediately available funds through the Depository's Same-Day Funds
Settlement System. Notwithstanding the foregoing, if the date hereof is after
January 17 or August 17, as the case may be, and before the following February 2
or August 2 this Note shall bear interest from such February 2 or August 2;
provide that if the Issuer shall default in the
<PAGE> 2
payment of interest due on such February 2 or August 2, then this Note shall
bear interest from the next preceding February 2 or August 2, to which interest
has been paid or, if no interest has been paid on this Note, from February 4.
The interest so payable on any February 2 or August 2, will, subject to certain
exceptions provided in the Indenture referred to on the reverse hereof, be paid
to the person in whose name this Note is registered at the close of business on
the January 17 or July 17, as the case may be, next preceding such February 2
or August 2.
Reference is made to the further provisions of this Note set forth on
the reverse hereof. Such further provisions shall for all purposes have the
same effect as though fully set forth at this place.
This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the Trustee
under the Indenture referred to on the reverse hereof.
[Signatures appear on next page)
2
<PAGE> 3
IN WITNESS WHEREOF, KELLOGG COMPANY has caused this instrument to be
signed by facsimile by its duly authorized officers and has caused a facsimile
of its corporate seal to be affixed hereunto or imprinted hereon.
Dated: February 4, 1998 KELLOGG COMPANY
[SEAL]
By: J.H. Bolt
-----------------------------------
By: Edward J. Gildea
-----------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred to in the
within-mentioned Indenture.
Harris Trust and Savings Bank,
as Trustee
By C. Potter
-----------------------------------------
Authorized Officer
3
<PAGE> 4
KELLOGG COMPANY
5-3/4% EXTENDIBLE NOTES DUE 2001
GENERAL. This Note is one of a duly authorized issue of debentures,
notes, bonds or other evidences of indebtedness of the Issuer (hereinafter
called the "Securities") of the series hereinafter specified, all issued or to
be issued under and pursuant to an indenture dated as of August 1, 1993 (herein
called the "Indenture"), duly executed and delivered by the Issuer to Harris
Trust and Savings Bank, as Trustee (herein called the "Trustee"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Issuer and the Holders of the
Securities. The Securities may be issued in one or more series, which different
series may be issued in registered or bearer form, or both, in various
aggregate principal amounts, may be denominated and payable in United States
Dollars, foreign currencies or currency units, may mature at different times,
may bear interest at different rates, which may be fixed or variable, may be
subject to different redemption provisions (if any), may be subject to different
sinking, purchase or analogous funds (if any) and may otherwise vary as provided
in the Indenture. This Note is one of a series designated as the 5-3/4%
Extendible Notes Due 2001 of the Issuer, limited in aggregate principal amount
to $400,000,000.
EXTENSION OF MATURITY. If, on the Determination Date (as defined
below), the CMT Rate (as defined below) is greater than the Minimum Reference
Rate (as defined below), the Notes will mature on the Initial Maturity Date (as
defined below) at 100% of their principal amount plus accrued and unpaid
interest. If, on the Determination Date, the CMT Rate is less than or equal to
the Minimum Reference Rate, the holder of the Notes may elect to extend the term
of this Note to the Final Maturity Date (as defined below) and reset the rate at
which the Notes will bear interest as described below. If the CMT Rate is less
than or equal to the Minimum Reference Rate and the holder of the Notes does not
elect to extend the maturity of the Notes, the Notes will mature on the Initial
Maturity Date at a price equal to the greater of (x) 100% of its principal
amount and (y) the price of a hypothetical four-year corporate debt security
issued for settlement on the Initial Maturity Date and maturing on the Final
Maturity Date, with a coupon paid semi-annually at the Minimum Reference Rate
and a yield to maturity equal to the CMT Rate.
For the purposes of calculating the CMT Rate and certain other
calculations described herein, the Company has entered into a Calculation Agency
Agreement, dated February 4, 1998 (the "Calculation Agency Agreement") with
Lehman Brothers Inc. (the "Calculation Agent", which expression shall include
any successor as Calculation Agent under the Calculation Agency Agreement). Any
calculations by the Calculation Agent shall, in the absence of manifest error,
be binding on the Issuer, the Trustee and the Holder of the Notes.
Not later than the eighth Business Day prior to the Initial Maturity
Date, the Calculation Agent is required to notify the Trustee, the Company and
the Holder of the Notes by facsimile
4
<PAGE> 5
(i) of the CMT Rate and (ii) if the CMT Rate is less than or equal to the
Minimum Reference Rate on the Determination Date that the Holder of the
Notes shall be entitled to exercise the Extension Option. Not later than the
eighth Business Day prior to the Initial Maturity Date, the Issuer shall notify
the Trustee and the Holder of the Notes of the Spread. If the Issuer does not so
notify, the Notes will mature on the Initial Maturity Date at a price equal to
the greater of (x) 100% of its principal amount and (y) the price of a
hypothetical four-year corporate debt security issued for settlement on the
Initial Maturity Date and maturing on the Final Maturity Date, with a coupon
paid semi-annually at the Minimum Reference Rate and a yield to maturity equal
to the CMT Rate. In order to validly exercise the Extension Option, the Holder
of the Notes must notify the Issuer and the Trustee by facsimile of such
exercise not later than 5:00 P.M., New York City time, on the fifth Business Day
prior to the Initial Maturity Date. Except as provided in the next succeeding
sentence, any exercise of the Extension Option shall be irrevocable. In the
event that the Callholder (as defined in the Board Resolutions establishing the
terms of the Notes) fails to deposit the applicable call price with the Holder
of the Notes by 5:00 P.M., New York City time, on the fourth Business Days prior
to the Initial Maturity Date, the Issuer shall purchase the Notes on the Initial
Maturity Date at a price equal to the principal amount of the Notes plus accrued
and unpaid interest thereon.
Upon any sale or other disposition of any beneficial interest in the
Notes occurring after their initial sale, the Extension Option shall expire.
"Business Day" means any day that is not a Saturday or Sunday and that
in New York City is not a day on which banking institutions are generally
authorized or required by law or executive order to be closed for business.
"CMT Rate" means, with respect to the Determination Date, the rate
displayed on the Designated CMT Telerate Page under the caption "...TSY Constant
Maturities and Money Mkts ... Fed H.15 Daily," under the column for the
Designated CMT Maturity Index. If such rate is no longer displayed on the
relevant page or is not displayed by 3:00 P.M., New York City time, on such
date, then the CMT Rate for such Determination Date will be such treasury
constant maturity rate for the Designated CMT Maturity Index as published in the
relevant H.15(519). If such rate is no longer published or is not published by
3:00 P.M., New York City time, on the related date, then the CMT Rate on such
Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Rate) for the Determination Date as may then be
published by either the Board of Governors of the Federal Reserve System or the
United States Department of the Treasury that the Calculation Agent determines
to be comparable to the rate formerly displayed on the designated CMT Telerate
Page and published in the relevant H.15(519). If such information is not
provided by 3:00 P.M., New York City time, on the Business Day next following
the Determination Date, then the Calculation Agent shall determine and use the
Treasury Yield for calculations.
"Designated CMT Maturity Index" means four years (calculated based on
the straight line
5
<PAGE> 6
interpolation of the three- and five-year CMT Rates).
"Designated CMT Telerate Page" means the display on the Dow Jones
Telerate Service on page 7055 (or any other page as may replace such page on
that service for the purpose of displaying Treasury Constant maturities as
reported in H.15(519) for the purpose of displaying Treasury Constant
Maturities as reported in H.15(519)).
"Determination Date" means the ninth Business Day preceding the Initial
Maturity Date.
"Initial Maturity Date" means February 2, 2001.
"Final Maturity Date" means February 2, 2005.
"Minimum Reference Rate" means 5.633%.
"Treasury Yield" means the rate equal to a straight-line interpolation
of the then current "on the run" three- and five-year U.S. Treasury securities,
as found on Telerate Page 500 for the day preceding the Determination Date at
5:00 p.m., New York City time. If such rate is no longer displayed on the
relevant page or is not displayed by 3:00 P.M. on the Determination Date, then
the CMT Rate shall be equal to the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) as announced by the United States Department of the Treasury
for Treasury securities having a maturity of four years. In the event that the
results of the auction of Treasury securities having a maturity of four years
are not reported as provided by 3:00 P.M., New York City time, on such
Determination Date, or if no such auction is held in a particular week, then the
CMT Rate will be a yield to maturity (expressed as a bond equivalent on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily basis)
of the arithmetic mean of the secondary market bid rates, as of approximately
3:30 P.M., New York City time, on such Determination Date, of three leading
primary United States government securities dealers selected by the Company, for
the issue of Treasury securities with a remaining maturity closest to four
years.
RESET OF INTEREST. If the CMT Rate is less than or equal to the Minimum
Reference Rate on the Determination Date and the Notes are extended at the
election of the Holder thereof, the Notes will bear interest from and including
the Initial Maturity Date to, but not including, the Final Maturity Date at a
rate per annum equal to the sum of (i) the Minimum Reference Rate and (ii) the
Spread. "Spread" means the number of basis points (which shall be no less than
zero) determined by the Issuer in its sole discretion spread over the CMT Rate
on a hypothetical four-year unsecured and unsubordinated debt security of the
Company necessary for such debt security to trade at par, as determined by the
Calculation Agent.
EVENTS OF DEFAULT. In case an Event of Default with respect to the Notes
shall have occurred and be continuing, the principal hereof may be declared, and
upon such declaration shall become, due and payable, in the manner, with the
effect and subject to the conditions provided in the Indenture.
6
<PAGE> 7
MODIFICATIONS AND WAIVERS; OBLIGATION OF THE COMPANY ABSOLUTE. The
Indenture contains provisions permitting the Issuer and the Trustee, with the
consent of the Holders of a majority of the aggregate principal amount of the
Securities at the time Outstanding (as defined in the Indenture) of all series
to be affected (treated as one class), evidenced as provided in the Indenture,
to execute supplemental indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or modifying in any manner the rights of the Holders of
the Securities of each such series or of any coupons; provided, however, that no
such supplemental indenture shall (i) extend the final maturity of any Security,
or reduce the principal amount thereof or any premium thereon, or reduce the
rate or extend the time of payment of interest thereon, or reduce any amount
payable upon redemption thereof, or impair or affect the right of any Holder to
institute suit for the payment thereof or, if the Securities provide therefor,
any right of repayment at the option of the Securityholder, without the consent
of the Holder of each Security so affected, or (ii) reduce the aforesaid
percentage of Securities of any series, the Holders of which are required to
consent to any such supplemental indenture, without the consent of the Holder of
each Security affected. It is also provided in the Indenture that, with respect
to certain defaults or Events of Default regarding the Securities of any series,
prior to any declaration accelerating the maturity of such Securities, the
Holders of a majority in aggregate principal amount Outstanding of the
Securities of such series (or, in the case of certain defaults or Events of
Default, all or certain series of the Securities) may on behalf of the Holders
of all the Securities of such series (or all or certain series of the
Securities, as the case may be) waive any such past default or Event of Default
and its consequences. The preceding sentence shall not, however, apply to a
default in the payment of the principal of or premium, if any, or interest on
any of the Securities. Any such consent or waiver by the Holder of this Note
(unless revoked as provided in the Indenture) shall be conclusive and binding
upon such Holder and upon all future Holders and owners of this Note and any
Note which may be issued in exchange or substitution herefor, irrespective of
whether or not any notation thereof is made upon this Note or such other Notes.
No reference herein to the Indenture, and no provision of this Note or
of the Indenture, shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Note in the manner, at the respective times, at the rate, and in the
coin or currency herein prescribed.
AUTHORIZED DENOMINATIONS. The Notes are issuable in registered form
without coupons in denominations of $1,000 and any multiple of $1,000. As
provided in the Indenture, and subject to certain limitations set forth therein,
Notes in registered form are exchangeable for a like aggregate principal amount
of Notes in registered form of other authorized denominations, as requested by
the Holder surrendering the same at the agency of the Issuer in Chicago,
Illinois. No service charge shall be made for any such exchange, but the Issuer
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
REDEMPTION. The Notes may not be redeemed at the option of the Issuer
on or prior to the Initial Maturity Date. The Notes may be redeemed, in whole or
in part, at the option of the issuer at any time and from time to time after the
Initial Maturity Date and prior to the Final
7
<PAGE> 8
Maturity Date, upon mailing a notice of such redemption not less than 30 nor
more than 60 days prior to the date fixed for redemption to the Holders of Notes
at their last registered addresses, all as further provided in the Indenture, at
a redemption price equal to the greater of (i) 100% of the principal amount
thereof plus accrued interest to the redemption date and (ii) the sum of the
present values of the remaining scheduled payments of interest on and principal
of the Notes, discounted to the redemption date on a semiannual basis (assuming
a 360-day year consisting of twelve 30-day months) at a rate equal to the sum
of (a) the yield to maturity on the U.S. Treasury securities of comparable term
and (b) 0.25%.
The Notes are not subject to any sinking fund.
REGISTRATION OF TRANSFER. Upon due presentment for registration of
transfer of this Note at the office or agency of the Issuer in Chicago,
Illinois, a new Note or Notes of authorized denominations for an equal aggregate
principal amount will be issued to the transferee in exchange therefor, subject
to the limitations provided in the Indenture, without charge except for any tax
or other governmental charge imposed in connection therewith.
THIS SECURITY IS EXCHANGEABLE ONLY IF (X) THE DEPOSITORY NOTIFIES THE
ISSUER THAT IT IS UNWILLING OR UNABLE TO CONTINUE AS DEPOSITORY FOR THIS GLOBAL
DEBENTURE OR IF AT ANY TIME THE DEPOSITORY CEASES TO BE A CLEARING AGENCY
REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, (Y) THE ISSUER
IN ITS SOLE DISCRETION DETERMINES THAT THIS DEBENTURE SHALL BE EXCHANGEABLE FOR
CERTIFICATED DEBENTURES IN REGISTERED FORM OR (Z) AN EVENT OF DEFAULT, OR AN
EVENT WHICH WITH THE PASSAGE OF TIME OR THE GIVING OF NOTICE WOULD BECOME AN
EVENT OF DEFAULT, WITH RESPECT TO THE DEBENTURES REPRESENTED HEREBY HAS OCCURRED
AND IS CONTINUING, PROVIDED THAT THE DEFINITIVE DEBENTURES SO ISSUED IN EXCHANGE
FOR THIS PERMANENT GLOBAL DEBENTURE SHALL BE IN DENOMINATIONS OF $1,000 AND ANY
INTEGRAL MULTIPLE OF $1,000 IN EXCESS THEREOF AND BE OF LIKE AGGREGATE PRINCIPAL
AMOUNT AND TENOR AS THE PORTION OF THIS PERMANENT GLOBAL DEBENTURE TO BE
EXCHANGED, AND PROVIDED FURTHER THAT, UNLESS THE ISSUER AGREES OTHERWISE,
DEBENTURES OF THIS SERIES IN CERTIFICATED REGISTERED FORM WILL BE ISSUED IN
EXCHANGE FOR THIS PERMANENT GLOBAL DEBENTURE, OR ANY PORTION HEREOF, ONLY IF
SUCH DEBENTURES IN CERTIFICATED REGISTERED FORM WERE REQUESTED BY WRITTEN NOTICE
TO THE TRUSTEE OR THE SECURITIES REGISTRAR BY OR ON BEHALF OF A PERSON WHO IS
BENEFICIAL OWNER OF AN INTEREST HEREOF GIVEN THROUGH THE HOLDER HEREOF. EXCEPT
AS PROVIDED ABOVE, OWNERS OF BENEFICIAL INTERESTS IN THIS PERMANENT GLOBAL
DEBENTURE WILL NOT BE ENTITLED TO RECEIVE PHYSICAL DELIVERY OF DEBENTURES IN
CERTIFICATED REGISTERED FORM AND WILL NOT BE CONSIDERED THE HOLDERS THEREOF FOR
ANY PURPOSE UNDER THE INDENTURE.
OWNERS. The Issuer, the Trustee and any authorized agent of the Issuer
or the Trustee may deem and treat the registered Holder hereof as the absolute
owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon), for the
purpose of receiving payment of, or on account of, the principal hereof and
premium, if any, and interest hereon, and for all other purposes, and neither
the Issuer nor the Trustee nor any authorized agent of the Issuer or the
Trustee shall be affected by any notice to the contrary.
8
<PAGE> 9
NO RECOURSE AGAINST CERTAIN PERSONS. No recourse under or upon any
obligation, covenant or agreement of the Issuer in the Indenture or any
indenture supplemental thereto or in this Note, or because of the creation of
any indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer or director, as such, of the Issuer or of any successor
corporation, either directly or through the Issuer or any successor corporation,
under any rule of law, statute or constitutional provision or by the enforcement
of any assessment or by any legal or equitable proceeding or otherwise, all such
liability being expressly waived and released by the acceptance hereof and as
part of the consideration for the issue hereof.
DEFEASANCE. The Indenture with respect to any series will be discharged
and cancelled except for certain Sections thereof, subject to the terms of the
Indenture, upon the payment of all the Securities of such series or upon the
irrevocable deposit with the Trustee of cash or U.S. Government Obligations (or
a combination thereof) sufficient for such payment in accordance with Article
Ten of the Indenture.
GOVERNING LAW. The Indenture and this Note shall be deemed to be
contracts made under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of such state.
DEFINED TERMS. Terms used herein which are defined in the Indenture
shall have the respective meanings assigned thereto in the Indenture.
9
<PAGE> 10
-------------
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT - .........Custodian...............
(Cust) (Minor)
Under Uniform Gifts to Minors Act
........................
(State)
Additional abbreviations may also be used though not in the above list.
--------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing ___________________________________ attorney to transfer said
Security on the books of the Issuer, with full power of substitution in the
premises.
Dated:
------------------------------
Signature
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN INSTRUMENT IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
10
<PAGE> 1
EXHIBIT 10.11
KELLOGG COMPANY
STOCK COMPENSATION PROGRAM
FOR
NON-EMPLOYEE DIRECTORS
(as amended)
This is the Stock Compensation Program for Non-Employee Directors of
Kellogg Company (the "Program").
1. Purpose. The purpose of the Program is to attract and retain
outstanding non-employee directors by enabling them to participate in the
Company's growth through automatic, non-discretionary awards of shares of common
stock of the Company.
2. Eligibility. Eligibility for participation in the Program is limited
to persons then currently serving as directors of the Company who are not
"employees" of the Company (or any of its subsidiaries) within the meaning of
the Employee Retirement Income Security Act of 1974 or for federal income tax
withholding purposes (the "Participants").
3. Stock Available for the Program. Shares of stock available for
issuance pursuant to the Program may be either authorized but unissued shares or
shares which have been or may be reacquired by the Company including Treasury
shares of the common stock of the Company, $0.25 par value (the "Stock"). An
aggregate of 374,400 shares of the Stock shall be so available. No awards shall
be made under the Program after 1999.
4. Awards of Restricted Stock. An Annual Award of 1,000 shares of Stock
shall be made to each Participant elected at an annual meeting of stockholders
with at least one year of service following the annual meeting of stockholders.
Participants elected or appointed to the Board at any time other than the annual
meeting of stockholders, shall receive an initial Award on the first anniversary
of the Participant's election or appointment to the Board and a pro-rata Award
at the next annual meeting of stockholders following the first anniversary based
on the number of months from the first anniversary date to the next annual
meeting of stockholders in relation to 12. Thereafter, the full Award shall be
made to such person following each annual meeting of stockholders.
5. Rights of Participants. The Company shall establish a bookkeeping
account in the name of each Participant (the "Stock Account"). As of the date
that shares are awarded to a Participant, the Participant's Stock Account shall
be adjusted to reflect such shares and an aggregate number of shares credited to
each Participant on such date shall be transferred by the Company to the Kellogg
Company Grantor Trust for Non-Employee Directors. Except for the right to direct
the Trustee as to the manner which the shares are to be voted, a Participant
shall not have any rights with respect to any shares credited to the
Participant's Stock Account and transferred to the Trust until the date the
Participant ceases, for any reason, to serve as a director of the Company.
6. Changes in Capitalization or Organization. Nothing contained in this
document shall alter or diminish in any way the right and authority of the
Company to effect
<PAGE> 2
changes in its capital or organizational structure; provided, however, that the
following procedures shall be recognized.
6.1. Stock Split, Stock Dividend, or Extraordinary Distribution. In
the event the number of shares of common stock of the Company is increased at
any time by a stock split, by declaration by the Board of Directors of the
Company of a dividend payable only in shares of such stock, or by any other
extraordinary distribution of shares, the number of shares granted pursuant to
Article 4 above shall be proportionately adjusted.
6.2. Organizational Changes. In the event a merger, consolidation,
reorganization, or other change in corporate structure materially changes the
terms or value of the common stock of the Company, the number of shares granted
pursuant to Article 4 above shall be adjusted in such manner as the Board of
Directors in its sole discretion shall determine to be equitable and consistent
with the purposes of the Program. Such determination shall be conclusive for all
purposes with respect to the grant made in Article 4 above.
7. Listing, Registration, and Legal Compliance. Each award made
pursuant to Article 4 above shall be subject to the requirement that if at any
time counsel to the Company shall determine that the listing, registration or
qualification thereof or of any shares of the stock subject thereto upon any
securities exchange or under any foreign, federal or state securities or other
law or regulation, or the consent or approval of any governmental body or the
taking of any other action to comply with or otherwise with respect to any such
law or regulation, is necessary or desirable as a condition to or in connection
with such award or delivery of shares of the Stock thereunder, no such award may
be made or implemented unless such listing, registration, qualification,
consent, approval or other action shall have been effected or obtained free of
any conditions not acceptable to the Company. The holder of any such award shall
supply the Company with such certificates, representations and information as
the Company shall request and shall otherwise cooperate with the Company in
effecting or obtaining such listing, registration, qualification, consent,
approval or other action.
8. Obligation to Reelect. Nothing in this Program shall be deemed to
create any obligation on the part of the Board of Directors to nominate any
Director for reelection by the Company's shareholders.
9. Termination or Amendment of the Program. The Board of Directors
reserves the right to terminate or amend the Program at any time; provided,
however, that such action shall not adversely affect the rights of any
Participant under its provisions with respect to awards of the Stock theretofore
made, and provided further that such action shall not increase the amount of
authorized and unissued shares of the Stock available for the program as
specified in Article 3 above or materially increase the benefits to
Participants.
10. Effective Date. This program shall become effective as of the date
that it is ratified by the stockholders and no award made hereunder shall be
effective unless the Program is so ratified.
2
<PAGE> 1
EXHIBIT 10.14
LEAVE OF ABSENCE AGREEMENT
This Agreement (the "Agreement") made and entered into as of October 1,
1998, by the between Kellogg Company, a Delaware corporation ("the Company") and
Thomas A. Knowlton, an individual ("Employee").
The purpose of this Agreement is to set forth the arrangements with respect
to Employee's resignation as an officer of the Company, and its subsidiaries,
divisions and affiliates, effective October 1, 1998, and related matters. As of
that date, Employee is relieved of all his titles, duties, responsibilities and
authority as an officer and otherwise with respect to, the Company.
Except as otherwise provided in this Agreement, for the period beginning
October 1, 1998, and continuing through June 30, 2001, Employee will be an
employee on a paid leave-of-absence. During Employee's paid leave-of-absence,
Employee will receive the salary continuation payments as described herein, but
Employee shall not hold any title or position with the Company, and Employee
shall have no titles, duties, responsibilities or authority with respect to the
Company, its business and/or operations.
As more fully provided hereinbelow, the salary continuation payments
described herein are in consideration of Employee's release of any and all cause
or causes of action he has, has had or may have against the Company and also in
consideration of Employee's agreement not to compete.
Commencing October 1, 1998 and ending December 31, 1998, Employee will
receive salary continuation payments at Employee's present salary equal to
$48,333.33 per month. Commencing January 1, 1999 and ending June 30, 2001,
Employee shall receive salary continuation payments equal to $33,833.33 per
month. The amounts payable to Employee under this Agreement are in lieu of any
amounts which may be payable to Employee for termination pay. The Company will
pay to Employee that sum which is equivalent to all unused, earned and accrued
vacation of Employee as of October 1, 1998. Employee shall not be entitled to
any future vacation pay accruals from and after the date of this Agreement.
Usual and customary withholding for tax purposes will be withheld from all
monthly salary continuation payments through June 30, 2001, and from any other
payments made to Employee, to the extent required by law. All tax liability,
with respect to any and all payments or services received by Employee under this
Agreement (other than employer withholding and employer payroll taxes), will be
Employee's responsibility.
Employee will be eligible to participate in the Second Restated Kellogg
Company Salaried Savings and Investment Plan, subject to the terms and
provisions thereof, including
<PAGE> 2
any amendment or alteration thereof after the date of this Agreement,
throughout Employee's paid leave-of-absence. Usual and customary withholding
for personal designated deductions, including participation in such Savings
Plan, will be withheld throughout Employee's paid leave-of-absence.
Employee's right to exercise nonqualified stock options that Employee
received pursuant to the Company 1982 Stock Option Plan and the 1991 Key
Employee Long-Term Incentive Plan will be administered in accordance with and
be subject to the respective provisions of those Plans, and shall continue so
long as Employee is employed by the Company and for such period of time as
provided by such Plans upon Employee's retirement.
The Company will continue Employee's coverage under the existing Company
Executive Survivor Income Plan, based upon Employee's most recent compensation
rate of $942,000.
Employee will be eligible, at the Company's expense, for outplacement
assistance, not to exceed $60,000, by an outplacement agency mutually agreeable
to Employee and Company. Arrangements for these services will be coordinated by
R.L. Creviston of Kellogg Company.
Except as otherwise provided herein, benefits for Employee and his eligible
dependents, as outlined in "A Guide To Your Medical/Mental/Prescription Drug
Benefits" effective 1995, and under the Executive Income Survivor Plan, subject
to the respective terms and provisions thereof, including any amendment or
alteration thereof after the date of this Agreement, will be continued for
Employee as an employee, and, to the extent provided in such plans, upon
Employee's retirement. However, at such time as Employee is eligible for
coverage by the health plan of another employer, such health insurance shall be
deemed the primary health insurance coverage for Employee and his eligible
dependents.
Price Waterhouse will provide to Employee, at Company's expense, for the
tax year 1998 only, not to exceed $15,000 in fees and costs of Price
Waterhouse, tax preparation and tax counseling services.
For a period of one year commencing October 1, 1998, or until Employee is
reemployed, whichever first occurs, Employee will be eligible to participate in
the Company's Relocation Program from Employee's home in Michigan. The Company
will also pay the cost of one move to a destination, of Employee's choice,
within North America. Payments hereunder are subject to required withholding
taxes.
Employee shall and does hereby irrevocably elect to retire upon reaching
age 55 and then be eligible for pension benefits through the Kellogg Company
Salaried Pension Plan,
-2-
<PAGE> 3
the Kellogg Company Excess Benefit or Supplemental Retirement Plan
(collectively the "Pension Plans"). Pension benefits for which Employee will be
eligible will be based upon Employee's highest consecutive three-year earnings
during his last ten years of employment with the Company. Years of service for
this program will include the period while Employee is on leave-of-absence. At
the time Employee elects to begin receiving such benefits, he should contact
the Employee Benefits Department of the Company.
The Company will not modify the Pension Plans or any other plans or
benefits under which Employee is entitled to participate pursuant to this
Agreement in a manner which would treat Employee differently than other
participants.
In further consideration of the foregoing, Employee agrees that, for the
respective Restricted Periods (as hereinafter defined), Employee shall not (i)
directly or indirectly, accept any employment, consult for or with, or
otherwise provide or perform any services of any nature to, for or on behalf
of any person, firm, partnership, corporation or other business or entity that
manufactures, produces, distributes, sells or markets any of the Products (as
hereinbelow defined) in the Geographic Area (as hereinafter defined), or (ii)
directly or indirectly, permit any business firm which Employee, individually
or jointly with others, may own, manage, operate or control, to engage in the
manufacture, production, distribution, sale or marketing of any of the Products
in the Geographic Area. For purposes of this paragraph, the term "Products"
shall mean ready-to-eat cereal products, toaster pastries, cereal bars,
granola bars, frozen waffles, crispy marshmallow squares, bagels, and any other
similar grain-based convenience food product and the term "Geographic Area"
shall mean any country in the world where the Company (including any
subsidiary, division or affiliate thereof) manufactures, produces, distributes,
sells or markets any of the Products at any time during the applicable
Restricted Period (as defined below). For purposes of this paragraph, the
Restricted Period with respect to the products, shall be three (3) years from
the date of this Agreement.
As a result of this extension of salary and benefits eligibility, the
Company, its subsidiaries, divisions and affiliates (including the directors,
officers and employees of any of them) shall have no further obligations of any
kind or nature to Employee, including, without limitation, obligations for any
termination, severance or vacation pay, except as specifically provided herein
and except as may be provided under the Company benefit plans in accordance
with their terms. Employee agrees not to divulge any confidential or
proprietary information regarding the Company and Employee further agrees to
and shall immediately return to the Company all files, documents,
correspondence, memoranda, customer and client lists, prospect lists,
subscription lists, contracts, pricing policies, operational methods, marketing
plans or strategies, product development techniques or plans, business
acquisition plans, employee records, technical processes, designs and design
projects, inventions, research projects presentations, proposals, quotations,
data, notes,
-3-
<PAGE> 4
records, photographic slides, chromes, photographs, posters, manuals,
brochures, internal publications, books, films, drawings, videos, sketches,
plans, outlines, computer disks, computer files, work plans, specifications,
credit cards, keys (including elevator, pass, building and door keys),
identification cards, and any other documents, writings and materials that
Employee came to possess or otherwise acquire as a result of and/or in
connection with the Company. Employee agrees to conduct himself in a manner
that reflects positively on the Company. Similarly, the Company agrees to
conduct itself in a manner that reflects positively on Employee. Nothing
contained in this Agreement, nor any actions taken by the Company, its
subsidiaries, divisions and affiliates (including the directors, officers and
employees of any of them) constitute any admission of fault, liability or
wrongdoing of any kind, and the Company, its subsidiaries, divisions and
affiliates (including the directors, officers and employees of any of them)
each specifically denies any liability to Employee on any theory.
It is understood that the monthly salary continuation payments as provided
in this Agreement shall continue to be made to Employee through June 30, 2001,
whether or not Employee secures new employment. For purposes of this Agreement,
Employee will be deemed to have secured new employment upon being employed by
another company and becoming eligible for coverage under the health plan of
that company, whereupon such company's health coverage shall be and be deemed
to be the primary health coverage for Employee and his eligible dependents.
Employee will not be deemed to have secured new employment as a result of
business activities or services rendered by Employee to others on a part-time
basis or otherwise as an independent contractor; provided, however, that
nothing herein shall release Employee of Employee's obligation hereunder not to
render such activities or services in connection with the manufacture,
production, distribution, sale or marketing the Products in the Geographical
Area, as above provided.
Employee hereby acknowledges and agrees that these arrangements set forth
the sole and entire obligations of the Company, its subsidiaries, divisions and
affiliates (including the directors, officers and employees of any of them) to
Employee. Employee's signature in the space below shall conclusively evidence
his acceptance of the terms set forth herein. Employee hereby resigns all of
his titles, offices and positions with the Company and its subsidiaries,
divisions and affiliates, effective October 1, 1998. Employee's signature also
releases, remises and discharges the Company, its subsidiaries, divisions and
affiliates (including the directors, officers and employees of any of them),
fully, absolutely and unconditionally, of and from any and all claims, demands,
actions, cause or causes of action, known or unknown, which Employee has, has
had or have against any of them, including, but not limited to, the Age
Discrimination in Employment Act, from the beginning of time to the day and
date of these presents, except for matters arising under or contemplated by
this Agreement. Execution on behalf of the Company releases, remises and
discharges Employee fully, absolutely and unconditionally, of and from any and
all claims,
-4-
<PAGE> 5
demands, actions, cause or causes of action, known or unknown, which the
Company, its subsidiaries, divisions and affiliates has, has had or may have
against him, from the beginning of time to the day and date of these presents,
except for matters arising under or contemplated by this Agreement.
This Agreement shall be construed and interpreted under the laws of the
State of Michigan, including conflict of laws. It is agreed that any
controversy, claim or dispute between the parties, directly or indirectly,
concerning this Agreement or the breach thereof shall only be resolved in the
Circuit Court of Calhoun County, or the United States District Court for the
Western District of Michigan, whichever court has jurisdiction over the subject
matter thereof, and the parties hereby submit to the jurisdiction of said
courts.
Employee acknowledges that he has reviewed this Agreement with his own
independent counsel of his choosing and has been advised by such counsel with
respect thereto.
For purposes of any construction or interpretation of this Agreement, all
terms and provisions thereof shall be deemed to have been mutually drafted by
both of the parties.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and date first above written in Battle Creek, Michigan.
Kellogg Company
By: /s/ Richard M. Clark /s/ Thomas A. Knowlton
---------------------------- ----------------------------
Richard M. Clark Thomas A. Knowlton
General Counsel and
Secretary
Sept 25/98
-5-
<PAGE> 1
EXHIBIT 10.15
LEAVE OF ABSENCE AGREEMENT
This Agreement (the "Agreement") made and entered into as of October 1,
1998, by the between Kellogg Company, a Delaware corporation ("the Company")
and Donald G. Fritz, an individual ("Employee").
The purpose of this Agreement is to set forth the arrangements with
respect to Employee's resignation as an officer of the Company, and its
subsidiaries, divisions and affiliates, effective October 1, 1998, and related
matters. As of that date, Employee is relieved of all his titles, duties,
responsibilities and authority as an officer and otherwise with respect to the
Company.
Except as otherwise provided in this Agreement, for the period beginning
October 1, 1998, and continuing through September 30, 2002, Employee will be an
employee on a paid leave-of-absence. During Employee's paid leave-of-absence,
Employee will receive the salary continuation payments as described herein, but
Employee shall not hold any title or position with the Company, and Employee
shall have no titles, duties, responsibilities or authority with respect to the
Company, its business and/or operations.
As more fully provided hereinbelow, the salary continuation payments
described herein are in consideration of Employee's release of any and all
cause or causes of action he has, has had or may have against the Company and
also in consideration of Employee's agreement not to compete.
Commencing October 1, 1998 and ending December 31, 1998, Employee will
receive salary continuation payments at Employee's present salary equal to
$39,166.66 per month. Commencing January 1, 1999 and ending September 30, 2002,
Employee shall receive salary continuation payments equal to $18,277.78 per
month. The amounts payable to Employee under this Agreement are in lieu of any
amounts which may be payable to Employee for termination pay. The Company will
pay to Employee that sum which is equivalent to all unused, earned and accrued
vacation of Employee as of October 1, 1998. Employee shall not be entitled to
any future vacation pay accruals from and after the date of this Agreement.
Employee will be eligible to participate in the Second Restated Kellogg
Company Salaried Savings and Investment Plan, subject to the terms and
provisions thereof, including any amendment or alteration thereof after the
date of this Agreement, throughout Employee's paid leave-of-absence. Usual and
customary withholding for personal designated deductions, including
participation in such Savings Plan, will be withheld throughout Employee's paid
leave-of-absence.
Employee's right to exercise nonqualified stock options that Employee
received pursuant to the Company 1982 Stock Option Plan and the 1991 Key
Employee Long-Term
-1-
<PAGE> 2
Incentive Plan will be administered in accordance with and be subject to the
respective provisions of those Plans, and shall continue so long as Employee is
employed by the Company and for such period of time as provided by such Plans
upon Employee's retirement.
The Company will continue Employee's coverage under the existing Company
Executive Survivor Income Plan, based upon Employee's most recent compensation
rate of $745,890.
Employee will be eligible, at the Company's expense, for outplacement
assistance, not to exceed $60,000, by an outplacement agency mutually agreeable
to Employee and Company. Arrangements for these services will be coordinated by
R.L. Creviston of Kellogg Company.
Except as otherwise provided herein, benefits for Employee and his eligible
dependents, as outlined in "A Guide To Your Medical/Mental/Prescription Drug
Benefits" effective 1995, and under the Executive Income Survivor Plan, subject
to the respective terms and provisions thereof, including any amendment or
alteration thereof after the date of this Agreement, will be continued for
Employee as an employee, and, to the extent provided in such plans, upon
Employee's retirement. However, at such time as Employee is eligible for
coverage by the health plan of another employer, such health insurance shall be
deemed the primary health insurance coverage for Employee and his eligible
dependents.
Employee's tax obligations incurred while residing in the United Kingdom
during fiscal year ended April 1999 will be calculated in accordance with the
Company's written tax equalization policy. During the fiscal year ended April
1999, the Company will continue to retain monthly from Employee's salary
continuation payments, while Employee resides in the United Kingdom, an amount
which will represent the estimate of the theoretical tax on such payments.
After 1999 annual tax returns are completed, the hypothetical taxes retained
plus actual and estimated tax payments Employee may have made (without
reimbursement from the Company) will be compared with Price Waterhouse's final
calculation of theoretical taxes including non-company income (e.g. private
investment) and allowable deductions to determine any balance due to or from
Employee as applicable. The incremental tax on any non-company income that
result from expatriation will be paid by the Company only through the fiscal
year ended 1999.
The Company will make Employee's actual United Kingdom tax payments as
they become due with respect to fiscal year ended April 1999. The accounting
firm of Price Waterhouse will assist Employee, at Company's expense, in the
preparation and filing of Employee's foreign and domestic income tax returns
for the fiscal year ended April 1999. To the extent that there are foreign tax
carryovers benefits available to the Company, the Company retains the right to
recover these amounts.
-2-
<PAGE> 3
Except as provided above, usual and customary withholding for tax purposes
will be withheld from all monthly salary continuation payments through
September 30, 2002, and from any other payments made to Employee, to the extent
required by law. All tax liability, with respect to any and all payments
received by Employee under this Agreement (other than employer withholding and
employer payroll taxes), will be Employee's responsibility.
The Company will continue to provide housing, education reimbursement and
automobile benefits until April 30, 1999, as further set forth in Employee's
Letter of Understanding for Great Britain Assignment dated July 8, 1994.
The Company will pay moving expenses in accordance with the Company's
policy for Employee, his family and his household goods and furniture. Expenses
to Employee's point of origin, or alternate of Employee's choice, if lesser
cost to the Company, will be paid, provided Employee returns to that point by
April 30, 1999.
Employee shall and does hereby irrevocably elect to retire upon reaching
age 55 and then be eligible for pension benefits through the International
Retirement Plan, (the "IRP"). Pension benefits for which Employee will be
eligible will be based upon Employee's highest consecutive three-year earnings
during his last ten years of employment with the Company. Years of service for
this program will include the period while Employee is on leave-of-absence. At
the time Employee elects to begin receiving such benefits, he should contact
the Employee Benefits Department of the Company.
In further consideration of the foregoing, Employee agrees that, for the
respective Restricted Periods (as hereinafter defined). Employee shall not (i)
directly or indirectly, accept any employment, consult for or with, or
otherwise provide or perform any services of any nature to, for or on behalf of
any person, firm, partnership, corporation or other business or entity that
manufacturers, produces, distributes, sells or markets any of the Products (as
hereinbelow defined) in the Geographic Area (as hereinafter defined), or (ii)
directly or indirectly, permit any business firm which Employee, individually
or jointly with others, may own, manage, operate or control, to engage in the
manufacture, production, distribution, sale or marketing of any of the Products
in Geographic Area. For purposes of this paragraph, the term "Products" shall
mean ready-to-eat cereal products, toaster pastries, cereal bars, granola bars,
frozen waffles, crispy marshmallow squares, bagels, and any other similar
grain-based convenience food product and the term "Geographic Area" shall mean
any country in the world where the Company (including any subsidiary, division
or affiliate thereof) manufactures, produces, distributes, sells or markets any
of the Products at any time during the applicable Restricted Period (as defined
below). For purposes of this paragraph, the Restricted Period with respect to
the products, shall be four (4) years from the date of this Agreement.
-3-
<PAGE> 4
As a result of this extension of salary and benefits eligibility, the
Company, its subsidiaries, divisions and affiliates (including the directors,
officers and employees of any of them) shall have no further obligations of any
kind or nature to Employee, including, without limitation, obligations for any
termination, severance or vacation pay, except as specifically provided herein
and except as may be provided under the Company benefit plans in accordance
with their terms. Employee agrees not to divulge any confidential or
proprietary information regarding the Company and Employee further agrees to
and shall immediately return to the Company all files, documents,
correspondence, memoranda, customer and client lists, prospect lists,
subscription lists, contracts, pricing policies, operational methods, marketing
plans or strategies, product development techniques or plans, business
acquisition plans, employee records, technical processes, designs and design
projects, inventions, research projects presentations, proposals, quotations,
data, notes, records, photographic slides, chromes, photographs, posters,
manuals, brochures, internal publications, books, films, drawings, videos,
sketches, plans, outlines, computer disks, computer files, work plans,
specifications, credit cards, keys (including elevator, pass, building and door
keys), identification cards, and any other documents, writings and materials
that Employee came to possess or otherwise acquire as a result of and/or in
connection with the Company. Employee agrees to conduct himself in a manner
that reflects positively on the Company. Similarly, the Company agrees to
conduct itself in a manner that reflects positively on Employee. Nothing
contained in this Agreement, nor any actions taken by the Company, its
subsidiaries, divisions and affiliates (including the directors, officers, and
employees of any of them) constitute any admission of fault, liability or
wrongdoing of any kind, and the Company, its subsidiaries, divisions and
affiliates (including the directors, officers and employees of any of them)
each specifically denies any liability to Employee on any theory.
It is understood that the monthly salary continuation payments as provided
in this Agreement shall continue to be made to Employee through September 30,
2002, whether or not Employee secures new employment. For purposes of this
Agreement, Employee will be deemed to have secured new employment upon being
employed by another company and becoming eligible for coverage under the health
plan of that company, whereupon such company's health coverage shall be and be
deemed to be the primary health coverage for Employee and his eligible
dependents. Employee will not be deemed to have secured new employment as a
result of business activities or services rendered by Employee to others on a
part-time basis or otherwise as an independent contractor; provided, however,
that nothing herein shall release Employee or Employee's obligation hereunder
not to render such activities or services in connection with the manufacture,
production, distribution, sale or marketing the Products in the Geographical
Area, as above provided.
Employee hereby acknowledges and agrees that these arrangements set forth
the sole and entire obligations of the Company, its subsidiaries, divisions and
affiliates (including the directors, officers and employees of any of them) to
Employee. Employee's signature in the
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<PAGE> 5
space below shall conclusively evidence his acceptance of the terms set forth
herein. Employee hereby resigns all of his titles, offices and positions with
the Company and its subsidiaries, divisions and affiliates, effective October
1, 1998. Employee's signature also releases, remises and discharges the
Company, its subsidiaries, divisions and affiliates (including the directors,
officers and employees of any of them), fully, absolutely and unconditionally,
of and from any and all claims, demands, actions, cause or causes of action,
known or unknown, which Employee has, has had or may have against any of them
including, but not limited to, the Age Discrimination in Employment Act, from
the beginning of time to the day and date of these presents, except for matters
arising under or contemplated by this Agreement. Execution on behalf of the
Company releases, remises and discharges Employee fully, absolutely and
unconditionally, of and from any and all claims, demands, actions, cause or
causes of action, known or unknown, which the Company, its subsidiaries,
divisions and affiliates has, has had or may have against him, from the
beginning of time to the date and date of these presents, except for matters
arising under or contemplated by this Agreement.
This Agreement shall be construed and interpreted under the laws of the
State of Michigan, including conflict of laws. It is agreed that any
controversy, claim or dispute between the parties, directly or indirectly,
concerning this Agreement or the breach thereof shall only be resolved in the
Circuit Court of Calhoun County, or the United States District Court for the
Western District of Michigan, whichever court has jurisdiction over the subject
matter thereof, and the parties hereby submit to the jurisdiction of said
courts.
Employee acknowledged that he has reviewed this Agreement with his own
independent counsel of his choosing and has been advised by such counsel with
respect thereto.
For purposes of any construction or interpretation of this Agreement, all
terms and provisions thereof shall be deemed to have been mutually drafted by
both of the parties.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and date first above written in Battle Creek, Michigan.
Kellogg Company
By: /s/ Richard M. Clark /s/ Donald G. Fritz
--------------------- ------------------------
Richard M. Clark Donald G. Fritz
General Counsel and
Secretary
-5-
<PAGE> 1
EXHIBIT 13.01
Selected Financial Data
(millions, except per share data and number of employees)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(a)(b)
Earnings
(a) before Average
Net % Operating % accounting % shares
sales Growth profit Growth change Growth outstanding(c)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10-year
compound
growth rate 5% 1% -
1998 $ 6,762.1 <1%> $ 895.1 <11%> $ 502.6 <11%> 407.8
1997 6,830.1 2 1,009.1 5 564.0 6 414.1
1996 6,676.6 (5) 958.9 14 531.0 8 424.9
1995 7,003.7 7 837.5 (28) 490.3 (30) 438.3
1994 6,562.0 4 1,162.6 16 705.4 4 448.6
1993 6,295.4 2 1,004.6 (5) 680.7 - 463.0
1992 6,190.6 7 1,062.8 3 682.8 13 477.7
1991 5,786.6 12 1,027.9 16 606.0 21 482.4
1990 5,181.4 11 886.0 21 502.8 19 483.2
1989 4,651.7 7 732.5 (8) 422.1 (12) 488.4
1988 4,348.8 15 794.1 15 480.4 21 492.8
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Per Common Share Data (c)
----------------------------------------------------------
(a)(b) Net cash
Earnings (d) Net cash provided by/
before Price/ Stock provided by (used in) Common
accounting Cash earnings price operating financing stock
change dividends ratio range activities activities repurchases
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10-year
compound
growth rate 2% 9%
1998 $ 1.23 $ 0.92 28 $30 - 50 $ 719.7 $(358.3) $ 239.7
1997 1.36 0.87 36 32 - 50 879.8 (607.3) 426.0
1996 1.25 0.81 26 31 - 40 711.5 94.0 535.7
1995 1.12 0.75 34 26 - 40 1,041.0 (759.2) 374.7
1994 1.57 0.70 18 24 - 30 966.8 (559.5) 327.3
1993 1.47 0.66 19 23 - 34 800.2 (464.2) 548.1
1992 1.43 0.60 23 27 - 37 741.9 (422.6) 224.1
1991 1.26 0.54 26 17 - 33 934.4 (537.7) 83.6
1990 1.04 0.48 18 14 - 19 819.2 (490.9) 86.9
1989 0.87 0.43 20 14 - 20 533.5 (143.2) 78.6
1988 0.98 0.38 16 12 - 17 492.3 52.1 33.6
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Return on Return on
Total average Shareholders' average Property, Capital Depreciation Long-term
assets assets equity equity net expenditures and amortization debt
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $ 5,051.5 10% $ 889.8 53% $ 2,888.8 $ 373.9 $ 278.1 $1,614.5
1997 4,877.6 11 997.5 49 2,773.3 312.4 287.3 1,415.4
1996 5,050.0 11 1,282.4 37 2,932.9 307.3 251.5 726.7
1995 4,414.6 11 1,590.9 29 2,784.8 315.7 258.8 717.8
1994 4,467.3 16 1,807.5 40 2,892.8 354.3 256.1 719.2
1993 4,237.1 16 1,713.4 37 2,768.4 449.7 265.2 521.6
1992 4,015.0 11 1,945.2 21 2,662.7 473.6 231.5 314.9
1991 3,925.8 16 2,159.8 30 2,646.5 333.5 222.8 15.2
1990 3,749.4 14 1,901.8 28 2,595.4 320.5 200.2 295.6
1989 3,390.4 14 1,634.4 30 2,406.3 508.7 167.6 371.4
1988 3,297.9 16 1,483.2 36 2,131.9 538.1 139.7 272.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(e) Pretax
Debt to interest
market coverage Current Advertising R&D Number of
capitalization (times) ratio expense expense employees
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 16% 7 0.9 $ 695.3 $ 121.9 14,498
1997 10 9 0.9 780.4 106.1 14,339
1996 14 13 0.7 778.9 84.3 14,511
1995 5 12 1.1 891.5 72.2 14,487
1994 8 23 1.2 856.9 71.7 15,657
1993 7 27 1.0 772.4 59.2 16,151
1992 3 33 1.2 782.3 56.7 16,551
1991 3 17 0.9 708.3 34.7 17,017
1990 7 10 0.9 648.5 38.3 17,239
1989 10 10 0.9 611.4 42.9 17,268
1988 9 14 0.9 560.9 42.0 17,461
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Operating profit for 1998 includes non-recurring charges of $70.5 ($46.3
after tax or $.12 per share). Operating profit for 1997 includes
non-recurring charges of $184.1 ($140.5 after tax or $.34 per share).
Operating profit for 1996 includes non-recurring charges of $136.1 ($97.8
after tax or $.23 per share). Earnings before accounting change for 1996
include a charge of $35.0 ($22.3 after tax or $.05 per share) for a
contribution to the Kellogg's Corporate Citizenship Fund. Operating profit
for 1995 includes non-recurring charges of $421.8 ($271.3 after tax or $.62
per share). Operating profit for 1993 includes non-recurring charges of
$64.3 ($41.1 after tax or $.09 per share). Refer to Management's Discussion
and Analysis on pages 16-21 and Notes 3 and 4 within the Notes to
Consolidated Financial Statements for further explanation of non-recurring
charges and other unusual items for years 1996 - 1998.
(b) Earnings before accounting change for 1997 exclude the effect of a charge
of $18.0 after tax ($.04 per share) to write off business process
reengineering costs in accordance with guidance issued by the Emerging
Issues Task Force of the FASB. Earnings before accounting change for 1992
and 1989 exclude the effect of adopting the following Statements of
Financial Accounting Standards (SFAS): in 1992, a charge of $251.6 ($.53
per share) net of $144.6 of income tax benefit for the transition effect of
SFAS #106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and, in 1989, a gain of $48.1 ($.10 per share) for SFAS #96
"Accounting for Income Taxes."
(c) All share data retroactively restated to reflect 2-for-1 stock splits in
1997 and 1991. All earnings per share data represent both basic and diluted
earnings per share.
(d) The price/earnings ratio was calculated based on year-end stock price
divided by earnings before the accounting changes referred to in note (b).
These earnings include the non-recurring charges and other unusual items
referred to in note (a). Excluding the impact of these unusual items, the
price/earnings ratio in 1998, 1997, 1996, 1995, and 1993 would have been
25, 29, 21, 22, and 19, respectively.
(e) Debt to market capitalization was calculated based on year-end total debt
balance divided by market capitalization. Market capitalization was
calculated based on year-end stock price multiplied by the number of shares
outstanding at year-end.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
KELLOGG COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
OVERVIEW
Kellogg Company manufactures and markets ready-to-eat cereal and other
grain-based convenience food products, including toaster pastries, frozen
waffles, cereal bars, and bagels, throughout the world. Principal markets for
these products include the United States and Great Britain. Operations are
managed via four major geographic areas - North America, Europe, Asia-Pacific,
and Latin America - which are the basis of the Company's reportable operating
segment information. The Company leads the global ready-to-eat cereal category
with an estimated 38% annualized share of worldwide volume. Additionally, the
Company is the North American market leader in the toaster pastry,
cereal/granola bar, frozen waffle, and pre-packaged bagel categories.
During 1998, the Company realized declines in earnings per share both with and
without unusual items (discussed below). The Company experienced significant
competitive pressure combined with category softness in its major ready-to-eat
cereal markets, to which it responded by accelerating investment in long-term
growth strategies, including product development, technology, and efficiency
initiatives.
For the full year of 1998, Kellogg Company reported net earnings and earnings
per share of $502.6 million and $1.23, respectively, compared to 1997 net
earnings of $546.0 million and net earnings per share of $1.32. Net earnings and
earnings per share for 1996 were $531.0 million and $1.25, respectively. (All
per share amounts reflect the 2-for-1 stock split effective August 22, 1997. All
earnings per share presented represent both basic and diluted earnings per
share.)
During the current and prior years, the Company reported non-recurring charges
and other unusual items that have been excluded from all applicable amounts
presented below for purposes of comparison between years. Additionally, results
for 1997 are presented before the cumulative effect of a change in the method of
accounting for business process reengineering costs. Refer to the separate
section below on non-recurring charges and other unusual items for further
information.
1998 compared to 1997
Excluding non-recurring charges and other unusual items, the Company reported
1998 earnings per share of $1.35, a 21% decrease from the prior-year result of
$1.70. The year-to-year decrease in earnings per share of $.35 resulted from
$.33 of business decline, $.01 of unfavorable tax rate movements, and $.03 of
unfavorable foreign currency movements, partially offset by a $.02 benefit from
share repurchase. The business decline was principally attributable to cereal
category softness and competitive pressures in North America and Europe, and
continued global investments in brand-building marketing activities and
streamlining initiatives. Foreign currency movements had a minimal net impact in
Europe and negatively impacted earnings by 2% on a consolidated basis due to
currency devaluation in Latin America and Asia-Pacific.
The Company realized the following volume results during 1998:
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
CHANGE
<S> <C>
North America -4.3%
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Europe -1.2%
Asia-Pacific +6.9%
Latin America +16.2%
- ---------------------------------------------------------------
Global total -1.3%
===============================================================
CHANGE
Global cereal -2.0%
Global convenience foods +1.1%
- ---------------------------------------------------------------
Global total -1.3%
===============================================================
</TABLE>
Within North America and Europe, volume declines were principally due to
softness in the ready-to-eat cereal business. Asia-Pacific experienced record
volume due to a combination of cereal growth and new convenience food product
introductions. Latin America continued to post double-digit increases in both
ready-to-eat cereal and convenience foods, with record volume results throughout
1998.
The global convenience foods volume increase was driven by double-digit growth
in the Company's international markets offset by softness within North America,
primarily due to declines in the Lender's Bagels business.
On an annualized basis, regional volume market share of the ready-to-eat cereal
category was approximately 33% in North America, 43% in Europe, 43% in
Asia-Pacific, and 61% in Latin America.
Consolidated net sales decreased 1% for 1998. Adjusted for unfavorable foreign
currency translation, sales were even with the prior year, with the unfavorable
impact of volume declines offset by favorable pricing and product mix movements.
On an operating segment basis, net sales versus the prior year were:
<TABLE>
<CAPTION>
==================================================================================================================
North Asia- Latin
America Europe Pacific America Consolidated
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Business -1% - + 7% +16% -
Foreign currency impact -1% - -15% -4% -1%
- ------------------------------------------------------------------------------------------------------------------
TOTAL CHANGE -2% - -8% +12% -1%
==================================================================================================================
</TABLE>
Margin performance for 1998 and 1997 was:
<TABLE>
<CAPTION>
======================================================================================
1998 1997 CHANGE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross margin +51.5% +52.1% - .6%
SGA%(a) -37.2% -34.6% -2.6%
- --------------------------------------------------------------------------------------
Operating margin +14.3% +17.5% -3.2%
======================================================================================
</TABLE>
(a) Selling, general and administration expense as a percentage of net sales.
The gross margin decline was due to a combination of the fixed cost absorption
impact of lower volumes combined with incremental costs related to launching new
products in Europe and North America. The increase in SGA% reflects increased
global research and development costs to support our ongoing innovation strategy
combined with significant marketing investment and increased spending on
streamlining initiatives.
Operating profit (loss) on an operating segment basis was:
<PAGE> 4
<TABLE>
<CAPTION>
====================================================================================================================================
North Asia- Latin Corporate
(millions) America Europe Pacific America and other Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1998 operating profit (loss) as reported $790.8 $208.1 $44.9 $107.2 ($255.9) $ 895.1
Non-recurring charges 40.8 3.3 3.4 - 23.0 70.5
- ------------------------------------------------------------------------------------------------------------------------------------
1998 OPERATING PROFIT (LOSS) EXCLUDING
NON-RECURRING CHARGES $831.6 $211.4 $48.3 $107.2 ($232.9) $ 965.6
====================================================================================================================================
1997 operating profit (loss) as reported $847.0 $189.9 $22.5 $111.6 ($161.9) $ 1,009.1
Non-recurring charges 37.8 115.9 28.6 .2 1.6 184.1
- ------------------------------------------------------------------------------------------------------------------------------------
1997 OPERATING PROFIT (LOSS) EXCLUDING
NON-RECURRING CHARGES $884.8 $305.8 $51.1 $111.8 ($160.3) $ 1,193.2
====================================================================================================================================
% change - 1998 vs. 1997 excluding non-recurring charges
Business -6% -31% +11% -1% -45% -18%
Foreign currency impact - - -16% -3% - -1%
====================================================================================================================================
TOTAL CHANGE -6% -31% -5% -4% -45% -19%
====================================================================================================================================
</TABLE>
Gross interest expense, prior to amounts capitalized, increased 8% versus the
prior year to $127.3 million. The higher interest expense resulted from overall
increased debt levels, partially offset by a lower effective interest rate.
Excluding the impact of non-recurring charges and other unusual items, the
effective income tax rate was 35.7%, an increase of .4 percentage points versus
the prior-year rate. The higher effective tax rate is primarily due to lower
earnings and country mix. For both 1998 and 1997, the effective tax rate
benefited from statutory rate reductions in the United Kingdom, as well as
favorable adjustments in other jurisdictions. The effective income tax rate
based on reported earnings (before cumulative effect of accounting change) was
35.8% in 1998 and 37.6% in 1997.
1997 COMPARED TO 1996
Excluding non-recurring charges and other unusual items, the Company reported
1997 earnings per share of $1.70, an 11% increase over the prior-year results of
$1.53. The year-over-year increase in earnings per share of $.17 resulted from
$.12 of business growth, $.03 of common stock repurchases, and $.04 of favorable
tax rate movements, partially offset by $.02 of unfavorable foreign currency
movements. The business growth was principally attributable to cereal volume
growth in North America and Latin America, continued double-digit growth in
convenience foods volume, and reductions in manufacturing and marketing costs.
Foreign currency movements negatively impacted earnings 1% on a consolidated
basis. The negative impact of the Lender's Bagels business, acquired in December
1996, was approximately $.05.
<TABLE>
<CAPTION>
The Company achieved the following volume growth during 1997:
=============================================================
CHANGE
<S> <C>
North America +16.1%
Europe +2.6%
Asia-Pacific +1.5%
Latin America +16.3%
=============================================================
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
- -------------------------------------------------------------
<S> <C>
Global total(a) +11.3%
- -------------------------------------------------------------
- -------------------------------------------------------------
CHANGE
Global cereal +3.4%
Global convenience foods(b) +47.2%
- -------------------------------------------------------------
Global total +11.3%
- -------------------------------------------------------------
</TABLE>
(a) Excluding Lenders, acquired in December 1996, global volume growth was 5.0%.
(b) Excluding Lenders, global convenience foods growth was 12.5%.
Within North America, the Company recovered cereal volume declines of the prior
year, and slightly exceeded 1995 results. Growth in Europe was partially offset
by a decline in the United Kingdom, while Asia-Pacific was slowed by softness in
Australia. Latin America achieved record annual volume results.
Consolidated net sales increased 2% for 1997. The favorable impact of strong
volumes was partially offset by unfavorable pricing and product mix movements,
and a negative foreign currency impact of 2%. Excluding the Lender's business,
consolidated net sales were even with the prior year. On an operating segment
basis, net sales versus the prior year were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
North Asia- Latin
America Europe Pacific America Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Business +4% +2% +2% +13% +4%
Foreign currency impact - -5% -7% -1% -2%
- ---------------------------------------------------------------------------------------------------------------------------
Total Change +4% -3% -5% +12% +2%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Margin performance for 1997 and 1996 was:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1997 1996 CHANGE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross margin +52.1% +53.2% -1.1%
SGA%(a) -34.6% -36.8% +2.2%
- ----------------------------------------------------------------------------------------
Operating margin +17.5% +16.4% +1.1%
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Selling, general and administration expense as a percentage of net sales.
Gross margin performance for 1997 benefited from volume increases and
year-over-year operational cost savings. However, these favorable factors were
outweighed by the negative impact of prior-year pricing actions. The reduction
in SGA% primarily reflects reduced promotional spending in North America.
Operating profit (loss) on an operating segment basis was:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
North Asia- Latin Corporate
(millions) America Europe Pacific America and other Consolidated
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 operating profit (loss) excluding
non-recurring charges $884.8 $305.8 $51.1 $111.8 ($160.3) $1,193.2
- --------------------------------------------------------------------------------------------------------------------------------
1996 operating profit (loss) as reported $751.2 $249.8 $31.2 $93.5 ($166.8) $958.9
Non-recurring charges 11.1 55.3 30.1 .7 38.9 136.1
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1996 operating profit (loss) excluding
non-recurring charges $762.3 $305.1 $61.3 $94.2 ($127.9) $1,095.0
- --------------------------------------------------------------------------------------------------------------------------------
% change - 1997 vs. 1996 excluding
non-recurring charges
Business +16% +4% -9% +20% -25% +11%
Foreign currency impact -- -4% -8% -1% -- -2%
- --------------------------------------------------------------------------------------------------------------------------------
Total change +16% +0% -17% +19% -25% +9%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross interest expense, prior to amounts capitalized, increased 70% versus the
prior year to $117.9 million. The higher interest expense resulted from
increased debt levels to fund the Lender's Bagels business acquisition and the
Company's common stock repurchase program.
Excluding the impact of non-recurring charges and other unusual items, the
effective income tax rate was 35.3%, 1.5 percentage points lower than the
prior-year rate. The lower effective tax rate is primarily due to enactment of a
2% statutory rate reduction in the United Kingdom, effective April 1, 1997, as
well as favorable adjustments in other jurisdictions. The effective income tax
rate based on reported earnings (before cumulative effect of accounting change)
was 37.6% in 1997 and 38.2% in 1996. For both 1997 and 1996, the higher reported
rate (as compared to the rate excluding the impact of unusual items) primarily
relates to certain non-recurring charges for which no tax benefit was provided,
based on management's assessment of the likelihood of recovering such benefit in
future years.
Other expense for 1996 included a charge of $35.0 million for a contribution to
the Kellogg's Corporate Citizenship Fund, a private trust established for
charitable donations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong throughout 1998. A strong cash
flow, combined with a program of issuing commercial paper and maintaining
worldwide credit facilities, provides adequate liquidity to meet the Company's
operational needs. In August 1998, Moody's lowered its rating on the Company's
senior unsecured notes from Aa1 to Aa2 reflecting the Company's increased use of
cash for investments in marketing, product development, and other initiatives in
highly competitive markets around the world. Management believes that this
change will have an insignificant impact on future borrowing costs. The rating
agency confirmed the Company's Prime-1 commercial paper rating.
Net cash provided by operating activities was $719.7 million during 1998,
compared to $879.8 million in 1997, with the decrease due principally to lower
earnings and unfavorable working capital movements. The ratio of current assets
to current liabilities was .9 at December 31, 1998, and 1997.
Net cash used in investing activities was $398.0 million, compared to 329.3
million in 1997. The increase was primarily due to property additions, which
increased from $312.4 million in 1997 to $373.9 million for 1998.
Net cash used in financing activities was $358.3 million, primarily related to
common stock repurchases of $239.7 million and dividend payments of $375.3
million, partially offset by a net
<PAGE> 7
increase in total debt of $241.5 million. The Company's total 1998 per share
dividend payment was $.92, a 5.7% increase over the prior-year payment of $.87.
On August 1, 1997, the Company's Board of Directors approved a 2-for-1 stock
split to shareholders of record at the close of business August 8, 1997,
effective August 22, 1997, and also authorized retirement of 105.3 million
common shares (pre-split) held in treasury. All per share and shares outstanding
data have been restated retroactively to reflect the stock split.
Under existing plans authorized by the Company's Board of Directors, management
spent $239.7 million during 1998 to repurchase 6.3 million shares of the
Company's common stock at an average price of $38 per share. The open repurchase
authorization, which has been extended through December 31, 1999, was $149.4
million at year-end 1998.
Notes payable primarily consist of commercial paper borrowings in the United
States and borrowings under a $200 million revolving credit agreement in Europe
with several international banks initiated during December 1998. At December 31,
1998, outstanding borrowings under the revolving credit agreement were $148.5
million with an effective interest rate of 5.5%. U.S. borrowings at December 31,
1998, were $423.3 million with an effective interest rate of 5.2%. Associated
with the U.S. borrowings, during September 1997, the Company purchased a $225
million notional, four-year fixed interest rate cap. Under the terms of the cap,
if the Federal Reserve AA composite rate on 30-day commercial paper increases to
6.33%, the Company will pay this fixed rate on $225 million of its commercial
paper borrowings. If the rate increases to 7.68% or above, the cap will expire.
As of year-end 1998, the rate was 4.90%.
In October 1998, the Company issued $200 million of seven-year 4.875% fixed rate
U.S. Dollar Notes. Management used the proceeds from this issuance to replace
maturing long-term debt. Management entered into a series of interest rate
hedges throughout 1998 to effectively fix the interest rate prior to issuance.
The effect of the hedges, when combined with original issue discounts, resulted
in an overall effective rate for this debt of 6.07%.
To reduce short-term borrowings, on February 4, 1998, the Company issued $400
million of three-year 5.75% fixed rate U.S. Dollar Notes. Accordingly, an
equivalent amount of commercial paper borrowings was classified as long-term
debt in the December 31, 1997, balance sheet. These Notes were issued under an
existing "shelf registration" with the Securities and Exchange Commission, and
provide an option to holders to extend the obligation for an additional four
years at a predetermined interest rate of 5.63% plus the Company's then-current
credit spread. As a result of this option, the effective interest rate on the
three-year Notes is 5.23%. Concurrent with this issuance, the Company entered
into a $400 million notional, three-year fixed-to-floating interest rate swap,
indexed to the Federal Reserve AA composite rate on 30-day commercial paper.
On January 29, 1997, the Company issued $500 million of seven-year 6.625% fixed
rate Euro Dollar Notes. This debt was issued primarily to fund the purchase of
the Lender's Bagels business, acquired in December 1996. In conjunction with
this issuance, the Company settled $500 million notional amount of interest rate
forward swap agreements, which effectively fixed the interest rate on the debt
at 6.354%. Associated with this debt, during September 1997, the
<PAGE> 8
Company entered into a $225 million notional, 4 1/2-year fixed-to-floating
interest rate swap, indexed to the three-month London Interbank Offered Rate
(LIBOR). Under the terms of this swap, if three-month LIBOR decreases to 4.71%
or below, the swap will expire. At year-end 1998, three-month LIBOR was 5.07%.
To replace other long-term debt maturing during 1997, the Company issued $500
million of four-year 6.125% Euro Dollar Notes on August 5, 1997. In conjunction
with this issuance, the Company settled $400 million notional amount of interest
rate forward swap agreements that effectively fixed the interest rate on the
debt at 6.4%. Associated with this debt, during September 1997, the Company
entered into a $200 million notional, four-year fixed-to-floating interest rate
swap, indexed to three-month LIBOR.
The ratio of total debt to market capitalization at December 31, 1998, was 16%,
up from 10% at December 31, 1997, due to a combination of a lower stock price
and higher debt levels in 1998.
NON-RECURRING CHARGES AND OTHER UNUSUAL ITEMS
From 1995 to the present, management has commenced major productivity and
operational streamlining initiatives in an effort to optimize the Company's cost
structure. The incremental costs of these programs have been reported throughout
1995-1998 as non-recurring charges.
In addition to the non-recurring charges reported for streamlining initiatives,
the Company incurred charges for other unusual items. Furthermore, net earnings
for 1997 included a cumulative effect of accounting change related to business
process reengineering costs. In summary, the following charges were excluded
from reported results for purposes of comparison within the "Results of
operations" section above:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
NON-RECURRING CHARGES & OTHER UNUSUAL ITEMS
- --------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE NET
Impact on (millions, except per OPERATING INCOME TAXES & NET EARNINGS PER
share data) PROFIT CUMULATIVE EFFECT EARNINGS SHARE
OF ACCOUNTING
CHANGE
----------------------------------------------------------------------------------------------------------
1998
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STREAMLINING
INITIATIVES $70.5 $70.5 $46.3 $.12
----------------------------------------------------------------------------------------------------------
1997
----------------------------------------------------------------------------------------------------------
Streamlining
initiatives $161.1 $161.1
Impairment losses 23.0 23.0
----------------------------------------------------------------------------------------------------------
TOTAL NON-RECURRING
CHARGES $184.1 $184.1 $140.5 $.34
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
EARNINGS BEFORE NET
Impact on (millions, except per OPERATING INCOME TAXES & NET EARNINGS PER
share data) PROFIT CUMULATIVE EFFECT EARNINGS SHARE
OF ACCOUNTING
CHANGE
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ 18.0 $.04
----------------------------------------------------------------------------------------------------------
1996
----------------------------------------------------------------------------------------------------------
Streamlining
initiatives $121.1 $121.1
Litigation provision 15.0 15.0
Private trust contribution(a) -- 35.0
----------------------------------------------------------------------------------------------------------
TOTAL $136.1 $171.1 $120.1 $.28
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Recorded in other income (expense), net.
The 1998 streamlining charges relate primarily to an overhead activity analysis
that resulted in the elimination of approximately 550 employees and 240
contractors from the Company's headquarters and North American operations
through a combination of involuntary early retirement and severance programs.
The charges consist mainly of employee retirement and separation benefits,
outplacement services, associated consulting and other related costs. This
initiative is expected to result in annual pre-tax savings of $105 million,
beginning in 1999. Cash outlays for the 1998 charges during 1998 were $8
million, with the remainder to be spent during 1999. Total cash outlays during
1998 for all streamlining initiatives were approximately $47 million. Refer to
Note 3 within Notes to Consolidated Financial Statements for further
information.
All streamlining programs commenced since 1995, including the aforementioned
1998 initiatives, are expected to result in the elimination of approximately
3,500 employee positions by the end of 1999, with approximately 95% of this
reduction already achieved. These programs are expected to deliver average
annual pre-tax savings in excess of $300 million by the year 2000, with
approximately $250 million of that amount to be realized in 1999. These savings
are not necessarily indicative of current and future incremental earnings due to
management's commitment to invest in competitive business strategies, new
markets, and growth opportunities.
In addition to the non-recurring charges reported during 1997 and 1996 for
streamlining initiatives, the Company incurred charges for the following unusual
items:
- - During 1997, the Company included in non-recurring charges $23.0 million of
asset impairment losses which resulted from an evaluation of the Company's
ability to recover components of its investments in the emerging markets of
Asia-Pacific.
<PAGE> 10
- - During 1996, the Company included in non-recurring charges a provision of
$15.0 million for the potential settlement of certain litigation.
- - During 1996, the Company included in other expense a charge of $35.0 million
for a contribution to the Kellogg's Corporate Citizenship Fund, which is
expected to satisfy the charitable-giving plans of this private trust
through the year 2000.
The Company's streamlining initiatives will continue throughout 1999. The
aforementioned overhead activity analysis will be extended to Europe and Latin
America during the first half of 1999. Management believes these initiatives
will result in the elimination of several hundred employee positions, requiring
separation benefit costs to be incurred. Since the number of employees affected,
their job functions, and their locations have not yet been identified, the costs
that may result are not yet known. The combination of this Europe and Latin
America overhead activity analysis and other ongoing cost reduction programs is
expected to result in more than $50 million in incremental savings in 1999.
The foregoing discussion of streamlining initiatives contains forward-looking
statements regarding headcount reductions, cash requirements, and realizable
savings. Actual amounts may vary depending on the final determination of
important factors, such as identification of specific employees to be separated
from pre-determined pools, actual amounts of asset removal and relocation costs,
dates of asset disposal and costs to maintain assets up to the date of disposal,
proceeds from asset disposals, final negotiation of third party contract
buy-outs, and other items.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AcSEC) issued Statement of Position
(SOP) 98-1 "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 provides guidance on the classification of software
project costs between expense and capital. During April 1998, AcSEC also issued
SOP 98-5 "Reporting on Costs of Start-up Activities." SOP 98-5 prescribes that
the costs of opening a new facility, commencing business in a new market, or
similar start-up activities must be expensed as incurred. Both of these
pronouncements are effective for fiscal years beginning after December 15, 1998.
SOP 98-1 is to be applied on a prospective basis to costs incurred on or after
the date of adoption. The initial application of SOP 98-5 is to be reported as a
cumulative effect of a change in accounting principle, if material. Management
intends to adopt SOP 98-1 and SOP 98-5 effective January 1, 1999, and does not
expect the impact of adoption to have a significant impact on the Company's
financial results.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) #133 "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, requiring recognition of the
fair value of all derivatives as assets or liabilities on the balance sheet.
SFAS #133 is effective for fiscal years beginning after June 15, 1999.
Management intends to adopt the provisions of SFAS #133 effective January 1,
<PAGE> 11
2000, and does not expect the impact of adoption to have a significant impact on
the Company's financial results.
On November 20, 1997, the Emerging Issues Task Force (EITF) of the FASB reached
a consensus in EITF Issue 97-13 that the costs of business process reengineering
activities are to be expensed as incurred. This consensus also applies to
business process reengineering activities that are part of an information
technology project. Beginning in 1996, the Company has undertaken an Enterprise
Business Applications (EBA) initiative that combines design and installation of
business processes and software packages to achieve global best practices. Under
the EBA initiative, the Company had capitalized certain external costs
associated with business process reengineering activities as part of the
software asset. EITF Issue 97-13 prescribes that previously capitalized business
process reengineering costs should be expensed and reported as a cumulative
effect of a change in accounting principle. Accordingly, for the fourth quarter
of 1997, the Company reported a charge of $18.0 million (net of tax benefit of
$7.7 million) or $.04 per share for write-off of business process reengineering
costs. Such costs were expensed as incurred during 1998 and the fourth quarter
of 1997 and were insignificant.
YEAR 2000
The Company established a global program in 1997 to address the millennium date
change issue (the inability of certain computer software, hardware, and other
equipment with embedded computer chips to properly process two-digit year-date
codes after 1999). The program is structured to address all date-related risks
to the Company's business in four major categories: information technology
systems, embedded technology systems, suppliers, and customers.
In the information technology and embedded systems categories, the inventories
and detailed assessments are complete, remediation is 70% complete, and testing
is 50% complete. Remediation and testing are on schedule with planned completion
by June 30, 1999, for business critical and important systems.
The Company is spending approximately $70 million during 1998 and 1999 to become
Year 2000 compliant. This amount includes the costs of activities described
above, as well as costs to replace non-compliant systems for which replacement
was accelerated to meet Year 2000 requirements. On a global basis, spending
through December 31, 1998 is consistent with the overall percentage of program
completion of approximately 70%. These amounts do not include the effect of
other planned system initiatives that will contribute to the Year 2000
compliance effort. Management believes that to the extent these other planned
system initiatives impact the Year 2000 project, they will be completed as
scheduled by mid-1999.
The Company is continuing a contingency planning process started in 1998
designed to mitigate business risks due to unexpected date-related issues within
any of the Year 2000 program categories across all key business units worldwide.
The testing results for information technology and embedded systems are being
coupled with risk assessments of the Company's suppliers, customers, and other
internal initiatives, and incorporated into this contingency planning process.
These plans are expected to be defined in each of the Company's four operating
segments of
<PAGE> 12
North America, Europe, Asia-Pacific, and Latin America by April of 1999, for
execution in preparation to the millennium transition.
While management believes that the estimated cost of becoming Year 2000
compliant is not significant to the Company's financial results, failure to
complete all the work in a timely manner could result in material financial
risk. While management expects all planned work to be completed, there can be no
guarantee that all systems will be in compliance by the year 2000, that the
systems of other companies and government agencies on which the Company relies
will be converted in a timely manner, or that contingency planning will be able
to fully address all potential interruptions. Therefore, date-related issues
could cause delays in the Company's ability to produce or ship its products,
process transactions, or otherwise conduct business in any of its markets.
EURO CONVERSION
On January 1, 1999, eleven European countries (Germany, France, Spain, Italy,
Ireland, Portugal, Finland, Luxembourg, Belgium, Austria, and the Netherlands)
implemented a single currency zone, the Economic and Monetary Union (EMU). The
new currency, the Euro, has become the official currency of the participating
countries. Those countries financial markets and banking systems are quoting
financial and treasury data in Euros from January 1, 1999.
The Euro will exist alongside the old national currencies during a transition
period from January 1, 1999 to January 1, 2002. During this period, entities
within participating countries must complete changes which enable them to
transact in the Euro. National currencies will be withdrawn no later than July
1, 2002. This transition to the Euro currency will involve changing budgetary,
accounting, pricing, costing, and fiscal systems in companies and public
administrations, as well as the simultaneous handling of parallel currencies and
conversion of legacy data. During the first quarter of 1999, the Euro currency
has demonstrated stability. However, this early stability needs to be observed
over a longer period before conclusions can be drawn on the currency's long-term
viability.
In early 1998, management formed a task force to monitor EMU developments,
evaluate the impact of the Euro conversion on the Company's operations, and
develop and execute action plans, as necessary. The task force has completed a
full EMU impact assessment identifying company-wide, cross-functional effects of
the Euro. Required business strategy, system, and process changes within the
Company's European region are underway with certain markets already Euro
compliant. Many of these changes will be made in conjunction with other
significant technology initiatives currently under way, and will be completed in
accordance with the Company's timetable for transacting with its suppliers and
customers in the Euro. Results of task force assessments indicate that most
suppliers and customers desire to initiate Euro transactions during 2000 and
2001.
Management expects to complete financial, operational, and manufacturing system
conversions during 2001. Although Management currently believes the Company will
be able to accommodate any required changes in its operations, there can be no
assurance that the Company, its
<PAGE> 13
customers, suppliers, financial service providers, or government agencies will
meet all of the Euro currency requirements on a timely basis. Such failure to
complete the necessary work could result in material financial risk.
1999 OUTLOOK
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 strong credit rating, balance sheet, and earnings
history provide a base for obtaining additional financial resources at
competitive rates and terms. Based on the expectation of cereal volume growth,
and strong results from product innovation and the continued global roll-out of
convenience foods, management believes the Company is well-positioned to deliver
sales and earnings growth for the full year 1999. The Company will continue to
identify and pursue streamlining and productivity initiatives to optimize its
cost structure.
The Company is currently reviewing strategies related to the Lender's Bagels
business, given its performance since acquisition. The Company has evaluated the
recoverability of Lender's long-lived assets as of December 31, 1998, and
although this evaluation has not resulted in the recognition of an impairment
loss, management expects to update its assessment during 1999.
Additional expectations for 1999 include a gross profit margin of 51-52%, an
SGA% of 36-37%, an effective income tax rate of 36-37%, and capital spending of
approximately $270 million.
The foregoing projections concerning impact of future borrowing costs,
accounting changes, volume growth, profitability, capital spending, and common
stock repurchase activity are forward-looking statements that involve risks and
uncertainties. Actual results may differ materially due to the impact of
competitive conditions, marketing spending and/or incremental pricing actions on
actual volumes and product mix; the levels of spending on system initiatives,
properties, business opportunities, continued streamlining initiatives, and
other general and administrative costs; raw material price and labor cost
fluctuations; foreign currency exchange rate fluctuations; changes in statutory
tax law; interest rates available on short-term financing; the impact of stock
market conditions on common stock repurchase activity; and other items.
<PAGE> 14
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
Year ended December 31,
===============================================================================================================================
(millions, except per share data) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $6,762.1 $6,830.1 $6,676.6
- -------------------------------------------------------------------------------------------------------------------------------
Costs of goods sold $3,282.6 3,270.1 3,122.9
Selling and administrative expense 2,513.9 2,366.8 2,458.7
Non-recurring charges 70.5 184.1 136.1
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 895.1 1,009.1 958.9
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense 119.5 108.3 65.6
Other income (expense), net 6.9 3.7 (33.4)
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 782.5 904.5 859.9
Income taxes 279.9 340.5 328.9
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 502.6 564.0 531.0
Cumulative effect of accounting change
(net of tax) -- (18.0) --
- -------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 502.6 $ 546.0 $ 531.0
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS (BASIC AND DILUTED):
EARNINGS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ 1.23 $ 1.36 $ 1.25
Cumulative effect of accounting change -- (.04) --
- -------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS PER SHARE $ 1.23 $ 1.32 $ 1.25
===============================================================================================================================
</TABLE>
Refer to Notes to Consolidated Financial Statements.
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common stock Capital in Treasury stock other
------------ excess of Retained -------------- comprehensive
(millions) shares amount par value earnings shares amount income
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 311.1 $77.8 $105.2 $3,963.0 94.4 ($2,361.2) ($193.9)
Common stock repurchases 7.4 (535.7)
Net earnings 531.0
Dividends (343.7)
Other comprehensive income 27.6
Stock options exercised and other 0.4 0.1 18.7 0.1 (6.5)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 311.5 77.9 123.9 4,150.3 101.9 (2,903.4) (166.3)
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock repurchases (pre-split) 3.9 (290.9)
Stock options exercised and other (pre-split) 0.6 0.1 31.9 -- (3.9)
Retirement of treasury stock (105.3) (26.3) (55.8) (3,095.8) (105.3) 3,177.9
Two-for-one stock split 206.8 51.7 (51.7) 0.5 ------
Common stock repurchases (post-split) 3.1 (135.1)
Net earnings 546.0
Dividends (360.1)
Other comprehensive
income (115.6)
Stock options exercised and other (post-split) 1.2 0.3 44.3 -- (1.9)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 414.8 103.7 92.6 1,240.4 4.1 (157.3) (281.9)
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock repurchases 6.3 (239.7)
Net earnings 502.6
Dividends (375.3)
Other comprehensive income (10.5)
Stock options exercised and other 0.5 0.1 12.4 (0.1) 2.7
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 415.3 $103.8 $105.0 $1,367.7 10.3 ($394.3) ($292.4)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Total Total
shareholders' comprehensive
equity income
(millions)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1, 1996 $1,590.9
Common stock repurchases (535.7)
Net earnings 531.0 $531.0
Dividends (343.7)
Other comprehensive income 27.6 27.6
Stock options exercised and other 12.3
- -----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 1,282.4 $558.6
- -----------------------------------------------------------------------------------
Common stock repurchases (pre-split) (290.9)
Stock options exercised and other (pre-split) 28.1
Retirement of treasury stock ------
Two-for-one stock split ------
Common stock repurchases (post-split) (135.1)
Net earnings 546.0 $546.0
Dividends (360.1)
Other comprehensive income (115.6) (115.6)
Stock options exercised and other (post-split) 42.7
- -----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 997.5 $430.4
- -----------------------------------------------------------------------------------
Common stock repurchases (239.7)
Net earnings 502.6 $502.6
Dividends (375.3)
Other comprehensive income (10.5) (10.5)
Stock options exercised and other 15.2
- -----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $889.8 $492.1
- -----------------------------------------------------------------------------------
</TABLE>
Refer to Notes to Consolidated Financial Statements.
<PAGE> 15
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31,
===============================================================================================================================
(millions, except share data) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $136.4 $173.2
Accounts receivable, less allowances of $12.9 and $7.5 693.0 587.5
Inventories 451.4 434.3
Other current assets 215.7 272.7
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,496.5 1,467.7
- -------------------------------------------------------------------------------------------------------------------------------
PROPERTY, NET 2,888.8 2,773.3
OTHER ASSETS 666.2 636.6
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $5,051.5 $4,877.6
===============================================================================================================================
CURRENT LIABILITIES
Current maturities of long-term debt $1.1 $211.2
Notes payable 620.4 368.6
Accounts payable 386.9 328.0
Other current liabilities 710.1 749.5
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,718.5 1,657.3
- -------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 1,614.5 1,415.4
OTHER LIABILITIES 828.7 807.4
SHAREHOLDERS' EQUITY
Common stock, $.25 par value,500,000,000 shares authorized
Issued: 415,343,626 shares in 1998 and 414,823,142 in 1997 103.8 103.7
Capital in excess of par value 105.0 92.6
Retained earnings 1,367.7 1,240.4
Treasury stock, at cost:
10,346,524 shares in 1998 and 4,143,124 in 1997 (394.3) (157.3)
Accumulated other comprehensive income (292.4) (281.9)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 889.8 997.5
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,051.5 $4,877.6
===============================================================================================================================
</TABLE>
Refer to Notes to Consolidated Financial Statements.
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
==============================================================================================================================
(millions) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 502.6 $ 546.0 $ 531.0
Items in net earnings not requiring (providing) cash:
Depreciation and amortization 278.1 287.3 251.5
Deferred income taxes 46.2 38.5 58.0
Non-recurring charges, net of cash paid 62.2 133.8 90.6
Other 21.7 9.5 14.5
Pension and other postretirement benefit contributions (88.8) (114.5) (156.8)
Changes in operating assets and liabilities (102.3) (20.8) (77.3)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 719.7 879.8 711.5
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to properties (373.9) (312.4) (307.3)
Acquisitions of businesses (27.8) (25.4) (505.2)
Property disposals 6.8 5.9 11.6
Other (3.1) 2.6 14.1
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (398.0) (329.3) (786.8)
- ------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net issuances (reductions) of notes payable,
with maturities less than or equal to 90 days (152.9) (374.7) 906.6
Issuances of notes payable, with maturities greater than 90 days 5.5 4.8 137.0
Reductions of notes payable, with maturities greater than 90 days (.8) (14.1) (79.0)
Issuances of long-term debt 600.0 1,000.0 --
Reductions of long-term debt (210.3) (507.9) (3.4)
Net issuances of common stock 15.2 70.7 12.2
Common stock repurchases (239.7) (426.0) (535.7)
Cash dividends (375.3) (360.1) (343.7)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (358.3) (607.3) 94.0
- ------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (.2) (13.8) 3.2
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (36.8) (70.6) 21.9
Cash and cash equivalents at beginning of year 173.2 243.8 221.9
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 136.4 $ 173.2 $ 243.8
==============================================================================================================================
</TABLE>
Refer to Notes to Consolidated Financial Statements.
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kellogg Company and Subsidiaries
NOTE 1 ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Kellogg Company
and its majority-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 cash equivalents
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. Cost includes an amount of interest associated with significant
capital projects.
Goodwill and other intangible assets
Intangible assets are amortized principally on a straight-line basis over the
estimated periods benefited, generally 40 years for goodwill and periods ranging
from 5 to 40 years for other intangible assets. The realizability of goodwill
and other intangibles is evaluated periodically when events or circumstances
indicate a possible inability to recover the carrying amount. Evaluation is
based on various analyses, including cash flow and profitability projections.
Advertising
The costs of advertising are generally expensed as incurred.
Recently adopted pronouncements
In 1998, the Company adopted several statements issued by the Financial
Accounting Standards Board (FASB). In June 1997, the FASB issued Statement of
Financial Accounting Standards (SFAS) #130 "Reporting Comprehensive Income,"
which requires companies to disclose all items recognized under accounting
standards as components of comprehensive income. In June 1997, the FASB issued
SFAS #131 "Disclosures about Segments of an Enterprise and Related Information,"
which requires certain information to be reported about operating segments
consistent with management's internal view of the Company. In February 1998, the
FASB issued SFAS #132 "Employers' Disclosures
<PAGE> 17
about Pensions and Other Postretirement Benefits," which revises and
standardizes disclosures for pension and other postretirement benefit plans.
On November 20, 1997, the Emerging Issues Task Force (EITF) of the FASB reached
a consensus in EITF 97-13 that the costs of business process reengineering
activities are to be expensed as incurred. This consensus also applies to
business process reengineering activities that are part of an information
technology project. Beginning in 1996, the Company has undertaken an Enterprise
Business Applications (EBA) initiative that combines design and installation of
business processes and software packages to achieve global best practices. Under
the EBA initiative, the Company had capitalized certain external costs
associated with business process reengineering activities as part of the
software asset. EITF Issue 97-13 prescribes that previously capitalized business
process reengineering costs should be expensed and reported as a cumulative
effect of a change in accounting principle. Accordingly, for the fourth quarter
of 1997, the Company reported a charge of $18.0 million (net of tax benefit of
$7.7 million) or $.04 per share for write-off of business process reengineering
costs. Such costs were expensed as incurred during 1998 and the fourth quarter
of 1997 and were insignificant.
Recently issued pronouncements
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AcSEC) issued Statement of Position
(SOP) 98-1 "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 provides guidance on the classification of software
project costs between expense and capital. During April 1998, AcSEC also issued
SOP 98-5 "Reporting on Costs of Start-up Activities." SOP 98-5 prescribes that
the costs of opening a new facility, commencing business in a new market, or
similar start-up activities must be expensed as incurred. Both of these
pronouncements are effective for fiscal years beginning after December 15, 1998.
SOP 98-1 is to be applied on a prospective basis to costs incurred on or after
the date of adoption. The initial application of SOP 98-5 is to be reported as a
cumulative effect of a change in accounting principle, if material. Management
intends to adopt SOP 98-1 and SOP 98-5 effective January 1, 1999.
In June 1998, the FASB issued SFAS #133 "Accounting for Derivative Instruments
and Hedging Activities." This Statement establishes accounting and reporting
standards for derivative instruments, requiring recognition of the fair value of
all derivatives as assets or liabilities on the balance sheet. SFAS #133 is
effective for fiscal years beginning after June 15, 1999. Management intends to
adopt the provisions of SFAS #133 effective January 1, 2000.
The impact of adoption of these pronouncements on the Company's financial
results is not expected to be significant.
Common stock split
On August 1, 1997, the Company's Board of Directors approved a 2-for-1 stock
split to shareholders of record at the close of business August 8, 1997,
effective August 22, 1997, and also authorized retirement of 105.3 million
common shares (pre-split) held in treasury.
<PAGE> 18
All per share and shares outstanding data in the Consolidated Statement of
Earnings and Notes to Consolidated Financial Statements have been retroactively
restated to reflect the stock split.
Stock compensation
The Company follows Accounting Principles Board Opinion (APB) #25, "Accounting
for Stock Issued to Employees", in accounting for its employee stock options and
other stock-based compensation. Under APB #25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the grant, no compensation expense is recognized. As permitted,
the Company has elected to adopt the disclosure provisions only of SFAS #123,
"Accounting for Stock-Based Compensation." (Refer to Note 7 for further
information.)
Net earnings per share
Basic net earnings per share is determined by dividing net earnings by the
weighted average number of common shares outstanding during the period. Weighted
average shares outstanding, in millions, were 407.8, 414.1, and 424.9 for 1998,
1997, and 1996, respectively. Diluted net earnings per share is similarly
determined except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all dilutive
potential common shares had been issued. Dilutive potential common shares are
principally comprised of employee stock options issued by the Company and had an
insignificant impact on the computation of diluted net earnings per share during
the periods presented. Weighted average shares outstanding, in millions, for
purposes of computing diluted net earnings per share were 408.6, 415.2, and
426.4 for 1998, 1997, and 1996, respectively.
Comprehensive income
Comprehensive income includes all changes in equity during a period except those
resulting from investments by or distributions to shareholders. For the Company,
comprehensive income for all periods presented consists solely of net earnings
and foreign currency translation adjustments pursuant to SFAS #52, "Foreign
Currency Translation," as follows:
<PAGE> 19
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(millions) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $502.6 $546.0 $531.0
Other comprehensive income (loss):
Foreign currency translation adjustments (11.1) (112.1) 26.6
Related tax effect .6 (3.5) 1.0
- ----------------------------------------------------------------------------------------------------------------
(10.5) (115.6) 27.6
- ----------------------------------------------------------------------------------------------------------------
Total comprehensive income $492.1 $430.4 $558.6
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE> 20
NOTE 2 ACQUISITION
On December 16, 1996, the Company purchased certain assets and liabilities of
the Lender's Bagels business from Kraft Foods, Inc. for $466 million in cash,
including related acquisition costs. The acquisition was accounted for as a
purchase. The results of Lender's operations from the date of the acquisition to
December 31, 1996, were not significant. The acquisition was initially financed
through commercial paper borrowings that were replaced with long-term debt in
January 1997. Intangible assets included in the allocation of purchase price
consisted of goodwill and trademarks of $329 million and non-compete covenants
of $20 million. The goodwill and trademarks are being amortized over 40 years
and the non-compete covenants are being amortized over 5 years.
The unaudited pro forma combined historical results, as if the Lender's Bagels
business had been acquired at the beginning of fiscal 1996, are estimated to be
net sales of $6.87 billion, net earnings of $524.3 million, and net earnings per
share of $1.23. The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been completed as of the
beginning of the fiscal period presented, nor are they necessarily indicative of
future consolidated results.
<PAGE> 21
NOTE 3 NON-RECURRING CHARGES
Operating profit for 1998 includes non-recurring charges of $70.5 million ($46.3
million after tax or $.12 per share) for streamlining initiatives.
Operating profit for 1997 includes non-recurring charges of $184.1 million
($140.5 million after tax or $.34 per share), comprised of $161.1 million for
streamlining initiatives and $23.0 million for asset impairment losses.
Operating profit for 1996 includes non-recurring charges of $136.1 million
($97.8 million after tax or $.23 per share), comprised of $121.1 million for
streamlining initiatives and $15.0 million for potential settlement of certain
litigation.
Streamlining initiatives
From 1995 to the present, management has commenced major productivity and
operational streamlining initiatives in an effort to optimize the Company's cost
structure. The incremental costs of these programs have been reported throughout
1995-1998 as non-recurring charges.
The 1998 streamlining charges relate primarily to an overhead activity analysis
that result in the elimination of approximately 550 employees and 240
contractors from the Company's headquarters and North American operations
through a combination of involuntary early retirement and severance programs.
The charges consist mainly of employee retirement and separation benefits,
outplacement services, associated consulting and other related costs. Cash
outlays for the 1998 charges during 1998 were $8 million, with the remainder to
be spent during 1999. Total cash outlays during 1998 for all streamlining
initiatives were approximately $47 million.
The 1997 charges for streamlining initiatives relate principally to management's
plan to optimize the Company's pan-European operations, as well as ongoing
productivity programs in the United States and Australia. A major component of
the pan-European initiatives was the late-1997 closing of plants and separation
of employees in Riga, Latvia; Svendborg, Denmark; and Verola, Italy.
Approximately 50% of the total 1997 streamlining charges consist of
manufacturing asset write-downs, with the balance comprised of current and
anticipated cash outlays for employee separation benefits, equipment removal,
production redeployment, associated management consulting, and similar costs.
Total cash outlays during 1997 for streamlining initiatives were approximately
$85 million.
The 1996 charges for streamlining initiatives result from management's actions
to consolidate and reorganize operations in the United States, Europe, and other
international locations. Cash outlays for streamlining initiatives were
approximately $120 million in 1996. All streamlining programs commenced since
1995, including the aforementioned 1998 initiatives, are expected to result in
the elimination of approximately 3,500 employee positions by the end of 1999,
with approximately 95% of this reduction already achieved.
<PAGE> 22
The components of the streamlining charges, as well as reserve balances
remaining at December 31, 1998, 1997, and 1996, were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Employee
retirement &
severance Asset Asset Other
(millions) benefits (a) write-offs removal costs Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Remaining reserve at
December 31, 1995 $57.5 $ - $36.5 $ - $94.0
1996 streamlining charges (b) 31.4 37.5 13.5 38.7 121.1
Amounts utilized during 1996 (65.0) (37.5) (19.6) (38.7) (160.8)
- -----------------------------------------------------------------------------------------------------------------------
Remaining reserve at
December 31, 1996 23.9 - 30.4 - 54.3
1997 streamlining charges 22.4 78.1 19.3 41.3 161.1
Amounts utilized during 1997 (22.7) (78.1) (21.4) (41.3) (163.5)
- -----------------------------------------------------------------------------------------------------------------------
Remaining reserve at
December 31, 1997 23.6 - 28.3 - 51.9
1998 streamlining charges 59.8 5.5 3.0 2.2 70.5
Amounts utilized during 1998 (43.8) (5.5) (19.4) (2.2) (70.9)
- -----------------------------------------------------------------------------------------------------------------------
Remaining reserve at
December 31, 1998 $39.6 $ - $11.9 $ - $51.5
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes approximately $5 and $18 of pension and postretirement health care
curtailment losses and special termination benefits recognized in 1996 and
1998, respectively. (Refer to Notes 8 and 9.)
(b) Includes $23 of reversals of prior-year reserves due to lower than expected
employee severance payments and asset removal costs, and other favorable
factors.
Other
In addition to the non-recurring charges reported for streamlining initiatives,
the Company incurred charges for the following unusual items:
- - During 1997, asset impairment losses of $23.0 million, which resulted from
evaluation of the Company's ability to recover components of its investments
in the emerging markets of Asia-Pacific.
- - During 1996, a provision of $15.0 million for the potential settlement of
certain litigation.
1999 events
The Company's streamlining initiatives will continue throughout 1999. The
aforementioned overhead activity analysis will be extended to Europe and Latin
America during the first half of 1999. Management believes these initiatives
will result in the elimination of several hundred employee positions, requiring
separation benefit costs to be incurred. Since the number of employees affected,
their job functions, and their locations have not yet been identified, the costs
that may result are not yet known.
NOTE 4 OTHER INCOME AND EXPENSE
Other income and expense includes non-operating items such as interest income,
foreign exchange gains and losses, and charitable donations.
Other expense for 1996 includes a charge of $35.0 million ($22.3 million after
tax or $.05 per share) for a contribution to the Kellogg's Corporate Citizenship
Fund, a private trust established for charitable donations. This contribution is
expected to satisfy the charitable-giving plans of this trust through the year
2000.
NOTE 5 LEASES
Operating leases are generally for equipment and warehouse space. Rent expense
on all operating leases was $36.5 million in 1998, $38.6 million in 1997, and
$37.9 million in 1996. At December 31, 1998, future minimum annual rental
commitments under non-cancelable operating leases totaled $62 million consisting
of (in millions): 1999-$16; 2000-$12; 2001-$9; 2002-$8; 2003-$6; 2004 and
beyond-$11.
NOTE 6 DEBT
Notes payable consist of commercial paper borrowings in the United States at the
highest credit rating available, borrowings against a revolving credit agreement
in Europe and, to
<PAGE> 23
a lesser extent, bank loans of foreign subsidiaries at competitive market rates.
U.S. borrowings at December 31, 1998, were $423.3 million with an effective
interest rate of 5.2%. U.S. borrowings at December 31, 1997 (including $400
million classified in long-term debt, as discussed in (d) below), were $744.2
million with an effective interest rate of 5.7%. Associated with these
borrowings, during September 1997, the Company purchased a $225 million
notional, four-year fixed interest rate cap. Under the terms of the cap, if the
Federal Reserve AA composite rate on 30-day commercial paper increases to 6.33%,
the Company will pay this fixed rate on $225 million of its commercial paper
borrowings. If the rate increases to 7.68% or above, the cap will expire. As of
year-end 1998, the rate was 4.90%.
In December 1998, the Company entered into a $200 million, three-year revolving
credit agreement with several international banks. At December 31, 1998,
outstanding borrowings under this agreement were $148.5 million with an
effective interest rate of 5.5%. Additionally, the Company has entered into
financing arrangements which provide for the sale of future foreign currency
revenues. As of December 31, 1998, the Company had committed to borrowings
during 1999 in the cumulative principle amount of approximately $280 million. No
borrowings were outstanding under these arrangements at December 31, 1998 or
1997. At December 31, 1998, the Company had $715.9 million of total short-term
lines of credit, of which $543.6 million were unused and available for borrowing
on an unsecured basis.
Long-term debt at year-end consisted of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(millions) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
(a) Seven-Year Notes due 2005 $ 200.0 $ -
(b) Seven-Year Notes due 2004 500.0 500.0
(c) Four-Year Notes due 2001 500.0 500.0
(d) Three-Year Notes due 2001 400.0 -
(e) Five-Year Notes due 1998 - 200.0
(d) Commercial paper - 400.0
Other 15.6 26.6
- --------------------------------------------------------------------------------
1,615.6 1,626.6
Less current maturities (1.1) (211.2)
- --------------------------------------------------------------------------------
Balance, December 31 $1,614.5 $1,415.4
- --------------------------------------------------------------------------------
</TABLE>
(A) In October 1998, the Company issued $200 of seven-year 4.875% fixed rate
U.S. Dollar Notes to replace maturing long-term debt. The Company entered
into a series of interest rate hedges throughout 1998 to effectively fix
the interest rate prior to issuance. The effect of the hedges, when
combined with original issue discounts, resulted in an effective interest
rate on this debt of 6.07%.
(B) In January 1997, the Company issued $500 of seven-year 6.625% fixed rate
Euro Dollar Notes. In conjunction with this issuance, the Company settled
$500 notional amount of interest rate forward swap agreements, which
effectively fixed the interest rate on the debt at 6.354%. Associated with
this debt, during September 1997, the Company entered into a $225
notional, 4 1/2 fixed-to-floating interest rate swap, indexed to the
three-month London Interbank Offered Rate (LIBOR). Under the terms of this
swap, if three-month LIBOR decreases to 4.71% or below, the swap will
expire. At year-end 1998, three-month LIBOR was 5.07%.
(C) In August 1997, the Company issued $500 of four-year 6.125% Euro Dollar
Notes. In conjunction with this issuance, the Company settled $400
notional amount of interest rate forward swap agreements which effectively
fixed the interest rate on the debt at 6.4%. Associated with this debt,
during September 1997, the Company entered into a $200 notional, four-year
fixed-to-floating interest rate swap, indexed to three-month LIBOR.
(D) At December 31, 1997, $400 of the Company's commercial paper was
classified as long-term, based on the Company's intent and ability to
refinance as evidenced by an issuance of $400 of three-year 5.75% fixed
rate U.S. Dollar Notes on February 4, 1998. These Notes were issued under
an existing "shelf registration" with the Securities and Exchange
Commission, and provide an option to holders to extend the obligation for
an additional four years at a predetermined interest rate of 5.63% plus
the
<PAGE> 24
Company's then-current credit spread. As a result of this option, the
effective interest rate on the three-year Notes is 5.23%. Concurrent with
this issuance, the Company entered into a $400 notional, three-year
fixed-to-floating interest rate swap, indexed to the Federal Reserve AA
Composite Rate on 30-day commercial paper.
(e) In October 1993, the Company issued $200 of five-year 6.25% Euro Canadian
Dollar Notes which were swapped into 4.629% fixed rate U.S. Dollar
obligations for the duration of the five-year term.
Scheduled principal repayments on long-term debt are (in millions): 1999-$1;
2000-$6; 2001-$900; 2002-$5; 2003-$2; 2004 and beyond-$702.
Interest paid was (in millions): 1998-$113; 1997-$85; 1996-$67. Interest expense
capitalized as part of the construction cost of fixed assets was (in millions):
1998-$7.8; 1997-$9.6; 1996-$3.8.
<PAGE> 25
NOTE 7 STOCK OPTIONS
The Key Employee Long-Term Incentive Plan provides for benefits to be awarded to
executive-level employees in the form of stock options, performance shares,
performance units, incentive stock options, restricted stock grants, and other
stock-based awards. Options granted under this plan generally vest over two
years and, prior to September 1997, vested at the date of grant. The Bonus
Replacement Stock Option Plan allows certain key executives to receive stock
options that generally vest immediately in lieu of part or all of their
respective bonus. Options granted under this plan are issued from the Key
Employee Long-Term Incentive Plan. The Kellogg Employee Stock Ownership Plan is
designed to offer stock and other incentive awards based on Company performance
to employees who are not eligible to participate in the Key Employee Long-Term
Incentive Plan. Options awarded under the Kellogg Employee Stock Ownership Plan
are subject to graded vesting over a five-year period. Under these plans (the
"stock option plans"), options are granted with exercise prices equal to the
fair market value of the Company's common stock at the time of grant,
exercisable for a 10-year period following the date of grant, subject to vesting
rules.
The Key Employee Long-Term Incentive Plan contains an accelerated ownership
feature ("AOF"). An AOF option is granted when Company stock is surrendered to
pay the exercise price of a stock option. The holder of the option is granted an
AOF option for the number of shares surrendered. For all AOF options, the
original expiration date is not changed but the options vest immediately.
As permitted by SFAS #123 "Accounting for Stock-Based Compensation," the Company
has elected to account for the stock option plans under APB #25 "Accounting for
Stock Issued to Employees." Accordingly, no compensation cost has been
recognized for these plans.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Had compensation cost
for the stock option plans been determined based on the fair value at the grant
date consistent with SFAS #123, the Company's net earnings and earnings per
share are estimated as follows:
<TABLE>
<CAPTION>
(millions, except per share data) 1998 1997 1996
- ------------------------------------------------------------------------
Net earnings
<S> <C> <C> <C>
As reported $ 502.6 $ 546.0 $ 531.0
Pro forma $ 484.4 $ 520.8 $ 514.1
Net earnings per share (basic and diluted)
As reported $ 1.23 $ 1.32 $ 1.25
Pro forma $ 1.19 $ 1.26 $ 1.21
- ------------------------------------------------------------------------
</TABLE>
The fair value of each option grant was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.56% 6.31% 6.16%
Dividend yield 2.00% 1.97% 2.30%
Volatility 21.28% 19.83% 19.16%
Average expected term (years) 3.47 3.52 3.34
Fair value of options granted $8.45 $7.48 $6.32
- ------------------------------------------------------------------------
</TABLE>
Under the Key Employee Long-Term Incentive Plan, options for 9.8 million and
13.2 million shares were available for grant at December 31, 1998 and 1997,
respectively. Under the Kellogg Employee Stock Ownership Plan, options for 6.0
million and 6.9 million shares were available for grant at December 31, 1998 and
1997, respectively. Transactions under these plans were:
<TABLE>
<CAPTION>
(millions, except per share data) 1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Under option, January 1 12.4 11.2 8.4
Granted 6.8 6.0 5.2
Exercised (1.7) (4.5) (2.1)
Cancelled (1.1) (0.3) (0.3)
- ------------------------------------------------------------------------
Under option, December 31 16.4 12.4 11.2
- ------------------------------------------------------------------------
Exercisable, December 31 8.7 8.1 7.6
- ------------------------------------------------------------------------
Shares available, December 31,
for options that may be granted 15.8 20.1 23.8
- ------------------------------------------------------------------------
<CAPTION>
Average prices per share
--------------------------------
Under option, January 1 $ 35 $ 33 $ 30
Granted 43 36 38
Exercised 34 33 30
Cancelled 33 34 30
- ------------------------------------------------------------------------
Under option, December 31 $ 38 $ 35 $ 33
- ------------------------------------------------------------------------
Exercisable, December 31 $ 36 $ 36 $ 35
- ------------------------------------------------------------------------
</TABLE>
Employee stock options outstanding and exercisable under these plans as of
December 31, 1998, were:
<TABLE>
<CAPTION>
(millions, except Outstanding Exercisable
per share data) ------------------------------------- ----------------------
Weighted
Weighted average Weighted
Range of average remaining average
exercise Number of exercise contractual Number of exercise
prices Options price life (yrs.) Options price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$15 - 34 5.1 $ 31 5.0 3.5 $ 30
35 - 39 3.9 38 4.9 2.6 38
40 - 44 6.6 44 1.8 1.8 43
45 - 50 0.8 48 5.7 0.8 48
- ----------------------------------------------------------------------------------
16.4 8.7
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
NOTE 8 PENSION BENEFITS
The Company has a number of U.S. and foreign 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
influenced by tax regulations. Plan assets consist primarily of equity
securities with smaller holdings of bonds, real estate, and other investments.
Investment in Company common stock represented 2.4% and 4.2% of consolidated
plan assets at December 31, 1998, and 1997, respectively.
The components of pension expense were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(millions) 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 41.3 $ 29.9 $ 27.6
Interest cost 81.3 79.6 72.8
Expected return on plan assets (113.9) (104.7) (95.0)
Amortization of unrecognized transition obligation 0.7 (0.3) (0.5)
Amortization of unrecognized prior service cost 7.5 7.9 7.2
Recognized losses 10.0 4.7 5.2
Curtailment loss and special
termination benefits 17.4 - 4.0
- -----------------------------------------------------------------------------------------
Pension expense - Company plans 44.3 17.1 21.3
Pension expense - multiemployer plans 1.2 1.9 2.0
- -----------------------------------------------------------------------------------------
Total pension expense $ 45.5 $ 19.0 $ 23.3
- -----------------------------------------------------------------------------------------
</TABLE>
The worldwide weighted average actuarial assumptions were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 6.7% 7.6% 7.9%
Long-term rate of compensation increase 4.9% 4.9% 5.2%
Long-term rate of return on plan assets 10.5% 10.5% 10.5%
- -----------------------------------------------------------------------------------------
</TABLE>
The aggregate change in projected benefit obligation, change in plan assets, and
funded status were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(millions) 1998 1997
- ----------------------------------------------------------------------------------------------
CHANGE IN PROJECTED BENEFIT OBLIGATION
<S> <C> <C>
Projected benefit obligation at beginning of year $ 1,133.4 $ 1,036.3
Service cost 41.3 29.9
Interest cost 81.3 79.6
Plan participants' contributions 1.4 -
Amendments 9.6 1.3
Actuarial loss 133.6 41.1
Benefits paid (70.5) (62.7)
Other 1.1 7.9
- ----------------------------------------------------------------------------------------------
Projected benefit obligation at end of year $ 1,331.2 $ 1,133.4
- ----------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 1,209.0 $ 1,048.7
Actual return on plan assets 132.6 210.4
Employer contribution 54.7 38.8
Plan participants' contributions 1.4 -
Benefits paid (70.5) (62.7)
Other (8.9) (26.2)
- ----------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 1,318.3 $ 1,209.0
- ----------------------------------------------------------------------------------------------
FUNDED STATUS $ (12.9) $ 75.6
Unrecognized net loss 111.5 7.4
Unrecognized transition amount 4.2 4.4
Unrecognized prior service cost 36.2 47.2
- ----------------------------------------------------------------------------------------------
Prepaid pension $ 139.0 $ 134.6
- ----------------------------------------------------------------------------------------------
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL
POSITION CONSIST OF
Prepaid benefit cost $ 213.6 $ 185.4
Accrued benefit liability (88.4) (61.5)
Intangible asset 13.8 10.7
- ----------------------------------------------------------------------------------------------
Net amount recognized $ 139.0 $ 134.6
- ----------------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were, in millions, $104.6, $84.5, and $8.3, respectively, as of
December 31, 1998, and $87.1, $69.1, and $15.4, respectively, as of December 31,
1997.
All gains and losses, other than curtailment losses and special termination
benefits, are recognized over the average remaining service period of active
plan participants. Curtailment losses and special termination benefits
recognized in 1998 and 1996 relate to operational workforce reduction
initiatives undertaken during these years and are recorded as a component of
non-recurring charges. (Refer to Note 3 for further information.)
Certain of the Company's subsidiaries sponsor 401(k) or similar savings plans
for active employees. Expense related to these plans was (in millions):
1998-$16; 1997-$16; 1996-$17.
NOTE 9 NONPENSION POSTRETIREMENT BENEFITS
Certain of the Company's North American subsidiaries provide health care and
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 is met: 30 years and any age; 20 years
and age 55; 5 years and age 62. Plan assets consist primarily of equity
securities with smaller holdings of bonds.
<PAGE> 27
Components of postretirement benefit expense were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(millions) 1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $9.1 $9.6 $11.2
Interest cost 36.8 37.2 40.2
Expected return on plan assets (15.0) (13.3) -
Amortization of unrecognized prior service cost (0.5) (0.5) 0.3
Recognized gains (5.3) (6.3) -
Curtailment loss and special
termination benefits 1.0 - 1.0
- ----------------------------------------------------------------------------------
Postretirement benefit expense $26.1 $26.7 $52.7
- ----------------------------------------------------------------------------------
</TABLE>
The worldwide weighted average actuarial assumptions were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.0% 7.25% 7.75%
Long-term rate of return on plan assets 10.5% 10.5% n/a
- ----------------------------------------------------------------------------------
</TABLE>
The aggregate change in accumulated postretirement benefit obligation, change in
plan assets, and funded status were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(millions) 1998 1997
- ----------------------------------------------------------------------------------
CHANGE IN ACCUMULATED BENEFIT OBLIGATION
<S> <C> <C>
Accumulated benefit obligation at beginning of year $ 523.3 $ 494.1
Service cost 9.1 9.6
Interest cost 36.8 37.2
Actuarial loss 7.6 11.9
Amendments 2.2 -
Benefits paid (29.5) (29.0)
Other (0.7) (0.5)
-----------------------
Accumulated benefit obligation at end of year $ 548.8 $ 523.3
-----------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 150.7 $ 81.0
Actual return on plan assets 22.1 23.0
Employer contribution 34.1 75.7
Benefits paid (29.5) (29.0)
-----------------------
Fair value of plan assets at end of year $ 177.4 $ 150.7
-----------------------
FUNDED STATUS $ (371.4) $ (372.6)
Unrecognized net gain (80.9) (86.5)
Unrecognized prior service cost (6.2) (8.1)
-----------------------
Accrued postretirement benefit cost $ (458.5) $ (467.2)
-----------------------
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL
POSITION CONSIST OF
Accrued benefit liability $ (458.5) $ (467.2)
- ----------------------------------------------------------------------------------
</TABLE>
The assumed health care cost trend rate was 7.0% for 1998, decreasing gradually
to 4.2% 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. A one percentage point change in assumed health care
cost trend rates would have the following effects:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
One percentage One percentage
(millions) point increase point decrease
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and
interest cost components $ 6.5 $ (4.2)
Effect on postretirement benefit obligation $ 65.4 $ (54.5)
- ---------------------------------------------------------------------------------------------
</TABLE>
All gains and losses, other than curtailment losses and special termination
benefits, are recognized over the average remaining service period of active
plan participants. Curtailment losses and special termination benefits
recognized in 1998 and 1996 relate to operational workforce reduction
initiatives undertaken during these years and are recorded as a component of
non-recurring charges. (Refer to Note 3 for further information.) Since December
1996, the Company has contributed to a voluntary employee benefit association
(VEBA) trust for funding of its nonpension postretirement benefit obligations.
<PAGE> 28
NOTE 10 INCOME TAXES
Earnings before income taxes and cumulative effect of accounting change, and the
provision for U.S. federal, state, and foreign taxes on these earnings, were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(millions) 1998 1997 1996
- ------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
<S> <C> <C> <C>
United States $564.0 $576.4 $516.7
Foreign 218.5 328.1 343.2
- ------------------------------------------------------------------------------------
$782.5 $904.5 $859.9
- ------------------------------------------------------------------------------------
INCOME TAXES
Currently payable
Federal $128.7 $129.4 $130.6
State 17.8 29.6 21.9
Foreign 87.2 143.0 118.4
- ------------------------------------------------------------------------------------
233.7 302.0 270.9
- ------------------------------------------------------------------------------------
Deferred
Federal 30.6 50.2 45.7
State 1.7 4.0 11.4
Foreign 13.9 (15.7) 0.9
- ------------------------------------------------------------------------------------
46.2 38.5 58.0
- ------------------------------------------------------------------------------------
Total income taxes $279.9 $340.5 $328.9
- ------------------------------------------------------------------------------------
</TABLE>
The difference between the U.S. federal statutory tax rate and the Company's
effective rate was:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
Foreign rates varying from 35% (2.0) (1.6) 0.7
State income taxes, net of federal benefit 2.4 2.4 2.5
Net change in valuation allowances 2.9 1.6 (0.1)
Statutory rate changes, deferred tax impact (0.3) (0.5) -
Other (2.2) 0.7 0.1
- ------------------------------------------------------------------------------------
Effective income tax rate 35.8% 37.6% 38.2%
- ------------------------------------------------------------------------------------
</TABLE>
The 1998 and 1997 increases in valuation allowances on deferred tax assets and
corresponding impacts on the effective income tax rate, as presented above,
primarily result from management's assessment of the Company's ability to
utilize certain operating loss and tax credit carryforwards. Total tax benefits
of carryforwards at year-end 1998 and 1997 were $55.1 million and $30.4 million,
respectively, and principally expire after five years.
The deferred tax assets and liabilities included in the balance sheet at
year-end were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Deferred tax assets Deferred tax liabilities
(millions) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
Current:
<S> <C> <C> <C> <C>
Promotion and advertising $26.0 $65.0 $9.9 $10.5
Wages and payroll taxes 27.3 13.8 - -
Health and postretirement benefits 18.1 15.7 3.8 2.4
State taxes 5.7 8.1 - -
Operating loss and credit carryforwards 1.5 2.1 - -
Other 27.9 24.2 15.4 12.3
- ------------------------------------------------------------------------------------------------------------
106.5 128.9 29.1 25.2
Less valuation allowance (1.5) (4.1) - -
- ------------------------------------------------------------------------------------------------------------
105.0 124.8 29.1 25.2
- ------------------------------------------------------------------------------------------------------------
Noncurrent:
Depreciation and asset disposals 15.7 18.8 347.4 326.0
Health and postretirement benefits 164.3 163.5 58.8 56.2
Capitalized interest - - 28.3 28.8
State taxes - - 1.9 2.6
Operating loss and credit carryforwards 53.6 28.3 - -
Other 36.4 26.6 9.9 5.8
- ------------------------------------------------------------------------------------------------------------
270.0 237.2 446.3 419.4
Less valuation allowance (67.1) (41.8) - -
- ------------------------------------------------------------------------------------------------------------
202.9 195.4 446.3 419.4
- ------------------------------------------------------------------------------------------------------------
Total deferred taxes $307.9 $320.2 $475.4 $444.6
- ------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, foreign subsidiary earnings of $1.2 billion were
considered permanently invested in those businesses. Accordingly, U.S. income
taxes have not been provided on these earnings. Foreign withholding taxes of
approximately $75 million would be payable upon remittance of these earnings.
Subject to certain limitations, the withholding taxes would then be available
for use as credits against the U.S. tax liability.
Cash paid for income taxes was (in millions): 1998-$211; 1997-$332; 1996-$281.
<PAGE> 29
NOTE 11 FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
The fair values of the Company's financial instruments are based on carrying
value in the case of short-term items, quoted market prices for derivatives and
investments, and, in the case of long-term debt, incremental borrowing rates
currently available on loans with similar terms and maturities. The carrying
amounts of the Company's cash, cash equivalents, receivables, notes payable, and
long-term debt approximate fair value.
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations and uses derivative financial and commodity
instruments, where appropriate, to manage these risks. In general, instruments
used as hedges must be effective at reducing the risk associated with the
exposure being hedged and must be designated as a hedge at the inception of the
contract. Deferred gains or losses related to any instrument 1) designated but
ineffective as a hedge of existing assets, liabilities, or firm commitments, or
2) designated as a hedge of an anticipated transaction which is no longer likely
to occur, are recognized immediately in the statement of earnings.
For all derivative financial and commodity instruments held by the Company,
changes in fair values of these instruments and the resultant impact on the
Company's cash flows and/or earnings would generally be offset by changes in
value of underlying exposures. The impact on the Company's results and financial
position of holding derivative financial and commodity instruments was
insignificant during the periods presented.
FOREIGN EXCHANGE RISK
The Company is exposed to fluctuations in foreign currency cash flows primarily
related to third party purchases, intercompany product shipments, and
intercompany loans. The Company is also exposed to fluctuations in the value of
foreign currency investments in subsidiaries and cash flows related to
repatriation of these investments. Additionally, the Company is exposed to
volatility in the translation of foreign currency earnings to U.S.
Dollars.
The Company assesses foreign currency risk based on transactional cash flows and
enters into forward contracts and other commitments to sell foreign currency
revenues, all of generally less than twelve months duration, to reduce
fluctuations in net long or short currency positions. Foreign currency contracts
are marked-to-market with net amounts due to or from counterparties recorded in
accounts receivable or payable. For contracts hedging firm commitments,
mark-to-market gains and losses are deferred and recognized as adjustments to
the basis of the transaction. For contracts hedging subsidiary investments,
mark-to-market gains and losses are recorded in the accumulated other
comprehensive income component of shareholders' equity. For all other contracts,
mark-to-market gains and losses are recognized currently in other income or
expense. Commitments to sell future foreign currency revenues are accounted for
as contingent borrowings.
The notional amounts of open forward contracts were $22.2 million and $143.2
million at December 31, 1998, and 1997, respectively. No borrowings were
outstanding under commitments to sell foreign currency revenues at December 31,
1998 or 1997. Refer to Supplemental Financial Information on pages 33 and 34 for
further information regarding these contracts.
INTEREST RATE RISK
The Company is exposed to interest rate volatility with regard to future
issuances of fixed rate debt and existing issuances of variable rate debt. The
Company uses interest rate caps, and currency and interest rate swaps, including
forward swaps, to reduce interest rate volatility and funding costs associated
with certain debt issues, and to achieve a desired proportion of variable versus
fixed rate debt, based on current and projected market conditions.
Interest rate forward swaps are marked-to-market with net amounts due to or from
counterparties recorded in interest receivable or payable. Mark-to-market gains
and losses are deferred and recognized over the life of the debt issue as a
component of interest expense. For other caps and swaps entered into
concurrently with the debt issue, the interest or currency differential to be
paid or received on the instrument is recognized in the statement of earnings as
incurred, as a component of interest expense. If a position were to be
terminated prior to maturity, the gain or loss realized upon termination would
be deferred and amortized to
<PAGE> 30
interest expense over the remaining term of the underlying debt issue or would
be recognized immediately if the underlying debt issue was settled prior to
maturity.
The notional amounts of currency and interest rate swaps were $1.05 billion and
$875.0 million at December 31, 1998, and 1997, respectively. Refer to Note 6 and
Supplemental Financial Information on pages 33 and 34 for further information
regarding these swaps.
PRICE RISK
The Company is exposed to price fluctuations primarily as a result of
anticipated purchases of raw and packaging materials. The Company uses the
combination of long cash positions with vendors, and exchange-traded futures and
option contracts to reduce price fluctuations in a desired percentage of
forecasted purchases over a duration of generally less than one year. Commodity
contracts are marked-to-market with net amounts due to or from brokers recorded
in accounts receivable or payable. Mark-to-market gains and losses are deferred
and recognized as adjustments to the basis of the underlying material purchase.
CREDIT RISK CONCENTRATION
The Company is exposed to credit loss in the event of nonperformance by
counterparties on derivative financial and commodity contracts. This credit loss
is limited to the cost of replacing these contracts at current market rates.
Management believes that the probability of such loss is remote.
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash, cash equivalents, 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.
<PAGE> 31
NOTE 12 QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(millions, except Net sales Gross profit
per share data) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $1,642.9 $1,688.9 $ 861.1 $ 860.9
Second 1,713.5 1,719.7 893.9 908.9
Third 1,805.8 1,803.8 936.9 944.4
Fourth 1,599.9 1,617.7 787.6 845.8
- -----------------------------------------------------------------------------------------------------------
$6,762.1 $6,830.1 $ 3,479.5 $ 3,560.0
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Earnings before Earnings per share
cumulative effect of before cumulative effect
accounting change (a) of accounting change (a)(b)
- -----------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $170.7 $160.6 0.42 $0.38
Second 143.2 163.6 0.35 0.39
Third 141.9 207.2 0.35 0.50
Fourth 46.8 32.6 0.11 0.08
- -----------------------------------------------------------------------------------------------------------
$502.6 $564.0
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Net earnings (a) Earnings per share (a)(b)
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $170.7 $160.6 $0.42 $0.38
Second 143.2 163.6 0.35 0.39
Third 141.9 207.2 0.35 0.50
Fourth 46.8 14.6 0.11 0.04
- -----------------------------------------------------------------------------------------------------------
$502.6 $546.0
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) The quarterly results of 1998 and 1997 include the following non-recurring
charges and cumulative effect of accounting change. (Refer to Notes 1 and 3
for further information.)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Net earnings Earnings per share
1998 1997 1998 1997
- ----------------------------------------------------------------------------
Non-recurring charges:
<S> <C> <C> <C> <C>
Second $ - $ (8.0) $ - $ (0.02)
Third - (6.6) - (0.02)
Fourth (46.3) (125.9) (0.12) (0.31)
- ----------------------------------------------------------------------------
Earnings before cumulative
effect of accounting change (46.3) (140.5)
Cumulative effect of
accounting change - Fourth - (18.0) - (0.04)
- ----------------------------------------------------------------------------
Net earnings ($46.3) ($158.5)
- ----------------------------------------------------------------------------
</TABLE>
(b) Earnings per share presented represent both basic and diluted earnings
per share.
The principal market for trading Kellogg shares is the New York Stock Exchange
(NYSE). The shares are also traded on the Boston, Chicago, Cincinnati, Pacific,
and Philadelphia Stock Exchanges. At year-end 1998, the closing price (on the
NYSE) was $34 1/8 and there were 24,634 shareholders of record.
Dividends paid and the quarterly price ranges on the NYSE during the last two
years were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Stock Price
-------------------------
1998 - QUARTER Dividend High Low
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fourth $0.235 $37.63 $32.19
Third 0.235 39.19 29.56
Second 0.225 43.50 37.69
First 0.225 49.69 41.81
- ---------------------------------------------------------------------------------------
$0.920
- ---------------------------------------------------------------------------------------
1997 - Quarter
- ---------------------------------------------------------------------------------------
Fourth $0.225 $50.38 $40.00
Third 0.225 50.38 42.00
Second 0.210 43.44 32.00
First 0.210 36.38 32.06
- ---------------------------------------------------------------------------------------
$0.870
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 32
NOTE 13 OPERATING SEGMENTS
The Company manufactures and markets ready-to-eat cereal and other grain-based
convenience food products, including toaster pastries, frozen waffles, cereal
bars, and bagels, throughout the world. Principal markets for these products
include the United States and Great Britain. Operations are managed via four
major geographic areas - North America, Europe, Asia-Pacific, and Latin America
- - which are the basis of the Company's reportable operating segment information
disclosed below. The measurement of operating segment results is generally
consistent with the presentation of the Consolidated Statement of Earnings and
Balance Sheet. Intercompany transactions between reportable operating segments
were insignificant in all periods presented.
<TABLE>
<CAPTION>
(millions) 1998 1997 1996
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
North America $ 4,175.9 $ 4,260.8 $ 4,086.3
Europe 1,698.5 1,702.0 1,749.6
Asia-Pacific 377.0 411.9 433.2
Latin America 510.7 455.4 407.5
-------------------------------------------------------
Consolidated $ 6,762.1 $ 6,830.1 $ 6,676.6
-------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
OPERATING PROFIT EXCLUDING NON-RECURRING CHARGES
North America $ 831.6 $ 884.8 $ 762.3
Europe 211.4 305.8 305.1
Asia-Pacific 48.3 51.1 61.3
Latin America 107.2 111.8 94.2
Corporate and other (232.9) (160.3) (127.9)
-------------------------------------------------------
Consolidated (a) $ 965.6 $ 1,193.2 $ 1,095.0
-------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
North America $ 152.1 $ 153.7 $ 135.1
Europe 54.6 59.6 59.9
Asia-Pacific 21.3 21.9 20.7
Latin America 14.2 12.5 10.2
Corporate and other 35.9 39.6 25.6
-------------------------------------------------------
Consolidated $ 278.1 $ 287.3 $ 251.5
-------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
TOTAL ASSETS
North America $ 2,430.8 $ 2,519.2 $ 2,574.0
Europe 1,336.0 1,154.5 1,254.1
Asia-Pacific 328.4 309.5 449.2
Latin America 380.9 361.4 285.6
Corporate and other 1,516.7 1,405.1 1,316.5
Elimination entries (941.3) (872.1) (829.4)
-------------------------------------------------------
Consolidated $ 5,051.5 $ 4,877.6 $ 5,050.0
-------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
ADDITIONS TO LONG-LIVED ASSETS
North America $ 82.5 $ 166.5 $ 544.6
Europe 169.1 60.7 71.9
Asia-Pacific 40.3 24.3 34.7
Latin America 41.7 43.3 17.7
Corporate and other 98.5 94.9 138.3
-------------------------------------------------------
Consolidated $ 432.1 $ 389.7 $ 807.2
-------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(a) Reconciliation to operating profit as reported: 1998 1997 1996
<S> <C> <C> <C>
Operating profit excluding
non-recurring charges $ 965.6 $ 1,193.2 $ 1,095.0
Non-recurring charges (70.5) (184.1) (136.1)
--------------------------------------------------------
Operating profit as reported $ 895.1 $ 1,009.1 $ 958.9
--------------------------------------------------------
</TABLE>
Supplemental geographic information is provided below for revenues from external
customers and long-lived assets:
<TABLE>
<CAPTION>
(millions) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
United States $ 3,858.0 $ 3,922.2 $ 3,733.7
Great Britain 743.6 719.0 673.8
Other foreign countries 2,160.5 2,188.9 2,269.1
----------------------------------------------------
Consolidated $ 6,762.1 $ 6,830.1 $ 6,676.6
----------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
LONG-LIVED ASSETS
United States $ 1,644.2 $ 1,707.1 $ 1,720.0
Great Britain 553.0 452.4 463.2
Other foreign countries 1,330.3 1,225.2 1,304.3
----------------------------------------------------
Consolidated $ 3,527.5 $ 3,384.7 $ 3,487.5
----------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Supplemental product information is provided below for revenues from external
customers:
<TABLE>
<CAPTION>
(millions) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ready-to-eat cereal net sales $ 5,265.4 $ 5,435.8 $ 5,543.8
Convenience foods net sales 1,496.7 1,394.3 1,132.8
----------------------------------------------------
Consolidated $ 6,762.1 $ 6,830.1 $ 6,676.6
----------------------------------------------------
</TABLE>
<PAGE> 33
NOTE 14 SUPPLEMENTAL FINANCIAL STATEMENT DATA
(millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF EARNINGS 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Research and development expense $121.9 $106.1 $84.3
Advertising expense $695.3 $780.4 $778.9
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts receivable ($102.6) $5.1 $10.9
Inventories (15.0) (8.1) (35.4)
Other current assets 33.2 (11.0) (0.5)
Accounts payable 58.9 (8.7) (41.0)
Other current liabilities (76.8) 1.9 (11.3)
- ------------------------------------------------------------------------------------
CHANGES IN OPERATING ASSETS AND LIABILITIES ($102.3) ($20.8) ($77.3)
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $133.3 $135.0
Finished goods and materials in process 318.1 299.3
- ------------------------------------------------------------------------------------
INVENTORIES $451.4 $434.3
- ------------------------------------------------------------------------------------
Deferred income taxes $89.9 $113.4
Prepaid advertising and promotion 69.9 95.2
Other 55.9 64.1
- ------------------------------------------------------------------------------------
OTHER CURRENT ASSETS $215.7 $272.7
- ------------------------------------------------------------------------------------
Land $49.3 $49.0
Buildings 1,247.9 1,213.8
Machinery and equipment 3,608.2 3,434.7
Construction in progress 341.4 283.1
Accumulated depreciation (2,358.0) (2,207.3)
- ------------------------------------------------------------------------------------
PROPERTY, NET $2,888.8 $ 2,773.3
- ------------------------------------------------------------------------------------
Goodwill $185.5 $194.3
Other intangibles 194.0 191.2
Other 286.7 251.1
- ------------------------------------------------------------------------------------
OTHER ASSETS $666.2 $636.6
- ------------------------------------------------------------------------------------
Accrued income taxes $69.4 $30.5
Accrued salaries and wages 100.7 99.7
Accrued advertising and promotion 243.4 308.8
Other 296.6 310.5
- ------------------------------------------------------------------------------------
OTHER CURRENT LIABILITIES $710.1 $749.5
- ------------------------------------------------------------------------------------
Nonpension postretirement benefits $435.2 $444.1
Deferred income taxes 259.2 237.7
Other 134.3 125.6
- ------------------------------------------------------------------------------------
OTHER LIABILITIES $828.7 $807.4
- ------------------------------------------------------------------------------------
====================================================================================
</TABLE>
<PAGE> 34
Report of Independent Accountants
PRICEWATERHOUSECOOPERS LLP
To the Shareholders and Board of Directors of Kellogg Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Kellogg
Company and its subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, 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 Note 1 to the financial statements, the Company changed its
method of accounting for business process reengineering costs effective October
1, 1997.
/s/ PriceWaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Battle Creek, Michigan
January 29, 1999
<PAGE> 35
SUPPLEMENTAL FINANCIAL INFORMATION
QUANTITATIVE & QUALITATIVE DISCLOSURES RELATED TO MARKET RISK SENSITIVE
INSTRUMENTS
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations and uses derivative financial and commodity
instruments, where appropriate, to manage these risks. The Company, as a matter
of policy, does not engage in trading or speculative transactions. Refer to Note
11 within Notes to Consolidated Financial Statements for further information on
accounting policies related to derivative financial and commodity instruments.
FOREIGN EXCHANGE RISK
The Company is exposed to fluctuations in foreign currency cash flows related to
third party purchases, intercompany product shipments, and intercompany loans.
The Company is also exposed to fluctuations in the value of foreign currency
investments in subsidiaries and cash flows related to repatriation of these
investments. Additionally, the Company is exposed to volatility in the
translation of foreign currency earnings to U.S. Dollars. Primary exposures
include the U.S. Dollar versus the British Pound, member currencies of the
European Monetary Union, Australian Dollar, Canadian Dollar, and Mexican Peso,
and in the case of inter-subsidiary transactions, the British Pound versus other
European currencies. The Company assesses foreign currency risk based on
transactional cash flows and enters into forward contracts and other commitments
to sell foreign currency revenues, all of generally less than twelve months
duration, to reduce fluctuations in net long or short currency positions. No
borrowings were outstanding under commitments to sell foreign currency revenues
at December 31, 1998 or 1997. As of December 31, 1998, the Company had committed
to borrowings during 1999 in the cumulative principle amount of approximately
$280 million.
The tables below summarize forward contracts held at year-end 1998 and 1997. All
contracts are valued in U.S. Dollars using year-end exchange rates, are hedges
of anticipated transactions (unless indicated otherwise), and mature within one
year.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CONTRACTS TO SELL FOREIGN CURRENCY
- -------------------------------------------------------------------------------------------------------------------------
CURRENCY CURRENCY NOTIONAL VALUE EXCHANGE RATE FAIR VALUE
SOLD RECEIVED (MILLIONS) (FC/1US$) (MILLIONS)
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Belgian Franc British Pound $ 1.9 $ 11.7 35.11 35.19 $ - $ 0.5
- --------------------------------------------------------------------------------------------------------------
Swiss Franc German Deutschmark 0.3 3.9 2.08 1.46 - -
- --------------------------------------------------------------------------------------------------------------
French Franc German Deutschmark - 4.3 - 6.08 - -
- --------------------------------------------------------------------------------------------------------------
French Franc Danish Kroner - 0.6 - 6.06 - -
- --------------------------------------------------------------------------------------------------------------
Danish Kroner British Pound 3.2 5.4 6.60 6.67 (0.1) 0.1
- --------------------------------------------------------------------------------------------------------------
Belgian Franc French Franc - 1.0 - 36.87 - -
- --------------------------------------------------------------------------------------------------------------
French Franc British Pound 6.9 48.0 5.69 5.70 (0.1) 2.3
- --------------------------------------------------------------------------------------------------------------
Irish Punt British Pound 3.4 27.4 0.68 0.66 - 1.7
- --------------------------------------------------------------------------------------------------------------
Spanish Peseta British Pound - 1.3 - 134.72 - 0.2
- --------------------------------------------------------------------------------------------------------------
Swedish Kroner Danish Kroner 1.6 16.0 7.41 7.89 0.1 0.1
- --------------------------------------------------------------------------------------------------------------
Venezuelan Bolivar U.S. Dollar 2.1 - 726.67 - (0.6) -
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 19.4 $ 119.6 $ (0.7) $ 4.9
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE FOREIGN CURRENCY
- -------------------------------------------------------------------------------------------------------------------------
CURRENCY CURRENCY NOTIONAL VALUE EXCHANGE RATE FAIR VALUE
PURCHASED EXCHANGED (MILLIONS) (FC/1US$) (MILLIONS)
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Swiss Franc (a) British Pound $ - $ 4.7 - 1.42 $ - $ (0.1)
- --------------------------------------------------------------------------------------------------------------
German Deutschmark (a) British Pound - 0.3 - 1.72 - -
- --------------------------------------------------------------------------------------------------------------
German Deutschmark British Pound 2.8 18.6 1.69 1.71 - (0.8)
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 2.8 $ 23.6 $ - $ (0.9)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Designated as hedge of firm commitment.
INTEREST RATE RISK
The Company is exposed to interest rate volatility with regard to future
issuances of fixed rate debt and existing issuances of variable rate debt.
Primary exposures include movements in U.S. Treasury rates, London Interbank
Offered rates (LIBOR), and commercial paper rates. The Company uses interest
rate caps, and currency and interest rate swaps, including forward swaps, to
reduce interest rate volatility and funding costs associated with certain debt
issues, and to achieve a desired proportion of variable versus fixed rate debt,
based on current and projected market conditions.
The tables below provide information on the Company's significant debt issues
and related hedging instruments at year-end 1998 and 1997. For foreign
currency-denominated debt, the information is presented in U.S. Dollar
equivalents. Variable interest rates are based
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SIGNIFICANT DEBT ISSUES 12/31/98 12/31/97
- --------------------------------------------------------------------------------------------------------------
DEBT PRINCIPAL BY YEAR OF MATURITY (MILLIONS) FAIR VALUE FAIR VALUE
--------------------------------------- (MILLIONS) (MILLIONS)
CHARACTERISTICS 1999 2001 2004 2005
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Euro Dollar $ 500.0 $ 505.8 $ 502.6
- --------------------------------------------------------------------------------------------------------------
fixed rate 6.125%
- --------------------------------------------------------------------------------------------------------------
effective rate (a) 6.400%
- --------------------------------------------------------------------------------------------------------------
U.S. Dollar $ 400.0 $ 435.9 $ -
- --------------------------------------------------------------------------------------------------------------
fixed rate 5.75%
- --------------------------------------------------------------------------------------------------------------
effective rate (b) 5.23%
- --------------------------------------------------------------------------------------------------------------
Euro Dollar $ 500.0 $ 510.2 $ 515.3
- --------------------------------------------------------------------------------------------------------------
fixed rate 6.625%
- --------------------------------------------------------------------------------------------------------------
effective rate (a) 6.354%
- --------------------------------------------------------------------------------------------------------------
U.S. Dollar $ 200.0 $ 198.4 $ -
- --------------------------------------------------------------------------------------------------------------
fixed rate 4.875%
- --------------------------------------------------------------------------------------------------------------
effective rate (a) 6.070%
- --------------------------------------------------------------------------------------------------------------
U.S. commercial paper $ 423.3 $ 423.3 $ -
- --------------------------------------------------------------------------------------------------------------
weighted avg. variable 5.2%
- --------------------------------------------------------------------------------------------------------------
Multi-currency revolving credit facility $ 148.5 $ 148.5 $ -
- --------------------------------------------------------------------------------------------------------------
effective rate 5.5%
- --------------------------------------------------------------------------------------------------------------
Other debt issues maturing in 1998:
- --------------------------------------------------------------------------------------------------------------
Euro Canadian Dollar $ - $ 186.6
- --------------------------------------------------------------------------------------------------------------
U.S. commercial paper (c) $ - $ 744.2
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Effective fixed interest rate paid, as a result of settlement of forward
interest rate swap at date of debt issuance.
(b) Effective fixed interest rate paid, as a result of extendable feature. Refer
to Note 6 within Notes to Consolidated Financial Statements for further
information.
(c) $400 million of commercial paper classified in long-term debt as of year-end
1997. Refer to Note 6 within Notes to Consolidated Financial Statements for
further information.
<PAGE> 36
on effective rates or implied forward rates as of year-end 1998. Refer to Note 6
within the Notes to Consolidated Financial Statements for further information.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
INTEREST & CURRENCY SWAPS & CAPS
- ---------------------------------------------------------------------------------------------------
12/31/98 12/31/97
INSTRUMENT YEAR OF MATURITY (MILLIONS) FAIR VALUE FAIR VALUE
---------------------------
CHARACTERISTICS 2001 2002 (MILLIONS) (MILLIONS)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate swap -- pay Notional amt. $ 200.0 $ 5.6 $ 1.3
-----------------------------------------------------------------
variable/receive fixed -- hedge Pay 5.22%
-----------------------------------------------------------------
of existing debt issue Receive 6.40%
-----------------------------------------------------------------
Interest rate swap -- pay Notional amt. $ 225.0 $ 1.1 $ 1.2
-----------------------------------------------------------------
variable/receive fixed -- hedge Pay 4.86%
-----------------------------------------------------------------
of existing debt issue (a) Receive 6.354%
-----------------------------------------------------------------
Interest rate swap -- pay Notional amt. $ 400.0 $ 5.2 $ -
-----------------------------------------------------------------
variable/receive fixed -- hedge Pay 4.49%
-----------------------------------------------------------------
of existing debt issue Receive 5.23%
-----------------------------------------------------------------
Interest rate cap -- pay fixed
if 30-day C.P. rate rises to Notional amt. $ 225.0 $ (0.2) $ (0.4)
strike rate hedge of U.S. -----------------------------------------------------------------
commercial paper (b) Strike 6.33%
-----------------------------------------------------------------
Reference 4.90%
-----------------------------------------------------------------
Other swaps settling in 1998 $ - $ (10.9)
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Under the terms of this swap, if three-month LIBOR falls to 4.71% or below,
the swap will expire. At year-end 1998, three-month LIBOR was 5.07%.
(b) Under the terms of this cap, if the Federal Reserve AA composite rate on
30-day commercial paper increases to 7.68% or above, the cap will expire.
At year-end 1998 the rate was 4.90%.
PRICE RISK
The Company is exposed to price fluctuations primarily as a result of
anticipated purchases of raw and packaging materials. Primary exposures include
corn, wheat, soybean oil, and sugar. The Company uses the combination of long
cash positions with vendors, and exchange-traded futures and option contracts to
reduce price fluctuations in a desired percentage of forecasted purchases over a
duration of generally less than one year. The fair values of commodity contracts
held at year-end 1998 and 1997 were insignificant, and potential near-term
changes in commodity prices are not expected to have a significant impact on the
Company's future earnings or cash flows.
For all derivative financial instruments presented in the tables above, changes
in fair values of these instruments and the resultant impact on the Company's
cash flows and/or earnings would generally be offset by changes in values of
underlying transactions and positions. Therefore, it should be noted that the
exclusion of certain of the underlying exposures from the tables above may be a
limitation in assessing the net market risk of the Company.
<PAGE> 1
EXHIBIT 21.01
KELLOGG COMPANY
SUBSIDIARIES
NORTH AMERICA
- -------------
Argkel, Inc. - Battle Creek, MI
Ensemble Functional Foods Company - Battle Creek, MI
Gollek Inc. - Battle Creek, MI
K-One Inc. - Battle Creek, MI
K-Two Inc. - Battle Creek, MI
K (China) Limited - Battle Creek, MI
K India Private Limited - Battle Creek, MI
Kelarg, Inc. - Battle Creek, MI
Kellogg Asia Inc. - Battle Creek, MI
Kellogg Asia Marketing Inc. - Battle Creek, MI
Kellogg Brasil, Inc. - Battle Creek, MI
Kellogg Caribbean Inc. - Battle Creek, MI
Kellogg Caribbean Services Company, Inc. - Guayabo, Puerto Rico
Kellogg Chile Inc. - Battle Creek, MI
Kellogg Fearn, Inc. - Battle Creek, MI
Kellogg Italia S.p.A. - Battle Creek, MI
Kellogg Latvia, Inc. - Battle Creek, MI
Kellogg Sales Company - Battle Creek, MI
Kellogg Services Group, Inc. - Battle Creek, MI
Kellogg (Thailand) Limited - Battle Creek, MI
Kellogg USA Inc. - Battle Creek, MI
KFSC, Inc. - Barbados
Mountaintop Baking Company - Battle Creek, MI
The Eggo Company - Battle Creek, MI
Trafford Park Insurance Limited - Bermuda
Kellogg Canada Inc. - Rexdale, Ontario, Canada
Gollek Interamericas, S. de R.L. de C.V., Queretaro, Mexico (subsidiary of
Kellogg Canada)
Gollek Limited - Barbados, West Indies (subsidiary of Kellogg Canada)
Kellogg's Malaysia Manufacturing SDN, BHD, Kuala Lumpur, Malaysia (subsidiary
of Kellogg Canada)
ASIA-PACIFIC
- ------------
Kellogg (Aust.) Pty. Ltd. - Sydney, Australia
Gollek (Aust.) Pty. Ltd. - Pagewood, Australia (subsidiary of Kellogg
Australia)
Kellogg (N.Z.) Limited - Auckland, New Zealand (subsidiary of Kellogg
Australia)
Kellogg Superannuation Pty. Ltd. - Sydney, Australia (subsidiary of Kellogg
Australia)
Kellogg (China) Limited - Guangzhou, China
Kellogg Company of South Africa (Pty.) Ltd. - Springs, South Africa
Kellogg Project 1995 (Pty.) Ltd. - Springs, South Africa (subsidiary of Kellogg
South Africa)
Kellogg India Private Limited - Mumbai, India
Kellogg (Japan) K.K. - Tokyo, Japan
Kellogg (Thailand) Limited - Bangkok, Thailand
Nhong Shim Kellogg Co. Ltd. - Seoul, South Korea
EUROPE
- ------
Gollek B.V. - Amsterdam, The Netherlands
Kellogg Company of Great Britain Limited - Manchester, England
Favorite Food Products Limited - Manchester, England (subsidiary of Kellogg
Great Britain)
Garden City Bakery Limited - Manchester, England (subsidiary of Lender's
Bakery Limited)
Kelcone Limited - Aylesbury, England (subsidiary of Kellogg Great Britain)
Kelcorn Limited - Manchester, England (subsidiary of Kellogg Great Britain)
Kellogg Company of Ireland, Limited - Dublin, Ireland (subsidiary of Kellogg
Great Britain)
Kellogg Management Services (Europe) Limited - Manchester, England
(subsidiary of Kellogg UK Holding)
Kellogg Marketing and Sales Company (UK) Limited - Manchester, England
(subsidiary of Kellogg UK Holding)
Kellogg Supply Services (Europe) Limited - Manchester, England (subsidiary of
Kellogg UK Holding Co)
<PAGE> 2
Kellogg U.K. Holding Company Limited - Manchester, England
Kellogg Espana, S.A. - Valls, Spain (subsidiary of Kellogg Great Britain)
Kelmill Limited - Liverpool, England (subsidiary of Kellogg Great Britain)
Kelpac Limited - Manchester, England (subsidiary of Kellogg Great Britain)
Lender's Bakery Limited - Manchester, England (subsidiary of Kellogg UK Holding)
Portable Foods Manufacturing Company Limited - Manchester, England
Saragusa Frozen Foods Limited - Manchester, England (subsidiary of Kellogg
Great Britain)
Seaforth Corn Mills, Limited - Liverpool, England (subsidiary of Kellogg Great
Britain)
Kellogg (Deutschland) GmbH - Breman, Germany
Gebrueder Nielsen Reismuehlen und Staerke-Fabrik mit Beschraenkter Haftung -
Bremen, Germany (subsidiary of Kellogg Deutschland)
Reis-und Handels AG Unterstuetzungskasse GmbH - Bremen, Germany (subsidiary of
Kellogg Deutschland)
Kellogg (Hungary) Trading Limited Liability Company, Budapest, Hungary
Kellogg Italia S.p.A. - Milan, Italy
Generale Richerche Alimenti Migliorate (G.R.A.M.) S.p.A. - Veronaluova, Italy
Kellogg Latvia, Inc. - Riga, Latvia,
Kellogg (Poland) Sp. zo.o., Warsaw, Poland
Kellogg's Produits Alimentaires, S.A. - Rosny, France
Nordisk Kellogg's A/S - Svendborg, Denmark
Kellogg (Schweiz) AG, Kanton, Zug, Switzerland (subsidiary of Kellogg
Deutschland)
Kellogg (Osterreich) GmbH, Vienna, Austria (subsidiary of Kellogg Deutschland)
LATIN AMERICA
- -------------
Alimentos Kellogg, S.A. - Caracas, Venezuela
Gollek, S.A. - Caracas, Venezuela (subsidiary of Alimentos Kellogg)
Gollek Services, S.C., Queretaro, Mexico
Kellogg Argentina S.A. - Buenos Aires, Argentina
Kellogg Brasil & Cia. - Sao Paulo, Brasil
Kellogg Chile Limited - Santiago, Chile
Kellogg de Centro America, S.A. - Guatemala, Centro America
Kellogg de Colombia, S.A. - Bogota, Colombia
Kellogg de Mexico, S.A. de C.V. - Queretaro, Mexico
CELNASA (La Compania de Cereales Nacionales S.A.), Ecuador
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-20731,
33-38846 and 33-49875) and the Registration Statements on Form S-8 (Nos.
2-77316, 33-27293, 33-27294, 33-40651 and 33-53403) of Kellogg Company of our
report dated January 29, 1999 appearing on page 33 of the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 11 of this Form 10-K.
/S/ PriceWaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Battle Creek, Michigan
March 22, 1999
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-27294) of Kellogg Company of our report dated
March 18, 1999 which appears on page 1 of Exhibit 99.01 of this Form 10-K and to
the incorporation by reference in the Registration Statement on Form S-8 (No.
33-27293) of Kellogg Company of our report dated March 18, 1999 which appears on
page 1 of Exhibit 99.02 of this Form 10-K.
/s/ PriceWaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Battle Creek, Michigan
March 22, 1999
<PAGE> 1
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
B.S. Carson
-----------------------------
Director
Dated: 1/22/99
-------
<PAGE> 2
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
Carleton S. Fiorina
-----------------------------
Director
Dated: 1/27/99
-------
<PAGE> 3
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
Claudio Gonzalez
-----------------------------
Director
Dated: 1/27/99
-------
<PAGE> 4
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
Gordon Gund
-----------------------------
Director
Dated: 1/29/99
-------
<PAGE> 5
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
C. M. Gutierrez
-----------------------------
Director
Dated: 1/28/99
-------
<PAGE> 6
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
Dorothy A. Johnson
-----------------------------
Director
Dated: 2/1/99
------
<PAGE> 7
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
W. E. LaMothe
-----------------------------
Director
Dated: 1/23/99
-------
<PAGE> 8
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
A.G. Langbo
-----------------------------
Director
Dated: 2/3/99
-------
<PAGE> 9
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
Ann McLaughlin
-----------------------------
Director
Dated: 1/22/99
-------
<PAGE> 10
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
J.R. Munro
-----------------------------
Director
Dated: 1/22/99
-------
<PAGE> 11
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
Harold A. Poling
-----------------------------
Director
Dated: 1/22/99
-------
<PAGE> 12
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
William C. Richardson
-----------------------------
Director
Dated: 1/22/99
-------
<PAGE> 13
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
Donald H. Rumsfeld
-----------------------------
Director
Dated: 1/27/99
-------
<PAGE> 14
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark, Senior
Vice President, General Counsel and Secretary of Kellogg Company, as my lawful
attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report on
Form 1O-K for fiscal year ended December 31, 1998, and any exhibits, amendments
and other documents related thereto, with the Securities and Exchange
Commission. Said filing shall be for the purpose of fulfilling applicable legal
requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
John L. Zabriskie
-----------------------------
Director
Dated: 1/22/99
-------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KELLOGG
COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 136,400
<SECURITIES> 0
<RECEIVABLES> 705,900
<ALLOWANCES> (12,900)
<INVENTORY> 451,400
<CURRENT-ASSETS> 1,496,500
<PP&E> 5,246,800
<DEPRECIATION> (2,358,000)
<TOTAL-ASSETS> 5,051,500
<CURRENT-LIABILITIES> 1,718,500
<BONDS> 1,614,500
0
0
<COMMON> 103,800
<OTHER-SE> 786,000
<TOTAL-LIABILITY-AND-EQUITY> 5,051,500
<SALES> 6,762,100
<TOTAL-REVENUES> 6,762,100
<CGS> 3,282,600
<TOTAL-COSTS> 3,282,600
<OTHER-EXPENSES> 2,577,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,500
<INCOME-PRETAX> 782,500
<INCOME-TAX> 279,900
<INCOME-CONTINUING> 502,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 502,600
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
<PAGE> 1
EXHIBIT 99.01
FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED OCTOBER 31, 1998
COMMISSION FILE NUMBER 1-4171
KELLOGG COMPANY
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
(Full Title of the Plan)
- - - - - - - - - - - - - - - - - -
KELLOGG COMPANY
(Name of Issuer)
ONE KELLOGG SQUARE
BATTLE CREEK, MICHIGAN 49016-3599
(Principal Executive Office)
<PAGE> 2
KELLOGG COMPANY
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
OCTOBER 31, 1998
<PAGE> 3
KELLOGG COMPANY
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
INDEX TO FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS 1
FINANCIAL STATEMENTS AS OF OCTOBER 31, 1998 AND 1997 AND FOR THE YEARS THEN
ENDED:
Statement of net assets available for benefits, with fund information 2-4
Statement of changes in net assets available for benefits, with
fund information 5-7
Notes to financial statements 8-13
ADDITIONAL INFORMATION:
Item 27a - Schedule of assets held for investment
purposes - October 31, 1998 14
Item 27b - Schedule of loans or fixed income obligations -
October 31, 1998 15-16
Item 27d - Schedule of reportable transactions -
year ended October 31, 1998 17
</TABLE>
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Participants of the
Kellogg Company American Federation
of Grain Millers Savings and Investment Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Kellogg Company American Federation of Grain Millers Savings and
Investment Plan at October 31, 1998 and 1997, and the changes in net assets
available for benefits for the years then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the plan'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.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included on
pages 14-17 is presented for purposes of additional analysis and is not a
required part of the basic financial statements but is additional information
required by ERISA. The fund information in the statements of net assets
available for benefits and the statement of changes in net assets available for
benefits is presented for purposes of additional analysis rather than to present
the net assets available for benefits and changes in net assets available for
benefits of each fund. The additional information and the fund information have
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ PriceWaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Battle Creek, Michigan
March 18, 1999
<PAGE> 5
KELLOGG COMPANY 2
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. KELLOGG
BOND FIXED EQUITY COMPANY
LOAN INDEX INCOME INDEX STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Receivables:
Employer contributions $ 110,191 $ -- $ 2,400 $ 40,100 $ 32,330 $ 32,944
Employee contributions 278,544 6,923 110,426 99,651 53,601
Employee loan repayments -- (1,959) 137 761 743 318
Interest 547 284 10 253
------------ ------------ ------------ ------------ ------------ ------------
Total receivables 389,282 (1,959) 9,460 151,571 132,734 87,116
------------ ------------ ------------ ------------ ------------ ------------
Investments:
Plan's interest in Master Trust 604,734,697 11,081,018 380,770,917 134,326,169 69,630,360
Loans to participants 8,207,094 8,207,094
------------ ------------ ------------ ------------ ------------ ------------
Total investments 612,941,791 8,207,094 11,081,018 380,770,917 134,326,169 69,630,360
------------ ------------ ------------ ------------ ------------ ------------
Total assets 613,331,073 8,205,135 11,090,478 380,922,488 134,458,903 69,717,476
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES:
Benefits payable 14,000 6,439 7,561
Investment services fees 19,845 4,275 15,570
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities 33,845 -- 4,275 22,009 7,561 --
------------ ------------ ------------ ------------ ------------ ------------
Net assets available for benefits $613,297,228 $ 8,205,135 $ 11,086,203 $380,900,479 $134,451,342 $ 69,717,476
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 6
KELLOGG COMPANY 3
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
OCTOBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LARGE SMALL
COMPANY COMPANY INTERNATIONAL CONSERVATIVE AGGRESSIVE
EQUITY EQUITY EQUITY PRE-MIXED PRE-MIXED
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
ASSETS:
Receivables:
Employer contributions $ 973 $ 282 $ 211 $ 350 $ 601
Employee contributions 3,600 920 649 1,182 1,592
Employee loan repayments
Interest
---------- ---------- ---------- ---------- ----------
Total receivables 4,573 1,202 860 1,532 2,193
---------- ---------- ---------- ---------- ----------
Investments:
Plan's interest in Master Trust 3,500,003 1,459,239 609,111 1,945,873 1,412,007
Loans to participants
---------- ---------- ---------- ---------- ----------
Total investments 3,500,003 1,459,239 609,111 1,945,873 1,412,007
---------- ---------- ---------- ---------- ----------
Total assets 3,504,576 1,460,441 609,971 1,947,405 1,414,200
---------- ---------- ---------- ---------- ----------
LIABILITIES:
Benefits payable
Investment services fees
---------- ---------- ---------- ---------- ----------
Total liabilities -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net assets available for benefits $3,504,576 $1,460,441 $ 609,971 $1,947,405 $1,414,200
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE> 7
KELLOGG COMPANY 4
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. KELLOGG
BOND FIXED EQUITY COMPANY
LOAN INDEX INCOME INDEX STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Receivables:
Employer contributions $ 568,423 $ -- $ 7,793 $ 238,347 $ 157,680 $ 164,603
Employee contributions 280,805 280,805
Interest 9,043 -- 9,043
------------ ------------ ------------ ------------ ------------ ------------
Total receivables 858,271 -- 7,793 528,195 157,680 164,603
------------ ------------ ------------ ------------ ------------ ------------
Investments:
Plan's interest in Master Trust 208,537,576 5,838,178 7,455,690 117,661,788 77,581,920
Guaranteed investment contracts 411,867,794 411,867,794
Loans to participants 9,349,277 9,349,277
TBC Pooled Funds Daily Liquidity 6,205 6,205
------------ ------------ ------------ ------------ ------------ ------------
Total investments 629,760,852 9,349,277 5,838,178 419,329,689 117,661,788 77,581,920
------------ ------------ ------------ ------------ ------------ ------------
Total assets 630,619,123 9,349,277 5,845,971 419,857,884 117,819,468 77,746,523
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES:
Benefits payable 2,424,218 2,424,218
Investment services fees 77,265 2,416 38,947 33,572 2,330
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities 2,501,483 -- 2,416 2,463,165 33,572 2,330
------------ ------------ ------------ ------------ ------------ ------------
Net assets available for benefits $628,117,640 $ 9,349,277 $ 5,843,555 $417,394,719 $117,785,896 $ 77,744,193
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 8
KELLOGG COMPANY 5
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. KELLOGG
BOND FIXED EQUITY COMPANY
LOAN INDEX INCOME INDEX STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 6,350,944 $ -- $ 109,147 $ 2,532,665 $ 1,688,529 $ 1,991,102
Employee 13,514,248 258,461 5,360,924 5,062,574 2,750,437
Loans repaid 547 (5,212,104) 107,090 2,211,559 1,592,688 1,271,639
Rollovers from other
qualified plans 5,202 2,601 2,601
------------- ------------- ------------- ------------- ------------- -------------
Total contributions 19,870,941 (5,212,104) 474,698 10,105,148 8,346,392 6,015,779
------------- ------------- ------------- ------------- ------------- -------------
Earnings on Investments:
Plan's interest in income of
Master Trust 15,612,292 867,741 8,985,686 24,525,536 (18,540,799)
Interest income 17,404,629 839,877 16,564,752
Administrative fees
Trustee fees (10,674) (2,715) (21,773) 20,172 (6,008)
------------- ------------- ------------- ------------- ------------- -------------
Total earnings on
investments, net 33,006,247 839,877 865,026 25,528,665 24,545,708 (18,546,807)
------------- ------------- ------------- ------------- ------------- -------------
Net transfers between funds 4,634,268 (15,161,540) (7,728,757) 9,010,310
Participant withdrawals (67,533,906) (43,861) (687,071) (55,578,371) (7,479,528) (3,588,410)
New loan distributions -- 3,305,187 (64,040) (1,430,039) (926,107) (817,734)
Net transfers between Plans (163,694) (33,241) 19,767 41,897 (92,262) (99,855)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) (14,820,412) (1,144,142) 5,242,648 (36,494,240) 16,665,446 (8,026,717)
Net assets available for
benefits at beginning of year 628,117,640 9,349,277 5,843,555 417,394,719 117,785,896 77,744,193
------------- ------------- ------------- ------------- ------------- -------------
Net assets available for
benefits at end of year $ 613,297,228 $ 8,205,135 $ 11,086,203 $ 380,900,479 $ 134,451,342 $ 69,717,476
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE> 9
KELLOGG COMPANY 6
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LARGE SMALL
COMPANY COMPANY INTERNATIONAL CONSERVATIVE AGGRESSIVE
EQUITY EQUITY EQUITY PRE-MIXED PRE-MIXED
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Contributions:
Employer $ 11,733 $ 3,869 $ 2,789 $ 3,319 $ 7,791
Employee 32,921 9,206 6,659 12,437 20,629
Loans repaid 9,393 1,899 3,151 2,300 12,932
Rollovers from other qualified plans
----------- ----------- ----------- ----------- -----------
Total contributions 54,047 14,974 12,599 18,056 41,352
----------- ----------- ----------- ----------- -----------
Earnings on Investments:
Plan's interest in income of Master Trust 17,627 (88,934) 20,529 27,579 (202,673)
Interest income
Administrative fees
Trustee fees (139) (37) (19) (73) (82)
----------- ----------- ----------- ----------- -----------
Total earnings on investments, net 17,488 (88,971) 20,510 27,506 (202,755)
----------- ----------- ----------- ----------- -----------
Net transfers between funds 3,567,424 1,536,328 610,376 1,911,590 1,620,001
Participant withdrawals (77,445) (1,499) (33,514) (9,747) (34,460)
New loan distributions (56,938) (391) (9,938)
Net transfers between Plans
----------- ----------- ----------- ----------- -----------
Net increase (decrease) 3,504,576 1,460,441 609,971 1,947,405 1,414,200
Net assets available for benefits at
beginning of year -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net assets available for benefits at
end of year $ 3,504,576 $ 1,460,441 $ 609,971 $ 1,947,405 $ 1,414,200
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 10
KELLOGG COMPANY 7
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. KELLOGG
BOND FIXED EQUITY COMPANY
LOAN INDEX INCOME INDEX STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 5,934,691 $ -- $ 80,574 $ 2,921,957 $ 1,385,918 $ 1,546,242
Employee 15,034,466 223,406 8,100,357 4,300,164 2,410,539
Loans repaid -- (4,416,624) 83,676 2,464,755 1,063,095 805,098
Rollovers from other
qualified plans 165,297 2,726 57,255 44,402 60,914
------------- ------------- ------------- ------------- ------------- -------------
Total contributions 21,134,454 (4,416,624) 390,382 13,544,324 6,793,579 4,822,793
------------- ------------- ------------- ------------- ------------- -------------
Earnings on Investments:
Plan's interest in income of
Master Trust 43,932,668 491,218 402,596 22,385,085 20,653,769
Interest income 30,154,510 860,847 29,293,663
Administrative fees (31,204) (31,204)
Trustee fees (47,299) (446) (35,291) (6,307) (5,255)
------------- ------------- ------------- ------------- ------------- -------------
Total earnings on
investments, net 74,008,675 860,847 490,772 29,629,764 22,378,778 20,648,514
------------- ------------- ------------- ------------- ------------- -------------
Net transfers between funds (522,539) (25,462,667) 33,614,370 (7,629,164)
Participant withdrawals (96,850,090) (620,010) (1,020,635) (80,343,553) (8,393,711) (6,472,181)
New loan distributions -- 2,853,202 (58,340) (1,612,586) (659,620) (522,656)
Net transfers between Plans (158,642) (20,666) (8,530) 78,704 69,218 (277,368)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) (1,865,603) (1,343,251) (728,890) (64,166,014) 53,802,614 10,569,938
Net assets available for
benefits at beginning of year 629,983,243 10,692,528 6,572,445 481,560,733 63,983,282 67,174,255
------------- ------------- ------------- ------------- ------------- -------------
Net assets available for
benefits at end of year $ 628,117,640 $ 9,349,277 $ 5,843,555 $ 417,394,719 $ 117,785,896 $ 77,744,193
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE> 11
KELLOGG COMPANY 8
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Kellogg Company American Federation of Grain Millers Savings and
Investment Plan ("the Plan") operates as a qualified defined contribution
plan and was established under Section 401(k) of the Internal Revenue Code.
The accounts of the Plan are maintained on the accrual basis. Expenses of
administration are paid by Kellogg Company.
INVESTMENTS
All investments are reported at current quoted market values except for
guaranteed insurance contracts, which are reported at contract value and
represent contributions made plus interest at the contract rate. The
following investments exceeded five percent of the net assets available for
benefits at October 31, 1998 or 1997:
<TABLE>
<CAPTION>
INTEREST OCTOBER 31,
DESCRIPTION RATE 1998 1997
<S> <C> <C> <C>
Brundage, Story & Rose Managed
Synthetic GIC Fund Variable $ - $ 54,084,310
Putnam Horizon Managed Synthetic
GIC Fund Variable 57,916,613
Allstate Life Ins. GAC #5686A 8.13% 50,073,567
John Hancock GAC #5919-10001 8.82% 28,378,237
John Hancock GAC #7605 7.87% 50,456,501
Metropolitan Life GIC 6.27% 37,049,089
New York Life GAC #3032100 6.72% 43,440,242
Plan's Interest in Master Trust Variable 604,734,697 208,537,576
</TABLE>
During 1998, the Plan's investments in guaranteed insurance contracts were
transferred to the Kellogg Company Master Trust.
ALLOCATION OF NET INVESTMENT INCOME TO PARTICIPANTS
Effective August 1, 1998, the method of allocating net investment income to
participants changed. Subsequent to that date, net investment income is
allocated to participants daily, in proportion to their respective
ownership on that day. Prior to August 1, 1998, net investment income
related to the respective investment options was allocated monthly to
participant accounts in proportion to their respective ownership at the
beginning of the month. This change was made concurrent with changes in the
Plan that allows participants to make changes to investment elections on a
daily basis. Previously, such changes were only permitted on a monthly
basis.
<PAGE> 12
KELLOGG COMPANY 9
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Plan's management to make
estimates and assumptions that affect the reported amounts of net assets
available for benefits at the date of the financial statements and changes
in net assets available for benefits during the reporting period. Actual
results could differ from those estimates.
2. PROVISIONS OF THE PLAN
PLAN ADMINISTRATION
The Plan is administered by trustees appointed by Kellogg and employees
represented by the American Federation of Grain Millers.
PLAN PARTICIPATION
Generally, all Kellogg Company hourly employees belonging to American
Federation of Grain Millers Union Local Nos. 3, 50, 211, 252, 374 and 401
are eligible to participate in the Plan.
Subject to limitations prescribed by the Internal Revenue Service,
participants may elect to contribute from 1 percent to 16 percent of their
annual wages. Employee contributions not exceeding 5 percent of wages are
matched by Kellogg Company at an 80 percent rate, with 12.5 percent of the
Company match restricted for investment in the Kellogg Company stock fund.
Employees may contribute to the Plan from their date of hire; however, the
monthly contributions are not matched by the Company until the participant
has completed one year of service.
Participants of the Plan may elect to invest the contributions to their
accounts as well as their account balances in equity, bond, fixed income or
Kellogg Company stock funds or a combination thereof in multiples of one
percent. Following is a summary of the Plan's investment options:
The BOND INDEX FUND invests only in top-rated securities, as well as
certain mortgage-backed securities to compensate for yield. This fund
seeks to meet or exceed the total return of the Lehman Brothers
Government/Corporate Bond Index, a standard benchmark for this type of
fund.
The FIXED INCOME FUND invests primarily in investment contracts issued
by a diversified group of insurance companies and other financial
institutions. This fund seeks to provide a generally steady level of
current income, plus stability of principal.
The U.S. EQUITY INDEX FUND buys and holds securities in the same
capitalization weight ratio as they appear in the S&P 500 Index.
Securities are traded only when there is contribution or redemption
activity, a change in the composition of the Index or the receipt of
dividend income.
<PAGE> 13
KELLOGG COMPANY 10
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
2. PROVISIONS OF THE PLAN (CONTINUED)
The KELLOGG COMPANY STOCK FUND provides returns in the form of dividend
income and stock price changes. Return is based solely on the Company's
stock performance.
The LARGE COMPANY EQUITY FUND is a value-oriented growth and income
fund. The fund seeks investment opportunities in U.S. common stocks that
are not overly recommended and are considered to be good values.
The SMALL COMPANY EQUITY FUND invests primarily in common stocks of
small, rapidly growing U.S. Companies. The fund seeks to provide
long-term growth of capital and income by investing in U.S.-based equity
securities.
The INTERNATIONAL EQUITY FUND invests in common and preferred stocks,
convertibles, American Depositary Receipts, Global Depositary Receipts,
bonds (generally rated "A" or better), government securities,
nonconvertible preferred stocks, and cash. At least 65% of assets will
be invested in issuers in Europe or the Pacific Basin.
The CONSERVATIVE PRE-MIXED FUND is a combination of the Fixed Income
Fund (10%), the Bond Index Fund (50%), the U.S. Equity Index Fund (20%),
the International Equity Fund (10%) and the Small Company Equity Fund
(10%).
The AGGRESSIVE PRE-MIXED FUND is a combination of the U.S. Equity Index
Fund (25%), the Large Company Equity Fund (25%), the International
Equity Fund (20%) and the Small Company Equity Fund (30%).
VESTING
Participant account balances are fully vested.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to
a maximum equal to the lesser of $50,000 or 50% of their account balance.
Loan transactions are treated as transfers between the Loan fund and the
other funds. Loan terms range from 12 to 60 months. Interest is paid at a
constant rate equal to one percent over the prime rate in the month the
loan begins. Principal and interest are paid ratably through monthly
payroll deductions. Loans that are considered to be uncollectible at year
end result in the outstanding principal being considered a hardship
withdrawal from the participant's plan account.
<PAGE> 14
KELLOGG COMPANY 11
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
2. PROVISIONS OF THE PLAN (CONTINUED)
PARTICIPANT DISTRIBUTIONS
Participants may elect to withdraw all or a portion of their contributions
made after October 31, 1978, plus related net investment income. The
withdrawal of any participant contributions which were not previously
subject to income tax is restricted by Internal Revenue Service
regulations. Under certain circumstances and subject to approval by the
Trustees, participants may request withdrawal of a portion of Company
contributions and their own contributions made prior to November 1, 1978,
including net investment income thereon.
Participants who terminate employment before retirement, by reasons other
than death or disability, may remain in the Plan or receive payment of
their account balances in a lump sum. If the account balance is less than
$3,500 the terminated participant will receive the account balance in a
lump sum.
Participants are eligible to retire from the Company at age 62, upon
reaching 55 with 20 years of service, or after 30 years of service. Upon
retirement, disability, or death, a participant's account balance may be
received in a lump sum or installment payments.
3. INCOME TAX STATUS
The Plan administrator has received a favorable letter from the Internal
Revenue Service dated November 25, 1996 regarding the Plan's qualification
under applicable income tax regulations as an entity exempt from federal
income taxes.
4. MASTER TRUST
Assets of the Plan have been combined for investment purposes with assets
of the Kellogg Company Salaried Savings and Investment Plan and Kellogg
Company sponsored pension plans in a Master Trust.
The Plan has an undivided interest in the net assets held in the Master
Trust in which interests are determined on the basis of cumulative funds
specifically contributed on behalf of the Plan adjusted for an allocation
of income. Such income allocation is based on the Plan's funds available
for investment during the year.
Master Trust net assets at October 31, 1998 and 1997 and the changes in net
assets for the periods then ended are as follows:
<PAGE> 15
KELLOGG COMPANY 12
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
4. MASTER TRUST (CONTINUED)
KELLOGG COMPANY MASTER TRUST
SCHEDULE OF ASSETS AND LIABILITIES FOR MASTER TRUST INVESTMENT ACCOUNTS
<TABLE>
<CAPTION>
PENSION PLANS SAVINGS & INVESTMENT PLANS
10/31/97 10/31/98 10/31/97 10/31/98
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
CASH/EQUIVALENTS:
Non-Interest Bearing ($ 535,778) ($ 110,637) ($ 32,619) $ 0
Interest Bearing Cash $ 2,683,385 ($ 98,966) $ 0 $ 0
--------------- --------------- --------------- ---------------
TOTAL CASH/EQUIVALENTS $ 2,147,607 ($ 203,885) ($ 32,619) $ 0
--------------- --------------- --------------- ---------------
RECEIVABLES $ 100,949,571 $ 54,319,006 $ 11,609,621 $ 545,837
--------------- --------------- --------------- ---------------
GENERAL INVESTMENTS:
Long Term U.S. Gov't Securities $ 26,106,325 $ 77,973,815 $ 18,251,094 $ 21,817,176
Short Term U.S. Gov't Securities $ 0 $ 3,796,364 $ 133,414 $ 0
Corporate Debt - Long Term $ 39,280,506 $ 57,499,636 $ 7,542,524 $ 8,163,564
Corporate Debt - Short Term $ 3,142,545 $ 38,641,199 $ 100,380 $ 100,018
Corporate Stocks - Preferred $ 1,697,910 $ 5,120,921 $ 0 $ 0
Corporate Stocks - Convertible $ 0 $ 922,024 $ 0 $ 0
Corporate Stocks - Common $ 568,799,792 $ 589,754,595 $ 380,020,756 $ 418,732,477
Shares of Registered Investment Co. $ 0 $ 6,935,960 $ 0 $ 0
Real Estate Pooled Funds $ 0 $ 31,667,191 $ 0 $ 0
Value of Interest in Pooled Funds $ 94,003,448 $ 5,132,335 $ 14,663,025 $ 25,600,238
Guaranteed Investment Contracts $ 41,790,582 $ 0 $ 0 $ 596,453,446
--------------- --------------- --------------- ---------------
TOTAL INVESTMENTS $ 774,821,108 $ 817,444,040 $ 420,711,193 $ 1,070,866,919
--------------- --------------- --------------- ---------------
TOTAL ASSETS $ 877,918,286 $ 871,559,161 $ 432,288,195 $ 1,071,412,756
--------------- --------------- --------------- ---------------
PAYABLES
Unsettled Trades ($ 103,169,276) ($ 103,673,829) ($ 14,289,335) ($ 121,036)
Investment Service Fees ($ 495,436) ($ 843,282) ($ 96,265)
--------------- --------------- --------------- ---------------
TOTAL LIABILITIES ($ 103,664,712) ($ 104,517,111) ($ 14,385,600) ($ 121,036)
--------------- --------------- --------------- ---------------
NET ASSETS $ 774,253,574 $ 767,042,050 $ 417,902,595 $ 1,071,291,720
=============== =============== =============== ===============
Percentage Interest held by the Plan 0.0% 0.0% 49.9% 56.4%
<CAPTION>
TOTAL
10/31/97 10/31/98
---------------------------------------
<S> <C> <C>
CASH/EQUIVALENTS:
Non-Interest Bearing ($ 568,397) ($ 110,637)
Interest Bearing Cash $ 2,683,385 ($ 98,966)
--------------- ---------------
TOTAL CASH/EQUIVALENTS $ 2,114,988 ($ 203,885)
--------------- ---------------
RECEIVABLES $ 112,559,192 $ 54,864,843
--------------- ---------------
GENERAL INVESTMENTS:
Long Term U.S. Gov't Securities $ 44,357,419 $ 99,790,991
Short Term U.S. Gov't Securities $ 133,414 $ 3,796,364
Corporate Debt - Long Term $ 46,823,030 $ 65,663,200
Corporate Debt - Short Term $ 3,242,925 $ 38,741,217
Corporate Stocks - Preferred $ 1,697,910 $ 5,120,921
Corporate Stocks - Convertible $ 0 $ 922,024
Corporate Stocks - Common $ 948,820,548 $ 1,008,487,072
Shares of Registered Investment Co. $ 0 $ 6,935,960
Real Estate Pooled Funds $ 0 $ 31,667,191
Value of Interest in Pooled Funds $ 108,666,473 $ 30,732,573
Guaranteed Investment Contracts $ 41,790,582 $ 596,453,446
--------------- ---------------
TOTAL INVESTMENTS $ 1,195,532,301 $ 1,888,310,959
--------------- ---------------
TOTAL ASSETS $ 1,310,206,481 $ 1,942,971,917
--------------- ---------------
PAYABLES
Unsettled Trades ($ 117,458,611) ($ 103,794,865)
Investment Service Fees ($ 591,701 ($ 843,282)
--------------- ---------------
TOTAL LIABILITIES ($ 118,050,312) ($ 104,638,147)
--------------- ---------------
NET ASSETS $ 1,192,156,169 $ 1,838,333,770
=============== ===============
Percentage Interest held by the Plan 17.5% 32.9%
</TABLE>
<PAGE> 16
KELLOGG COMPANY 13
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. MASTER TRUST (CONTINUED)
KELLOGG COMPANY MASTER TRUST
SCHEDULE OF INCOME AND EXPENSES, CHANGES IN NET ASSETS
AND NET INCREASE (DECREASE) IN NET ASSETS OF MASTER TRUST INVESTMENT ACCOUNTS
<TABLE>
<CAPTION>
PENSION PLANS SAVINGS & INVESTMENT PLANS
10/31/97 10/31/98 10/31/97 10/31/98
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Transfer of Assets Into
Investment Account $ 187,169,786 $ 255,942,199 $ 441,501,150 $ 983,281,696
Earnings on Investments
Interest $ 10,683,275 $ 11,632,552 $ 1,679,043 $ 15,642,346
Dividends $ 4,790,038 $ 4,119,739 $ 2,409,770 $ 2,870,015
Corporate Actions $ 86,594 $ 863,853 $ 0 $ 0
Pooled Fund Distributions $ 2,662,638 ($ 1,419,783) $ 0 $ 0
Miscellaneous $ 2,762 $ 27,366 $ 0 $ 84,218
Net Realized Gain/(Loss) $ 84,030,675 $ 60,398,448 $ 10,375,664 $ 144,506,990
--------------- --------------- --------------- ---------------
TOTAL ADDITIONS $ 289,425,768 $ 331,564,373 $ 455,965,627 $ 1,146,385,265
--------------- --------------- --------------- ---------------
Transfer of Assets Out of
Investment Account ($ 197,877,441) ($ 301,407,880) ($ 378,952,686) ($ 371,933,159)
Fees and Commissions ($ 1,627,714) ($ 2,981,585) ($ 180,330) ($ 572,075)
--------------- --------------- --------------- ---------------
TOTAL DISTRIBUTIONS ($ 199,505,155) ($ 304,389,465) ($ 379,133,016) ($ 372,505,234)
-------------- --------------- --------------- ---------------
Change in Unrealized Appreciation $ 39,043,479 ($ 34,386,432) $ 72,487,435 ($ 120,490,906)
--------------- --------------- --------------- ---------------
NET CHANGE IN ASSETS $ 128,964,092 ($ 7,211,524) $ 149,320,046 $ 653,389,125
Net Assets at Beginning of Year $ 645,289,482 $ 774,253,574 $ 268,582,549 $ 417,902,595
--------------- --------------- --------------- ---------------
Net Assets at End of Year $ 774,253,574 $ 767,042,050 $ 417,902,595 $ 1,071,291,720
=============== =============== =============== ===============
<CAPTION>
TOTAL
10/31/97 10/31/98
-------------------------------------
<S> <C> <C>
Transfer of Assets Into
Investment Account $ 628,670,936 $ 1,239,223,895
Earnings on Investments
Interest $ 12,362,318 $ 27,274,898
Dividends $ 7,199,808 $ 6,989,754
Corporate Actions $ 86,594 $ 863,853
Pooled Fund Distributions $ 2,662,638 ($ 1,419,783)
Miscellaneous $ 2,762 $ 111,584
Net Realized Gain/(Loss) $ 94,406,339 $ 204,905,438
--------------- ---------------
TOTAL ADDITIONS $ 745,391,395 $ 1,477,949,638
--------------- ---------------
Transfer of Assets Out of
Investment Account ($ 576,830,127) ($ 673,341,039)
Fees and Commissions ($ 1,808,044) ($ 3,553,660)
--------------- ---------------
TOTAL DISTRIBUTIONS ($ 578,638,171) ($ 676,894,699)
--------------- ---------------
Change in Unrealized Appreciation $ 111,530,914 ($ 154,877,338)
--------------- ---------------
NET CHANGE IN ASSETS $ 278,284,138 $ 646,177,601
Net Assets at Beginning of Year $ 913,872,031 $ 1,192,156,169
--------------- ---------------
Net Assets at End of Year $ 1,192,156,169 $ 1,838,333,770
=============== ===============
</TABLE>
<PAGE> 17
KELLOGG COMPANY 14
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES - OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET UNREALIZED
SECURITY DESCRIPTION COST PRICE VALUE GAIN/LOSS
<S> <C> <C> <C> <C>
Loans to participants $8,205,135 1.00 $8,205,135 $ --
---------- ---------- ----
$8,205,135 $8,205,135 $ --
========== ========== ====
</TABLE>
<PAGE> 18
KELLOGG COMPANY 15
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27B - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID TERMS
IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT -----------------------------------
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END LOAN DATE INTEREST RATE MATURITY AMOUNTS OVERDUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patricia Wyzenski $44,239 $ 6,016 $ 2,143 $33,819 3/31/97 9.25% 5/31/01 $33,819
17673 Heritage Lane
Crescent, IA 51526
Geraldine Mabin 45,000 44,673 356 327 4/30/98 9.50% 7/30/98 327
25160 F Drive North
Albion, MI 49224
Judy D. Keith 9,000 -- -- 5,071 11/\30/94 8.75% 1/31/01 5,071
721 Finley Road
Albion, MI 49224
Mona L. Daniels 8,000 -- -- 6,621 9/30/94 8.75% 6/30/02 6,621
54 East Baldwin Street
Battle Creek, MI 49017
Kevin T. Glenn 1,000 -- -- 1,000 6/30/98 9.51% 7/31/00 1,000
P.O. Box 2476
Williamsport, PA 17703
Adell Smith 10,000 1,476 478 5,354 8/31/95 9.75% 12/31/00 5,354
6796 Valley park Drive
Memphis, TN 38115
Kim I. Bailey 2,500 2,500 11/30/95 9.26% 8/31/02 2,500
P.O. Box 642061
Omaha, NE 68164
</TABLE>
<PAGE> 19
KELLOGG COMPANY 16
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27B - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1998
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID TERMS
IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT -----------------------------------
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END LOAN DATE INTEREST RATE MATURITY AMOUNTS OVERDUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deborah A. Myers $ 3,500 $ -- $ -- $ 3,500 6/30/98 9.50% 7/31/03 $ 3,500
R.D. #2, Box 273
Hughesville, PA 17737
Bonita B. Borden 10,000 -- -- 5,415 9/30/94 9.75% 12/31/00 5,415
751 E. Fulton Street
Lancaster, PA 17602
Loretta A. Willis 2,871 476 97 1,126 2/28/95 9.51% 3/31/00 1,126
99 Fremont St
Battle Creek, MI 49017
Mattie L. Jenkins 4,000 -- -- 4,000 3/31/98 9.51% 6/30/03 4,000
2005 E. R. Danner Plaza
Omaha, NE 68110
Walter D. Schwetz 35,000 1,814 774 22,814 12/31/95 9.75% 6/30/01 22,814
6320 S. 72nd
Ralston, NE 68127
Bessie J. Featherton 15,000 -- -- 9,954 8/31/94 8.25% 7/31/01 9,954
1355 Royal Oak Cove
Memphis, TN 38116
Terri L. Walker 4,398 -- -- 2,961 9/30/94 8.75% 8/31/01 2,961
15 Eagle
Battle Creek, MI 49017
</TABLE>
<PAGE> 20
KELLOGG COMPANY 17
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS - YEAR ENDED OCTOBER 31, 1998 (1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT VALUE AT TRANSACTION DATE COST OF NET
NET NET SECURITIES REALIZED
IDENTITY OF ISSUE PURCHASE PRICE SALES PRICE SOLD GAIN
<S> <C> <C> <C> <C>
TBC Inc. Pooled Employee Funds - $ 100,691,423 $ 100,697,423 $ 100,697,423 $ --
Daily Liquidity Fund
</TABLE>
(1) Represents Plan's interest in a transaction (or a series of transactions of
the same issue) in excess of five percent of the Plan's assets available at
November 1, 1997.
<PAGE> 1
EXHIBIT 99.02
FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED OCTOBER 31, 1998
COMMISSION FILE NUMBER 1-4171
KELLOGG COMPANY SALARIED
SAVINGS AND INVESTMENT PLAN
(Full Title of the Plan)
- - - - - - - - - - - - - - - - - -
KELLOGG COMPANY
(Name of Issuer)
ONE KELLOGG SQUARE
BATTLE CREEK, MICHIGAN 49016-3599
(Principal Executive Office)
<PAGE> 2
KELLOGG COMPANY SALARIED
SAVINGS AND INVESTMENT PLAN
FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
OCTOBER 31, 1998
<PAGE> 3
KELLOGG COMPANY SALARIED
SAVINGS AND INVESTMENT PLAN
INDEX TO FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS 1
FINANCIAL STATEMENTS AS OF OCTOBER 31, 1998 AND 1997 AND FOR THE YEARS THEN
ENDED:
Statement of net assets available for benefits, with fund information 2-4
Statement of changes in net assets available for benefits, with
fund information 5-7
Notes to financial statements 8-13
ADDITIONAL INFORMATION:
Item 27a - Schedule of assets held for investment
purposes - October 31, 1998 14
Item 27b - Schedule of loans or fixed income obligations -
October 31, 1998 15
Item 27d - Schedule of reportable transactions -
year ended October 31, 1998 16
</TABLE>
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the ERISA Finance Committee
and Participants of the Kellogg Company
Salaried Savings and Investment Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Kellogg Company Salaried Savings and Investment Plan at October 31, 1998
and 1997, and the changes in net assets available for benefits for the years
then ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the plan'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.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included on
pages 14-16 is presented for purposes of additional analysis and is not a
required part of the basic financial statements but is additional information
required by ERISA. The fund information in the statements of net assets
available for benefits and the statements of changes in net assets available for
benefits is presented for purposes of additional analysis rather than to present
the net assets available for benefits and changes in net assets available for
benefits of each fund. The additional information and the fund information have
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ PriceWaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Battle Creek, Michigan
March 18, 1999
<PAGE> 5
KELLOGG COMPANY SALARIED 2
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. KELLOGG
BOND FIXED EQUITY COMPANY
LOAN INDEX INCOME INDEX STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Receivables:
Employer contributions $ 117,351 $ -- $ 5,050 $ 25,693 $ 45,887 $ 34,740
Employee contributions 297,580 14,452 69,700 135,938 57,924
Employee loan repayments -- (36,455) 1,104 11,420 14,092 8,011
Interest 1,521 37 212 842 422
------------ ------------ ------------ ------------ ------------ ------------
Total receivables 416,452 (36,455) 20,643 107,025 196,759 101,097
------------ ------------ ------------ ------------ ------------ ------------
Investments:
Plan's interest in Master Trust 466,657,474 16,849,994 237,312,736 151,593,421 44,571,805
Loans to participants 4,714,004 4,714,004
------------ ------------ ------------ ------------ ------------ ------------
Total investments 471,371,478 4,714,004 16,849,994 237,312,736 151,593,421 44,571,805
------------ ------------ ------------ ------------ ------------ ------------
Total assets 471,787,930 4,677,549 16,870,637 237,419,761 151,790,180 44,672,902
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES:
Benefits payable 124,349 118,621 5,728
Investment services fees 321,101 16,667 165,563 97,149 29,232
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities 445,450 -- 16,667 284,184 102,877 29,232
------------ ------------ ------------ ------------ ------------ ------------
Net assets available for benefits $471,342,480 $ 4,677,549 $ 16,853,970 $237,135,577 $151,687,303 $ 44,643,670
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 6
KELLOGG COMPANY SALARIED 3
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
OCTOBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LARGE SMALL
COMPANY COMPANY INTERNATIONAL CONSERVATIVE AGGRESSIVE
EQUITY EQUITY EQUITY PRE-MIXED PRE-MIXED
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
ASSETS:
Receivables:
Employer contributions $ 2,118 $ 1,141 $ 825 $ 588 $ 1,309
Employee contributions 6,911 3,891 2,559 2,035 4,170
Employee loan repayments 1,031 347 224 172 62
Interest
---------- ---------- ---------- ---------- ----------
Total receivables 10,060 5,379 3,608 2,795 5,541
---------- ---------- ---------- ---------- ----------
Investments:
Plan's interest in Master Trust 5,186,415 2,739,634 1,569,488 3,581,656 3,252,325
Loans to participants
---------- ---------- ---------- ---------- ----------
Total investments 5,186,415 2,739,634 1,569,488 3,581,656 3,252,325
---------- ---------- ---------- ---------- ----------
Total assets 5,196,475 2,745,013 1,573,096 3,584,451 3,257,866
---------- ---------- ---------- ---------- ----------
LIABILITIES:
Benefits payable
Investment services fees 4,026 2,039 1,411 2,589 2,425
---------- ---------- ---------- ---------- ----------
Total liabilities 4,026 2,039 1,411 2,589 2,425
---------- ---------- ---------- ---------- ----------
Net assets available for benefits $5,192,449 $2,742,974 $1,571,685 $3,581,862 $3,255,441
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE> 7
KELLOGG COMPANY SALARIED 4
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. KELLOGG
BOND FIXED EQUITY COMPANY
LOAN INDEX INCOME INDEX STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Receivables:
Employer contributions $ 427,924 $ -- $ 15,699 $ 101,037 $ 200,915 $ 110,273
Employee contributions 266,297 266,297
Interest 4,242 4,242
------------ ------------ ------------ ------------ ------------ ------------
Total receivables 698,463 -- 15,699 371,576 200,915 110,273
------------ ------------ ------------ ------------ ------------ ------------
Investments:
Plan's interest in Master Trust 209,461,284 10,510,300 13,236,293 134,577,719 51,136,972
Guaranteed investment contracts 234,272,998 234,272,998
Loans to participants 4,696,214 4,696,214
TBC Pooled Funds Daily Liquidity 20,922 20,922
------------ ------------ ------------ ------------ ------------ ------------
Total investments 448,451,418 4,696,214 10,510,300 247,530,213 134,577,719 51,136,972
------------ ------------ ------------ ------------ ------------ ------------
Total assets 449,149,881 4,696,214 10,525,999 247,901,789 134,778,634 51,247,245
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES:
Investment services fees 55,869 1,573 22,216 30,553 1,527
------------ ------------ ------------ ------------ ------------ ------------
Net assets available for benefits $449,094,012 $ 4,696,214 $ 10,524,426 $247,879,573 $134,748,081 $ 51,245,718
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 8
KELLOGG COMPANY SALARIED 5
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. KELLOGG
BOND FIXED EQUITY COMPANY
LOAN INDEX INCOME INDEX STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 7,026,760 $ -- $ 288,086 $ 1,591,419 $ 3,211,632 $ 1,845,034
Employee 16,315,254 810,657 3,819,005 8,441,530 3,062,518
Loans repaid 1,521 (2,767,734) 88,772 896,009 1,186,695 568,734
Rollovers from other
qualified plans 2,078,031 141,408 369,562 1,007,585 486,698
------------- ------------- ------------- ------------- ------------- -------------
Total contributions 25,421,566 (2,767,734) 1,328,923 6,675,995 13,847,442 5,962,984
------------- ------------- ------------- ------------- ------------- -------------
Earnings on Investments:
Plan's interest in income of
Master Trust 25,921,688 1,507,256 5,900,659 28,781,742 (10,476,779)
Interest income 10,137,312 438,616 9,698,696
Trustee fees (48,766) (1,162) (26,908) (14,988) (5,708)
Administrative fees (587,747) (25,050) (309,570) (173,873) (62,612)
------------- ------------- ------------- ------------- ------------- -------------
Total earnings on
investments, net 35,743,588 438,616 1,481,044 15,262,877 28,592,881 (10,545,099)
------------- ------------- ------------- ------------- ------------- -------------
Net transfers between funds -- 4,758,562 (5,754,246) (15,529,550) 660,962
Participant withdrawals (38,759,279) (236,743) (1,136,875) (26,127,289) (8,946,400) (2,259,426)
New loans distributions -- 2,513,955 (82,343) (759,436) (1,117,413) (521,324)
Net transfers between Plans 163,694 33,241 (19,767) (41,897) 92,262 99,855
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) 22,248,468 (18,665) 6,329,544 (10,743,996) 16,939,222 (6,602,048)
Net assets available for benefits at
beginning of year 449,094,012 4,696,214 10,524,426 247,879,573 134,748,081 51,245,718
------------- ------------- ------------- ------------- ------------- -------------
Net assets available for benefits at
end of year $ 471,342,480 $ 4,677,549 $ 16,853,970 $ 237,135,577 $ 151,687,303 $ 44,643,670
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE> 9
KELLOGG COMPANY SALARIED 6
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LARGE SMALL
COMPANY COMPANY INTERNATIONAL CONSERVATIVE AGGRESSIVE
EQUITY EQUITY EQUITY PRE-MIXED PRE-MIXED
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Contributions:
Employer $ 32,114 $ 21,306 $ 13,513 $ 11,322 $ 12,334
Employee 58,645 34,852 21,982 13,771 52,294
Loans repaid 9,372 4,075 3,077 7,686 4,835
Rollovers from other qualified plans 17,870 1,797 45,524 7,587
----------- ----------- ----------- ----------- -----------
Total contributions 118,001 62,030 38,572 78,303 77,050
----------- ----------- ----------- ----------- -----------
Earnings on Investments:
Plan's interest in income of Master Trust 133,144 (61,486) 30,405 78,621 28,126
Interest income
Trustee fees
Administrative fees (5,553) (2,615) (1,763) (3,509) (3,202)
----------- ----------- ----------- ----------- -----------
Total earnings on investments, net 127,591 (64,101) 28,642 75,112 24,924
----------- ----------- ----------- ----------- -----------
Net transfers between funds 4,972,289 2,749,194 1,521,582 3,433,950 3,187,257
Participant withdrawals (20,544) (2,965) (16,388) (3,837) (8,812)
New loan distributions (4,888) (1,184) (723) (1,666) (24,978)
Net transfers between Plans
----------- ----------- ----------- ----------- -----------
Net increase (decrease) 5,192,449 2,742,974 1,571,685 3,581,862 3,255,441
Net assets available for benefits at
beginning of year -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net assets available for benefits at
end of year $ 5,192,449 $ 2,742,974 $ 1,571,685 $ 3,581,862 $ 3,255,441
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 10
KELLOGG COMPANY SALARIED 7
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. KELLOGG
BOND FIXED EQUITY COMPANY
LOAN INDEX INCOME INDEX STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 5,720,190 $ -- $ 227,627 $ 1,704,900 $ 2,305,661 $ 1,482,002
Employee 13,930,880 612,257 4,537,488 6,567,524 2,213,611
Loans repaid -- (2,504,968) 72,536 976,226 981,527 474,679
Rollovers from other
qualified plans 3,258,456 132,940 231,832 512,818 1,693,361 687,505
------------- ------------- ------------- ------------- ------------- -------------
Total contributions 22,909,526 (2,372,028) 1,144,252 7,731,432 11,548,073 4,857,797
------------- ------------- ------------- ------------- ------------- -------------
Earnings on Investments:
Plan's interest in income of
Master Trust 42,838,918 846,887 877,745 28,602,004 12,512,282
Interest income 16,935,316 406,769 16,528,547
Trustee fees (16,540) (380) (10,980) (3,575) (1,605)
Administrative fees (210,509) (4,370) (142,590) (45,761) (17,788)
------------- ------------- ------------- ------------- ------------- -------------
Total earnings on
investments, net 59,547,185 406,769 842,137 17,252,722 28,552,668 12,492,889
------------- ------------- ------------- ------------- ------------- -------------
Net transfers between funds 164,008 (15,749,040) 15,499,371 85,661
Participant withdrawals (36,330,356) (189,123) (886,131) (28,472,787) (4,524,626) (2,257,689)
New loans distributions -- 2,179,693 (89,823) (880,617) (839,830) (369,423)
Net transfers between Plans 158,642 20,666 2,038 115,089 (9,432) 30,281
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) 46,284,997 45,977 1,176,481 (20,003,201) 50,226,224 14,839,516
Net assets available for benefits at
beginning of year 402,809,015 4,650,237 9,347,945 267,882,774 84,521,857 36,406,202
------------- ------------- ------------- ------------- ------------- -------------
Net assets available for benefits at
end of year $ 449,094,012 $ 4,696,214 $ 10,524,426 $ 247,879,573 $ 134,748,081 $ 51,245,718
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE> 11
KELLOGG COMPANY 8
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Kellogg Company Salaried Savings and Investment Plan ("the Plan")
operates as a qualified defined contribution plan and was established under
Section 401(k) of the Internal Revenue Code. The accounts of the Plan are
maintained on the accrual basis. Expenses of administration are paid by the
Plan.
INVESTMENTS
All investments are reported at current quoted market values except for
guaranteed insurance contracts, which are reported at contract value and
represent contributions made plus interest at the contract rate. The
following investments exceeded five percent of the net assets available for
benefits at October 31, 1998 or 1997:
<TABLE>
<CAPTION>
INTEREST OCTOBER 31,
DESCRIPTION RATE 1998 1997
<S> <C> <C> <C>
Putnam Horizon Managed Synthetic
GIC Fund Variable $ - $ 31,701,110
Brundage Story & Rose Managed
Synthetic GIC Fund Variable 32,009,730
Allstate Life Ins. GAC #5686-01 8.13% 28,210,134
John Hancock GAC #7606 7.87% 27,302,372
New York Life GAC #30320002 6.72% 32,347,720
Plan's interest in Master Trust Variable 466,657,474 209,461,284
</TABLE>
During 1998, the Plan's investments in guaranteed insurance contracts were
transferred to the Kellogg Company Master Trust.
ALLOCATION OF NET INVESTMENT INCOME TO PARTICIPANTS
Subsequent to August 1, 1998, net investment income is allocated to
participants daily, in proportion to their respective ownership on that
day. Prior to August 1, 1998, net investment income related to the
respective investment options was allocated monthly to participant accounts
in proportion to their respective ownership at the beginning of the month.
This change was made concurrent with changes in the Plan that allows
participants to make changes to investment elections on a daily basis.
Previously, such changes were only permitted on a monthly basis.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Plan's management to make
estimates and assumptions that affect the reported amounts of net assets
available for benefits at the date of the financial statements and changes
in net assets available for benefits during the reporting period. Actual
results could differ from those estimates.
<PAGE> 12
KELLOGG COMPANY 9
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. PROVISIONS OF THE PLAN
PLAN ADMINISTRATION
The Plan is administered by the ERISA Administrative Committee appointed by
Kellogg Company.
PLAN PARTICIPATION
Generally, all salaried employees of Kellogg Company and its U.S.
subsidiaries are eligible to participate in the Plan.
Subject to limitations prescribed by the Internal Revenue Service,
participants may elect to contribute from 1 percent to 16 percent of their
annual wages. Employee contributions not exceeding 5 percent of wages are
matched by Kellogg Company at an 80 percent rate, with 12.5 percent of the
Company match restricted for investment in the Kellogg Company stock fund.
Employees may contribute to the Plan from their date of hire; however, the
monthly contributions are not matched by the Company until the participant
has completed one year of service.
Participants of the Plan may elect to invest the contributions to their
accounts as well as their account balances in equity, bond, fixed income or
Kellogg Company stock funds or a combination thereof in multiples of one
percent. Following is a summary of the Plan's investment options:
The BOND INDEX FUND invests only in top-rated securities, as well as
certain mortgage-backed securities to compensate for yield. This fund
seeks to meet or exceed the total return of the Lehman Brothers
Government/Corporate Bond Index, a standard benchmark for this type of
fund.
The FIXED INCOME FUND invests primarily in investment contracts issued
by a diversified group of insurance companies and other financial
institutions. This fund seeks to provide a generally steady level of
current income, plus stability of principal.
The U.S. EQUITY INDEX FUND buys and holds securities in the same
capitalization weight ratio as they appear in the S&P 500 Index.
Securities are traded only when there is contribution or redemption
activity, a change in the composition of the Index or the receipt of
dividend income.
The KELLOGG COMPANY STOCK FUND provides returns in the form of dividend
income and stock price changes. Return is based solely on the Company's
stock performance.
The LARGE COMPANY EQUITY FUND is a value-oriented growth and income
fund. The fund seeks investment opportunities in U.S. common stocks that
are not overly recommended and are considered to be good values.
<PAGE> 13
KELLOGG COMPANY SALARIED 10
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. PROVISIONS OF THE PLAN (CONTINUED)
The SMALL COMPANY EQUITY FUND invests primarily in common stocks of
small, rapidly growing U.S. Companies. The fund seeks to provide
long-term growth of capital and income by investing in U.S.-based equity
securities.
The INTERNATIONAL EQUITY FUND invests in common and preferred stocks,
convertibles, American Depositary Receipts, Global Depositary Receipts,
bonds (generally rated "A" or better), government securities,
nonconvertible preferred stocks, and cash. At least 65% of assets will
be invested in issuers in Europe or the Pacific Basin.
The CONSERVATIVE PRE-MIXED FUND is a combination of the Fixed Income
Fund (10%), the Bond Index Fund (50%), the U.S. Equity Index Fund (20%),
the International Equity Fund (10%) and the Small Company Equity Fund
(10%).
The AGGRESSIVE PRE-MIXED FUND is a combination of the U.S. Equity Index
Fund (25%), the Large Company Equity Fund (25%), the International
Equity Fund (20%) and the Small Company Equity Fund (30%).
VESTING
Participant account balances are fully vested.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to
a maximum equal to the lesser of $50,000 or 50% of their account balance.
Loan transactions are treated as transfers between the Loan fund and the
other funds. Loan terms range from 12 to 60 months. Interest is paid at a
constant rate equal to one percent over the prime rate in the month the
loan begins. Principal and interest are paid ratably through monthly
payroll deductions. Loans that are considered to be uncollectible at year
end result in the outstanding principal being considered a hardship
withdrawal from the participant's plan account.
PARTICIPANT DISTRIBUTIONS
Participants may elect to withdraw all or a portion of their contributions
made after October 31, 1978, plus related net investment income. The
withdrawal of any participant contributions which were not previously
subject to income tax is restricted by Internal Revenue Service
regulations. Under certain circumstances and subject to approval by the
Trustees, participants may request withdrawal of a portion of Company
contributions and their own contributions made prior to November 1, 1978,
including net investment income thereon.
<PAGE> 14
KELLOGG COMPANY 11
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. PROVISIONS OF THE PLAN (CONTINUED)
Participants who terminate employment before retirement, by reasons other
than death or disability, may remain in the Plan or receive payment of
their account balances in a lump sum. If the account balance is less than
$3,500 the terminated participant will re6ceive the account balance in a
lump sum.
Participants are eligible to retire from the Company at age 62, upon
reaching 55 with 20 years of service, or after 30 years of service. Upon
retirement, disability, or death, a participant's account balance may be
received in a lump sum or installment payments.
3. INCOME TAX STATUS
The Plan administrator has received a favorable letter from the Internal
Revenue Service dated November 25, 1996 regarding the Plan's qualification
under applicable income tax regulations as an entity exempt from federal
income taxes.
4. MASTER TRUST
Assets of the Plan have been combined for investment purposes with assets
of the Kellogg Company American Federation of Grain Millers Savings and
Investment Plan and Kellogg Company sponsored pension plans in a Master
Trust.
The Plan has an undivided interest in the net assets held in the Master
Trust in which interests are determined on the basis of cumulative funds
specifically contributed on behalf of the Plan adjusted for an allocation
of income. Such income allocation is based on the Plan's funds available
for investment during the year.
Master Trust net assets at October 31, 1998 and 1997 and the changes in net
assets for the periods then ended are as follows:
<PAGE> 15
KELLOGG COMPANY SALARIED 12
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. MASTER TRUST (CONTINUED)
KELLOGG COMPANY MASTER TRUST
SCHEDULE OF ASSETS AND LIABILITIES FOR MASTER TRUST INVESTMENT ACCOUNTS
<TABLE>
<CAPTION>
PENSION PLANS SAVINGS & INVESTMENT PLANS
10/31/97 10/31/98 10/31/97 10/31/98
------------------------------------ -----------------------------------
<S> <C> <C> <C> <C>
CASH/EQUIVALENTS:
Non-Interest Bearing ($ 535,778) ($ 110,637) ($ 32,619) $ 0
Interest Bearing Cash $ 2,683,385 ($ 98,966) $ 0 $ 0
--------------- --------------- --------------- ---------------
TOTAL CASH/EQUIVALENTS $ 2,147,607 ($ 203,885) ($ 32,619) $ 0
--------------- --------------- --------------- ---------------
RECEIVABLES $ 100,949,571 $ 54,319,006 $ 11,609,621 $ 545,837
--------------- --------------- --------------- ---------------
GENERAL INVESTMENTS:
Long Term U.S. Gov't Securities $ 26,106,325 $ 77,973,815 $ 18,251,094 $ 21,817,176
Short Term U.S. Gov't Securities $ 0 $ 3,796,364 $ 133,414 $ 0
Corporate Debt - Long Term $ 39,280,506 $ 57,499,636 $ 7,542,524 $ 8,163,564
Corporate Debt - Short Term $ 3,142,545 $ 38,641,199 $ 100,380 $ 100,018
Corporate Stocks - Preferred $ 1,697,910 $ 5,120,921 $ 0 $ 0
Corporate Stocks - Convertible $ 0 $ 922,024 $ 0 $ 0
Corporate Stocks - Common $ 568,799,792 $ 589,754,595 $ 380,020,756 $ 418,732,477
Shares of Registered Investment Co. $ 0 $ 6,935,960 $ 0 $ 0
Real Estate Pooled Funds $ 0 $ 31,667,191 $ 0 $ 0
Value of Interest in Pooled Funds $ 94,003,448 $ 5,132,335 $ 14,663,025 $ 25,600,238
Guaranteed Investment Contracts $ 41,790,582 $ 0 $ 0 $ 596,453,446
--------------- --------------- --------------- ---------------
TOTAL INVESTMENTS $ 774,821,108 $ 817,444,040 $ 420,711,193 $ 1,070,866,919
--------------- --------------- --------------- ---------------
TOTAL ASSETS $ 877,918,286 $ 871,559,161 $ 432,288,195 $ 1,071,412,756
--------------- --------------- --------------- ---------------
PAYABLES
Unsettled Trades ($ 103,169,276) ($ 103,673,829) ($ 14,289,335) ($ 121,036)
Investment Service Fees ($ 495,436) ($ 843,282) ($ 96,265)
--------------- --------------- --------------- ---------------
TOTAL LIABILITIES ($ 103,664,712) ($ 104,517,111) ($ 14,385,600) ($ 121,036)
--------------- --------------- --------------- ---------------
NET ASSETS $ 774,253,574 $ 767,042,050 $ 417,902,595 $ 1,071,291,720
=============== =============== =============== ===============
Percentage Interest held by the Plan 0.0% 0.0% 50.1% 43.6%
<CAPTION>
TOTAL
10/31/97 10/31/98
------------------------------------
<S> <C> <C>
CASH/EQUIVALENTS:
Non-Interest Bearing ($ 568,397) ($ 110,637)
Interest Bearing Cash $ 2,683,385 ($ 98,966)
--------------- ---------------
TOTAL CASH/EQUIVALENTS $ 2,114,988 ($ 203,885)
--------------- ---------------
RECEIVABLES $ 112,559,192 $ 54,864,843
--------------- ---------------
GENERAL INVESTMENTS:
Long Term U.S. Gov't Securities $ 44,357,419 $ 99,790,991
Short Term U.S. Gov't Securities $ 133,414 $ 3,796,364
Corporate Debt - Long Term $ 46,823,030 $ 65,663,200
Corporate Debt - Short Term $ 3,242,925 $ 38,741,217
Corporate Stocks - Preferred $ 1,697,910 $ 5,120,921
Corporate Stocks - Convertible $ 0 $ 922,024
Corporate Stocks - Common $ 948,820,548 $ 1,008,487,072
Shares of Registered Investment Co. $ 0 $ 6,935,960
Real Estate Pooled Funds $ 0 $ 31,667,191
Value of Interest in Pooled Funds $ 108,666,473 $ 30,732,573
Guaranteed Investment Contracts $ 41,790,582 $ 596,453,446
--------------- ---------------
TOTAL INVESTMENTS $ 1,195,532,301 $ 1,888,310,959
--------------- ---------------
TOTAL ASSETS $ 1,310,206,481 $ 1,942,971,917
--------------- ---------------
PAYABLES
Unsettled Trades ($ 117,458,611) ($ 103,794,865)
Investment Service Fees ($ 591,701) ($ 843,282)
--------------- ---------------
TOTAL LIABILITIES ($ 118,050,312) ($ 104,638,147)
--------------- ---------------
NET ASSETS $ 1,192,156,169 $ 1,838,333,770
=============== ===============
Percentage Interest held by the Plan 17.6% 25.4%
</TABLE>
<PAGE> 16
KELLOGG COMPANY SALARIED 13
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. MASTER TRUST (CONTINUED)
KELLOGG COMPANY MASTER TRUST
SCHEDULE OF INCOME AND EXPENSES, CHANGES IN NET ASSETS
AND NET INCREASE (DECREASE) IN NET ASSETS OF MASTER TRUST INVESTMENT ACCOUNTS
<TABLE>
<CAPTION>
PENSION PLANS SAVINGS & INVESTMENT PLANS
10/31/97 10/31/98 10/31/97 10/31/98
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Transfer of Assets Into
Investment Account $ 187,169,786 $ 255,942,199 $ 441,501,150 $ 983,281,696
Earnings on Investments
Interest $ 10,683,275 $ 11,632,552 $ 1,679,043 $ 15,642,346
Dividends $ 4,790,038 $ 4,119,739 $ 2,409,770 $ 2,870,015
Corporate Actions $ 86,594 $ 863,853 $ 0 $ 0
Pooled Fund Distributions $ 2,662,638 ($ 1,419,783) $ 0 $ 0
Miscellaneous $ 2,762 $ 27,366 $ 0 $ 84,218
Net Realized Gain/(Loss) $ 84,030,675 $ 60,398,448 $ 10,375,664 $ 144,506,990
---------------------------------- ----------------------------------
TOTAL ADDITIONS $ 289,425,768 $ 331,564,373 $ 455,965,627 $ 1,146,385,265
---------------------------------- ----------------------------------
Transfer of Assets Out of
Investment Account ($ 197,877,441) ($ 301,407,880) ($ 378,952,686) ($ 371,933,159)
Fees and Commissions ($ 1,627,714) ($ 2,981,585) ($ 180,330) ($ 572,075)
---------------------------------- ----------------------------------
TOTAL DISTRIBUTIONS ($ 199,505,155) ($ 304,389,465) ($ 379,133,016) ($ 372,505,234)
---------------------------------- ----------------------------------
Change in Unrealized Appreciation $ 39,043,479 ($ 34,386,432) $ 72,487,435 ($ 120,490,906)
---------------------------------- ----------------------------------
NET CHANGE IN ASSETS $ 128,964,092 ($ 7,211,524) $ 149,320,046 $ 653,389,125
Net Assets at Beginning of Year $ 645,289,482 $ 774,253,574 $ 268,582,549 $ 417,902,595
---------------------------------- ----------------------------------
Net Assets at End of Year $ 774,253,574 $ 767,042,050 $ 417,902,595 $ 1,071,291,720
================================== ==================================
<CAPTION>
TOTAL
10/31/97 10/31/98
----------------------------------
<S> <C> <C>
Transfer of Assets Into
Investment Account $ 628,670,936 $ 1,239,223,895
Earnings on Investments
Interest $ 12,362,318 $ 27,274,898
Dividends $ 7,199,808 $ 6,989,754
Corporate Actions $ 86,594 $ 863,853
Pooled Fund Distributions $ 2,662,638 ($ 1,419,783)
Miscellaneous $ 2,762 $ 111,584
Net Realized Gain/(Loss) $ 94,406,339 $ 204,905,438
----------------------------------
TOTAL ADDITIONS $ 745,391,395 $ 1,477,949,638
----------------------------------
Transfer of Assets Out of
Investment Account ($ 576,830,127) ($ 673,341,039)
Fees and Commissions ($ 1,808,044) ($ 3,553,660)
----------------------------------
TOTAL DISTRIBUTIONS ($ 578,638,171) ($ 676,894,699)
----------------------------------
Change in Unrealized Appreciation $ 111,530,914 ($ 154,877,338)
----------------------------------
NET CHANGE IN ASSETS $ 278,284,138 $ 646,177,601
Net Assets at Beginning of Year $ 913,872,031 $ 1,192,156,169
----------------------------------
Net Assets at End of Year $ 1,192,156,169 $ 1,838,333,770
==================================
</TABLE>
<PAGE> 17
KELLOGG COMPANY SALARIED 14
SAVINGS AND INVESTMENT PLAN
ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES - OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET UNREALIZED
SECURITY DESCRIPTION COST PRICE VALUE GAIN/LOSS
<S> <C> <C> <C> <C>
Loans to participants $4,677,549 1.00 $4,677,549 $ --
========== ========== =====
</TABLE>
<PAGE> 18
KELLOGG COMPANY SALARIED 15
SAVINGS AND INVESTMENT PLAN
ITEM 27B - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
IDENTITY AND ADDRESS ORIGINAL YEAR UNPAID TERMS
AMOUNT --------------------- BALANCE AT ------------------------------------
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END LOAN DATE INTEREST RATE MATURITY AMOUNTS OVERDUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard D. Chaney $4,000 $ 191 $ 3 $ 78 11/30/92 6.00% 7/30/98 $ 78
RR 3, Box 220
Sullivan, IL 61951
James Earl McGehee 6,000 -- -- 5,413 2/29/96 9.50% 2/28/01 5,413
2310 Cowan Loop
Moscow, TN 38057
Darrell D. Glover 4,174 -- -- 3,610 11/30/95 9.76% 8/31/02 3,610
11 North Broad
Battle Creek, MI 49017
Rebecca L. Dawson 6,000 634 124 2,657 9/30/95 9.75% 1/31/00 2,657
1129 N. Jackson Street, 13
Milwaukee, WI 53202
Janette R. Jeffries 4,000 350 153 3,650 10/31/97 9.51% 1/31/02 3,650
3124 Kings Canyon Drive
Plano, TX 75025
Martha M. Misenheimer 2,000 90 4 62 11/1/94 7.75% 7/30/98 62
2413 Shelby
Mattoon, IL 61938
William J. Snowden 1,200 420 15 2 5/30/96 8.75% 7/30/98 2
1301 S. 17th
Mattoon, IL 61938
</TABLE>
<PAGE> 19
KELLOGG COMPANY SALARIED 16
SAVINGS AND INVESTMENT PLAN
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS - YEAR ENDED OCTOBER 31, 1998 (1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT VALUE AT TRANSACTION DATE
--------------------------------- COST OF NET
NET NET SECURITIES REALIZED
IDENTITY OF ISSUE PURCHASE PRICE SALES PRICE SOLD GAIN
<S> <C> <C> <C> <C>
TBC Inc., Pooled Employee Funds -
Daily Liquidity Fund $55,780,034 $55,800,956 $55,800,956 $--
</TABLE>
(1) Represents Plan's interest in a transaction (or a series of transactions of
the same issue) in excess of five percent of the Plan's assets available at
November 1, 1997.
