<PAGE> 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 June 30, 1996
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 July 31, 1996 - 211,815,399 shares
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KELLOGG COMPANY
INDEX
PART I - Financial Information
Page
Item 1:
Consolidated Balance Sheet - June 30, 1996 and December 31, 1995 2
Consolidated Earnings - three and six months ended June 30, 1996 and 1995 3
Consolidated Statement of Cash Flows - six months ended June 30,
1996 and 1995 4
Notes to Consolidated Financial Statements 5-6
Item 2:
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-11
PART II - Other Information
Item 4:
Submission of Matters to a Vote of Security Holders 12-13
Item 6:
Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
=====================================================================
KELLOGG COMPANY AND SUBSIDIARIES JUNE 30, December 31,
(millions) 1996 1995
(unaudited) *
- ---------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 254.3 $ 221.9
Accounts receivable, net 634.8 590.1
Inventories:
Raw materials and supplies 133.0 129.7
Finished goods and materials in process 250.5 247.0
Other current assets 310.3 240.1
- ---------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,582.9 1,428.8
Property, net of accumulated depreciation
of $2,028.4 and $1,953.0 2,745.8 2,784.8
Other assets 253.7 201.0
- ---------------------------------------------------------------------
TOTAL ASSETS $4,582.4 $4,414.6
=====================================================================
CURRENT LIABILITIES
Current maturities of long-term debt $1.1 $1.9
Notes payable 537.2 188.0
Accounts payable 352.0 370.8
Income taxes 37.8 64.2
Accrued liabilities 695.8 640.5
- ---------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,623.9 1,265.4
LONG-TERM DEBT 719.8 717.8
NONPENSION POSTRETIREMENT BENEFITS 561.2 546.1
DEFERRED INCOME TAXES AND OTHER LIABILITIES 323.1 294.4
SHAREHOLDERS' EQUITY
Common stock, $.25 par value 77.8 77.8
Capital in excess of par value 114.8 105.2
Retained earnings 4,080.6 3,963.0
Treasury stock, at cost (2,719.7) (2,361.2)
Currency translation adjustment (199.1) (193.9)
- ---------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,354.4 1,590.9
- ---------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,582.4 $4,414.6
=====================================================================
*Condensed from audited financial statements.
</TABLE>
See accompanying notes to consolidated financial statements.
2
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<TABLE>
<CAPTION>
CONSOLIDATED EARNINGS (Results are unaudited)
==================================================================================================
KELLOGG COMPANY AND SUBSIDIARIES Three months ended June 30 Six months ended June 30,
(millions, except per share data) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $1,651.4 $1,780.1 $3,437.3 $3,496.1
- --------------------------------------------------------------------------------------------------
Cost of goods sold 775.2 819.7 1,565.6 1,589.0
Selling and administrative expens 708.5 676.0 1,355.7 1,299.9
Non-recurring charges 26.1 52.8 35.6 52.8
- --------------------------------------------------------------------------------------------------
OPERATING PROFIT 141.6 231.6 480.4 554.4
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Interest expense 16.1 16.5 29.8 34.5
Other income (expense), net 0.3 5.7 0.7 16.3
- --------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 125.8 220.8 451.3 536.2
Income taxes 47.7 84.9 167.1 204.3
- --------------------------------------------------------------------------------------------------
NET EARNINGS $ 78.1 $ 135.9 $ 284.2 $ 331.9
==================================================================================================
EARNINGS PER SHARE $ .37 $ .62 $ 1.33 $ 1.51
- --------------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE $ .39 $ .36 $ .78 $ .72
- --------------------------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING 212.7 219.7 213.9 220.4
- --------------------------------------------------------------------------------------------------
</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 Six months ended June 30,
(millions) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 284.2 $ 331.9
Items in net earnings not requiring (providing) cash:
Depreciation 126.0 137.0
Deferred income taxes (0.5) 4.5
Non-recurring charges, net of cash paid 6.4 43.7
Other 35.2 3.1
Pension contributions (54.8) (61.0)
Changes in operating assets and liabilities (87.6) 17.1
- -----------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 308.9 476.3
- -----------------------------------------------------------------------------
Investing activities
Additions to properties (109.2) (144.7)
Other 3.9 5.9
- -----------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (105.3) (138.8)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES
Net borrowings of notes payable 349.2 67.3
Reduction in long-term debt (3.1) (0.2)
Common stock repurchases (356.3) (147.6)
Cash dividends (166.7) (158.6)
Other 7.3 14.6
- -----------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (169.6) (224.5)
- -----------------------------------------------------------------------------
Effect of exchange rate changes on cash (1.6) (2.2)
- -----------------------------------------------------------------------------
Increase in cash and cash equivalents 32.4 110.8
Cash and cash equivalents at beginning of peri 221.9 266.3
- -----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 254.3 $ 377.1
=============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE> 6
Notes To Consolidated Financial Statements
for the six months ended June 30, 1996
(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 1995 Annual
Report. The accounting policies used in preparing these financial statements
are the same as those summarized in the Company's 1995 Annual Report.
The results of operations for the three and six months ended June 30, 1996, are
not necessarily indicative of the results to be expected for other interim
periods or the full year.
2. Non-recurring charges
Operating profit includes non-recurring charges for the quarter of $26.1
million ($16.9 million after tax or $.08 per share) and for the year-to-date
period of $35.6 million ($23.0 million after tax or $.11 per share). Operating
profit for the comparable 1995 quarter and year-to-date periods includes
non-recurring charges of $52.8 million ($33.0 million after tax or $.15 per
share). All of these charges primarily relate to ongoing productivity and
operational streamlining initiatives in the U.S., Europe, and other
international locations, and are comprised principally of expenditures for
employee severance, training, and relocation; associated management
consulting; and production redeployment.
During 1995, the Company recorded pre-tax non-recurring charges of $348.0
million related to operational streamlining initiatives in the U.S., Australia,
and Europe. As a result, approximately 2,000 employee positions will be
eliminated by the end of 1996, through a combination of voluntary early
retirement incentives, and voluntary and involuntary severance programs.
Associated with these 1995 initiatives, the Company expects to incur an
additional $30 million of costs during 1996 related to workforce and production
redeployment. These costs will be recorded as non-recurring charges as
incurred. These streamlining initiatives are expected to require pre-tax cash
outlays of approximately $120 to $130 million during 1996, consisting of $94
million in accrued liabilities as of year-end 1995 and the aforementioned $30
million to be expensed in 1996.
5
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In early 1996, the Company initiated a plan to consolidate and reorganize
certain aspects of its European operations, and is taking action to further
streamline operations in other international locations. While some of these
programs are in the early stages of development, management believes that the
combination of these 1996 initiatives with redeployment expenditures from 1995
initiatives could generate total pre-tax non-recurring charges during 1996 of
approximately $100 million. From the 1996 initiatives currently under way, the
Company expects to incur cash outlays of approximately $60 million, principally
in 1996; and eliminate 475-500 employee positions by the end of 1997.
3. Earnings per share
Earnings per share are based on the weighted average shares outstanding as
presented. The potential dilution of earnings per share from the exercise of
stock options is not material.
6
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KELLOGG COMPANY
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of operations
Kellogg Company operates in a single industry - manufacturing and marketing
grain-based convenience food products including ready-to-eat cereal, toaster
pastries, frozen waffles, and cereal bars throughout the world. The Company
holds a 42 percent volume share of the global ready-to-eat cereal market. In
North America, the Company continues to hold the number one market share
position in the toaster pastry, cereal/granola bar, and frozen waffle
categories.
The Company's second quarter 1996 results were significantly impacted by
competitive conditions in the U.S. ready-to-eat cereal market. Primarily as a
result of its own and competitors' pricing actions during the quarter,
including heavy promotional spending, the Company reported declines in
volume, net sales, net earnings, and earnings per share versus last year.
However, management believes that, following a transition period during which
pricing and purchasing behavior are adjusted, the Company and the ready-to-eat
cereal category will be better positioned for profitable growth in the future.
Since the beginning of 1996, the Company has taken several major price
decreases on its U.S. brands. In January 1996, the Company announced a 9%
reduction in the price of Kellogg's(R) Low Fat Granola cereal and, on April 1,
1996, the price of Kellogg's(R) Raisin Bran cereal was reduced by 16%. On June
10, 1996, the Company implemented price reductions averaging 19 percent on
brands comprising approximately two-thirds of its U.S. cereal business.
Additionally, during the second quarter of 1996, the Company lowered the price
of Kellogg's(R) Pop-Tarts(R) toaster pastries via a combination of per-package
count increases and direct price reductions. The above pricing actions were
accompanied by payments to customers to extend these price reductions to
existing trade inventory ("floor stock protection payments"). Cereal prices
have also been reduced in some Latin American markets.
These pricing actions are integral to a broad strategy initiated by management
over the past two years to improve the Company's long-term pricing and cost
structure. This strategy includes pricing based on brand differentiation,
elimination of inefficient price promotion spending, and reduction of operating
costs through productivity and streamlining programs. Management believes that
the Company's implementation of certain of these pricing measures during the
second quarter of 1996 improved the long-term brand value proposition to the
consumer, but negatively impacted profitability in the short term. However,
management believes that total year 1996 earnings per share, excluding
non-recurring charges, will approximate 1995's level, based on the expectation
that cereal volumes will return to modest growth and cost-savings will
mitigate revenue reductions during the remainder of the year.
7
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For the second quarter, total volume and global cereal volume were both down
2%. Cereal volume was negatively impacted by competitive pricing actions in
the U.S. market and, to a lesser extent, by store-brand competition in Great
Britain and economic conditions in Mexico. Other cereal markets around the
world exhibited growth during the quarter, including Canada, continental
Europe, Asia-Pacific, and the majority of Latin America. On a year-to-date
basis, cereal volume was flat, with total volume up 1%.
Other convenience foods quarterly volume was flat compared to the prior-year
period, which included significant growth from three new-product introductions.
However, over the past two years, other convenience foods second quarter volume
has grown at a low double-digit compound annual growth rate, and management
expects this rate of growth to continue.
Net sales were down 7% for the quarter and 2% for the year-to-date period. This
decline reflects the volume loss, price reductions, and trade payments as
discussed above, and unfavorable foreign currency movements which reduced net
sales by 2% for both the quarter and year-to-date periods.
The gross profit margin for the quarter was 53.1%, down .9 percentage points
from the comparable 1995 period. Year-to-date, the gross profit margin was
54.5%, equal to the prior year, as operational cost savings offset the decline
in net sales.
For the quarter, selling and administrative expense as a percentage of net
sales was 42.9%, up from 38.0% in the prior year, and, on a year-to-date basis,
was 39.4% versus 37.2% in 1995. This increase was primarily a result of
lower volumes and selling prices, including floor stock protection payments,
combined with increased promotional spending and U.S. price reduction
program-specific costs. These program-specific costs were approximately $15
million ($9 million after tax or $.04 per share) and primarily consisted of
expenditures for communicating the price reductions and for changing package
sizes of Kellogg's(R) Pop-Tarts(R). While marketing expenditures increased
during the quarter, management expects this level to be reduced during the
remainder of the year, and remains committed to emphasizing efficient
brand-building activities and eliminating inefficient price promotion spending.
Operating profit included non-recurring charges for the quarter of $26.1
million ($16.9 million after tax or $.08 per share) and for the year-to-date
period of $35.6 million ($23.0 million after tax or $.11 per share). Operating
profit for the comparable 1995 quarter and year-to-date periods included
non-recurring charges of $52.8 million ($33.0 million after tax or $.15 per
share). All of these charges primarily related to ongoing productivity and
operational streamlining initiatives in the U.S., Europe, and other
international locations, and were comprised principally of expenditures for
employee severance, training, and relocation; management consulting; and
production redeployment. (Refer to section below on non-recurring charges.)
Second quarter operating profit, excluding non-recurring charges, declined 41%
to $167.7 million, reflecting decreased sales and increased marketing spending,
as discussed above. Year-to-date operating profit, excluding non-recurring
charges, was $516.0 million, down 15% from the prior year. The second quarter
operating profit margin was 10.2%, down from 16.0% last year, and the
8
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year-to-date margin was 15.0%, versus 17.4% in the comparable 1995 period.
For the quarter, gross interest expense, prior to amounts capitalized, was
$16.8 million, compared to $18.4 million in the prior year, and on a
year-to-date basis, was $31.2 million versus $38.3 million in 1995. Interest
expense was down slightly versus last year due to lower rates on short-term
borrowings. However, due to increases in short-term debt since year-end 1995,
management expects total year 1996 interest expense to approximate the 1995
level. Other income, net, decreased $5.4 million for the quarter and $15.6
million for the year-to-date period, primarily due to foreign currency losses in
hyperinflationary Latin American markets and lower interest income during 1996.
Excluding the effect of non-recurring charges, the Company's second quarter
income tax rate was 37.5%, down from 38.3% last year, and the year-to-date rate
was 36.9% versus 38.0% in 1995. The 1995 second quarter tax rate was
unfavorably impacted by a retroactive statutory rate increase in Australia.
The Company expects its effective income tax rate for the full year of 1996 to
be between 37% and 38%, in line with 1995.
Second quarter 1996 net earnings and earnings per share decreased 43% and 40%,
respectively, from the second quarter of 1995. Excluding non-recurring
charges, earnings per share were $.45 versus $.77 a year ago, a 42% decrease
derived from $.33 in business decline and $.02 in unfavorable foreign currency
movements, mitigated by $.02 from share repurchase and $.01 from the lower
effective tax rate. Excluding non-recurring charges for both years, quarterly
net earnings were $95.0 million for 1996, down 44% from $168.9 million in 1995.
Year-to-date results, excluding non-recurring charges, were earnings per share
of $1.44, compared to $1.66 in 1995, and net earnings of $307.2 million versus
$364.9 million last year.
The foregoing projections of market conditions, volume growth, profitability,
and earnings per share are forward-looking statements which involve risks and
uncertainties. Actual 1996 results may differ materially due to the impact of
the Company's price reductions on volumes, the level of trade and consumer
participation in promotional programs and competitive response; as well as
general economic and market conditions; actual worldwide volumes and product
mix; the levels of worldwide spending on advertising, promotion, and other
general and administrative costs; raw material price and labor cost
fluctuations; and the level of stock repurchases.
Liquidity and capital resources
The Company's financial condition remained solid during the second quarter of
1996, despite the decline in net earnings. A 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 continues to enjoy the highest available credit ratings on
both its long-term debt and commercial paper.
Year-to-date net cash provided from operations was $308.9 million, compared
to $476.3 million for the 1995 period. Cash flow from operations was down from
prior year levels principally due
9
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to decreased earnings, combined with increased employee severance payments and
other cash expenditures related to the Company's ongoing productivity
initiatives. The ratio of current assets to current liabilities was 1:1 as of
June 30, 1996, relatively unchanged from December 31, 1995.
Net cash used in investing activities was $105.3 million year-to-date, based
primarily on capital spending of $109.2 million. Management anticipates that
total year 1996 capital expenditures will be approximately $275-$300 million.
For the year-to-date period, net cash used in financing activities was $169.6
million, principally related to common stock repurchases and dividends, net of
additional short-term borrowing. Under an existing plan authorized by the
Company's Board of Directors, management spent $356.3 million year-to-date to
repurchase 4.8 million common shares at an average price of $74.78 per share.
As of June 30, 1996, the remaining repurchase authorization was $194.4 million.
Currently, management intends to fully utilize this authorization by the end
of the year.
During the second quarter, the Company paid $82.8 million in dividends at a
rate of $.39 per common share, an 8% increase over the 1995 per share amount.
On July 26, 1996, the Company's Board of Directors declared a dividend of $.42
per common share, representing a further 8% increase over the second quarter
1996 per share amount. This dividend is payable September 13, 1996, to
shareholders of record at the close of business on August 30, 1996. At June 30,
1996, common shares outstanding totaled 212.1 million, compared to 219.5
million at June 30, 1995. During the quarter, the average number of shares
outstanding was 212.7 million, compared to an average of 219.7 million during
the prior year period. Year-to-date average shares outstanding were 213.9
million versus 220.4 million last year.
Long-term debt outstanding at quarter-end 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 at quarter-end consisted principally of U.S. commercial paper. The
Company's net debt position (long-term debt plus notes payable less cash) at
June 30, 1996 was $1.00 billion, up $318.0 million from December 31, 1995,
principally due to an increase in short-term debt to fund common stock
repurchases. The ratio of debt to total capitalization was 48%, up from 36% at
December 31, 1995.
At June 30, 1996, 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.
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 solid earnings history provide a base for obtaining additional
financial resources at competitive rates and terms.
10
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Non-recurring charges
During 1995, the Company recorded pre-tax non-recurring charges of $348.0
million related to operational streamlining initiatives in the U.S., Australia,
and Europe. As a result, approximately 2,000 employee positions will be
eliminated by the end of 1996, through a combination of voluntary early
retirement incentives, and voluntary and involuntary severance programs.
Associated with these 1995 initiatives, the Company expects to incur an
additional $30 million of costs during 1996 related to workforce and production
redeployment. These costs will be recorded as non-recurring charges as
incurred. These streamlining initiatives are expected to require pre-tax cash
outlays of approximately $120 to $130 million during 1996, consisting of $94
million in accrued liabilities as of year-end 1995 and the aforementioned $30
million to be expensed in 1996. From these programs, the Company expects to
realize approximately $120 million of annual pre-tax savings by 1997, with
about 60% of this amount to be achieved in 1996. These savings are not
necessarily indicative of future incremental earnings due to management's
commitment to invest in competitive business strategies, new markets, and
growth opportunities.
In early 1996, the Company initiated a plan to consolidate and reorganize
certain aspects of its European operations, and is taking action to further
streamline operations in other international locations. While some of these
programs are in the early stages of development, management believes that the
combination of these 1996 initiatives with redeployment expenditures from 1995
initiatives could generate total pre-tax non-recurring charges during 1996 of
approximately $100 million. From the 1996 initiatives currently under way, the
Company expects to incur cash outlays of approximately $60 million, principally
in 1996; eliminate 475-500 employee positions by the end of 1997; and generate
an estimated $20 million of annual pre-tax savings by 1998.
The foregoing discussion of non-recurring charges contains forward-looking
statements regarding amounts of future charges, headcount reductions, cash
requirements, and realizable savings. Actual amounts may vary depending on the
final determination of important factors such as the magnitude of centralization
of operations, the number of employees affected and the type of separation
programs, product sourcing reviews, asset utilization analyses, and other items
which have yet to be determined. In addition, the recognition of future charges
will depend on the timing of management approvals of elements of the
streamlining plans, communication of employee severance programs, and actual
incurrence of certain costs.
11
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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 Stockholders was held on April 19,
1996.
Represented at the Meeting, either in person or by proxy, were
195,204,730 voting shares, of a total 215,103,803 voting shares
outstanding. The matters voted upon at the Meeting are described
in (c) below.
(c) (i) To elect four (4) directors to serve for three-year (3) terms
expiring at the 1999 Annual Meeting of Stockholders or until
their respective successors are elected and qualified. All
nominees are named below.
Claudio X. Gonzalez
Votes for Election - 193,770,557
Votes Withheld - 1,434,173
William C. Richardson
Votes for Election - 193,747,386
Votes Withheld - 1,457,344
Donald Rumsfeld
Votes for Election - 193,746,843
Votes Withheld - 1,457,887
John L. Zabriskie
Votes for Election - 193,737,922
Votes Withheld - 1,466,807
There were no votes against, abstentions, or broker non-votes
with respect to the election of any nominee named above.
(ii) To approve amendment to the Company's Amended Restated
Certificate of Incorporation to increase the authorized
number of shares of common stock.
Votes for Proposal - 188,785,005
Votes Against Proposal - 6,015,952
Votes Abstaining - 402,927
Broker Non-votes - 846
Votes Withheld - 0
12
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(iii) To approve adoption of an Amendment to the Kellogg Company
1990 Stock Compensation Program for Non-Employee Directors.
Votes for Proposal - 188,930,462
Votes Against Proposal - 5,088,726
Votes Abstaining - 1,181,575
Broker Non-votes - 3,967
Votes Withheld - 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.01 - Amended Restated Certificate of Incorporation of the
Company, as amended through April 19, 1996.
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.
10.01 - Kellogg Company 1990 Stock Compensation Program for
Non-Employee Directors, as amended.
27.01- Financial Data Schedule
(b) Reports on Form 8-K:
On June 10, 1996, the Company filed a report on Form 8-K which
included an exhibit containing a press release dated June 10,
1996.
13
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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/ 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: August 12, 1996
14
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KELLOGG COMPANY
EXHIBIT INDEX
Number Description
------ -----------
3.01 Amended Restated Certificate of Incorporation of
the Company, as amended through April 19, 1996.
10.01 Kellogg Company 1990 Stock Compensation Program
for Non-Employee Directors, as amended.
27.01 Financial Data Schedule
15
<PAGE> 1
EXHIBIT 3.01
KELLOGG COMPANY
AMENDED RESTATED
CERTIFICATE OF
INCORPORATION
(WITH ALL AMENDMENTS THROUGH APRIL 19, 1996)
FIRST
The name of this corporation is KELLOGG COMPANY.
SECOND
Its registered office, in the State of Delaware, is located at No. 100 West
Tenth Street, in the City of Wilmington, County of New Castle. The name and
address of its registered agent is The Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware.
THIRD
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be now or hereafter organized under the General
Corporation Law of Delaware.
FOURTH
The total number of shares of capital stock which this Corporation shall
have authority to issue is 500,000,000 shares of common stock of the par value
of $0.25 per share. A statement of the designations, dividend rights, voting
powers, preferences and rights, and the qualifications, limitations or
restrictions thereof, of the shares of stock which the corporation shall be
authorized to issue, is as follows:
<PAGE> 2
COMMON STOCK
1. DIVIDENDS.
Dividends may be paid upon the common stock as and when declared by the
Board of Directors out of funds legally available for the payment of dividends.
2. VOTING POWERS.
The holders of the common stock shall have the exclusive right to vote for
the election of Directors and for all other purposes, each holder of common
stock being entitled to one vote for each share thereof held.
3. PREEMPTIVE RIGHTS.
No holder of stock of the Corporation shall have any preemptive right to
subscribe for, purchase, or otherwise acquire shares of stock of the Corporation
of any class, whether now or hereafter authorized, nor shall any holder of stock
of the Corporation have any preemptive right to subscribe for, purchase, or
otherwise acquire bonds, notes or other securities, whether or not convertible,
into shares of stock of the Corporation of any class; and the Board of Directors
may, from time-to-time, and at any time, cause shares of stock of the
Corporation of any class to be issued, sold or otherwise disposed of at such
price or prices and upon such terms as the Board of Directors may determine.
4. LIQUIDATION RIGHTS.
Upon dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, the net assets of the Corporation shall be distributed
ratably to the holders of the common stock.
5. LIABILITY TO FURTHER CALL OR ASSESSMENT.
The stock heretofore issued shall be fully paid and nonassessable.
6. FRACTIONAL SHARES.
No fractional shares of any class of stock shall be issued.
FIFTH
The number of shares with which this Corporation will commence business is
ten (10) shares of common stock, which shares are without nominal or par value.
2
<PAGE> 3
SIXTH
This Corporation is to have perpetual existence.
SEVENTH
The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
EIGHTH
The Corporation may, in its Bylaws, confer powers upon its Directors in
addition to the powers and authorities expressly conferred upon them by statute.
NINTH
This Restated Certificate of Incorporation, as amended, shall be subject to
alteration, amendment or repeal, and new provisions thereof may be adopted by
the affirmative vote of the holders of not less than a majority of the
outstanding shares of capital stock entitled to vote generally in the election
of Directors (such outstanding shares hereinafter referred to collectively as
the "Voting Stock"), voting together as a single class, at any regular or
special meeting of the stockholders (but only if notice of the proposed change
be contained in the notice to the stockholders of the proposed meeting).
Notwithstanding the foregoing and in addition to any other requirements of
applicable law, the alteration, amendment or repeal of, or the adoption of any
provision inconsistent with, this Article NINTH or Article TENTH, ELEVENTH or
TWELFTH of this Restated Certificate of Incorporation, as amended, shall require
the affirmative vote of the holders of not less than two-thirds of the voting
power of all shares of the Voting Stock, voting together as a single class, at
any regular or special meeting of the stockholders.
The Bylaws of this Corporation shall be subject to alteration, amendment or
repeal, and new bylaws may be adopted (i) by the affirmative vote of the holders
of not less than a majority of the voting power of all shares of the Voting
Stock, voting together as a single class, at any regular or special meeting of
the stockholders (but only if notice of the proposed change be contained in the
notice to the stockholders of the proposed meeting), or (ii) by the affirmative
vote of not less than a majority of the members of the Board of Directors at any
meeting of the Board of
3
<PAGE> 4
Directors at which there is a quorum present and voting; provided, that any
alteration, amendment or repeal, or the adoption of any provision inconsistent
with Article II, Section 2 or Section 6, or Article III, Section 1, Section 2
or Section 5, or Article XIV, Section 1 of the Bylaws, shall require, in the
case of clause (i), the affirmative vote of the holders of not less than
two-thirds of the voting power of all shares of the Voting Stock, voting
together as a single class, at any regular or special meeting of the
stockholders, or, in the case of clause (ii), the affirmative vote of such
number of Directors constituting not less than two-thirds of the total number
of directorships fixed by a resolution adopted by the Board of Directors
pursuant to Article TENTH of this Restated Certificate of Incorporation, as
amended, whether or not such directorships are filled at the time (such total
number of directorships hereinafter referred to as the "Full Board").
TENTH
The number of Directors of this Corporation shall be not less than seven
(7) nor more than fifteen (15). The exact number of Directors within such
limitations shall be fixed from time-to-time by a resolution adopted by not less
than two-thirds of the Full Board (as defined in Article NINTH). At the 1986
Annual Meeting of Stockholders, the Directors shall be divided into three
classes, as nearly equal in number as possible, with the term of office of the
first class to expire at the 1987 Annual Meeting of Stockholders, the term of
office of the second class to expire at the 1988 Annual Meeting of Stockholders,
and the term of office of the third class to expire at the 1989 Annual Meeting
of Stockholders. At each Annual Meeting of Stockholders following such initial
classification and election, the class of Directors whose terms of office shall
expire at such time shall be elected to hold office for terms expiring at the
third succeeding Annual Meeting of Stockholders following their election. Each
Director shall hold office until his successor shall be elected and shall
qualify.
Subject to the rights of the holders of any particular class or series of
equity securities of this Corporation, (i) newly created directorships resulting
from any increase in the total number of authorized Directors may be filled by
the affirmative vote of not less than two-thirds of the Directors then in
office, although less than a quorum, or by a sole remaining Director, at any
regular or special meeting of the Board of Directors, or by the stockholders, in
accordance with the Bylaws, and (ii) any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by the affirmative vote of not less
than two-thirds of the Directors then in office, although less than a quorum, or
by a sole remaining Director, at any regular or special meeting of the Board of
Directors. Any Director so chosen shall hold office for a term expiring at the
Annual Meeting of Stockholders at which the term of office of the class of
Directors to which he or she has been elected expires. No decrease in the total
number of
4
<PAGE> 5
authorized Directors constituting the Board of Directors shall shorten the term
of office of any incumbent Director.
Subject to the rights of the holders of any particular class or series of
equity securities of this Corporation, any Director may be removed only for
cause and only by the affirmative vote of the holders of not less than
two-thirds of the voting power of all shares of Voting Stock, voting together as
a single class, at any regular or special meeting of the stockholders, subject
to any requirement for a larger vote contained in any applicable law, this
Corporation's Restated Certificate of Incorporation, as amended, or the Bylaws.
ELEVENTH
Any action required or permitted to be taken by the stockholders of this
Corporation may be effected solely at an Annual or Special Meeting of
Stockholders duly called and held in accordance with law and this Corporation's
Restated Certificate of Incorporation, as amended, and may not be effected by
any consent in writing by such stockholders or any of them.
TWELFTH
Except as otherwise expressly provided in the immediately following
paragraph:
(a) any merger or consolidation of this Corporation with or into any other
corporation other than a Subsidiary (as hereinafter defined); or
(b) any sale, lease, exchange or other disposition by this Corporation or
any Subsidiary of assets constituting all or substantially all of the
assets of this Corporation and its Subsidiaries taken as a whole, to
or with, any other person or entity in a single transaction or series
of related transactions; or
(c) any liquidation or dissolution of this Corporation;
shall require, in addition to any vote required by law or otherwise, the
affirmative approval of holders of not less than two-thirds of the voting power
of the Voting Stock.
The provisions of this Article TWELFTH shall not apply to any transaction
described in the immediately preceding paragraph if such
5
<PAGE> 6
transaction is approved by a majority of the Continuing Directors (as
hereinafter defined).
For purposes of this Article TWELFTH, (a) the term "Subsidiary" means any
corporation of which a majority of each class of equity security is beneficially
owned, directly or indirectly, by this Corporation; (b) the term "Affiliate",
as used to indicate a relationship to a specified person, shall mean a person
who, directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such specified person, except
that, notwithstanding the foregoing, a Director of this Corporation shall not be
deemed to be an Affiliate of a specified person if such Director, in the absence
of being a stockholder, Director or officer of this Corporation, or a Director
or officer of any Subsidiary, would not be an Affiliate of such specified
person; (c) the term "Associate", as used to indicate a relationship with a
specified person, shall mean (i) any corporation, partnership or other
organization of which such specified person is an officer or partner, or
beneficially owns, directly or indirectly, ten percent or more of any class of
equity securities; (ii) any trust or other estate in which such specified person
has a substantial beneficial interest, or as to which such specified person
serves as trustee or in a similar fiduciary duty; (iii) any relative or spouse
of such specified person, or any relative of such spouse who has the same home
as such specified person; and (iv) any person who is a Director or officer of
such specified person or any of its Affiliates, except that notwithstanding
clauses (i), (ii), (iii) and (iv) above, a Director of this Corporation shall
not be deemed to be an Associate of a specified person if such Director, in the
absence of being a stockholder, Director or officer of this Corporation, or a
Director or officer of any Subsidiary, would not be an Associate of such
specified person; (d) the term "Transacting Entity" shall mean (i) a
corporation with which this Corporation merges or consolidates in a transaction
described in clause (a) of the first paragraph of this Article TWELFTH; (ii) a
person or entity to which this Corporation sells, leases, exchanges or otherwise
disposes of assets in a transaction described in clause (b) of the first
paragraph of this Article TWELFTH; or (iii) a person, other than the Chief
Executive Officer of this Corporation, or entity, who shall propose a
liquidation or dissolution described in clause (c) of the first paragraph of
this Article TWELFTH; and (e) the term "Continuing Director" shall mean a
Director who is neither an Affiliate nor an Associate of the Transacting Entity,
provided that if there be no Transacting Entity, each Director is a Continuing
Director.
THIRTEENTH
SECTION 1.
No person who is or was at any time a Director of the Corporation shall be
personally liable to the Corporation or its stockholders for
6
<PAGE> 7
monetary damages for breach of fiduciary duty as a Director; provided, however,
that unless and except to the extent otherwise permitted from time-to-time by
applicable law, the provisions of this Article shall not eliminate or limit the
liability of a Director (i) for any breach of the Director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of Delaware, (iv) for
any transaction from which the Director derived an improper personal benefit,
or (v) for any act or omission occurring prior to the date this Article becomes
effective.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
SECTION 2.
(a). Right to Indemnification.
Each person who was or is made a party, or is threatened to be made a party
to, or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "Proceeding"), by
reason of the fact that he or she is or was a Director or officer of the
Corporation, where the basis of such Proceeding is an alleged action or omission
in an official capacity as such, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the Corporation
to provide prior to amendment) against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes, or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith, and such indemnification shall continue as
to an indemnitee who has ceased to be a Director or officer, and shall inure to
the benefit of the indemnitee's heirs, executors and administrators; provided,
however. that except as provided in paragraph (b) hereof with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a Proceeding (or part thereof)
initiated by such indemnitee only if such Proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such Proceeding in advance of its final disposition (hereinafter
an "Advancement of Expenses"); provided, however, that if the Delaware General
Corporation Law requires, an Advancement of Expenses incurred by an indemnitee
in his or her capacity as a Director or officer shall be made only upon delivery
to the Corporation
7
<PAGE> 8
of an undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision, from
which there is no further right to appeal, that such indemnitee is not entitled
to be indemnified for such expenses under this section or otherwise
(hereinafter an "Undertaking").
(b). Right of Indemnitee to Bring Suit.
If a claim under paragraph (a) of this section is not paid in full by the
Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an Advancement of Expenses, in
which case the applicable period shall be twenty days, the indemnitee may, at
any time thereafter, bring suit against the Corporation to recover the unpaid
amount of the claim. If successful, in whole or in part, in any suit, or in a
suit brought by the Corporation to recover an Advancement of Expenses pursuant
to the terms of an Undertaking, the indemnitee shall be entitled to be paid also
the expense of prosecuting or defending such suit. In (i), any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an Advancement of
Expenses), it shall be a defense that, and (ii) any suit by the Corporation to
recover an Advancement of Expenses pursuant to the terms of an Undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication
that the indemnitee has not met the applicable standard of conduct set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct, or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right hereunder, or by the Corporation to recover an Advancement of
Expenses pursuant to the terms of an Undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified or to such Advancement of Expenses
under this section or otherwise, shall be on the Corporation.
(c). Non-Exclusivity of Rights.
The rights to indemnification and to the Advancement of Expenses conferred
in this section shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, this Certificate of Incorporation,
bylaw agreement, vote of stockholders or disinterested Directors, or otherwise.
8
<PAGE> 9
(d). Insurance.
The Corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
(e). Other Indemnification.
The Corporation may, to the extent authorized from time-to-time by the
Board of Directors, grant rights to indemnification and to the Advancement of
Expenses to any Director, officer, employee or agent of the Corporation, whether
or not acting in his or her capacity as such, or at the request of the
Corporation, to the fullest extent of the provisions of this section with
respect to the indemnification and Advancement of Expenses of Directors and
officers of the Corporation.
9
<PAGE> 1
EXHIBIT 10.01
STOCK COMPENSATION PROGRAM FOR
NON-EMPLOYEE DIRECTORS OF KELLOGG COMPANY (AS AMENDED)
This is the Stock Compensation Program for Non-Employee Directors of Kellogg
Company (the "Program").
1. Purpose. The purpose of the Program is to attract and retain outstanding
non-employee directors by enabling them to participate in the Company's growth
through automatic, non-discretionary awards of shares of common stock of the
Company.
2. Eligibility. Eligibility for participation in the Program is limited to
persons then currently serving as directors of the Company who are not
"employees" of the Company (or any of its subsidiaries) within the meaning of
the Employee Retirement Income Security Act of 1974 or for federal income tax
withholding purposes (the "Participants").
3. Stock Available for the Program. Shares of stock available for issuance
pursuant to the Program may be either authorized but unissued shares or shares
which have been or may be reacquired by the Company including Treasury shares of
the common stock of the Company, $0.25 par value (the "Stock"). An aggregate of
187,200 shares of the Stock shall be so available. No awards shall be made under
the Program after 1999.
4. Awards of Restricted Stock. Awards of 500 shares of Stock shall be made to
each Participant with at least one year of service as a member of the Board
following each Annual Meeting of Stockholders. All such Stock shall be
restricted, in that the Participants may not sell, transfer or otherwise
encumber the shares and the shares will be placed in a trust and will not be
available to a Participant until his or her service as a member of the Board of
Directors is terminated.
5. Rights of Participants. The Company shall establish a bookkeeping account in
the name of each Participant (the "Stock Account"). As of the date that shares
are awarded to a Participant, the Participant's Stock Account shall be adjusted
to reflect such shares and an aggregate number of shares credited to each
Participant on such date shall be transferred by the Company to the Kellogg
Company Grantor Trust for Non-Employee Directors. Except for the right to direct
the Trustee as to the manner which the shares are to be voted, a Participant
shall not have any rights with respect to any shares credited to the
Participant's Stock Account and transferred to the Trust until the date the
Participant ceases, for any reason, to serve as a director of the Company.
6. Changes in Capitalization or Organization. Nothing contained in this document
shall alter or diminish in any way the right and authority of the Company to
effect changes in its capital or organizational structure; provided, however,
that the following procedures shall be recognized.
6.1. Stock Split, Stock Dividend, or Extraordinary Distribution. In the event
the number of shares of common stock of the Company is increased at any time by
a stock split, by declaration by the Board of Directors of the Company of a
dividend payable only in shares of such stock, or by any other extraordinary
distribution of shares, the number of shares granted pursuant to Article 4 above
shall be proportionately adjusted.
6.2. Organizational Changes. In the event a merger, consolidation,
reorganization, or other change in corporate structure materially changes the
terms or value of the common stock of the Company, the number of shares granted
pursuant to Article 4 above shall be adjusted in such manner as the Board of
Directors in its sole discretion shall determine to be equitable and consistent
with the purposes of the Program. Such determination shall be conclusive for all
purposes with respect to the grant made in Article 4 above.
7. Listing, Registration, and Legal Compliance. Each award made pursuant to
Article 4 above shall be subject to the requirement that if at any time counsel
to the Company shall determine that the listing, registration or qualification
thereof or of any shares of the stock subject thereto upon any securities
exchange or under any foreign, federal or state securities or other law or
regulation, or the consent or approval of any governmental body or the taking of
any other action to comply with or otherwise with respect to any such law or
regulation, is necessary or desirable as a condition to or in connection with
such award or delivery of shares of the Stock thereunder, no such award may be
made or implemented unless such listing, registration, qualification, consent,
approval or other action shall have been effected or obtained free of any
conditions not acceptable to the Company. The holder of any such award shall
supply the Company with such certificates, representations and information as
the Company shall request and shall otherwise cooperate with the Company in
effecting or obtaining such listing, registration, qualification, consent,
approval or other action.
8. Obligation to Reelect. Nothing in this Program shall be deemed to create any
obligation on the part of the Board of Directors to nominate any director for
reelection by the Company's shareholders.
9. Termination or Amendment of the Program. The Board of Directors reserves the
right to terminate or amend the Program at any time; provided, however, that
such action shall not adversely affect the rights of any Participant under its
provisions with respect to awards of the Stock theretofore made, and provided
further that such action shall not increase the amount of authorized and
unissued shares of the Stock available for the Program as specified in Article 3
above or materially increase the benefits to Participants.
10. Effective Date. This Program shall become effective as of the date that it
is ratified by the stockholders and no award made hereunder shall be effective
unless the Program is so ratified.
A-1
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