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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 March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
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Common Stock outstanding April 28, 1995 - 219,818,205 shares
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KELLOGG COMPANY
INDEX
Page
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PART I - Financial Information
Item 1:
Consolidated Balance Sheet - March 31, 1995 and December 31, 1994 2
Consolidated Earnings - three months ended March 31, 1995 and 1994 3
Consolidated Statement of Cash Flows - three months ended March 31,
1995 and 1994 4
Notes to the Consolidated Financial Statements 5
Item 2:
Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-8
PART II - Other Information
Item 6:
Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit Index 11
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CONSOLIDATED BALANCE SHEET
========================================================================
KELLOGG COMPANY AND SUBSIDIARIES MARCH 31, DECEMBER 31,
(millions) 1995 1994
(unaudited) *
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CURRENT ASSETS
Cash and temporary investments $294.9 $266.3
Accounts receivable, net 625.8 564.5
Inventories 426.5 396.3
Other current assets 215.1 206.4
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TOTAL CURRENT ASSETS 1,562.3 1,433.5
PROPERTY, net of accumulated depreciation
of $1,803.1 and $1,707.7 2,930.5 2,892.8
INTANGIBLE ASSETS 3.5 4.1
OTHER ASSETS 195.9 136.9
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TOTAL ASSETS $4,692.2 $4,467.3
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CURRENT LIABILITIES
Current maturities of long-term debt $1.3 $0.9
Notes payable 324.9 274.8
Accounts payable 335.5 334.5
Income taxes 146.2 72.0
Accrued liabilities 535.6 503.0
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TOTAL CURRENT LIABILITIES 1,343.5 1,185.2
LONG-TERM DEBT 718.9 719.2
NONPENSION POSTRETIREMENT BENEFITS 495.7 486.8
DEFERRED INCOME TAXES AND OTHER LIABILITIES 282.2 268.6
SHAREHOLDERS' EQUITY
Common stock, $.25 par value 77.6 77.6
Capital in excess of par value 69.7 68.6
Retained earnings 3,917.7 3,801.2
Treasury stock, at cost (2,072.4) (1,980.6)
Currency translation adjustment (140.7) (159.3)
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TOTAL SHAREHOLDERS' EQUITY 1,851.9 1,807.5
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,692.2 $4,467.3
===================================================================
*Condensed from audited financial statements.
See accompanying notes to consolidated financial statements.
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CONSOLIDATED EARNINGS (Results are unaudited)
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KELLOGG COMPANY AND SUBSIDIARIES THREE MONTHS ENDED MARCH 31,
(millions, except per share data) 1995 1994
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NET SALES $1,716.0 $1,611.2
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Cost of goods sold 769.3 732.0
Selling and administrative expense 623.9 580.1
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OPERATING PROFIT 322.8 299.1
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Interest Expense 18.0 9.7
Other income (expense), net 10.6 8.1
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EARNINGS BEFORE INCOME TAXES 315.4 297.5
Income taxes 119.4 113.6
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NET EARNINGS $196.0 $183.9
==========================================================================
EARNINGS PER SHARE $0.89 $0.81
DIVIDENDS PER SHARE $0.36 $0.34
AVERAGE SHARES OUTSTANDING 221.0 227.0
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See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS (Results are unaudited)
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KELLOGG COMPANY AND SUBSIDIARIES THREE MONTHS ENDED MARCH 31,
(millions) 1995 1994
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OPERATING ACTIVITIES
Net earnings $196.0 $183.9
Items in net earnings not requiring (providing) cash:
Depreciation 67.2 62.0
Pre-tax gain on sale of subsidiaries - (21.1)
Deferred income taxes 0.6 (2.6)
Other 2.3 (20.2)
Pension contribution (60.0) (32.4)
Change in operating assets and liabilities 7.6 32.9
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NET CASH PROVIDED FROM OPERATING ACTIVITIES 213.7 202.5
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INVESTING ACTIVITIES
Additions to properties (70.7) (71.1)
Proceeds from sale of subsidiaries - 83.8
Other 4.0 11.4
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NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (66.7) 24.1
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FINANCING ACTIVITIES
Net borrowings of notes payable 50.1 50.7
Issuance of long-term debt - -
Reduction in long-term debt (0.3) (2.4)
Common stock repurchases (91.5) (122.6)
Cash dividends (79.5) (77.1)
Other 0.7 0.5
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NET CASH USED IN FINANCING ACTIVITIES (120.5) (150.9)
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Effect of exchange rate changes on cash 2.1 (4.4)
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Increase in cash and temporary investments 28.6 71.3
Cash and temporary investments at beginning 266.3 98.1
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CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD $294.9 $169.4
============================================================================
See accompanying notes to consolidated financial statements.
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Notes To Consolidated Financial Statements
for the three months ended March 31, 1995
(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 Annual Report.
The accounting policies used in preparing these financial statements are the
same as those summarized in the Company's Annual Report.
The results of operations for the three months ended March 31, 1995, are not
necessarily indicative of the results to be expected for the full year.
2. Other Revenue
Other revenue for the three months ended March 31, 1994, includes a gain of
$21.1 million ($13.3 million after tax or $.06 per share) from the sale of the
Mrs. Smith's Frozen Foods pie business and a charge of $20.5 million ($13.1
million after tax or $.06 per share) primarily from the initial funding of the
Kellogg's Corporate Citizenship Fund.
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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 revenues are generated from the sale of ready-to-eat cereals and other
grain-based convenience foods in nearly 160 countries. The ready-to-eat cereal
category continued to exhibit volume growth around the world during the first
quarter of 1995, with Kellogg continuing to demonstrate strong global
leadership.
Consolidated net sales increased 7% over the comparable quarter of 1994,
principally from higher selling prices, volume growth and, to a lesser extent,
product mix improvements. Excluding the results of the Mrs. Smith's Frozen
Foods pie business, divested during the first quarter of 1994, consolidated net
sales increased 8%.
The Company's total volume was up 2% for the quarter versus the prior year.
Excluding results of the divested business, total volume increased 4% over the
previous year, buoyed by strong growth in European ready-to-eat cereal and the
U.S. convenience foods business. Cereal volume was up 3% in total, with strong
international growth more than offsetting a slight decline in the highly
competitive U.S. market. Other convenience foods volume, excluding the
divested business, increased 8%.
The gross profit margin for the first quarter of 1995 strengthened to 55.2%, up
.6 percentage points over 1994. This increase in gross margin was the result of
favorable pricing, combined with aggressive cost containment programs which
limited the increase in cost of goods sold per-kilo.
Selling and administrative expense for the first quarter of 1995 was up 8% over
the comparable period of 1994 but remained relatively constant as a percentage
of net sales, at 36%. Beginning in the second quarter of 1994, a shift in the
marketing investment mix occurred toward advertising from promotion. This
trend has continued through the first quarter of 1995. Management believes
that its strategy of investment in brand-building advertising and reduction in
price promotion spending on established brands, coupled with a strong
new-product program, will assist in delivering long-term growth.
Operating profit increased 8% to $323 million, reflecting increased volume and
stronger gross profit margins.
Other income for the first quarter of 1994 includes a gain of $21.1 million
($13.3 million after tax or $.06 per share) from the sale of the Mrs. Smith's
Frozen Foods pie business. Other expense includes a charge of $20.5 million
($13.1 million after tax or $.06 per share), primarily from the initial funding
of the Kellogg's Corporate Citizenship Fund, a private trust established for
charitable donations.
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Gross interest expense, prior to amounts capitalized, increased to $19.9
million for the first quarter of 1995 compared to $11.4 million for the first
quarter of 1994, due to higher debt levels, incurred primarily to fund common
stock repurchases, and increased interest rates on short-term borrowings. The
Company expects a further increase in interest expense during the remainder of
1995, primarily due to expected higher effective rates than those experienced
during 1994 as well as a higher average debt level for the year.
The Company's effective income tax rate for the quarter was 37.9%, .3
percentage points lower than the comparable 1994 rate of 38.2%. The Company
expects its effective income tax rate for 1995 to be between 37% and 38%.
Earnings per share for the first quarter of 1995 were $.89, up 10% from the
$.81 reported for the first quarter of 1994. Net earnings for the quarter were
$196.0 million, an increase of 7% from the comparable period of 1994.
Liquidity and capital resources
The financial condition of the Company remained strong during the first quarter
of 1995.
Operations provided a strong, positive cash flow of $213.7 million of which
approximately 80% was returned to shareholders in the form of cash dividends
and common stock repurchases during the quarter. The 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 maintains credit facilities with banking
institutions in the United States and other countries where it conducts
business. The ratio of current assets to current liabilities was 1.2:1 as of
March 31, 1995, unchanged from the ratio at December 31, 1994.
Capital spending for the first quarter of 1995 was $70.7 million, compared with
$71.1 million during the first quarter of 1994. Capital expenditures have
remained steady, reflecting the Company's application of value-based management
principles and the ongoing strategy of improving return on invested capital.
Management anticipates that total year 1995 capital expenditures will be
approximately $350 million, essentially flat when compared with 1994.
During the first quarter of 1995 the Company spent $91.5 million to purchase
approximately 1.6 million shares of its common stock. Stock repurchases are
made under plans authorized by the Company's Board of Directors. The total
authorized purchase amount remaining for 1995 is $233.9 million. Market
conditions permitting, management intends to fully utilize this authorization
by the end of 1995.
Long-term debt outstanding at March 31, 1995 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 consisted principally of commercial paper. The Company
continues to enjoy the highest available debt ratings on both its long-term
debt and commercial paper.
The Company's net debt position (long-term debt plus notes payable less cash
and temporary investments) at March 31, 1995 was $750.2 million, up $21.6
million from December 31, 1994.
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The ratio of debt to total capitalization remained at 36%, unchanged from
December 31, 1994.
At March 31, 1995, 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.
Dividends paid per share of common stock increased 6% to $.36 during the first
quarter of 1995. Management believes the trend of increased dividends will
continue in 1995.
LOOKING FORWARD
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 its solid earnings history provides a base for obtaining additional
financial resources at competitive rates and terms.
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KELLOGG COMPANY
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4 - There is no instrument with respect to
long-term debt of the Company that involves
indebtedness or securities authorized thereunder
exceeding ten percent of the total assets of the
Company and its subsidiaries on a consolidated basis.
The Company agrees to file a copy of any instrument or
agreement defining the rights of holders of long-term
debt of the Company upon request of the Securities and
Exchange Commission.
27 - Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the
quarter for which this report is filed.
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KELLOGG COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KELLOGG COMPANY
/s/ C.W. Elliott
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C.W. Elliott
Principal Financial Officer;
Executive Vice President - Administration
/s/ A. Taylor
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A. Taylor
Principal Accounting Officer;
Vice President and Corporate Controller
Date: May 10, 1995
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KELLOGG COMPANY
EXHIBIT INDEX
Number Description Page
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27 Financial Data Schedule 12
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