Running Head: KELLOGG COMPANY
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Trademark
Kellogg Company Financial Analysis
LDR 640 - Financial Systems Management
Maryjean Hall, Barb Shorter
Heather Waterson, Jeanne LoVette
Siena Heights University
April 16, 2013
Running Head: KELLOGG COMPANY
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Part 1 – Maryjean - Selecting a Company:
Kellogg Company (Kellogg’s) operates in the processed & packaged foods market. The
company is engaged in the manufacturing and marketing of ready-to-eat cereal and convenience
foods. Its principal products also include cookies, crackers, toaster pastries, cereal bars, fruit
flavored snacks, frozen waffles and veggie foods (MSN Money, 2013).
What we know about Kellogg Company:
The Company is engaged in the production and marketing of ready-to-eat cereals and
convenience foods. As of February 28, 2012, these products were manufactured by the
Company in 17 countries and marketed in more than 180 countries.
It also markets cookies, crackers, and other convenience foods under other brands, such as
Keebler, Cheez-It, Murray, Austin and Famous Amos to supermarkets in the United States.
Products are generally marketed under the Kellogg name and are sold principally to the grocery
trade through direct sales forces for resale to consumers.
Effective June 1, 2012, Procter & Gamble Co. announced that it had completed the sale of its
Pringles business to Kellogg (MSN Money, 2013).
Special Interest in Kellogg Company
It would be very interesting to learn more about this industry because it has a great variety of
products that are used world-wide. Kellogg’s is one of the largest cereal corporations in the
world, with distributions in over 180 countries.
Current Industry or Company news
Kellogg Company announced it has been named one of the 2013 “World’s Most Ethical
Companies.”
“This marks the fifth time Kellogg Company has been recognized with this honor.
This year, there were more companies that applied for this honor than any other year, and
Kellogg Company was able to beat them all out. The company had created new “initiatives and
ethics programs across entire industry.”
The company was also able to take “take leadership positions” in the company and embrace the
ethical “behavior and improved financial performances” ( ).
“Kellogg Company (NYSE:K) hit a new 52-week high Friday as it is currently trading at $65.60,
above its previous 52-week high of $65.27 with 246,649 shares traded as of 9:45 a.m. ET.
Average volume has been 1.6 million shares over the past 30 days” (The Street, 2013).
Is there much information available about this company or industry?
The book, Six-Hour Day, notes a plethora of information on the history of Kellogg’s and of
how Kellogg’s came about. The book depicts the struggles and triumphs of the Company and
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how the rise of the six hour-day came about, and how it was also known as “The death of the sixhour day”.
Does this company face interesting business or accounting issues?
“In the last few years, sales had declined 2%, in 2009, 1.4% in 2010- 2011, and then in 2012, the
Company had a profitable year” with an increase in sales of 7.57% in sales (Hoover, 2013).
Part 2 - MaryJean: COMPANY BACKGROUND
Company’s Name: Kellogg Co
Postal Address: One Kellogg Square, P.O. Box 3599, Battle Creek, MI 49016-3599
Internet address: http://www.kelloggcompany.com/en_US/home.html
What was the year in which your company was founded and the state in which it is
incorporated
Will Keith (W.K.) Kellogg was born in Battle Creek, Michigan in 1860. At age 14, he
worked for in his father’s broom factory until his late teens. In 1879, he enrolled in a
management class, and for 25 years worked with his brother at the Battle Creek Sanitarium. In
1906, he opened a cereal company. And in 1922, the Kellogg Company was born (p. 10).
What is The Company’s independent (external) audit firm?
Ernst & Young of New York, New York is the audit committee that performs the
auditing for Kellogg’s Company. The audit committee helps the Board of Directors monitor all
of the financial statements of the company. “At least one member of the audit committee shall
possess accounting for related financial management experience to qualify to be the Audit
Committee Financial Expert” (Wikiinvest, 2013).
What is the company's primary line(s) of business?
“As provided in the Charter, the Committee’s oversight responsibilities include monitoring
the integrity of our financial statements (including reviewing financial information, the systems
of internal controls, the audit process and the independence and performance of our internal and
independent registered public accounting firm) and our compliance with legal and regulatory
requirements. However, management has the primary responsibility for the financial statements
and the reporting process, including our systems of internal controls. In fulfilling its oversight
responsibilities, the Committee reviewed and discussed the audited financial statements to be
included in the 2008 Annual Report on Form 10-K with management, including a discussion of
the quality and the acceptability of our financial reporting and controls.
The primary and secondary SIC codes for the company.
2043-01 Cereals (Mfrs.)
8741-30 Management Services
8742-13 Marketing Programs & Services
9999-66 Federal Government Contractors
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What is the size of the company, accompanied by an explanation of the company
characteristics that provide a measure of its size?
There are approximately 31,000 people employed by Kellogg Company. A key characteristic
that is displayed throughout the company’s website is that the employees enjoy their jobs and
love their work. “Our employees are our greatest advantage, they take care of each other…” and
“Whether we’re going to the moon or brightening your morning, our greatest moments are when
we make a difference” (Kelloggs.com)
What is the ticker symbol for your company and the stock exchange on which its shares are
listed?
The ticker symbol is K and the stock exchange it shares are listed is NYSE.
Part 3 - Barb: OVERVIEW OF THE ANNUAL REPORT
Year-end Balance Sheet
Total current assets
Non-current assets
Total current liabilities
Total non-current liabilities
2012
2011
$3,380
$11,804
$3,313
$8,181
$3,069
$8,874
$3,184
$6,832
Increase/Decrease
(I/D)
I - $311
I - $2,930
I- $1,210
I - $1,349
Income Statement
Total (operating) revenues
Cost of goods sold
Total expenses (before income taxes)
Any non-operating (or extraordinary)
Gains and losses
Earnings per common share
2012
2011
$14,197
$8,763
$1,325
$0.00
$0.00
$2.68
$13,198
$8,046
$1,184
$0.00
$0.00
$2.39
Increase/Decrease
(I/D)
I-$999
I-$717
I-$141
N/A
N/A
I-.29
Cash Flow Statement
Net cash inflow (outflow) from operating activities
Net cash inflow (outflow) from financing activities
Net cash inflow (outflow) from investing activities
Net increase (decrease) in cash during year
2012
$1,758
$1,317
$ (3,245)
$ 281
Kellogg uses the indirect method of presenting the cash flow statement
2011
$1,595
$ (957)
$ (587)
$ 460
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Part 4– Barb: THE BUSINESS ENVIRONMENT
The economic environment in which Kellogg Company operates has a big effect on how the
company does business. Growth in the global breakfast cereal market is being fuelled by
changing lifestyles, consumer awareness regarding the importance of healthy eating habits and
evolving food consumption patterns. (ReportLinker, 2013)
Some of the economic issues Kellogg faces are high competition and an economy on the
decrease, which is causing more people to buy generic products, as opposed to name brands.
Kellogg felt the effect of the economy and knew that while the company had to raise its prices to
make a profit, it had to come up with other ways to increase profits. With its strong name
recognition, which only increased when the company became a sponsor of the Olympics, the
Kellogg Company looked at areas in which it could improve. The company started with looking
at how it branded and expanded its products. In order to keep its loyal customer base, it needed
to develop or acquire other products that would appeal to consumers. This resulted in the
company’s initiative to obtain Pringles, as well as selling breakfast snacks at reasonable prices.
The socio-political environment also has a big effect on Kellogg. They include global
outsourcing, rising concern of the environment, global warming (preserving forests and plants),
more restrictions on gas emissions released while manufacturing cereal products and constraints
placed on the cereal industry by Congress. This includes the amount of sugar that can be used in
making cereal.
Worldwide regulations and politics influence how the company operates. The company must
operate by strict environmental regulations and is under close scrutiny by ecological
organizations. What sources of energy it uses to power its machines and what types of fuel
sources used in its distribution processes must meet strict regulations. Increase in the price of
raw materials, including agricultural commodities, fuel and labor can also have an adverse effect
on profits.
Kellogg owns the majority of its trademarks and patents; however, the company is legally bound
by city, state, federal and worldwide laws. Costly lawsuits ultimately increase the prices of
Kellogg Company products. Recall on products that have been misbranded, mislabeled or
contaminated can result in high legal risk if a Kellogg product causes a consumer injury, illness
or death (Kellogg Company Annual Report, 2012). These recalls can result in significant losses
in profit (sales) and negative publicity to the company.
Threats of new entrants into the cereal market are low due to the global domination of the current
cereal makers. It would be very difficult for new entrants to have the money and resources to
make them serious players in the cereal industry.
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Part 5 – Maryjean - THE AUDITORS
What is The Company’s independent (external) audit firm?
Ernst & Young of New York, New York is the audit committee that completes the auditing
for Kellogg Company. The audit committee helps the Board of Directors monitor all of the
financial statement of the company. “At least one member of the audit committee shall possess
accounting for related financial management experience to qualify to be the Audit Committee
Financial Expert”.
Ernst & Young
5 Times Square, F-1
CONLV1
New York, New York 10036
Part 6 – Jeanne – SEC Form 10K report
1. Most Useful Sections of the 10-K Report:

Results of Operations
o Mini operating segments
o Use of short term & long term debt
o Spelled out reported net sales activity
o Year-by-year comparisons – broken down by categories (e.g. US morning foods,
US snacks, US Specialty, etc.)
2. The Annual Report is used to encourage potential investors to buy into the company. The
10-K is a more thorough and detailed accounting of financial and other activities occurring in
the company.
 When looking at the two reports, the annual report of a company could be considered a
shorter version of the 10 K.





“The annual report consists of colourful pictures, Chief Executive Officer or Chairman’s
letter and overview of the financial position. The annual report is usually printed on
glossy paper. Â On the other hand, 10 K does not have colour pictures and is not printed
on glossy paper.
The 10 K report, which is submitted to the Securities and Exchange Commission, tends to
be less accessible than the annual report.
Unlike the annual report, the 10 K consists of an elaborate discussion on the nature of the
marketplace and the nature of business.
10-K report consists of financial performance of a company; highest/lowest  market
price of stocks, legal aspects, potential risks and certain agreements that had not been
made public.
An annual report usually consists of balance sheet, an independent auditor’s report,
general report on the company’s operations, income statement, letters from Chief
Executive Officer or the Chief Financial Officer and a glimpse of the company’s history.”
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(Difference between net, n.d.).
Part 7 Jeanne: INDUSTRY BACKGROUND
1.
Operating Industries



Breakfast Cereal Manufacturing
Cookie and Cracker Manufacturing
Snack Food Manufacturing
“As the consumer market changes, cereal producers will rely on innovations in healthy and
time-saving products to drive industry demand.”
2.



High commodity prices will prove to be a significant threat to operators, and more
consumers will eat out or choose on-the-go options, diminishing demand…Cerealproducing establishments in the United States are strategically located near sources of
key inputs, such as grain and flour mills.
Firms must also remain within a serviceable distance to large city markets…The Great
Lakes region of the country houses the largest proportion of cereal production facilities,
comprising 23.2% of establishments in 2013. Illinois, Ohio and Michigan together
account for 18.5% of total industry establishments, primarily due to their close proximity
to grain and flour mills and major consumer markets like Chicago, Detroit, Cleveland,
and Milwaukee (Ibis World, 2013).
“The annual figures for per-capita output are surprisingly variable and reflect volatility in
the world’s harvest. Nevertheless, it is clear from the 5-year moving-average that world
output generally has kept ahead of population growth, despite the addition of some 3.5
billion extra mouths. That said, there have been two periods of falling per-capita cereal
production.”
Figure 1
Running Head: KELLOGG COMPANY
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World per-capita cereal production, 1951–1997. Averages for 1952 and 1996 are calculated from data for 1951–1953
and 1995–1997, respectively. (Dyson, 2013).
Part 8 – Barb: OPERATING ACTIVITIES
Income Statement
2012
2011
$14,197
$13,198
Cost of goods sold
$8,763
$8,046
Total expenses (before income taxes)
$1,325
$1,184
Income Taxes
$363
$320
Any non-operating (or extraordinary) gains/losses
$0.00
$0.00
Earnings per common share
$2.68
$2.39
Total (operating) revenues: (Net sales)
There were no extraordinary gains or losses or income from discontinued operations
during 2012 or 2011.
Statement of Cash Flows
2012
2011
Net cash inflow (outflow) from operating activities
$1,758
$1,595
Net cash inflow (outflow) from financing activities
$1,317
$ (957)
Net cash inflow (outflow) from investing activities
$ (3,245)
$ (587)
$ 281
$ 460
2012
2011
$1,454
$1,35
$522
$(159)
$1,188
$1,174
$419
$(99)
Net increase (decrease) in cash during year
Two most recent year-end balances
Allowance for bad debts
Balance in accounts receivable
Balance in inventory
Balance income taxes payable
Balance in deferred income taxes
Accounting methods used:

Revenues - The Company recognizes sales upon delivery of its products to customers.
Revenue, which includes shipping and handling charges billed to the customer, is
Running Head: KELLOGG COMPANY
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
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reported net of applicable provisions for discounts, returns, allowances, and various
government withholding taxes. Methodologies for determining these provisions are
dependent on local customer pricing and promotional practices, which range from
contractually fixed percentage price reductions to reimbursement based on actual
occurrence or performance. Where applicable, future reimbursements are estimated based
on a combination of historical patterns and future expectations regarding specific inmarket product performance. The Company classifies promotional payments to its
customers, the cost of consumer coupons, and other cash redemption offers in net sales.
The cost of promotional package inserts is recorded in cost of goods sold (COGS). Other
types of consumer promotional expenditures are recorded in selling, general and
administrative (SGA) expense. (Kellogg Company Annual Report, 2012)
Accounts Receivable - Accounts receivable consists principally of trade receivables,
which are recorded at the invoiced amount, net of allowances for doubtful accounts and
prompt payment discounts. Trade receivables do not bear interest. The allowance for
doubtful accounts represents management’s estimate of the amount of probable credit
losses in existing accounts receivable, as determined from a review of past due balances
and other specific account data. Account balances are written off against the allowance
when management determines the receivable is uncollectible. The Company does not
have off-balance sheet credit exposure related to its customers. (Kellogg Company
Annual Report, 2012)
Inventory - Inventories are valued at the lower of cost or market. Cost is determined on
an average cost basis. (Kellogg Company Annual Report, 2012)
LIFO – I did not find any LIFO (last in, first out) or liquidations disclosed in the annual report.
LIFO refers to an inventory plan based on the assumption that materials constituting
manufacturing costs should be carried on the book at the market price of the last lot received or
last item stored is the first item retrieved.
Part 9 – Heather - ANALYSIS OF OPERATING ACTIVITIES
1. Using the review of your company's financial statements for the past two years, prepare
an exhibit that summarizes the following information for each year:
·
Gross profit margin (%) = gross profit/net sales
2012 - 5434/14197=.38
2011 - 5152/13198=.39
2010 - 5342/12397=.43
·
Operating profit margin (%) = operating profit/net sales
2012 – 1562/14197=.110
2011 – 1427/13198=.108
2010 – 2037/12397=.164
·
Net profit margin (%) = net income/net sales
2012 - 961/14197=.068
2011 - 864/13198=.065
2010 - 1280/12397=.103
Running Head: KELLOGG COMPANY
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Receivables turnover = sales/receivables
2012 - 14197/1454= 9.76
2011 - 13198/1188=11.11
·
Inventory turnover = sales/inventory
2012 - 14197/1365=10.40
2011 - 13198/1174=11.24
·
Asset turnover = sales/assets
2012 - 14197/15184=.93
2011 - 13198/11943=1.11
·
Rate of return on total stockholders' equity = Net Income/Shareholder's Equity
2012 - 961/15184-12704=.39
2011 - 864/11943-10145=.48
From the computations above and any other data you observe, what specific trends (if
any) do you observe? Briefly discuss the implications of each.
2.
Based on the computations above, Kellogg’s ratios are increasing for the better. The company is
continuing to grow despite the current economy. Growth may be a little slower than in the past,
but Kellogg Company is still growing.
Briefly discuss the difference between the concepts of effectiveness and efficiency for a
company's operations. Give an example of each.
3.
“In a simplistic definition, this is the role of operations management, doing the right thing, at
the right time, for the right price” (O’Sullivan, 2011). Effectiveness will have a large impact on
the sales price of a product, depending on the customer’s perception and its relevant place within
the market which will determine if the company can charge a premium price within the market.
Looking at the opposite side is efficiency which controls the cost variables that can have an
incredible impact on the profit margin of the company without having to mark up the costs for
the customer (O’Sullivan, 2011).
Based upon your review of the past two years' financial statements for your company,
describe the overall operating effectiveness. Document the accounting numbers or ratios that
support your conclusion.
4.
Based on the ratios above, Kellogg could be considered to be an effective company. The
company’s ratios look good and Kellogg is continuing to grow. Despite the state of the
company, it continues to make things work and reduce costs.
Running Head: KELLOGG COMPANY
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Part 10 Jeanne - INVESTING ACTIVITIES
Investing activities: cash flows provided By
or Used In
Capital Expenditures
Investments
Other cash flows from Investing activities
Total cash flows from Investing activities
Non-current assets
2012
2011
2010
(533,000)
(2,712,000)
(3,245,000)
(594,000)
7,000
(587,000)
(474,000)
9,000
(465,000)
2012
$8,022
2011
$5,593
2010
$5,804
Net cash used in investing activities for 2012 amounted to $3,245 million, an increase of $2,658
million compared with 2011 primarily attributable to the $2,668 acquisition of Pringles in 2012.
Capital spending in 2012 included investments in: supply chain infrastructure, to support
capacity requirements in certain markets, including Pringles,…investment in information
technology infrastructure related to the reimplementation and upgrade of …[the] SAP platform.
Net cash used in investing activities of $587 million in 2011 increased by $122 million compared
with 2010, reflecting capital projects for reimplementation and upgrade of [the] SAP platform
and investments in supply chain.
Cash paid for additions to properties as a percentage of net sales has decreased to 3.8% in 2012,
from 4.5% in 2011, which was an increase from 3.8% in 2010…” (Kellogg Company Annual
Report, 2012).
Accounting was changed to recognize expense for pension and post-retirement benefit plans.
“Historically…actuarial gains and losses from these plans and recognized the financial impact to
the income statement over several years. Under the new accounting method, gains and losses
from these plans are recognized in an annual mark-to-market adjustment that is recorded in the
fourth quarter of each year, or more frequently if a re-measurement event occurs earlier in the
year” (Kellogg Company Annual Report, 2012).
Part 11 – Jeanne - ANALYSIS OF INVESTING ACTIVITIES
Rate of return on total assets
2012
$15,184
2011
$11,901
2010
$11,847
Running Head: KELLOGG COMPANY
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“Total shareowner return of Kellogg shares for fiscal year 2012 was more than 13 percent.
Kellogg Company remains a strong long-term investment, with five-year cumulative annual
return on shares of 21% and 10-year cumulative annual return on shares of 112%, significantly
outperforming the S&P 500 Index's returns of six percent and 96% for the same periods”(C) (Kellogg
Company Annual Report, 20112).
“The decline in operating profit in 2012 was the result of continued high levels of commodity
inflation, a limited recall in the third quarter, and increased investment in brand building..”
The Company has established accruals for certain matters where losses are deemed probable and
reasonably estimable. There are other claims and legal proceedings pending against the
Company for which accruals have not been established. It is reasonably possible that some of
these matters could result in an unfavorable judgment against the Company and could require
payment of claims in amounts that cannot be estimated at December 29, 2012. Based upon
current information, management does not expect any of the claims or legal proceedings pending
against the Company to have a material impact on the Company's consolidated financial
statements (Kellogg Company Annual Report, 2012). When viewing Company information by
segment, it is easier to understand where/how/why/when the company intends to grow each
segment, not just a broad overview of Company activities. “We report results of operations in
the following reportable segments:



U.S. Morning Foods & Kashi
U.S. Snacks
U.S. Specialty - North America Other; Europe; Latin America; and Asia Pacific.
(millions)
Net sales
U.S. Morning Foods & Kashi
U.S. Snacks
U.S. Specialty
North America Other
Europe
Latin America
Asia Pacific
Consolidated
2012
2011
2010
$ 3,707
3,226
1,121
1,485
2,527
1,121
1,010
$14,197
$ 3,611
2,883
1,008
1,371
2,334
1,049
942
$13,198
$ 3,463
2,704
975
1,260
2,230
923
842
$12,397
We manage our company for
sustainable performance defined
by our long-term annual growth
targets. These targets are 3 to 4%
for internal net sales, mid-singledigit (4 to 6%) for underlying
operating profit, and high-single-digit (7 to 9%) for currency neutral underlying diluted net
earnings per share.” (Kellogg Company Annual Report, 2012).
Running Head: KELLOGG COMPANY
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Part 12 – Jeanne - DEBT FINANCING
Financing activities
Net increase (reduction) of notes payable, with maturities less than
or equal to 90 days
Issuances of notes payable, with maturities greater than 90 days
Reductions of notes payable, with maturities greater than 90 days
Issuances of long-term debt
Reductions of long-term debt
Net issuances of common stock
Common stock repurchases
Cash dividends
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Interest Income
$ 779
$ 189
$(1)
724
(707)
1,727
(750)
229
(63)
(622)
—
$ 1,317
(9)
$ (179)
$460
$281
$261
—
—
895
(945)
291
(798)
(604)
15
$ (957)
(35)
$ 16
$444
$460
$233
—
—
987
(1)
204
(1,052)
(584)
8
$(439)
6
$110
$334
$434
$248
2012
$4,523
$2,160
$12,765
2011
%-chg.
$3,313 1.37
$1,791 1.21
$10,141 1.26
(Consolidated Statement of Cash Flows, 2013); (Consolidated Statement of Income, 2013)
Liabilities
Total current liabilities
Total non-current liabilities
Total Liabilities
There are no off-balance sheet activities noted. The following is a listing of contractual liabilities.
Contractual obligations
Payments due by period
(millions)
Total
2013
2014
2015
2016
2017
2018 and
beyond
Principal
$6,792
$759
$316
$355
$1,255
$404
$3,703
Interest (a)
2,702
259
247
244
239
218
1,495
Capital leases (b)
5
2
1
—
—
—
2
Operating leases (c)
630
166
130
104
79
60
91
Purchase obligations (d)
1,077
879
110
74
14
—
—
Long-term debt:
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14
Uncertain tax positions (e)
21
21
—
—
—
—
—
Other long-term obligations (f)
879
106
60
68
84
226
335
Total
$12,106
$2,192
$864
$845
$1,671
$908
$5,626
(Kellogg Company Annual Report, 2012).
Part 13 – Heather - EQUITY FINANCING
1. Review the stockholders' equity section in your company's most recent year-end balance
sheet and compare that with the previous year-end balance sheet.
The stockholders’ equity for 2012 was 2,419 and in 2011 it was 1,796. The stockholders’
equity has increased by 682 since 2011. It is a good thing to see that the stockholders’ equity is
increase. If it was not increase it could be a red flag to shareholders. If it was not increasing
investors would want to do more research on the company before they invested. If the
stockholders’ equity decreases, this means that the company could be losing money; however
Kellogg Company’s stockholder equity is increasing.
2. List the stockholders' equity account balances and number of outstanding shares from
these two balance sheets and compute the increase or decrease for each during this past year.
Stock holders’ equity
Number of outstanding shares
2012
2,419
573
2011
1,796
522
Difference
623
51
3. If your company has more than one class of stock, briefly summarize the differences in
these equity securities. For instance, if the company has any preferred stock, indicate what
features the stock has (participating, convertible, cumulative, etc.).
The Kellogg Company only has one class of stock which is common stock.
4. What dividends, if any, did your company declare during the past year? Indicate whether
the dividends were paid in cash or stock.
Dividends were paid last year which total 622 million. The dividends were paid with retained
earnings.
Compute the company's dividend payout ratio and dividend yield ratio on its common
stock for each of the past two years.
5.
Dividend Payout Ratio
2012 – 622/961=.647
2011 – 604/864=.699
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15
Dividend Yield
2012 – 3.29%
2011 – 3.05%
2010 – 2.65%
6. Describe any trends in these ratios that the company may have in recent years. What does
this tell you about the company?
After researching Kellogg Company, they are currently paying dividends quarterly. The
dividends seem to have increased every year for a least the past five years.
7. Briefly summarize the significant equity financing activities, if any, of your company for
the past year.
Kellogg Company has issued 419,718,217 shares, and they have also had 58,452,083 shares
of common stock.
8. Indicate whether the company held any treasury stock at the most recent balance sheet
date. If so, indicate how many shares and the average cost at which they were purchased.
Kellogg Company currently has treasury stock. The treasury stock is worth 2943 million. The
company has 58,452,083 in total for 2012, and the company had 62,182,500 in 2011. The
treasury stock decreased by 3,630,417.
Does your company have a stock option plan? If so, compute the % increase in common
shares outstanding if all of the existing stock options were exercised.
9.
The Kellogg Company does have a stock option plan. The shares outstanding for 2012 are 24
million shares.
Part 14 – Heather - ANALYSIS OF FINANCING ACTIVITIES
Review your company's liabilities and stockholders' equity from the assignments in parts
12 and 13, and describe briefly your conclusions about the extent to which your company is
using financial leverage.
1.
The Kellogg Company’s financial leverage is continuing to increase which is good for the
company.
2.
Did your firm make any material changes in capital structure during the past year? If so,
please describe briefly.
Running Head: KELLOGG COMPANY
16
December 2012 (Morningstar, 2013)
March 2010 (Morningstar, 2013)
3. Does your company have any outstanding long-term notes or bonds payable? If so,
describe briefly the characteristics of this debt (amount, interest payment obligations, and
maturity date). Also, find and report the current bond rating in Moody's Bond Record and the
current bond price (stated as a % of face value) in The Wall Street Journal or another financial
news service. Briefly explain the implications of this price for the effective interest rate vis-avis the stated interest rate on the bond.
Kellogg Company does have outstanding bonds payable. As of February 2013, “Fitch Ratings
has assigned a 'BBB+' rating to Kellogg Company's (Kellogg) $750 million senior unsecured
notes issuance with the following tranches: --$400 million due in 2023; --$250 million due in
2015. Kellogg's Rating Outlook is Negative. Kellogg intends to use the net proceeds from this
debt issuance for general corporate purposes including the repayment of its $750 million 4.25%
senior notes maturing on March 6, 2013. The new notes contain a Change of Control Repurchase
Event” (Reuters, 2013).
4.
Determine the current market price for each class of stock outstanding.
Common Stock - 63.66
Running Head: KELLOGG COMPANY
17
5. Based upon the information you have for your company, compute the following financial
ratios for each of the most recent two years:
·
Rate of return on total assets = net income/total assets
2012-961/15184=.06
2011-864/11943=.07
·
Rate of return on total stockholders' equity = Net Income/Shareholder's Equity
2012 - 961/15184-12704=.39
2011 - 864/11943-10145=.48
·
Dividend payout ratio = dividends per share of common stock/earnings per share(annual)
2012 - 69.00%
·
Times interest earned = income before interest & taxes/interest
2012 – 961+261+363/261=6.073
2011 – 864+233+320/233=6.082
6. Based upon the information you have for your company, compute the following financial
ratios for each of the two most recent year-ends:
·
Current ratio = current assets/current liabilities
2012 - 3380/4523=.75
2011 - 3069/3313=.93
·
Quick ratio = cash + cash equivalents + marketable securities + CFO/current liabilities
2012 - 3380-1365/4523=.45
2011 - 3069-1174/3313=.57
·
Debt-to-Equity ratio = total debt/owner’s equity
2012 - 12704/2480=5.12
2011 - 10145/1798=5.64
Briefly comment on the inferences that you draw from the comparative ratios you
computed above.
7.
The company is continuing to grow. The ratios show that Kellogg Company is a fairly stable
company and is not currently in financial trouble.
Running Head: KELLOGG COMPANY
18
Part 15 Jeanne: COMPARISON TO INDUSTRY BENCHMARKS
Company Name: Kellogg Company
Current Price: $66.10(4/20/2013)
Current P/E Ratio: 24.76
Dividend Yld.: 1.76 (2.70%)
One-year Return: $65.59
Shares Outstanding: 367.77M
Market Capitalization: 24.24B
L-T Growth Forecast:_7.74(next 5 years)
Beta relative to S&P: .44
CEO: John A Bryant
Chairman (if different): James M. Jenness
Headquarters: Battle Creek, MI
# of Employees: 31,000
Instl. Ownership (%): 102%
Instl. Ownership (shares): 635 Institutions
Security Offerings (IPO’s) in most recent three years -________________________________
______________________________________________________________________________
Top five institutional owners (and % owned) - (1) Bank of New York Mellon Co. 21.26%; (2) W.K.
Kellogg Foundation Trust 20.51%; (3) Keybank Nat’l Assoc. 7.37%; (4) Price T. Rowe Assoc. Inc.
3.93%; (5) Vanguard Group Inc. 3.15%.
Next quarterly earnings estimate: 1.01
Next annual earnings estimate: 4.16
Number of buys/holds/sells: 4/16/0
Consensus recommendation: Hold/2.8
Moody’s Rating: Negative – Baa1
S&P Rating: BBB
Fitch Rating: BBBTotal debt amount: $7.56B
Lowest debt maturity (years): 2009; Highest debt maturity (years): 2012
Debt ($) at lowest maturity: $5.299B
Debt ($) at highest maturity: $8.287B
(Yahoo finance, 2013)
Running Head: KELLOGG COMPANY
19
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21
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