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Kellogg Company Reports Earnings Per Share At The High End Of Guidance For 2012 And Reaffirms Guidance For 2013 Growth

Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update them publicly.

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share data)
 
   Quarter ended Year ended
(Results are unaudited) December 29, 2012 (a) December 31, 2011 (b) December 29, 2012 (a) December 31, 2011 (b)
         
Net sales $3,563 $3,015 $14,197 $13,198
         
Cost of goods sold 2,387 2,144 8,763 8,046
Selling, general and administrative expense 1,173 1,109 3,872 3,725
         
Operating profit 3 (238) 1,562 1,427
         
Interest expense 66 55 261 233
Other income (expense), net (6)  -- 24 (10)
         
Income before income taxes  (69) (293) 1,325 1,184
Income taxes (37) (98) 363 320
Earnings from joint ventures  --  --  (1)  --
Net income ($32) ($195) $961 $864
Net loss attributable to noncontrolling interests   --   --  --  (2)
Net income attributable to Kellogg Company  ($32) ($195) $961 $866
         
Per share amounts:        
Basic ($0.09) ($.54) $2.68 $2.39
Diluted ($0.09) ($.54) $2.67 $2.38
         
Dividends per share $.440 $.430 $1.740 $1.670
         
Average shares outstanding:        
Basic 359 358 358 362
Diluted 359 358 360 364
         
Actual shares outstanding at year end     361 357
 
         
(a) Financial results for the quarter and year-to-date periods ended December 29, 2012 include the impact of adopting new pension and post-retirement benefit plan accounting.
         
(b) Results for the quarter and year-to-date periods ended December 31, 2011 have been re-cast to include the impact of adopting new pension and post-retirement benefit plan accounting.
 
 
Kellogg Company and Subsidiaries
SELECTED OPERATING SEGMENT DATA
         
(millions)
  Quarter ended Year-to-date period ended
(Results are unaudited) December 29, 2012 (a) December 31, 2011 (b) December 29, 2012 (a) December 31, 2011 (b)
         
Net sales        
U.S. Morning Foods & Kashi $881 $829 $3,707 $3,611
U.S. Snacks 816 702 3,226 2,883
U.S. Specialty 257 219 1,121 1,008
North America Other 360 311 1,485 1,371
Europe  691 494 2,527 2,334
Latin America  285 233 1,121 1,049
Asia Pacific 273 227 1,010 942
Consolidated $3,563 $3,015 $14,197 $13,198
         
         
Operating profit         
U.S. Morning Foods & Kashi $122 $131 $595 $611
U.S. Snacks 116 112 469 437
U.S. Specialty 52 46 241 231
North America Other 58 55 265 250
Europe  51 42 261 302
Latin America  32 24 167 176
Asia Pacific 6 26 85 104
Total Reportable Segments 437 436 2,083 2,111
Corporate (434) (674) (521) (684)
Consolidated $3 ($238) $1,562 $1,427
 
         
(a) Financial results for the quarter and year-to-date periods ended December 29, 2012 include the impact of adopting new pension and post-retirement benefit plan accounting.
 
(b) Results for the quarter and year-to-date periods ended December 31, 2011 have been re-cast to include the impact of adopting new pension and post-retirement benefit plan accounting. In addition to the change in accounting, the Company also changed the way pension and post-retirement benefit related costs are allocated to its reportable segments. Previously the Company allocated all components of net pension and post-retirement benefit expense (i.e. service cost, interest cost, expected return on assets, amortization of gains/loss and prior service cost) to the individual reportable segment. The Company has changed its allocation methodology whereby the reportable segments will only be allocated service cost and prior service cost. Interest cost, expected return on assets and the annual mark-to-market adjustment are recorded in Corporate. This change in allocation provides improved transparency into the underlying operating results of the reportable segments. Costs that are more sensitive to changes in actuarial assumptions (including discount rates and expected return on assets) are recorded in Corporate where they are centrally managed.
 
 
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)    
 
   Year ended
(unaudited) December 29, 2012 (a) December 31, 2011 (b)
     
Operating activities    
Net income $961 $864
Adjustments to reconcile net income to operating cash flows:    
Depreciation and amortization 448 369
Postretirement benefit plan expense 419 684
Deferred income taxes (159) (93)
Other (21) (115)
Postretirement benefit plan contributions (51) (192)
Changes in operating assets and liabilities 161 78
     
Net cash provided by operating activities 1,758 1,595
     
Investing activities    
Additions to properties (533) (594)
Acquisitions, net of cash acquired (2,668)  --
Other  (44) 7
     
Net cash used in investing activities (3,245) (587)
     
Financing activities    
Net issuances of notes payable 796 189
Issuances of long-term debt 1,727  895
Reductions of long-term debt (750) (945)
Net issuances of common stock 229 291
Common stock repurchases  (63) (798)
Cash dividends (622) (604)
Other  -- 15
     
Net cash provided by (used in) financing activities 1,317 (957)
     
Effect of exchange rate changes on cash and cash equivalents  (9) (35)
     
Increase (decrease) in cash and cash equivalents (179) 16
Cash and cash equivalents at beginning of period 460 444
     
Cash and cash equivalents at end of period $281 $460
     
Supplemental financial data:    
Cash Flow (operating cash flow less property additions) (c) $1,225 $1,001
 
     
(a) Financial results for the year-to-date period ended December 29, 2012 include the impact of adopting new pension and and post-retirement benefit plan accounting.
     
(b) Results for the year-to-date period ended December 31, 2011 have been re-cast to include the impact of adopting new pension and post-retirement benefit plan accounting.
     
(c) We use this non-GAAP measure of cash flow to focus management and investors on the amount of cash available for debt reduction, dividend distributions, acquisition opportunities, and share repurchase.
 
 
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
 
  December 29, 2012 (a) (unaudited) December 31, 2011 (b)  *
     
Current assets    
Cash and cash equivalents $281 $460
Accounts receivable, net  1,454  1,188
Inventories:    
Raw materials and supplies  300  247
Finished goods and materials in process  1,065  927
Deferred income taxes  159  149
Other prepaid assets  128  98
     
Total current assets 3,387 3,069
     
Property, net of accumulated depreciation of $5,209 and $4,847 3,782 3,281
Goodwill 5,053 3,623
Other intangibles, net of accumulated amortization of $53 and $49 2,359 1,454
Pension 184 150
Other assets 478 366
     
Total assets $15,243 $11,943
     
Current liabilities    
Current maturities of long-term debt $755 $761
Notes payable 1,065 234
Accounts payable 1,402 1,189
Accrued advertising and promotion 517 410
Accrued income taxes  52  66
Accrued salaries and wages 266 242
Other current liabilities 473 411
     
Total current liabilities 4,530 3,313
     
Long-term debt 6,082 5,037
Deferred income taxes 536 643
Pension liability 787 560
Nonpension postretirement benefits 414 188
Other liabilities 414 404
     
Commitments and contingencies    
     
Equity    
Common stock, $.25 par value 105 105
Capital in excess of par value 573 522
Retained earnings 5,615 5,305
Treasury stock, at cost (2,943) (3,130)
Accumulated other comprehensive income (loss) (931) (1,006)
Total Kellogg Company equity 2,419 1,796
     
Noncontrolling interests 61 2
Total equity 2,480 1,798
Total liabilities and equity $15,243 $11,943
* Condensed from audited financial statements.    
     
 (a) Financial results for the year ended December 29, 2012 include the impact of adopting new pension and post-retirement benefit plan accounting.
 
 (b) Results for the year ended December 31, 2011 have been re-cast to include the impact of adopting new pension and post-retirement benefit plan accounting.
 
 
Kellogg Company and Subsidiaries
Reconciliation of Non-GAAP Amounts - Reported Operating Profit Growth to Comparable Internal Operating Profit Growth
     
  Quarter ended Year-to-date period ended
  December 29, 2012 December 29, 2012
     
Reported Operating Profit Growth 101.2% 9.5%
Acquisitions/Dispositions 19.3% 8.6%
Integration costs -11.4% -5.4%
Foreign currency -1.0% -1.2%
Internal Operating Profit Growth 94.3% 7.5%
Mark-to-market (a) 103.9% 13.2%
Adjusted Operating Profit Growth (b) -9.6% -5.7%
Impact of Changes to Pension Accounting (c) -2.0% 0.2%
Comparable Internal Operating Profit Growth (d) -7.6% -5.9%
     
(a) Actuarial gains/losses are recognized in the year they occur. In 2012, asset returns exceeded expectations but discount rates fell almost 100 basis points resulting in a net loss. 
 
(b) Adjusted Operating Profit Growth is a non-GAAP measure that excludes the impact of pension and post-retirement benefits mark-to-market entries and will act as the 2012 base for future comparisons.
 
(c) Primarily amortization of actuarial gains and losses not included in reported amounts. This adjustment is necessary to provide visibility into comparable operating profit growth (non-GAAP).
 
(d) Comparable Internal Operating Profit Growth calculated to correspond to previously provided guidance. This measure eliminates the impact resulting from the adoption of new pension and post-retirement benefits accounting and is a non-GAAP measure. 
 
Kellogg Company and Subsidiaries
                     
Analysis of net sales and operating profit performance
                     
Fourth quarter of 2012 versus 2011
(dollars in millions) U.S. Morning Foods & Kashi U.S. Snacks U.S. Specialty North America Other North America Europe Latin America Asia Pacific Corp- orate Consoli- dated
2012 net sales  $ 881  $ 816  $ 257  $ 360  $ 2,314  $ 691  $ 285  $ 273  $ --   $ 3,563
2011 net sales  $ 829  $ 702  $ 219  $ 311  $ 2,061  $ 494  $ 233  $ 227  $ --   $ 3,015
% change - 2012 vs. 2011:                    
Volume (tonnage) (c)         3.4% -.1% -.6% 6.4%  --  2.6%
Pricing/mix         2.1% 2.8% 10.0% -1.8%  --  2.7%
Subtotal - internal business (d) 6.3% .7% 10.0% 11.2% 5.5% 2.7% 9.4% 4.6%  --  5.3%
Acquisitions (e) --% 15.5% 7.3% 3.5% 6.6% 37.8% 10.4% 20.2%  --  13.0%
Dispositions (f) --% --% --% --% --% --% --% -3.7%  --  -.3%
Integration impact (g) --% --% --% --% --% --% --% -.4%  --  --%
Foreign currency impact --% --% --% 1.2% .2% -.6% 2.2% -.2%  --  .2%
Total change 6.3% 16.2% 17.3% 15.9% 12.3% 39.9% 22.0% 20.5%  --  18.2%
 
(dollars in millions) U.S. Morning Foods & Kashi U.S. Snacks U.S. Specialty North America Other North America Europe Latin America Asia Pacific Corp- orate Consoli- dated
2012 operating profit (a)  $ 122  $ 116  $ 52  $ 58  $ 348  $ 51  $ 32  $ 6  $ (434)  $ 3
2011 operating profit (b)  $ 131  $ 112  $ 46  $ 55  $ 344  $ 42  $ 24  $ 26  $ (674)  $ (238)
% change - 2012 vs. 2011:                    
Internal business (d) -6.9% -1.7% 9.0% 2.3% -1.6% -7.7% 19.7% -72.3% 36.6% 94.3%
Acquisitions (e) --% 13.8% 4.5% 3.8% 5.7% 49.0% 15.5% 6.5% -.4% 18.2%
Dispositions (f) --% --% --% --% --% --% --% 8.8% --% 1.1%
Integration impact (g) --% -9.2% --% --% -3.0% -24.4% -1.2% -12.6% -.4% -11.4%
Foreign currency impact --% --% --% 1.5% .2% 4.7% 2.2% -6.7% -.4% -1.0%
Total change -6.9% 2.9% 13.5% 7.6% 1.3% 21.6% 36.2% -76.3% 35.4% 101.2%
                     
(a) Financial results for the quarter ended December 29, 2012 include the impact of adopting new pension and post-retirement benefit plan accounting.
(b) Financial results for the quarter ended December 31, 2011 have been re-cast to include the impact of adopting new pension and post-retirement benefit plan accounting.
(c) We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments.
(d) Internal net sales and operating profit growth for 2012, exclude the impact of acquisitions, divestitures, integration costs and impact of currency. Internal net sales and operating profit growth are non-GAAP financial measures which are reconciled to the directly comparable measures in accordance with U.S. GAAP within these tables.
(e) Impact of results for the quarter ended December 29, 2012 from the acquisition of Pringles.
(f) Impact of results for the quarter ended December 29, 2012 from the divestiture of Navigable Foods.
(g) Includes impact of integration costs associated with the Pringles acquisition.
 
 
Kellogg Company and Subsidiaries
 
Analysis of net sales and operating profit performance
                     
Year-to-date 2012 versus 2011
(dollars in millions) U.S. Morning Foods & Kashi U.S. Snacks U.S. Specialty North America Other North America Europe Latin America Asia Pacific Corp- orate Consoli- dated
2012 net sales  $ 3,707  $ 3,226  $ 1,121  $ 1,485  $ 9,539  $ 2,527  $ 1,121  $ 1,010  $ --   $ 14,197
2011 net sales  $ 3,611  $ 2,883  $ 1,008  $ 1,371  $ 8,873  $ 2,334  $ 1,049  $ 942  $ --   $ 13,198
% change - 2012 vs. 2011:                    
Volume (tonnage) (c)         --% -4.8% -2.2% 4.5%  --  -.8%
Pricing/mix         3.6% 1.0% 8.9% -1.8%  --  3.3%
Subtotal - internal business (d) 2.7% 1.9% 7.4% 7.0% 3.6% -3.8% 6.7% 2.7%  --  2.5%
Acquisitions (e) --% 10.0% 3.8% 1.8% 4.0% 16.6% 4.2% 10.9%  --  6.7%
Dispositions (f) --% --% --% --% --% --% --% -3.4%  --  -.2%
Integration impact (g) --% --% --% --% --% --% --% -.1%  --  --%
Foreign currency impact --% --% --% -.5% -.1% -4.5% -4.1% -2.8%  --  -1.4%
Total change 2.7% 11.9% 11.2% 8.3% 7.5% 8.3% 6.8% 7.3%  --  7.6%
 
(dollars in millions) U.S. Morning Foods & Kashi U.S. Snacks U.S. Specialty North America Other North America Europe Latin America Asia Pacific Corp- orate Consoli- dated
2012 operating profit (a)  $ 595  $ 469  $ 241  $ 265  $ 1,570  $ 261  $ 167  $ 85  $ (521)  $ 1,562
2011 operating profit (b)  $ 611  $ 437  $ 231  $ 250  $ 1,529  $ 302  $ 176  $ 104  $ (684)  $ 1,427
% change - 2012 vs. 2011:                    
Internal business (d) -2.7% -.8% 1.2% 5.2% -.3% -15.8% -3.7% -28.7% 29.3% 7.5%
Acquisitions (e) --% 12.4% 3.1% 1.7% 4.3% 12.6% 2.6% 7.6% -.8% 7.8%
Dispositions (f) --% --% --% --% --% --% --% 9.7% --% .8%
Integration impact (g) --% -4.3% --% --% -1.2% -8.0% -.4% -4.5% -4.1% -5.4%
Foreign currency impact .0% --% --% -.7% -.1% -2.3% -3.5% -2.5% -.6% -1.2%
Total change -2.7% 7.3% 4.3% 6.2% 2.7% -13.5% -5.0% -18.4% 23.8% 9.5%
                     
(a) Financial results for the year ended December 29, 2012 include the impact of adopting new pension and post-retirement benefit plan accounting.
(b) Financial results for the year ended December 31, 2011 have been re-cast to include the impact of adopting new pension and post-retirement benefit plan accounting.
(c) We measure the volume impact (tonnage) on revenues based on the stated weight of our product shipments.
(d) Internal net sales and operating profit growth for 2012, exclude the impact of acquisitions, divestitures, integration costs and impact of currency. Internal net sales and operating profit growth are non-GAAP financial measures which are reconciled to the directly comparable measures in accordance with U.S. GAAP within these tables.
(e) Impact of results for the year ended December 29, 2012 from the acquisition of Pringles.
(f) Impact of results for the year ended December 29, 2012 from the divestiture of Navigable Foods.
(g) Includes impact of integration costs associated with the Pringles acquisition.
 
 
Kellogg Company and Subsidiaries
Up-Front Costs*
$ millions            
             
  Quarter ended December 29, 2012 Year-to-date period ended December 29, 2012
  Cost of goods sold (a) Selling, general and administrative expense Total Cost of goods sold (a) Selling, general and administrative expense Total
2012            
U.S. Morning Foods & Kashi  $ 4  $ 1  $ 5  $ 11  $ 5  $ 16
U.S. Snacks  2  (2)  --  6  4  10
U.S. Specialty  --  --  --  --  1  1
North America Other  3  --  3  5  1  6
Europe  --  --  --  3  --  3
Latin America  1  1  2  1  1  2
Asia Pacific  17  --  17  17  1  18
Corporate  --  --  --  --  --  --
Total  $ 27  $ --  $ 27  $ 43  $ 13  $ 56
             
  Quarter ended December 31, 2011 Year-to-date period ended December 31, 2011
  Cost of goods sold (a) Selling, general and administrative expense Total Cost of goods sold (a) Selling, general and administrative expense Total
2011            
U.S. Morning Foods & Kashi  $ 1  $ 1  $ 2  $ 7  $ 4  $ 11
U.S. Snacks  2  2  4  7  17  24
U.S. Specialty  --  --  --  --  1  1
North America Other  2  1  3  5  1  6
Europe  3  1  4  15  1  16
Latin America  --  --  --  --  1  1
Asia Pacific  --  --  --  2  --  2
Corporate  --  --  --  --  --  --
Total  $ 8  $ 5  $ 13  $ 36  $ 25  $ 61
             
2012 Variance - better(worse) than 2011            
U.S. Morning Foods & Kashi  $ (3)  $ --  $ (3)  $ (4)  $ (1)  $ (5)
U.S. Snacks  --  4  4  1  13  14
U.S. Specialty  --  --  --  --  --  --
North America Other  (1)  1  --  --  --  --
Europe  3  1  4  12  1  13
Latin America  (1)  (1)  (2)  (1)  --  (1)
Asia Pacific  (17)  --  (17)  (15)  (1)  (16)
Corporate  --  --  --  --  --  --
Total  $ (19)  $ 5  $ (14)  $ (7)  $ 12  $ 5
             
* Up-front costs are charges incurred by the Company which will result in future cash savings and/or reduced depreciation. 
(a) Includes expense associated with capital projects across our supply chain network incurred primarily in North America.
 
 
Kellogg Company and Subsidiaries
Transaction and Integration Costs*
$ millions                    
                     
  Quarter ended December 29, 2012 Year-to-date period ended December 29, 2012
  Net Sales Cost of goods sold Selling, general and administrative expense Other Income/Expense Total Net Sales Cost of goods sold Selling, general and administrative expense Other Income/Expense Total
2012                    
U.S. Snacks  $ --  $ --  $ 9  $ --  $ 9  $ --  $ --  $ 18  $ --  $ 18
Europe  --  --  10  --  10  --  1  23  --  24
Latin America  --  --  1  --  1  --  --  1  --  1
Asia Pacific  1  1  2  --  4  1  1  3  --  5
Corporate  --  --  3  --  3  --  --  28  5  33
Total  $ 1  $ 1  $ 25  $ --  $ 27  $ 1  $ 2  $ 73  $ 5  $ 81
                     
* Transaction and integration costs are charges incurred by the Company as a direct result of the work performed for the acquisition of the Pringles business. 
No transaction costs were incurred during the quarter ended December 29, 2012.
CONTACT: Analyst Contact: Simon Burton, CFA (269) 961-6636
         Media Contact: Kris Charles (269) 961-3799

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