FORM 10-Q
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)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 4, 2009
OR
|
|
|
o |
|
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
Section 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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
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 May 2, 2009 382,534,216 shares
KELLOGG COMPANY
INDEX
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
7-20 |
|
|
|
|
|
|
|
|
|
21-28 |
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
30-31 |
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
33 |
|
Rule 13a-14(e)/15d-14(a) Certification from A. D. David Mackay |
|
|
|
|
Rule 13a-14(e)/15d-14(a) Certification from John A. Bryant |
|
|
|
|
Section 1350 Certification from A. D. David Mackay |
|
|
|
|
Section 1350 Certification from John A. Bryant |
|
|
|
|
EX-31.1 |
EX-31.2 |
EX-32.1 |
EX-32.2 |
2
Part I FINANCIAL INFORMATION
Item 1. Financial Statements.
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
April 4, |
|
January 3, |
|
|
2009 |
|
2009 |
|
|
(unaudited) |
|
* |
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
304 |
|
|
$ |
255 |
|
Accounts receivable, net |
|
|
1,170 |
|
|
|
1,100 |
|
Inventories: |
|
|
|
|
|
|
|
|
Raw materials and supplies |
|
|
206 |
|
|
|
203 |
|
Finished goods and materials in process |
|
|
615 |
|
|
|
694 |
|
Deferred income taxes |
|
|
116 |
|
|
|
112 |
|
Other prepaid assets |
|
|
161 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,572 |
|
|
|
2,521 |
|
|
|
|
|
|
|
|
|
|
Property, net of accumulated depreciation
of $4,157 and $4,171 |
|
|
2,884 |
|
|
|
2,933 |
|
Goodwill |
|
|
3,631 |
|
|
|
3,637 |
|
Other intangibles, net of accumulated amortization
of $43 and $42 |
|
|
1,460 |
|
|
|
1,461 |
|
Pension |
|
|
141 |
|
|
|
96 |
|
Other assets |
|
|
286 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
10,974 |
|
|
$ |
10,946 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
1 |
|
|
$ |
1 |
|
Notes payable |
|
|
1,392 |
|
|
|
1,387 |
|
Accounts payable |
|
|
1,058 |
|
|
|
1,135 |
|
Accrued advertising and promotion |
|
|
397 |
|
|
|
357 |
|
Accrued income taxes |
|
|
110 |
|
|
|
51 |
|
Accrued salaries and wages |
|
|
172 |
|
|
|
280 |
|
Other current liabilities |
|
|
323 |
|
|
|
341 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,453 |
|
|
|
3,552 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
4,060 |
|
|
|
4,068 |
|
Deferred income taxes |
|
|
301 |
|
|
|
300 |
|
Pension liability |
|
|
590 |
|
|
|
631 |
|
Other liabilities |
|
|
945 |
|
|
|
940 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Common stock, $.25 par value |
|
|
105 |
|
|
|
105 |
|
Capital in excess of par value |
|
|
428 |
|
|
|
438 |
|
Retained earnings |
|
|
5,027 |
|
|
|
4,836 |
|
Treasury stock, at cost |
|
|
(1,767 |
) |
|
|
(1,790 |
) |
Accumulated other comprehensive income (loss) |
|
|
(2,173 |
) |
|
|
(2,141 |
) |
|
|
|
|
|
|
|
|
|
|
Total Kellogg Company shareholders equity |
|
|
1,620 |
|
|
|
1,448 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interests |
|
|
5 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
1,625 |
|
|
|
1,455 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
10,974 |
|
|
$ |
10,946 |
|
|
|
|
|
|
* |
|
Condensed from audited financial statements. |
Refer to Notes to Consolidated Financial Statements.
3
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
April 4, |
|
March 29, |
(Results are unaudited) |
|
2009 |
|
2008 |
|
Net sales |
|
$ |
3,169 |
|
|
$ |
3,258 |
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
1,867 |
|
|
|
1,894 |
|
Selling, general and administrative expense |
|
|
773 |
|
|
|
819 |
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
529 |
|
|
|
545 |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
67 |
|
|
|
82 |
|
Other income (expense), net |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
462 |
|
|
|
452 |
|
Income taxes |
|
|
143 |
|
|
|
137 |
|
|
Net income |
|
$ |
319 |
|
|
$ |
315 |
|
|
Net income (loss) attributable to noncontrolling interests |
|
|
(2 |
) |
|
|
|
|
|
Net income attributable to Kellogg Company |
|
$ |
321 |
|
|
$ |
315 |
|
|
|
|
|
|
|
|
|
|
|
Per share
amounts: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
.84 |
|
|
$ |
.82 |
|
Diluted |
|
$ |
.84 |
|
|
$ |
.81 |
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
.3400 |
|
|
$ |
.3100 |
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
382 |
|
|
|
386 |
|
|
Diluted |
|
|
383 |
|
|
|
389 |
|
|
|
|
|
|
|
|
|
|
|
Actual shares outstanding at period end |
|
|
382 |
|
|
|
379 |
|
|
Refer to Notes to Consolidated Financial Statements.
4
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
Total Kellogg |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
Company |
|
|
|
|
|
Total |
|
Total |
|
|
Common stock |
|
excess of |
|
Retained |
|
Treasury stock |
|
comprehensive |
|
shareholders |
|
Noncontrolling |
|
shareholders |
|
comprehensive |
(unaudited) |
|
shares |
|
amount |
|
par value |
|
earnings |
|
shares |
|
amount |
|
income (loss) |
|
equity |
|
interests (a) |
|
equity |
|
income (loss) |
|
Balance, December 29, 2007 |
|
|
419 |
|
|
$ |
105 |
|
|
$ |
388 |
|
|
$ |
4,217 |
|
|
|
29 |
|
|
$ |
(1,357 |
) |
|
$ |
(827 |
) |
|
$ |
2,526 |
|
|
$ |
2 |
|
|
$ |
2,528 |
|
|
|
|
|
|
Common stock repurchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
(650 |
) |
|
|
|
|
|
|
(650 |
) |
|
|
|
|
|
|
(650 |
) |
|
|
|
|
Business acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,148 |
|
|
|
(2 |
) |
|
|
1,146 |
|
|
|
1,146 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(495 |
) |
|
|
|
|
|
|
(495 |
) |
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,314 |
) |
|
|
(1,314 |
) |
|
|
|
|
|
|
(1,314 |
) |
|
|
(1,314 |
) |
Stock compensation |
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
51 |
|
|
|
|
|
Stock options exercised and other |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(34 |
) |
|
|
(5 |
) |
|
|
217 |
|
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
Balance, January 3, 2009 |
|
|
419 |
|
|
$ |
105 |
|
|
$ |
438 |
|
|
$ |
4,836 |
|
|
|
37 |
|
|
$ |
(1,790 |
) |
|
$ |
(2,141 |
) |
|
$ |
1,448 |
|
|
$ |
7 |
|
|
$ |
1,455 |
|
|
$ |
(168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321 |
|
|
|
(2 |
) |
|
|
319 |
|
|
|
319 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(130 |
) |
|
|
|
|
|
|
(130 |
) |
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32 |
) |
|
|
(32 |
) |
|
|
|
|
|
|
(32 |
) |
|
|
(32 |
) |
Stock compensation |
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
Stock options exercised and other |
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
Balance, April 4, 2009 |
|
|
419 |
|
|
$ |
105 |
|
|
$ |
428 |
|
|
$ |
5,027 |
|
|
|
37 |
|
|
$ |
(1,767 |
) |
|
$ |
(2,173 |
) |
|
$ |
1,620 |
|
|
$ |
5 |
|
|
$ |
1,625 |
|
|
$ |
287 |
|
|
|
|
|
(a) |
|
Refer to Note 1 for further information. |
Refer to Notes to Consolidated Financial Statements.
5
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
April 4, |
|
March 29, |
(unaudited) |
|
2009 |
|
2008 |
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
319 |
|
|
$ |
315 |
|
Adjustments to reconcile net income to
operating cash flows: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
84 |
|
|
|
94 |
|
Deferred income taxes |
|
|
(31 |
) |
|
|
(11 |
) |
Other (a) |
|
|
21 |
|
|
|
70 |
|
Postretirement benefit plan contributions |
|
|
(74 |
) |
|
|
(41 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade receivables |
|
|
(182 |
) |
|
|
(242 |
) |
Inventories |
|
|
75 |
|
|
|
39 |
|
Accounts payable |
|
|
(78 |
) |
|
|
48 |
|
Accrued income taxes |
|
|
187 |
|
|
|
75 |
|
Accrued interest expense |
|
|
(34 |
) |
|
|
61 |
|
Accrued and prepaid advertising, promotion and trade allowances |
|
|
44 |
|
|
|
12 |
|
Accrued salaries and wages |
|
|
(106 |
) |
|
|
(129 |
) |
All other current assets and liabilities |
|
|
20 |
|
|
|
(43 |
) |
|
|
Net cash provided by operating activities |
|
|
245 |
|
|
|
248 |
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Additions to properties |
|
|
(73 |
) |
|
|
(67 |
) |
Acquisitions of businesses, net of cash acquired |
|
|
|
|
|
|
(105 |
) |
|
|
Net cash used in investing activities |
|
|
(73 |
) |
|
|
(172 |
) |
|
|
Financing activities |
|
|
|
|
|
|
|
|
Net issuances of notes payable |
|
|
2 |
|
|
|
(117 |
) |
Issuances of long-term debt |
|
|
|
|
|
|
746 |
|
Reductions of long-term debt |
|
|
(1 |
) |
|
|
(1 |
) |
Issuances of common stock |
|
|
7 |
|
|
|
40 |
|
Common stock repurchases |
|
|
|
|
|
|
(642 |
) |
Cash dividends |
|
|
(130 |
) |
|
|
(119 |
) |
Other |
|
|
2 |
|
|
|
8 |
|
|
|
Net cash used in financing activities |
|
|
(120 |
) |
|
|
(85 |
) |
|
|
Effect of exchange rate changes on cash |
|
|
(3 |
) |
|
|
17 |
|
|
|
Increase in cash and cash equivalents |
|
|
49 |
|
|
|
8 |
|
Cash and cash equivalents at beginning of period |
|
|
255 |
|
|
|
524 |
|
|
|
Cash and cash equivalents at end of period |
|
$ |
304 |
|
|
$ |
532 |
|
|
|
|
|
(a) |
|
Consists principally of non-cash expense accruals for employee compensation and
benefit obligations. |
Refer to Notes to Consolidated Financial Statements.
6
Notes to Consolidated Financial Statements
for the quarter ended April 4, 2009 (unaudited)
Note 1 Accounting policies
Basis of presentation
The unaudited interim financial information of Kellogg Company (the Company) included in this
report reflects normal recurring adjustments that management believes are necessary for a fair
statement of the results of operations, financial position, shareholders equity and cash flows for
the periods presented. This interim information should be read in conjunction with the financial
statements and accompanying notes contained on pages 27 to 54 of the Companys 2008 Annual Report
on Form 10-K.
The condensed balance sheet data at January 3, 2009 was derived from audited financial statements,
but does not include all disclosures required by accounting principles generally accepted in the
United States. The results of operations for the quarterly period ended April 4, 2009 are not
necessarily indicative of the results to be expected for other interim periods or the full year.
The accounting policies used in preparing these financial statements are the same as those applied
in the prior year, except that the Company adopted new financial accounting standards at the
beginning of its 2009 fiscal year, as discussed within this Note.
Fair value
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No.
157 Fair Value Measurements for non-financial assets and liabilities was adopted by the Company
as of the beginning of its 2009 fiscal year. This was pursuant to FASB Staff Position (FSP) FAS
157-2, which delayed by one year the effective date of SFAS No. 157 for all non-financial assets
and non-financial liabilities, except for those that are recognized or disclosed at fair value in
the financial statements at least annually. Assets and liabilities subject to this deferral
included goodwill, intangible assets, long-lived assets measured at fair value for impairment
assessments and nonfinancial assets and liabilities initially measured at fair value in a business
combination. The Company did not have any non-financial asset or liability measurements during
the period, but included additional disclosures in Note 9.
Disclosures about derivative instruments
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of
SFAS No. 133, was adopted by the Company as of the beginning of its 2009 fiscal year. SFAS No. 161
requires companies to disclose their objectives and strategies for using derivative instruments,
whether or not the derivatives are designated as hedging instruments. The pronouncement requires
disclosure of the fair value of derivative instruments by primary underlying risk exposure (e.g.
interest rate, credit, foreign exchange rate, combination of interest rate and foreign exchange
rate, or overall price). It also requires disclosures about the income statement impact of
derivative instruments by designation as fair value hedges, cash flow hedges, or hedges of the
foreign currency exposure of a net investment in a foreign operation. The provisions of this
standard, which were applied prospectively, resulted in additional disclosures contained in Note
10.
Business combinations and noncontrolling interests
SFAS No. 141(R), Business Combinations and SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements were adopted by the Company at the beginning of its 2009 fiscal
year.
SFAS No. 141(R) retains the underlying fair value concepts of its predecessor (SFAS No. 141), but
changes the method for applying the acquisition method in a number of significant respects
including the requirement to expense transaction fees and expected restructuring costs as incurred,
rather than including these amounts in the allocated purchase price; the requirement to recognize
the fair value of contingent consideration at the acquisition date, rather than the expected amount
when the contingency is resolved; the requirement to recognize the fair value of acquired
in-process research and development assets at the acquisition date, rather than immediately
expensing them; and the requirement to recognize a gain in relation to a bargain purchase price,
rather than reducing the allocated basis of long-lived assets.
Because most provisions of this standard were applied
prospectively, the effect of adoption on the Companys financial statements will depend primarily
on specific transactions, if any, completed after 2008.
7
For
acquisitions completed prior to January 4, 2009, the new standard requires that changes in
deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement
period be recognized in net income rather than as an adjustment to the cost of the acquisition.
These changes will not have a significant impact on our consolidated financial statements.
Under SFAS No. 160, consolidated financial statements are presented as if the parent company
investors (controlling interests) and other minority investors (noncontrolling interests) in
partially-owned subsidiaries have similar economic interests in a single entity. As a result, upon
adoption of SFAS No. 160, noncontrolling interests are reported as equity in a parent companys
consolidated financial statements. Furthermore, consolidated financial statements include 100% of a
controlled subsidiarys earnings, rather than only the parent companys share. Lastly, transactions
between the parent company and noncontrolling interests are reported in equity as transactions
between shareholders provided that these transactions do not create a change in control.
Previously, acquisitions of additional interests in a controlled subsidiary generally resulted in
remeasurement of assets and liabilities acquired; dispositions of interests resulted in a gain or
loss. The Companys adoption of SFAS No. 160, which was applied retrospectively, resulted in a
change in the financial statement presentation of its noncontrolling interests.
Note 2 Acquisitions and goodwill and other intangible assets
Acquisition
To expand the Companys geographic presence, subsidiaries of the Company acquired substantially all
of the equity interests in OJSC Kreker (doing business as United Bakers) and consolidated
subsidiaries in January 2008. United Bakers is a leading producer of cereal, cookie and cracker
products in Russia, with approximately 4,000 employees, six manufacturing facilities and a broad
distribution network.
The Company paid $110 million cash (net of $5 million cash acquired), including approximately $67
million to settle debt and other assumed obligations of the acquired entities. Of the total cash
paid, $5 million was spent in 2007 for transaction fees and advances. The remaining amount of $105
million was classified as an investing activity cash outflow in the Companys Consolidated
Statement of Cash Flows for the quarter ended March 29, 2008.
The purchase agreement between the Company and the seller provides for the payment of a currently
undeterminable amount of contingent consideration at the end of three years, which will be
calculated based on the growth of sales and earnings before income taxes, depreciation and
amortization. Such payment will be recognized as additional purchase price when the contingency is
resolved.
Goodwill and other intangible assets
Intangible assets subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
Accumulated amortization |
|
|
April 4, |
|
January 3, |
|
April 4, |
|
January 3, |
(millions) |
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
Trademarks |
|
$ |
19 |
|
|
$ |
19 |
|
|
$ |
15 |
|
|
$ |
14 |
|
Other |
|
|
41 |
|
|
|
41 |
|
|
|
28 |
|
|
|
28 |
|
|
Total |
|
$ |
60 |
|
|
$ |
60 |
|
|
$ |
43 |
|
|
$ |
42 |
|
|
For intangible assets in the preceding table, amortization was less than $1 million for each of the
current and prior year quarterly periods. The current estimated aggregate annual amortization
expense for full-year 2009 and each of the four succeeding fiscal years is approximately $2
million.
Intangible assets not subject to amortization
|
|
|
|
|
|
|
|
|
|
|
Total carrying amount |
|
|
April 4, |
|
January 3, |
(millions) |
|
2009 |
|
2009 |
|
Trademarks |
|
$ |
1,443 |
|
|
$ |
1,443 |
|
|
8
Changes in the carrying amount of goodwill for the quarter ended April 4, 2009 are presented in the
following table. Certain of the Companys goodwill balances are subject to foreign currency
translation adjustments. Fluctuations in exchange rates contributed to the change in goodwill
balance for the quarter.
Carrying amount of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions) |
|
North America |
|
Europe |
|
Latin America |
|
Asia Pacific (a) |
|
Consolidated |
|
January 3, 2009 |
|
$ |
3,539 |
|
|
$ |
61 |
|
|
$ |
|
|
|
$ |
37 |
|
|
$ |
3,637 |
|
Currency translation adjustment |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
April 4, 2009 |
|
$ |
3,539 |
|
|
$ |
55 |
|
|
$ |
|
|
|
$ |
37 |
|
|
$ |
3,631 |
|
|
|
|
|
|
(a) |
|
Includes Australia, Asia and South Africa. |
Note 3 Exit or disposal activities
The Company views its continued spending on cost-reduction activities as part of its ongoing
operating principles to provide greater visibility in achieving its long-term profit growth
targets. Activities undertaken are currently expected to recover cash implementation costs within a
five-year period of completion. Each cost-reduction activity is normally up to three years in
duration. Upon completion (or as each major stage is completed in the case of multi-year programs),
the project begins to deliver cash savings and/or reduced depreciation.
2009 activities
In 2009, the Company incurred costs related to a global lean manufacturing program, Kelloggs lean, efficient, agile
network (K LEAN). Lean manufacturing
is a philosophy, that when applied to production methodologies, increases the efficiencies of
manufacturing plants by reducing waste and errors, minimizing equipment downtime, and increasing
equipment and labor productivity. This program seeks to optimize the
Companys global manufacturing network, reducing waste,
developing best practices across its global facilities and
reducing capital expenditures. The Company expects to incur approximately $20 million of costs in
each of 2009 and 2010 associated with K LEAN. The charges represent cash payments for severance and other cash costs
associated with the elimination of hourly and salaried positions at various global manufacturing
facilities.
For the quarter ended April 4, 2009, the Company recorded $4 million of charges in cost of goods
sold for severance payments in the North America operating segment. As of April 4, 2009, the
Company had reserves of $1 million for employee severance payments.
9
Prior year activities
The Company incurred $9 million of costs for the quarter ended March 29, 2008 for two projects: the
European manufacturing optimization plan impacting the Companys facility in Manchester, England;
and the reorganization of production processes to reflect changing market dynamics which impacted
the Companys plants in Valls, Spain and Bremen, Germany. These costs were recorded in cost of
goods sold and were attributable to the Europe operating segment.
These programs were completed in 2008. There were no exit reserves related to either of the
programs as of April 4, 2009 and as of the end of the Companys 2008 fiscal year. See page 37 of
the Companys 2008 Annual Report on Form 10-K for further information on these projects.
The European manufacturing optimization plan began in 2006 to improve utilization of the Companys
facility in Manchester, England and to better align production in Europe. The following table
presents total project costs for the quarter ended March 29, 2008.
|
|
|
|
|
|
|
Project costs |
|
|
Quarter ended |
(millions) |
|
March 29, 2008 |
|
Employee severance |
|
$ |
2 |
|
Other cash costs (a) |
|
|
1 |
|
Asset write-offs |
|
|
1 |
|
Retirement benefits (b) |
|
|
2 |
|
|
Total |
|
$ |
6 |
|
|
|
|
|
|
(a) |
|
Primarily includes expenditures for equipment removal and relocation, and temporary contracted
services to facilitate employee transactions. |
|
(b) |
|
Pension plan curtailment losses and special termination benefits recognized under SFAS No. 88
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. |
In October 2007, management committed to reorganize certain production processes at the Companys
plants in Valls, Spain and Bremen, Germany. The following table presents total project costs for
the quarter ended March 29, 2008.
|
|
|
|
|
|
|
Project costs |
|
|
Quarter ended |
(millions) |
|
March 29, 2008 |
|
Employee severance |
|
$ |
2 |
|
Asset write-offs |
|
|
1 |
|
|
Total |
|
$ |
3 |
|
|
Note 4 Other income (expense), net
Other income (expense), net includes non-operating items such as interest income, charitable
donations, foreign exchange gains and losses and costs related to commodity options. The company
recognized net foreign exchange gains of $6 million, which were offset by individually
insignificant items for the quarter ended April 4, 2009, as compared to losses of $7 million for
the quarter ended March 29, 2008. The net foreign exchange gains for the first quarter of 2009
included $14 million of gains on translational hedges. The
Company is currently not entering into
translational hedges.
Note 5 Equity
Earnings per share
Basic net earnings per share is determined by dividing net income attributable to Kellogg Company
by the weighted average number of common shares outstanding during the period. Diluted net
earnings per share is similarly determined, except that the denominator is increased to include the
number of additional common shares that would have been outstanding if all dilutive potential
common shares had been issued. Dilutive
10
potential common shares are comprised principally of employee stock options issued by the Company,
and to a lesser extent, certain contingently issuable performance shares. Basic net earnings per
share is reconciled to diluted net earnings per share in the following table. The total number of
anti-dilutive potential common shares excluded from the reconciliation were 20 million for the
quarter ended April 4, 2009 and 5 million for the quarter ended March 29, 2008.
Quarters
ended April 4, 2009 and March 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
Average |
|
Net |
|
|
attributable to |
|
shares |
|
earnings |
(millions, except per share data) |
|
Kellogg Company |
|
outstanding |
|
per share |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
321 |
|
|
|
382 |
|
|
$ |
.84 |
|
Dilutive potential
common shares |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
Diluted |
|
$ |
321 |
|
|
|
383 |
|
|
$ |
.84 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
315 |
|
|
|
386 |
|
|
$ |
.82 |
|
Dilutive potential
common shares |
|
|
|
|
|
|
3 |
|
|
|
(.01 |
) |
|
Diluted |
|
$ |
315 |
|
|
|
389 |
|
|
$ |
.81 |
|
|
During the quarter ended April 4, 2009, the Company issued 0.2 million shares to employees and
directors under various benefit plans and stock purchase programs, as further discussed in Note 6.
On February 4, 2009, the Board of Directors authorized the repurchase of $650 million of the
Companys common stock during 2009 for general corporate purposes and to offset issuances for
employee benefit programs. No purchases were made under this program.
Comprehensive income
Comprehensive income includes net income and all other changes in equity during a period except
those resulting from investments by or distributions to shareholders. Other comprehensive income
for all periods presented consists of foreign currency translation adjustments pursuant to SFAS No.
52 Foreign Currency Translation, fair value adjustments associated with cash flow hedges pursuant
to SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, and adjustments for
net experience losses and prior service cost pursuant to SFAS No. 158 Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans. Additionally, see Note 1 for discussion
regarding the Companys adoption of SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements.
11
The Companys benefit plan-related net experience losses and prior service cost decreased by $9
million during the quarter ended April 4, 2009 due to foreign currency remeasurement.
During the first quarter of 2008, the Company recorded a decrease to its defined benefit pension
and postretirement plan obligations of $5 million comprised of a $6 million decrease for a
census-related valuation update and a $1 million increase due to foreign currency remeasurement.
Quarter ended April 4, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax |
|
Tax (expense) |
|
After-tax |
(millions) |
|
amount |
|
or benefit |
|
amount |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
$ |
319 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(53 |
) |
|
|
|
|
|
|
(53 |
) |
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on
cash flow hedges |
|
|
18 |
|
|
|
(6 |
) |
|
|
12 |
|
Reclassification to net earnings |
|
|
(14 |
) |
|
|
5 |
|
|
|
(9 |
) |
Postretirement and postemployment benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts arising during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
Net experience loss |
|
|
9 |
|
|
|
(3 |
) |
|
|
6 |
|
Prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Net experience loss |
|
|
15 |
|
|
|
(5 |
) |
|
|
10 |
|
Prior service cost |
|
|
3 |
|
|
|
(1 |
) |
|
|
2 |
|
|
|
|
|
(22 |
) |
|
|
(10 |
) |
|
|
(32 |
) |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
287 |
|
|
Quarter ended March 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax |
|
Tax (expense) |
|
After-tax |
(millions) |
|
amount |
|
or benefit |
|
amount |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
$ |
315 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
69 |
|
|
|
|
|
|
|
69 |
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on
cash flow hedges |
|
|
29 |
|
|
|
(11 |
) |
|
|
18 |
|
Reclassification to net earnings |
|
|
3 |
|
|
|
(1 |
) |
|
|
2 |
|
Postretirement and postemployment benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts arising during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
Net experience loss |
|
|
2 |
|
|
|
(1 |
) |
|
|
1 |
|
Prior service cost |
|
|
3 |
|
|
|
(1 |
) |
|
|
2 |
|
Reclassification to net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Net experience loss |
|
|
12 |
|
|
|
(4 |
) |
|
|
8 |
|
Prior service cost |
|
|
3 |
|
|
|
(1 |
) |
|
|
2 |
|
|
|
|
|
121 |
|
|
|
(19 |
) |
|
|
102 |
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
417 |
|
|
12
Accumulated other comprehensive income (loss) as of April 4, 2009 and January 3, 2009 consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
April 4, |
|
January 3, |
(millions) |
|
2009 |
|
2009 |
|
Foreign currency translation adjustments |
|
$ |
(889 |
) |
|
$ |
(836 |
) |
Cash flow hedges unrealized net loss |
|
|
(21 |
) |
|
|
(24 |
) |
Postretirement and postemployment benefits: |
|
|
|
|
|
|
|
|
Net experience loss |
|
|
(1,219 |
) |
|
|
(1,235 |
) |
Prior service cost |
|
|
(44 |
) |
|
|
(46 |
) |
|
|
Total accumulated other comprehensive income (loss) |
|
$ |
(2,173 |
) |
|
$ |
(2,141 |
) |
|
Note 6 Stock compensation
The Company uses various equity-based compensation programs to provide long-term performance
incentives for its global workforce. Currently, these incentives consist principally of stock
options, and to a lesser extent, executive performance shares and restricted stock grants.
Additionally, the Company awards restricted stock to its non-employee directors.
These awards are administered through several plans, as described on pages 41 to 44 of the
Companys 2008 Annual Report on Form 10-K.
The Company classifies pre-tax stock compensation expense in selling, general and administrative
expense principally within its corporate operations. For the periods presented, compensation
expense for all types of equity-based programs and the related income tax benefit recognized were
as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
(millions) |
|
April 4, 2009 |
|
March 29, 2008 |
|
Pre-tax compensation expense |
|
$ |
13 |
|
|
$ |
21 |
|
|
Related income tax benefit |
|
$ |
5 |
|
|
$ |
7 |
|
|
As of April 4, 2009, total stock-based compensation cost related to non-vested awards not yet
recognized was approximately $46 million and the weighted-average period over which this amount is
expected to be recognized was approximately 2 years.
Stock options
During the quarters ended April 4, 2009 and March 29, 2008, the Company granted non-qualified stock
options to eligible employees as presented in the following activity tables. The 2009 grant has a
three-year graded vesting period. Stock option grants prior to 2009 had a two-year graded vesting
period. Other terms of the 2009 grant and the Companys methods for determining grant-date fair
value of the award were consistent with that described on pages 42 and 43 of the Companys 2008
Annual Report on Form 10-K. Additionally, during the quarter ended March 29, 2008, the Company
granted stock options to non-employee directors. Beginning in 2009, the practice of awarding stock
options to non-employee directors was suspended. In lieu of options, non-employee directors will
receive an annual grant of restricted stock.
13
Quarter ended April 4, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
Weighted- |
|
average |
|
Aggregate |
|
|
|
|
|
|
average |
|
remaining |
|
intrinsic |
Employee and director |
|
Shares |
|
exercise |
|
contractual |
|
value |
stock options |
|
(millions) |
|
price |
|
term (yrs.) |
|
(millions) |
| | | | |
Outstanding, beginning of period |
|
|
26 |
|
|
$ |
45 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
3 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures and expirations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
29 |
|
|
$ |
45 |
|
|
|
7.1 |
|
|
$ |
20 |
|
|
Exercisable, end of period |
|
|
24 |
|
|
$ |
45 |
|
|
|
6.6 |
|
|
$ |
20 |
|
|
Quarter ended March 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
Weighted- |
|
average |
|
Aggregate |
|
|
|
|
|
|
average |
|
remaining |
|
intrinsic |
Employee and director |
|
Shares |
|
exercise |
|
contractual |
|
value |
stock options |
|
(millions) |
|
price |
|
term (yrs.) |
|
(millions) |
|
Outstanding, beginning of period |
|
|
26 |
|
|
$ |
44 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
4 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(1 |
) |
|
|
41 |
|
|
|
|
|
|
|
|
|
Forfeitures and expirations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
29 |
|
|
$ |
45 |
|
|
|
6.3 |
|
|
$ |
213 |
|
|
Exercisable, end of period |
|
|
24 |
|
|
$ |
44 |
|
|
|
5.5 |
|
|
$ |
201 |
|
|
The weighted-average fair value of options granted was $6.33 per share for the quarter ended April
4, 2009 and $8.34 per share for the quarter ended March 29, 2008. The fair value was estimated
using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
Weighted- |
|
|
|
|
Weighted- |
|
average |
|
average risk- |
|
|
|
|
average expected |
|
expected term |
|
free interest |
|
Dividend |
|
|
volatility |
|
(years) |
|
rate |
|
yield |
|
Grants
within the quarter ended April 4, 2009 |
|
|
24.00 |
% |
|
|
5.00 |
|
|
|
2.10 |
% |
|
|
3.40 |
% |
|
The total intrinsic value of options exercised was $1 million for the quarter ended April 4, 2009
and $11 million for the quarter ended March 29, 2008.
Performance shares
In the first quarter of 2009, the Company granted performance shares to a limited number of senior
executive-level employees, which entitle these employees to receive a specified number of shares of
the Companys common stock on the vesting date, provided cumulative three-year cost saving targets
are achieved.
The 2009 target grant currently corresponds to approximately 187 thousand shares, with a grant-date
fair value of $36 per share. The actual number of shares issued on the vesting date could range
from zero to 200% of target, depending on actual performance achieved. Based on the market price of
the Companys common stock at April 4, 2009, the maximum future value that could be awarded to
employees on the vesting date for all outstanding performance share awards was (in millions): 2009
award-$14; 2008 award-$13; and 2007 award-$14. The 2006
14
performance share award, payable in stock,
was settled at 200% of target in February 2009 for a total dollar equivalent of $19 million.
Note 7 Employee benefits
The Company sponsors a number of U.S. and foreign pension, other nonpension postretirement and
postemployment plans to provide various benefits for its employees. These plans are described on
pages 44 to 48 of the Companys 2008 Annual Report on Form 10-K. Components of Company plan benefit
expense for the periods presented are included in the tables below.
Pension
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
(millions) |
|
April 4, 2009 |
|
March 29, 2008 |
|
Service cost |
|
$ |
20 |
|
|
$ |
23 |
|
Interest cost |
|
|
47 |
|
|
|
50 |
|
Expected return on plan assets |
|
|
(76 |
) |
|
|
(77 |
) |
Amortization of unrecognized
prior service cost |
|
|
3 |
|
|
|
3 |
|
Recognized net loss |
|
|
11 |
|
|
|
9 |
|
Curtailment and special termination benefits |
|
|
|
|
|
|
7 |
|
|
Total pension expense Company plans |
|
$ |
5 |
|
|
$ |
15 |
|
|
Other nonpension postretirement
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
(millions) |
|
April 4, 2009 |
|
March 29, 2008 |
|
Service cost |
|
$ |
5 |
|
|
$ |
4 |
|
Interest cost |
|
|
16 |
|
|
|
17 |
|
Expected return on plan assets |
|
|
(17 |
) |
|
|
(16 |
) |
Recognized net loss |
|
|
3 |
|
|
|
2 |
|
|
Postretirement benefit expense |
|
$ |
7 |
|
|
$ |
7 |
|
|
Postemployment
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
(millions) |
|
April 4, 2009 |
|
March 29, 2008 |
|
Service cost |
|
$ |
1 |
|
|
$ |
1 |
|
Interest cost |
|
|
1 |
|
|
|
1 |
|
Recognized net loss |
|
|
1 |
|
|
|
1 |
|
|
Postemployment benefit expense |
|
$ |
3 |
|
|
$ |
3 |
|
|
Management currently plans to contribute approximately $85 million to its defined benefit pension
plans and $15 million to its retiree health and welfare benefit plans during 2009, for a total of
$100 million. During 2008, the Company contributed approximately $354 million to defined benefit
pension plans and $97 million to retiree health and welfare benefit plans, for a total of $451
million. Plan funding strategies are periodically modified to reflect managements current
evaluation of tax deductibility, market conditions and competing investment alternatives.
Note 8 Income taxes
Effective income tax rate
The consolidated effective income tax rate was approximately 31% for the quarter ended April 4,
2009, as compared to 30% for the comparable quarter of 2008.
15
Uncertain tax positions
As of April 4, 2009, the Company classified approximately $36 million of unrecognized tax
benefits as a current liability, representing several individually insignificant income tax
positions under examination in various jurisdictions. Managements estimate of reasonably possible
changes in unrecognized tax benefits during the next twelve months is comprised of the
aforementioned current liability balance expected to be settled within one year, offset by
approximately $4 million of projected additions related primarily to ongoing intercompany transfer
pricing activity. Management is currently unaware of any issues under review that could result in
significant additional payments, accruals or other material deviation in this estimate.
Following is a reconciliation of the Companys total gross unrecognized tax benefits for the
quarter ended April 4, 2009. Approximately $111 million of this total represents the amount that,
if recognized, would affect the Companys effective income tax rate in future periods. This amount
differs from the gross unrecognized tax benefits presented in the table due to the decrease in U.S.
federal income taxes which would occur upon recognition of any state taxes.
|
|
|
|
|
(millions) |
|
2009 |
|
Balance at
January 3, 2009 |
|
$ |
132 |
|
Tax positions related to current year: |
|
|
|
|
Additions |
|
|
2 |
|
Reductions |
|
|
|
|
Tax positions related to prior years: |
|
|
|
|
Additions |
|
|
2 |
|
Reductions |
|
|
(2 |
) |
Settlements |
|
|
(2 |
) |
|
Balance at April 4, 2009 |
|
$ |
132 |
|
|
The current portion of the Companys unrecognized tax benefits is presented in the balance sheet
within accrued income taxes and the amount expected to be settled after one year is recorded in
other noncurrent liabilities.
The Company classifies income tax-related interest and penalties as interest expense and selling,
general, and administrative expense, respectively. For the quarter ended April 4, 2009, the Company
recognized expense of $1 million for tax related interest and had approximately $29 million accrued.
Note 9 Fair value measurements
The following table presents the Companys fair value hierarchy for those assets and liabilities
measured at fair value on a recurring basis as of April 4, 2009 and January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
April 4, |
|
January 3, |
|
April 4, |
|
January 3, |
|
April 4, |
|
January 3, |
|
April 4, |
|
January 3, |
|
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (recorded in other current assets) |
|
$ |
9 |
|
|
$ |
9 |
|
|
$ |
36 |
|
|
$ |
34 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
45 |
|
|
$ |
43 |
|
Derivatives (recorded in other assets) |
|
|
|
|
|
|
|
|
|
|
36 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
36 |
|
|
|
43 |
|
|
Total assets |
|
$ |
9 |
|
|
$ |
9 |
|
|
$ |
72 |
|
|
$ |
77 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
81 |
|
|
$ |
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (recorded in other current liabilities) |
|
$ |
(2 |
) |
|
$ |
|
|
|
$ |
(30 |
) |
|
$ |
(17 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(32 |
) |
|
$ |
(17 |
) |
Derivatives (recorded in other liabilities) |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
(4 |
) |
|
Total liabilities |
|
$ |
(2 |
) |
|
$ |
|
|
|
$ |
(43 |
) |
|
$ |
(21 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(45 |
) |
|
$ |
(21 |
) |
|
As discussed in Note 1, the Company adopted FSP FAS 157-2 at the beginning of its 2009 fiscal year.
FSP FAS 157-2 delayed by one year the effective date of SFAS No. 157 for all non-financial assets
and non-financial liabilities, except for those that are recognized or disclosed in the financial
statements at least annually.
Non-financial liabilities measured at fair value on a non-recurring basis as of April 4, 2009
included employee severance reserves recorded in accordance with the provisions of SFAS No. 112,
Employers Accounting for Postemployment
Benefits, an amendment of FASB statements No. 5 and 43. The calculation of these reserves is
based on employees years of service, position level, and current salary, using the cost approach.
At April 4, 2009, these amounts were immaterial.
16
Credit risk concentration
The Company is exposed to credit loss in the event of nonperformance by counterparties on
derivative financial and commodity contracts. Management believes a concentration of credit risk
with respect to derivative counterparties is limited due to the credit ratings of the
counterparties and the use of master netting and reciprocal collateralization agreements.
Master netting agreements apply in situations where the Company executes multiple contracts with
the same counterparty. Certain counterparties represent a concentration of credit risk to the
Company. If those counterparties fail to perform according to the terms of derivative contracts,
this would result in a loss to the Company of $36 million as of April 4, 2009.
For
certain derivative contracts reciprocal collateralization agreements with counterparties call for the posting of collateral in
the form of cash, treasury securities or letters of credit if a fair value loss position to the
Company or our counterparties exceeds a certain amount. There were no collateral balance
requirements at April 4, 2009.
Note 10 Derivative instruments and hedging activities
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, was adopted by the
Company as of the beginning of its 2009 fiscal year, as discussed in Note 1.
The Company is exposed to certain market risks such as changes in interest rates, foreign currency
exchange rates, and commodity prices, which exist as a part of its ongoing business operations.
Management uses derivative financial and commodity instruments, including futures, options, and
swaps, where appropriate, to manage these risks. Instruments used as hedges must be effective at
reducing the risk associated with the exposure being hedged and must be designated as a hedge at
the inception of the contract.
In accordance with SFAS No. 133, the Company designates derivatives as cash flow hedges, fair value
hedges, net investment hedges, or other contracts used to reduce volatility in the translation of
foreign currency earnings to U.S. dollars. The fair value of derivative instruments is recorded in
other current assets, other assets, other current liabilities or other liabilities. Gains and
losses representing either hedge ineffectiveness, hedge components excluded from the assessment of
effectiveness, or hedges of translational exposure are recorded in the Consolidated Statement of
Income in other income (expense), net. Within the Consolidated Statement of Cash Flows, settlements
of cash flow and fair value hedges are classified as an operating activity; settlements of all
other derivatives are classified as a financing activity. As a matter of policy, the Company does
not engage in trading or speculative hedging transactions.
Cash flow hedges
Qualifying derivatives are accounted for as cash flow hedges when the hedged item is a forecasted
transaction. Gains and losses on these instruments are recorded in other comprehensive income until
the underlying transaction is recorded in earnings. When the hedged item is realized, gains or
losses are reclassified from accumulated other comprehensive income
(loss) (AOCI) to the Consolidated
Statement of Income on the same line item as the underlying transaction.
Fair value hedges
Qualifying derivatives are accounted for as fair value hedges when the hedged item is a recognized
asset, liability, or firm commitment. Gains and losses on these instruments are recorded in
earnings, offsetting gains and losses on the hedged item.
Net investment hedges
Qualifying derivative and nonderivative financial instruments are accounted for as net investment
hedges when the hedged item is a nonfunctional currency investment in a subsidiary. Gains and
losses on these instruments are included in foreign currency translation adjustments in AOCI.
17
Other contracts
The Company also periodically enters into foreign currency forward contracts and options to reduce
volatility in the translation of foreign currency earnings to U.S. dollars. Gains and losses on
these instruments are recorded in other income (expense), net, generally reducing the exposure to
translation volatility during a full-year period.
Foreign currency exchange risk
The Company is exposed to fluctuations in foreign currency cash flows related primarily to
third-party purchases, intercompany transactions and nonfunctional currency denominated third-party
debt. The Company is also exposed to fluctuations in the value of foreign currency investments in
subsidiaries and cash flows related to repatriation of these investments. Additionally, the Company
is exposed to volatility in the translation of foreign currency denominated earnings to U.S.
dollars. Management assesses foreign currency risk based on transactional cash flows and
translational volatility and enters into forward contracts, options, and currency swaps to reduce
fluctuations in net long or short currency positions. Forward contracts and options are generally
less than 18 months duration. Currency swap agreements are established in conjunction with the
term of underlying debt issues.
For foreign currency cash flow and fair value hedges, the assessment of effectiveness is generally
based on changes in spot rates. Changes in time value are reported in other income (expense), net.
The total notional amount of foreign currency derivative instruments was $915 million and $924
million at April 4, 2009 and January 3, 2009, respectively.
Interest rate risk
The Company is exposed to interest rate volatility with regard to future issuances of fixed rate
debt. The Company periodically uses interest rate swaps, including forward-starting swaps, to
reduce interest rate volatility and funding costs associated with certain debt issues, and to
achieve a desired proportion of variable versus fixed rate debt, based on current and projected
market conditions.
Fixed-to-variable interest rate swaps are accounted for as fair value hedges and the assessment of
effectiveness is based on changes in the fair value of the underlying debt, using incremental
borrowing rates currently available on loans with similar terms and maturities.
The total notional amount of interest rate derivative instruments was $750 million at April 4, 2009
and January 3, 2009.
Price risk
The Company is exposed to price fluctuations primarily as a result of anticipated purchases of raw
and packaging materials, fuel, and energy. The Company has historically used the combination of
long-term contracts with suppliers, and exchange-traded futures and option contracts to reduce
price fluctuations in a desired percentage of forecasted raw material purchases over a duration of
generally less than 18 months. During 2006, the Company entered into two separate 10-year
over-the-counter commodity swap transactions to reduce fluctuations in the price of natural gas
used principally in its manufacturing processes. The notional amount of the swaps totaled $160
million as of April 4, 2009 and $167 million as of January 3, 2009.
Commodity contracts are accounted for as cash flow hedges. The assessment of effectiveness for
exchange-traded instruments is based on changes in futures prices. The assessment of effectiveness
for over-the-counter transactions is based on changes in designated indexes.
The total
notional amount of commodity derivative instruments, including the natural gas swaps, was
$237 million and $267 million at April 4, 2009 and January 3, 2009, respectively.
18
Credit-risk-related contingent features
Certain of the Companys derivative instruments contain provisions requiring the Company to post
collateral on those derivative instruments in a liability position if the Companys credit rating
falls below BB+ (S&P), or Baa1 (Moodys). The fair value of all derivative instruments with
credit-risk-related contingent features in a liability position on April 4, 2009 was $18 million.
If the credit rating-related contingent features were triggered as of April 4, 2009, the Company
would be required to post collateral of $18 million. In addition, certain derivative instruments
contain provisions that would be triggered in the event the Company defaults on its debt
agreements. There were no collateral posting requirements as of April 4, 2009 triggered by either
of these contingent features.
Fair
values of derivative instruments in the Consolidated Balance Sheet
designated as hedging instruments as of April 4, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivatives |
|
Liability derivatives |
|
|
Balance sheet |
|
|
|
|
|
Balance sheet |
|
|
(millions) |
|
location |
|
Fair value |
|
location |
|
Fair value |
|
Interest rate contracts |
|
Other assets |
|
$ |
36 |
|
|
Other liabilities |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts |
|
Other current assets |
|
|
36 |
|
|
Other current liabilities |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Other current assets |
|
|
9 |
|
|
Other current liabilities |
|
|
(11 |
) |
Commodity contracts |
|
Other assets |
|
|
|
|
|
Other liabilities |
|
|
(13 |
) |
|
|
Total |
|
|
|
|
|
$ |
81 |
|
|
|
|
|
|
$ |
(45 |
) |
|
The effect
of derivative instruments on the Consolidated Statement of Earnings
for the quarter ended April 4, 2009 was as follows:
|
|
|
|
|
|
|
|
|
Derivatives in fair value hedging |
|
Location of gain (loss) |
|
Gain (loss) recognized |
relationships (millions) |
|
recognized in income |
|
in income |
|
Foreign currency exchange contracts |
|
Other income (expense), net |
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of gain (loss) |
|
Gain (loss) |
|
|
|
|
Location of |
|
Gain (loss) |
|
recognized in income |
|
recognized in income |
|
|
Gain (loss) |
|
gain (loss) |
|
reclassified from |
|
(ineffective portion and |
|
(ineffective portion and |
Derivatives in cash flow hedging |
|
recognized |
|
reclasified |
|
AOCI into |
|
amount excluded from |
|
amount excluded from |
relationships (millions) |
|
in AOCI |
|
from AOCI |
|
income |
|
effectiveness testing) |
|
effectiveness testing) |
|
Foreign currency exchange contracts |
|
$ |
6 |
|
|
Cost of goods sold |
|
$ |
9 |
|
|
Other income (expense), net |
|
$ |
(1 |
) |
Foreign currency exchange contracts |
|
|
1 |
|
|
Selling, general and administrative expense |
|
|
(1 |
) |
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
|
|
|
Interest expense |
|
|
(2 |
) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
|
11 |
|
|
Cost of goods sold |
|
|
8 |
|
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18 |
|
|
|
|
|
|
$ |
14 |
|
|
|
|
|
|
$ |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging |
|
Location of gain (loss) |
|
Gain (loss) recognized |
instruments (millions) |
|
recognized in income |
|
in income |
|
Foreign currency exchange contracts |
|
Other income (expense), net |
|
$ |
1 |
|
|
Refer to Note 9 for disclosures regarding the fair value of the Companys derivatives.
Note 11 Product recall
In January and February, 2009, the Company recalled certain products because they included
ingredients that had the potential to be contaminated with salmonella. The recall stemmed from the
U.S. Food and Drug Administration and other authorities investigations of Peanut Corporation of
America, which supplied the Company with peanut paste and other ingredients.
The recall represented a Type I subsequent event and in accordance with U.S. GAAP, the Company
recorded certain costs associated with the recall in its 2008 financial results. See Note 15 on
page 52 in the Companys 2008 Annual Report on Form 10-K for further information on the recall.
19
The Company incurred additional costs associated with the recall for product manufactured and sold
in 2009. The recall reduced North Americas operating profit for the quarter ended April 4, 2009
by $27 million or $0.05 of earnings per diluted share. Of the total charges, $13 million related to
estimated customer returns and consumer rebates and was recorded as a reduction to net sales; $13
million related to costs associated with returned product and the disposal and write-off of
inventory which was recorded as cost of goods sold; and $1 million related to other costs which
were recorded as selling, general and administrative expense.
Note 12 Operating segments
Kellogg Company is the worlds leading producer of cereal and a leading producer of convenience
foods, including cookies, crackers, toaster pastries, cereal bars, fruit snacks, frozen waffles,
and veggie foods. Kellogg products are manufactured and marketed globally. Principal markets for
these products include the United States and United Kingdom. The Company currently manages its
operations in four geographic operating segments, comprised of North America and the three
International operating segments of Europe, Latin America, and Asia Pacific.
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
April 4, |
|
March 29, |
(millions) |
|
2009 |
|
2008 |
|
Net sales |
|
|
|
|
|
|
|
|
North America |
|
$ |
2,211 |
|
|
$ |
2,148 |
|
Europe |
|
|
557 |
|
|
|
677 |
|
Latin America |
|
|
230 |
|
|
|
253 |
|
Asia Pacific (a) |
|
|
171 |
|
|
|
180 |
|
|
Consolidated |
|
$ |
3,169 |
|
|
$ |
3,258 |
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit |
|
|
|
|
|
|
|
|
North America |
|
$ |
403 |
|
|
$ |
403 |
|
Europe |
|
|
95 |
|
|
|
112 |
|
Latin America |
|
|
49 |
|
|
|
45 |
|
Asia Pacific (a) |
|
|
25 |
|
|
|
31 |
|
Corporate |
|
|
(43 |
) |
|
|
(46 |
) |
|
Consolidated |
|
$ |
529 |
|
|
$ |
545 |
|
|
|
|
|
(a) |
|
Includes Australia, Asia and South Africa. |
20
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, fruit snacks, frozen waffles and
veggie foods. Kellogg products are manufactured and marketed globally. We currently manage our
operations in four geographic operating segments, comprised of North America and the three
International operating segments of Europe, Latin America and Asia Pacific.
We manage our Company for sustainable performance defined by our long-term annual growth targets.
These targets are low single-digit (1 to 3%) for internal net sales, mid single-digit (4 to 6%) for
internal operating profit, and high single-digit (7 to 9%) for net earnings per share on a currency
neutral basis. See the Foreign currency translation section for an explanation of managements
definition of currency neutral.
For the quarter ended April 4, 2009, we reported a 3% decline in net sales, with internal net sales
increasing by 4%. Consolidated operating profit declined 3%, with internal operating profit
increasing by almost 7%. Diluted earnings per share (EPS) grew 4% to $.84, compared to $.81 in
the comparable prior period. EPS on a currency neutral basis grew 14%.
For 2009, despite a tough economic outlook, we expect our business model and strategy will deliver
internal net sales growth of 3 to 4% and internal operating profit growth of mid single-digits (4
to 6%) which are in line with our long-term annual growth targets. We expect our earnings per
share to grow at high single-digits (7 to 9%) on a currency neutral basis.
Net sales and operating profit
The following table provides an analysis of net sales and operating profit performance for the
first quarter of 2009 versus 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
Latin |
|
Asia Pacific |
|
|
|
|
(dollars in millions) |
|
America |
|
Europe |
|
America |
|
(a) |
|
Corporate |
|
Consolidated |
|
2009 net sales |
|
$ |
2,211 |
|
|
$ |
557 |
|
|
$ |
230 |
|
|
$ |
171 |
|
|
$ |
|
|
|
$ |
3,169 |
|
|
2008 net sales |
|
$ |
2,148 |
|
|
$ |
677 |
|
|
$ |
253 |
|
|
$ |
180 |
|
|
$ |
|
|
|
$ |
3,258 |
|
|
% change 2009 vs. 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (tonnage) (b) |
|
|
-1.9 |
% |
|
|
-3.8 |
% |
|
|
-.2 |
% |
|
|
9.2 |
% |
|
|
|
|
|
|
-1.6 |
% |
Pricing/mix |
|
|
6.0 |
% |
|
|
5.1 |
% |
|
|
8.7 |
% |
|
|
1.5 |
% |
|
|
|
|
|
|
5.8 |
% |
|
Subtotal internal business |
|
|
4.1 |
% |
|
|
1.3 |
% |
|
|
8.5 |
% |
|
|
10.7 |
% |
|
|
|
|
|
|
4.2 |
% |
Acquisitions (c) |
|
|
.1 |
% |
|
|
1.0 |
% |
|
|
|
|
|
|
7.1 |
% |
|
|
|
|
|
|
.8 |
% |
Foreign currency impact |
|
|
-1.3 |
% |
|
|
-20.0 |
% |
|
|
-17.7 |
% |
|
|
-23.2 |
% |
|
|
|
|
|
|
-7.7 |
% |
|
Total change |
|
|
2.9 |
% |
|
|
-17.7 |
% |
|
|
-9.2 |
% |
|
|
-5.4 |
% |
|
|
|
|
|
|
-2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
Latin |
|
Asia Pacific |
|
|
|
|
(dollars in millions) |
|
America |
|
Europe |
|
America |
|
(a) |
|
Corporate |
|
Consolidated |
|
2009 operating profit |
|
$ |
403 |
|
|
$ |
95 |
|
|
$ |
49 |
|
|
$ |
25 |
|
|
$ |
(43 |
) |
|
$ |
529 |
|
|
2008 operating profit |
|
$ |
403 |
|
|
$ |
112 |
|
|
$ |
45 |
|
|
$ |
31 |
|
|
$ |
(46 |
) |
|
$ |
545 |
|
|
% change 2009 vs. 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal business |
|
|
1.6 |
% |
|
|
8.8 |
% |
|
|
28.0 |
% |
|
|
16.4 |
% |
|
|
4.2 |
% |
|
|
6.6 |
% |
Acquisitions (c) |
|
|
.1 |
% |
|
|
.1 |
% |
|
|
|
|
|
|
-8.3 |
% |
|
|
|
|
|
|
-.4 |
% |
Foreign currency impact |
|
|
-1.7 |
% |
|
|
-23.5 |
% |
|
|
-18.4 |
% |
|
|
-26.4 |
% |
|
|
|
|
|
|
-9.1 |
% |
|
Total change |
|
|
0.0 |
% |
|
|
-14.6 |
% |
|
|
9.6 |
% |
|
|
-18.3 |
% |
|
|
4.2 |
% |
|
|
-2.9 |
% |
|
|
|
|
(a) |
|
Includes Australia, Asia and South Africa. |
|
(b) |
|
We measure the volume impact (tonnage) on revenues based on the stated weight of our product
shipments. |
|
(c) |
|
Impact of results for the quarterly period ended April 4, 2009 from the acquisitions of
Navigable Foods, Specialty Cereal and certain assets and liabilities of IndyBake. |
21
Our consolidated net sales decreased by 3%, driven by a significant negative impact from foreign
currency translation. Excluding this negative impact, internal net sales grew by 4%, driven by the
continued momentum of our pricing and mix initiatives. Internal net sales grew despite the
decrease in volume compared to the prior year. We experienced volume growth in global ready-to-eat
cereal, which was more than offset by a volume decline in snacks due
to the recall of certain peanut-related products and the re-sizing of certain snack boxes in North
America, and the move from a volume to value model in Russia.
Our North America operating segment had internal sales growth of 4%. The retail cereal product
group grew by almost 6% as we experienced broad based growth in our core brands such as
Mini-Wheats, as well as our innovations such as Special K Blueberry, Jumbo Rice Krispies and
Frosted Mini-Wheats Little Bites. The retail snack product group (cookies, crackers, toaster
pastries, cereal bars, and fruit snacks) grew by 2% with growth from our FiberPlus innovation, Rice
Krispies Treat Squares and our Kashi TLC cereal bars. Our snacks growth was negatively impacted by
the peanut-related recall. See the Product recall section for further information. The frozen
and specialty channels (frozen foods, food service and vending) grew a strong 6% driven by solid
growth in Eggo waffles and Eggo Bake Shop innovations.
Our International operating segments collectively achieved net sales growth of 4% on an internal
basis. Europes internal net sales grew by 1%. Net sales were negatively impacted by retailer
disputes resolved during the quarter. Snacks products continued to perform well across the region,
especially in the UK driven by Rice Krispies Squares. Latin Americas internal net sales growth was
8% attributable to price increases initiated in 2008 and by cereal sales in Venezuela. Asia Pacific
had a very strong quarter, building on last years momentum with 11% internal net sales growth.
Retail cereal grew exceptionally well in Australia, South Africa and India.
Consolidated operating profit decreased by 3% on an as reported basis and increased almost 7% on an
internal basis, when excluding the impact of foreign currency translation and acquisitions. While
we continue to experience significant commodity cost pressures, we have been able to more than
offset those pressures by savings from our cost reduction initiatives and our pricing/mix. Costs
incurred as a result of the peanut-related recall of Kellogg products adversely impacted North
Americas operating profit by $27 million or 7% of the quarters operating profit. See the
Product recall section for further information. North America also had higher up-front costs
associated with cost reduction initiatives as discussed in the Other cost reduction initiatives
section. Internal operating profit increased in Latin America due to strong top line growth and
lower up-front costs. Europes internal operating profit benefited from lower up-front costs,
pricing/mix and savings from cost reduction initiatives. Strong top line growth in Asia Pacific
resulted in strong internal operating profit growth. Reported operating profit growth was
negatively impacted by foreign currency and the acquisition of Navigable Foods. For further
information on our acquisitions, see pages 34 to 35 in our 2008 Annual Report on Form 10-K.
Margin performance
Margin performance for the first quarter of 2009 versus 2008 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
vs. prior |
Quarter |
|
2009 |
|
2008 |
|
year (pts.) |
|
Gross margin (a) |
|
|
41.1 |
% |
|
|
41.9 |
% |
|
|
-0.8 |
|
SGA% (b) |
|
|
-24.4 |
% |
|
|
-25.2 |
% |
|
|
0.8 |
|
|
Operating margin |
|
|
16.7 |
% |
|
|
16.7 |
% |
|
|
0.0 |
|
|
|
|
|
(a) |
|
Gross profit as a percentage of net sales. Gross profit is equal to net sales less cost of
goods sold. |
|
(b) |
|
Selling, general and administrative expense as a percentage of net sales. |
We strive for gross profit dollar growth to reinvest in brand-building and innovation expenditures.
We maximize our gross profit dollars by managing external cost pressures through product pricing
and mix improvements, implementing productivity savings and technological initiatives as well as
entering into commodity hedges and fixed price contracts to reduce the cost of product ingredients
and packaging. For the quarter, our gross profit was down $62 million and was negatively impacted
by foreign exchange and peanut-related recall costs. Our gross profit would have been higher by
$108 million if we excluded the impact of foreign exchange. Operating margin remained unchanged
from the prior year due to disciplined spending in promotions.
As illustrated in the preceding table, our consolidated gross margin declined 80 basis points in
the quarter. Our recent acquisitions lowered gross margin by approximately 20 basis points for the
quarter. We also continue to
22
experience inflationary cost pressures for fuel, energy, commodities
and employee benefits. During the quarter, higher costs, including recall related costs were
offset by savings from cost reduction initiatives and price increases. We expect our full year
margin to be flat compared to the prior year by continued price realization and cost savings which
will offset cost pressures.
Foreign currency translation
The reporting currency for our financial statements is the U.S. dollar. Certain of our assets,
liabilities, expenses and revenues are denominated in currencies other than the U.S. dollar,
primarily in the euro, British pound, Mexican peso, Australian dollar and Canadian dollar. To
prepare our consolidated financial statements, we must translate those assets, liabilities,
expenses and revenues into U.S. dollars at the applicable exchange rates. As a result, increases
and decreases in the value of the U.S. dollar against these other currencies will affect the amount
of these items in our consolidated financial statements, even if their value has not changed in
their original currency. This could have significant impact on our results if such increase or
decrease in the value of the U.S. dollar is substantial.
The recent volatility in the foreign exchange markets has limited our ability to forecast future
U.S. dollar reported earnings. As such, we are measuring diluted earnings per share growth and
providing guidance on future earnings on a currency neutral basis, assuming earnings are translated
at the prior years exchange rates. This non-GAAP financial measure is being used to focus
management and investors on local currency business results, thereby providing visibility to the
underlying trends of the Company. Management believes that excluding the impact of foreign currency
from EPS provides a better measurement of comparability given the volatility in foreign exchange
markets.
Below is a reconciliation of reported diluted EPS to currency neutral EPS for the quarter ended
April 4, 2009:
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
Consolidated results |
|
April 4, 2009 |
|
March 29, 2008 |
|
Diluted net earnings per share (EPS) |
|
$ |
0.84 |
|
|
$ |
0.81 |
|
Translational impact (a) |
|
|
0.08 |
|
|
|
|
|
|
Currency neutral EPS |
|
$ |
0.92 |
|
|
|
|
|
|
Currency neutral EPS growth (b) |
|
|
14 |
% |
|
|
|
|
|
|
|
|
(a) |
|
Translation impact is the difference between reported EPS and the translation of current year
net profits at prior year exchange rates, adjusted for any gains (losses) on translational hedges. |
|
(b) |
|
Calculated as a percentage of growth from the prior years reported EPS. |
Product recall
In January and February, 2009, we recalled certain products because they included ingredients that
had the potential to be contaminated with salmonella. The recall stemmed from the U.S. Food and
Drug Administration and other authorities investigations of Peanut Corporation of America, which
supplied us with peanut paste and other ingredients.
The recall represented a Type I subsequent event and in accordance with U.S. GAAP, we recorded
certain costs associated with the recall in our 2008 financial results. See Note 15 on page 52 of
our 2008 Annual Report on Form 10-K for further information on the recall. We incurred additional
costs in the North America operating segment associated with the recall for product manufactured
and sold in 2009 of $27 million or $0.05 of diluted earnings per share.
Exit or disposal activities
We view our continued spending on cost reduction initiatives as part of our ongoing operating
principles to provide greater visibility in achieving our long-term profit growth targets.
Initiatives undertaken are currently expected to recover cash implementation costs within a
five-year period of completion. Each cost reduction initiative is normally up to three years in
duration. Upon completion (or as each major stage is completed in the case of multi-year programs),
the project begins to deliver cash savings and/or reduced depreciation. Certain of these
initiatives represent exit or disposal plans for which material charges will be incurred. We
include these charges in our measure of operating segment profitability. Management has recently
announced its intention to achieve $1 billion of annual cost savings in three years (beginning in
2012). These initiatives are integral to meeting our $1 billion savings challenge.
23
2009 activities
In 2009, we incurred costs related to our global lean manufacturing program,
Kelloggs lean, efficient, agile network (K LEAN). Lean manufacturing is a
philosophy, that when applied to production methodologies, increases the efficiencies of
manufacturing plants by reducing waste and errors, minimizing equipment downtime, and increasing
equipment and labor productivity. This program seeks to optimize our global
manufacturing network, reducing waste, developing best practices across our global facilities and
reducing capital expenditures. We expect to incur approximately $20 million in each of 2009 and
2010 related to exit costs associated with K LEAN. The charges represent cash payments for severance and other cash costs
associated with the elimination of hourly and salaried positions at various global manufacturing
facilities.
For the quarter ended April 4, 2009, we recorded $4 million of charges in cost of goods sold for
severance payments in the North America operating segment. As of April 4, 2009, we had reserve of
$1 million for employee severance payments.
Prior year activities
We incurred $9 million of costs for the quarter ended March 29, 2008 for two projects: the European
manufacturing optimization plan impacting our facility in Manchester, England; and the
reorganization of production processes to reflect changing market dynamics which impacted our
plants in Valls, Spain and Bremen, Germany. These costs were recorded in cost of goods sold and
were attributable to the Europe operating segment.
These programs were completed in 2008. There were no exit reserves related to either of the
programs as of April 4, 2009 and as of the end of the Companys 2008 fiscal year. See page 37 in
our 2008 Annual Report on Form 10-K for further information on these projects.
The European manufacturing optimization plan began in 2006 to improve utilization of our facility
in Manchester, England and to better align production in Europe. The following table presents
total project costs for the quarter ended March 29, 2008.
|
|
|
|
|
|
|
Project costs |
|
|
Quarter ended |
(millions) |
|
March 29, 2008 |
|
Employee severance |
|
$ |
2 |
|
Other cash costs (a) |
|
|
1 |
|
Asset write-offs |
|
|
1 |
|
Retirement benefits (b) |
|
|
2 |
|
|
Total |
|
$ |
6 |
|
|
|
|
|
(a) |
|
Primarily includes expenditures for equipment removal and relocation, and temporary contracted
services to facilitate employee transactions. |
|
(b) |
|
Pension plan curtailment losses and special termination benefits recognized under SFAS No. 88
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. |
In October 2007, management committed to reorganize certain production processes at its plants in
Valls, Spain and Bremen, Germany. The following table presents total project costs for the quarter
ended March 29, 2008.
|
|
|
|
|
|
|
Project costs |
|
|
Quarter ended |
(millions) |
|
March 29, 2008 |
|
Employee severance |
|
$ |
2 |
|
Asset write-offs |
|
|
1 |
|
|
Total |
|
$ |
3 |
|
|
24
Other cost reduction initiatives
In addition to exit costs, we incurred additional charges related to our K LEAN cost reduction
initiative for the quarter ended April 4, 2009. We incurred $15 million of costs for consulting
recorded in cost of goods sold in the following operating segments (in millions): North America -
$13, Europe - $1 and Latin America $1. Total project costs to
date are $27 million and are recorded in cost of goods sold in
the following operating segments (in millions): North America
$25, Europe $1 and Latin America $1. The total cost and cash outlay for this
program, excluding exit costs, is estimated to be $65 million. This project is expected to be
substantially complete by the end of 2009.
For the quarter ended March 29, 2008, we incurred $10 million of expense in connection with a
payment for the restructuring of our labor force at a manufacturing facility in Mexico. The cost,
which was recorded in cost of goods sold and was attributable to the Latin America operating
segment, resulted in employee benefit cost savings.
Interest expense
For the quarter ended April 4, 2009, interest expense was $67 million and interest income (which is
recorded within other income) was $1 million, as compared to the quarter ended March 29, 2008 with
interest expense of $82 million and interest income of $5 million.
For the full year 2009, we expect gross interest expense to be approximately $270 to $275 million,
compared to 2008s full year amount of $308. The forecasted decline is driven by lower short-term
borrowing rates.
Other income (expense), net
Other income (expense), net includes non-operating items such as interest income, charitable
donations, foreign exchange gains and losses and costs related to commodity options. We recognized
net foreign exchange gains of $6 million for the quarter ended April 4, 2009, as compared to losses
of $7 million for the quarter ended March 29, 2008. The net foreign exchange gains for the first
quarter of 2009 included $14 million of gains on translational
hedges. We are currently not entering
into translational hedges.
Income taxes
The consolidated effective income tax rate was approximately 31% for the quarter ended April 4,
2009, as compared to 30% for the comparable quarter of 2008.
For the full year 2009, we currently expect the consolidated effective income tax rate to be
approximately 30% to 31%. Our estimate of the effective income tax rate for any period is highly
influenced by country mix of earnings, changes in statutory tax rates, timing of implementation of
tax planning initiatives, and developments which affect our evaluation of uncertain tax positions.
Liquidity and capital resources
Overview
Our principal source of liquidity is operating cash flows, supplemented by borrowings for major
acquisitions and other significant transactions. Our cash-generating capability is one of our
fundamental strengths and provides us with substantial financial flexibility in meeting operating
and investing needs.
We believe that our operating cash flow, together with our credit facilities and other available
debt financing, will be adequate to meet our operating, investing and financing needs in the
foreseeable future. However, there can be no assurance that increased volatility and disruption in
the global capital and credit markets will not impair our ability to access these markets on terms
acceptable to us, or at all.
Operating activities
The
principal source of our operating cash flow is net income, meaning cash receipts from the
sale of our products, net of costs to manufacture and market our products. Our cash conversion
cycle (defined as days of inventory and trade receivables outstanding less days of trade payables
outstanding) is relatively short, equating to approximately 23 days for the trailing 365-day
periods ended April 4, 2009 and March 29, 2008.
25
The following table presents the major components of our operating cash flow during the current and
prior quarters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
|
|
April 4, |
|
March 29, |
|
Change versus prior |
(millions) |
|
2009 |
|
2008 |
|
year |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
319 |
|
|
$ |
315 |
|
|
$ |
4 |
|
|
Items in net income not requiring (providing) cash: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
84 |
|
|
|
94 |
|
|
|
(10 |
) |
Deferred income taxes |
|
|
(31 |
) |
|
|
(11 |
) |
|
|
(20 |
) |
Other (a) |
|
|
21 |
|
|
|
70 |
|
|
|
(49 |
) |
|
Net income after non-cash items |
|
|
393 |
|
|
|
468 |
|
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefit plan contributions |
|
|
(74 |
) |
|
|
(41 |
) |
|
|
(33 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Core working capital (b) |
|
|
(185 |
) |
|
|
(155 |
) |
|
|
(30 |
) |
Other working capital |
|
|
111 |
|
|
|
(24 |
) |
|
|
135 |
|
|
|
|
|
(74 |
) |
|
|
(179 |
) |
|
|
105 |
|
|
Net cash provided by operating activities |
|
$ |
245 |
|
|
$ |
248 |
|
|
$ |
(3 |
) |
|
|
|
|
(a) |
|
Consists principally of non-cash expense accruals for employee compensation and benefit
obligations. |
|
(b) |
|
Inventory and trade receivables less trade payables. |
Net cash provided by operating activities for the year-to-date period ended April 4, 2009 was
relatively flat compared with the same period in 2008. A reduction in cash-based earnings in the
first quarter of 2009 was offset by a positive change in other working capital. Other working
capital in 2009 included a favorable impact related to income taxes and cash paid for advertising
and promotion, partially offset by an increase in cash paid for interest in the first quarter of
2009. Unlike the first quarter of 2008, the first quarter 2009 included April 1, which is a date
we pay interest under certain debt agreements.
Our pension and postretirement benefit plan contributions amounted to $74 million and $41 million
for the year-to-date periods ended April 4, 2009 and March 29, 2008, respectively. During the
remainder of 2009, we currently project that we will make additional contributions to pension and
postretirement plans totaling $25 million. Our actual contributions for 2009 could be different
from this projection, since contribution levels may change as a result of changes in regulatory
requirements or our decision to undertake discretionary funding of our benefit trusts versus other
competing investment priorities.
We define cash flow as net cash provided by operating activities reduced by expenditures for
property additions. We use this non-GAAP financial measure of cash flow to focus management and
investors on the amount of cash available for debt repayment, dividend distributions, acquisition
opportunities, and share repurchases. Our cash flow metric is reconciled to the most comparable
GAAP measure, as follows:
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
Change |
|
|
April 4, |
|
March 29, |
|
versus |
(dollars in millions) |
|
2009 |
|
2008 |
|
prior year |
|
Net cash provided by operating activities |
|
$ |
245 |
|
|
$ |
248 |
|
|
|
-1.2 |
% |
Additions to properties |
|
|
(73 |
) |
|
|
(67 |
) |
|
|
|
|
|
Cash flow |
|
$ |
172 |
|
|
$ |
181 |
|
|
|
-5.0 |
% |
|
For full year 2009, we are forecasting cash flow (as defined) ranging from $1,050 million to $1,150
million. This projection assumes an adverse impact on 2009 cash flow of approximately $100 million
associated with changes in foreign currency exchange rates.
Investing activities
Our net cash used by investing activities for the year-to-date period ended April 4, 2009 amounted
to $73 million, a decrease of $99 million when compared with $172 million in the comparable prior
year period. The decrease was primarily attributable to cash outflows of $105 million associated
with an acquisition during the year-to-date period ended March 29, 2008, further discussed in Note
2 within Notes to Consolidated Financial Statements.
We expect 2009 property additions to amount to 3.0% to 4.0% of net sales, which is consistent with
our actual spending rate for 2008 and our long-term target for capital spending.
Financing activities
Our net cash used in financing activities for the year-to-date period ended April 4, 2009 amounted
to $120 million compared with $85 million for year-to-date period ended March 29, 2008. In
contrast with 2008, financing activity in 2009 did not involve issuance of long term debt or
repurchases of common stock.
In March 2008, we issued $750 million of five-year 4.25% fixed rate U.S. Dollar Notes, and used
proceeds of $746 million from issuance of this long-term debt to retire a portion of our commercial
paper. In conjunction with the March 2008 debt issuance, we entered into interest rate swaps with
notional amounts totaling $750 million, which effectively converted this debt from a fixed rate to
a floating rate obligation for the duration of the five-year term.
Our Board of Directors has authorized stock repurchases of up to $650 million for general corporate
purposes and to offset issuances under employee benefit programs. To date, we have not repurchased
any stock under this authorization; however, we intend to execute the $650 million stock repurchase
program during the remainder of 2009. During the first quarter of 2008, we spent $642 million to
purchase approximately 13 million shares of our common stock.
In February 2009, our Board of Directors declared a dividend of $0.34 per common share, which we
paid on March 17, 2009 to shareholders of record at close of business on March 3, 2009. In April
2009, our Board of Directors declared a dividend of $0.34 per common share, payable June 16, 2009
to shareholders of record at close of business on June 1, 2009. We also announced that the Board
plans to increase the quarterly dividend to $0.375 per share
beginning with the third quarter of 2009. This
increase is consistent with our current plan to maintain our dividend pay-out ratio between 40% and
50% of reported net earnings.
We continue to 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 bolt-on acquisitions. This will be
accomplished through our strong cash flow, our program of issuing short-term debt, and maintaining
our credit facilities on a global basis.
27
Forward-looking statements
This 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, advertising, promotion, merchandising, brand
building, operating profit, and earnings per share; innovation; investments; capital expenditures;
asset write-offs and expenditures and costs related to productivity or efficiency initiatives; the
impact of accounting changes and significant accounting estimates; our ability to meet interest and
debt principal repayment obligations; minimum contractual obligations; future common stock
repurchases or debt reduction; effective income tax rate; cash flow and core working capital
improvements; interest expense; commodity, fuel, and energy prices; 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. Our future results could be affected by a variety of 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; |
|
§ |
|
commodity and energy prices; |
|
§ |
|
labor costs; |
|
§ |
|
the availability of and interest rates on short-term and long-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,
statutory tax rates, currency conversion and availability; |
|
§ |
|
legal and regulatory factors; |
|
§ |
|
the ultimate impact of product recalls; |
|
§ |
|
business disruption or other losses from war, terrorist acts, or political unrest; and, |
|
§ |
|
the risks and uncertainties described herein under Part II, Item 1A. |
Forward-looking statements speak only as of the date they were made, and we undertake no obligation
to publicly update them.
28
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to disclosures contained on pages 25-26 of the Companys 2008 Annual Report on Form 10-K.
With regard to our foreign currency exchange risk, we continue to monitor the highly volatile
economic environment in Venezuela. A significant devaluation in the Venezuelan bolivar fuerte
could negatively impact the results of operations in our Latin America operating segment.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our 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 our management, including our Chief Executive Officer and Chief
Financial Officer as appropriate, to allow timely decisions regarding required disclosure under
Rules 13a-15(e) and 15d-15(e). Disclosure controls and procedures, no matter how well designed and
operated, can provide only reasonable, rather than absolute, assurance of achieving the desired
control objectives.
As of April 4, 2009, we carried out an evaluation under the supervision and with the participation
of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures. Based on the foregoing, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective at the reasonable assurance level.
During the last fiscal quarter, there have been no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
29
KELLOGG COMPANY
PART II OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to
our Annual Report on Form 10-K for the fiscal year ended January 3, 2009. The risk factors
disclosed under this Part II, Item 1A and in Part I, Item 1A to our Annual report on Form 10-K for
the fiscal year ended January 3, 2009, in addition to the other information set forth in this
Report, could materially affect our business, financial condition, or results. Additional risks
and uncertainties not currently known to us or that we deem to be immaterial could also materially
adversely affect our business, financial condition, or results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer Purchases of Equity Securities
On February 4, 2009, the Board of Directors authorized management to repurchase up to $650 million
of the Companys common stock during 2009 for general corporate purposes and to offset issuances
for employee benefit programs. During the quarter ended April 4, 2009, the Company did not acquire
any shares of its common stock. During this period, $650 million was the dollar value of shares
that may have been purchased under existing plans or programs.
Item 4. Submission of Matters to a Vote of Security Holders
|
(a) |
|
On April 24, 2009, the Company held its Annual Meeting of Shareowners. |
|
|
(b) |
|
At that Annual Meeting, John T. Dillon, James M. Jenness, Donald R. Knauss, and Robert
A. Steele, were re-elected for a three-year term; with Dr. Benjamin S. Carson, Sr., Gordon
Gund, Dorothy A. Johnson, Ann McLaughlin Korologos, A. D. David Mackay, Rogelio Rebolledo,
Sterling K. Speirn and Dr. John L. Zabriskie continuing as directors. |
|
|
(c) |
|
Six matters were voted on at such Annual Meeting: the re-election of the four directors
described in (b) above; the ratification of PricewaterhouseCoopers LLP as the Companys
independent registered public accounting firm for 2009; managements proposal to adopt the
Kellogg Company 2009 Long-Term Incentive Plan, managements proposal to adopt the Kellogg
Company 2009 Non-Employee Director Stock Plan, a Shareowner proposal to enact a majority
vote requirement for the election of directors, and a Shareowner proposal to elect each
director annually. |
|
|
|
|
In the election of directors, the following directors received the following votes: |
|
|
|
|
|
|
|
|
|
|
|
|
FOR |
|
|
WITHHELD |
John T. Dillon |
|
|
330,666,015 |
|
|
|
11,340,417 |
|
|
|
|
|
|
|
|
|
|
James M. Jenness |
|
|
330,332,919 |
|
|
|
11,673,512 |
|
|
|
|
|
|
|
|
|
|
Donald R. Knauss |
|
|
333,580,080 |
|
|
|
8,426,352 |
|
|
|
|
|
|
|
|
|
|
Robert A. Steele |
|
|
333,432,152 |
|
|
|
8,574,280 |
|
30
In addition, the following matters received the following votes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposal |
|
For |
|
Against |
|
Abstain |
|
Broker Non-Vote |
Ratification of
Independent
Registered Public
Accounting Firm |
|
|
337,292,766 |
|
|
|
4,120,695 |
|
|
|
593,169 |
|
|
|
|
|
Approval of 2009
Long-Term Incentive
Plan |
|
|
284,563,190 |
|
|
|
22,278,560 |
|
|
|
604,091 |
|
|
|
34,560,789 |
|
Approval of 2009
Non-Employee
Director Stock Plan |
|
|
289,411,313 |
|
|
|
17,341,599 |
|
|
|
692,930 |
|
|
|
34,560,788 |
|
Shareowner Proposal
To Enact a Majority
Vote Requirement
for Election of
Directors |
|
|
82,646,734 |
|
|
|
224,103,894 |
|
|
|
694,512 |
|
|
|
34,561,490 |
|
Shareowner Proposal
To Elect Each
Director Annually |
|
|
135,875,382 |
|
|
|
170,921,593 |
|
|
|
648,366 |
|
|
|
34,561,289 |
|
Item 6. Exhibits
(a) Exhibits:
|
|
|
31.1
|
|
Rule 13a-14(e)/15d-14(a) Certification from A.D. David Mackay |
|
31.2
|
|
Rule 13a-14(e)/15d-14(a) Certification from John A. Bryant |
|
32.1
|
|
Section 1350 Certification from A.D. David Mackay |
|
32.2
|
|
Section 1350 Certification from John A. Bryant |
31
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. A. Bryant |
|
|
|
|
J. A. Bryant
|
|
|
|
|
Principal Financial Officer;
Executive Vice President, Chief Operating Officer and
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
/s/ A. R. Andrews |
|
|
|
|
|
|
|
|
|
A. R. Andrews |
|
|
|
|
Principal Accounting Officer;
Vice President Corporate Controller |
|
|
Date: May 7, 2009
32
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 A. D. David Mackay
|
|
E |
|
|
|
|
|
31.2
|
|
Rule 13a-14(e)/15d-14(a) Certification from John A. Bryant
|
|
E |
|
|
|
|
|
32.1
|
|
Section 1350 Certification from A. D. David Mackay
|
|
E |
|
|
|
|
|
32.2
|
|
Section 1350 Certification from John A. Bryant
|
|
E |
33