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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1994
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, 1994 - 222,324,578 shares
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KELLOGG COMPANY
INDEX
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Page
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PART I - Financial Information
Item 1:
Consolidated Balance Sheet - September 30, 1994 and December 31, 1993 2
Consolidated Earnings - nine months ended September 30, 1994 and 1993 3
Consolidated Statement of Cash Flows - nine months ended September 30,
1994 and 1993 4
Notes to the Consolidated Financial Statements 5
Item 2:
Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-8
PART II - Other Information
Item 6:
Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit Index 11
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1
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
===============================================================================
KELLOGG COMPANY AND SUBSIDIARIES SEPTEMBER 30, December 31,
(millions) 1994 1993
(unaudited) *
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CURRENT ASSETS
Cash and temporary investments $314.4 $98.1
Accounts receivable, net 645.9 536.8
Inventories 398.9 403.1
Other current assets 210.2 207.1
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TOTAL CURRENT ASSETS 1,569.4 1,245.1
PROPERTY, net of accumulated depreciation
of $1,668.3 and $1,504.1 2,882.0 2,768.4
INTANGIBLE ASSETS 59.2 59.1
OTHER ASSETS 150.1 164.5
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TOTAL ASSETS $4,660.7 $4,237.1
===============================================================================
CURRENT LIABILITIES
Current maturities of long-term debt $.7 $1.5
Notes payable 313.8 386.7
Accounts payable 325.0 308.8
Income taxes 130.1 65.9
Accrued liabilities 526.7 451.7
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TOTAL CURRENT LIABILITIES 1,296.3 1,214.6
LONG-TERM DEBT 719.6 521.6
NONPENSION POSTRETIREMENT BENEFITS 478.9 450.9
DEFERRED INCOME TAXES AND OTHER LIABILITIES 365.9 336.6
SHAREHOLDERS' EQUITY
Common stock, $.25 par value 77.6 77.6
Capital in excess of par value 67.5 72.0
Retained earnings 3,727.7 3,409.4
Treasury stock, at cost (1,936.8) (1,653.1)
Minimum pension liability adjustment (25.3) (25.3)
Currency translation adjustment (110.7) (167.2)
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TOTAL SHAREHOLDERS' EQUITY 1,800.0 1,713.4
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,660.7 $4,237.1
===============================================================================
</TABLE>
*Condensed from audited financial statements
See accompanying notes to consolidated financial statements.
2
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<TABLE>
<CAPTION>
CONSOLIDATED EARNINGS (results are unaudited)
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KELLOGG COMPANY AND SUBSIDIARIES Three months ended September 30, Nine months ended September 30,
(millions, except per share data) 1994 1993 1994 1993
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NET SALES $1,741.9 $1,669.2 $4,970.0 $4,729.2
Other revenue (deductions), net 0.8 (3.8) 4.8 2.8
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1,742.7 1,665.4 4,974.8 4,732.0
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Cost of goods sold 756.2 771.9 2,216.9 2,252.8
Selling and administrative expense 626.6 561.4 1,833.8 1,645.9
Interest expense 12.6 9.4 33.8 27.2
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1,395.4 1,342.7 4,084.5 3,925.9
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EARNINGS BEFORE INCOME TAXES 347.3 322.7 890.3 806.1
Income taxes 130.6 113.4 338.2 274.9
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NET EARNINGS $216.7 $209.3 $552.1 $531.2
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EARNINGS PER SHARE $.96 $.90 $2.45 $2.28
DIVIDENDS PER SHARE $.36 $.34 $1.04 $.98
AVERAGE SHARES OUTSTANDING 225.0 232.6
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</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (Results are unaudited)
===================================================================================================================
KELLOGG COMPANY AND SUBSIDIARIES NINE MONTHS ENDED SEPTEMBER 30,
(millions) 1994 1993
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OPERATING ACTIVITIES
Net earnings $552.1 $531.2
Items in net earnings not requiring (providing) cash:
Depreciation 189.1 183.6
Pre-tax gain on sale of subsidiaries (21.1) (32.2)
Deferred income taxes 5.6 10.4
Other (32.9) 8.6
Change in operating assets and liabilities 47.4 (50.8)
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NET CASH PROVIDED FROM OPERATING ACTIVITIES 740.2 650.8
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INVESTING ACTIVITIES
Additions to properties (237.5) (349.7)
Proceeds from sale of subsidiaries 83.8 50.6
Other 16.5 2.9
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NET CASH USED IN INVESTING ACTIVITIES (137.2) (296.2)
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FINANCING ACTIVITIES
Net borrowings of notes payable (72.9) 404.1
Issuance of long-term debt 200.0 6.6
Reduction in long-term debt (2.8) (1.9)
Purchase of treasury stock (283.6) (488.5)
Cash dividends (233.7) (227.7)
Other (0.3) 5.7
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NET CASH USED IN FINANCING ACTIVITIES (393.3) (301.7)
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Effect of exchange rate changes on cash 6.6 (2.8)
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Increase in cash and temporary investments 216.3 50.1
Cash and temporary investments at beginning of period 98.1 126.3
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CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD $314.4 $176.4
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
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Notes To Consolidated Financial Statements
for the nine months ended September 30, 1994
(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 in the Company's Annual Report on Form 10-K for
1993. The accounting policies used in preparing these financial statements are
the same as those summarized in the Company's Annual Report on Form 10-K (page
F-7) for 1993.
The results of operations for the nine months ended September 30, 1994, are not
necessarily indicative of the results to be expected for the full year.
2. Other Revenue
Other revenue 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 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.
Other revenue for the nine months ended September 30, 1993, includes a gain of
$32.2 million ($24.1 million after tax or $.10 per share) from the sale of
Cereal Packaging Ltd. and a charge of $29.5 million ($18.5 million after tax or
$.08 per share) primarily from the write-down of certain North American assets.
5
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KELLOGG COMPANY
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cereal volume was flat for the third quarter of 1994 compared with the same
period of 1993. Year-to-date cereal volume increased 1.0 percent. Negative
volume growth in the U.S. cereal market for the Company was caused by increased
competitive pressure and a deliberate attempt by the Company to reduce price
promotion on established brands. This decline was offset by favorable growth
in international markets.
Total volume for the quarter was down 2.7 percent and down .2 percent for the
first nine months of 1994. Excluding the Mrs. Smith's Frozen Foods pie
business, divested during the first quarter of 1994, and the Argentine snack
business, divested during the fourth quarter of 1993, total quarterly volume
was up 0.7 percent and year-to-date volume increased by 1.8 percent.
Net sales increased 4.4 percent for the third quarter, compared to the same
period of 1993. On a year-to-date basis, net sales increased by 5.1 percent.
Excluding the results of the divested businesses, net sales increased 6.6
percent on both a quarter and year-to-date basis. These increases resulted
principally from higher selling prices and to a lesser extent, the volume
growth discussed above and product mix improvements.
Other revenue 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. Other revenue also 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.
Other revenue for the nine months ended September 30, 1993, includes a gain of
$32.2 million ($24.1 million after tax or $.10 per share) from the sale of
Cereal Packaging Ltd., a wholly owned subsidiary of Kellogg Company of Great
Britain Limited. Other revenue also includes a charge of $29.5 million ($18.5
million after tax or $.08 per share) primarily from the write-down of certain
North American assets.
The gross profit margin strengthened by 2.8 percentage points from 53.8 percent
for the third quarter of 1993 to 56.6 percent for the third quarter of 1994.
On a year-to-date basis, the gross profit margin has increased 3.0 percentage
points to 55.4 percent. This increase in gross margin is the result of a
decline in cost of goods sold coupled with favorable pricing. Cost of goods
sold for the quarter, when compared to last year declined by 2.0 percent on an
absolute basis and was essentially flat on a per-kilo basis. For the
year-to-date period, cost of goods declined both on an absolute and per kilo
basis, by 1.6 percent and 1.4 percent respectively.
Selling and administrative expense for the quarter was up 11.6 percent from the
third quarter of 1993. On a year-to-date basis, the increase was 11.4 percent.
As a percent of net sales, selling and administrative expense for the quarter
was 36.0 percent, up from 33.6 percent during the same quarter last year.
September 1994 year-to-date selling and administrative expense was 36.9 percent
of net sales, up 2.1 percentage points from the comparable period last year.
6
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Contributing to the increase in selling and administrative expense was an
increase in advertising and promotion expenditures reflecting an
increasingly competitive marketplace, and to a lesser extent, increases in
administrative overhead and research and development expense. Consistent with
management's objectives, the shift in the marketing investment mix towards
advertising over promotion continued over the last three quarters. Management
believes that the Company's strategy of continuing to invest in brand-building
advertising and reducing price promotion spending on established brands,
coupled with a strong new product program, will assist in delivering long-term
growth objectives.
Earnings before income taxes were $347.3 million for the quarter, up 7.6
percent from the prior year, and $890.3 million for the year-to-date period, up
10.4 percent.
The Company's effective income tax rate for the third quarter was 37.6 percent,
which is 2.5 percentage points higher than the comparable rate from the third
quarter of 1993. This variance is primarily due to the one-time favorable
impact of statutory rate reductions in several foreign jurisdictions, partially
offset by the negative effect of the 1.0 percentage point increase in the U.S.
statutory rate, enacted during the third quarter of 1993. On a September
year-to-date basis, the 1994 effective income tax rate was 38.0 percent,
exceeding the comparable 1993 rate of 34.1 percent by 3.9 percentage points.
Consistent with the quarterly results, the year-to-date increase in rate over
the prior year reflects the extraordinarily low 1993 rate which was as a result
of one-time benefits related to foreign statutory rate reductions enacted
during the first three quarters of 1993.
Earnings per share for the quarter increased to $.96 from $.90, a 6.7 percent
improvement over the prior year. Net earnings were $216.7 million, an increase
of 3.5 percent. Excluding the 1993 results from the Mrs. Smith's pie and
Argentine snack food businesses, earnings per share increased by 7.8 percent.
For the first nine months of 1994, earnings per share were $2.45, up 7.5
percent. Net earnings were $552.1 million, an increase of 3.9 percent.
Excluding all one-time events and the results of divested businesses, earnings
per share for the first nine months of 1994 were $2.45, up 9.8 percent from the
comparable 1993 period, and net earnings were $555.5 million, up 6.3 percent.
Since December 31, 1993, there have been no significant changes in the
reportable geographic segments with respect to net sales and identifiable
assets. Excluding the one-time events mentioned above, each geographic
segment's percentage of net earnings was relatively unchanged from that of
December 31, 1993.
Financial Condition
The Company's financial condition continued to be strong throughout the period.
The ratio of current assets to current liabilities was 1.2:1 as of September
30, 1994, relatively unchanged from December 31, 1993. The ratio of debt to
total capitalization was 36.5 percent compared to 34.7 percent at December 31,
1993. The slight increase in the debt to total capitalization ratio is due to
the increase in long-term debt and the continuing treasury stock purchases,
both of which are described below.
7
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During the nine months ended September 30, 1994, the Company purchased 5.4
million shares of common stock at an average cost of $52.08 per share. Over
the past twelve months the Company has purchased approximately 6.5 million
shares of common stock or just under 3.0 percent of the total outstanding on
September 30, 1993. Treasury stock purchases are made under plans authorized
by the Company's Board of Directors. The Board has authorized purchases during
1994 of up to $353 million of which $283.6 million has been expended to date.
Management intends to fully utilize this authorization by the end of the year.
On September 29, 1994, the Company issued $200 million of long-term debt
consisting of both fixed rate Canadian Eurodollars and Swiss Francs swapped
into floating rate US dollar obligations with a term of three years. The debt
is primarily being used to fund treasury stock purchases and pay down
short-term debt in the United States. The majority of the remaining short-term
debt balance as of September 30, 1994, consists of commercial paper.
At September 30, 1994, 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. Such an offering would be added to the
Company's working capital and be available for general corporate purposes.
At September 30, 1994 the Company's net debt position was $719.7 million, down
$91.9 million from December 31, 1993 as the increase in cash during the period
more than offset the net increase in total debt.
Since December 31, 1993, accounts receivable has increased by $109.1 million;
however, on an average number of days sales outstanding basis, the September
30, 1994 balance is consistent with the December 31, 1993 amount. Income taxes
payable increased by $64.2 million due primarily to the timing of tax payments
in several foreign locations and, to a lesser extent, higher domestic and
foreign profitability and exchange rate differences. The increase in other
current liabilities of $75.0 million reflects increases in various employee
benefits and marketing expense accruals consistent with the increases in
selling and administrative expenses discussed above.
Capital spending for the first nine months of 1994 was $237.5 million compared
with $349.7 million during the first nine months of 1993. Capital expenditures
have decreased reflecting the Company's ongoing strategy of improving return on
invested capital and a commitment to increasing shareholder value over time.
Management anticipates that total year 1994 capital expenditures will be
approximately $350 million.
Management is not aware of any adverse trends which would materially affect the
Company's financial condition or its ability to provide financial resources for
maintenance and expansion of the business.
8
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KELLOGG COMPANY
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4 - 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 - 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.
9
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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/ C.W. Elliott
----------------------------------
C.W. Elliott
Principal Financial Officer;
Executive Vice President - Administration
/s/ A. Taylor
----------------------------------
A. Taylor
Principal Accounting Officer;
Vice-President and Corporate Controller
Date: November 9, 1994
10
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KELLOGG COMPANY
EXHIBIT INDEX
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Number Description Page
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27 Financial Data Schedules 12
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11
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Kellogg
Company and subsidiaries Consolidated financial statements for the nine months
ended September 30, 1994 and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 314
<SECURITIES> 0
<RECEIVABLES> 646
<ALLOWANCES> 0
<INVENTORY> 399
<CURRENT-ASSETS> 1,569
<PP&E> 4,550
<DEPRECIATION> (1,668)
<TOTAL-ASSETS> 4,661
<CURRENT-LIABILITIES> 1,296
<BONDS> 720
<COMMON> 78
0
0
<OTHER-SE> 68
<TOTAL-LIABILITY-AND-EQUITY> 4,661
<SALES> 4,970
<TOTAL-REVENUES> 4,975
<CGS> 2,217
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</TABLE>
