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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 June 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 report), and (2) has been subject to such
filing requirement for the past 90 days.
Yes X No
Common Stock outstanding July 31, 1994 - 223,887,679 shares
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KELLOGG COMPANY
INDEX
Page
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PART I - Financial Information
Item 1:
Consolidated Balance Sheet - June 30, 1994 and December 31, 1993 2
Consolidated Earnings - six months ended June 30, 1994 and 1993 3
Consolidated Statement of Cash Flows - six months ended June 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 4:
Submission of Matters to a Vote of Security Holders 9-10
Item 6:
Exhibits and Reports on Form 8-K 10
Signatures 11
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CONSOLIDATED BALANCE SHEET
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<TABLE>
<CAPTION>
KELLOGG COMPANY AND SUBSIDIARIES JUNE 30, December 31
(millions) 1994 1993
(unaudited) *
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<S> <C> <C>
CURRENT ASSETS
Cash and temporary investments $231.8 $98.1
Accounts receivable, net 642.9 536.8
Inventories 389.5 403.1
Other current assets 209.1 207.1
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TOTAL CURRENT ASSETS 1,473.3 1,245.1
PROPERTY, net of accumulated depreciation
of $1,592.6 and $1,504.1 2,843.5 2,768.4
INTANGIBLE ASSETS 60.1 59.1
OTHER ASSETS 156.4 164.5
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TOTAL ASSETS $4,533.3 $4,237.1
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CURRENT LIABILITIES
Current maturities of long-term debt $.8 $1.5
Notes payable 535.6 386.7
Accounts payable 335.8 308.8
Income taxes 95.8 65.9
Accrued liabilities 500.9 451.7
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TOTAL CURRENT LIABILITIES 1,468.9 1,214.6
LONG-TERM DEBT 519.7 521.6
NONPENSION POSTRETIREMENT BENEFITS 469.3 450.9
DEFERRED INCOME TAXES AND OTHER LIABILITIES 358.9 336.6
SHAREHOLDERS' EQUITY
Common stock, $.25 par value 77.6 77.6
Capital in excess of par value 67.2 72.0
Retained earnings 3,591.4 3,409.4
Treasury stock, at cost (1,859.5) (1,653.1)
Minimum pension liability adjustment (25.3) (25.3)
Currency translation adjustment (134.9) (167.2)
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TOTAL SHAREHOLDERS' EQUITY 1,716.5 1,713.4
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,533.3 $4,237.1
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</TABLE>
*Condensed from audited financial statements.
See accompanying notes to consolidated financial statements.
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CONSOLIDATED EARNINGS (Results are unaudited)
<TABLE>
<CAPTION>
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KELLOGG COMPANY AND SUBSIDIARIES Three months ended June 30, Six months ended June 30,
(millions, except per share data) 1994 1993 1994 1993
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<S> <C> <C> <C> <C>
NET SALES $1,616.9 $1,541.6 $3,228.1 $3,060.0
Other revenue (deductions), net (4.1) 0.1 4.0 6.6
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1,612.8 1,541.7 3,232.1 3,066.6
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Cost of goods sold 728.7 755.9 1,460.7 1,480.9
Selling and administrative expense 627.1 562.1 1,207.2 1,084.5
Interest expense 11.5 9.2 21.2 17.8
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1,367.3 1,327.2 2,689.1 2,583.2
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EARNINGS BEFORE INCOME TAXES 245.5 214.5 543.0 483.4
Income taxes 94.0 71.8 207.6 161.5
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NET EARNINGS $151.5 $142.7 $335.4 $321.9
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EARNINGS PER SHARE $.68 $.62 $1.49 $1.38
DIVIDENDS PER SHARE $.34 $.32 $.68 $.64
AVERAGE SHARES OUTSTANDING 225.9 233.9
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</TABLE>
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS (Results are unaudited)
<TABLE>
<CAPTION>
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KELLOGG COMPANY AND SUBSIDIARIES Six months ended June 30,
(millions) 1994 1993
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<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $335.4 $321.9
Items in net earnings not requiring (providing) cash:
Depreciation 122.8 124.4
Pre-tax gain on sale of subsidiaries (21.1) (32.2)
Deferred income taxes 3.2 12.2
Other (45.6) 12.5
Change in operating assets and liabilities 11.5 (93.8)
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NET CASH PROVIDED FROM OPERATING ACTIVITIES 406.2 345.0
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INVESTING ACTIVITIES
Additions to properties (161.0) (245.2)
Proceeds from sale of subsidiaries 83.8 50.6
Other 18.9 3.9
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NET CASH USED IN INVESTING ACTIVITIES (58.3) (190.7)
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FINANCING ACTIVITIES
Net borrowings of notes payable 148.9 380.0
Issuance of long-term debt 0.0 6.6
Reduction in long-term debt (2.6) (2.0)
Purchase of treasury stock (206.2) (394.9)
Cash dividends (153.4) (149.5)
Other (0.2) 4.8
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NET CASH USED IN FINANCING ACTIVITIES (213.5) (155.0)
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Effect of exchange rate changes on cash (0.7) (2.6)
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Increase (decrease) in cash and temporary investments 133.7 (3.3)
Cash and temporary investments at beginning of period 98.1 126.3
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CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD $231.8 $123.0
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</TABLE>
See accompanying notes to consolidated financial statements.
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Notes To Consolidated Financial Statements
for the six months ended June 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 six months ended June 30, 1994, are not
necessarily indicative of the results to be expected for the full year.
2. Other Revenue
Other revenue for the six months ended June 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 six months ended June 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.
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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 increased 2.2 percent for the second quarter of 1994 compared
with the same period of 1993. Year-to-date cereal volume increased 1.5
percent. Total volume for the quarter was marginally higher than last year and
up 1.1 percent for the first six 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 2.6 percent and year-to-date volume increased by 2.4
percent.
Net sales increased 4.9 percent for the second quarter, compared to the same
period of 1993. On a year-to-date basis, net sales increased by 5.5 percent.
Excluding the net sales of the divested businesses, quarterly and year-to-date
net sales increases were 6.7 and 6.6 percent, respectively. These increases
resulted principally from higher selling prices and to a lesser extent, the
volume growth discussed above.
Other revenue for the six months ended June 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. The Mrs Smith's Frozen Foods pie business
was sold to the J. M. Smucker Company, an Ohio based food company, during the
first quarter of 1994. 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 six months ended June 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. Cereal Packaging Ltd. was sold to Low & Bonar PLC, a United Kingdom
packaging and plastics company, during the first quarter of 1993. 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 3.9 percentage points from 51.0 percent
for the second quarter of 1993 to 54.9 percent for the second quarter of 1994.
On a year-to-date basis, the gross profit margin has increased 3.2 percentage
points to 54.8 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 3.6 percent. On
a year-to-date basis, cost of goods sold declined by 1.4 percent.
Selling and administrative expense for the quarter was up 11.6 percent from the
second quarter of 1993. On a year-to-date basis, the increase was 11.3
percent. As a percent of net sales, selling and administrative expense for the
quarter was 38.8 percent, up from 36.5 percent during the same quarter last
year. June 1994 year-to-date selling and administrative expense was 37.4
percent of net sales, up 2 percentage points from the comparable period last
year. Contributing to the increase in selling and administrative expense was
an increase in advertising and promotion expenditures reflecting an
increasingly competitive marketplace. Advertising expense increased in
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relation to promotional expense during the second quarter of 1994 versus the
first quarter of 1994. 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 $245.5 million for the quarter, up 14.5
percent from the prior year, and $543.0 million for the year-to-date period, up
12.3 percent. This marks the third consecutive quarter of double-digit growth
in earnings before income taxes.
The Company's effective income tax rate for the second quarter was 38.3
percent. This is 4.8 percentage points higher than the comparable rate from
the second quarter of 1993. On a June year-to-date basis, the 1994 effective
income tax rate was 38.2 percent, exceeding the comparable 1993 rate of 33.4
percent by 4.8 percentage points. These variances are primarily due to the
one-time favorable impact of international rate adjustments during the 1993
period. The Company expects the 1994 full year rate to be between 37 and 38
percent.
Earnings per share for the quarter increased to $.68 from $.62, a 9.7 percent
improvement over the prior year. Net earnings were $151.5 million, an increase
of 6.2 percent. Excluding the 1993 results from the Mrs. Smith's pie and
Argentine snack food businesses, earnings per share increased by 12 percent.
For the first six months of 1994, earnings per share were $1.49, up 8 percent.
Net earnings were $335.4 million, an increase of 4.2 percent. Excluding all
one-time events, earnings per share for the first six months of 1994 were
$1.49, up 10 percent from the comparable 1993 period, and net earnings were
$335.2 million, up 6 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. On a global basis, the Company's market share is 42.9
percent of total worldwide cereal volume.
Financial Condition
The Company's financial condition continued to be strong throughout the period.
The ratio of current assets to current liabilities was 1:1 as of June 30, 1994,
unchanged from December 31, 1993. The ratio of debt to total capitalization
was 38 percent compared to 35 percent at December 31, 1993. The slight
increase in the debt to total capitalization ratio is due to the increase in
notes payable and the continuing treasury stock purchases, both of which are
described below.
During the six months ended June 30, 1994, the Company purchased 4,011,800
shares of common stock at an average cost of $51.41 per share. Over the past
twelve months the Company has purchased over 6.7 million shares of common stock
or 2.9 percent of the total outstanding on June 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
$206.2 million has been expended to date. Management intends to fully utilize
this authorization by the end of the year.
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The $133.7 million increase in cash and temporary investments for the six
months ended June 30, 1994, is primarily due to a temporary build-up of cash in
foreign locations. This is offset by an increase in notes payable in the
United States, principally for treasury stock purchases. The majority of the
notes payable balance as of June 30, 1994, consists of commercial paper.
At June 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.
Since December 31, 1993, accounts receivable has increased by $106.1 million,
reflecting seasonal trends, while turnover remains constant, averaging once per
month.
Capital spending for the first six months of 1994 was $161.0 million compared
with $245.2 million during the first six 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 continues to anticipate that total year 1994 capital expenditures
will be approximately $400 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.
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KELLOGG COMPANY
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on
April 22, 1994.
Represented at the Meeting, either in person or by proxy were
200,243,433 voting shares, of a total 226,957,940 voting shares
outstanding. The matters voted upon at the Meeting are
described in (c) below.
(c) (i) To elect five (5) directors to serve for three-year (3)
terms expiring at the 1997 Annual Meeting of Stockholders
or until their respective successors are elected and
qualified. All nominees are named below.
Arnold G. Langbo
Votes for Election - 199,495,734
Votes Withheld - 747,698
J. Richard Munro
Votes for Election - 199,614,674
Votes Withheld - 628,758
Harold A. Poling
Votes for Election - 199,618,318
Votes Withheld - 625,114
Timothy P. Smucker
Votes for Election - 199,650,325
Votes Withheld - 593,107
Dolores D. Wharton
Votes for Election - 199,590,598
Votes Withheld - 652,834
There were no votes against, abstentions, or broker
non-votes with respect to the election of any nominee
named above.
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(ii) To approve the 1993 Kellogg Employee Stock Ownership Plan.
Votes for Proposal - 188,087,667
Votes Against Proposal - 11,226,040
Votes Abstaining - 845,927
Broker Non-votes - 83,798
Votes Withheld - 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
No exhibits are included for the current reporting period.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for
which this report is filed.
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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: August 8, 1994
