Consistent with both its forecast and the security analysts’ consensus estimate, Kellogg Company (NYSE: K) today reported first quarter 2001 earnings per share of $.30, down from last year’s $.40. Net earnings were $122.8 million, down from $161.7 million last year. The results exclude restructuring charges and an extraordinary loss from the early extinguishment of debt. Net sales were $1.71 billion, down from last year’s $1.75 billion. However, net sales grew 1 percent without the impact of weakening foreign currencies. Sales were up 2 percent in the United States.

This was the second of three previously predicted transition quarters as the company implements a new business strategy, including the acquisition and integration of Keebler Foods Company. First quarter results include no sales or earnings from Keebler operations. Kellogg completed its purchase of Keebler on March 26.

“In addition to acquiring Keebler, we stepped up investment in our U.S. cereal business during the first quarter,” said Carlos M. Gutierrez, Kellogg Company chairman and chief executive officer. “Also, as anticipated, we experienced short-term disruptions in sales as we refocused several smaller international markets and prepared our U.S. Rice Krispies Treats® and Nutri- Grain® Bars businesses for inclusion in Keebler’s direct store door (DSD) delivery system by the third quarter of this year.

“Given all the challenges, we are pleased with our first quarter results,” Gutierrez said. “We are particularly encouraged by the performance of our U.S. cereal business which, on a year-ago comparison basis, achieved sales growth for the second straight quarter and dollar share growth for the fourth straight quarter. All other U.S. business units, except for brands experiencing inventory drawdowns before being transferred to Keebler’s DSD system, showed solid sales growth.

“As our transition period continues, we remain comfortable with our previous EPS guidance for the full year, excluding charges as well as integration costs associated with the Keebler acquisition. We are confident that Kellogg and Keebler are a winning combination and that our overall strategy is right for the growth of our business.”

During the first quarter of 2001, Kellogg recorded pretax restructuring charges of $48.3 million ($30.3 million after tax or $.07 per share) related to the Keebler acquisition and continued implementation of the company’s new business strategy. The company also incurred an extraordinary after-tax loss of $7.4 million associated with extinguishing long-term debt and an after-tax charge of $1.0 million from the cumulative effect of an accounting change. Including all these items, first quarter net earnings were $84.1 million and first quarter earnings per share were $.21.

About Kellogg Company

With projected annual sales of more than $9 billion, Kellogg Company is the world’s leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles, meat alternatives, pie crusts, and ice cream cones. The company’s brands include Kellogg’s, Keebler, Pop-Tarts, Eggo, Cheez-It, Nutri-Grain, Rice Krispies, Murray, Austin, MorningStar Farms, Famous Amos, Carr’s, Plantation, Ready Crust, and Kashi. Kellogg products are manufactured in 19 countries and marketed in more than 160 countries around the world. For more information, visit Kellogg’s web site at http://www.kelloggs.com or Keebler’s web site at http://www.keebler.com .

Forward-Looking Statements Disclosure

This news release contains forward-looking statements related to strategy, earnings per share, and the integration of Keebler. Actual performance may differ materially from these statements due to factors related to the Keebler acquisition, including integration problems, failures to achieve synergies, unanticipated liabilities, and the substantial amount of indebtedness incurred to finance the acquisition (which could, among other things, hinder the company’s ability to adjust rapidly, make the company more vulnerable to a downturn, and place the company at a competitive disadvantage to less- leveraged companies); competitive conditions and their impact; pricing and promotional spending; the effectiveness of marketing spending and programs; the success of new product introductions; the availability of and interest rates on short-term financing; commodity price and labor cost fluctuations; changes in consumer preferences; economic factors such as interest rates, statutory tax rates, and foreign currency translations; and other factors.


  • Kellogg Company and Subsidiaries
  • CONSOLIDATED EARNINGS
  • (millions, except per share data)

                                                       Three months ended
March 31,
(Results are unaudited) 2001 2000

Ready-to-eat cereal net sales $1,265.9 $1,304.6
Convenience foods net sales 441.4 447.3
Consolidated 1,707.3 1,751.9

Cost of goods sold 823.8 836.9
Selling and administrative expense 628.0 629.8
Restructuring charges 48.3 –

Operating profit 207.2 285.2

Interest expense 40.7 31.8
Other income (expense), net 1.9 (0.8)

Earnings before income taxes,
extraordinary loss, and cumulative
effect of accounting change 168.4 252.6
Income taxes 75.9 90.9

Earnings before extraordinary loss
and cumulative effect of accounting
change 92.5 161.7
Extraordinary loss (net of tax) (7.4) –
Cumulative effect of accounting
change (net of tax) (1.0) –

Net earnings $84.1 $161.7

Per share amounts (basic and
diluted):
Earnings before extraordinary loss
and cumulative effect of accounting
change $.23 $.40
Extraordinary loss (net of tax) ($.02) –
Cumulative effect of accounting
change (net of tax) – –
Net earnings per share $.21 $.40

Cash earnings per share (basic and
diluted) $.31 $.41
Amortization expense (net of tax) $2.8 $2.6

Dividends per share $.2525 $.245

Average shares outstanding 405.7 405.5

Actual shares outstanding at period end 405.9 405.6


Operating profit for the three months ended March 31, 2001, includes restructuring charges of $48.3 ($30.3 after tax or $.07 per share), related to integration of the Kellogg and Keebler business models and continued actions supporting the Company’s “focus and align” strategy in the U.S. and S.E. Asia. Approximately 70% of the charges are comprised of asset write-off’s, with the remainder consisting of employee severance and other cash costs.

Net earnings for the three months ended March 31, 2001, includes an extraordinary loss of $7.4 (net of tax benefit of $4.2 or $.02 per share), related to the extinguishment of $400 of long-term debt.

On January 1, 2001, the Company adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.” For the three months ended March 31, 2001, the Company reported a charge to earnings of $1.0 (net of tax benefit of $.6) and a charge to other comprehensive income of $14.9 (net of tax benefit of $8.6) in order to recognize the fair value of derivative instruments as either assets or liabilities on the balance sheet.

Cash earnings per share is defined as net earnings excluding restructuring charges, extraordinary loss, cumulative effect of accounting change, and amortization expense divided by average shares outstanding.


  • Kellogg Company and Subsidiaries
  • SELECTED OPERATING SEGMENT DATA
  • (millions)
                                                        Three months ended
March 31,
(Results are unaudited) 2001 2000

Net sales
United States $1,048.0 $1,024.5
Europe 331.0 383.3
Latin America 152.7 147.1
All other operating segments 175.6 195.3
Corporate – 1.7
Consolidated $1,707.3 $1,751.9

Operating profit excluding restructuring charges
United States $177.9 $205.1
Europe 53.6 52.9
Latin America 38.5 35.0
All other operating segments 23.7 29.5
Corporate (38.2) (37.3)
Consolidated 255.5 285.2

Restructuring charges (48.3) –
Operating profit as reported $207.2 $285.2

Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)

March 31, December 31,
2001 2000
(unaudited) *

Current assets
Cash and cash equivalents $346.0 $204.4
Accounts receivable, net 956.3 685.3
Inventories:
Raw materials and supplies 176.0 138.2
Finished goods and materials in process 375.6 305.6
Other current assets 342.3 273.3

Total current assets 2,196.2 1,606.8
Property, net of accumulated depreciation
of $2,512.9 and $2,508.3 3,002.3 2,526.9
Goodwill, net of accumulated amortization
of $12.1 and $10.5 3,087.7 208.2
Other intangibles, net of accumulated
amortization of $20.7 and $18.6 2,096.9 199.2
Other assets 384.7 355.2

Total assets $10,767.8 $4,896.3

Current liabilities
Current maturities of long-term debt $502.7 $901.1
Notes payable 898.3 485.2
Accounts payable 505.0 388.2
Income taxes 111.7 130.8
Other current liabilities 867.8 587.3

Total current liabilities 2,885.5 2,492.6

Long-term debt 5,416.6 709.2
Nonpension postretirement benefits 486.7 408.5
Deferred income taxes and other
liabilities 1,197.3 388.5

Shareholders’ equity
Common stock, $.25 par value 103.8 103.8
Capital in excess of par value 100.1 102.0
Retained earnings 1,482.4 1,501.0
Treasury stock, at cost (364.5) (374.0)
Accumulated other comprehensive
income (540.1) (435.3)

Total shareholders’ equity 781.7 897.5

Total liabilities and shareholders’
equity $10,767.8 $4,896.3
* Condensed from audited financial statements


On March 26, 2001, the Company acquired all of the outstanding common stock of Keebler Foods Company. The assets and liabilities of the acquired business are included in the consolidated balance sheet as of March 31, 2001. For purposes of consolidated reporting, during 2001 Keebler’s interim results of operations will be reported for the periods ending March 24, 2001, June 16, 2001, October 6, 2001, and December 29, 2001. As a result, the Company’s first quarter 2001 results do not include any earnings from Keebler operations.


  • Kellogg Company and Subsidiaries
  • CONSOLIDATED STATEMENT OF CASH FLOWS
  • (millions)
                                                        Three months ended
March 31,
(Results are unaudited) 2001 2000

Operating activities
Net earnings $84.1 $161.7
Items in net earnings not requiring
cash:
Depreciation and amortization 70.5 68.9
Deferred income taxes (26.0) 15.3
Restructuring charges, net of cash
paid 47.8 –
Other (62.4) 6.9
Postretirement benefit plan
contributions (25.9) (40.9)
Changes in operating assets and
liabilities (9.2) (13.5)

Net cash provided by operating
activities 78.9 198.4

Investing activities
Additions to properties (27.4) (70.1)
Acquisitions of businesses (3,842.8) (92.6)
Other (1.8) 3.0

Net cash used in investing activities (3,872.0) (159.7)

Financing activities
Net issuances of notes payable 413.3 57.8
Issuances of long-term debt 4,567.0 2.6
Reductions of long-term debt (946.2) –
Net issuances of common stock 7.6 3.0
Cash dividends (102.7) (99.2)
Other 0.6 –

Net cash provided by (used) in
financing activities 3,939.6 (35.8)

Effect of exchange rate changes on
cash (4.9) (5.2)

Increase (decrease) in cash and cash
equivalents 141.6 (2.3)
Cash and cash equivalents at
beginning of period 204.4 150.6

Cash and cash equivalents at end of
period $346.0 $148.3