

	Year-to-date period ended
(unaudited)	June 29, 2019			June 30, 2018
Operating activities
Net income	$	577		$	1,043
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization	243			234
Postretirement benefit plan expense (benefit)	(65		)	(86		)
Deferred income taxes	23			69
Stock compensation	29			30
Gain on unconsolidated entities, net	—			(200		)
Other	1			(67		)
Postretirement benefit plan contributions	(12		)	(274		)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables	(239		)	(83		)
Inventories	(6		)	(38		)
Accounts payable	29			64
All other current assets and liabilities	(60		)	(245		)
Net cash provided by (used in) operating activities	520			447
Investing activities
Additions to properties	(294		)	(270		)
Acquisitions, net of cash acquired	(8		)	(28		)
Investments in unconsolidated entities	—			(388		)
Acquisition of cost method investments	—			(4		)
Purchases of available for sale securities	(16		)	—
Sales of available for sale securities	16			—
Other	(25		)	29
Net cash provided by (used in) investing activities	(327		)	(661		)
Financing activities
Net issuances (reductions) of notes payable	391			(76		)
Issuances of long-term debt	28			993
Reductions of long-term debt	—			(401		)
Net issuances of common stock	12			70
Common stock repurchases	(220		)	(50		)
Cash dividends	(380		)	(374		)
Other	(8		)	—
Net cash provided by (used in) financing activities	(177		)	162
Effect of exchange rate changes on cash and cash equivalents	3			28
Increase (decrease) in cash and cash equivalents	19			(24		)
Cash and cash equivalents at beginning of period	321			281
Cash and cash equivalents at end of period	$	340		$	257

Supplemental cash flow disclosures
Interest paid	$	154		$	151
Income taxes paid	$	157		$	76

Supplemental cash flow disclosures of non-cash investing activities:
Additions to properties included in accounts payable	$	100		$	77

Year-to-date period ended
(unaudited) June 30,
2018 July 1,
2017
Operating activities
Net income $ 1,043
$ 549
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization 234
240
Postretirement benefit plan expense (benefit) (86 ) (96 )
Deferred income taxes 69
(66 )
Stock compensation 30
36
Gain on unconsolidated entities, net (200 ) —
Other (67 ) 36
Postretirement benefit plan contributions (274 ) (28 )
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables (83 ) (716 )
Inventories (38 ) 63
Accounts payable 64
70
All other current assets and liabilities (245 ) 4
Net cash provided by (used in) operating activities 447
92
Investing activities
Additions to properties (270 ) (268 )
Collections of deferred purchase price on securitized trade receivables —
568
Acquisitions, net of cash acquired (28 ) 4
Investments in unconsolidated entities

(388 ) —
Acquisition of cost method investments (4 ) —
Other 29
(4 )
Net cash provided by (used in) investing activities (661 ) 300
Financing activities
Net issuances (reductions) of notes payable (76 ) 287
Issuances of long-term debt 993
655
Reductions of long-term debt (401 ) (626 )
Net issuances of common stock 70
65
Common stock repurchases (50 ) (390 )
Cash dividends (374 ) (363 )
Net cash provided by (used in) financing activities 162
(372 )
Effect of exchange rate changes on cash and cash equivalents 28
34
Increase (decrease) in cash and cash equivalents (24 ) 54
Cash and cash equivalents at beginning of period 281
280
Cash and cash equivalents at end of period $ 257
$ 334

Supplemental cash flow disclosures
Interest paid $ 151
$ 138
Income taxes paid $ 76
$ 205

Supplemental cash flow disclosures of non-cash investing activities:
Beneficial interests obtained in exchange for securitized trade receivables $ —
$ 566
Additions to properties included in accounts payable $ 77
$ 82

See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

for the quarter ended June ~~30, 2018~~29, 2019 (unaudited)

Note 1 Accounting policies

Basis of presentation

The unaudited interim financial information of Kellogg Company (the Company) included in this report reflects all adjustments, all of which are of a normal and recurring nature, that management believes are necessary for a fair statement of the results of operations, comprehensive income, financial position, equity and cash flows for the periods presented. This interim information should be read in conjunction with the financial statements and accompanying footnotes within the Company’s ~~2017~~2018 Annual Report on Form 10-K.

The condensed balance sheet information at December ~~30, 2017~~29, 2018 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the quarterly period ended June ~~30, 2018~~29, 2019 are not necessarily indicative of the results to be expected for other interim periods or the full year.

Accounts payable

The Company has agreements with certain third parties to provide accounts payable tracking systems which facilitates participating suppliers’ ability to monitor and, if elected, sell payment obligations from the Company to designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to sell one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company’s goal in entering into these agreements is to capture overall supplier savings, in the form of payment terms or vendor funding, created by facilitating suppliers’ ability to sell payment obligations, while providing them with greater working capital flexibility. We have no economic interest in the sale of these suppliers’ receivables and no direct financial relationship with the financial institutions concerning these services. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to sell amounts under these arrangements. However, the Company’s right to offset balances due from suppliers against payment obligations is restricted by this agreement for those payment obligations that have been sold by suppliers. As of June ~~30, 2018, $834~~29, 2019, $823 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold ~~$572~~$595 million of those payment obligations to participating financial institutions. As of December ~~30, 2017, $850~~29, 2018, $893 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold ~~$674~~$701 million of those payment obligations to participating financial institutions.

~~Revenue~~

The Company recognizes revenue from the sale of food products which are sold to retailers through direct sales forces, broker and distributor arrangements. The Company also recognizes revenue from the license of our trademarks granted to third parties who uses these trademarks on their merchandise. Revenue from these licenses are not material to the Company. Revenue, which includes shipping and handling charges billed to the customer, is reported net of applicable discounts, returns, allowances, and various government withholding taxes.

Contract balances where revenue is recognized in the current period that is not a result of current period performance is not material to the Company. The Company also does not incur costs to obtain or fulfill contracts.

~~Performance obligations~~

The Company recognizes revenue when (or as) performance obligations are satisfied by transferring control of the goods to customers. Control is transferred upon delivery of the goods to the customer. At the time of delivery, the customer is invoiced with payment terms which are commensurate with the customer’s credit profile. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs.

The Company assesses the goods and services promised in its customers’ purchase orders and identifies a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all the goods or services promised, whether explicitly stated or implied based on customary business practices. For a purchase order that has more

~~than one performance obligation, the Company allocates the total consideration to each distinct performance obligation on a relative standalone selling price basis.~~

~~Significant Judgments~~

The Company offers various forms of trade promotions and the methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to provisions based on actual occurrence or performance. Where applicable, future provisions are estimated based on a combination of historical patterns and future expectations regarding specific in-market product performance.

Our promotional activities are conducted either through the retail trade or directly with consumers and include activities such as in-store displays and events, feature price discounts, consumer coupons, contests and loyalty programs. The costs of these activities are generally recognized at the time the related revenue is recorded, which normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by either the retail trade or consumer. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expense and actual redemptions are normally insignificant and recognized as a change in management estimate in a subsequent period.

~~Practical expedients~~

~~The Company elected the following practical expedients in accordance with ASU 2014-09:~~

Significant financing component - The Company elected not to adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Shipping and handling costs - The Company elected to account for shipping and handling activities that occur before the customer has obtained control of a good as fulfillment activities (i.e., an expense) rather than as a promised service.

Measurement of transaction price - The Company has elected to exclude from the measurement of transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer for sales taxes.

New accounting standards

~~Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities~~. In August 2017, the FASB issued an ASU intended to simplify hedge accounting by better aligning an entity’s financial reporting for hedging relationships with its risk management activities. The ASU also simplifies the application of the hedge accounting guidance. The new guidance is effective on January 1, 2019, with early adoption permitted. For cash flow hedges existing at the adoption date, the standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment to the Consolidated Balance Sheet as of the beginning of the year of adoption. The amendments to presentation guidance and disclosure requirements are required to be adopted ~~prospectively. The Company adopted the ASU~~ in the ~~first quarter of 2018. The impact of adoption was immaterial to the financial statements.~~period

~~Improving the Presentation of net Periodic Pension Cost and net Periodic Postretirement Benefit Cost.~~ In March 2017, the FASB issued an ASU to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The ASU requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments in this ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company adopted the ASU in the first quarter of 2018.

~~Simplifying the test for goodwill impairment.~~ In January 2017, the FASB issued an ASU to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The ASU is effective for an entity's annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments in this ASU should be applied on a prospective basis. The Company adopted the ASU in the first quarter of 2018 with no impact.

~~Statement of Cash Flows.~~ In August 2016, the FASB issued an ASU to provide cash flow statement classification guidance for certain cash receipts and payments including (a) debt prepayment or extinguishment costs; (b) contingent consideration payments made after a business combination; (c) insurance settlement proceeds; (d) distributions from equity method investees; (e) beneficial interests in securitization transactions and (f) application of the predominance principle for cash receipts and payments with aspects of more than one class of cash flows. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period, in which case adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. The amendments in this ASU should be applied retrospectively. The Company adopted the new ASU in the first quarter of 2018.

~~Recognition and measurement of financial assets and liabilities.~~ In January 2016, the FASB issued an ASU which requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and which updates certain presentation and disclosure requirements. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption can be elected for all financial statements of fiscal years and interim periods that have not yet been issued or that have not yet been made available for issuance. Entities should apply the update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company adopted the updated standard in the first quarter of 2018. The impact of adoption was immaterial to the financial statements.

~~Revenue from contracts with customers.~~ In May 2014, the FASB issued an ASU, as amended, which provides guidance for accounting for revenue from contracts with customers. The core principle of this ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. To achieve that core principle, an entity would be required to apply the following five steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company adopted the updated standard in the first quarter of 2018 using the full retrospective method and restated previously reported amounts. In connection with the adoption, the Company made reclassification of certain customer allowances. The adoption effects relate to the timing of recognition and classification of certain promotional allowances. The updated revenue standard also required additional disaggregated revenue disclosures. Refer to Impacts to Previously Reported Results below for the impact of adoption of the standard on our consolidated financial statements.

~~Impacts to Previously Reported Results~~

~~Adoption of the standards related to revenue recognition, pension and cash flow impacted our previously reported results as follows:~~

As of December 30, 2017
Consolidated Balance Sheet Previously Reported Revenue Recognition ASU Restated
Other assets $ 1,026
$ 1
$ 1,027
Other current liabilities $ 1,431
$ 43
$ 1,474
Deferred income taxes $ 363
$ (8 ) $ 355
Retained earnings $ 7,103
$ (34 ) $ 7,069

Quarter ended July 1, 2017
Consolidated Statement of Income Previously Reported Revenue Recognition ASU Pension ASU Restated
Net sales $ 3,187
$ (12 ) $ —
$ 3,175
Cost of goods sold $ 1,922
$ (17 ) $ 45
$ 1,950
Selling, general and administrative expense $ 812
$ 4
$ 24
$ 840
Other income (expense), net $ (6 ) $ —
$ 69
$ 63
Income taxes $ 102
$ —
$ —
$ 102
Net income $ 282
$ 1
$ —
$ 283
Per share amounts:
Basic earnings $ 0.81
$ —
$ —
$ 0.81
Diluted earnings $ 0.80
$ —
$ —
$ 0.80

Year-to-date period ended July 1, 2017
Consolidated Statement of Income Previously Reported Revenue Recognition ASU Pension ASU Restated
Net sales $ 6,441
$ (18 ) $ —
$ 6,423
Cost of goods sold $ 3,972
$ (33 ) $ 99
$ 4,038
Selling, general and administrative expense $ 1,656
$ 9
$ 55
$ 1,720
Other income (expense), net $ (3 ) $ —
$ 154
$ 151
Income taxes $ 144
$ 1
$ —
$ 145
Net income $ 544
$ 5
$ —
$ 549
Per share amounts:
Basic earnings $ 1.56
$ 0.01
$ —
$ 1.57
Diluted earnings $ 1.54
$ 0.02
$ —
$ 1.56

Year-to-date period ended July 1, 2017
Consolidated Statement of Cash Flows Previously Reported Revenue Recognition ASU Cash Flow ASU Restated
Net income $ 544
$ 5
$ —
$ 549
Deferred income taxes $ (67 ) $ 1
$ —
$ (66 )
Other $ 30
$ —
$ 6
$ 36
Trade receivables $ (148 ) $ —
$ (568 ) $ (716 )
All other current assets and liabilities, net $ 10
$ (6 ) $ —
$ 4
Net cash provided by (used in) operating activities $ 654
$ —
$ (562 ) $ 92
Collections of deferred purchase price on securitized trade receivables $ —
$ —
$ 568
$ 568
Investment in unconsolidated entities, net proceeds $ 6
$ —
$ (6 ) $ —
Net cash provided by (used in) investing activities $ (262 ) $ —
$ 562
$ 300

~~Accounting standards to be adopted in future periods~~

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the ~~FASB~~Financial Accounting Standards Board (FASB) issued an ~~ASU~~Accounting Standard Update (ASU) permitting a company to reclassify the disproportionate income tax effects of the Tax Cuts and Jobs Act of 2017 on items within accumulated other comprehensive income (AOCI)~~. The reclassification is optional. Regardless of whether or not a company opts~~ to make the reclassification, the new guidance requires all companies to include certain disclosures in their financial statements. The guidance is effective for all fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing whenretained earnings. We elected to adopt the ASU effective in the first quarter of 2019 and reclassified the ~~impact~~disproportionate income tax effect recorded within AOCI to retained earnings. This resulted in a decrease to AOCI and an increase to retained earnings of ~~adoption.~~$22 million. The adjustment primarily related to deferred taxes previously recorded for pension and other postretirement benefits, as well as hedging positions for debt and net investment hedges.

Leases. In February 2016, the FASB issued an ASU ~~which will require~~requiring the recognition of lease assets and lease liabilities by lessees for all leases with terms greater than 12 months. The distinction between finance leases and operating leases ~~will remain,~~remains, with similar classification criteriaas current GAAP to distinguish between capital and operating leases. The principal difference from ~~current~~prior guidance is that the lease assets and lease liabilities arising from operating leases will be recognized on the Consolidated Balance Sheet. ~~Lessor accounting remains substantially similar to current GAAP.~~ The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ~~Early adoption is permitted.~~

The Company ~~will adopt~~adopted the ASU in the first quarter of 2019, using the optional transition method that allows for a cumulative-effect adjustment in the period of adoption with no restatement of prior periods. The Company elected the package of practical expedients permitted under the transition guidance that allows for the carry forward of historical lease classifications and consistent treatment of initial direct costs for existing leases. The Company also

elected to apply the practical expedient that allows the continued historical treatment of land easements. The Company did not elect the practical expedient for the use of hindsight in evaluating the expected lease term of existing leases.

The adoption of the ASU resulted in the recording of operating lease assets and operating lease liabilities of approximately $453 million and $461 million, respectively, as of December 30, 2018. The difference between the additional lease assets and lease liabilities, represents existing deferred rent and prepaid lease balances that were reclassified on the balance sheet. The adoption of the ASU did not have a material impact to the Company’s Consolidated Statements of Income or Cash Flows.

Accounting standards to be adopted in future periods

Cloud Computing Arrangements. In August 2018, the FASB issued ASU 2018-15: Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The ASU allows companies to capitalize implementation costs incurred in a hosting arrangement that is a service contract over the term of the hosting arrangement, including periods covered by renewal options that are reasonably certain to be exercised. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 and can be applied retrospectively or prospectively. Early adoption is permitted. The Company is currently ~~evaluating~~assessing the impact ~~that implementing this ASU will have on its financial statements.~~of adoption.

Note 2 Sale of accounts receivable

~~During 2016,~~ The Company ~~initiated~~has a program in which a ~~customer could~~discrete group of customers are allowed to extend their payment terms in exchange for the elimination of early payment discounts (Extended Terms Program).

The Company has two Receivable Sales Agreements (Monetization Programs) ~~and previously had a separate U.S. accounts receivable securitization program (Securitization Program), both~~ described below, which are intended to directly offset the impact the Extended Terms Program would have on the days-sales-outstanding (DSO) metric that is critical to the effective management of the Company's accounts receivable balance and overall working capital. The ~~Company terminated~~Monetization Programs are designed to effectively offset the ~~Securitization Program at the end of 2017 and entered into the second monetization program during the quarter ended March 31, 2018. The~~ impact on working capital of the Extended Terms ~~Program is effectively offset by the~~Program. The Monetization ~~and Securitization~~ Programs.

The Company has no retained interest in the receivables sold, however the Company does have collection and administrative responsibilities for the sold receivables. The Company has not recorded any servicing assets or liabilities as of June 30, 2018 and December 30, 2017 for these agreements as the fair value of these servicing arrangements as well as the fees earned were not material to the financial statements.

~~Monetization Programs~~

~~The Company has two Monetization Programs, for a discrete group of customers, to~~ sell, on a revolving basis, certain trade accounts receivable invoices to third party financial institutions. Transfers under ~~this agreement~~these agreements are accounted for as sales of receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. The Monetization Programs provide for the continuing sale of certain receivables on a revolving basis until terminated by either party; however the maximum receivables that may be sold at any time is $1,033 ~~million (increased from $988 million~~million.

The Company has no retained interest in the receivables sold, however the Company does have collection and administrative responsibilities for the sold receivables. The Company has not recorded any servicing assets or liabilities as of ~~March 31,~~June 29, 2019 and December 29, 2018 ~~reflecting~~for these agreements as the ~~execution~~fair value of ~~an amendment~~these servicing arrangements as well as the fees earned were not material to the ~~second monetization program on June 26, 2018).~~ financial statements.

Accounts receivable sold of ~~$936~~$947 million and ~~$601~~$900 million remained outstanding under these arrangements as of June ~~30, 2018~~29, 2019 and December ~~30, 2017,~~29, 2018, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash ~~Flows.~~Flows in the period of sale. The recorded net loss on sale of receivables was $7 million and $15 million for the quarter and year-to-date periods ended June 29, 2019, respectively and was $6 million and $12 million for the quarter and year-to-date periods ended June 30, 2018, ~~respectively and was $3 million and $5 million for the quarter and year-to-date periods ended July 1, 2017,~~ respectively. The recorded loss is included in Other income and expense.

~~Securitization Program~~

Between July 2016 and December 2017, the Company had a Securitization Program with a third party financial institution. Under the program, the Company received cash consideration of up to $600 million and a deferred purchase price asset for the remainder of the purchase price. Transfers under the Securitization Program were accounted for as sales of receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. This Securitization Program utilized Kellogg Funding Company (Kellogg Funding), a wholly-owned subsidiary of the Company. Kellogg Funding's sole business consisted of the purchase of receivables, from its parent or other subsidiary and subsequent transfer of such receivables and related assets to financial institutions. Although Kellogg Funding is included in the Company's consolidated financial statements, it is a separate legal entity with separate creditors who will be entitled, upon its liquidation, to be satisfied out of Kellogg Funding assets prior to any assets or value in Kellogg Funding becoming available to the Company or its subsidiaries. The assets of Kellogg Funding are not available to pay creditors of the Company or its subsidiaries. The Securitization Program was structured to expire in July 2018, but was terminated at the end of 2017. In March 2018 the Company substantially replaced the securitization program with the second monetization program. Kellogg Funding had no creditors and held no assets at June 30, 2018.

As of December 30, 2017, approximately $433 million of accounts receivable sold to Kellogg Funding under the Securitization Program remained outstanding, for which the Company received net cash proceeds of approximately $412 million and a deferred purchase price asset of approximately $21 million. The portion of the purchase price for the receivables which is not paid in cash by the financial institutions is a deferred purchase price asset, which is paid to Kellogg Funding as payments on the receivables are collected from customers. The deferred purchase price asset represents a beneficial interest in the transferred financial assets and is recognized at fair value as part of the sale transaction. The deferred purchase price asset is included in Other current assets on the Consolidated Balance Sheet. Upon final settlement of the program in March 2018, the outstanding deferred purchase price asset of $21 million was exchanged for previously sold trade accounts receivable.

~~The recorded net loss on sale of receivables for the year-to-date period ended July 1, 2017 is included in Other income and expense and is not material.~~

Other programs

Additionally, from time to time certain of the Company's foreign subsidiaries will transfer, without recourse, accounts receivable ~~balances~~invoices of certain customers to financial institutions. These transactions are accounted for as sales of the receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. Accounts receivable sold of ~~$26~~$21 million and ~~$86~~$93 million remained outstanding under these programs as of June ~~30, 2018~~29, 2019 and December ~~30, 2017,~~29, 2018, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash ~~Flows.~~Flows in the period of sale. The recorded net loss on the sale of these receivables is included in Other income and expense (OIE) and is not material.

Note 3 Divestitures and held for sale

On March 31, 2019, the Company entered into a definitive agreement to sell selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero International S.A. (Ferrero) for approximately $1.3 billion in cash, subject to a working capital adjustment mechanism. Both the total assets and net assets of the businesses, including a targeted working capital amount is estimated to be approximately $1.3 billion, and is expected to result in an immaterial pre-tax gain when recognized upon closing.

The net assets and liabilities of these businesses were classified as held for sale during the second quarter of 2019. The following table presents the major classes of assets and liabilities classified as held for sale on the Consolidated Balance Sheet as of June 29, 2019:



(millions)	June 29, 2019
Inventory and other assets	$	112
Total current assets	112
Property and equipment	227
Goodwill and intangible assets	956
Operating lease right-of-use assets	5
Total noncurrent assets	1,188
Total assets	$	1,300

Current operating lease liabilities	$	1
Total current liabilities	1
Operating lease liabilities	4
Total liabilities	$	5

Note 34 Acquisitions, West Africa investments, goodwill and other intangible assets

Multipro acquisition

On May 2, 2018, the Company (i) acquired an incremental 1% ownership interest in Multipro, a leading distributor of a variety of food products in Nigeria and Ghana, and (ii) exercised its call option (Purchase Option) to acquire a 50% interest in Tolaram Africa Foods, PTE LTD (TAF), a holding company with a 49% equity interest in an affiliated food manufacturer, resulting in the Company having a 24.5% interest in the affiliated food manufacturer. The aggregate cash consideration paid was approximately $419 million and was funded through cash on hand and short-term borrowings, which was refinanced with long-term borrowings in May 2018. As part of the consideration for the acquisition, an escrow established in connection with the original Multipro investment in 2015, which represented a significant portion of the amount paid for the Company’s initial investment, was released by the Company. The amount paid to exercise the Purchase Option is subject to certain working capital and net debt adjustments based on the actual working capital and net debt existing on the exercise date compared to targeted amounts.

As a result of the Company’s incremental ownership interest in Multipro and concurrent changes to the shareholders' agreement, the Company ~~now~~ has a 51% controlling interest in and ~~began~~is consolidating Multipro. ~~Accordingly, the~~The acquisition was accounted for as a business combination and the assets and liabilities of Multipro were included in the June ~~30,~~29, 2019 and December 29, 2018 Consolidated Balance Sheet and the results of its operations have been included in the Consolidated Statement of Income subsequent to the acquisition ~~date. The aggregate of~~date within the

~~consideration paid and the fair value of previously held equity interest totaled $626 million, or $617 million net of cash acquired.~~ AMEA reporting segment. The Multipro investment was previously accounted for under the equity method of accounting and the Company recorded our share of equity income or loss from Multipro within Earnings (loss) from unconsolidated entities. In connection with the business combination, the Company recognized a one-time, non-cash gain in the second quarter of 2018 on the disposition of our previously held equity interest in Multipro of $245 million, which is included within Earnings (loss) from unconsolidated entities.

The ~~assets and liabilities are included in the Consolidated Balance Sheet as of~~Company's June 30, 2018 ~~within the Asia-Pacific reporting segment. The acquired assets~~quarter-to-date and ~~assumed liabilities include the following:~~

(millions) May 2, 2018
Current assets $ 118
Property 41
Goodwill 616
Intangible assets subject to amortization, primarily customer relationships 425
Intangible assets not subject to amortization, primarily distribution rights 373
Deferred tax liability (256 )
Other liabilities (148 )
Noncontrolling interest (552 )
$ 617

The amounts in the above table represent the preliminary allocation of purchase price and are subject to revision when valuations are finalized for intangible assets, which are expected in 2018. The goodwill from the acquisition is not expected to be deductible for income tax purposes.

~~Multipro contributed net revenues of $129 million and net earnings of $2 million since the acquisition, including transaction fees and integration costs. The~~year-to-date consolidated unaudited pro forma historical net sales and net income, as if Multipro had been acquired at the beginning of ~~2017 are estimated as follows:~~

Quarter ended Year-to-date period ended
(millions) June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
Net sales $ 3,433
$ 3,326
$ 7,043
$ 6,739

~~The impact of the business combination as if Multipro had been acquired at the beginning of 2017, on the unaudited pro forma historical net income and net income attributable to Kellogg Company,~~2018, exclusive of the non-cash $245 million gain on the disposition of the equity interest ~~was immaterial.~~recognized in the second quarter of 2018, are estimated as follows:



	Quarter ended		Year-to-date period ended
(millions)	June 30, 2018		June 30, 2018
Net sales	$	3,433	$	7,043
Net Income attributable to Kellogg Company	$	596	$	1,040

Investment in TAF

The investment in TAF, our interest in an affiliated food manufacturer, is accounted for under the equity method of accounting with the Company’s share of equity income or loss being recognized within Earnings (loss) from unconsolidated entities. The $458 million aggregate of the consideration paid upon exercise and the historical cost value of the Put Option was compared to the estimated fair value of the Company’s ownership percentage of TAF and the Company recognized a one-time, non-cash loss in the second quarter of 2018 of $45 million within Earnings (loss) from unconsolidated entities, which represents an other than temporary excess of cost over fair value of the investment. The difference between the carrying amount of TAF and the underlying equity in net assets is primarily attributable to brand and customer list intangible assets, a portion of which is being amortized over future periods, and goodwill.

~~RXBAR acquisition~~

In October 2017, the Company completed its acquisition of Chicago Bar Co., LLC, the manufacturer of RXBAR, for $600 million, or $596 million net of cash and cash equivalents. The purchase price was subject to certain working capital adjustments based on the actual working capital on the acquisition date compared to targeted amounts. These adjustments were finalized during the quarter ended March 31, 2018 and resulted in a purchase price reduction of $1 million. The acquisition was accounted for under the purchase price method and was financed with short-term borrowings.

For the year-to-date period ended June 30, 2018, the acquisition added net sales in the Company's North America Other reporting segment totaling $110 million and net earnings totaling $6 million, respectively.

The assets and liabilities are included in the Consolidated Balance Sheet as of June 30, 2018 within the North America Other reporting segment. The acquired assets and assumed liabilities include the following:

(millions) October 27, 2017
Current assets $ 42
Goodwill 373
Intangible assets, primarily indefinite-lived brands 203
Current liabilities (23 )
$ 595

The amounts in the above table represent the final allocation of purchase price as of June 30, 2018, which resulted in a $2 million increase in amortizable intangible assets with a corresponding reduction of goodwill during the first quarter of 2018.

Goodwill and Intangible Assets

Changes in the carrying amount of goodwill, intangible assets subject to amortization, consisting primarily of customer ~~lists,~~relationships, distribution agreements, and indefinite-lived intangible assets, consisting of brands, ~~and distribution agreements,~~ are presented in the following tables:

Carrying amount of goodwill



(millions)	North America			Europe		Latin America		AMEA		Consoli- dated
December 29, 2018	$	4,611		$	346	$	218	$	875	$	6,050
Held for sale	(191		)	—		—		—		(191		)
Currency translation adjustment	2			1		2		7		12
June 29, 2019	$	4,422		$	347	$	220	$	882	$	5,871

(millions)
U.S.
Snacks
U.S.
Morning
Foods
U.S.
Specialty Channels
North
America
Other
Europe
Latin
America
Asia
Pacific
Consoli-
dated
December 30, 2017 $ 3,568
$ 131
$ 82
$ 836
$ 414
$ 244
$ 229
$ 5,504
Additions —
—
—
—
—
—
616
616
Purchase price allocation adjustment —
—
—
(1 ) —
—
—
(1 )
Purchase price adjustment —
—
—
(1 ) —
—
—
(1 )
Currency translation adjustment —
—
—
(2 ) (12 ) (25 ) (7 ) (46 )
June 30, 2018 $ 3,568
$ 131
$ 82
$ 832
$ 402
$ 219
$ 838
$ 6,072

Intangible assets subject to amortization



Gross carrying amount
(millions)	North America			Europe			Latin America			AMEA			Consoli- dated
December 29, 2018	$	74		$	39		$	63		$	432		$	608
Held for sale	(12		)	—			—			—			(12		)
Currency translation adjustment	—			(2		)	1			3			2
June 29, 2019	$	62		$	37		$	64		$	435		$	598

Accumulated Amortization
December 29, 2018	$	39		$	18		$	12		$	18		$	87
Amortization	2			1			2			9			14
Held for sale	(12		)	—			—			—			(12		)
Currency translation adjustment	—			(1		)	—			—			(1		)
June 29, 2019	$	29		$	18		$	14		$	27		$	88

Intangible assets subject to amortization, net
December 29, 2018	$	35		$	21		$	51		$	414		$	521
Amortization	(2		)	(1		)	(2		)	(9		)	(14		)
Currency translation adjustment	—			(1		)	1			3			3
June 29, 2019	$	33		$	19		$	50		$	408		$	510

Gross carrying amount
(millions)
U.S.
Snacks
U.S.
Morning
Foods
U.S.
Specialty Channels
North
America
Other
Europe
Latin
America
Asia
Pacific
Consoli-
dated
December 30, 2017 $ 42
$ 8
$ —
$ 22
$ 45
$ 74
$ 10
$ 201
Additions —
—
—
—
—
—
425
425
Purchase price allocation adjustment —
—
—
2
—
—
—
2
Currency translation adjustment —
—
—
—
(1 ) (10 ) (3 ) (14 )
June 30, 2018 $ 42
$ 8
$ —
$ 24
$ 44
$ 64
$ 432
$ 614

Accumulated Amortization
December 30, 2017 $ 22
$ 8
$ —
$ 5
$ 18
$ 10
$ 4
$ 67
Amortization 2
—
—
1
1
2
3
9
Currency translation adjustment —
—
—
—
—
(1 ) —
(1 )
June 30, 2018 $ 24
$ 8
$ —
$ 6
$ 19
$ 11
$ 7
$ 75

Intangible assets subject to amortization, net
December 30, 2017 $ 20
$ —
$ —
$ 17
$ 27
$ 64
$ 6
$ 134
Additions —
—
—
—
—
—
425
425
Purchase price allocation adjustment —
—
—
2
—
—
—
2
Amortization (2 ) —
—
(1 ) (1 ) (2 ) (3 ) (9 )
Currency translation adjustment —
—
—
—
(1 ) (9 ) (3 ) (13 )
June 30, 2018 $ 18
$ —
$ —
$ 18
$ 25
$ 53
$ 425
$ 539

For intangible assets in the preceding table, amortization was $9$14 million and $4$9 million for the year-to-date periods ended June 29, 2019 and June 30, 2018, ~~and July 1, 2017,~~ respectively. The currently estimated aggregate annual amortization expense for full-year ~~2018~~2019 is approximately ~~$23~~$27 million.

Intangible assets not subject to amortization



(millions)	North America			Europe			Latin America		AMEA		Consoli- dated
December 29, 2018	$	1,985		$	401		$	73	$	381	$	2,840
Held for sale	(765		)	—			—		—		(765		)
Currency translation adjustment	—			(2		)	1		3		2
June 29, 2019	$	1,220		$	399		$	74	$	384	$	2,077

(millions)
U.S.
Snacks
U.S.
Morning
Foods
U.S.
Specialty Channels
North
America
Other
Europe
Latin
America
Asia
Pacific
Consoli-
dated
December 30, 2017 $ 1,625
$ —
$ —
$ 360
$ 434
$ 86
$ —
$ 2,505
Additions —
—
—
—
—
—
373
373
Currency translation adjustment —
—
—
—
(10 ) (13 ) (3 ) (26 )
June 30, 2018 $ 1,625
$ —
$ —
$ 360
$ 424
$ 73
$ 370
$ 2,852

Impairment Testing

Goodwill is tested for impairment at least annually or whenever events or changes in circumstances indicate the carrying value of the asset may be impaired, including a change in reporting units or composition of reporting units as a result of a re-organization in internal reporting structures.

For the goodwill impairment test, the fair value of the reporting units are estimated based on market multiples. This approach employs market multiples based on either sales or earnings before interest, taxes, depreciation and amortization for companies that are comparable to the Company’s reporting units. In the event the fair value determined using the market multiple approach is close to carrying value, the Company may supplement the fair value determination using discounted cash flows. The assumptions used for the impairment test are consistent with those utilized by a market participant performing similar valuations for the Company’s reporting units.

These estimates are made using various inputs including historical data, current and anticipated market conditions, management plans, and market comparables.

On December 30, 2018 the Company reorganized our North American business. The reorganization eliminated the legacy business unit structure and internal reporting. In addition, the Company changed the internal reporting

provided to the chief operating decision maker (CODM) and segment manager. As a result, the Company reevaluated its operating segments and reporting units.

In addition, we transferred the management of our Middle East, North Africa, and Turkey businesses from Kellogg Europe to Kellogg AMEA, effective December 30, 2018.

Refer to Note 12, Reportable Segments for further details on these changes. As a result of these changes in operating segments and related reporting units, the Company re-allocated goodwill between reporting units where necessary and compared the carrying value to the fair value of each impacted reporting unit on a before and after basis. This evaluation was only required to be performed on reporting units impacted by the changes noted above.

Effective December 30, 2018 in North America, the previous U.S. Snacks, U.S. Morning Foods, U.S. Specialty Channels, U.S. Frozen Foods, Kashi, Canada and RX operating segments are now a single operating segment (Kellogg North America). At the beginning of 2019, the Company evaluated the related impacted reporting units for impairment on a before and after basis and concluded that the fair values of each reporting unit exceeded their carrying values. On a before basis, the previous Kashi reporting unit's percentage of excess of fair value over carrying value was approximately 18% using the same methodology as the 2018 annual impairment analysis, which was performed as of the beginning of the fourth quarter of 2018. The fair value of the previous Kashi reporting unit was estimated primarily based on a multiple of net sales and discounted cash flows.

Approximately $46 million of goodwill was re-allocated between the impacted reporting units within Kellogg Europe and Kellogg AMEA related to the transfer of businesses between these operating segments. The Company performed a goodwill evaluation of the impacted reporting units on a before and after basis and concluded that the fair value of the impacted reporting units exceeded their carrying values.

Additionally, during the first quarter of 2019, the Company determined that it was more likely than not that the Company would be selling its selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses within the North America reporting unit. As a result, the Company performed a goodwill impairment evaluation on the North America reporting unit in the first quarter of 2019 and concluded that the fair value exceeded the carrying value of the reporting unit. During the second quarter of 2019, the Company entered into a definitive agreement to sell the businesses to Ferrero. In connection with the execution of the definitive agreement, the net assets and liabilities of these businesses, included in the North America reporting unit, were classified as held for sale including $191 million of Goodwill and $765 million of Net Intangibles.

Note 45 Restructuring ~~and cost reduction activities~~Programs

The Company views its restructuring ~~and cost reduction activities~~programs as part of its operating principles to provide greater visibility in achieving its long-term profit growth targets. Initiatives undertaken are currently expected to recover cash implementation costs within a ~~five-year~~3 to 5-year period of completion. Upon completion (or as each major stage is completed in the case of multi-year programs), the project begins to deliver cash savings and/or reduced depreciation.

~~Total Projects~~

During the quarter ended June 30, 2018, the Company recorded total net charges of $5 million across all restructuring and cost reduction activities. The charges were comprised of $(4) million net gain recorded in cost of goods sold (COGS) and a $9 million expense recorded in selling, general and administrative (SG&A) expense. During the year-to-date period ended June 30, 2018, the Company recorded total charges of $25 million across all restructuring and cost reduction activities. The charges were comprised of $9 million recorded in COGS and $16 million recorded in SG&A expense.

During the quarter ended July 1, 2017, the Company recorded total charges of $96 million across all restructuring and cost reduction activities. The charges were comprised of $24 million recorded in COGS, $75 million recorded in SG&A expense and $(3) million net gain recorded in other (income) expense, net (OIE). During the year-to-date period ended July 1, 2017, the Company recorded total charges of $238 million across all restructuring and cost reduction activities. The charges were comprised of $37 million recorded in COGS, $200 million recorded in SG&A expense and $1 million recorded in OIE.

Project K

~~Project K is expected to continue generating savings that may be invested in key strategic areas of focus for the business or utilized to achieve our growth initiatives.~~

Since inception, Project K has reduced the Company’s cost structure, and is expected to provide enduring benefits, including an optimized supply chain infrastructure, an efficient global business services model, a global focus on categories, increased agility from a more efficient organization design, and improved effectiveness in go-to-market models. These benefits are intended to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.

The Company approved all remaining Project K initiatives as of the end of 2018 and implementation of these remaining initiatives will be completed in 2019. Project charges, after-tax costs and annual savings remain in line with expectations.

The Company currently anticipates that the program will result in total pre-tax charges, once all phases are ~~approved and~~ implemented, ~~on the lower end~~ of ~~a range of $1.5 to~~ $1.6 billion, with after-tax cash costs, including incremental capital investments, estimated to be approximately ~~$1.1~~$1.2 billion. Based on current estimates and actual charges to date, the Company expects the total project charges will consist of asset-related costs of approximately $500 million which will consist primarily of asset impairments, accelerated depreciation and other exit-related costs; employee-related costs of approximately ~~$500~~$400 million which ~~will include~~includes severance, pension and other termination benefits; and other costs of approximately ~~$600~~

$700 million which consists primarily of charges related to the design and implementation of global business capabilities and a more efficient go-to-market model.

The Company currently expects that total pre-tax charges related to Project K will impact reportable segments as follows: ~~U.S. Snacks (approximately 34%), U.S. Morning Foods (approximately 17%), U.S. Specialty Channels (approximately 1%),~~ North America ~~Other~~ (approximately ~~13%~~65%), Europe (approximately 22%), Latin America (approximately 2%3%), ~~Asia-Pacific~~AMEA (approximately 6%), and Corporate (approximately 5%4%).

During the quarter and year-to-date period ended June 29, 2019, the Company recorded total net charges of $15 million and $23 million, respectively related to Project K. During the quarter and year-to-date period ended June 30, 2018, the Company recorded total net charges of $5 million and $25 million, respectively related to Project K.

Since the inception of Project K, the Company has recognized charges of ~~$1,402~~$1,543 million that have been attributed to the program. The charges consist of $6 million recorded as a reduction of revenue, ~~$803~~$910 million recorded in cost of goods sold (COGS), $794 million recorded in selling, general and administrative (SG&A) expense, and $(167) million recorded in OIE.

Other Programs

During the second quarter of 2019, the Company announced a reorganization plan for the European reportable segment designed to simplify the organization, increase organizational efficiency, and enhance key processes. The overall project is expected to be substantially completed by December 31, 2020.

The project is expected to result in cumulative pretax net charges of approximately $50 million, including certain non-cash credits. Cash costs are expected to be approximately $57 million. The total expected charges will include severance and other termination benefits and charges related to relocation, third party legal and consulting fees, and contract termination costs.

During the quarter ended June 29, 2019, the Company recorded total charges of $32 million related to this initiative. The charges were recorded in SG&A expense.

Additionally during the second quarter of 2019, the Company announced a reorganization plan which primarily impacts the North America reportable segment. The reorganization plan is designed to simplify the organization that supports the remaining North America reportable segment after the divestiture and related transition. The overall project is expected to be substantially completed by December 31, 2020.

The overall project is expected to result in cumulative pretax charges of approximately $35 million. Cash costs are expected to approximate the pretax charges. Total expected charges will include severance and other termination benefits and charges related to third party consulting fees.

During the quarter ended June 29, 2019, the Company recorded total charges of $18 million related to this initiative. The charges were recorded in SG&A expense.

All Programs

During the quarter ended June 29, 2019, the Company recorded total net charges of $65 million across all restructuring programs. The charges were comprised of $11 million of expense recorded in COGS, $54 million of expense recorded in SG&A expense. During the year-to-date period ended June 29, 2019, the Company recorded total charges of $73 million across all restructuring programs. The charges were comprised of $17 million recorded in COGS ~~$730~~and $56 million recorded in SG&A ~~and ($137 million)~~expense.

During the quarter ended June 30, 2018, the Company recorded total net charges of $5 million across all restructuring programs. The charges were comprised of $(4) million net gain recorded in ~~OIE.~~COGS, $9 million recorded in SG&A expense. During the year-to-date period ended June 30, 2018, the Company recorded total charges of $25 million across all restructuring programs. The charges were comprised of $9 million recorded in COGS and $16 million recorded in SG&A expense.

The tables below provide the details for charges incurred during the quarters ended June 29, 2019 and ~~year-to-date periods ended~~ June 30, 2018 ~~and July 1, 2017~~ and program costs to date for all programs currently active as of June ~~30, 2018.~~29, 2019.



	Quarter ended					Year-to-date period ended					Program costs to date
(millions)	June 29, 2019		June 30, 2018			June 29, 2019		June 30, 2018			June 29, 2019
Employee related costs	$	45	$	1		$	42	$	5		$	639
Pension curtailment (gain) loss, net	—		—			—		—			(167		)
Asset related costs	7		(14		)	10		(10		)	295
Asset impairment	—		—			—		—			169
Other costs	13		18			21		30			657
Total	$	65	$	5		$	73	$	25		$	1,593

	Quarter ended					Year-to-date period ended					Program costs to date
(millions)	June 29, 2019		June 30, 2018			June 29, 2019		June 30, 2018			June 29, 2019
North America	$	28	$	12		$	32	$	22		$	1,054
Europe	33		(13		)	34		(6		)	367
Latin America	2		2			4		4			46
AMEA	2		3			3		3			101
Corporate	—		1			—		2			25
Total	$	65	$	5		$	73	$	25		$	1,593

Quarter ended Year-to-date period ended Program costs to date
(millions) June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017 June 30, 2018
Employee related costs $ 1
$ 28
$ 5
$ 135
$ 539
Pension curtailment (gain) loss, net —
(3 ) —
1
(137 )
Asset related costs (14 ) 20
(10 ) 30
259
Asset impairment —
—
—
—
155
Other costs 18
51
30
72
586
Total $ 5
$ 96
$ 25
$ 238
$ 1,402

Quarter ended Year-to-date period ended Program costs to date
(millions) June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017 June 30, 2018
U.S. Snacks $ 3
$ 79
9
$ 199
$ 512
U.S. Morning Foods 10
1
12
2
263
U.S. Specialty Channels —
1
—
1
21
North America Other (1 ) 2
1
9
141
Europe (13 ) 2
(6 ) 8
324
Latin America 2
3
4
4
31
Asia Pacific 3
3
3
4
90
Corporate 1
5
2
11
20
Total $ 5
$ 96
$ 25
$ 238
$ 1,402

Employee related costs consist primarily of severance and related benefits. Pension curtailment (gain) loss consists of curtailment gains or losses that resulted from project initiatives. Asset related costs consist primarily of accelerated depreciation. ~~During the quarter ended June 30, 2018, a gain was recognized related to the sale of a manufacturing facility in Europe that was previously impacted as part of Project K.~~ Asset impairments were recorded for fixed assets that were determined to be impaired and were written down to their estimated fair value. Other costs consist of ~~lease termination costs as well as~~ third-party incremental costs related to the development and implementation of enhanced global ~~business capabilities~~structures and ~~a more efficient go-to-market model.~~capabilities.

At June ~~30, 2018~~29, 2019 total project reserves were ~~$76~~$104 million, related to severance payments and other costs of which a substantial portion will be paid in ~~2018 and~~ 2019. The following table provides details for exit cost reserves.



	Employee Related Costs			Pension curtailment (gain) loss, net		Asset Impairment		Asset Related Costs			Other Costs			Total
Liability as of December 29, 2018	$	93		$	—	$	—	$	1		$	10		$	104
2019 restructuring charges	42			—		—		10			21			73
Cash payments	(35		)	—		—		(5		)	(29		)	(69		)
Non-cash charges and other	—			—		—		(4		)	—			(4		)
Liability as of June 29, 2019	$	100		$	—	$	—	$	2		$	2		$	104

Employee
Related
Costs
Pension curtailment (gain) loss, net
Asset
Impairment
Asset
Related
Costs
Other
Costs
Total
Liability as of December 31, 2017 $ 97
$ —
$ —
$ —
$ 63
$ 160
2018 restructuring charges 5
—
—
(10 ) 30
25
Cash payments (43 ) —
—
—
(76 ) (119 )
Non-cash charges and other —
—
—
10
—
10
Liability as of June 30, 2018 $ 59
$ —
$ —
$ —
$ 17
$ 76

Note 56 Equity

Earnings per share

Basic earnings per share is determined by dividing net income by the weighted average number of common shares outstanding during the period. Diluted 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 consist principally of employee stock options issued by the Company, restricted stock units, and to a lesser extent, certain contingently issuable performance shares. ~~Basic earnings per share is reconciled to diluted earnings per share in the following table.~~ There were 15 million and 14 million anti-dilutive potential common shares excluded from the reconciliation for the quarter and year-to-date periods ended June 29, 2019. There were 9 million and 6 million anti-dilutive potential common shares excluded from the reconciliation for the quarter and year-to-date periods ended June 30, ~~2018, respectively. There were~~ ~~5 million~~ ~~anti-dilutive potential common shares excluded from~~2018. Please refer to the ~~reconciliation~~Consolidated Statement of Income for basic and diluted earnings per share for the ~~quarter~~quarters ended June 29, 2019 and ~~year-to-date periods ended July 1, 2017, respectively.~~June 30, 2018.

~~Quarters ended June 30, 2018 and July 1, 2017:~~

(millions, except per share data)
Net income

Average
shares
outstanding
Earnings
per share
2018
Basic $ 596
347
$ 1.72
Dilutive potential common shares 1
(0.01 )
Diluted $ 596
348
$ 1.71
2017
Basic $ 283
349
$ 0.81
Dilutive potential common shares 3
(0.01 )
Diluted $ 283
352
$ 0.80

~~Year-to-date periods ended June 30, 2018 and July 1, 2017:~~

(millions, except per share data)
Net income

Average
shares
outstanding
Earnings
per share
2018
Basic $ 1,040
346
$ 3.00
Dilutive potential common shares 2
(0.01 )
Diluted $ 1,040
348
$ 2.99
2017
Basic $ 549
350
$ 1.57
Dilutive potential common shares 3
(0.01 )
Diluted $ 549
353
$ 1.56

Share repurchases

In December 2017, the board of directors approved a new authorization to repurchase up to $1.5 billion of our common stock beginning in January 2018 through December 2019. As of June ~~30, 2018, $1.45 billion~~29, 2019, $960 million remains available under the authorization.

During the year-to-date period ended June 29, 2019, the Company repurchased approximately 4 million shares of common stock for a total of $220 million. During the year-to-date period ended June 30, 2018, the Company repurchased less than 1 million shares of common stock for a total of $50 million. During the year-to-date period ended July 1, 2017, the Company repurchased 6 million shares of common stock for a total of $435 million, of which $390 million was paid and $45 million was payable at July 1, 2017.

Comprehensive income

Comprehensive income includes net income and all other changes in equity during a period except those resulting from investments by or distributions to shareholders. Other comprehensive income consists of foreign currency translation adjustments, fair value adjustments associated with cash flow hedges and adjustments for net experience losses and prior service cost related to employee benefit plans, net of related tax effects.

Reclassifications out of AOCI for the quarter and year-to-date periods ended June 29, 2019 and June 30, 2018, ~~and July 1, 2017,~~ consisted of the following:



(millions)
Details about AOCI components	Amount reclassified from AOCI						Line item impacted within Income Statement
	Quarter ended June 29, 2019			Year-to-date period ended June 29, 2019
(Gains) losses on cash flow hedges:
Interest rate contracts	$	2		$	3		Interest expense
	$	2		$	3		Total before tax
	(1		)	(1		)	Tax expense (benefit)
	$	1		$	2		Net of tax
Amortization of postretirement and postemployment benefits:
Net experience (gain) loss	$	(1	)	$	(2	)	OIE
	$	(1	)	$	(2	)	Total before tax
	1			1			Tax expense (benefit)
	$	—		$	(1	)	Net of tax
Total reclassifications	$	1		$	1		Net of tax

(millions)



Details about AOCI
components
Amount reclassified
from AOCI
Line item impacted
within Income Statement

Quarter ended
June 30, 2018
Year-to-date period ended
June 30, 2018

(Gains) losses on cash flow hedges:
Foreign currency exchange contracts $ —
$ —
COGS
Interest rate contracts 2
4
Interest expense
$ 2
$ 4
Total before tax
(1 ) (1 ) Tax expense (benefit)
$ 1
$ 3
Net of tax
Amortization of postretirement and postemployment benefits:
Net experience loss $ (1 ) $ (2 ) OIE
$ (1 ) $ (2 ) Total before tax
—
—
Tax expense (benefit)
$ (1 ) $ (2 ) Net of tax
Total reclassifications $ —
$ 1
Net of tax




(millions)
Details about AOCI components	Amount reclassified from AOCI						Line item impacted within Income Statement
	Quarter ended June 30, 2018			Year-to-date period ended June 30, 2018
(Gains) losses on cash flow hedges:
Interest rate contracts	$	2		$	4		Interest expense
	$	2		$	4		Total before tax
	(1		)	(1		)	Tax expense (benefit)
	$	1		$	3		Net of tax
Amortization of postretirement and postemployment benefits:
Net experience loss	$	(1	)	$	(2	)	See Note 8 for further details
	$	(1	)	$	(2	)	Total before tax
	—			—			Tax expense (benefit)
	$	(1	)	$	(2	)	Net of tax
Total reclassifications	$	—		$	1		Net of tax

(millions)
Details about AOCI
components
Amount reclassified
from AOCI
Line item impacted
within Income Statement

Quarter ended
July 1, 2017
Year-to-date period ended
July 1, 2017

(Gains) losses on cash flow hedges:
Foreign currency exchange contracts $ —
$ (1 ) COGS
Foreign currency exchange contracts —
—
SGA
Interest rate contracts 2
5
Interest expense
Commodity contracts —
—
COGS
$ 2
$ 4
Total before tax
—
(1 ) Tax expense (benefit)
$ 2
$ 3
Net of tax
Amortization of postretirement and postemployment benefits:
Net experience loss $ —
$ 1
See Note 8 for further details
Prior service cost —
—
See Note 8 for further details
$ —
$ 1
Total before tax
—
—
Tax expense (benefit)
$ —
$ 1
Net of tax
Total reclassifications $ 2
$ 4
Net of tax

Accumulated other comprehensive income (loss), net of tax, as of June ~~30, 2018~~29, 2019 and December ~~30, 2017~~29, 2018 consisted of the following:



(millions)	June 29, 2019			December 29, 2018
Foreign currency translation adjustments	$	(1,431	)	$	(1,467	)
Cash flow hedges — unrealized net gain (loss)	(65		)	(53		)
Postretirement and postemployment benefits:
Net experience gain (loss)	21			23
Prior service credit (cost)	3			(3		)
Available-for-sale securities unrealized net gain (loss)	3			—
Total accumulated other comprehensive income (loss)	$	(1,469	)	$	(1,500	)

(millions) June 30,
2018 December 30, 2017
Foreign currency translation adjustments $ (1,473 ) $ (1,426 )
Cash flow hedges — unrealized net gain (loss) (56 ) (61 )
Postretirement and postemployment benefits:
Net experience loss 32
34
Prior service cost (4 ) (4 )
Total accumulated other comprehensive income (loss) $ (1,501 ) $ (1,457 )

Note 67 Leases

The Company leases certain warehouses, equipment, vehicles, and office space primarily through operating lease agreements. Finance lease obligations and activity are not material to the Consolidated Financial Statements. Lease obligations are primarily for real estate assets, with the remainder related to manufacturing and distribution related equipment, vehicles, information technology equipment, and rail cars. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

A portion of the Company's real estate leases include future variable rental payments that include inflationary adjustment factors. The future variability of these adjustments is unknown and therefore not included in the minimum lease payments. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The leases have remaining terms which range from less than 1 year to 10 years and the majority of leases provide the Company with the option to exercise one or more renewal terms. The length of the lease term used in recording lease assets and lease liabilities is based on the contractually required lease term adjusted for any options to renew or early terminate the lease that are reasonably certain of being executed.

The Company combines lease and non-lease components together in determining the minimum lease payments for the majority of leases. The Company has elected to not combine lease and non-lease components for certain asset types in service-related agreements that include significant production related costs. The Company has closely

analyzed these agreements to ensure any embedded costs related to the securing of the leased asset is properly segregated and accounted for in measuring the lease assets and liabilities.

The majority of the leases do not include a stated interest rate, and therefore the Company's periodic incremental borrowing rate is used to determine the present value of lease payments. This rate is calculated based on a collateralized rate for the specific currencies used in leasing activities and the borrowing ability of the applicable Company legal entity. For the initial implementation of the lease standard, the incremental borrowing rate at December 29, 2018 was used to present value operating lease assets and liabilities.

The Company recorded operating lease costs of $32 million and $64 million for the quarter and year-to-date periods ended June 29, 2019. Lease related costs associated with variable rent, short-term leases, and sale-leaseback arrangements, as well as sublease income, are each immaterial.



(millions)	Quarter ended June 29, 2019		Year-to-date period ended June 29, 2019
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	32	$	63
Right-of-use assets obtained in exchange for new operating lease liabilities	$	8	$	20

Weighted-average remaining lease term - operating leases	6 years
Weighted-average discount rate - operating leases	3.1%

At June 29, 2019, future maturities of operating leases were as follows:



(millions)	Operating leases
2019 (six months remaining)	65
2020	99
2021	75
2022	59
2023	47
2024 and beyond	124
Total minimum payments	$	469
Less interest	$	(40	)
Less leases accounted for as held for sale	$	(5	)
Present value of lease liabilities	$	424

Operating lease payments presented in the table above exclude $144 million of minimum lease payments for real-estate leases signed but not yet commenced. The leases are expected to commence in 2019 and 2020.

As previously disclosed in our 2018 Annual Report on Form 10-K and under previous lease standard (Topic 840), at December 29, 2018, future minimum annual lease commitments under non-cancelable operating leases were as follows:



(millions)	Operating leases
2019	121
2020	97
2021	73
2022	57
2023	48
2024 and beyond	129
Total minimum payments	$	525

Rent expense on operating leases for the year ended December 29, 2018 was $133 million.

Note 8 Debt

The following table presents the components of notes payable at June ~~30, 2018~~29, 2019 and December ~~30, 2017:~~29, 2018:



	June 29, 2019				December 29, 2018
(millions)	Principal amount		Effective interest rate		Principal amount		Effective interest rate (a)
U.S. commercial paper	$	355	2.55	%	$	15	2.75	%
Bank borrowings	213				161
Total	$	568			$	176

June 30, 2018 December 30, 2017
(millions)
Principal
amount
Effective
interest rate

Principal
amount
Effective
interest rate (a)
U.S. commercial paper $ 197
2.26 % $ 196
1.76 %
Europe commercial paper —
— % 96
(0.32 )%
Bank borrowings 127
78

Total $ 324
$ 370

~~(a) Negative effective interest rates on certain borrowings in Europe are the result of efforts by the European Central Bank to stimulate the economy in the eurozone.~~

In May 2018, the Company issued $600 million of ten-year 4.30% Senior Notes due 2028 and $400 million of three-year 3.25% Senior Notes due 2021, resulting in aggregate net proceeds after debt discount of $994 million. The proceeds from these Notes were used for general corporate purposes, including the repayment of the Company's $400 million, seven-year 3.25% U.S. Dollar Notes due 2018 at maturity, and the repayment of a portion of the Company's commercial paper borrowings used to finance the acquisition of ownership interests in TAF and

Multipro. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions, as well as a change of control provision.

In May 2017, the Company issued €600 million (approximately $685 million USD at July 1, 2017, which reflects the discount and translation adjustments) of five-year 0.80% Euro Notes due 2022, resulting in aggregate net proceeds after debt discount of $656 million. The proceeds from these Notes were used for general corporate purposes, including, together with cash on hand and additional commercial paper borrowings, repayment of the Company's $400 million, five-year 1.75% U.S. Dollar Notes due 2017 at maturity. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions, as well as a change of control provision. The Notes were designated as a net investment hedge of the Company's investment in its Europe subsidiary when issued.

~~During the second quarter of 2017, the Company repaid its Cdn.$300 million three year 2.05% Canadian Dollar Notes.~~

The Company has entered into interest rate swaps with notional amounts totaling $1.5 billion, which effectively converts a portion of the associated U.S. Dollar Notes and Euro Notes from fixed rate to floating rate obligations. These derivative instruments are designated as fair value hedges. The effective interest rates on debt obligations resulting from the Company’s interest rate swaps as of June 30, 2018 were as follows: (a) ten-year 4.15% U.S. Dollar Notes due 2019 – 3.50%; (b) ten-year 4.00% U.S. Dollar Notes due 2020 – 3.39%; (c) ten-year 3.125% U.S. Dollar Notes due 2022 – 3.87%; (d) ten-year 2.75% U.S. Dollar Notes due 2023 – 4.00%; (e) seven-year 2.65% U.S. Dollar Notes due 2023 – 3.42%; (f) eight-year 1.00% Euro Notes due 2024 – 0.72%; (g) ten-year 1.25% Euro Notes due 2025 - 1.30% and (h) ten-year 3.25% U.S. Notes due 2026 – 4.06%.

Note 79 Stock compensation

The Company uses various equity-based compensation programs to provide long-term performance incentives for its global workforce. Currently, these incentives consist principally of stock options, restricted stock units, and to a lesser extent, executive performance shares and restricted stock grants. The Company also sponsors a discounted stock purchase plan in the United States and matching-grant programs in several international locations. Additionally, the Company awards restricted stock to its outside directors. The interim information below should be read in conjunction with the disclosures included within the stock compensation footnote of the Company’s ~~2017~~2018 Annual Report on Form 10-K.

The Company classifies pre-tax stock compensation expense in COGS and SG&A expense principally within its Corporate segment. For the periods presented, compensation expense for all types of equity-based programs and the related income tax benefit recognized was as follows:



	Quarter ended				Year-to-date period ended
(millions)	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Pre-tax compensation expense	$	18	$	16	$	32	$	33
Related income tax benefit	$	5	$	4	$	8	$	8

Quarter ended Year-to-date period ended
(millions) June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
Pre-tax compensation expense $ 16
$ 21
$ 33
$ 39
Related income tax benefit $ 4
$ 8
$ 8
$ 14

As of June 30, 2018, total stock-based compensation cost related to non-vested awards not yet recognized was $112 million and the weighted-average period over which this amount is expected to be recognized was 2 years.

~~Stock options~~

During the year-to-date ~~periods~~period ended June ~~30, 2018 and July 1, 2017,~~29, 2019, the Company granted approximately 0.9 million restricted stock units at a weighted average cost of $56 per share and 2.8 million non-qualified stock options ~~to eligible employees as presented in the following activity tables.~~at a weighted average cost of $7 per share. Terms of these grants and the Company’s methods for determining grant-date fair value of the awards were consistent with that described within the stock compensation footnote in the Company’s ~~2017~~2018 Annual Report on Form 10-K.

~~Year-to-date period ended June 30, 2018:~~

Employee and director stock options Shares (millions)
Weighted-
average
exercise price
Weighted-
average
remaining
contractual term (yrs.)
Aggregate
intrinsic
value (millions)

Outstanding, beginning of period 14
$ 64

Granted 3
70

Exercised (1 ) 57

Forfeitures and expirations (1 ) 70

Outstanding, end of period 15
$ 65
6.6 $ 92
Exercisable, end of period 11
$ 63
5.7 $ 91

~~Year-to-date period ended July 1, 2017:~~

Employee and director stock options Shares (millions)
Weighted-
average
exercise price
Weighted-
average
remaining
contractual term (yrs.)
Aggregate
intrinsic
value (millions)

Outstanding, beginning of period 15
$ 62

Granted 2
73

Exercised (1 ) 57

Forfeitures and expirations —
—

Outstanding, end of period 16
$ 64
7.0 $ 109
Exercisable, end of period 11
$ 60
6.1 $ 104

The weighted-average grant date fair value of options granted was $10.00 per share and $10.14 per share for the year-to-date periods ended June 30, 2018 and July 1, 2017, respectively. The fair value was estimated using the following assumptions:

Weighted-
average
expected
volatility
Weighted-
average
expected
term
(years)
Weighted-
average
risk-free
interest
rate
Dividend
yield
Grants within the year-to-date period ended June 30, 2018: 18 % 6.6 2.82 % 3.00 %
Grants within the year-to-date period ended July 1, 2017: 18 % 6.6 2.26 % 2.80 %

~~The total intrinsic value of options exercised was $13 million and $17 million for the year-to-date periods ended June 30, 2018 and July 1, 2017, respectively.~~

Performance shares

In the first quarter of ~~2018,~~2019, the Company granted performance shares to a limited number of senior executive-level employees, which entitle these employees to receive a specified number of shares of the Company’s common stock upon vesting. The number of shares earned could range between 0% and 200% of the target amount depending upon performance achieved over the three year vesting period. The performance conditions of the award include ~~adjusted~~organic net sales growth and total shareholder return (TSR) of the Company’s common stock relative to a select group of peer companies.

A Monte Carlo valuation model was used to determine the fair value of the awards. The TSR performance metric is a market condition. Therefore, compensation cost of the TSR condition is fixed at the measurement date and is not revised based on actual performance. The TSR metric was valued as a multiplier of possible levels of ~~adjusted~~organic net sales growth achievement. Compensation cost related to ~~adjusted~~organic net sales growth performance is revised for changes in the expected outcome. The ~~2018~~2019 target grant currently corresponds to approximately ~~188,000~~239,000 shares, with a grant-date fair value of ~~$72~~$59 per share.

Based on the market price of the Company’s common stock at June 30, 2018, the maximum future value that could be awarded to employees on the vesting date for all outstanding performance share awards was as follows:

(millions) June 30, 2018
2016 Award $ 18
2017 Award $ 16
2018 Award $ 26

The ~~2015~~2016 performance share award, payable in stock, was settled at ~~75%~~85% of target in February ~~2018~~2019 for a total dollar equivalent of $8$6 million.

~~Other stock-based awards~~

During the year-to-date period ended June 30, 2018, the Company granted restricted stock units and a nominal number of restricted stock awards to eligible employees as presented in the following table. Terms of these grants and the Company’s method of determining grant-date fair value were consistent with that described within the stock compensation footnote in the Company’s 2017 Annual Report on Form 10-K.

~~Year-to-date period ended June 30, 2018:~~

Employee restricted stock units Shares (thousands) Weighted-average grant-date fair value
Non-vested, beginning of year 1,673
$ 65
Granted 697
63
Vested (416 ) 59
Forfeited (151 ) 63
Non-vested, end of period 1,803
$ 66

~~Year-to-date period ended July 1, 2017:~~

Employee restricted stock and restricted stock units Shares (thousands) Weighted-average grant-date fair value
Non-vested, beginning of year 1,166
$ 63
Granted 654
67
Vested (35 ) 57
Forfeited (72 ) 65
Non-vested, end of period 1,713
$ 65

Note 810 Employee benefits

The Company sponsors a number of U.S. and foreign pension plans as well as other nonpension postretirement and postemployment plans to provide various benefits for its employees. These plans are described within the footnotes to the Consolidated Financial Statements included in the Company’s ~~2017~~2018 Annual Report on Form 10-K. Components of Company plan benefit expense for the periods presented are included in the tables below.

Pension



	Quarter ended						Year-to-date period ended
(millions)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Service cost	$	9		$	22		$	18		$	44
Interest cost	44			41			89			83
Expected return on plan assets	(83		)	(90		)	(168		)	(182		)
Amortization of unrecognized prior service cost	2			2			4			4
Recognized net (gain) loss	10			(2		)	11			(11		)
Net periodic benefit cost	$	(18	)	$	(27	)	$	(46	)	$	(62	)

~~Pension~~

Quarter ended Year-to-date period ended
(millions) June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
Service cost $ 22
$ 25
$ 44
$ 50
Interest cost 41
42
83
83
Expected return on plan assets (90 ) (90 ) (182 ) (180 )
Amortization of unrecognized prior service cost 2
2
4
4
Recognized net (gain) loss (2 ) (2 ) (11 ) 1
Net periodic benefit cost (27 ) (23 ) (62 ) (42 )
Curtailment (gain) loss —
(3 ) —
(2 )
Total pension (income) expense $ (27 ) $ (26 ) $ (62 ) $ (44 )



State of Incorporation—	Delaware	IRS Employer Identification ~~No.38-0710690~~No.	38-0710690



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $.25 par value per share	K	New York Stock Exchange
1.750% Senior Notes due 2021	K 21	New York Stock Exchange
0.800% Senior Notes due 2022	K 22A	New York Stock Exchange
1.000% Senior Notes due 2024	K 24	New York Stock Exchange
1.250% Senior Notes due 2025	K 25	New York Stock Exchange



Large accelerated filerx	☒	Accelerated filer¨	☐	Non-accelerated filer¨	☐	Smaller reporting company¨	☐	Emerging growth companyo	☐



		Page
	PART I — Financial Information
	Item 1:
	Financial Statements
	Consolidated Balance Sheet — June ~~30, 2018~~29, 2019 and December ~~30, 2017~~29, 2018	3
	Consolidated Statement of Income — quarter and year-to-date periods ended June 29, 2019 and June 30, 2018 ~~and July 1, 2017~~	4
	Consolidated Statement of Comprehensive Income – quarter and year-to-date periods ended June 29, 2019 and June 30, 2018 ~~and July 1, 2017~~	5
	Consolidated Statement of Equity — ~~year ended December 30, 2017~~quarter and year-to-date ~~period~~periods ended June ~~30, 2018~~29, 2019	6
	Consolidated Statement of Equity — quarter and year-to-date periods ended June 30, 2018	7
	Consolidated Statement of Cash Flows — year-to-date periods ended June 29, 2019 and June 30, 2018 ~~and July 1, 2017~~	7
	~~Notes to Consolidated Financial Statements~~	8
	Notes to Consolidated Financial Statements	9
	Item 2:
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3631
	Item 3:
	Quantitative and Qualitative Disclosures about Market Risk	5749
	Item 4:
	Controls and Procedures	5750
	PART II — Other Information
	Item 1:
	Legal Proceedings	5851
	Item 1A:
	Risk Factors	5851
	Item 2:
	Unregistered Sales of Equity Securities and Use of Proceeds	5851
	Item 6:
	Exhibits	5851
	Signatures	5952
	Exhibit Index	6053



	June 29, 2019 (unaudited)			December 29, 2018
Current assets
Cash and cash equivalents	$	340		$	321
Accounts receivable, net	1,643			1,375
Inventories	1,234			1,330
Other current assets	175			131
Current assets held for sale	112			—
Total current assets	3,504			3,157
Property, net	3,526			3,731
Operating lease right-of-use assets	415			—
Goodwill	5,871			6,050
Other intangibles, net	2,587			3,361
Investments in unconsolidated entities	407			413
Other assets	1,171			1,068
Noncurrent assets held for sale	1,188			—
Total assets	$	18,669		$	17,780
Current liabilities
Current maturities of long-term debt	$	508		$	510
Notes payable	568			176
Accounts payable	2,401			2,427
Current operating lease liabilities	103			—
Other current liabilities	1,409			1,416
Total current liabilities	4,989			4,529
Long-term debt	8,262			8,207
Operating lease liabilities	321			—
Deferred income taxes	778			730
Pension liability	619			651
Other liabilities	488			504
Commitments and contingencies
Equity
Common stock, $.25 par value	105			105
Capital in excess of par value	895			895
Retained earnings	7,858			7,652
Treasury stock, at cost	(4,739		)	(4,551		)
Accumulated other comprehensive income (loss)	(1,469		)	(1,500		)
Total Kellogg Company equity	2,650			2,601
Noncontrolling interests	562			558
Total equity	3,212			3,159
Total liabilities and equity	$	18,669		$	17,780



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	June 30, 2018 (unaudited)			December 30, 2017
Current assets
Cash and cash equivalents	$	257		$	281
Accounts receivable, net	1,530			1,389
Inventories	1,291			1,217
Other current assets	189			149
Total current assets	3,267			3,036
Property, net	3,638			3,716
Goodwill	6,072			5,504
Other intangibles, net	3,391			2,639
Investments in unconsolidated entities	421			429
Other assets	1,112			1,027
Total assets	$	17,901		$	16,351
Current liabilities
Current maturities of long-term debt	$	7		$	409
Notes payable	324			370
Accounts payable	2,306			2,269
Other current liabilities	1,329			1,474
Total current liabilities	3,966			4,522
Long-term debt	8,737			7,836
Deferred income taxes	714			355
Pension liability	532			839
Other liabilities	548			605
Commitments and contingencies
Equity
Common stock, $.25 par value	105			105
Capital in excess of par value	866			878
Retained earnings	7,743			7,069
Treasury stock, at cost	(4,375		)	(4,417		)
Accumulated other comprehensive income (loss)	(1,501		)	(1,457		)
Total Kellogg Company equity	2,838			2,178
Noncontrolling interests	566			16
Total equity	3,404			2,194
Total liabilities and equity	$	17,901		$	16,351



	Quarter ended					Year-to-date period ended
(Results are unaudited)	June 29, 2019			June 30, 2018		June 29, 2019			June 30, 2018
Net sales	$	3,461		$	3,360	$	6,983		$	6,761
Cost of goods sold	2,275			2,151		4,690			4,300
Selling, general and administrative expense	789			735		1,515			1,477
Operating profit	397			474		778			984
Interest expense	75			72		149			141
Other income (expense), net	45			69		97			139
Income before income taxes	367			471		726			982
Income taxes	74			70		146			137
Earnings (loss) from unconsolidated entities	(1		)	198		(3		)	198
Net income	292			599		577			1,043
Net income attributable to noncontrolling interests	6			3		9			3
Net income attributable to Kellogg Company	$	286		$	596	$	568		$	1,040
Per share amounts:
Basic earnings	$	0.84		$	1.72	$	1.66		$	3.00
Diluted earnings	$	0.84		$	1.71	$	1.66		$	2.99
Average shares outstanding:
Basic	340			347		341			346
Diluted	341			348		342			348
Actual shares outstanding at period end						341			346


																											Quarter ended June 29, 2019
	Common stock			Capital in excess of par value			Retained earnings			Treasury stock					Accumulated other comprehensive income (loss)			Total Kellogg Company equity			Non-controlling interests			Total equity			Common stock			Capital in excess of par value		Retained earnings			Treasury stock				Accumulated other comprehensive income (loss)			Total Kellogg Company equity			Non-controlling interests			Total equity
(unaudited)	shares	amount								shares		amount															shares	amount							shares	amount
Balance, December 31, 2016	420	$	105	$	806		$	6,552		69		$	(3,997	)	$	(1,575	)	$	1,891		$	16		$	1,907
Common stock repurchases										7		(516		)				(516		)				(516		)
Balance, March 30, 2019																											421	$	105	$	877	$	7,762		80	$	(4,744	)	$	(1,467	)	$	2,533		$	564		$	3,097
Net income							1,254											1,254			—			1,254								286										286			6			292
Dividends							(736		)									(736		)				(736		)
Sale of subsidiary shares to noncontrolling interest																																										—			1			1
Dividends declared ($0.56 per share)																																(188		)								(188		)				(188		)
Distributions to noncontrolling interest																																										—			(9		)	(9		)
Other comprehensive income															118			118			—			118															(2		)	(2		)				(2		)
Stock compensation				66														66						66						16												16						16
Stock options exercised and other	1			6			(1		)	(1	)	96						101						101						2		(2		)	—	5						5						5
Balance, December 30, 2017	421	$	105	$	878		$	7,069		75		$	(4,417	)	$	(1,457	)	$	2,178		$	16		$	2,194
Common stock repurchases										1		(50		)				(50		)				(50		)
Net income							1,040											1,040			3			1,043
Acquisition of noncontrolling interest, net																		—			552			552
Dividends							(374		)									(374		)	(1		)	(375		)
Other comprehensive income															(44		)	(44		)	(4		)	(48		)
Stock compensation				30														30						30
Stock options exercised and other				(42		)	8			(2	)	92						58						58
Balance, June 30, 2018	421	$	105	$	866		$	7,743		74		$	(4,375	)	$	(1,501	)	$	2,838		$	566		$	3,404
Balance, June 29, 2019																											421	$	105	$	895	$	7,858		80	$	(4,739	)	$	(1,469	)	$	2,650		$	562		$	3,212



	Quarter ended June 30, 2018
	Common stock			Capital in excess of par value		Retained earnings			Treasury stock					Accumulated other comprehensive income (loss)			Total Kellogg Company equity			Non-controlling interests			Total equity
(unaudited)	shares	amount							shares		amount
Balance, March 31, 2018	421	$	105	$	852	$	7,334		74		$	(4,346	)	$	(1,407	)	$	2,538		$	16		$	2,554
Common stock repurchases									1		(50		)				(50		)				(50		)
Net income						596											596			3			599
Acquisition of noncontrolling interest - Multipro																	—			552			552
Dividends declared ($0.54 per share)						(187		)									(187		)				(187		)
Distributions to noncontrolling interest																	—			(1		)	(1		)
Other comprehensive income														(94		)	(94		)	(4		)	(98		)
Stock compensation				14													14						14
Stock options exercised and other				—		—			(1	)	21						21						21
Balance, June 30, 2018	421	$	105	$	866	$	7,743		74		$	(4,375	)	$	(1,501	)	$	2,838		$	566		$	3,404



	Year-to-date period ended June 30, 2018
	Common stock			Capital in excess of par value			Retained earnings			Treasury stock					Accumulated other comprehensive income (loss)			Total Kellogg Company equity			Non-controlling interests			Total equity
(unaudited)	shares	amount								shares		amount
Balance, December 30, 2017	421	$	105	$	878		$	7,069		75		$	(4,417	)	$	(1,457	)	$	2,178		$	16		$	2,194
Common stock repurchases										1		(50		)				(50		)				(50		)
Net income							1,040											1,040			3			1,043
Acquisition of noncontrolling interest - Multipro																		—			552			552
Dividends declared ($1.08 per share)							(374		)									(374		)				(374		)
Distributions to noncontrolling interest																		—			(1		)	(1		)
Other comprehensive income															(44		)	(44		)	(4		)	(48		)
Stock compensation				30			—											30						30
Stock options exercised and other				(42		)	8			(2	)	92						58						58
Balance, June 30, 2018	421	$	105	$	866		$	7,743		74		$	(4,375	)	$	(1,501	)	$	2,838		$	566		$	3,404



	As of December 30, 2017
Consolidated Balance Sheet	Previously Reported		Revenue Recognition ASU			Restated
Other assets	$	1,026	$	1		$	1,027
Other current liabilities	$	1,431	$	43		$	1,474
Deferred income taxes	$	363	$	(8	)	$	355
Retained earnings	$	7,103	$	(34	)	$	7,069



	Quarter ended July 1, 2017
Consolidated Statement of Income	Previously Reported			Revenue Recognition ASU			Pension ASU		Restated
Net sales	$	3,187		$	(12	)	$	—	$	3,175
Cost of goods sold	$	1,922		$	(17	)	$	45	$	1,950
Selling, general and administrative expense	$	812		$	4		$	24	$	840
Other income (expense), net	$	(6	)	$	—		$	69	$	63
Income taxes	$	102		$	—		$	—	$	102
Net income	$	282		$	1		$	—	$	283
Per share amounts:
Basic earnings	$	0.81		$	—		$	—	$	0.81
Diluted earnings	$	0.80		$	—		$	—	$	0.80



	Year-to-date period ended July 1, 2017
Consolidated Statement of Income	Previously Reported			Revenue Recognition ASU			Pension ASU		Restated
Net sales	$	6,441		$	(18	)	$	—	$	6,423
Cost of goods sold	$	3,972		$	(33	)	$	99	$	4,038
Selling, general and administrative expense	$	1,656		$	9		$	55	$	1,720
Other income (expense), net	$	(3	)	$	—		$	154	$	151
Income taxes	$	144		$	1		$	—	$	145
Net income	$	544		$	5		$	—	$	549
Per share amounts:
Basic earnings	$	1.56		$	0.01		$	—	$	1.57
Diluted earnings	$	1.54		$	0.02		$	—	$	1.56



	Year-to-date period ended July 1, 2017
Consolidated Statement of Cash Flows	Previously Reported			Revenue Recognition ASU			Cash Flow ASU			Restated
Net income	$	544		$	5		$	—		$	549
Deferred income taxes	$	(67	)	$	1		$	—		$	(66	)
Other	$	30		$	—		$	6		$	36
Trade receivables	$	(148	)	$	—		$	(568	)	$	(716	)
All other current assets and liabilities, net	$	10		$	(6	)	$	—		$	4
Net cash provided by (used in) operating activities	$	654		$	—		$	(562	)	$	92
Collections of deferred purchase price on securitized trade receivables	$	—		$	—		$	568		$	568
Investment in unconsolidated entities, net proceeds	$	6		$	—		$	(6	)	$	—
Net cash provided by (used in) investing activities	$	(262	)	$	—		$	562		$	300



(millions)	May 2, 2018
Current assets	$	118
Property	41
Goodwill	616
Intangible assets subject to amortization, primarily customer relationships	425
Intangible assets not subject to amortization, primarily distribution rights	373
Deferred tax liability	(256		)
Other liabilities	(148		)
Noncontrolling interest	(552		)
	$	617



(millions)	October 27, 2017
Current assets	$	42
Goodwill	373
Intangible assets, primarily indefinite-lived brands	203
Current liabilities	(23		)
	$	595



(millions)	U.S. Snacks		U.S. Morning Foods		U.S. Specialty Channels		North America Other			Europe			Latin America			Asia Pacific			Consoli- dated
December 30, 2017	$	3,568	$	131	$	82	$	836		$	414		$	244		$	229		$	5,504
Additions	—		—		—		—			—			—			616			616
Purchase price allocation adjustment	—		—		—		(1		)	—			—			—			(1		)
Purchase price adjustment	—		—		—		(1		)	—			—			—			(1		)
Currency translation adjustment	—		—		—		(2		)	(12		)	(25		)	(7		)	(46		)
June 30, 2018	$	3,568	$	131	$	82	$	832		$	402		$	219		$	838		$	6,072




(millions, except per share data)	Net income		Average shares outstanding	Earnings per share
2018
Basic	$	596	347	$	1.72
Dilutive potential common shares			1	(0.01		)
Diluted	$	596	348	$	1.71
2017
Basic	$	283	349	$	0.81
Dilutive potential common shares			3	(0.01		)
Diluted	$	283	352	$	0.80



Employee and director stock options	Shares (millions)		Weighted- average exercise price		Weighted- average remaining contractual term (yrs.)	Aggregate intrinsic value (millions)
Employee and director stock options	Shares (millions)		Weighted- average exercise price		Weighted- average remaining contractual term (yrs.)	Aggregate intrinsic value (millions)
Outstanding, beginning of period	14		$	64
Granted	3		70
Exercised	(1	)	57
Forfeitures and expirations	(1	)	70
Outstanding, end of period	15		$	65	6.6	$	92
Exercisable, end of period	11		$	63	5.7	$	91



	Weighted- average expected volatility		Weighted- average expected term (years)	Weighted- average risk-free interest rate		Dividend yield
Grants within the year-to-date period ended June 30, 2018:	18	%	6.6	2.82	%	3.00	%
Grants within the year-to-date period ended July 1, 2017:	18	%	6.6	2.26	%	2.80	%



(millions)	June 30, 2018
2016 Award	$	18
2017 Award	$	16
2018 Award	$	26



Employee restricted stock units	Shares (thousands)		Weighted-average grant-date fair value
Non-vested, beginning of year	1,673		$	65
Granted	697		63
Vested	(416	)	59
Forfeited	(151	)	63
Non-vested, end of period	1,803		$	66



(millions)	Pension		Nonpension postretirement		Total
Quarter ended:
June 29, 2019	$	3	$	4	$	7
June 30, 2018	$	251	$	4	$	255
Year-to-date period ended:
June 29, 2019	$	4	$	8	$	12
June 30, 2018	$	266	$	8	$	274
Full year:
Fiscal year 2019 (projected)	$	7	$	18	$	25
Fiscal year 2018 (actual)	$	270	$	17	$	287



(millions)
December 30, 2017	$	60
Tax positions related to current year:
Additions	3
Reductions	—
Tax positions related to prior years:
Additions	2
Reductions	(6		)
Settlements	(2		)
Lapse in statute of limitations	—
June 30, 2018	$	57


(millions)	Line Item in the Consolidated Balance Sheet in which the hedged item is included	Carrying amount of the hedged liabilities				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)						Line Item in the Consolidated Balance Sheet in which the hedged item is included	Carrying amount of the hedged liabilities				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)
		June 30, 2018		December 30, 2017		June 30, 2018			December 30, 2017				June 29, 2019		December 29, 2018		June 29, 2019		December 29, 2018
Interest rate contracts	Current maturities of long-term debt	$	—	$	402	$	—		$	2		Current maturities of long-term debt	$	501	$	503	$	1	$	3
Interest rate contracts	Long-term debt	$	3,357	$	3,481	$	(45	)	$	(22	)	Long-term debt	$	3,388	$	3,354	$	22	$	(18	)


As of June 30, 2018:
				Gross Amounts Not Offset in the Consolidated Balance Sheet
As of June 29, 2019:														Gross Amounts Not Offset in the Consolidated Balance Sheet
	Amounts Presented in the Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received/ Posted		Net Amount		Amounts Presented in the Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received/ Posted			Net Amount
Total asset derivatives	$	60		$	(28	)	$	—	$	32	$	114		$	(25	)	$	(7	)	$	82
Total liability derivatives	$	(53	)	$	28		$	25	$	—	$	(33	)	$	25		$	—		$	(8	)




As of December 29, 2018:				Gross Amounts Not Offset in the Consolidated Balance Sheet
	Amounts Presented in the Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received/ Posted			Net Amount
Total asset derivatives	$	102		$	(27	)	$	(2	)	$	73
Total liability derivatives	$	(35	)	$	27		$	—		$	(8	)



As of December 30, 2017:
				Gross Amounts Not Offset in the Consolidated Balance Sheet
	Amounts Presented in the Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received/ Posted		Net Amount
Total asset derivatives	$	16		$	(15	)	$	—	$	1
Total liability derivatives	$	(75	)	$	15		$	37	$	(23	)


(millions)	Gain (loss) recognized in AOCI					Gain (loss) excluded from assessment of hedge effectiveness				Location of gain (loss) in income of excluded component	Gain (loss) recognized in AOCI					Gain (loss) excluded from assessment of hedge effectiveness				Location of gain (loss) in income of excluded component
	June 30, 2018		July 1, 2017			June 30, 2018		July 1, 2017			June 29, 2019			June 30, 2018		June 29, 2019		June 30, 2018
Foreign currency denominated long-term debt	$	146	$	(157	)	$	—	$	—		$	(35	)	$	146	$	—	$	—
Cross-currency contracts	35		—			$	3	—		Other income (expense), net	23			35		8		3		Interest expense
Total	$	181	$	(157	)	$	3	$	—		$	(12	)	$	181	$	8	$	3


(millions)	Location of gain (loss) recognized in income	Gain (loss) recognized in income						Location of gain (loss) recognized in income	Gain (loss) recognized in income
		June 30, 2018			July 1, 2017				June 29, 2019		June 30, 2018
Foreign currency exchange contracts	COGS	$	4		$	(4	)	COGS	$	1	$	4
Foreign currency exchange contracts	Other income (expense), net	—			(3		)
Foreign currency exchange contracts	SG&A	—			(1		)
Commodity contracts	COGS	(8		)	10			COGS	40		(8		)
Total		$	(4	)	$	2			$	41	$	(4	)


		June 30, 2018			July 1, 2017				June 29, 2019			June 30, 2018
(millions)	(millions)	Interest Expense			Interest Expense			(millions)	Interest Expense			Interest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded	Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded	$	72		$	63		Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded	$	75		$	72
	Gain (loss) on fair value hedging relationships:							Gain (loss) on fair value hedging relationships:
	Interest contracts:							Interest contracts:
	Hedged items	(7		)	(3		)	Hedged items	(13		)	(7		)
	Derivatives designated as hedging instruments	7			8			Derivatives designated as hedging instruments	13			7

	Gain (loss) on cash flow hedging relationships:							Gain (loss) on cash flow hedging relationships:
	Interest contracts:							Interest contracts:
	Amount of gain (loss) reclassified from AOCI into income	(2		)	(3		)	Amount of gain (loss) reclassified from AOCI into income	(2		)	(2		)
	Foreign exchange contracts:
	Amount of gain (loss) reclassified from AOCI into income	—			—



	June 29, 2019						December 29, 2018
			Unrealized						Unrealized
(millions)	Cost		Gain (Loss)		Market Value		Cost		Gain (Loss)		Market Value
Corporate bonds	$	60	$	3	$	63	$	59	$	—	$	59



Consolidated Balance Sheet
(millions)	June 29, 2019 (unaudited)			December 29, 2018
Trade receivables	$	1,409		$	1,163
Allowance for doubtful accounts	(9		)	(10		)
Refundable income taxes	18			28
Other receivables	225			194
Accounts receivable, net	$	1,643		$	1,375
Raw materials and supplies	$	327		$	339
Finished goods and materials in process	907			991
Inventories	$	1,234		$	1,330
Property	$	8,814		$	9,173
Accumulated depreciation	(5,288		)	(5,442		)
Property, net	$	3,526		$	3,731
Pension	$	267		$	228
Deferred income taxes	256			246
Other	648			594
Other assets	$	1,171		$	1,068
Accrued income taxes	$	10		$	48
Accrued salaries and wages	243			309
Accrued advertising and promotion	603			557
Current liabilities held for sale	1			—
Other	552			502
Other current liabilities	$	1,409		$	1,416
Income taxes payable	$	118		$	115
Nonpension postretirement benefits	36			34
Noncurrent liabilities held for sale	4			—
Other	330			355
Other liabilities	$	488		$	504