Annual Report (Form 10-K), fiscal year 1994

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 convenience food products on a worldwide basis. The address of the principal business office of Kellogg Company is One Kellogg Square, P.O. Box 3599, Battle Creek, Michigan 49016-3599. Unless otherwise indicated by the context, the term "Company" as used in this report means Kellogg Company, its divisions and subsidiaries.
Principal Products. The principal products of the Company are ready-to-eat cereals and convenience food products which are manufactured in 19 countries and distributed in nearly 160 countries. Ready-to-eat cereals are marketed under the KELLOGG'S(R) name and are sold principally to the grocery trade through direct sales forces for resale to consumers and through broker and distribution arrangements in less developed market areas.
Other Convenience Food Products. In the United States and Canada, in addition to ready-to-eat cereals, the Company produces or processes and distributes toaster pastries and frozen waffles. The Company also markets, in the United States, cereal and granola bars, and markets a variety of other convenience food products in various locations throughout the world.
Raw Materials. Agricultural commodities are the principal raw materials used in the Company's products. World supplies and prices of such commodities are constantly monitored, as are government trade policies. The cost of raw materials used may fluctuate widely due to government policy and regulation, weather conditions or other unforeseen circumstances. Continuous efforts are made to maintain and improve the qualities and supplies of raw materials for purposes of the Company's short-term and long-term requirements.
The principal ingredients in 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 and frozen waffles, the Company may use dairy products, eggs, fruit and other filling ingredients, flour, shortening and sweeteners, which ingredients are obtained from various sources. Although the Company enters into some long-term contracts, the bulk of such raw materials are purchased on the open market. While the cost of raw materials may increase over time, the Company believes that it will be able to purchase an adequate supply of such raw materials as needed. The Company also uses commodity futures and options to hedge some of its raw materials costs. See Note 11 to the Consolidated Financial Statements contained in the Company's Annual Report for the fiscal year ended December 31, 1994 which Note is incorporated by reference in Item 8 of this Report.
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 convenience food products manufactured and marketed by the Company. These trademarks include Kellogg's(R), for cereals and other products of the Company and the brand names of certain ready-to-eat cereals, including All-Bran(R), Kellogg's(R) Squares(TM), Apple Jacks(R), Apple Raisin Crisp(R), Apple Cinnamon Rice Krispies(TM), Bran Buds(R), Complete(R) Bran Flakes, Cocoa Krispies(R), Common Sense(R), Kellogg's Corn Flakes(R), Cracklin' Oat Bran(R), Kellogg's(R) Cinnamon Mini-Buns, Crispix(R), Double Dip Crunch(R), Froot Loops(R), Kellogg's Frosted Bran(R), Kellogg's Frosted Flakes(R), Frosted Krispies(R), Frosted Mini- Wheats(R), Fruitful Bran(R), Fruity Marshmallow Krispies(R), Just Right(R), Kenmei(R), Kellogg's(R) Low Fat Granola,
Nut & Honey Crunch(R), Nut & Honey Crunch O's(R), Mueslix(R), Nutri-Grain(R), Pops(R), Product 19(R), Kellogg's(R) Raisin Bran, Rice Krispies(R), Rice Krispies Treats(TM), Smacks(R) and Special K(R). Additional Company trademarks are the names of certain combinations of Kellogg's(R) ready-to-eat cereals, including Handi-Pak(R), Snack-Pak(R), Fun Pak(R), Jumbo(R) and Variety(R). Other Company 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(R) for toaster pastries; Eggo(R), Special K(R) and Nutri-Grain(R) for frozen waffles.
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) and Rice Krispies(R); Tony the Tiger(R) for Kellogg's Frosted Flakes(R); Toucan Sam(R) for Froot Loops(R); Dig 'Em!(R) for Smacks(R); and Coco(TM) for Cocoa Krispies(R).
The slogans "The Best To You Each Morning"(R), and "They're GR-R-R-EAT!"(R) used in connection with the Company's ready-to-eat cereals, are also important Company trademarks. The Company's use of the advertising theme "Get A Taste For The Healthy Life"(TM) represents part of its effort to establish throughout the United States and the world the concept of a nutritious breakfast.
The Company considers that, taken as a whole, the rights under its various patents, which expire from time to time, are a valuable asset, but the Company does not believe that its businesses are materially dependent upon any single patent or group of related patents. The Company's activities under licenses or other franchises or concessions are not material.
Seasonality. 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 requires payment for goods sold eleven days subsequent to the date of invoice, with a 2% discount allowed for payment within ten days. Receipts from goods sold, supplemented as required by borrowings, provide for the Company's payment of dividends, capital expansion and for other operating expenses and working capital needs.
Customers. The Company is not dependent on any single customer or a few customers for a material part of its sales. Products of the Company are sold through its own sales forces and through broker and distributor arrangements and are generally resold to consumers in retail stores, restaurants and other food service establishments.
Backlog. For the most part, orders are filled within a few days of their receipt and are subject to cancellation at any time prior to shipment. The backlog of any unfilled orders at any particular time is not material to the Company.
Competition. The Company has experienced intense competition for sales of all of its principal products in its major markets, both domestically and internationally. The Company's products compete with advertised and branded products of a similar nature as well as unadvertised and private label products, which are typically distributed at lower prices, and generally with other food products with different characteristics. Principal methods and factors of competition include, among others, new product introductions, product quality, composition and nutritional value, price, advertising and promotion. The Company is the world's largest manufacturer and marketer of ready-to-eat cereals.
Research and Development. Research to support and expand the use of the Company's existing products and to develop new food products is carried on at the Company's research laboratories and pilot plant facilities in Battle Creek, Michigan, and at other plant locations around the world. The Company's expenditures for research and development were approximately $71.7 million in 1994, and, on a comparable basis, were $59.2 million in 1993 and $56.7 million in 1992.
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. In 1995, the Company
expects to spend approximately $24.0 million for capital expenditures related to environmental controls, approximately $8.0 million of which is expected to be spent on a waste water recycling facility at the Company's plant in Bremen, Germany and $7.3 million of which is expected to be spent on a grain fines collection system at the Company's plant in Memphis, Tennessee. The Company is currently in substantial compliance with all material environmental regulations affecting the Company and its properties.
Employees. At December 31, 1994, the Company had approximately 15,657 employees.
Segment and Geographic Information. The Company operates in a single industry, which is the manufacture and marketing of convenience food products throughout the world. Net sales and operating profit for the years 1994, 1993, and 1992, and identifiable segment assets and corporate assets, consisting principally of equity investments, cash, and temporary investments, at the related year-ends are presented in Note 13 of the Consolidated Financial Statements captioned "Operating Segments" and incorporated by reference in Item 8 of this Report.
ITEM 2.



ITEM 2. PROPERTIES
The Company's corporate headquarters and principal research and development facilities are located in Battle Creek, Michigan.
The Company operates manufacturing plants and warehouses totalling more than ten million (10,000,000) square feet of building area in the United States and other countries. The Company's plants have been designed and constructed to meet its specific production requirements, and the Company periodically invests money for capital and technological improvements. At the time of its selection, each location was considered to be favorable, based on the location of markets, sources of raw materials, availability of suitable labor, transportation facilities, location of other Company plants producing similar products and other factors. Manufacturing facilities of the Company in the United States include five cereal plants and warehouses located in Battle Creek, Michigan; Lancaster, Pennsylvania; Memphis, Tennessee; Omaha, Nebraska; and San Leandro, California. Other of the Company's convenience foods are also manufactured in the United States at various plant locations.
Outside the United States, the Company has additional manufacturing locations, some with warehousing facilities, in Argentina, Australia, Brazil, Canada, Colombia, Denmark, Germany, Great Britain, Guatemala, India, Italy, Japan, Latvia, Mexico, South Africa, South Korea, Spain and Venezuela. A new cereal plant in China is currently under construction and is expected to commence operation in summer 1995.
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.

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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers of the Registrant -- The names, ages as of March 1, 1995 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.
EXECUTIVE OFFICERS
Arnold G. Langbo Chairman of the Board, President and Chief Executive Officer..................57 Mr. Langbo has been employed by the Company and certain of its subsidiaries since 1956. He was named Executive Vice President and President, Kellogg International Division, in 1986. He was named President and Chief Operating Officer in December 1990 and became Chairman of the Board and Chief Executive Officer on January 1, 1992.
Charles W. Elliott Executive Vice President - Administration, Chief Financial Officer............63 Mr. Elliott joined the Company as Executive Vice President -Administration in February 1987 and was named Chief Financial Officer of the Company in December 1988.
William A. Camstra Executive Vice President, President - Kellogg Latin America...................62 Mr. Camstra has been employed by the Company and certain of its subsidiaries since 1956. He was named a Vice President and Director of Latin American Operations in 1983. He was named Executive Vice President of the Company on January 1, 1992 and President, Kellogg Latin America in July 1994.
Donald G. Fritz Executive Vice President, President - Kellogg Europe..........................47 Mr. Fritz first joined Kellogg Canada Inc. in 1979. He was named General Manager - Kellogg (Aust.) Pty. Limited in 1984, and Director of Australasia in 1989, and a Vice President of the Company in January 1990. He was named Executive Vice President of the Company on January 1, 1992, and President, Kellogg Europe in July 1994.
Carlos M. Gutierrez Executive Vice President, President - Kellogg Asia-Pacific....................41 Mr. Gutierrez joined Kellogg de Mexico in 1975. In January 1989, he was appointed President and Chief Executive Officer of Kellogg Canada Inc. He was promoted to Vice President, Kellogg Company and Executive Vice President - Sales and Marketing, Kellogg USA in July 1990. In 1993, Mr. Gutierrez was promoted to Executive Vice President, Kellogg USA and General Manager, Kellogg USA Cereal Division. In September 1994, Mr. Gutierrez was appointed Executive Vice President of Kellogg Company and President, Kellogg Asia-Pacific.
Thomas A. Knowlton Executive Vice President, President - Kellogg North America...................48 Mr. Knowlton joined Kellogg Canada Inc. in 1980 and became its President and Chief Executive Officer and also a Vice President of the Company in 1983. In January 1989, he was named Managing Director, Kellogg Company of Great Britain Limited and continued as a Vice President of the Company. He was named an Executive Vice President of the Company on January 1, 1992 and President, Kellogg North America in July 1994.
Donald W. Thomason Executive Vice President - Corporate Services and Technology..................51 Mr. Thomason has been employed by the Company since 1966. He was named a Vice President and Executive Vice President - Operations in the Company's U.S. Food Products Division in January 1989. He was named Executive Vice President - Corporate Services and Technology in 1990.
Richard M. Clark Senior Vice President, General Counsel and Secretary..........................57 Mr. Clark joined the Company as Senior Vice President, General Counsel and Secretary in September 1989.
Robert L. Creviston Senior Vice President - Human Resources.......................................53 Mr. Creviston joined the Company as Vice President - Employee Relations in 1982. He was named Senior Vice President - Human Resources in August 1991.
Daryl R. Schaller Senior Vice President - Scientific Affairs....................................51 Dr. Schaller has been employed by the Company since 1972. He was named Senior Vice President - Science and Technology in 1986, Senior Vice President - Research, Quality and Nutrition in January 1990, and Senior Vice President - Scientific Affairs in April 1994.
Joseph M. Stewart Senior Vice President - Corporate Affairs.....................................52 Mr. Stewart has been employed by the Company since 1980. He was named Vice President - Public Affairs in 1985 and Senior Vice President - Corporate Affairs in 1988.
Michael J. Teale Senior Vice President - Worldwide Operations and Technology...................50 Mr. Teale joined Kellogg Company of Great Britain Limited in 1966. In January 1990, he was named a Vice President-Cereal Manufacturing of the Company's U.S. Food Products Division, and in September 1994, he was named Senior Vice President - Worldwide Operations and Technology.
Charles E. French Vice President - Finance and Treasurer........................................50 Mr. French has been employed by the Company and various subsidiaries of the Company since 1966. In 1988, he was named Director - Administration, Kellogg Company of Great Britain Limited. In 1992, he also became Director - Finance of Kellogg Europe, and in September 1993, he was named Vice President - Finance and Treasurer of the Company.
Alan Taylor Vice President and Corporate Controller.......................................43 Mr. Taylor has been employed by the Company and certain of its subsidiaries since 1982. He served as Director - Finance of Kellogg (Aust.) Pty. Ltd. from 1988 until 1993. He became Controller of the Company in August 1993, and was named a Vice President in July 1994.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information called for by this Item is set forth in Note 12 to the Consolidated Financial Statements of the Company which is incorporated by reference into Item 8 of this Report.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The information called for by this Item is incorporated herein by reference from page 15 of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994. Such information should be read in conjunction with the Consolidated Financial Statements and Notes thereto of the Company included in Item 8 of this Report, incorporated by reference from the Company's Annual Report to Stockholders.
ITEM 7.

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 18 of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is incorporated herein by reference from pages 19 through 28 of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994. Supplementary quarterly financial data, which is also incorporated herein by reference, is set forth in Note 12 to the Consolidated Financial Statements on page 27 of the Annual Report to Stockholders.
ITEM 9.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors -- See the Company's Proxy Statement dated March 13, 1995 for the Annual Meeting of Stockholders to be held on April 21, 1995, under the captions "Nominees for Election to the Board of Directors" and "Continuing Directors of the Company" on pages 5 through 8, which information is incorporated herein by reference.
Executive Officers of the Registrant -- See "Executive Officers of the Registrant" under Item 4A at pages 4 through 6 of this Report.
Compliance with Section 16(a) of the Securities Exchange Act -- See the Company's Proxy Statement, dated March 13, 1995 for the Annual Meeting of Stockholders to be held on April 21, 1995 at page 22, under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934," which information is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
See the Company's Proxy Statement dated March 13, 1995 for the Annual Meeting of Stockholders to be held on April 21, 1995, under the captions "Executive Compensation" and "Selected Benefit Plans and Agreements" at pages 13 through 15 and 20 through 22, which information, except for that portion captioned "Report of the Compensation Committee on Executive Compensation," is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the Company's Proxy Statement dated March 13, 1995 for the Annual Meeting of Stockholders to be held on April 21, 1995, under the caption "Voting Securities And Ownership Thereof By Certain Persons" at pages 1 through 4, which information is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the Company's Proxy Statement dated March 13, 1995 for the Annual Meeting of Stockholders to be held on April 21, 1995, under the captions "About The Board of Directors" at page 10, "Selected Benefit Plans and Agreements" at pages 21 through 22, and footnote 9 to the Summary Compensation Table at page 14, which information is incorporated herein by reference.
PART IV
ITEM 14.

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 PRICE WATERHOUSE LLP DATED FEBRUARY 3, 1995, APPEARING ON PAGES 19 THROUGH 28, INCLUSIVE, OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 ARE INCORPORATED HEREIN BY REFERENCE:
(A)1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Earnings and Retained Earnings for 1994, 1993, and 1992. Consolidated Balance Sheet for December 31, 1994 and December 31, 1993. Consolidated Statement of Cash Flows for 1994, 1993, and 1992. 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:
This Consolidated Financial Statement Schedule should be read in conjunction with the Consolidated Financial Statements included in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994.
All other financial statement schedules are omitted because they are not applicable or the required data is shown in the Company's Consolidated Financial Statements or the Notes thereto.
(A)3. EXHIBITS
- ------------------------- * 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) REPORT ON FORM 8-K
No report on Form 8-K was filed during the Company's fourth quarter for the fiscal year ended December 31, 1994.
SCHEDULE VIII -- VALUATION RESERVE
(in millions)
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Kellogg Company
Our audits of the consolidated financial statements referred to in our report dated February 3, 1995 appearing in the 1994 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.
PRICE WATERHOUSE LLP
Battle Creek, Michigan February 3, 1995
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 27th day of March 1995.
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.
EXHIBIT INDEX
- ------------------------- * 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.