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)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-4171
KELLOGG COMPANY
State of Incorporation--Delaware IRS Employer Identification No.38-0710690
One Kellogg Square, P.O. Box 3599, Battle Creek, MI 49016-3599
Registrant's telephone number: 269-961-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
Common Stock outstanding July 25, 2003 - 408,233,387 shares
KELLOGG COMPANY
INDEX
PART I - Financial Information Page
Item 1:
Consolidated Balance Sheet - June 28, 2003, and
December 28, 2002 2
Consolidated Statement of Earnings - quarters and year-to-date
periods ended June 28, 2003 and June 29, 2002 3
Consolidated Statement of Cash Flows - year-to-date
periods ended June 28, 2003 and June 29, 2002 4
Notes to Consolidated Financial Statements 5-11
Item 2:
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-17
Item 3:
Quantitative and Qualitative Disclosures about Market Risk 18
Item 4:
Controls and Procedures 18
PART II - Other Information
Item 6:
Exhibits and Reports on Form 8-K 19
Signatures 20-22
Exhibit Index 23
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
==================================================================================================================
June 28, December 28,
2003 2002
(unaudited) *
==================================================================================================================
Current assets
Cash and cash equivalents $160.7 $100.6
Accounts receivable, net 829.1 741.0
Inventories:
Raw materials and supplies 183.0 172.2
Finished goods and materials in process 406.9 431.0
Other current assets 301.9 318.6
- ------------------------------------------------------------------------------------------------------------------
Total current assets 1,881.6 1,763.4
Property, net of accumulated depreciation
of $3,256.2 and $3,012.4 2,761.9 2,840.2
Goodwill 3,102.6 3,106.6
Other intangibles, net of accumulated amortization
of $21.3 and $20.6 2,026.0 2,026.0
Other assets 491.0 483.1
- ------------------------------------------------------------------------------------------------------------------
Total assets $10,263.1 $10,219.3
==================================================================================================================
Current liabilities
Current maturities of long-term debt $577.3 $776.4
Notes payable 484.6 420.9
Accounts payable 605.1 619.0
Accrued advertising and promotion 360.1 309.0
Other current liabilities 803.9 889.6
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,831.0 3,014.9
Long-term debt 4,518.6 4,519.4
Deferred income taxes 999.8 986.4
Pension benefits 347.7 334.5
Nonpension postretirement benefits 344.5 329.6
Other liabilities 139.2 139.4
Shareholders' equity
Common stock, $.25 par value 103.8 103.8
Capital in excess of par value 29.7 49.9
Retained earnings 2,035.2 1,873.0
Treasury stock, at cost (261.9) (278.2)
Accumulated other comprehensive income (loss) (824.5) (853.4)
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,082.3 895.1
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $10,263.1 $10,219.3
==================================================================================================================
* Condensed from audited financial statements.
Refer to Notes to Consolidated Financial Statements.
Kellogg Company and Subsidiaries
CONSOLIDATED EARNINGS
(millions, except per share data)
=================================================================================================================
Year-to-date Year-to-date
Quarter ended Quarter ended period ended period ended
June 28, June 29, June 28, June 29,
(Results are unaudited) 2003 2002 2003 2002
=================================================================================================================
Net sales $2,247.4 $2,125.1 $4,394.9 $4,186.9
Cost of goods sold 1,232.1 1,161.5 2,463.2 2,338.7
Selling and administrative expense 601.2 591.2 1,170.2 1,148.7
Operating profit 414.1 372.4 761.5 699.5
Interest expense 89.5 96.9 181.5 195.0
Other income (expense), net (6.1) 2.0 (5.4) 16.4
---------------------------- -----------------------------------
Earnings before income taxes 318.5 277.5 574.6 520.9
Income taxes 114.6 103.7 206.8 194.5
---------------------------- -----------------------------------
Net earnings $203.9 $173.8 $367.8 $326.4
============================ ===================================
Net earnings per share:
Basic $.50 $.42 $.90 $.80
Diluted $.50 $.42 $.90 $.79
Dividends per share $.2525 $.2525 $.5050 $.5050
============================ ===================================
Average shares outstanding:
Basic 406.9 409.2 407.3 408.1
============================ ===================================
============================ ===================================
Diluted 409.2 412.6 409.3 410.9
============================ ===================================
Actual shares outstanding at period end 408.0 410.1
===================================
Refer to Notes to Consolidated Financial Statements.
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
==============================================================================================================
Year-to-date Year-to-date
period ended period ended
June 28, June 29,
(unaudited) 2003 2002
==============================================================================================================
Operating activities
Net earnings $367.8 $326.4
Adjustments to reconcile net earnings to
operating cash flows:
Depreciation and amortization 183.7 169.8
Deferred income taxes 37.9 0.5
Other 47.6 4.2
Postretirement benefit plan contributions (59.3) (42.7)
Changes in operating assets and liabilities (117.3) 105.5
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 460.4 563.7
- --------------------------------------------------------------------------------------------------------------
Investing activities
Additions to properties (68.5) (85.6)
Acquisitions of businesses - (2.2)
Dispositions of businesses 14.0 65.1
Other 6.5 (1.2)
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (48.0) (23.9)
- --------------------------------------------------------------------------------------------------------------
Financing activities
Net issuances (reductions) of notes payable 63.7 (401.9)
Issuances of long-term debt 498.1 -
Reductions of long-term debt (708.2) (49.3)
Net issuances of common stock 58.0 81.5
Common stock repurchases (62.0) (0.4)
Cash dividends (205.6) (206.2)
Other (2.5) -
- --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (358.5) (576.3)
- --------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 6.2 1.0
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 60.1 (35.5)
Cash and cash equivalents at beginning of period 100.6 231.8
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $160.7 $196.3
==============================================================================================================
Refer to Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
for the quarter and year-to-date period ended June 28, 2003 (unaudited)
Note 1 Accounting policies
The unaudited interim financial information included in this report reflects
normal recurring adjustments that management believes are necessary for a fair
presentation of the results of operations, financial position, and cash flows
for the periods presented. This interim information should be read in
conjunction with the financial statements and accompanying notes contained on
pages 30 to 48 of the Company's 2002 Annual Report. The accounting policies used
in preparing these financial statements are the same as those summarized in the
Company's 2002 Annual Report, except as discussed below. Certain amounts for
2002 have been reclassified to conform to current-period classifications. The
results of operations for the quarter and year-to-date periods ended June 28,
2003, are not necessarily indicative of the results to be expected for other
interim periods or the full year.
Interim reporting periods
Beginning in 2002, the Company has reported interim periods on a thirteen-week
quarter basis, commonly referred to as "4-4-5" because of the number of weeks in
each sub-period of the quarter. Interim results for 2003 are being reported for
the periods ended March 29, June 28, September 27, and December 27. Interim
results for 2002 were reported for the periods ended March 30, June 29,
September 28, and December 28.
Accounting for exit costs
The Company has adopted SFAS No. 146 "Accounting for Costs Associated with Exit
or Disposal," with respect to exit or disposal activities initiated after
December 31, 2002. This statement is intended to achieve consistency in timing
of recognition between exit costs, such as one-time employee separation benefits
and contract termination payments, and all other costs. Under pre-existing
literature, certain costs associated with exit activities were recognized when
management committed to a plan. Under SFAS No. 146, costs are recognized when a
liability has been incurred under general concepts. For instance, under
pre-existing literature, plant closure costs would be accrued at the plan
commitment date. Under SFAS No. 146, these costs would be recognized as closure
activities are performed. These provisions could be expected to have the general
effect of delaying recognition of certain costs related to restructuring
programs. However, management does not currently expect adoption of this
standard to have a significant impact on the Company's 2003 financial results.
Guarantees
With respect to guarantees entered into or modified after December 31, 2002, the
Company has applied guidance contained in FASB Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of indebtedness of Others." This interpretation clarifies
the requirement for recognition of a liability by a guarantor at the inception
of the guarantee, based on the fair value of the non-contingent obligation to
perform. Management does not currently expect application of this guidance to
have a significant impact on the Company's 2003 financial results.
Variable interest entities
During January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities." Under previous practice, entities were included in
consolidated financial statements based on controlling voting interests. Under
this interpretation, previously unconsolidated entities (often referred to as
"special purpose entities") will be included in the consolidated financial
statements of the "primary beneficiary" as a result of non-voting financial
interests that are established through contractual or other means. For variable
interest entities created after January 31, 2003, this interpretation is
effective immediately. For any pre-existing variable interest entities, this
interpretation was effective beginning with the Company's fiscal 2003 third
quarter. Management does not currently believe these requirements are applicable
to any existing financial arrangement of the Company.
Hedging activities
During April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities, resulting primarily from decisions reached by the FASB
Derivatives Implementation Group subsequent to the original issuance of SFAS No.
133. This Statement is generally effective prospectively for contracts and
hedging relationships entered into after June 30, 2003. Management currently
believes that adoption of SFAS No. 149 will have minimal impact on the Company,
except that cash flows associated with certain derivatives will be classified in
the financing rather than the operating section of the cash flow statement. Such
derivatives are generally limited to net investment hedges and those used by the
Company to reduce volatility in the translation of foreign currency earnings to
U.S. Dollars. Management believes that the impact of this classification change
during 2003 will be insignificant.
Stock compensation
The Company uses various equity-based compensation programs to provide long-term
performance incentives for its global workforce. Currently, these incentives
consist of stock options, performance units, restricted stock grants, and stock
purchase plans with various preferred terms. These awards are administered
through several plans, as described in Note 8 to Consolidated Financial
Statements on pages 40 and 41 of the Company's 2002 Annual Report.
The Company uses the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," to account for
its employee stock options and other stock-based compensation. Under this
method, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of the grant, no
compensation expense is recognized. The table below presents pro forma results
for the current and prior-year periods, as if the Company had used the alternate
fair value method of accounting for stock-based compensation, prescribed by SFAS
No. 123 "Accounting for Stock-Based Compensation" (as amended by SFAS No. 148).
Under this pro forma method, the fair value of each option grant was estimated
at the date of grant using the Black-Scholes option-pricing model and was
recognized over the vesting period, generally two years. Pricing model
assumptions included an expected term of three years; and risk-free interest
rate, dividend yield, and volatility assumptions consistent with the expected
term and particular grant date.
- --------------------------------------------------------------------------------------------------------------
(millions except per share data) Quarter ended Year-to-date period ended
- --------------------------------------------------------------------------------------------------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------------
Stock-based compensation expense, net of tax:
As reported $ 2.4 $ 2.7 $ 5.1 $ 5.4
Pro forma $ 10.0 $ 13.2 $ 19.9 $ 26.4
Net earnings:
As reported $ 203.9 $ 173.8 $ 367.8 $ 326.4
Pro forma $ 196.3 $ 163.3 $ 353.0 $ 305.4
Basic net earnings per share:
As reported $ 0.50 $ 0.42 $ 0.90 $ 0.80
Pro forma $ 0.48 $ 0.40 $ 0.87 $ 0.75
Diluted net earnings per share:
As reported $ 0.50 $ 0.42 $ 0.90 $ 0.79
Pro forma $ 0.48 $ 0.40 $ 0.86 $ 0.74
- --------------------------------------------------------------------------------------------------------------
Note 2 Exit activities
Keebler
On March 26, 2001, the Company acquired Keebler Foods Company ("Keebler") in a
cash transaction valued at $4.56 billion. The final purchase price allocation
included $71.3 million of liabilities related to management's plans, as of the
acquisition date, to exit certain activities and operations of the acquired
company. As presented in the table below, remaining reserves of $19.3 million
existed at year-end 2002, to be spent principally during 2003. Acquisition-date
exit plans were substantially completed during the first quarter of 2003, with
remaining reserves consisting primarily of contractual obligations for severance
and leases. During the year-to-date period ended June 28, 2003, $4.5 million of
excess reserves were reversed and recorded as a credit to other income
(expense), net. This excess resulted primarily from lower than projected
facility closure costs and employee severance payments, and higher than
projected proceeds from sale of leased vehicles and sub-lease revenue.
- ----------------------------------------------------------------------------------------------------------------------------------
Employee Lease & other Facility
severance Employee contract closure
(millions) benefits relocation termination costs Total
- ----------------------------------------------------------------------------------------------------------------------------------
Remaining reserve at December 28, 2002 $ 7.2 $ 0.6 $ 9.6 $ 1.9 $ 19.3
2003 year-to-date activity:
Utilized (3.5) (0.1) (1.7) (0.4) (5.7)
Reversed (1.2) (0.4) (1.7) (1.2) (4.5)
- ----------------------------------------------------------------------------------------------------------------------------------
Remaining reserve at June 28, 2003 $ 2.5 $ 0.1 $ 6.2 $ 0.3 $ 9.1
- ----------------------------------------------------------------------------------------------------------------------------------
During April 2002, the Company sold certain assets of Keebler's Bake-Line
private-label unit, including a bakery in Marietta, Oklahoma, to Atlantic Baking
Group, Inc. for approximately $65 million in cash and a $10 million note to be
paid at a later date. In January 2003, the Company sold additional private-label
operations for approximately $14 million in cash. For both of these
transactions, the carrying value of net assets sold, including allocated
goodwill, approximated the net sales proceeds.
Other
Cost of goods sold for the quarter ended June 28, 2003, includes charges of
approximately $15 million, attributable primarily to equipment disposals
associated with manufacturing network optimization efforts in the Company's U.S.
snacks business, which have been ongoing since the Company's acquisition of
Keebler in 2001.
Also during the current quarter, management decided to increase investment in
various productivity initiatives during the remainder of 2003 and 2004. Most of
these initiatives are still in the planning stages and individual actions are
being announced as plans are finalized. Actions implemented during the current
quarter included commencement of a wholesome snack plant consolidation in
Australia, which involves the exit of a leased facility and separation of
approximately 140 employees by year-end 2003. Management expects to incur
approximately $6 million in exit costs and asset write-offs during the second
half of 2003 related to this initiative.
Cost of goods sold for the quarter ended June 29, 2002, includes an impairment
loss of $5.0 million related to the Company's manufacturing facility in China,
representing a decline in real estate market value subsequent to an original
impairment loss recognized for this property in 1997. The Company began
marketing this facility for sale in early 2003, and is currently in the final
stages of closing a sales transaction for an amount that approximates the
carrying value.
Note 3 Other income (expense), net
Other income (expense), net includes non-operating items such as interest
income, foreign exchange gains and losses, charitable donations, and gains on
asset sales. Other income (expense), net for the year-to-date period ended June
28, 2003, includes a credit of approximately $13 million related to favorable
legal settlements; a $4.5 million credit related to a reversal of Keebler exit
liabilities (refer to Note 2); a charge of $8 million for a contribution to the
Kellogg's Corporate Citizenship Fund, a private trust established for charitable
giving; and a charge of $6.5 million to recognize the impairment of a cost-basis
investment in an e-commerce business venture. Other income (expense), net for
the year-to-date period ended June 29, 2002, includes a $16.5 million credit
($10.2 million after tax or $.02 per share), related to favorable legal
settlements. The aforementioned charges and credits recognized in 2003 and 2002
were incurred largely during the first quarter of both years.
Note 4 Equity
Earnings per share
Basic net earnings per share is determined by dividing net earnings by the
weighted average number of common shares outstanding during the period. Diluted
net earnings per share is similarly determined, except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if all dilutive potential common shares had been issued. Dilutive
potential common shares are comprised principally of employee stock options
issued by the Company. Basic net earnings per share is reconciled to diluted net
earnings per share as follows:
====================================================================================================
Quarter Average Net
(millions, except Net shares earnings
per share data) earnings outstanding per share
- ----------------------------------------------------------------------------------------------------
2003
Basic $203.9 406.9 $.50
Dilutive employee
stock options - 2.3 -
- ----------------------------------------------------------------------------------------------------
Diluted $203.9 409.2 $.50
- ----------------------------------------------------------------------------------------------------
2002
Basic $173.8 409.2 $.42
Dilutive employee
stock options - 3.4 -
- ----------------------------------------------------------------------------------------------------
Diluted $173.8 412.6 $.42
====================================================================================================
====================================================================================================
Year-to-date Average Net
(millions, except Net shares earnings
per share data) earnings outstanding per share
- ----------------------------------------------------------------------------------------------------
2003
Basic $367.8 407.3 $.90
Dilutive employee
stock options - 2.0 -
- ----------------------------------------------------------------------------------------------------
Diluted $367.8 409.3 $.90
- ----------------------------------------------------------------------------------------------------
2002
Basic $326.4 408.1 $.80
Dilutive employee
stock options - 2.8 (.01)
- ----------------------------------------------------------------------------------------------------
Diluted $326.4 410.9 $.79
====================================================================================================
Comprehensive Income
Comprehensive income includes net earnings and all other changes in equity
during a period except those resulting from investments by or distributions to
shareholders. Accumulated other comprehensive income for the periods presented
consists of foreign currency translation adjustments pursuant to SFAS No. 52
"Foreign Currency Translation," unrealized gains and losses on cash flow hedges
pursuant to SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," and minimum pension liability adjustments pursuant to SFAS No. 87
"Employers' Accounting for Pensions."
- ---------------------------------------------------------------------------------------------
Tax
Quarter Pre-tax (expense) or After-tax
(millions) amount benefit amount
- ---------------------------------------------------------------------------------------------
2003
Net earnings $203.9
Other comprehensive income:
Foreign currency translation adjustments 31.4 - $31.4
Cash flow hedges:
Unrealized gain (loss) on
cash flow hedges (6.4) 2.0 (4.4)
Reclassification to net earnings 1.5 (0.6) 0.9
Minimum pension liability adjustments - - -
- ---------------------------------------------------------------------------------------------
26.5 1.4 27.9
- ---------------------------------------------------------------------------------------------
Total comprehensive income $231.8
=============================================================================================
- ---------------------------------------------------------------------------------------------
Tax
Pre-tax (expense) or After-tax
(millions) amount benefit amount
- ---------------------------------------------------------------------------------------------
2002
Net earnings $173.8
Other comprehensive income:
Foreign currency translation adjustments (8.4) - (8.4)
Cash flow hedges:
Unrealized gain (loss) on
cash flow hedges 8.7 (3.7) $5.0
Reclassification to net earnings 3.1 (1.2) 1.9
Minimum pension liability adjustments - - -
- ---------------------------------------------------------------------------------------------
3.4 (4.9) (1.5)
- ---------------------------------------------------------------------------------------------
Total comprehensive income $172.3
=============================================================================================
=============================================================================================
Tax
Year-to-date Pre-tax (expense) or After-tax
(millions) amount benefit amount
- ---------------------------------------------------------------------------------------------
2003
Net earnings $367.8
Other comprehensive income:
Foreign currency translation adjustments 33.5 - $33.5
Cash flow hedges:
Unrealized gain (loss) on
cash flow hedges (16.0) 5.5 (10.5)
Reclassification to net earnings 9.2 (3.3) 5.9
Minimum pension liability adjustments - - -
- ---------------------------------------------------------------------------------------------
26.7 2.2 28.9
- ---------------------------------------------------------------------------------------------
Total comprehensive income $396.7
=============================================================================================
- ---------------------------------------------------------------------------------------------
Tax
Pre-tax (expense) or After-tax
(millions) amount benefit amount
- ---------------------------------------------------------------------------------------------
2002
Net earnings $326.4
Other comprehensive income:
Foreign currency translation adjustments (24.0) - (24.0)
Cash flow hedges:
Unrealized gain (loss) on
cash flow hedges 1.7 (1.4) $0.3
Reclassification to net earnings 4.6 (1.8) 2.8
Minimum pension liability adjustments - - -
- ---------------------------------------------------------------------------------------------
(17.7) (3.2) (20.9)
- ---------------------------------------------------------------------------------------------
Total comprehensive income $305.5
=============================================================================================
Accumulated other comprehensive income (loss) as of June 28, 2003, and December
28, 2002, consisted of the following:
- -------------------------------------------------------------------------------
June 28, December 28,
(millions) 2003 2002
- -------------------------------------------------------------------------------
Foreign currency translation adjustments $ (454.1) $ (487.6)
Cash flow hedges -- unrealized net loss (50.9) (46.3)
Minimum pension liability adjustments (319.5) (319.5)
- -------------------------------------------------------------------------------
Total accumulated other comprehensive income (loss) $ (824.5) $ (853.4)
===============================================================================
Note 5 Debt
On April 1, 2003, the Company repaid $699.3 million of maturing 5.50% U.S.
Dollar Notes and initially replaced this debt with U.S. short-term debt. On June
5, 2003, the Company issued $500 million of five-year 2.875% fixed rate U.S.
Dollar Notes, using the proceeds from these Notes to repay a portion of the U.S.
short-term debt. These Notes were issued under an existing shelf registration
statement. In conjunction with this issuance, the Company settled $250 million
notional amount of forward interest rate contracts for a loss of $11.8 million,
which is being amortized to interest expense over the term of the debt. Taking
into account this amortization and issuance discount, the effective interest
rate on these five-year Notes is 3.35%.
Note 6 Operating segments
Kellogg Company is the world's leading producer of cereal and a leading producer
of convenience foods such as cereal bars, frozen waffles, toaster pastries,
cookies, and crackers. The Company also produces natural and vegetarian foods.
Kellogg products are manufactured in 18 countries and marketed in more than 180
countries around the world. Principal markets for these products include the
United States and United Kingdom. The Company is managed in two major divisions
- - the United States and International - with International further delineated
into Europe, Latin America, Canada, Australia, and Asia. This organizational
structure is the basis of the operating segment data presented below.
================================================================================================================================
Year-to-date Year-to-date
Quarter ended Quarter ended period ended period ended
(millions) June 28, June 29, June 28, June 29,
(Results are unaudited) 2003 2002 2003 2002
================================================================================================================================
Net sales
United States $1,416.2 $1,399.4 $2,852.1 $2,826.2
Europe 462.9 382.7 857.4 708.5
Latin America 166.3 169.6 306.0 320.1
All other operating segments 202.0 173.4 379.4 332.1
Corporate - - - -
---------------------------- -----------------------------------
Consolidated $2,247.4 $2,125.1 $4,394.9 $4,186.9
============================ ===================================
- --------------------------------------------------------------------------------------------------------------------------------
Segment operating profit
United States $267.9 $262.9 $508.2 $505.0
Europe 82.5 67.2 140.8 112.7
Latin America 46.5 47.0 86.1 84.2
All other operating segments 36.9 20.8 72.7 41.0
Corporate (19.7) (25.5) (46.3) (43.4)
---------------------------- -----------------------------------
Consolidated $414.1 $372.4 $761.5 $699.5
---------------------------- -----------------------------------
================================================================================================================================
Note 7 Supplemental information on goodwill and other intangible assets
===============================================================================================================================
Intangible assets subject to amortization:
(millions)
Gross carrying amount Accumulated amortization
--------------------------------- -------------------------------------
June 28, December 28, June 28, December 28,
2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Trademarks $ 29.5 $ 29.5 $ 17.7 $ 17.2
Other 6.6 6.7 3.6 3.4
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 36.1 $ 36.2 $ 21.3 $ 20.6
===============================================================================================================================
===============================================================================================================================
Amortization expense (millions) (a): June 28, June 29,
2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Quarter ended $ 0.4 $ 0.4
- -------------------------------------------------------------------------------------------------------------------------------
Year-to-date $ 0.8 $ 0.8
===============================================================================================================================
(a) The currently estimated aggregate amortization expense for each of the 5
succeeding fiscal years is approximately $1.6 million per year.
===============================================================================================================================
Intangible assets not subject to amortization:
(millions) Total carrying amount
------------------------------------
June 28, December 28,
2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Trademarks $ 1,404.0 $ 1,404.0
Direct store door (DSD) delivery system 578.9 578.9
Other 28.3 27.5
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 2,011.2 $ 2,010.4
===============================================================================================================================
===============================================================================================================================
Changes in the carrying amount of goodwill for the year-to-date period ended
June 28, 2003:
Consoli-
(millions) United States Europe Latin America Other (b) dated
December 28, 2002 $ 3,103.2 $ - $ 2.0 $ 1.4 $ 3,106.6
Dispositions (4.9) - - - (4.9)
Foreign currency remeasurement impact and other - - 0.4 0.5 0.9
- -------------------------------------------------------------------------------------------------------------------------------
June 28, 2003 $ 3,098.3 $ - $ 2.4 $ 1.9 $ 3,102.6
===============================================================================================================================
(b) Other operating segments include Australia, Asia, and Canada.
KELLOGG COMPANY
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of operations
Overview
Kellogg Company is the world's leading producer of cereal and a leading producer
of convenience foods such as cereal bars, frozen waffles, toaster pastries,
cookies, and crackers. The Company also produces natural and vegetarian foods.
Kellogg products are manufactured and marketed globally. The Company is managed
in two major divisions - the United States and International - with
International further delineated into Europe, Latin America, Canada, Australia,
and Asia. This organizational structure is the basis of the operating segment
data presented in this report.
During the current quarter, our Company continued to demonstrate business
momentum with solid financial performance, achieving broad-based sales and
operating profit growth, despite substantial reinvestment in brand building and
productivity initiatives. For the quarter ended June 28, 2003, our Company
reported net earnings per share of $.50, a 19% increase over the prior-year
amount of $.42. For the year-to-date period, net earnings per share were $.90
versus the prior period amount of $.79. This year-over-year increase of $.11 was
comprised of $.09 of business growth, $.01 from reduced interest expense, $.02
from a lower effective income tax rate, and $.01 from favorable foreign currency
movements; partially offset by $.02 of favorable legal settlements in the
prior-year period.
Net sales and operating profit
The following tables provide an analysis of net sales and operating profit
performance for the second quarter of 2003 versus 2002:
======================================================================================================================
Other
United Latin Operating Consoli-
(dollars in millions) States Europe America (b) Corporate dated
- ----------------------------------------------------------------------------------------------------------------------
2003 net sales $1,416.2 $ 462.9 $ 166.3 $ 202.0 $ - $2,247.4
- ----------------------------------------------------------------------------------------------------------------------
2002 net sales $1,399.4 $ 382.7 $ 169.6 $ 173.4 $ - $2,125.1
- ----------------------------------------------------------------------------------------------------------------------
% change - 2003 vs. 2002:
Volume -1.7% -0.8% 3.0% -3.2% - -1.3%
Pricing/mix 4.1% 5.1% 5.5% 8.1% - 4.8%
- ----------------------------------------------------------------------------------------------------------------------
Subtotal - internal business 2.4% 4.3% 8.5% 4.9% - 3.5%
Dispositions (a) -1.2% 0.0% 0.0% 0.0% - -0.8%
Foreign currency impact 0.0% 16.7% -10.4% 11.6% - 3.1%
- ----------------------------------------------------------------------------------------------------------------------
Total change 1.2% 21.0% -1.9% 16.5% - 5.8%
======================================================================================================================
======================================================================================================================
Other
United Latin Operating Consoli-
(dollars in millions) States Europe America (b) Corporate dated
- ----------------------------------------------------------------------------------------------------------------------
2003 operating profit $ 267.9 $ 82.5 $ 46.5 $ 36.9 $ (19.7) $ 414.1
- ----------------------------------------------------------------------------------------------------------------------
2002 operating profit $ 262.9 $ 67.2 $ 47.0 $ 20.8 $ (25.5) $ 372.4
- ----------------------------------------------------------------------------------------------------------------------
% change - 2003 vs. 2002:
Internal business 2.6% 7.1% 9.3% 58.6% 23.5% 9.2%
Dispositions (a) -0.7% 0.0% 0.0% 0.0% 0.0% -0.5%
Foreign currency impact 0.0% 15.6% -10.4% 18.0% 0.0% 2.5%
- ----------------------------------------------------------------------------------------------------------------------
Total change 1.9% 22.7% -1.1% 76.6% 23.5% 11.2%
======================================================================================================================
(a) Impact of results for the comparable 2002 periods prior to divestiture of various U.S. private label operations.
Refer to Note 2 within Notes to Consolidated Financial Statements for further information.
(b) Includes Canada, Australia, and Asia.
During the second quarter of 2003, we achieved consolidated internal net sales
growth of 3.5%, against a strong year-ago growth rate of 4.2%. U.S. net sales in
the retail cereal channel increased approximately 3%, aided by successful
innovation and strong growth in heritage brands. Excluding the impact of
private-label business divestitures during the past year, internal net sales of
our U.S. snacks business, (which includes cereal bars and other wholesome
snacks, cookies, and crackers), increased approximately 1%, as growth in both
wholesome snacks and crackers offset several unfavorable factors. These factors
included discontinuance of a low-margin contract manufacturing relationship, an
acceleration of stock-keeping unit (SKU) rationalization, and declining cookie
sales. The decline in cookie sales was a result of aggressive promotional
activities by competitors, category contraction, and a relative lack of
innovation. Given this environment, as well as SKU rationalization, we expect
this soft performance in cookie sales to continue during the balance of the
year. Internal net sales for our other U.S. businesses, (which include frozen
waffles, toaster pastries, natural and vegetarian foods, and the foodservice
channel), increased approximately 3%, with growth across all major product
groups.
Total international net sales increased over 5% in local currencies, with growth
across all segments. Importantly, our European operating segment exhibited
strong sales and category share performance in the quarter, benefiting from
double-digit growth in brand-building investment and innovation activities
across the region. Internal net sales growth in Latin America was driven by a
strong performance by our Mexican business unit in both cereal and snacks. Our
other non-U.S. segments, which include Canada, Australia, and Asia, collectively
delivered solid internal net sales growth, as significant pricing/mix
improvements offset the volume impact of discontinuing product lines in
Australia and Asia in late 2002.
Consolidated internal operating profit increased 9% during the quarter, driven
by double-digit local currency growth in international operating profit, which
was achieved despite a significant increase in brand-building expenditures. Cost
of goods sold for the quarter includes charges of approximately $15 million,
attributable primarily to equipment disposals associated with manufacturing
network optimization efforts in the Company's U.S. snacks business, which have
been ongoing since the Company's acquisition of Keebler in 2001. These charges,
in combination with increased brand-building expenditures and the continuation
of higher commodity, energy, and employee benefit costs, held U.S. internal
operating profit growth for the quarter to less than 3%.
As a result of our Company's strong first-half 2003 performance and favorable
foreign currency movements, we have decided to increase investment in various
productivity initiatives during the remainder of 2003 and 2004. Most of these
initiatives are still in the planning stages and individual actions are being
announced as plans are finalized. Actions implemented during the current quarter
included commencement of a wholesome snack plant consolidation in Australia,
which involves the exit of a leased facility and separation of approximately 140
employees by year-end 2003. Management expects to incur approximately $6 million
in exit costs and asset write-offs during the second half of 2003 related to
this initiative.
The productivity initiatives that we are undertaking could potentially result in
a yet-undetermined amount of exit costs and asset write-offs during the
remainder of 2003 and into 2004. Additionally, we expect to continue with
manufacturing network optimization efforts in our U.S. snacks business. These
initiatives, and others to be announced later in the year, are all designed to
position our Company for sustained reliable growth in earnings and cash flow for
the long-term.
The following tables provide an analysis of net sales and operating profit
performance for the year-to-date periods of 2003 versus 2002:
======================================================================================================================
Other
United Latin Operating Consoli-
(dollars in millions) States Europe America (b) Corporate dated
- ----------------------------------------------------------------------------------------------------------------------
2003 net sales $2,852.1 $ 857.4 $ 306.0 $ 379.4 $ - $4,394.9
- ----------------------------------------------------------------------------------------------------------------------
2002 net sales $2,826.2 $ 708.5 $ 320.1 $ 332.1 $ - $4,186.9
- ----------------------------------------------------------------------------------------------------------------------
% change - 2003 vs. 2002:
Volume -0.2% -1.4% 3.4% -5.4% - -0.6%
Pricing/mix 2.8% 4.9% 7.4% 8.6% - 4.1%
- ----------------------------------------------------------------------------------------------------------------------
Subtotal - internal business 2.6% 3.5% 10.8% 3.2% - 3.5%
Dispositions (a) -1.7% 0.0% 0.0% 0.0% - -1.2%
Foreign currency impact 0.0% 17.5% -15.2% 11.0% - 2.7%
- ----------------------------------------------------------------------------------------------------------------------
Total change 0.9% 21.0% -4.4% 14.2% - 5.0%
======================================================================================================================
======================================================================================================================
Other
United Latin Operating Consoli-
(dollars in millions) States Europe America (b) Corporate dated
- ----------------------------------------------------------------------------------------------------------------------
2003 operating profit $ 508.2 $ 140.8 $ 86.1 $ 72.7 $ (46.3) $ 761.5
- ----------------------------------------------------------------------------------------------------------------------
2002 operating profit $ 505.0 $ 112.7 $ 84.2 $ 41.0 $ (43.4) $ 699.5
- ----------------------------------------------------------------------------------------------------------------------
% change - 2003 vs. 2002:
Internal business 2.4% 8.2% 17.6% 59.7% -6.4% 8.3%
Dispositions (a) -1.8% 0.0% 0.0% 0.0% 0.0% -1.3%
Foreign currency impact 0.0% 16.7% -15.4% 17.4% 0.0% 1.9%
- ----------------------------------------------------------------------------------------------------------------------
Total change 0.6% 24.9% 2.2% 77.1% -6.4% 8.9%
======================================================================================================================
(a) Impact of results for the comparable 2002 periods prior to divestiture of various U.S. private label operations.
Refer to Note 2 within Notes to Consolidated Financial Statements for further information.
(b) Includes Canada, Australia, and Asia.
Margin performance
Margin performance for the second quarter and year-to-date periods of 2003
versus 2002 are presented in the following tables:
======================================================================
Change vs.
prior year
Quarter (pts.)
- ----------------------------------------------------------------------
2003 2002
- ----------------------------------------------------------------------
Gross margin 45.2% 45.3% -0.1
- ----------------------------------------------------------------------
SGA% (a) 26.8% 27.8% 1.0
- ----------------------------------------------------------------------
Operating margin 18.4% 17.5% 0.9
======================================================================
======================================================================
Change vs.
prior year
Year-to-date (pts.)
- ----------------------------------------------------------------------
2003 2002
- ----------------------------------------------------------------------
Gross margin 44.0% 44.1% -0.1
- ----------------------------------------------------------------------
SGA% (a) 26.7% 27.4% 0.7
- ----------------------------------------------------------------------
Operating margin 17.3% 16.7% 0.6
- ----------------------------------------------------------------------
(a) Selling, general, and administrative expense as a percentage of net sales.
The consolidated gross margin in both the quarter and year-to-date periods was
unfavorably impacted by asset write-offs and higher commodity, energy, and
employee benefit costs. These unfavorable factors were nearly offset by the
favorable impact of operating leverage, pricing and mix improvements, and
savings from supply chain productivity initiatives, resulting in only a 10 basis
point decline in gross margin versus the prior periods. As we increase our
investment in productivity initiatives during the remainder of the year,
recognition of upfront costs associated with these initiatives could limit gross
margin expansion, resulting in a full-year gross margin that is in line with the
2002 level of 45.0%.
The decline in gross margin during the quarter and year-to-date periods was more
than offset by a reduction in SGA%, attributable principally to lower overhead
expenses. Solid expansion of our operating margin was achieved despite an
increase in consolidated brand-building expenditures that exceeded the rate of
sales growth.
Interest expense
We currently expect total year 2003 interest expense to be slightly less than
$360 million, down from the total year 2002 amount of $391.2 million, due
primarily to continuing pay-down of our debt balances. The year-to-date 2003
interest expense of $181.5 million is consistent with expectations. Gross
interest expense, prior to amounts capitalized to construction projects, was not
significantly different from reported interest expense in either the current or
prior-year periods.
Other income (expense), net
Other income (expense), net includes non-operating items such as interest
income, foreign exchange gains and losses, charitable donations, and gains on
asset sales. Other income (expense), net for the year-to-date period ended June
28, 2003, includes a credit of approximately $13 million related to favorable
legal settlements; a $4.5 million credit related to a reversal of Keebler exit
liabilities (refer to Note 2 within Notes to Consolidated Financial Statements);
a charge of $8 million for a contribution to the Kellogg's Corporate Citizenship
Fund, a private trust established for charitable giving; and a charge of $6.5
million to recognize the impairment of a cost-basis investment in an e-commerce
business venture. Other income (expense), net for the year-to-date period ended
June 29, 2002, includes a $16.5 million credit ($10.2 million after tax or $.02
per share), related to favorable legal settlements. The aforementioned charges
and credits recognized in 2003 and 2002 were incurred largely during the first
quarter of both years
Income taxes
We currently expect the total year 2003 consolidated effective income tax rate
to be approximately 36%, down from the total year 2002 rate of 37%, due
primarily to the implementation of various foreign and state tax planning
initiatives. The year-to-date 2003 consolidated effective tax rate of 36% is
consistent with these full-year expectations.
Liquidity and capital resources
Our principal source of liquidity is operating cash flows resulting from net
earnings, supplemented by borrowings for major acquisitions and other
significant transactions. This cash-generating capability is one of our
fundamental strengths and provides us with substantial financial flexibility in
meeting operating and investing needs.
Our measure of year-to-date 2003 cash flow (defined as net cash provided by
operating activities reduced by expenditures for property additions) was $391.9
million compared to $478.1 million in the prior-year period. We use this measure
of cash flow to focus management and investors on the amount of cash available
for debt repayment, dividend distributions, acquisition opportunities, and share
repurchase. Our cash flow metric is reconciled to GAAP-basis operating cash flow
as follows:
=====================================================================================
(millions)
Year-to-date period ended
--------------------------------
June 28, 2003 June 29, 2002
- -------------------------------------------------------------------------------------
Net cash provided by operating activities $ 460.4 $ 563.7
Additions to properties (68.5) (85.6)
- -------------------------------------------------------------------------------------
Cash flow $ 391.9 $ 478.1
=====================================================================================
Year-to-date 2003 cash flow was lower than the prior-year period, due primarily
to a difficult working capital comparison in the first quarter of 2002, as well
as timing of tax and interest payments. Although lower than the prior-year
period, our year-to-date 2003 cash flow is consistent with expectations, which
are based on continuing, but slowing improvement in core working capital
(inventory and trade receivables less trade payables). For the twelve months
ended June 28, 2003, core working capital as a percentage of sales was 8.6%, as
compared to 9.1% for the year-ago period and 8.8% for full-year 2002. The second
quarter of 2002 marked the eighth consecutive quarter in which our Company has
achieved sequential improvement in this metric.
We are targeting full-year 2003 cash flow of $800-$850 million, compared to the
2002 amount of $746.4 million, (which was net of the after-tax impact of
year-end 2002 voluntary benefit plan contributions of approximately $254
million).
During April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities, resulting primarily from decisions reached by the FASB
Derivatives Implementation Group subsequent to the original issuance of SFAS No.
133. This Statement is generally effective prospectively for contracts and
hedging relationships entered into after June 30, 2003. We currently believe
that adoption of SFAS No. 149 will have minimal impact on the Company, except
that cash flows associated with certain derivatives will be classified in the
financing rather than the operating section of the cash flow statement. Such
derivatives are generally limited to net investment hedges and those used by the
Company to reduce volatility in the translation of foreign currency earnings to
U.S. Dollars. We believe that the impact of this classification change during
2003 will be insignificant.
Our Board of Directors has authorized management to repurchase up to $250
million of stock during 2003, generally to offset or partially offset issuances
under employee benefit programs. Under this authorization, we paid approximately
$62 million during the first quarter of 2003 to repurchase approximately 2.1
million shares. We did not repurchase any shares during the second quarter. On a
full-year basis, this repurchase program is expected to be funded principally by
proceeds from employee stock option exercises.
On April 1, 2003, we repaid $699.3 million of maturing 5.50% U.S. Dollar Notes
and initially replaced this debt with U.S. short-term debt. On June 5, 2003, we
issued $500 million of five-year 2.875% fixed rate U.S. Dollar Notes, using the
proceeds from these Notes to repay a portion of the U.S. short-term debt. These
Notes were issued under an existing shelf registration statement. In conjunction
with this issuance, we settled $250 million notional amount of forward interest
rate contracts for a loss of $11.8 million, which is being amortized to interest
expense over the term of the debt. Taking into account this amortization and
issuance discount, the effective interest rate on these five-year Notes is
3.35%.
We believe that we will be able to meet our interest and principal repayment
obligations and maintain our debt covenants for the foreseeable future, while
still meeting our operational needs through our strong cash flow, our program of
issuing short-term debt, and maintaining credit facilities on a global basis.
Our significant long-term debt issues do not contain acceleration of maturity
clauses that are dependent on credit ratings. A change in the Company's credit
ratings could limit its access to the U.S. short-term debt market and/or
increase the cost of refinancing long-term debt in the future. However, even
under these circumstances, we would continue to have access to our credit
facilities, which are in amounts sufficient to cover the outstanding short-term
debt balance and debt principal repayments through 2003.
Future outlook
During 2003, our Company faces several important challenges, including
- - higher employee benefits expense;
- - significant increases in the prices of certain grains, cocoa, other
ingredients, packaging, and energy;
- - increased cost and reduced availability of certain types of insurance such
as natural disasters or incidents of terrorism;
- - economic volatility in Latin America; and
- - a fundamental change in strategy for our snacks business, from an
"acquire-and-integrate" approach to one of sustainable, organic growth.
During the remainder of 2003, we believe these cost increases and risks can
continue to be largely offset with pricing and mix improvements, savings from
implemented productivity improvements, and the momentum in operating performance
and cash flow expansion we established in 2002 and have continued to sustain
during the first half of 2003. As a result, we currently believe we will achieve
full-year 2003 net earnings per share of $1.88-$1.90, as compared to 2002 net
earnings per share of $1.75, which included $.02 from favorable legal
settlements in the first quarter.
Forward-looking statements
Our Management's Discussion and Analysis contain "forward-looking statements"
with projections concerning, among other things, our strategy and plans; gross
margins, brand-building, and earnings per share; exit plans and costs related to
productivity initiatives; the impact of accounting changes; our ability to meet
interest and debt principal repayment obligations; future common stock
repurchases; effective income tax rate; cash flow and core working capital
improvements; interest expense; commodity 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. In particular, future results or activities could be affected
by factors related to the Keebler acquisition, including integration problems,
failures to achieve savings, unanticipated liabilities, and the substantial
amount of debt incurred to finance the acquisition, which could, among other
things, hinder our ability to adjust rapidly to changing market conditions, make
us more vulnerable in the event of a downturn, and place us at a competitive
disadvantage relative to less-leveraged competitors. In addition, our future
results could be affected by a variety of other factors, including
- - the impact of competitive conditions;
- - the effectiveness of pricing, advertising, and promotional programs;
- - the success of innovation and new product introductions;
- - the recoverability of the carrying value of goodwill and other intangibles;
- - the success of productivity improvements and business transitions;
- - commodity and energy prices, and labor costs;
- - the availability of and interest rates on short-term financing;
- - actual market performance of benefit plan trust investments;
- - the levels of spending on systems initiatives, properties, business
opportunities, integration of acquired businesses, and other general and
administrative costs;
- - changes in consumer behavior and preferences;
- - the effect of U.S. and foreign economic conditions on items such as
interest rates, statutory tax rates, currency conversion and availability;
- - legal and regulatory factors; and,
- - business disruption or other losses from war, terrorist acts, or political
unrest.
Forward-looking statements speak only as of the date they were made, and we
undertake no obligation to publicly update them.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to disclosures contained on pages 50-52 of the Company's 2002 Annual
Report.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer as appropriate, to allow timely decisions
regarding required disclosure based on management's interpretation of the
definition of "disclosure controls and procedures," in Rule 13a-14(c). In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, rather than absolute, assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Within 90 days prior to the date of this report, management carried out an
evaluation under the supervision and with the participation of the Company's
Chief Executive Officer and the Company's Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on the foregoing, the Company's Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective.
There have been no significant changes in the Company's internal controls or in
the other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation. Therefore, no
corrective actions were taken.
KELLOGG COMPANY
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
32 - Section 906 Certification from Carlos M. Gutierrez
32 - Section 906 Certification from John A. Bryant
(b) Reports on Form 8-K:
The Company filed a Report on Form 8-K dated April 24, 2003,
in which it furnished a press release announcing its first
quarter results under items 9 and 12 of such Report. The
Company also filed a Report on Form 8-K dated July 28, 2003,
in which it furnished a press release announcing its second
quarter results under Items 9 and 12 of such Report.
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 Financial Officer
/s/ J. M. Boromisa
-------------------------------
J. M. Boromisa
Principal Accounting Officer;
Senior Vice President - Corporate Controller
Date: August 8, 2003
CERTIFICATION
I, Carlos M. Gutierrez, Chairman of the Board, President and Chief
Executive Officer of Kellogg Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Kellogg Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Carlos M. Gutierrez
Date: August 8, 2003 ________________________________
Chairman of the Board,
President and Chief
Executive Officer
CERTIFICATION
I, John A. Bryant, Executive Vice President and Chief Financial Officer of
Kellogg Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Kellogg Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ John A. Bryant
Date: August 8, 2003 ________________________________
Executive Vice President
and Chief Financial Officer
KELLOGG COMPANY
EXHIBIT INDEX
Electronic (E)
Paper (P)
Incorp. By
Exhibit No. Description Ref. (IBRF)
32 Section 906 Certification from Carlos M. Gutierrez E
32 Section 906 Certification from John A. Bryant E