FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
COMMISSION FILE NUMBER 1-4171
THE KELLOGG COMPANY 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)
KELLOGG COMPANY
SAVINGS AND INVESTMENT PLAN
CONTENTS
FOR THE YEAR ENDED DECEMBER 31, 2002 AND
THE TWO MONTHS ENDED DECEMBER 31, 2001
PAGE(S)
REPORT OF INDEPENDENT AUDITORS...................................................1
FINANCIAL STATEMENTS
Statement of Net Assets Available for Benefits...................................2
Statement of Changes in Net Assets Available for Benefits........................3
Notes to Financial Statements..................................................4-9
SUPPLEMENTAL SCHEDULES
Schedule I: Schedule of Assets (Held at End of Year)......................10
Note: Other schedules required by Section 2520.103-10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act ("ERISA") of 1974 have been
omitted because they are not applicable.
REPORT OF INDEPENDENT AUDITORS
To the Trustees and Participants of the
Kellogg Company 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 Savings and Investment Plan (the "Plan")
at December 31, 2002 and 2001, and the changes in net assets available for
benefits for the year ended December 31, 2002 and the two months ended
December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. 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 auditing standards generally
accepted in the United States of America, 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 our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets
(held at end of year) is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This supplemental schedule is the responsibility of the Plan's
management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Battle Creek, Michigan
June 13, 2003
1
KELLOGG COMPANY
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND DECEMBER 31, 2001
2002 2001
ASSETS
Receivables
Employer contributions $ 250,457 $ 5,232
Employee contributions 16,789
Interest 617
------------- ------------
Total receivables 250,457 22,638
------------- ------------
Amount due from prior trustee (Note 1) 123,031
Investments
Plan's interest in Master Trust 623,841,143 435,700,450
Loans to participants 9,558,982 3,979,077
------------- ------------
Total investments 633,400,125 439,679,527
------------- ------------
Total assets 633,773,613 439,702,165
------------- ------------
LIABILITIES
Investment services fees 39,862 31,947
Amount due Plan sponsor 13,895
------------- ------------
Total liabilities 53,757 31,947
------------- ------------
Net assets available for benefits $ 633,719,856 $439,670,218
============= ============
See accompanying notes to financial statements
2
KELLOGG COMPANY
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE
FOR THE YEAR TWO MONTHS
ENDED ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
Contributions
Employer $ 11,097,348 $ 985,836
Employee 26,857,382 2,518,237
Rollovers from other qualified plans 706,859 83,244
------------- ------------
Total contributions 38,661,589 3,587,317
------------- ------------
Earnings on Investments
Plan's interest in income (loss) of Master Trust (16,962,167) 13,995,253
Interest income 455,408 57,679
Trustee fees (101,776) (15,820)
Administrative fees (758,799) (84,494)
------------- ------------
Total (loss) earnings on investments, net (17,367,334) 13,952,618
------------- ------------
Participant withdrawals (45,045,121) (7,504,442)
Net transfers between Plans 457,387
Transfers from prior trustees 217,343,117
------------- ------------
Net increase 194,049,638 10,035,493
Net assets available for benefits at beginning of year 439,670,218 429,634,725
------------- ------------
Net assets available for benefits at end of year $ 633,719,856 $439,670,218
============= ============
See accompanying notes to financial statements
3
KELLOGG COMPANY
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
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.
CHANGE IN PLAN YEAR
On November 1, 2001, the Kellogg Company Savings and Investment Plan ("the
Plan") was amended, resulting in a change in the Plan's year end to
December 31. Previously, the Plan year began on November 1 and ended on
October 31. As such, the Plan reported on a short Plan year for the two
months ended December 31, 2001.
PLAN MERGERS
On March 1, 2002, the Worthington Foods, Inc. 401(k) Profit Sharing Plan
merged with the Plan. Plan assets of $1,624,593 consisting primarily of
participant investment balances and participant loans receivable were
transferred to the Plan on March 1, 2002.
On March 28, 2002, the Mondo Baking 401(k) Plan merged with the Plan. Plan
assets of $3,410,229 consisting primarily of participant investment
balances and participant loan receivables were transferred to the Plan on
March 28, 2002.
On April 29, 2002, the Keebler Puerto Rico 401(k) Savings Plan merged with
the Plan. Plan assets of $99,470 consisting primarily of participant
investment balances were transferred to the Plan on April 29, 2002.
On June 28, 2002, the Keebler Company Salaried Savings Plan merged with the
Plan. Plan assets of $183,562,777 consisting primarily of participant
investment balances and participant loan receivables were transferred to
the Plan on June 28, 2002.
On June 28, 2002, the Keebler Company Union Savings Plan merged with the
Plan. Plan assets of $19,687,050 consisting primarily of participant
investment balances and participant loan receivables were transferred to
the Plan on June 28, 2002.
On June 28, 2002, the Keebler Company Savings Plan for Hourly Associates of
Cary Bakery merged with the Plan. Net plan assets of $8,958,998 consisting
primarily of participant investment balances and participant loan
receivables were transferred to the Plan on June 28, 2002.
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. These
contracts are maintained in the Stable Value Fund of the Kellogg Company
Master Trust.
4
KELLOGG COMPANY
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
The Plan presents in the statement of changes in net assets available for
benefits the Plan's interest in income of Master Trust, which consists
primarily of the realized gains or losses on the fair value of the Master
Trust investments and the unrealized appreciation (depreciation) on those
investments.
EMPLOYER CONTRIBUTIONS RECEIVABLE
Substantially all of the employer contributions receivable relate to
employer matching contributions and related investment earnings, earned
throughout the year, but which were unpaid by the Plan sponsor at year end.
AMOUNT DUE FROM PRIOR TRUSTEE
Amount due from prior trustee represents a receivable from the former
trustee of the Keebler Company Savings Plan for Hourly Associates of Cary
Bakery that was unpaid at December 31, 2002.
ALLOCATION OF NET INVESTMENT INCOME TO PARTICIPANTS
Net investment income is allocated to participant accounts daily, in
proportion to their respective ownership on that day.
RISKS AND UNCERTAINTIES
The Plan provides for various investment options in several investment
securities. Investment securities are exposed to various risks, such as
interest rate, market and credit. Due to the level of risk associated with
certain investment securities and the level of uncertainty related to
changes in the value of investment securities, it is at least reasonably
possible the changes in risk in the near term would materially affect
participants' account balances and the amounts reported in the statement of
net assets available for benefits and the statement of changes in net
assets available for benefits.
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 the ERISA Finance Committee and the ERISA
Administrative Committee appointed by Kellogg Company.
PLAN PARTICIPATION
Generally, all salaried employees of Kellogg Company and its U.S.
subsidiaries, employees of the Company's Worthington Foods subsidiary
covered by a collective bargaining agreement, employees of the Company's
Cary Bakery facility covered by a collective bargaining agreement and
employees of the Company's Keebler subsidiary covered by a collective
bargaining agreement are eligible to participate in the Plan.
5
KELLOGG COMPANY
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
Subject to limitations prescribed by the Internal Revenue Service,
participants may elect to contribute from 1 percent to 50 percent of their
annual wages. Total deferrals in any taxable year may not exceed $11,000
(or $10,500 in 2001). As of January 1, 2002, employee contributions are
matched by Kellogg Company at a 100 percent rate on the first 3 percent and
a 50 percent rate on the next 2 percent, with 12.5 percent of the Company
match restricted for investment in the Kellogg Company stock fund, except
for employees of certain Company facilities covered by a collective
bargaining agreement. Please refer to the Plan document for additional
information. 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 various equity, bond, fixed
income or Kellogg Company stock funds or a combination thereof in multiples
of one percent.
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.
Participants may have only one loan outstanding at any time. Loan
transactions are treated as transfers between the Loan fund and the other
funds. Loan terms range from 12 to 60 months, except for principal
residence loans, which must be repaid within 15 years (or 180 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 request an in-service withdrawal of all or a portion of
certain types of contributions, under standard in-service withdrawal rules.
The withdrawal of any participant contributions which were not previously
subject to income tax is restricted by Internal Revenue Service
regulations.
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 or installment payments, and certain
accounts retain an annuity payment right. If the account balance is $5,000
or less, 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.
TERMINATION
While the Company has expressed no intentions to do so, the Plan may be
terminated at any time. In the event of termination of the Plan, the
account of each participant will be fully vested.
6
KELLOGG COMPANY
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
3. INCOME TAX STATUS
The Plan administrator has received a favorable letter from the Internal
Revenue Service dated November 19, 1997 regarding the Plan's qualification
under applicable income tax regulations as an entity exempt from federal
income taxes. The Plan has been amended since receiving the determination
letter. The Plan administrator believes the Plan is designed and is
currently being operated in compliance with the applicable requirements of
the Internal Revenue Code. The Plan was submitted to the IRS in February,
2002 for the purpose of requesting a favorable determination letter as to
its on-going tax-qualified status.
4. KELLOGG COMPANY MASTER TRUST
The Plan has an undivided interest in the net assets held in the Kellogg
Company 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.
Kellogg Company Master Trust net assets at December 31, 2002 and 2001 and
the changes in net assets for the year ended December 31, 2002 and the two
months ended December 31, 2001 are as follows:
7
KELLOGG COMPANY
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
4. KELLOGG COMPANY MASTER TRUST
SCHEDULE OF NET ASSETS AND LIABILITIES OF MASTER TRUST INVESTMENT
ACCOUNTS
2002 2001
Cash/Equivalents
Interest bearing cash $ 21,986,590 $ 20,270,332
---------------- -----------------
Total cash/equivalents 21,986,590 20,270,332
---------------- -----------------
Receivables 2,227,281 3,264,407
---------------- -----------------
General Investments
Long Term U.S. Gov't Securities 21,757,942 13,158,671
Short Term U.S. Gov't Securities 19,216,568 4,099,850
Corporate Debt - Long Term 4,944,928 11,246,043
Corporate Debt - Short Term 7,262,014 3,415,615
Corporate Stocks - Common 95,922,038 88,363,576
Commingled Funds 164,020,605 181,917,720
Shares of Registered Investment Company 100,512,901 79,622,761
Guaranteed Investment Contracts 674,814,554 524,256,792
---------------- -----------------
Total Investments 1,088,451,550 906,081,028
---------------- -----------------
Total investments 1,112,665,421 929,615,767
---------------- -----------------
Payables
Unsettled trades (6,909,233) (409,909)
---------------- -----------------
Total liabilities (6,909,233) (409,909)
---------------- -----------------
Net assets $ 1,105,756,188 $ 929,205,858
================ =================
Percentage interest held by the Plan 56.4% 46.9%
8
KELLOGG COMPANY
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
4. KELLOGG COMPANY MASTER TRUST
SCHEDULE OF CHANGES IN NET ASSETS AND LIABILITIES OF MASTER TRUST
INVESTMENT ACCOUNTS
FOR THE YEAR FOR THE
ENDED TWO MONTHS ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
Transfers from prior Trustees $ 211,752,913 $ -
Earnings on investments
Interest 34,075,591 5,560,100
Dividends 7,584,737 2,021,123
Net realized gain (loss) (14,486,361) 4,938,051
-------------- -------------
Total additions 238,926,880 12,519,274
-------------- -------------
Net transfer of assets out of investment account (25,570,131) (8,573,355)
Fees and commissions (543,969) (82,194)
-------------- -------------
Total distributions (26,114,100) (8,655,549)
-------------- -------------
Change in unrealized appreciation (depreciation) (36,262,450) 13,125,161
-------------- -------------
Net change in assets 176,550,330 16,988,886
Net assets at beginning of year 929,205,858 912,216,972
-------------- -------------
Net assets at end of year $1,105,756,188 $ 929,205,858
============== =============
9
KELLOGG COMPANY
SAVINGS AND INVESTMENT PLAN
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2002 SCHEDULE I
(A) (B) (C) (E)
DESCRIPTION OF INVESTMENT INCLUDING MATURITY
IDENTITY OF ISSUE, BORROWER, LESSOR DATE, RATE OF INTEREST, COLLATERAL,
OR SIMILAR PARTY PAR OR MATURITY VALUE CURRENT VALUE
Loans to participants (interest rate $ 9,558,982
of 5.25% to 13.69%)
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: June 26, 2003 The Kellogg Company Savings and Investment
Plan
By: /s/ John A. Bryant
------------------------------------
John A. Bryant
Executive Vice President and Chief
Financial Officer, Kellogg Company
INDEX TO EXHIBITS TO FORM 11-K
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
23 Consent of Independent Auditors.
99.1 Section 906 Certification by John Bryant.
99.2 Section 906 Certification by Carlos Gutierrez.