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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 March 31, 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 (of 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 April 30, 1994 - 224,962,541 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 - March 31, 1994 and December 31, 1993 2
Consolidated Earnings - three months ended March 31, 1994 and 1993 3
Consolidated Statement of Cash Flows - three months ended March 31,
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 6-7
PART II - Other Information
Item 6:
Exhibits and Reports on Form 8-K 8
Signatures 8
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<TABLE>
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CONSOLIDATED BALANCE SHEET
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KELLOGG COMPANY AND SUBSIDIARIES March 31, December 31,
(millions) 1994 1993
(unaudited) *
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CURRENT ASSETS
Cash and temporary investments $ 169.4 $ 98.1
Accounts receivable, net 610.2 536.8
Inventories 398.5 403.1
Other current assets 214.0 207.1
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TOTAL CURRENT ASSETS 1,392.1 1,245.1
PROPERTY net of accumulated depreciation
of $1,535.5 and $1,504.1 2,765.7 2,768.4
INTANGIBLE ASSETS 59.7 59.1
OTHER ASSETS 181.3 164.5
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TOTAL ASSETS $4,398.8 $4,237.1
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CURRENT LIABILITIES
Current maturities of long-term debt $ .8 $ 1.5
Notes payable 437.4 386.7
Accounts payable 309.1 308.8
Income taxes 137.0 65.9
Accrued liabilities 489.1 451.7
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TOTAL CURRENT LIABILITIES 1,373.4 1,214.6
LONG-TERM DEBT 519.9 521.6
NONPENSION POSTRETIREMENT BENEFITS 463.2 450.9
DEFERRED INCOME TAXES AND OTHER LIABILITIES 345.3 336.6
SHAREHOLDERS' EQUITY
Common stock, $.25 par value 77.6 77.6
Capital in excess of par value 68.2 72.0
Retained earnings 3,516.2 3,409.4
Treasury stock, at cost (1,775.7) (1,653.1)
Minimum pension liability adjustment (25.3) (25.3)
Currency translation adjustment (164.0) (167.2)
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TOTAL SHAREHOLDERS' EQUITY 1,697.0 1,713.4
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,398.8 $4,237.1
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*Condensed from audited financial statements.
See accompanying notes to consolidated financial statements.
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CONSOLIDATED EARNINGS (Results are unaudited)
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KELLOGG COMPANY AND SUBSIDIARIES Three months ended March 31,
(millions, except per share data) 1994 1993
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NET SALES $1,611.2 $1,518.4
Other revenue (deductions), net 8.1 6.5
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1,619.3 1,524.9
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Cost of goods sold 732.0 725.0
Selling and administrative expense 580.1 522.4
Interest expense 9.7 8.6
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1,321.8 1,256.0
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EARNINGS BEFORE INCOME TAXES 297.5 268.9
Income taxes 113.6 89.7
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NET EARNINGS $183.9 $179.2
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EARNINGS PER SHARE $.81 $.76
DIVIDENDS PER SHARE $.34 $.32
AVERAGE SHARES OUTSTANDING 227.0 235.6
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See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (Results are unaudited)
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KELLOGG COMPANY AND SUBSIDIARIES Three months ended March 31,
(millions) 1994 1993
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OPERATING ACTIVITIES
Net earnings $183.9 $179.2
Items in net earnings not requiring (providing) cash:
Depreciation 62.0 64.8
Pre-tax gain on sale of subsidiaries (21.1) (32.2)
Deferred income taxes (2.6) 15.9
Other (52.6) (8.6)
Change in operating assets and liabilities 32.9 (108.0)
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NET CASH PROVIDED FROM OPERATING ACTIVITIES 202.5 111.1
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INVESTING ACTIVITIES
Additions to properties (71.1) (80.7)
Proceeds from sale of subsidiaries 83.8 50.6
Other 11.4 5.5
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NET CASH PROVIDED (USED) IN INVESTING ACTIVIES 24.1 (24.6)
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FINANCING ACTIVITIES
Net borrowings of notes payable 50.7 138.4
Issuance of long-term debt - 6.6
Reduction in long-term debt (2.4) (1.1)
Purchase of treasury stock (122.6) (175.6)
Cash dividends (77.1) (75.3)
Other 0.5 3.3
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NET CASH USED IN FINANCING ACTIVITIES (150.9) (103.7)
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Effect of exchange rate changes on cash (4.4) 0.9
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Increase (decrease) in cash and temporary investments 71.3 (16.3)
Cash and temporary investments at beginning of period 98.1 126.3
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Cash and temporary investments at end of period $169.4 $110.0
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</TABLE>
See accompanying notes to consolidated financial statements.
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Notes To Consolidated Financial Statements
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for the three months ended March 31, 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 changes in 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 three months ended March 31, 1994, are not
necessarily indicative of the results to be expected for the full year.
2. Other Revenue
Other revenue for the three months ended March 31, 1994, includes a gain of
$21.1 million ($.06 per share) from the sale of Mrs. Smith's Frozen Foods pie
business and a charge of $20.5 million ($.06 per share) primarily from the
initial funding of the Kellogg's Corporate Citizenship Fund.
Other revenue for the three months ended March 31, 1993, includes a gain of
$32.2 million ($.10 per share) from the sale of Cereal Packaging Ltd., and a
charge of $29.5 million ($.08 per share) primarily from the write-down of
certain North American assets.
3. Employee Stock Ownership Plan
At the Company's April 22, 1994 Annual Meeting of Stockholders, the 1993
Kellogg Employee Stock Ownership Plan was approved. The plan is designed
to enable the Company to offer stock incentives to employees throughout the
organization who are not eligible to participate in the Company's existing
executive incentive plan. Six million shares of common stock, $.25 par value
per share, have been reserved for issuance under the Plan.
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KELLOGG COMPANY
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Net sales increased 6 percent for the first quarter, when compared to the same
period of 1993. This increase resulted from higher selling prices, product
mix, and to a lesser extent, volume growth, which on a worldwide basis
increased by 2 percent for the quarter.
Other revenue for the three months ended March 31, 1994, includes a gain of
$21.1 million ($.06 per share) from the sale of Mrs. Smith's Frozen Foods pie
business. Mrs Smith's Frozen Foods pie business was sold to the J. M. Smucker
Company, an Ohio based food company. Other revenue also includes a charge of
$20.5 million ($.06 per share) primarily from the initial funding of the
Kellogg's Corporate Citizenship Fund.
Other revenue for the three months ended March 31, 1993, includes a gain of
$32.2 million ($.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. Other revenue also includes a charge of $29.5 million ($.08
per share) primarily from the write-down of certain North American assets.
As a percent of net sales, selling and administrative expense for the quarter
was 36.0 percent, up from 34.4 percent during the same quarter last year.
Business conditions permitting, the Company intends to moderate the rate of
increase in marketing expenditures during the remainder of the year. The gross
profit margin for the quarter was 54.6 percent, as compared to 52.3 percent for
the same period in 1993. This increase was due primarily to higher selling
prices and product mix, coupled with manufacturing cost-containment programs
and efficiencies.
The Company's tax expense as a percent of profit before tax was 38.2 percent
for the quarter, as compared to 33.4 percent for the same period in 1993. The
quarterly rate for 1994 is consistent with management's expectation of an
approximate rate of 38% for the entire year. The 1994 tax rate exceeds the
1993 rate due to several factors which caused the 1993 rate to be comparatively
low, including a low effective tax rate on the 1993 sale of Cereal Packaging
Ltd. and lower effective tax rates in various international locations.
Additionally, the 1994 rate increased over first quarter 1993, due to the 1
percent increase in the U.S. statutory rate, which was retroactively applied to
January 1, 1993, during the third quarter of 1993.
Earnings per share for the quarter increased to $.81 from $.76, a 6.6 percent
improvement. Excluding all one-time events, earnings per share for the first
quarter would have been $.81 for 1994, and $.74 for 1993, a 9.5 percent
improvement.
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 operating
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 43 percent
of total worldwide cereal volume.
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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 March 31,
1994, unchanged from December 31, 1993. The ratio of debt to total
capitalization was 36 percent compared to 35 percent at December 31, 1993. The
slight increase in the debt to capitalization ratio is due to the increase in
notes payable and the continuing treasury stock purchases, both of which are
described below.
During the three months ended March 31, 1994, the Company purchased 2,379,200
shares of its common stock at an average cost of $51.51 per share for a total
of $122.6 million. Treasury stock purchases are made under plans authorized by
the Company's Board of Directors. The Board has authorized repurchases during
1994 of up to $353 million and management intends to fully utilize this
authorization by the end of the year.
The increase of $50.7 million in notes payable from December 31, 1993 to March
31, 1994 was due primarily to the stock repurchase activity that occurred in
the first three months of 1994 and increased general corporate working capital
needs. The notes payable balance as of March 31, 1994, consists primarily of
commercial paper which carries an effective interest rate of 3.57 percent.
At March 31, 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 have increased by $73.4 million
reflecting historical seasonal trends for first quarter results. The
receivable balance at March 31, 1994 of $610.2 million was $30.3 million lower
than on March 31, 1993. The Company typically turns over receivables more than
once a month.
Capital spending for the first three months of 1994 was $71.1 million, a
decrease of $9.6 million from the first three months of 1993. Management
continues to anticipate that total year 1994 capital expenditures will be
approximately $400 million.
The $71.3 million increase in cash and temporary investments for the three
months ended March 31, 1994 compared to a reduction of $16.3 million during the
same period in 1993, was due to a general improvement in the Company's working
capital position, increased subsidiary sale proceeds, and lower Company stock
purchases and capital spending.
The Company is not aware of any adverse trends which would materially affect
its financial condition or ability to provide financial resources for
maintenance and expansion of the business.
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KELLOGG COMPANY
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter for which this report is filed.
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;
Corporate Controller
Date: May 9, 1994
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