CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET (USD $) | |||||||||||||||||||
In Millions | 9 Months Ended
Oct. 03, 2009 | 9 Months Ended
Jan. 03, 2009 | |||||||||||||||||
Current assets | |||||||||||||||||||
Cash and cash equivalents | $527 | $255 | [1] | ||||||||||||||||
Accounts receivable, net | 1,254 | 1,100 | [1] | ||||||||||||||||
Inventories: | |||||||||||||||||||
Raw materials and supplies | 232 | 203 | [1] | ||||||||||||||||
Finished goods and materials in process | 631 | 694 | [1] | ||||||||||||||||
Deferred income taxes | 128 | 112 | [1] | ||||||||||||||||
Other prepaid assets | 126 | 157 | [1] | ||||||||||||||||
Total current assets | 2,898 | 2,521 | [1] | ||||||||||||||||
Property, net of accumulated depreciation of $4,498 and $4,171 | 3,000 | 2,933 | [1] | ||||||||||||||||
Goodwill | 3,643 | 3,637 | [1] | ||||||||||||||||
Other intangibles, net of accumulated amortization of $43 and $42 | 1,460 | 1,461 | [1] | ||||||||||||||||
Pension | 172 | 96 | [1] | ||||||||||||||||
Other assets | 347 | 298 | [1] | ||||||||||||||||
Total assets | 11,520 | 10,946 | [1] | ||||||||||||||||
Current liabilities | |||||||||||||||||||
Current maturities of long-term debt | 1 | 1 | [1] | ||||||||||||||||
Notes payable | 475 | 1,387 | [1] | ||||||||||||||||
Accounts payable | 1,082 | 1,135 | [1] | ||||||||||||||||
Accrued advertising and promotion | 479 | 357 | [1] | ||||||||||||||||
Accrued income taxes | 21 | 51 | [1] | ||||||||||||||||
Accrued salaries and wages | 289 | 280 | [1] | ||||||||||||||||
Other current liabilities | 386 | 341 | [1] | ||||||||||||||||
Total current liabilities | 2,733 | 3,552 | [1] | ||||||||||||||||
Long-term debt | 4,823 | 4,068 | [1] | ||||||||||||||||
Deferred income taxes | 338 | 300 | [1] | ||||||||||||||||
Pension liability | 603 | 631 | [1] | ||||||||||||||||
Other liabilities | 993 | 940 | [1] | ||||||||||||||||
Commitments and contingencies | - | - | [1] | ||||||||||||||||
Equity | |||||||||||||||||||
Common stock, $.25 par value | 105 | 105 | [1] | ||||||||||||||||
Capital in excess of par value | 454 | 438 | [1] | ||||||||||||||||
Retained earnings | 5,461 | 4,836 | [1] | ||||||||||||||||
Treasury stock, at cost | (1,927) | (1,790) | [1] | ||||||||||||||||
Accumulated other comprehensive income (loss) | (2,066) | (2,141) | [1] | ||||||||||||||||
Total Kellogg Company equity | 2,027 | 1,448 | [1] | ||||||||||||||||
Noncontrolling interests | 3 | 7 | [1] | ||||||||||||||||
Total equity | 2,030 | 1,455 | [1] | ||||||||||||||||
Total liabilities and equity | $11,520 | $10,946 | [1] | ||||||||||||||||
[1]Condensed from audited financial statements. |
CONSOLIDATED BALANCE SHEET (Par
CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $) | |||||||||||||||||||
In Millions, except Per Share data | Oct. 03, 2009
| Jan. 03, 2009
| |||||||||||||||||
Property, accumulated depreciation | $4,498 | $4,171 | [1] | ||||||||||||||||
Other intangibles, accumulated amortization | $43 | $42 | [1] | ||||||||||||||||
Common stock, par value per share | 0.25 | 0.25 | [1] | ||||||||||||||||
[1]Condensed from audited financial statements. |
CONSOLIDATED STATEMENT OF INCOM
CONSOLIDATED STATEMENT OF INCOME (USD $) | ||||
In Millions, except Per Share data | 3 Months Ended
Oct. 03, 2009 | 3 Months Ended
Sep. 27, 2008 | 9 Months Ended
Oct. 03, 2009 | 9 Months Ended
Sep. 27, 2008 |
Net sales | $3,277 | $3,288 | $9,675 | $9,889 |
Cost of goods sold | 1,837 | 1,885 | 5,529 | 5,678 |
Selling, general and administrative expense | 873 | 870 | 2,497 | 2,603 |
Operating profit | 567 | 533 | 1,649 | 1,608 |
Interest expense | 65 | 71 | 199 | 230 |
Other income (expense), net | (10) | 12 | (1) | (7) |
Income before income taxes | 492 | 474 | 1,449 | 1,371 |
Income taxes | 132 | 133 | 416 | 403 |
Earnings (loss) from joint ventures | 0 | 0 | (1) | 0 |
Net income | 360 | 341 | 1,032 | 968 |
Net loss attributable to noncontrolling interests | (1) | (1) | (4) | (1) |
Net income attributable to Kellogg Company | $361 | $342 | $1,036 | $969 |
Per share amounts: | ||||
Basic | 0.94 | 0.9 | 2.71 | 2.54 |
Diluted | 0.94 | 0.89 | 2.7 | 2.51 |
Dividends per share | 0.375 | 0.34 | 1.055 | 0.96 |
Average shares outstanding: | ||||
Basic | 382 | 380 | 382 | 382 |
Diluted | 384 | 384 | 383 | 385 |
Actual shares outstanding at period end | 379 | 381 |
CONSOLIDATED STATEMENT OF SHARE
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (USD $) | |||||||||||||||||||
In Millions | Common stock amount
| Capital in excess of par value
| Retained earnings
| Treasury stock amount
| Accumulated other comprehensive income (loss)
| Total Kellogg Company equity
| Noncontrolling interests
| Total comprehensive income (loss)
| Total
| ||||||||||
Beginning Balance at Dec. 29, 2007 | $105 | $388 | $4,217 | ($1,357) | ($827) | $2,526 | $2 | [2] | $2,528 | ||||||||||
Beginning Balance at Dec. 29, 2007 | 419 | 29 | |||||||||||||||||
Beginning Balance at Dec. 29, 2007 | 105 | 388 | 4,217 | (1,357) | (827) | 2,526 | 2 | [2] | 2,528 | ||||||||||
Beginning Balance at Dec. 29, 2007 | 419 | 29 | |||||||||||||||||
Common stock repurchases | 13 | ||||||||||||||||||
Common stock repurchases | (650) | (650) | (650) | ||||||||||||||||
Business acquisitions | 7 | [2] | 7 | ||||||||||||||||
Net income (loss) | 1,148 | 1,148 | (2) | [2] | 1,146 | 1,146 | |||||||||||||
Dividends | (495) | (495) | (495) | ||||||||||||||||
Other comprehensive income (loss) | (1,314) | (1,314) | (1,314) | (1,314) | |||||||||||||||
Stock compensation | 51 | 51 | 51 | ||||||||||||||||
Stock options exercised and other | (1) | (34) | 217 | 182 | 182 | ||||||||||||||
Stock options exercised and other | (5) | ||||||||||||||||||
Ending Balance at Jan. 03, 2009 | 419 | 37 | |||||||||||||||||
Ending Balance at Jan. 03, 2009 | 105 | 438 | 4,836 | (1,790) | (2,141) | 1,448 | 7 | [2] | (168) | 1,455 | [1] | ||||||||
Beginning Balance at Jan. 03, 2009 | 105 | ||||||||||||||||||
Beginning Balance at Jan. 03, 2009 | 419 | ||||||||||||||||||
Common stock repurchases | 4 | ||||||||||||||||||
Common stock repurchases | (187) | (187) | (187) | ||||||||||||||||
Net income (loss) | 1,036 | 1,036 | (4) | [2] | 1,032 | 1,032 | |||||||||||||
Dividends | (403) | (403) | (403) | ||||||||||||||||
Other comprehensive income (loss) | 75 | 75 | 75 | 75 | |||||||||||||||
Stock compensation | 28 | 28 | 28 | ||||||||||||||||
Stock options exercised and other | (12) | (8) | 50 | 30 | 30 | ||||||||||||||
Stock options exercised and other | (1) | ||||||||||||||||||
Ending Balance at Oct. 03, 2009 | 419 | 40 | |||||||||||||||||
Ending Balance at Oct. 03, 2009 | 105 | 454 | 5,461 | (1,927) | (2,066) | 2,027 | 3 | [2] | 1,107 | 2,030 | |||||||||
Beginning Balance at Jul. 04, 2009 | 105 | ||||||||||||||||||
Beginning Balance at Jul. 04, 2009 | 419 | ||||||||||||||||||
Ending Balance at Oct. 03, 2009 | 419 | ||||||||||||||||||
Ending Balance at Oct. 03, 2009 | $105 | ||||||||||||||||||
[1]Condensed from audited financial statements. | |||||||||||||||||||
[2]Refer to Note 1 for further information. |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $) | |||||||||||||||||||
In Millions | 9 Months Ended
Oct. 03, 2009 | 9 Months Ended
Sep. 27, 2008 | |||||||||||||||||
Operating activities | |||||||||||||||||||
Net income | $1,032 | $968 | |||||||||||||||||
Adjustments to reconcile net income to operating cash flows: | |||||||||||||||||||
Depreciation and amortization | 282 | 274 | |||||||||||||||||
Deferred income taxes | (9) | (12) | |||||||||||||||||
Other | (18) | 123 | |||||||||||||||||
Postretirement benefit plan contributions | (93) | (60) | |||||||||||||||||
Changes in operating assets and liabilities: | |||||||||||||||||||
Trade receivables | (240) | (182) | |||||||||||||||||
Inventories | 35 | 33 | |||||||||||||||||
Accounts payable | (54) | 31 | |||||||||||||||||
Accrued income taxes | 84 | 27 | |||||||||||||||||
Accrued interest | (33) | 53 | |||||||||||||||||
Accrued and prepaid advertising, promotion and trade allowances | 151 | 35 | |||||||||||||||||
Accrued salaries and wages | (5) | (62) | |||||||||||||||||
Exit plan - related reserves | 14 | (4) | |||||||||||||||||
All other current assets and liabilities | 84 | (36) | |||||||||||||||||
Net cash provided by operating activities | 1,230 | 1,188 | |||||||||||||||||
Investing activities | |||||||||||||||||||
Additions to properties | (252) | (295) | |||||||||||||||||
Acquisitions of businesses, net of cash acquired | 0 | (212) | |||||||||||||||||
Property disposals | 1 | 11 | |||||||||||||||||
Net cash used in investing activities | (251) | (496) | |||||||||||||||||
Financing activities | |||||||||||||||||||
Net issuances (reductions) of notes payable | (915) | 48 | |||||||||||||||||
Issuances of long-term debt | 745 | 756 | |||||||||||||||||
Reductions of long-term debt | 0 | (466) | |||||||||||||||||
Issuances of common stock | 34 | 155 | |||||||||||||||||
Common stock repurchases | (187) | (650) | |||||||||||||||||
Cash dividends | (403) | (365) | |||||||||||||||||
Other | 2 | 14 | |||||||||||||||||
Net cash used in financing activities | (724) | (508) | |||||||||||||||||
Effect of exchange rate changes on cash | 17 | (24) | |||||||||||||||||
Increase in cash and cash equivalents | 272 | 160 | |||||||||||||||||
Cash and cash equivalents at beginning of period | 255 | [1] | 524 | ||||||||||||||||
Cash and cash equivalents at end of period | $527 | $684 | |||||||||||||||||
[1]Condensed from audited financial statements. |
Note 1 Accounting policies
Note 1 Accounting policies | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 1 Accounting policies | Note 1 Accounting policies Basis of presentation The unaudited interim financial information of Kellogg Company (the Company) included in this report reflects normal recurring adjustments that management believes are necessary for a fair statement of the results of operations, financial position, equity and cash flows for the periods presented. This interim information should be read in conjunction with the financial statements and accompanying notes contained on pages 27 to 54 of the Companys 2008 Annual Report on Form 10-K. The condensed balance sheet data at January3, 2009 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the quarterly period ended October3, 2009 are not necessarily indicative of the results to be expected for other interim periods or the full year. The accounting policies used in preparing these financial statements are the same as those applied in the prior year, except that the Company adopted new financial accounting standards in its 2009 fiscal year, as discussed within this Note. Accounting standards codification In June 2009, the Financial Accounting Standards Board (FASB) issued a standard which established the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. The Codification was effective for financial statements issued for interim and annual periods ending after September, 15, 2009, and was adopted by the Company in the quarter ended October3, 2009.Adoption of this standard did not impact the Companys consolidated financial statements. Subsequent events In May 2009, the FASB issued a standard on subsequent events which was effective for the Companys quarter ended July4, 2009. This standard requires interim and annual disclosure of the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. The Companys adoption of this standard, which was applied prospectively, resulted in additional disclosures contained in Note 12. Interim fair value disclosures In April 2009, the FASB issued a staff position on interim disclosures of the fair value of financial instruments. This staff position, which was adopted by the Company as of the quarter ended July4, 2009, expanded to include certain fair value disclosures for financial instruments on an interim basis that were previously required on an annual basis. It also requires entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments in financial statements on an interim basis and to highlight any changes in the methods and significant assumptions from prior periods. The Companys adoption of this guidance, which was applied prospectively, resulted in additional disclosures contained in Note 9. Fair value In September 2006, the FASB issued a |
Note 2 Acquisitions and goodwil
Note 2 Acquisitions and goodwill and other intangible assets | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 2 Acquisitions and goodwill and other intangible assets | Note 2 Acquisitions and goodwill and other intangible assets Acquisitions The Company made acquisitions in 2008 in order to expand its presence geographically and increase its manufacturing capacity. Specialty Cereals In September 2008, the Company acquired Specialty Cereals of Sydney, Australia, a manufacturer and distributor of natural ready-to-eat cereals. Payments of $37million in cash in connection with the transaction, including approximately $5million paid to the sellers lenders, were classified as investing cash outflows in the Companys Consolidated Statement of Cash Flows for the year-to-date period ended September27, 2008. IndyBake Products/Brownie Products In August 2008, the Company acquired certain assets and liabilities of the business of IndyBake Products and Brownie Products (collectively, IndyBake), located in Indiana and Illinois. IndyBake, a contract manufacturing business that produces cracker, cookie and frozen dough products, had been a partner to Kellogg for many years as a snacks contract manufacturer. Payments of $42million in cash in connection with the transaction, including approximately $8million paid to the sellers lenders, were classified as investing cash outflows in the Companys Consolidated Statement of Cash Flows for the year-to-date period ended September27, 2008. Navigable Foods In June2008, the Company acquired a majority interest in the business of Zhenghang Food Company Ltd. (Navigable Foods) for a purchase price of $36 million in cash (net of cash received), including transaction fees. Navigable Foods, a manufacturer of cookies and crackers in the northern and northeastern regions of China, included approximately 1,800 employees, two manufacturing facilities and a sales and distribution network. Cash outflows of $28 million associated with the transaction, which represented payments to the seller and sellers lenders to satisfy debt and other obligations of the seller, were classified as investing cash outflows in the Companys Consolidated Statement of Cash Flows for the year-to-date period ended September27, 2008. United Bakers In January 2008, subsidiaries of the Company acquired substantially all of the equity interests in OJSC Kreker (doing business as United Bakers) and consolidated subsidiaries. United Bakers is a leading producer of cereal, cookie and cracker products in Russia, with approximately 4,000 employees, six manufacturing facilities and a broad distribution network. The Company paid $110 million cash (net of $5 million cash acquired), including approximately $67 million to settle debt and other assumed obligations of the acquired entities. Of the total cash paid, $5 million was spent in 2007 for transaction fees and advances. The remaining amount of $105 million was classified as an investing activity cash outflow in the Companys Consolidated Statement of Cash Flows for the year-to-date period ended September27, 2008. Goodwill and other intangible assets Intangible assets subject to amortization Gross carrying amount Accumulated amortization (millions) October3, 2009 January3, 2009 October3, 2009 Jan |
Note 3 Exit or disposal activit
Note 3 Exit or disposal activities | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 3 Exit or disposal activities | Note 3 Exit or disposal activities The Company views its continued spending on cost reduction initiatives as part of its ongoing operating principles to provide greater visibility in achieving its long-term profit growth targets. Initiatives undertaken are currently expected to recover cash implementation costs within a five-year period of completion. Upon completion (or as each major stage is completed in the case of multi-year programs), the project begins to deliver cash savings and/or reduced depreciation. 2009 activities During the third quarter of 2009, the Company incurred total costs of $18 million related to plans which will result in cost of goods sold (COGS) and selling, general and administrative expense (SGA) savings. The COGS programs are Kelloggs lean, efficient, and agile network (K LEAN), a European manufacturing optimization in Bremen, Germany and a supply chain network rationalization in Latin America. The SGA program focuses on the efficiency and effectiveness of various support functions. Total charges for the quarter and year-to-date periods ended October3, 2009 for all programs were: Quarter ended October3, 2009 (millions) Employee severance Othercash costs (a) Asset write-offs Retirement benefits(b) Total COGS programs $6 $2 $2 $3 $13 SGA programs 3 2 5 Total $9 $4 $2 $3 $18 Year-to-date period ended October3, 2009 (millions) Employee severance Other cash costs (a) Asset write-offs Retirement benefits (b) Total COGS programs $19 $6 $2 $3 $30 SGA programs 8 2 10 Total $27 $8 $2 $3 $40 (a) Primarily includes expenditures for equipment removal and relocation. (b) Pension plan curtailment losses and special termination benefits. K LEAN seeks to optimize the Companys global manufacturing network, reduce waste, develop best practices on a global basis and reduce capital expenditures. The Company expects to incur approximately $20 million of costs for 2009 and an additional $20 million in 2010. The charges are primarily for cash payments for severance and other cash costs for asset removal and relocation at various global manufacturing facilities. The above costs impacted operating segments for the quarter and year-to-date periods, respectively as follows (in millions): North America $2 and $12; Europe $4 and $5; and Asia Pacific $1 and $1. The Company incurred $1 million of costs in the third quarter related to a manufacturing optimization program in Bremen, Germany which will result in future cash savings through the elimination of employee positions. Year-to-date charges, representing cash payment for employee severance were $7 million and were recorded in the Europe operating segment. The program was substantially complete as of the end of the third quarter, 2009. The Company incurred $5 million of costs related to supply chain rationalization in Latin America which will result in the closing of a plant in Guatemala. The Company expects to incur approximately $6 million of costs during the remai |
Note 4 Equity
Note 4 Equity | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 4 Equity | Note 4 Equity Earnings per share Basic net earnings per share is determined by dividing net income attributable to Kellogg Company by the weighted average number of common shares outstanding during the period. Diluted net earnings per share is similarly determined, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Dilutive potential common shares are comprised principally of employee stock options issued by the Company, and to a lesser extent, certain contingently issuable performance shares. Basic net earnings per share is reconciled to diluted net earnings per share in the following table. The total number of anti-dilutive potential common shares excluded from the reconciliation were 12million and 20million for the quarter and year-to-date periods ended October3, 2009, as compared to 4million and 2million shares for the quarter and year-to-date periods ended September27, 2008. Quarters ended October3, 2009 and September27, 2008: (millions, except per share data) Netincome attributableto KelloggCompany Average shares outstanding Net earnings pershare 2009 Basic $361 382 $.94 Dilutive potential common shares 2 Diluted $361 384 $.94 2008 Basic $342 380 $.90 Dilutive potential common shares 4 (.01) Diluted $342 384 $.89 Year-to-date periods ended October3, 2009 and September27, 2008: (millions, except per share data) Net income attributable to Kellogg Company Average shares outstanding Net earnings per share 2009 Basic $1,036 382 $2.71 Dilutive potential common shares 1 (.01) Diluted $1,036 383 $2.70 2008 Basic $969 382 $2.54 Dilutive potential common shares 3 (.03) Diluted $969 385 $2.51 During the year-to-date period ended October3, 2009, the Company issued 0.2million shares to employees and directors under various benefit plans and stock purchase programs, as further discussed in Note 6. On February4, 2009, the Board of Directors authorized the repurchase of $650 million of the Companys common stock. During the quarter and year-to-date period ended October3, 2009, the Company spent $187 million to purchase approximately 4million shares. Comprehensive income Comprehensive income includes net income and all other changes in equity during a period except those resulting from investments by or distributions to shareholders. Other comprehensive income for all periods presented consists of foreign currency translation adjustments, fair value adjustments associated with cash flow hedges and adjustments for net experience losses and prior service cost. Additionally, see Note 1 for a discussion regarding the Companys adoption of the standard on accounting for noncontrolling interests in consolidated financial statements. During the year-to-date period ended October3, 2009, the Companys other comprehensive income balances related to pension and |
Note 5 Debt
Note 5 Debt | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 5 Debt | Note 5 Debt On May18, 2009, the Company issued $750 million of seven-year 4.45% fixed rate U.S.Dollar Notes, and used net proceeds of $745 million from these Notes to retire a portion of its commercial paper. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions. There is also a change of control provision. As of October3, 2009 and January3, 2009, notes payable included commercial paper outstanding in the amount of $433 million and $1,310 million, respectively. In May 2009, the Company entered into interest rate swaps with notional amounts totaling $750 million, which effectively converted its existing 5.125% U.S.Dollar Notes due 2012 from a fixed rate to a floating rate obligation for the remainder of the five-year term. These derivative instruments, which were designated as fair value hedges of the debt obligation, resulted in an effective interest rate of 3.44% as of October3, 2009. In May 2009, the Company entered into interest rate swaps with notional amounts totaling $400 million, which effectively converted a portion of its existing 6.6% U.S.Dollar Notes due 2011 from a fixed rate to a floating rate obligation for the remainder of the 10-year term. These derivative instruments, which were designated as fair value hedges of the debt obligation, resulted in an effective interest rate of 5.79% as of October3, 2009 on the portion of the debt related to the interest rate swaps. For all interest rate swaps designated as fair value hedges of fixed rate debt, the corresponding change in the fair value of hedged debt, reflected as an increase in long-term debt on the Companys Consolidated Balance Sheet, amounted to $47 million and $43 million at October3, 2009 and January3, 2009, respectively. Subsequent event On October28, 2009 the Company announced the launch of a cash tender offer for up to $500 million aggregate principal amount of its 6.6% Notes due 2011, conditioned on the receipt of net proceeds from a public offering of unsecured senior debt securities. |
Note 6 Stock compensation
Note 6 Stock compensation | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 6 Stock compensation | Note 6 Stock compensation The Company uses various equity-based compensation programs to provide long-term performance incentives for its global workforce. Currently, these incentives consist principally of stock options, and to a lesser extent, executive performance shares and restricted stock grants. Additionally, the Company awards restricted stock to its non-employee directors. These awards are administered through several plans, described as follows. The 2009 Long-Term Incentive Plan (2009 Plan), approved by shareholders in 2009, permits awards to employees and officers in the form of incentive and non-qualified stock options, performance units, restricted stock or restricted stock units, and stock appreciation rights. The 2009 Plan authorizes the issuance of a total of (a)27million shares; plus (b)the total number of shares as to which awards granted under the 2009 Plan or the 2003 or 2001 Incentive Plans expire or are forfeited, terminated or settled in cash, with no more than 5million shares to be issued in satisfaction of performance units, performance-based restricted shares and other awards (excluding stock options and stock appreciation rights), and with additional annual limitations on awards or payments to individual participants. The Non-Employee Director Stock Plan (Director Plan) was approved by shareholders in 2009 and allows each eligible non-employee director to receive shares of the Companys common stock annually. The number of shares granted pursuant to each annual award will be determined by the Nominating and Governance Committee of the Board of Directors. Shares are placed in the Kellogg Company Grantor Trust for Non-Employee Directors (the Grantor Trust). Under the terms of the Grantor Trust, shares are available to a director only upon termination of service on the Board. The Company classifies pre-tax stock compensation expense in selling, general and administrative expense principally within its corporate operations. For the periods presented, compensation expense for all types of equity-based programs and the related income tax benefit recognized were as follows: Quarter ended Year-to-date period ended (millions) October3,2009 September27,2008 October3,2009 September27,2008 Pre-tax compensation expense $9 $13 $37 $66 Related income tax benefit $3 $4 $13 $23 Pre-tax compensation expense for the year-to-date period ended September27, 2008 included $4 million of expense related to the modification of certain stock options to eliminate the accelerated ownership feature (AOF) and $13 million representing cash compensation to holders of modified stock options to replace the value of the AOF, which is discussed on pages 42 and 43 of the Companys 2008 Annual Report on Form 10-K. As of October3, 2009, total stock-based compensation cost related to non-vested awards not yet recognized was approximately $33 million and the weighted-average period over which this amount is expected to be recognized was approximately 2 years. Stock options During the year-to-date periods ended October3, 2009 and September27, 2008, the Company gran |
Note 7 Employee benefits
Note 7 Employee benefits | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 7 Employee benefits | Note 7 Employee benefits The Company sponsors a number of U.S. and foreign pension, other nonpension postretirement and postemployment plans to provide various benefits for its employees. These plans are described on pages 44 to 48 of the Companys 2008 Annual Report on Form 10-K. Components of Company plan benefit expense for the periods presented are included in the tables below. Pension Quarter ended Year-to-date period ended (millions) October3, 2009 September27, 2008 October3, 2009 September27, 2008 Service cost $20 $21 $60 $65 Interest cost 49 50 147 151 Expected return on plan assets (80) (76) (237) (230) Amortization of unrecognized prior service cost 4 3 10 9 Recognized net loss 12 9 35 27 Curtailment and special termination benefits 1 8 Total pension expense - Company plans $5 $8 $15 $30 Other nonpension postretirement Quarter ended Year-to-date period ended (millions) October3, 2009 September27, 2008 October3, 2009 September27, 2008 Service cost $4 $4 $13 $13 Interest cost 16 17 49 50 Expected return on plan assets (17) (16) (51) (48) Amortization of unrecognized prior service cost (1) (2) Recognized net loss 3 1 9 5 Postretirement benefit expense $5 $6 $18 $20 Postemployment Quarter ended Year-to-date period ended (millions) October3, 2009 September27, 2008 October3, 2009 September27, 2008 Service cost $2 $2 $5 $4 Interest cost 1 1 3 3 Recognized net loss 1 1 3 3 Postemployment benefit expense $4 $4 $11 $10 During the third quarter of 2009 the Company recorded $12 million related to multi-employer plan obligations. The final calculation of this liability is pending full-year 2010 contribution base units and is therefore subject to adjustment. The associated cash obligation is payable over a maximum 20-year period; management has not determined the actual period over which the payments will be made. Management currently plans to contribute approximately $85 million to its defined benefit pension plans and $15 million to its retiree health and welfare benefit plans during 2009, for a total of $100 million. During 2008, the Company contributed approximately $354 million to defined benefit pension plans and $97 million to retiree health and welfare benefit plans, for a total of $451 million. Plan funding strategies are periodically modified to reflect managements current evaluation of tax deductibility, market conditions and competing investment alternatives. |
Note 8 Income taxes
Note 8 Income taxes | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 8 Income taxes | Note 8 Income taxes Effective income tax rate The consolidated effective income tax rate was approximately 27% for the quarter ended October3, 2009, as compared to 28% for the comparable quarter of 2008. The third quarter 2009 provision for income taxes was positively impacted by various provision-to-return adjustments. The year-to-date consolidated effective tax rate through three quarters for 2009 as well as 2008 was 29%. Uncertain tax positions As of October3, 2009, the Company classified approximately $26 million of unrecognized tax benefits as a current liability, representing several individually insignificant income tax positions under examination in various jurisdictions. Managements estimate of reasonably possible changes in unrecognized tax benefits during the next twelve months is comprised of the aforementioned current liability balance expected to be settled within one year, offset by approximately $2 million of projected additions. Management is currently unaware of any issues under review that could result in significant additional payments, accruals or other material deviation in this estimate. Following is a reconciliation of the Companys total gross unrecognized tax benefits for the year-to-date period ended October3, 2009. Approximately $113 million of this total represents the amount that, if recognized, would affect the Companys effective income tax rate in future periods. (millions) January3, 2009 $ 132 Tax positions related to current year: Additions 6 Reductions Tax positions related to prior years: Additions 7 Reductions (4 ) Settlements (8 ) October3, 2009 $ 133 The current portion of the Companys unrecognized tax benefits is presented in the balance sheet within accrued income taxes and the amount expected to be settled after one year is recorded in other liabilities. The Company classifies income tax-related interest and penalties as interest expense and SGA expense, respectively. For the year-to-date period ending October, 2009, the Company recognized expense of $3 million for tax related interest and had approximately $32 million accrued. |
Note 9 Fair value measurements
Note 9 Fair value measurements | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 9 Fair value measurements | Note 9 Fair value measurements The Company has categorized its financial assets and liabilities into a three-level fair value hierarchy, based on the nature of the inputs used in determining fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the Company that are included in each category at October3, 2009. Level 1 Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market. For the Company, level 1 financial assets and liabilities consist primarily of commodity derivative contracts. Level 2 Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. For the Company, level 2 financial assets and liabilities consist of interest rate swaps and over-the-counter commodity and currency contracts. The Companys calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve. Commodity derivatives are valued using an income approach based on the commodity index prices less the contract rate multiplied by the notional amount. Foreign currency contracts are valued using an income approach based on forward rates less the contract rate multiplied by the notional amount. Level 3 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect managements own assumptions about the assumptions a market participant would use in pricing the asset or liability. The Company does not have any level 3 financial assets or liabilities. The following table presents the Companys fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of October3, 2009 and January3, 2009: Level 1 Level 2 Level 3 Total (millions) October3, 2009 January3, 2009 October3, 2009 January3, 2009 October3, 2009 January3, 2009 October3, 2009 January3, 2009 Assets: Derivatives (recorded in other current assets) $16 $9 $19 $34 $ $ $35 $43 Derivatives (recorded in other assets) 48 43 48 43 Total assets $16 $9 $67 $77 $ $ $83 $86 Liabilities: Derivatives (recorded in other current liabilities) $(11) $ $(36) $(17) $ $ $(47) $(17) Derivatives (recorded in other liabilities) (9) (4) (9) (4) Total liabilities $(11) $ $(45) $(21) $ $ $(56) $(21) Financial instruments The carr |
Note 10 Derivative instruments
Note 10 Derivative instruments and hedging activities | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 10 Derivative instruments and hedging activities | Note 10 Derivative instruments and hedging activities The Company is exposed to certain market risks such as changes in interest rates, foreign currency exchange rates, and commodity prices, which exist as a part of its ongoing business operations. Management uses derivative financial and commodity instruments, including futures, options, and swaps, where appropriate, to manage these risks. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. The Company designates derivatives as cash flow hedges, fair value hedges, net investment hedges, or other contracts used to reduce volatility in the translation of foreign currency earnings to U.S. dollars. The fair value of derivative instruments is recorded in other current assets, other assets, other current liabilities or other liabilities. Gains and losses representing either hedge ineffectiveness, hedge components excluded from the assessment of effectiveness, or hedges of translational exposure are recorded in the Consolidated Statement of Income in other income (expense), net. Within the Consolidated Statement of Cash Flows, settlements of cash flow and fair value hedges are classified as an operating activity; settlements of all other derivatives are classified as a financing activity. As a matter of policy, the Company does not engage in trading or speculative hedging transactions. Cash flow hedges Qualifying derivatives are accounted for as cash flow hedges when the hedged item is a forecasted transaction. Gains and losses on these instruments are recorded in other comprehensive income until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other comprehensive income (loss) (AOCI) to the Consolidated Statement of Income on the same line item as the underlying transaction. Fair value hedges Qualifying derivatives are accounted for as fair value hedges when the hedged item is a recognized asset, liability, or firm commitment. Gains and losses on these instruments are recorded in earnings, offsetting gains and losses on the hedged item. Net investment hedges Qualifying derivative and nonderivative financial instruments are accounted for as net investment hedges when the hedged item is a nonfunctional currency investment in a subsidiary. Gains and losses on these instruments are included in foreign currency translation adjustments in AOCI. Other contracts The Company also periodically enters into foreign currency forward contracts and options to reduce volatility in the translation of foreign currency earnings to U.S. dollars. Gains and losses on these instruments are recorded in other income (expense), net, generally reducing the exposure to translation volatility during a full-year period. Foreign currency exchange risk The Company is exposed to fluctuations in foreign currency cash flows related primarily to third-party purchases, intercompany transactions and nonfunctional currency denominated third-party debt. The Company is also exposed to fluctuations in the |
Note 11 Voluntary product withd
Note 11 Voluntary product withdrawal | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 11 Voluntary product withdrawal | Note 11 Voluntary product withdrawal In January and February 2009, the Company recalled certain products because they included ingredients that had the potential to be contaminated with salmonella. The recall stemmed from the U.S. Food and Drug Administration and other authorities investigations of Peanut Corporation of America, which supplied the Company with peanut paste and other ingredients. The recall represented a Type I subsequent event and in accordance with U.S. GAAP, the Company recorded certain costs associated with the recall in its 2008 financial results. See Note 15 of the Companys 2008 Annual Report on Form 10-K for further information on the recall. The Company incurred additional costs associated with the recall for product manufactured and sold in 2009. The recall reduced North Americas operating profit for the year-to-date period ended October3, 2009 by $31 million or $0.06 of earnings per diluted share. Estimated customer returns and consumer rebates were recorded as a reduction of net sales; costs associated with returned product and the disposal and write-off of inventory were recorded as cost of goods sold; and other recall costs were recorded as selling, general and administrative expenses. The following table presents a summary of the total charges for the quarter and year-to-date periods ended October3, 2009. (millions) Quarterended October3,2009 Year-to-dateperiodended October 3, 2009 Reduction of net sales $ $12 Cost of goods sold 18 Selling, general and administrative expense 1 Total $ $31 The costs in the above table represent actual costs incurred, which exclude the impact of lost sales. |
Note 12 Subsequent events
Note 12 Subsequent events | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 12 Subsequent events | Note 12 Subsequent events On October28, 2009 the Company announced the launch of a cash tender offer for up to $500 million of its 6.6% Notes due 2011, further discussed in Note 5. The Company evaluated subsequent events through the time of filing of the Quarterly Report on Form 10-Q on November6, 2009. |
Note 13 Operating segments
Note 13 Operating segments | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
Note 13 Operating segments | Note 13 Operating segments Kellogg Company is the worlds leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, fruit snacks, frozen waffles and veggie foods. Kellogg products are manufactured and marketed globally. Principal markets for these products include the United States and United Kingdom. The Company currently manages its operations in four geographic operating segments, comprised of North America and the three International operating segments of Europe, Latin America and Asia Pacific. Quarter ended Year-to-date period ended (millions) October3, 2009 September27, 2008 October3, 2009 September27, 2008 Net sales North America $ 2,187 $2,156 $6,574 $6,431 Europe 631 666 1,805 2,089 Latin America 262 277 750 813 Asia Pacific (a) 197 189 546 556 Consolidated $ 3,277 $3,288 $9,675 $9,889 Segment operating profit North America $ 415 $380 $1,244 $1,163 Europe 105 113 304 347 Latin America 51 61 157 166 Asia Pacific (a) 28 26 74 79 Corporate (32 ) (47) (130) (147) Consolidated $ 567 $533 $1,649 $1,608 (a) Includes Australia, Asia and South Africa. |
Document Information
Document Information | |
9 Months Ended
Oct. 03, 2009 USD / shares | |
Document Information [Text Block] | |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | 2009-10-03 |
Entity Information
Entity Information (USD $) | ||
9 Months Ended
Oct. 03, 2009 | Oct. 31, 2009
| |
Entity [Text Block] | ||
Trading Symbol | K | |
Entity Registrant Name | KELLOGG CO | |
Entity Central Index Key | 0000055067 | |
Current Fiscal Year End Date | --01-02 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 379,424,067 |