e10vq
UNITED STATES 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)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 1, 2005
OR
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o |
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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 IncorporationDelaware IRS Employer Identification No. 38-0710690
One Kellogg Square, P.O. Box 3599, Battle Creek, MI 49016-3599
Registrants telephone number: 269-961-2000
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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Common Stock outstanding as of October 28, 2005 414,235,942 shares
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
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October 1, |
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January 1, |
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2005 |
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2005 |
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(unaudited) |
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* |
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Current assets |
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Cash and cash equivalents |
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$ |
463.5 |
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$ |
417.4 |
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Accounts receivable, net |
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1,026.0 |
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776.4 |
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Inventories: |
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Raw materials and supplies |
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191.4 |
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188.0 |
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Finished goods and materials in process |
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485.3 |
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493.0 |
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Other current assets |
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254.2 |
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247.0 |
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Total current assets |
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2,420.4 |
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2,121.8 |
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Property, net of accumulated depreciation |
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of $3,842.4 and $3,778.8 |
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2,606.4 |
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2,715.1 |
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Goodwill |
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3,445.3 |
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3,445.5 |
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Other intangibles, net of accumulated amortization |
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of $47.2 and $46.1 |
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1,440.5 |
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1,442.2 |
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Other assets |
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794.3 |
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837.3 |
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Total assets |
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$ |
10,706.9 |
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$ |
10,561.9 |
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Current liabilities |
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Current maturities of long-term debt |
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$ |
284.3 |
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$ |
278.6 |
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Notes payable |
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1,026.1 |
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750.6 |
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Accounts payable |
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818.1 |
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726.3 |
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Accrued advertising and promotion |
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390.3 |
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322.0 |
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Other current liabilities |
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835.0 |
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768.5 |
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Total current liabilities |
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3,353.8 |
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2,846.0 |
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Long-term debt |
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3,162.7 |
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3,892.6 |
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Deferred income taxes |
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918.6 |
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959.1 |
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Pension benefits |
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206.0 |
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181.1 |
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Nonpension postretirement benefits |
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257.6 |
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269.7 |
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Other liabilities |
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148.0 |
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156.2 |
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Shareholders equity |
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Common stock, $.25 par value |
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104.6 |
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103.8 |
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Capital in excess of par value |
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66.7 |
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Retained earnings |
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3,186.1 |
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2,701.3 |
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Treasury stock, at cost |
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(205.7 |
) |
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(108.0 |
) |
Accumulated other comprehensive income (loss) |
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(491.5 |
) |
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(439.9 |
) |
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Total shareholders equity |
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2,660.2 |
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2,257.2 |
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Total liabilities and shareholders equity |
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$ |
10,706.9 |
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$ |
10,561.9 |
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*
Condensed from audited financial statements.
Refer to Notes to Consolidated Financial Statements.
2
Kellogg Company and Subsidiaries
CONSOLIDATED EARNINGS
(millions, except per share data)
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Quarter ended |
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Year-to-date period ended |
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October 1, |
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Sept. 25, |
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October 1, |
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Sept. 25, |
(Results are unaudited) |
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2005 |
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2004 |
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2005 |
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2004 |
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Net sales |
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$ |
2,623.4 |
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$ |
2,445.3 |
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$ |
7,782.9 |
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$ |
7,223.1 |
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Cost of goods sold |
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1,437.4 |
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1,319.1 |
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4,262.4 |
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3,981.7 |
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Selling and administrative expense |
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720.3 |
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669.4 |
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2,114.5 |
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1,926.0 |
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Operating profit |
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465.7 |
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456.8 |
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1,406.0 |
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1,315.4 |
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Interest expense |
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68.0 |
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76.2 |
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233.1 |
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230.5 |
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Other income (expense), net |
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(5.7 |
) |
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(3.5 |
) |
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(19.2 |
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(9.8 |
) |
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Earnings before income taxes |
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392.0 |
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377.1 |
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1,153.7 |
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1,075.1 |
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Income taxes |
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117.7 |
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130.1 |
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365.7 |
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370.9 |
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Net earnings |
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$ |
274.3 |
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$ |
247.0 |
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$ |
788.0 |
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$ |
704.2 |
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Net earnings per share: |
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Basic |
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$ |
.66 |
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$ |
.60 |
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$ |
1.91 |
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$ |
1.71 |
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Diluted |
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$ |
.66 |
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$ |
.59 |
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$ |
1.89 |
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$ |
1.69 |
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Dividends per share |
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$ |
.2775 |
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$ |
.2525 |
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$ |
.7825 |
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$ |
.7575 |
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Average shares outstanding: |
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Basic |
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413.4 |
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412.4 |
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412.8 |
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411.7 |
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Diluted |
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416.7 |
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416.7 |
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416.4 |
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415.8 |
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Actual shares outstanding at period end |
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413.9 |
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412.6 |
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Refer to Notes to Consolidated Financial Statements.
3
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
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Year-to-date period ended |
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October 1, |
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Sept. 25, |
(unaudited) |
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2005 |
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2004 |
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Operating activities |
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Net earnings |
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$ |
788.0 |
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$ |
704.2 |
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Adjustments to reconcile net earnings to
operating cash flows: |
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Depreciation and amortization |
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291.8 |
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311.2 |
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Deferred income taxes |
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(61.9 |
) |
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7.6 |
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Other (a) |
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171.6 |
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79.0 |
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Postretirement benefit plan contributions |
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(89.2 |
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(140.7 |
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Changes in operating assets and liabilities |
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34.4 |
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67.8 |
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Net cash provided by operating activities |
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1,134.7 |
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1,029.1 |
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Investing activities |
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Additions to properties |
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(220.0 |
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(169.5 |
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Acquisitions of businesses |
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(30.2 |
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Other |
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7.4 |
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1.0 |
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Net cash used in investing activities |
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(242.8 |
) |
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(168.5 |
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Financing activities |
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Net issuances (reductions) of notes payable |
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275.5 |
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223.9 |
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Issuances of long-term debt |
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7.0 |
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Reductions of long-term debt |
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(726.9 |
) |
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(503.0 |
) |
Net issuances of common stock |
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206.7 |
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242.0 |
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Common stock repurchases |
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(263.1 |
) |
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(229.3 |
) |
Cash dividends |
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(322.8 |
) |
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(313.1 |
) |
Other |
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5.3 |
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(2.7 |
) |
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Net cash used in financing activities |
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(825.3 |
) |
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(575.2 |
) |
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Effect of exchange rate changes on cash |
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(20.5 |
) |
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(3.6 |
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Increase in cash and cash equivalents |
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46.1 |
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281.8 |
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Cash and cash equivalents at beginning of period |
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417.4 |
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141.2 |
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Cash and cash equivalents at end of period |
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$ |
463.5 |
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$ |
423.0 |
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(a) Consists principally of non-cash expense accruals for employee benefit obligations
Refer to Notes to Consolidated Financial Statements.
4
Notes to Consolidated Financial Statements
for the quarter and year-to-date periods ended October 1, 2005 (unaudited)
Note 1 Accounting policies
Basis of presentation
The unaudited interim financial information included in this report reflects normal recurring
adjustments that management believes are necessary for a fair statement of the results of
operations, financial position, 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 34 to 53 of the Companys 2004 Annual Report. The accounting policies used in preparing these
financial statements are the same as those summarized in the Companys 2004 Annual Report. Certain
amounts for 2004 have been reclassified to conform to current-period classifications. The results
of operations for the quarterly and year-to-date periods ended October 1, 2005, are not necessarily
indicative of the results to be expected for other interim periods or the full year.
The Companys fiscal year normally ends on the last Saturday of December and as a result, a
53rd week is added every fifth or sixth year. The Companys 2004 fiscal year ended on
January 1, 2005, and included a 53rd week. Quarters normally consist of 13-week periods,
with the fourth quarter of fiscal 2004 including a 14th week.
Stock compensation
The Company uses various equity-based compensation programs to provide long-term performance
incentives for its global workforce. Currently, these incentives consist of stock options,
performance units and shares, restricted stock grants, and stock purchase plans with various
preferred terms. The Company also awards stock options and restricted stock to its outside
directors. These awards are administered through several plans, as described in Note 8 within Notes
to Consolidated Financial Statements on pages 43 and 44 of the Companys 2004 Annual Report.
The Company currently uses the intrinsic value method prescribed by Accounting Principles Board
Opinion (APB) No. 25 Accounting for Stock Issued to Employees, to account for its employee stock
options and other stock-based compensation. Under this method, because the exercise price of the
Companys employee stock options equals the
market price of the underlying stock on the date of the grant, no compensation expense is
recognized. The following table presents the pro forma results for the current and prior periods,
as if the Company had used the alternate fair value method of accounting for stock-based
compensation, prescribed by SFAS No. 123 Accounting for Stock-Based Compensation (as amended by
SFAS No. 148). Under this pro forma method, the fair value of each option grant (net of estimated
unvested forfeitures) was estimated at the date of grant using a binomial option-pricing model and
was recognized over the vesting period, generally two years. Pricing model assumptions included
expected terms of 3-5 years; and risk-free interest rates, dividend yields, and volatility
assumptions consistent with the expected terms and particular grant dates.
5
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Quater ended |
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Year-to-date period ended |
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October 1, |
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September 25, |
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October 1, |
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September 25, |
(millions, except per share data) |
|
2005 |
|
2004 |
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2005 |
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2004 |
|
Stock-based compensation expense, |
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net of tax: |
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As reported |
|
$ |
3.2 |
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$ |
2.3 |
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$ |
9.4 |
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$ |
6.7 |
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Pro forma |
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$ |
10.5 |
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$ |
11.1 |
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$ |
34.9 |
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$ |
31.5 |
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Net earnings: |
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As reported |
|
$ |
274.3 |
|
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$ |
247.0 |
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$ |
788.0 |
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$ |
704.2 |
|
Pro forma |
|
$ |
267.0 |
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|
$ |
238.2 |
|
|
$ |
762.5 |
|
|
$ |
679.4 |
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Basic net earnings per share: |
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As reported |
|
$ |
0.66 |
|
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$ |
0.60 |
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|
$ |
1.91 |
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$ |
1.71 |
|
Pro forma |
|
$ |
0.65 |
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$ |
0.58 |
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$ |
1.85 |
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$ |
1.65 |
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Diluted net earnings per share: |
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As reported |
|
$ |
0.66 |
|
|
$ |
0.59 |
|
|
$ |
1.89 |
|
|
$ |
1.69 |
|
Pro forma |
|
$ |
0.64 |
|
|
$ |
0.57 |
|
|
$ |
1.83 |
|
|
$ |
1.64 |
|
Stock
compensation SFAS No. 123(Revised)
In December 2004, the FASB issued SFAS No. 123(Revised) Share-Based Payment, which generally
requires public companies to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value and to recognize this cost over the
requisite service period. The standard also provides that any corporate tax benefit realized upon
exercise of an award in excess of that previously recognized in earnings will be presented in the
Statement of Cash Flows as a financing (rather than an operating) cash flow.
The standard is effective for public companies for annual periods beginning after June 15, 2005,
with several transition options regarding prospective versus retrospective application. The Company
plans to adopt SFAS No. 123(Revised) as of the beginning of its 2006 fiscal year, using the
modified prospective method. Accordingly, prior years will not be restated, but 2006 results will
be presented as if the Company had applied the fair value method of accounting for stock-based
compensation from its 1996 fiscal year. If this standard had been adopted in 2005, management
believes full-year net earnings per share would have been reduced by approximately $.08. However,
the impact on 2006 will, in part, depend on the particular structure of stock-based awards granted
in that year and various market factors that affect the fair value of awards. The Company currently
plans to record the pre-tax equivalent compensation expense in selling, general, and administrative
expense within its corporate operations.
Stock
compensation expense attribution
Certain of the Companys equity-based compensation plans contain provisions that accelerate vesting
of awards upon retirement, disability, or death of eligible employees and directors. The Company
has historically applied the nominal vesting period approach for expense attribution of these
awards. Under this method, expense is initially recognized over the stated vesting period, with any
unamortized expense recognized upon actual retirement, disability, or death. Existing
authoritative literature, as well as SFAS 123(Revised), specifies that a stock-based award is
vested when the
employees retention of the award is no longer contingent on providing subsequent service. In view
of this literature, the FASB staff and SEC staff have recently advised that the related
compensation cost should be recognized immediately for awards granted to retirement eligible
individuals or over the period from the grant date to the date retirement eligibility is achieved,
if less than the nominal vesting period. Notwithstanding this guidance, the SEC staff has advised
that companies following the nominal vesting approach should continue to follow that method until
SFAS No. 123(Revised) is adopted. Upon adoption of SFAS 123(Revised), the Company will
prospectively revise its expense attribution method to apply the non-substantive vesting period
approach described above. Management expects the impact of this change in expense attribution
method will be immaterial.
6
Note 2 Acquisitions
In order to support the continued growth of its North American fruit snacks business, in June
2005, the Company acquired a fruit snacks manufacturing facility and related assets from Kraft
Foods Inc. for approximately $30 million in cash, including related transaction costs. The facility
is located in Chicago, Illinois and employs approximately 400 active hourly and salaried employees.
Beginning in 2006, management plans to in-source some of the Companys fruit snacks production to
the Chicago facility. The consolidated balance sheet as of October 1, 2005, reflects approximately
$20 million in property attributable to this acquisition, with the remainder of the purchase price
allocated principally to inventory.
Note 3 Cost-reduction initiatives
The Company views its continued spending on cost-reduction initiatives as part of its ongoing
financial strategy to reinvest earnings so as to provide greater reliability in meeting long-term
growth targets. Initiatives undertaken must meet certain pay-back and internal rate of return (IRR)
targets. Each cost-reduction initiative is of relatively short duration, and normally begins to
deliver cash savings and/or reduced depreciation during the first year of implementation, which is
then used to fund new initiatives. To implement these programs, the Company has incurred various
up-front costs, including asset write-offs, exit charges, and other project expenditures.
Cost of goods sold for the quarter and year-to-date periods ended October 1, 2005, includes total
program-related charges of approximately $24 million and $71 million, respectively. The total
year-to-date amount is comprised of approximately $16 million for a multi-employer pension plan
withdrawal liability, $34 million of asset write-offs, and $21 million for severance and other cash
expenditures. All of the charges were recorded in the Companys North American operating segment.
Operating profit for the quarter and year-to-date periods ended September 25, 2004, includes total
program-related charges of $32 million and $61 million, respectively. The total year-to-date amount
is comprised of approximately $32 million of asset write-offs and $29 million for severance,
relocation, and other cash expenditures. Approximately 50% of these charges were recorded in cost
of goods sold, with the balance recorded in selling, general, and administrative expense. These
charges impacted the Companys operating segments as follows (in millions): North America-$31;
Europe-$30.
Exit cost reserves were approximately $12 million at October 1, 2005 and $11 million at January 1,
2005. The balance at October 1, 2005, substantially consists of severance obligations associated
with projects commenced in 2005, which are expected to be paid out in 2005 and 2006.
2005
activities
To improve operational efficiency and better position its North American snacks business for future
growth, the Company plans to close its Des Plaines, Illinois bakery by the end of 2005 and its
Macon, Georgia bakery by mid-2006. Production at these two bakeries, which collectively employ
approximately 750 hourly and salaried employees, is being relocated principally to other Company
facilities. In August 2005, the Company sold its Des Plaines bakery, subject to an arrangement that
allows the Company to use the facility through the end of 2005. The Company currently expects to
incur approximately $110 million of up-front costs to complete this initiative, with approximately
$80 million to be recognized in 2005. The total up-front costs are expected to include
approximately $45 million in accelerated depreciation and other asset write-offs and $65 million of
cash costs, including severance, removals, and a pension plan withdrawal liability. The pension
plan withdrawal liability is related to trust asset under-performance in a multi-employer plan that
covers the majority of the Companys union employees in the Macon bakery and is payable over a
period not to exceed 20 years. The final amount of the pension plan withdrawal liability will not
be determinable until early 2008. Results for the year-to-date period ended October 1, 2005,
include managements current estimate of this liability of
approximately $16 million, which is subject to adjustment through early 2008 based on trust asset
performance, employer contributions, employee hours attributable to the Companys participation in
this plan, and other factors.
During the first half of 2005, the Company substantially completed an initiative to consolidate
meat alternatives manufacturing at its Zanesville, Ohio facility, resulting in the closure and sale
of its Worthington, Ohio facility. As a result of this closing, approximately 280 employee
positions were eliminated through separation and attrition. The
7
Company
recognized approximately
$20 million of up-front costs related to this initiative in 2004 and recorded an additional $10
million of asset write-offs and cash costs in 2005.
2004
activities
Major initiatives commenced in 2004 were the global rollout of the SAP information technology
system, reorganization of pan-European operations, consolidation of the aforementioned U.S. meat
alternatives manufacturing operations, and relocation of the Companys U.S. snacks business unit to
Battle Creek, Michigan. Up-front costs recognized during the comparable period of 2004 related to
these new initiatives as well as various manufacturing initiatives continuing from 2003.
Note 4 Other income (expense), net
Other income (expense), net includes non-operating items such as interest income, foreign
exchange gains and losses, charitable donations, and gains on asset sales. Other income (expense)
for the year-to-date period ended October 1, 2005, includes a charge of $6 million for a donation
to the Kelloggs Corporate Citizenship Fund, a private trust established for charitable giving, and
a charge of approximately $7 million to reduce the carrying value of a corporate commercial
facility to estimated selling value. The carrying value of all held-for-sale assets at October 1,
2005, was insignificant.
Other income (expense) for the year-to-date period ended September, 2004, includes a charge of
approximately $8 million for a donation to the Kelloggs Corporate Citizenship Fund.
Note 5 Debt
On July 1, 2005, the Company redeemed $723.4 million of long-term debt, representing the
remaining principal balance of its 6.0% U.S. Dollar Notes due April 1, 2006. A related charge of
approximately $14 million, primarily representing redemption premium, was recorded in interest
expense during the year-to-date period ended October 1, 2005. On October 17, 2005, the Company
repaid $200 million of maturing 4.875% U.S. Dollar Notes. These payments were funded principally
through issuance of U.S. Dollar short-term debt.
Note 6 Equity
Earnings
per share
Basic net earnings per share is determined by dividing net earnings 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. Basic net earnings per share is reconciled to diluted net earnings
per share as follows:
8
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
|
|
|
Average |
|
Net |
(millions, except |
|
Net |
|
shares |
|
earnings |
per share data) |
|
earnings |
|
outstanding |
|
per share |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
274.3 |
|
|
|
413.4 |
|
|
$ |
.66 |
|
Dilutive potential |
|
|
|
|
|
|
|
|
|
|
|
|
common shares |
|
|
|
|
|
|
3.3 |
|
|
|
|
|
|
Diluted |
|
$ |
274.3 |
|
|
|
416.7 |
|
|
$ |
.66 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
247.0 |
|
|
|
412.4 |
|
|
$ |
.60 |
|
Dilutive potential |
|
|
|
|
|
|
|
|
|
|
|
|
common shares |
|
|
|
|
|
|
4.3 |
|
|
|
(.01 |
) |
|
Diluted |
|
$ |
247.0 |
|
|
|
416.7 |
|
|
$ |
.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date |
|
|
|
|
|
Average |
|
Net |
(millions, except |
|
Net |
|
shares |
|
earnings |
per share data) |
|
earnings |
|
outstanding |
|
per share |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
788.0 |
|
|
|
412.8 |
|
|
$ |
1.91 |
|
Dilutive potential |
|
|
|
|
|
|
|
|
|
|
|
|
common shares |
|
|
|
|
|
|
3.6 |
|
|
|
(.02 |
) |
|
Diluted |
|
$ |
788.0 |
|
|
|
416.4 |
|
|
$ |
1.89 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
704.2 |
|
|
|
411.7 |
|
|
$ |
1.71 |
|
Dilutive potential |
|
|
|
|
|
|
|
|
|
|
|
|
common shares |
|
|
|
|
|
|
4.1 |
|
|
|
(.02 |
) |
|
Diluted |
|
$ |
704.2 |
|
|
|
415.8 |
|
|
$ |
1.69 |
|
|
During the quarter and year-to-date periods ended October 1, 2005, the Company issued .9 million
and 6.8 million shares, respectively, for employee stock option exercises, performance share
awards, and similar transactions pursuant to various equity-based compensation programs. These
awards are administered through several plans, as described in Note 8 within Notes to Consolidated
Financial Statements on pages 43 and 44 of the Companys 2004 Annual Report. To offset these
issuances and for general corporate purposes, during the corresponding periods, the Company
repurchased 0.0 and 6.0 million shares, respectively, under an existing Board of Director
authorization.
Comprehensive
Income
Comprehensive income includes net earnings and all other changes in equity during a period except
those resulting from investments by or distributions to shareholders. Accumulated other
comprehensive income for the periods presented consists of foreign currency translation adjustments
pursuant to SFAS No. 52 Foreign Currency Translation, unrealized gains and losses on cash flow
hedges pursuant to SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, and
minimum pension liability adjustments pursuant to SFAS No. 87 Employers Accounting for Pensions.
9
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax |
|
Tax (expense) |
|
After-tax |
(millions) |
|
amount |
|
or benefit |
|
amount |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
$ |
274.3 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(6.5 |
) |
|
|
|
|
|
|
(6.5 |
) |
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on
cash flow hedges |
|
|
(2.9 |
) |
|
|
1.0 |
|
|
|
(1.9 |
) |
Reclassification to net earnings |
|
|
6.6 |
|
|
|
(3.0 |
) |
|
|
3.6 |
|
Minimum pension liability adjustments |
|
|
(2.4 |
) |
|
|
0.8 |
|
|
|
(1.6 |
) |
|
|
|
|
(5.2 |
) |
|
|
(1.2 |
) |
|
|
(6.4 |
) |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
267.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax |
|
Tax (expense) |
|
After-tax |
(millions) |
|
amount |
|
or benefit |
|
amount |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
$ |
247.0 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
1.2 |
|
|
|
|
|
|
|
1.2 |
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on
cash flow hedges |
|
|
(5.8 |
) |
|
|
1.8 |
|
|
|
(4.0 |
) |
Reclassification to net earnings |
|
|
3.0 |
|
|
|
(1.0 |
) |
|
|
2.0 |
|
Minimum pension liability adjustments |
|
|
0.6 |
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
(1.0 |
) |
|
|
0.8 |
|
|
|
(0.2 |
) |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
246.8 |
|
|
Year-to-date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax |
|
Tax (expense) |
|
After-tax |
(millions) |
|
amount |
|
or benefit |
|
amount |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
$ |
788.0 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(63.1 |
) |
|
|
|
|
|
|
(63.1 |
) |
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on
cash flow hedges |
|
|
(3.1 |
) |
|
|
1.4 |
|
|
|
(1.7 |
) |
Reclassification to net earnings |
|
|
20.6 |
|
|
|
(7.8 |
) |
|
|
12.8 |
|
Minimum pension liability adjustments |
|
|
0.6 |
|
|
|
(0.2 |
) |
|
|
0.4 |
|
|
|
|
|
(45.0 |
) |
|
|
(6.6 |
) |
|
|
(51.6 |
) |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
736.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax |
|
Tax (expense) |
|
After-tax |
(millions) |
|
amount |
|
or benefit |
|
amount |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
$ |
704.2 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(9.1 |
) |
|
|
|
|
|
|
(9.1 |
) |
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on
cash flow hedges |
|
|
(8.0 |
) |
|
|
2.7 |
|
|
|
(5.3 |
) |
Reclassification to net earnings |
|
|
13.4 |
|
|
|
(4.9 |
) |
|
|
8.5 |
|
Minimum pension liability adjustments |
|
|
(5.4 |
) |
|
|
1.7 |
|
|
|
(3.7 |
) |
|
|
|
|
(9.1 |
) |
|
|
(0.5 |
) |
|
|
(9.6 |
) |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
694.6 |
|
|
10
Accumulated other comprehensive income (loss) as of October 1, 2005, and January 1, 2005, consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
Oct. 1, |
|
January 1, |
(millions) |
|
2005 |
|
2005 |
|
Foreign currency translation adjustments |
|
$ |
(397.4 |
) |
|
$ |
(334.3 |
) |
Cash flow hedges unrealized net loss |
|
|
(35.5 |
) |
|
|
(46.6 |
) |
Minimum pension liability adjustments |
|
|
(58.6 |
) |
|
|
(59.0 |
) |
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss) |
|
$ |
(491.5 |
) |
|
$ |
(439.9 |
) |
|
Note 7 Employee benefits
The Company sponsors a number of U.S. and foreign pension, other postretirement and
postemployment plans to provide various benefits for its employees. These plans are described on
pages 44-47 of the Companys 2004 Annual Report. 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) |
|
Oct. 1, 2005 |
|
Sept. 25, 2004 |
|
Oct. 1, 2005 |
|
Sept. 25, 2004 |
|
Service cost |
|
$ |
19.8 |
|
|
$ |
18.4 |
|
|
$ |
60.1 |
|
|
$ |
55.4 |
|
Interest cost |
|
|
39.9 |
|
|
|
38.2 |
|
|
|
120.5 |
|
|
|
114.5 |
|
Expected return on plan assets |
|
|
(57.2 |
) |
|
|
(58.4 |
) |
|
|
(173.0 |
) |
|
|
(175.1 |
) |
Amortization of unrecognized
prior service cost |
|
|
2.0 |
|
|
|
2.0 |
|
|
|
6.0 |
|
|
|
5.8 |
|
Recognized net loss |
|
|
16.2 |
|
|
|
12.6 |
|
|
|
49.3 |
|
|
|
38.0 |
|
Curtailment
and special termination benefits
net (gain) loss |
|
|
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
0.6 |
|
Other |
|
|
0.4 |
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
Total pension expense Company plans |
|
$ |
21.1 |
|
|
$ |
11.6 |
|
|
$ |
64.2 |
|
|
$ |
39.2 |
|
|
Additionally, during the year-to-date period ended October 1, 2005, the Company recorded its
estimate of a multi-employer plan withdrawal liability of approximately $16 million, which is
further described in Note 3.
Other nonpension postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
Year-to-date period ended |
(millions) |
|
Oct. 1, 2005 |
|
Sept. 25, 2004 |
|
Oct. 1, 2005 |
|
Sept. 25, 2004 |
|
Service cost |
|
$ |
3.5 |
|
|
$ |
3.0 |
|
|
$ |
10.4 |
|
|
$ |
9.0 |
|
Interest cost |
|
|
14.6 |
|
|
|
13.9 |
|
|
|
43.7 |
|
|
|
41.6 |
|
Expected return on plan assets |
|
|
(10.3 |
) |
|
|
(9.9 |
) |
|
|
(30.8 |
) |
|
|
(29.8 |
) |
Amortization of unrecognized
prior service cost |
|
|
(0.8 |
) |
|
|
(0.8 |
) |
|
|
(2.2 |
) |
|
|
(2.2 |
) |
Recognized net loss |
|
|
4.9 |
|
|
|
3.7 |
|
|
|
14.8 |
|
|
|
11.1 |
|
Curtailment and special
termination benefits
net gain |
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
|
Postretirement benefit expense |
|
$ |
11.9 |
|
|
$ |
10.2 |
|
|
$ |
35.9 |
|
|
$ |
30.0 |
|
|
11
Postemployment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
Year-to-date period ended |
(millions) |
|
Oct. 1, 2005 |
|
Sept. 25, 2004 |
|
Oct. 1, 2005 |
|
Sept. 25, 2004 |
|
Service cost |
|
$ |
1.1 |
|
|
$ |
0.9 |
|
|
$ |
3.3 |
|
|
$ |
2.6 |
|
Interest cost |
|
|
0.5 |
|
|
|
0.4 |
|
|
|
1.5 |
|
|
|
1.4 |
|
Recognized net loss |
|
|
1.1 |
|
|
|
0.9 |
|
|
|
3.4 |
|
|
|
2.6 |
|
|
Postemployment benefit expense |
|
$ |
2.7 |
|
|
$ |
2.2 |
|
|
$ |
8.2 |
|
|
$ |
6.6 |
|
|
The Companys original plan was to contribute approximately $42 million to its defined benefit
pension plans and $62 million to its retiree health and welfare benefit plans during 2005, for a
total of $104 million. The Company has recently decided to make additional contributions of up to
$300 million during the fourth quarter of 2005. The allocation of this additional amount between
pension and other postretirement benefit plans has not yet been determined. During 2004, the
Company contributed approximately $140 million to defined benefit pension plans and $64 million to
retiree health and welfare benefit plans, for a total of $204 million. Plan funding strategies are
periodically modified to reflect managements current evaluation of tax deductibility, market
conditions, and competing investment alternatives.
Note 8 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, frozen waffles, and
meat alternatives. Kellogg products are manufactured and marketed globally. The Company currently
manages its operations based on the geographic regions of North America, Europe, Latin America, and
Asia Pacific. This organizational structure is the basis of the operating segment data presented
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
Year-to-date period ended |
(millions) |
|
October 1, |
|
Sept. 25, |
|
October 1, |
|
Sept. 25, |
(Results are unaudited) |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
1,753.8 |
|
|
$ |
1,610.3 |
|
|
$ |
5,176.2 |
|
|
$ |
4,776.1 |
|
Europe |
|
|
506.8 |
|
|
|
510.5 |
|
|
|
1,570.6 |
|
|
|
1,517.7 |
|
Latin America |
|
|
223.7 |
|
|
|
192.9 |
|
|
|
620.0 |
|
|
|
547.1 |
|
Asia Pacific (a) |
|
|
139.1 |
|
|
|
131.6 |
|
|
|
416.1 |
|
|
|
382.2 |
|
|
Consolidated |
|
$ |
2,623.4 |
|
|
$ |
2,445.3 |
|
|
$ |
7,782.9 |
|
|
$ |
7,223.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
326.6 |
|
|
$ |
317.4 |
|
|
$ |
979.9 |
|
|
$ |
906.4 |
|
Europe |
|
|
85.2 |
|
|
|
97.1 |
|
|
|
274.4 |
|
|
|
275.5 |
|
Latin America |
|
|
59.7 |
|
|
|
54.2 |
|
|
|
160.2 |
|
|
|
150.5 |
|
Asia Pacific (a) |
|
|
21.8 |
|
|
|
19.4 |
|
|
|
73.0 |
|
|
|
62.2 |
|
Corporate |
|
|
(27.6 |
) |
|
|
(31.3 |
) |
|
|
(81.5 |
) |
|
|
(79.2 |
) |
|
Consolidated |
|
$ |
465.7 |
|
|
$ |
456.8 |
|
|
$ |
1,406.0 |
|
|
$ |
1,315.4 |
|
|
(a) |
|
Includes Australia and Asia. |
12
Note 9 Supplemental information on goodwill and other intangible assets
During the year-to-date period ended October 1, 2005, the Company reclassified $578.9 million
attributable to its direct store-door (DSD) delivery system from indefinite-lived intangible assets
to goodwill, net of an associated deferred tax liability of $228.5 million. Prior periods were
likewise reclassified.
Intangible
assets subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
Accumulated amortization |
|
|
October 1, |
|
January 1, |
|
October 1, |
|
January 1, |
(millions) |
|
2005 |
|
2005 |
|
2005 |
|
2005 |
|
Trademarks |
|
$ |
29.5 |
|
|
$ |
29.5 |
|
|
$ |
20.2 |
|
|
$ |
19.4 |
|
Other |
|
|
29.1 |
|
|
|
29.1 |
|
|
|
27.0 |
|
|
|
26.7 |
|
|
Total |
|
$ |
58.6 |
|
|
$ |
58.6 |
|
|
$ |
47.2 |
|
|
$ |
46.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, |
|
September 25, |
Amortization expense (a): |
|
2005 |
|
2004 (b) |
|
Quarter |
|
$ |
0.3 |
|
|
$ |
8.6 |
|
|
Year-to-date |
|
$ |
1.1 |
|
|
$ |
10.2 |
|
|
(a) The currently estimated aggregate amortization expense for each of the 5 succeeding fiscal years is approximately $1.5 per year.
(b) Includes impairment loss of approximately $7.9 million.
Intangible
assets not subject to amortization
|
|
|
|
|
|
|
|
|
|
|
Total carrying amount |
|
|
October 1, |
|
January 1, |
(millions) |
|
2005 |
|
2005 |
|
Trademarks |
|
$ |
1,404.0 |
|
|
$ |
1,404.0 |
|
Other |
|
|
25.1 |
|
|
|
25.7 |
|
|
Total |
|
$ |
1,429.1 |
|
|
$ |
1,429.7 |
|
|
Changes
in the carrying amount of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific |
|
|
(millions) |
|
United States |
|
Europe |
|
Latin America |
|
(c) |
|
Consolidated |
|
January 1, 2005 |
|
$ |
3,443.3 |
|
|
$ |
0.0 |
|
|
$ |
0.0 |
|
|
$ |
2.2 |
|
|
$ |
3,445.5 |
|
Other |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
October 1, 2005 |
|
$ |
3,443.1 |
|
|
$ |
0.0 |
|
|
$ |
0.0 |
|
|
$ |
2.2 |
|
|
$ |
3,445.3 |
|
|
(c) Includes Australia and Asia.
13
KELLOGG COMPANY
PART I FINANCIAL INFORMATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Results of operations
Overview
Kellogg Company is the worlds leading producer of cereal and a leading producer of convenience
foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles, and meat
alternatives. Kellogg products are manufactured and marketed globally. We currently manage our
operations based on the geographic regions of North America, Europe, Latin America, and Asia
Pacific. This organizational structure is the basis of the operating segment data presented in this
report.
For the quarter ended October 1, 2005, the Company reported net earnings per share of $.66, a 12%
increase over the prior-period amount of $.59. This earnings growth resulted primarily from
continued strong sales momentum, particularly in the Americas, and a decline in the consolidated
effective income tax rate. Consolidated net sales increased approximately 7% and operating profit
grew approximately 2%.
Net
sales and operating profit
The following tables provide an analysis of net sales and operating profit performance for the
third quarter of 2005 versus 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
Latin |
|
Asia Pacific |
|
|
|
|
(dollars in millions) |
|
America |
|
Europe |
|
America |
|
(a) |
|
Corporate |
|
Consolidated |
|
2005 net sales |
|
$ |
1,753.8 |
|
|
$ |
506.8 |
|
|
$ |
223.7 |
|
|
$ |
139.1 |
|
|
$ |
|
|
|
$ |
2,623.4 |
|
|
2004 net sales |
|
$ |
1,610.3 |
|
|
$ |
510.5 |
|
|
$ |
192.9 |
|
|
$ |
131.6 |
|
|
$ |
|
|
|
$ |
2,445.3 |
|
|
% change
2005 vs. 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (tonnage) (b) |
|
|
6.8 |
% |
|
|
0.6 |
% |
|
|
6.5 |
% |
|
|
2.7 |
% |
|
|
|
|
|
|
5.5 |
% |
Pricing/mix |
|
|
1.5 |
% |
|
|
0.7 |
% |
|
|
3.8 |
% |
|
|
-1.6 |
% |
|
|
|
|
|
|
1.1 |
% |
|
Subtotal internal business |
|
|
8.3 |
% |
|
|
1.3 |
% |
|
|
10.3 |
% |
|
|
1.1 |
% |
|
|
|
|
|
|
6.6 |
% |
Foreign currency impact |
|
|
0.6 |
% |
|
|
-2.0 |
% |
|
|
5.6 |
% |
|
|
4.8 |
% |
|
|
|
|
|
|
0.7 |
% |
|
Total change |
|
|
8.9 |
% |
|
|
-0.7 |
% |
|
|
15.9 |
% |
|
|
5.9 |
% |
|
|
|
|
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
Latin |
|
Asia Pacific |
|
|
|
|
(dollars in millions) |
|
America |
|
Europe |
|
America |
|
(a) |
|
Corporate |
|
Consolidated |
|
2005 operating profit |
|
$ |
326.6 |
|
|
$ |
85.2 |
|
|
$ |
59.7 |
|
|
$ |
21.8 |
|
|
$ |
(27.6 |
) |
|
$ |
465.7 |
|
|
2004 operating profit |
|
$ |
317.4 |
|
|
$ |
97.1 |
|
|
$ |
54.2 |
|
|
$ |
19.4 |
|
|
$ |
(31.3 |
) |
|
$ |
456.8 |
|
|
% change
2005 vs. 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal business |
|
|
2.2 |
% |
|
|
-10.3 |
% |
|
|
5.4 |
% |
|
|
7.9 |
% |
|
|
11.9 |
% |
|
|
1.1 |
% |
Foreign currency impact |
|
|
0.7 |
% |
|
|
-2.0 |
% |
|
|
4.7 |
% |
|
|
4.8 |
% |
|
|
0.0 |
% |
|
|
0.8 |
% |
|
Total change |
|
|
2.9 |
% |
|
|
-12.3 |
% |
|
|
10.1 |
% |
|
|
12.7 |
% |
|
|
11.9 |
% |
|
|
1.9 |
% |
|
(a) Includes
Australia and Asia.
(b) We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments.
During the third quarter of 2005, consolidated net sales increased approximately 7%. Internal
net sales (which excludes the impact of currency and, if applicable, acquisitions, dispositions,
and shipping day differences) also grew nearly 7%, which was on top of nearly 5% growth in the
year-ago period.
14
During the quarter, successful innovation and brand-building investment continued to drive strong
growth across our North American business units, which collectively reported an 8% increase in net
sales versus the prior period. Internal net sales of our North America retail cereal business
increased 11%, with strong performance in both the United States and Canada.
Internal net sales of our North America retail snacks business (consisting of wholesome snacks,
cookies, crackers, and toaster pastries) increased 6% on top of 9% growth in the prior period. This
growth was attributable principally to sales of fruit snacks, cereal bars, cracker products, and
major cookie brands. Partially offsetting this growth was the impact of proactively managing
discontinuation of marginal cookie innovations, as well as lower toaster pastry sales after
double-digit growth in the third quarter of 2004.
Internal net sales of our North America frozen and specialty channel (which includes food service,
vending, convenience, drug stores, and custom manufacturing) businesses collectively increased
approximately 8%, led by solid contributions from both our Eggo frozen foods, Morningstar Farms
veggie products, and food service businesses.
Net sales in our European operating segment declined nearly 1%; excluding the impact of unfavorable
foreign exchange movements, net sales increased over 1% versus the prior period. Internal net sales
performance was dampened by competitive pressures on our U.K. business unit, leading to heavy
tactical pricing activity and a decline in cereal sales within that market. Results in our Nordics
markets were also weak, primarily due to the tailing effects of a now-resolved temporary delisting
by a major customer. These unfavorable factors were offset by increased sales of snack products in
the U.K. and cereal sales growth in most other European markets.
Strong performance in Latin America resulted in net sales growth of 16%, with internal sales growth
at 10%. Most of this growth was due to strong performance by our Mexico and Venezuela business
units, although sales increased in virtually all the Latin American markets in which we do
business.
Net sales in our Asia Pacific operating segment increased approximately 6%, principally
attributable to a favorable foreign exchange impact of 5%. Despite a solid tonnage recovery versus
weak prior-period performance, unfavorable pricing and mix movements held internal net sales growth
to 1%. This pricing/mix impact resulted largely from increased spending on competitive
merchandising by our Australian business unit. We expect this intense competitive environment in
Australia to continue through the remainder of this year.
Consolidated operating profit increased 2% during the quarter, with internal growth of
approximately 1%. Current-period operating profit results were negatively impacted by a decline in
gross margin, as discussed on pages 17-18, and a significant increase in brand-building investment
as a percentage of sales. While below our target mid-single digit growth rate for operating profit,
these quarterly results bring year-to-date performance in line with long-term objectives. During
the quarter, we increased our consolidated brand-building (advertising and consumer promotion)
expenditures at over twice the rate of net sales growth.
The following tables provide an analysis of net sales and operating profit performance for the
year-to-date period ended October 1, 2005, versus the comparable prior-year period:
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
Latin |
|
Asia Pacific |
|
|
|
|
|
|
(dollars in millions) |
|
America |
|
Europe |
|
America |
|
(a) |
|
Corporate |
|
Consolidated |
|
2005 net sales |
|
$ |
5,176.2 |
|
|
$ |
1,570.6 |
|
|
$ |
620.0 |
|
|
$ |
416.1 |
|
|
$ |
|
|
|
$ |
7,782.9 |
|
|
2004 net sales |
|
$ |
4,776.1 |
|
|
$ |
1,517.7 |
|
|
$ |
547.1 |
|
|
$ |
382.2 |
|
|
$ |
|
|
|
$ |
7,223.1 |
|
|
% change
2005 vs. 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (tonnage) (b) |
|
|
5.6 |
% |
|
|
0.4 |
% |
|
|
7.5 |
% |
|
|
3.0 |
% |
|
|
|
|
|
|
4.7 |
% |
Pricing/mix |
|
|
2.2 |
% |
|
|
1.3 |
% |
|
|
2.4 |
% |
|
|
1.2 |
% |
|
|
|
|
|
|
1.8 |
% |
|
Subtotal internal business |
|
|
7.8 |
% |
|
|
1.7 |
% |
|
|
9.9 |
% |
|
|
4.2 |
% |
|
|
|
|
|
|
6.5 |
% |
Foreign currency impact |
|
|
0.6 |
% |
|
|
1.8 |
% |
|
|
3.4 |
% |
|
|
4.7 |
% |
|
|
|
|
|
|
1.3 |
% |
|
Total change |
|
|
8.4 |
% |
|
|
3.5 |
% |
|
|
13.3 |
% |
|
|
8.9 |
% |
|
|
|
|
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
Latin |
|
Asia Pacific |
|
|
|
|
|
|
(dollars in millions) |
|
America |
|
Europe |
|
America |
|
(a) |
|
Corporate |
|
Consolidated |
|
2005 operating profit |
|
$ |
979.9 |
|
|
$ |
274.4 |
|
|
$ |
160.2 |
|
|
$ |
73.0 |
|
|
$ |
(81.5 |
) |
|
$ |
1,406.0 |
|
|
2004 operating profit |
|
$ |
906.4 |
|
|
$ |
275.5 |
|
|
$ |
150.5 |
|
|
$ |
62.2 |
|
|
$ |
(79.2 |
) |
|
$ |
1,315.4 |
|
|
% change
2005 vs. 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal business |
|
|
7.4 |
% |
|
|
-1.5 |
% |
|
|
3.8 |
% |
|
|
12.8 |
% |
|
|
-3.0 |
% |
|
|
5.7 |
% |
Foreign currency impact |
|
|
0.7 |
% |
|
|
1.1 |
% |
|
|
2.7 |
% |
|
|
4.7 |
% |
|
|
0.0 |
% |
|
|
1.2 |
% |
|
Total change |
|
|
8.1 |
% |
|
|
-0.4 |
% |
|
|
6.5 |
% |
|
|
17.5 |
% |
|
|
-3.0 |
% |
|
|
6.9 |
% |
|
|
|
|
(a) |
|
Includes Australia and Asia |
|
(b) |
|
We measure the volume impact (tonage) on revenues based on the stated weight of our product shipments. |
Cost
reduction initiatives
We view our continued spending on cost-reduction initiatives as part of our ongoing financial
strategy to reinvest earnings so as to provide greater reliability in meeting long-term growth
targets. Initiatives undertaken must meet certain pay-back and internal rate of return (IRR)
targets. Each cost-reduction initiative is of relatively short duration, and normally begins to
deliver cash savings and/or reduced depreciation during the first year of implementation, which is
then used to fund new initiatives. To implement these programs, the Company has incurred various
up-front costs, including asset write-offs, exit charges, and other project expenditures, which we
include in our measure of operating segment profitability.
Cost of goods sold for the quarter and year-to-date periods ended October 1, 2005, includes total
program-related charges of approximately $24 million and $71 million, respectively. The total
year-to-date amount is comprised of approximately $16 million for a multi-employer pension plan
withdrawal liability, $34 million of asset write-offs, and $21 million for severance and other cash
expenditures. All of the charges were recorded in our North American operating segment.
Operating profit for the quarter and year-to-date periods ended September 25, 2004, includes total
program-related charges of $32 million and $61 million, respectively. The total year-to-date amount
is comprised of approximately $32 million of asset write-offs and $29 million for severance,
relocation, and other cash expenditures. Approximately 50% of these charges were recorded in cost
of goods sold, with the balance recorded in selling, general, and administrative expense. These
charges impacted our operating segments as follows (in millions): North America-$31; Europe-$30.
Exit cost reserves were approximately $12 million at October 1, 2005 and $11 million at January 1,
2005. The balance at October 1, 2005, substantially consists of severance obligations associated
with projects commenced in 2005, which are expected to be paid out in 2005 and 2006.
To improve operational efficiency and better position our North American snacks business for future
growth, we plan to close our Des Plaines, Illinois bakery by the end of 2005 and our Macon, Georgia
bakery by mid-2006. Production at these two bakeries, which collectively employ approximately 750
hourly and salaried employees, is being relocated principally to other Company facilities. In
August 2005, we sold our Des Plaines bakery, subject to an arrangement that allows us to use the
facility through the end of 2005. We currently expect to incur
16
approximately $110 million of up-front costs to complete this initiative, with approximately $80 million to be
recognized in 2005. The total up-front costs are expected to include approximately $45 million in
accelerated depreciation and other asset write-offs and $65
million of cash costs, including severance, removals, and a pension plan withdrawal liability. The
pension plan withdrawal liability is related to trust asset under-performance in a multi-employer
plan that covers the majority of our union employees in the Macon bakery and is payable over a
period not to exceed 20 years. The final amount of the pension plan withdrawal liability will not
be determinable until early 2008. Results for the year-to-date period ended October 1, 2005,
include our current estimate of this liability of approximately $16 million, which is subject to
adjustment through early 2008 based on trust asset performance, employer contributions, employee
hours attributable to our participation in this plan, and other factors.
During the first half of 2005, we substantially completed an initiative to consolidate meat
alternatives manufacturing at its Zanesville, Ohio facility, resulting in the closure and sale of
our Worthington, Ohio facility. As a result of this closing, approximately 280 employee positions
were eliminated through separation and attrition. We recognized approximately $20 million of
up-front costs related to this initiative in 2004 and recorded an additional $10 million of asset
write-offs and cash costs in 2005.
Major initiatives commenced in 2004 were the global rollout of the SAP information technology
system, reorganization of pan-European operations, consolidation of the aforementioned U.S. meat
alternatives manufacturing operations, and relocation of our U.S. snacks business unit to Battle
Creek, Michigan. Up-front costs recognized during the comparable period of 2004 related to these
new initiatives as well as various manufacturing initiatives continuing from 2003.
Employee
benefits
Our Company sponsors a number of defined benefit plans for employees in the United States and
various foreign locations, including pension, retiree health and welfare, active health care,
severance and other post-employment. We also participate in a number of multi-employer pension
plans for certain of our manufacturing locations. Our major pension plans and U.S. retiree health
and welfare plans are funded, with trust assets invested in a globally diversified portfolio of
equity securities with smaller holdings of bonds, real estate, and other investments.
The annual cost of providing these benefits is significant, with consolidated full-year 2005
benefits expense currently expected to be nearly $300 million, not including the $16 million
multi-employer pension plan withdrawal liability discussed in the Cost-reduction initiative
section in pages 16-17. This current full-year estimate represents a substantial 15-20% increase
over the fiscal 2004 amount. This increase results from several major factors including: 1) a
reduction in the assumed rate of return on major plan assets from 9.3% in 2004 to 8.9% in 2005; 2)
a decrease in the weighted average discount rate used to measure obligations at year-end 2004; and
3) continuing health care cost inflation.
Margin
performance
Margin performance for the third quarter and year-to-date periods of 2005 versus 2004 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
vs. prior |
Quarter |
|
2005 |
|
2004 |
|
year (pts.) |
|
Gross margin |
|
|
45.2 |
% |
|
|
46.1 |
% |
|
|
-0.9 |
|
|
SGA% (a) |
|
|
-27.4 |
% |
|
|
-27.4 |
% |
|
|
0.0 |
|
|
Operating margin |
|
|
17.8 |
% |
|
|
18.7 |
% |
|
|
-0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date |
|
2005 |
|
2004 |
|
Change |
|
Gross margin |
|
|
45.2 |
% |
|
|
44.9 |
% |
|
|
0.3 |
|
|
SGA% (a) |
|
|
-27.1 |
% |
|
|
-26.7 |
% |
|
|
-0.4 |
|
|
Operating margin |
|
|
18.1 |
% |
|
|
18.2 |
% |
|
|
-0.1 |
|
|
(a)
Selling, general, and administrative expense as a percentage of net
sales.
For the quarter, our consolidated gross margin declined 90 basis points versus the prior period,
primarily reflecting a year-over-year shift in the allocation of up-front costs (refer to Cost
reduction initiatives section, on pages 16-17) from SGA to cost of goods sold and the
aforementioned competitive pressures on our U.K. and Australian business units. On a year-to-date
basis, the positive impact of consolidated sales growth, mix improvements, and productivity
17
savings, continued to outpace these and other continuing unfavorable factors such as higher
employee benefit costs, resulting in consolidated gross margin expansion of 30 basis points.
As discussed on page 29 of the of the Companys 2004 Annual Report, we are exposed to
market fluctuations in the prices of commodities, packaging, fuel, and energy. We manage these
risks through a combination of contractual means, hedging strategies where available, and
technological initiatives to reduce the cost of product ingredients and packaging. Versus the prior
year, we have experienced sharply higher fuel and energy costs, but thus far, have been able to
offset these margin exposures primarily through technological reductions in raw and packaging
costs. During the remainder of the year, we expect fuel and energy price pressures to outpace
savings achieved in other areas, thereby limiting further 2005 gross margin expansion on a
full-year basis, as compared to the full-year 2004 gross margin of 44.9%.
For the quarter, our operating margin also fell by 90 basis points, reflecting the gross margin
decline as well as a double-digit increase in brand-building expenditures. Year-to-date, our
operating margin was relatively even with prior-period results, as we reinvested the gross margin
expansion in brand-building and innovation expenditures. Our strategy is to continue to reinvest in
brand building, innovation, and cost reduction initiatives, so as to maintain a relatively steady
operating margin versus the full-year 2004 level of 17.5%.
In October 2005, members of the major union representing the hourly employees at our U.S. cereal
plants ratified a wage and benefits agreement with the Company covering the four-year period ended
October 2009. As part of this agreement, the Company will make a lump-sum payment to union members,
totaling approximately $11 million, which we will recognize in cost of goods sold during our fiscal
fourth quarter of 2005.
Interest
expense
Interest expense for the year-to-date period was $233.1 million, which includes a charge of
approximately $14 million for early redemption of Notes due April 1, 2006. This incremental expense
is expected to be largely recovered through lower short-term interest rates over the original
remaining term of the 2006 Notes. These results are in comparison to interest expense for the prior
year-to-date period of $230.5 million. We currently expect total year 2005 interest expense to be
approximately $300 million, as compared to the 2004 full-year amount of $308.6 million.
Other
income (expense), net
Other income (expense), net includes non-operating items such as interest income, foreign exchange
gains and losses, charitable donations, and gains on asset sales. Other income (expense) for the
year-to-date period ended October 1, 2005, includes a charge of $6 million for a donation to the
Kelloggs Corporate Citizenship Fund, a private trust established for charitable giving, and a
charge of approximately $7 million to reduce the carrying value of a corporate commercial facility
to estimated selling value. The carrying value of all held-for-sale assets at October 1, 2005, was
insignificant.
Other income (expense) for the year-to-date period ended June 26, 2004, includes a charge of
approximately $8 million for a donation to the Kelloggs Corporate Citizenship Fund.
Income
taxes
The consolidated effective income tax rate for the year-to-date period was 31.7%, which is below
our previously communicated 2005 expectation of approximately 33%. The year-to-date rate was
favorably impacted by several discrete items recorded during the third quarter of 2005, related
principally to adjustment of reserves for tax return positions and other deferred tax liabilities.
Taking into account the impact of these adjustments, as well as other factors, we currently expect
our full-year 2005 effective income tax rate to be approximately 32%. As compared to the
prior-period rates (34.5% year-to-date and 34.8% for full-year 2004), the 2005 consolidated
effective income tax rate is benefiting from the 2004 reorganization of our European operations as
well as U.S. tax legislation enacted in 2004.
As discussed on page 27 of our 2004 Annual Shareholders Report, during 2005, we currently plan to
elect to repatriate dividends from foreign subsidiaries which qualify for the temporary
dividends-received-deduction available under the American Jobs Creation Act. Our current plan is to
repatriate approximately $1.1 billion of foreign earnings in 2005 for a net tax cost of
approximately $41 million, which was provided for in 2004.
18
Liquidity and capital resources
Our principal source of liquidity is operating cash flows, supplemented by borrowings for
major acquisitions and other significant transactions. This cash-generating capability is one of
our fundamental strengths and provides us with substantial financial flexibility in meeting
operating and investing needs. The principal source of our operating cash flow is net earnings,
meaning cash receipts from the sale of our products, net of costs to manufacture and market our
products. Our cash conversion cycle is relatively short; although receivable collection patterns
vary around the world, in the United States, our days sales outstanding (DSO) averages 18-19 days.
As a result, the growth in our operating cash flow should generally reflect the growth in our net
earnings over time, although the specific performance for any interim period may be significantly
affected by the level of benefit plan contributions, working capital movements (operating assets
and liabilities), and other factors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date period ended |
|
|
|
|
October 1, |
|
September 25, |
|
Change versus |
(dollars in millions) |
|
2005 |
|
2004 |
|
prior year |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
788.0 |
|
|
$ |
704.2 |
|
|
|
11.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Items in net earnings not requiring (providing)
cash: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
291.8 |
|
|
|
311.2 |
|
|
|
|
|
Deferred income taxes |
|
|
(61.9 |
) |
|
|
7.6 |
|
|
|
|
|
Other (a) |
|
|
171.6 |
|
|
|
79.0 |
|
|
|
|
|
|
|
|
|
|
Net earnings after non-cash items |
|
|
1,189.5 |
|
|
|
1,102.0 |
|
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefit plan
contributions |
|
|
(89.2 |
) |
|
|
(140.7 |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Core working capital (b) |
|
|
(104.0 |
) |
|
|
(41.1 |
) |
|
|
|
|
Other working capital |
|
|
138.4 |
|
|
|
108.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
34.4 |
|
|
|
67.8 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
1,134.7 |
|
|
$ |
1,029.1 |
|
|
|
10.3 |
% |
|
|
|
|
(a) |
|
Consists principally of non-cash expense accruals for employee benefit obligations |
|
(b) |
|
Inventory and trade receivables less trade payables |
Year-to-date, operating cash flow was approximately $106 million higher than the prior period.
Nearly one-half of this increase is attributable to a year-over-year reduction in the level of
benefit plan contributions. Our original plan for full-year 2005 was to contribute approximately
$104 million to benefit plans, which represents a $100 million reduction from the 2004 funding
level. We have recently decided to make additional contributions of up to $300 million during the
fourth quarter of 2005. Taking into account tax deductibility, the cash flow reduction associated
with this additional plan funding would be up to $240 million.
The remainder of the year-to-date cash flow increase was principally attributable to earnings
growth, partially offset by unfavorable core working capital movements. This movement was related
primarily to trade receivables, which returned to historical levels (in relation to sales) by the
end of the first quarter from lower levels at the end of 2004. We believe these lower levels were
related to the timing of our 53rd week over the holiday period and we expect that this
phenomenon could impact the core working capital component of our operating cash flow for the
remainder of the year. Despite the unfavorable movement in the absolute balance, core working
capital as a percentage of sales was favorable versus the prior year. For the 52-week period ended
October 1, 2005, average core working capital as a percentage of sales was 7.1%, compared to 7.3%
for the fiscal year ended January 1, 2005.
19
Our management measure of cash flow is defined as net cash provided by operating activities
reduced by expenditures for property additions. We use this measure of cash flow to focus
management and investors on the amount of cash available for debt repayment, dividend
distributions, acquisition opportunities, and share repurchase. Our cash flow metric is reconciled
to GAAP-basis operating cash flow as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date period ended |
|
Change |
|
|
October 1, |
|
September 25, |
|
versus |
(dollars in millions) |
|
2005 |
|
2004 |
|
prior year |
|
Net cash provided by operating activities |
|
$ |
1,134.7 |
|
|
$ |
1,029.1 |
|
|
|
|
|
Additions to properties |
|
|
(220.0 |
) |
|
|
(169.5 |
) |
|
|
|
|
|
Cash flow |
|
$ |
914.7 |
|
|
$ |
859.6 |
|
|
|
6.4 |
% |
|
Our 2005 year-to-date cash flow increased approximately 6% versus the prior-year period,
attributable to our operating cash flow performance as discussed above, partially offset by
increased spending for selective capacity expansions to accommodate our Companys strong recent and
projected sales growth. We expect this trend to continue in the near term, with full-year 2005 and
2006 property expenditures representing approximately 3.5% and 4.0% of net sales, respectively, as
compared to full-year 2004 property expenditures at 2.9% of net sales. Our long-term target is to
expand cash flow in line with net earnings growth, although current-year results could be lower due
to the aforementioned additional benefit plan contributions during the fourth quarter of 2005.
In order to support the continued growth of our North American fruit snacks business, in June 2005,
we acquired a fruit snacks manufacturing facility and related assets from Kraft Foods Inc. for
approximately $30 million in cash, including related transaction costs. The facility is located in
Chicago, Illinois and employs approximately 400 active hourly and salaried employees. Beginning in
2006, we plan to in-source some of our fruit snacks production to the Chicago facility. The
consolidated balance sheet as of October 1, 2005, reflects approximately $20 million in property
attributable to this acquisition, with the remainder of the purchase price allocated principally to
inventory. Separately, we have entered into an agreement with the cable Nickelodeon network to
license their characters in conjunction with our fruit snacks products.
For 2005, our Board of Directors had originally authorized stock repurchases for general corporate
purposes and to offset issuances for employee benefit programs of up to $400 million, of which we
had spent $263.1 million to repurchase approximately 6.0 million shares as of October 1, 2005. On
October 28, 2005, our Board of Directors approved an increase in the authorized amount of 2005
stock repurchases to $675 million and an additional $650 million for 2006.
In April 2005, our Board of Directors authorized an increase of approximately 10% in the recent
shareholder dividend level from $.2525 to $.2775 per share, beginning with the distribution in
September 2005.
On July 1, 2005, we redeemed $723.4 million of long-term debt, representing the remaining principal
balance of our 6.0% U.S. Dollar Notes due April 1, 2006. On October 17, 2005, we repaid $200
million of maturing 4.875% U.S. Dollar Notes. These payments were funded principally through
issuance of U.S. Dollar short-term debt.
During the fourth quarter of 2005, subsidiaries of Kellogg Company are planning to issue
approximately one billion dollars of short- and long-term debt in offerings outside of the United
States. These debt issuances are to be guaranteed by the Company and net proceeds will be used
primarily for the payment of dividends pursuant to the American Jobs Creation Act and the purchase
of stock and assets of other direct or indirect subsidiaries of the Company, as well as for general
corporate purposes.
At October 1, 2005, our total debt was approximately $4.5 billion, down from $4.9 billion at
year-end 2004. Due to the aforementioned increase in benefit plan funding and share repurchase
authorization, we currently expect our year-end debt position to rise slightly from the balance at
the end of the current period. By the end of 2005, we expect to have reduced our total debt
position by over $2.0 billion, versus the high of $6.8 billion just after the acquisition of
Keebler Foods Company in early 2001. As a result of shifting priorities, we no longer expect to reduce debt
at this recent historical rate, but remain committed to net debt reduction (total debt less cash)
over the long term.
We believe that we will be able to meet our interest and principal repayment obligations and
maintain our debt covenants for the foreseeable future, while still meeting our operational needs,
including the pursuit of selected
20
growth opportunities, through our strong cash flow, our program
of issuing short-term debt, and maintaining credit facilities on a global basis. Our significant
long-term debt issues do not contain acceleration of maturity clauses that are dependent on credit
ratings. A change in the Companys credit ratings could limit its access to the U.S. short-term
debt market and/or increase the cost of refinancing long-term debt in the future. However, even
under these circumstances, we would continue to have access to our credit facilities, which are in
amounts sufficient to cover the outstanding short-term debt balance and debt principal repayments
through 2006.
Future outlook & forward-looking statements
Our long-term annual growth targets are low single-digit for internal net sales and high
single-digit for net earnings per share. In addition, we remain committed to growing our
brand-building investment faster than the rate of sales growth. We currently expect our 2005
internal net sales growth to slightly exceed and other results to be consistent with these targets.
In addition, we will continue to reinvest in cost-reduction initiatives and other growth
opportunities.
In December 2004, the FASB issued SFAS No. 123(Revised) Share-Based Payment, which we plan to
adopt as of the beginning of our 2006 fiscal year, using the modified prospective method.
Accordingly, prior years will not be restated, but 2006 results will be presented as if we had
applied the fair value method of accounting for stock-based compensation from our 1996 fiscal year.
If this standard had been adopted in 2005, we believe full-year net earnings per share would have
been reduced by approximately $.08. However, the impact on 2006 will, in part, depend on the
particular structure of stock-based awards granted in that year and various market factors that
affect the fair value of awards. We currently plan to record the pre-tax equivalent compensation
expense in selling, general, and administrative expense within our corporate operations.
Our Managements Discussion and Analysis contains forward-looking statements with projections
concerning, among other things, our strategy, financial principles, and plans; initiatives,
improvements, and growth; sales, gross margins, brand-building expenditures and other costs,
operating profit, and earnings per share; asset write-offs and expenditures related to
cost-reduction initiatives; the impact of accounting changes and significant accounting estimates;
our ability to meet interest and debt principal repayment obligations; future common stock
repurchases; debt issuances or reduction; effective income tax rate; cash flow and core working
capital improvements; capital expenditures; interest expense; and employee benefit plan costs and
funding. Forward-looking statements include predictions of future results or activities and may
contain the words expect, believe, will, will deliver, anticipate, project, should,
or words or phrases of similar meaning. Our actual results or activities may differ materially from
these predictions. In addition, our future results could be affected by a variety of other
factors, including:
§ |
|
the impact of competitive conditions; |
|
§ |
|
the effectiveness of pricing, advertising, and promotional programs; |
|
§ |
|
the success of innovation and new product introductions; |
|
§ |
|
the recoverability of the carrying value of goodwill and other intangibles; |
|
§ |
|
the success of productivity improvements and business transitions; |
|
§ |
|
raw material commodity, packaging, and energy prices, and labor costs; |
|
§ |
|
the availability of and interest rates on short-term financing; |
|
§ |
|
actual market performance of benefit plan trust investments; |
|
§ |
|
the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses,
and other general and administrative costs; |
|
§ |
|
changes in consumer behavior and preferences; |
|
§ |
|
the effect of U.S. and foreign economic conditions on items such as interest rates, taxes and tariffs, currency
conversion and availability; |
|
§ |
|
legal and regulatory factors; and, |
|
§ |
|
business disruption or other losses from war, terrorist acts, or political unrest. |
Forward-looking statements speak only as of the date they were made, and we undertake no obligation
to publicly update them.
21
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to disclosures contained on pages 28-29 of the Companys 2004 Annual Report.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to the Companys management, including its Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding
required disclosure based on managements interpretation of the definition of disclosure controls
and procedures, in Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable, rather than absolute, assurance of achieving
the desired control objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
As of October 1, 2005, management carried out an evaluation under the supervision and with the
participation of the Companys Chief Executive Officer and the Companys Chief Financial Officer,
of the effectiveness of the design and operation of the Companys disclosure controls and
procedures. Based on the foregoing, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures were effective at a
reasonable level of assurance.
During the last fiscal quarter, except as indicated below, there have been no changes in the
Companys internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting.
As has been previously reported, the Company is in the process of rolling out its SAP information
technology system on a global basis. Effective at the beginning of its 2005 fiscal year, the
Company finished the implementation of a major initiative to improve the organizational design and
effectiveness of its pan-European operations and completed the transitioning of its European
operations to the SAP information technology system. Management does not, however, currently
believe that this has adversely affected the Companys internal control over financial reporting.
22
KELLOGG COMPANY
PART II OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(e) Issuer Purchases of Equity Securities
(millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Approximate |
|
|
|
|
|
|
|
|
|
|
(c) Total Number of |
|
Dollar Value of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
Shares that May Yet |
|
|
(a) Total |
|
|
|
|
|
Part of Publicly |
|
Be Purchased Under |
|
|
Number of Shares |
|
(b) Average Price |
|
Announced Plans or |
|
the Plans or |
Period |
|
Purchased |
|
Paid per Share |
|
Programs |
|
Programs |
Month #1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/3/05-7/30/05 |
|
|
0.1 |
|
|
$ |
44.65 |
|
|
|
0.1 |
|
|
$ |
136.9 |
|
Month #2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/31/05-8/27/05 |
|
|
0.2 |
|
|
|
45.30 |
|
|
|
0.2 |
|
|
|
136.9 |
|
Month #3: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/28/05-10/1/05 |
|
|
0.2 |
|
|
|
45.53 |
|
|
|
0.2 |
|
|
|
136.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1) |
|
|
0.5 |
|
|
|
45.32 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shares included in the table above were purchased as part of publicly announced plans or
programs, as follows: |
|
a. |
|
No shares were purchased during the periods presented under a program
authorized by the Companys Board of Directors to repurchase for general corporate
purposes and to offset issuances for employee benefit programs up to $400 million in
Kellogg common stock during 2005. This repurchase program was publicly announced in a
press release on December 7, 2004. On October 28, 2005, the Board of Directors approved
an increase in the authorized amount of 2005 stock repurchases to $675 million and an
additional $650 million for 2006. This repurchase program was publicly announced in a
press release on October 31, 2005. |
|
|
b. |
|
Approximately 0.5 million shares were purchased from employees and directors in
stock swap and similar transactions pursuant to various shareholder-approved
equity-based compensation plans described on pages 43-44 of the Companys 2004 Annual
Report to Shareholders, filed as exhibit 13.01 to the Companys 2004 Form 10-K. |
Item 6. Exhibits
|
|
|
(a) Exhibits: |
|
|
31.1
|
|
Rule 13a-14(e)/15d-14(a) Certification from James M. Jenness |
31.2
|
|
Rule 13a-14(e)/15d-14(a) Certification from Jeffrey M. Boromisa |
32.1
|
|
Section 1350 Certification from James M. Jenness |
32.2
|
|
Section 1350 Certification from Jeffrey M. Boromisa |
23
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.M. Boromisa
|
|
|
J.M. Boromisa
Principal Financial Officer;
Senior Vice President Chief Financial Officer |
|
|
|
|
|
|
/s/ A.R. Andrews
|
|
|
A.R. Andrews
Principal Accounting Officer;
Vice President Corporate Controller |
|
|
Date: November 7, 2005
24
KELLOGG COMPANY
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
Electronic (E) |
|
|
|
|
Paper (P) |
|
|
|
|
Incorp. By |
Exhibit No. |
|
Description |
|
Ref. (IBRF) |
31.1
|
|
Rule 13a-14(e)/15d-14(a) Certification from James M. Jenness
|
|
E |
|
|
|
|
|
31.2
|
|
Rule 13a-14(e)/15d-14(a) Certification from Jeffrey M. Boromisa
|
|
E |
|
|
|
|
|
32.1
|
|
Section 1350 Certification from James M. Jenness
|
|
E |
|
|
|
|
|
32.2
|
|
Section 1350 Certification from Jeffrey M. Boromisa
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E |
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