-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NxleN1k9xv5KFjoFebZyjVahWXO7VAiCVAwW/kDvRs/vtOKsRRHcHr4N9xIBK7x6 c1D4fdZwue48CFXou6Sg3Q== 0000950124-95-003714.txt : 19951119 0000950124-95-003714.hdr.sgml : 19951119 ACCESSION NUMBER: 0000950124-95-003714 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KELLOGG CO CENTRAL INDEX KEY: 0000055067 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 380710690 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04171 FILM NUMBER: 95590311 BUSINESS ADDRESS: STREET 1: ONE KELLOGG SQ STREET 2: P O BOX 3599 CITY: BATTLE CREEK STATE: MI ZIP: 49016 BUSINESS PHONE: 6169612000 MAIL ADDRESS: STREET 1: ONE KELLOGG SQUARE STREET 2: P O BOX 3599 CITY: BATTLE CREEK STATE: MI ZIP: 49016 10-Q 1 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 1-4171 KELLOGG COMPANY State of Incorporation--Delaware IRS Employer Identification No.38-0710690 One Kellogg Square, P.O. Box 3599, Battle Creek, MI 49016-3599 Registrant's telephone number: 616-961-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 --------- --------- Common Stock outstanding October 31, 1995 - 217,426,832 shares 2 KELLOGG COMPANY INDEX Page ---- PART I - Financial Information Item 1: Consolidated Balance Sheet - September 30, 1995 and December 31, 1994 2 Consolidated Earnings - three and nine months ended September 30, 1995 3 Consolidated Statement of Cash Flows - nine months ended September 30, 1995 and 1994 4 Notes to Consolidated Financial Statements 5 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 6-10 PART II - Other Information Item 4: Submission of Matters to a Vote of Security Holders 11 Item 6: Exhibits and Reports on Form 8-K 11 Signatures 12 Exhibit Index 13 1 3 CONSOLIDATED BALANCE SHEET
============================================================================= KELLOGG COMPANY AND SUBSIDIARIES SEPTEMBER 30, December 31, (millions) 1995 1994 (unaudited) * - ----------------------------------------------------------------------------- CURRENT ASSETS Cash and temporary investments $463.5 $266.3 Accounts receivable, net 658.9 564.5 Inventories 399.3 396.3 Other current assets 221.5 206.4 - ----------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,743.2 1,433.5 PROPERTY,net of accumulated depreciation of $1,887.5 and $1,707.7 2,920.0 2,892.8 INTANGIBLE ASSETS 3.6 4.1 OTHER ASSETS 173.2 136.9 - ----------------------------------------------------------------------------- TOTAL ASSETS $4,840.0 $4,467.3 ============================================================================= CURRENT LIABILITIES Current maturities of long-term debt $2.0 $0.9 Notes payable 334.8 274.8 Accounts payable 388.0 334.5 Income taxes 120.5 72.0 Accrued liabilities 595.5 503.0 - ----------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,440.8 1,185.2 LONG-TERM DEBT 718.2 719.2 NONPENSION POSTRETIREMENT BENEFITS 520.3 486.8 DEFERRED INCOME TAXES AND OTHER LIABILITIES 297.2 268.6 SHAREHOLDERS' EQUITY Common stock, $.25 par value 77.7 77.6 Capital in excess of par value 93.9 68.6 Retained earnings 4,119.4 3,801.2 Treasury stock, at cost (2,267.7) (1,980.6) Currency translation adjustment (159.8) (159.3) - ----------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 1,863.5 1,807.5 - ----------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,840.0 $4,467.3 =============================================================================
*Condensed from audited financial statements. See accompanying notes to consolidated financial statements. 2 4 CONSOLIDATED EARNINGS (Results are unaudited)
=========================================================================================================== KELLOGG COMPANY AND SUBSIDIARIES Three months ended September 30, Nine months ended September 30, (millions, except per share data) 1995 1994 1995 1994 - ----------------------------------------------------------------------------------------------------------- NET SALES $1,844.7 $1,741.9 $5,340.8 $4,970.0 - ----------------------------------------------------------------------------------------------------------- Cost of goods sold 835.6 756.2 2,424.6 2,216.9 Selling and administrative expense 633.3 626.6 1,933.2 1,833.8 Non-recurring charges 0.0 0.0 52.8 0.0 - ----------------------------------------------------------------------------------------------------------- OPERATING PROFIT 375.8 359.1 930.2 919.3 - ----------------------------------------------------------------------------------------------------------- Interest expense 15.8 12.6 50.3 33.8 Other income (expense), net 5.5 0.8 21.8 4.8 - ----------------------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES 365.5 347.3 901.7 890.3 Income taxes 135.5 130.6 339.8 338.2 - ----------------------------------------------------------------------------------------------------------- NET EARNINGS $230.0 $216.7 $561.9 $552.1 =========================================================================================================== EARNINGS PER SHARE $1.05 $.96 $2.56 $2.45 DIVIDENDS PER SHARE $.39 $.36 $1.11 $1.04 AVERAGE SHARES OUTSTANDING 218.7 223.4 219.8 225.0 - -----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 3 5 CONSOLIDATED STATEMENT OF CASH FLOWS (Results are unaudited)
==================================================================================== KELLOGG COMPANY AND SUBSIDIARIES NINE MONTHS ENDED SEPTEMBER 30, (millions) 1995 1994 - ------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net earnings $561.9 $552.1 Items in net earnings not requiring (providing) cash: Depreciation 205.4 189.1 Pre-tax gain on sale of subsidiaries - (21.1) Deferred income taxes 6.4 5.6 Non-recurring charges, net of cash paid 35.4 - Other 31.9 28.0 Pension contribution (61.7) (60.9) Change in operating assets and liabilities 82.0 47.4 - ------------------------------------------------------------------------------------ NET CASH PROVIDED FROM OPERATING ACTIVITIES 861.3 740.2 - ------------------------------------------------------------------------------------ INVESTING ACTIVITIES Additions to properties (222.1) (237.5) Proceeds from sale of subsidiaries - 83.8 Other 7.3 16.5 - ------------------------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (214.8) (137.2) - ------------------------------------------------------------------------------------ FINANCING ACTIVITIES Net borrowings of notes payable 60.0 (72.9) Issuance of long-term debt - 200.0 Reduction in long-term debt 0.1 (2.8) Common stock repurchases (284.9) (283.6) Cash dividends (243.8) (233.7) Other 23.2 (0.3) - ------------------------------------------------------------------------------------ NET CASH USED IN FINANCING ACTIVITIES (445.4) (393.3) - ------------------------------------------------------------------------------------ Effect of exchange rate changes on cash (3.9) 6.6 - ------------------------------------------------------------------------------------ Increase in cash and temporary investments 197.2 216.3 Cash and temporary investments at beginning of period 266.3 98.1 - ------------------------------------------------------------------------------------ CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD $463.5 $314.4 ====================================================================================
See accompanying notes to consolidated financial statements. 4 6 Notes To Consolidated Financial Statements for the nine months ended September 30, 1995 (Unaudited) 1. Accounting policies The unaudited interim financial information included herein reflects the adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the periods presented. Such interim information should be read in conjunction with the financial statements and notes thereto contained on pages 15 to 28 of the Company's 1994 Annual Report. The accounting policies used in preparing these financial statements are the same as those summarized in the Company's 1994 Annual Report. The results of operations for the nine months ended September 30, 1995, are not necessarily indicative of the results to be expected for other interim periods or the full year. 2. Non-recurring charges Operating profit for the nine months ended September 30, 1995, includes a non-recurring charge of $52.8 million ($33.0 million after tax or $.15 per share) related to productivity and operational streamlining initiatives in the U.S., Australia, and Great Britain. The charge primarily consists of costs related to employee benefits and separation payments. As a result of further streamlining efforts in the U.S., and similar productivity initiatives in Europe and Australia, the Company expects to report a pre-tax charge of approximately $300 to $325 million in the fourth quarter of 1995. Approximately 60% of the charge will be related to employee retirement and severance benefits with the remainder consisting primarily of asset write-off and removal costs resulting from a plant closing in San Leandro, California, and reduced cereal production capacity at plants in Battle Creek, Michigan, and Memphis, Tennessee. During the fourth quarter, the Company also expects to record a non-recurring charge of approximately $75 million, consisting principally of the write-down of certain operating assets in North America and Asia-Pacific, bringing the total expected fourth quarter charge to $375 to $400 million ($240 to $260 million after-tax or $1.10 to $1.20 per share). This charge results from the evaluation of the ability of the Company to recover asset costs given changes in local market conditions, sourcing of products, and other factors. 3. Other income/(expense) Other income for the nine months ended September 30, 1994, includes a gain of $21.1 million ($13.3 million after tax or $.06 per share) from the sale of the Mrs. Smith's Frozen Foods pie business and other expense includes a charge of $20.5 million ($13.1 million after tax or $.06 per share) primarily from the initial funding of the Kellogg's Corporate Citizenship Fund. 5 7 KELLOGG COMPANY PART I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of operations Kellogg revenues are generated from the sale of ready-to-eat cereals and other convenience foods in nearly 160 countries. The ready-to-eat cereal category continued to exhibit volume growth on a global basis during the first nine months of 1995, with Kellogg continuing to demonstrate strong global leadership. For the third quarter of 1995, the Company exhibited solid growth, reporting increases in net sales, net earnings, and earnings per share. These quarterly results were a Company record for all three measures, driven primarily by volume growth combined with aggressive cost containment programs. Consolidated net sales increased 6% for the third quarter and 7% for the first nine months of 1995 over the comparable periods of 1994, principally from volume growth and to a lesser extent, product mix and pricing. The Company's total volume was up 5% for both the quarter and year-to-date periods versus the prior year, excluding the effects of divested businesses. Cereal volume increased 4% for the quarter and 3% for the year-to-date period, driven by shipment increases in North American, Continental Europe and Asia-Pacific markets. Latin America experienced slightly lower shipments, as continuing volume reductions in Mexico, resulting from the effect on the local economy of last year's peso devaluation, were partially offset by strong growth in other Latin American markets. Volume for the Company's U.S. ready-to-eat cereal business strengthened during the third quarter in comparison to a modest third quarter in 1994 that was impacted by weak shipments due primarily to reductions in customer inventory levels. Other convenience foods volume increased significantly for both the quarter and the year-to-date periods primarily due to strong sales of new products in the North American market, where the Company continues to hold the number one position in dollar sales in the toaster pastry, cereal/granola bar and frozen waffle categories. The gross profit margin for the quarter declined to 54.7% from 56.6% in 1994, and 54.6% year-to-date, down from 55.4% last year. These declines were primarily attributable to North America, where changes in product mix and higher costs caused gross margins to decline across all businesses, especially when compared to strong results in the third quarter last year. The Company's manufacturing operations continue to experience pressure from higher raw material and packaging costs, partially offset by increased plant efficiencies and productivity improvements. Management continues to expect the gross profit margin for the full year to be comparable with 1994. Selling and administrative expense increased 1% for the third quarter and 5% for the first nine months of 1995. Selling and administrative expense as a percentage of net sales was 34% for the 6 8 quarter and 36% for the year-to-date period, as compared to last year's 36% and 37%, respectively. The decrease in selling and administrative expense as a percentage of net sales reflects the Company's continued emphasis on cost containment and carefully managed promotion spending. In line with the Company's long-term strategy, promotion spending was down on established U.S. ready-to-eat cereal brands for the quarter, as well as for the past twelve months. Management believes that this strategy, combined with continued investment in advertising and a strong new product development program, will assist in adding further value to the Company's brand portfolio, thereby delivering long-term profitable growth. Operating profit increased 5% to $376 million for the quarter and 7% to $983 million year-to-date, excluding the non-recurring charge of $52.8 million reported in the second quarter of 1995. Operating profit growth reflects the increase in net sales, combined with progress in the Company's cost containment programs. This quarter is the ninth in a row with year-over-year increases in operating profit, excluding non-recurring events. Other income for the first nine months of 1994 includes a gain of $21.1 million ($13.3 million after tax or $.06 per share) from the sale of the Mrs. Smith's Frozen Foods pie business. Other expense includes a charge of $20.5 million ($13.1 million after tax or $.06 per share), primarily from the initial funding of the Kellogg's Corporate Citizenship Fund, a private trust established for charitable donations. Gross interest expense, prior to amounts capitalized, increased to $17.8 million and $56.1 million for the quarter and year-to-date period respectively, from $14.2 million and $38.9 million for the comparable periods of 1994, due to increased interest rates on short-term borrowings. This increase in interest expense was substantially offset by increases in interest income due to higher cash balances. The Company's third quarter income tax rate was 37.1% down from 37.6% last year. The 1995 third quarter tax rate was impacted favorably by lower effective tax rates in certain international locations. For the nine months ended September 30, 1995, the income tax rate was 37.7% as compared to 38.0% for 1994. The Company expects its effective income tax rate for the full year of 1995 to be between 37% and 38%. During the third quarter, the U.S. dollar was slightly weaker against most European currencies compared to the third quarter of 1994, while some Latin America operations, especially Mexico, experienced sharply lower currencies against the U.S. dollar. Overall for the quarter, foreign exchange negatively impacted the growth of net sales by 1%, operating profit by 2%, and net earnings by 3%. Earnings per share were $1.05 for the third quarter versus $.96 a year ago, a 9.4% increase derived from $.09 in business growth, $.02 in share repurchase, and $.01 in tax rate reduction, partially offset by a $.03 negative foreign currency exchange effect. Earnings per share were $2.56 for the year-to-date period versus $2.45 a year ago. Earnings per share, excluding the non-recurring charge, were $2.71 for the year-to-date period, up 10.6% from the comparable period of 1994. Net earnings were 7 9 $230.0 million for the quarter, and $561.9 million for the year-to-date period. Net earnings year-to-date were $594.9 million, up $43.0 million or 7.8%, excluding non-recurring events for both years. Liquidity and capital resources The financial condition of the Company remained strong during the first nine months of 1995. Operations provided a positive cash flow of $861.3 million, up 16% from the prior year, principally due to higher net earnings, adjusted for the non-cash components of non-recurring items, and improved working capital management. The 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. The Company maintains credit facilities with banking institutions in the United States and other countries where it conducts business. The ratio of current assets to current liabilities was 1.2:1 as of September 30, 1995, unchanged from the ratio at December 31, 1994. Capital spending for the first nine months of 1995 was $222.1 million, compared with $237.5 million during the first nine months of 1994. Management expects total year 1995 capital spending to be slightly less than 1994's level of approximately $350 million. The steady level of capital expenditures reflects the Company's application of value-based management principles and the ongoing strategy of improving return on invested capital. During the third quarter of 1995, cereal production began at two new facilities located in Pilar, Argentina and Guangzhou, China. Also, construction continued on the Company's new research center, the W. K. Kellogg Institute, located in Battle Creek, Michigan. This facility is expected to be completed in 1997 with a total investment of approximately $65 million. As of September 30, 1995, the Company had spent $284.9 million during the year to repurchase approximately 4.5 million shares of its common stock. Since September of 1994, the Company has purchased approximately 5.2 million shares, or 2.4% of the total shares outstanding as of that date, contributing an average of $.02 per quarter to earnings per share growth over that time period. Stock repurchases are made under plans authorized by the Company's Board of Directors. On September 21, 1995, the Board authorized the additional purchase of up to $400 million in Company stock through December 31, 1996. As of September 30, 1995, the total remaining authorized purchase amount was $440.6 million. Long-term debt outstanding at September 30, 1995, consisted principally of $200 million of three-year notes issued in 1994, $200 million of five-year notes issued in 1993, and $300 million of five-year notes issued in 1992. Short-term debt outstanding consisted principally of commercial paper. The Company's debt ratings on both its long-term debt and commercial paper are the highest available. The Company's net debt position (long-term debt plus notes payable less cash and temporary investments) at September 30, 1995, was $591.5 million, down $137.1 million from December 31, 1994. The ratio of debt to total capitalization was 36%, unchanged from December 31, 1994. 8 10 At September 30, 1995, the Company had available an unused "shelf registration" of $200 million with the Securities and Exchange Commission to provide for the issuance of debt in the United States. The proceeds of such an offering would be added to the Company's working capital and be available for general corporate purposes. During the third quarter of 1995, the Company paid $85.2 million in dividends, reflecting a 39-cents per share rate, an 8.3% increase from the previous quarterly rate of 36-cents per share. Non-Recurring Charges Management's objective to maximize shareholder value includes a constant reassessment of its business strategies. The Company's commitment to be positioned for future success has been the basis of several initiatives announced during 1995 to improve productivity and streamline global operations. Plans were announced during the first half of the year to improve manufacturing efficiency in the U.S., Australia, and Great Britain. As a result, the Company reported a total pre-tax charge during the second quarter of $52.8 million ($33.0 million after tax or $.15 per share) related primarily to voluntary severance and early retirement programs which eliminated 475 employee positions. As a result of further streamlining efforts in the U.S. and similar productivity initiatives in Europe and Australia, the Company expects to report a pre-tax charge of approximately $300 to $325 million in the fourth quarter of 1995. Approximately 60% of the charge will be related to employee retirement and severance benefits with the remainder consisting primarily of asset write-off and removal costs resulting from a plant closing in San Leandro, California, and reduced cereal production capacity at plants in Battle Creek, Michigan and Memphis, Tennessee. During the fourth quarter, the Company also expects to record a non-recurring charge of approximately $75 million, consisting principally of the write-down of certain operating assets in North America and Asia-Pacific, bringing the total expected fourth quarter charge to $375 to $400 million ($240 to $260 million after tax or $1.10 to $1.20 per share). This charge results from the evaluation of the ability of the Company to recover asset costs given changes in local market conditions, sourcing of products, and other strategic factors. The combination of the second and fourth quarter initiatives are expected to eliminate approximately 2,000 employee positions, nearly 13% of the global workforce at December 1994, through a combination of voluntary early retirement incentives, and voluntary and involuntary severance programs, and will require cash outlays of approximately $60 million in 1995 and $100 million in 1996. The Company expects to realize approximately $120 million of annual pre-tax savings by 1997, with about one-half of this amount being achieved in 1996. These savings are not necessarily indicative of future incremental earnings due to management's commitment to hold product pricing below the rate of inflation, while investing in competitive business strategies, new markets, and growth opportunities. The Company will continue to focus on potential worldwide 9 11 efficiency initiatives that improve its manufacturing, marketing, logistics and customer service processes while lowering costs and more effectively utilizing human and financial resources. Looking forward Management anticipates that 1995 will be another year of growth for the Company. Management expects ongoing advances in global volume, the continuation of product pricing below inflation, continual improvements in operating efficiencies, strong cash flows and continued share repurchase activity. The Company's business environment remains highly competitive around the world. Management is not aware of any adverse trends that would materially affect the Company's strong financial position. Should suitable investment opportunities or working capital needs arise that would require additional financing, management believes that the Company's triple A credit rating, strong balance sheet, and its solid earnings history provides a base for obtaining additional financial resources at competitive rates and terms. 10 12 KELLOGG COMPANY PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders There were no submissions of matters to a vote of security holders during the quarter for which this report is filed. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 4.01 - There is no instrument with respect to long-term debt of the Company that involves indebtedness or securities authorized thereunder exceeding ten percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the Company upon request of the Securities and Exchange Commission. 27.01- Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter for which this report is filed. 11 13 KELLOGG COMPANY SIGNATURES Pursuant to the requirements 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. KELLOGG COMPANY /s/ J. R. Hinton -------------------------------------- J.R. Hinton Principal Financial Officer; Senior Vice President - Administration /s/ A. Taylor -------------------------------------- A. Taylor Principal Accounting Officer; Vice President and Corporate Controller Date: November 10, 1995 12 14 KELLOGG COMPANY EXHIBIT INDEX Number Description 27.01 Financial Data Schedule 13 EX-27 2 EX-27
5 This schedule contains summary financial information extracted from Kellogg Company and subsidiaries Consolidated financial statements for the nine months ended September 30, 1995 and is qualified in its entirety by reference to such Financial Statements. 1,000,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 464 0 659 0 399 1,743 4,808 (1,888) 4,840 1,441 718 78 0 0 94 4,840 5,341 5,341 2,425 2,425 1,964 0 50 902 340 562 0 0 0 562 2.56 0
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