Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Common Stock outstanding as of ~~October~~April 30, ~~2010~~2011 — ~~368,213,884~~362,875,825 shares


	October 2, 2010 (unaudited)			January 2, 2010 *			April 2, 2011 (unaudited)			January 1, 2011 *
Current assets
Cash and cash equivalents	$	559		$	334		$	404		$	444
Accounts receivable, net		1,211			1,093			1,367			1,190
Inventories:
Raw materials and supplies		232			214			243			224
Finished goods and materials in process		720			696			732			832
Deferred income taxes		148			128			134			110
Other prepaid assets		135			93			171			115

Total current assets		3,005			2,558			3,051			2,915

Property, net of accumulated depreciation of $4,666 and $4,520		3,015			3,010
Property, net of accumulated depreciation of $4,816 and $4,690								3,183			3,128
Goodwill		3,644			3,643			3,630			3,628
Other intangibles, net of accumulated amortization of $46 and $45		1,457			1,458
Other intangibles, net of accumulated amortization of $47 and $47								1,456			1,456
Pension		208			160			463			333
Other assets		395			371			405			387

Total assets	$	11,724		$	11,200		$	12,188		$	11,847


Current liabilities
Current maturities of long-term debt	$	948		$	1		$	—		$	952
Notes payable		594			44			1,078			44
Accounts payable		1,145			1,077			1,199			1,149
Accrued advertising and promotion		454			409			462			405
Accrued income taxes		133			33			92			60
Accrued salaries and wages		161			322			179			153
Other current liabilities		344			402			408			421

Total current liabilities		3,779			2,288			3,418			3,184

Long-term debt		3,929			4,835			4,905			4,908
Deferred income taxes		431			425			749			697
Pension liability		441			430			176			265
Other liabilities		926			947			636			639

Commitments and contingencies

Equity
Common stock, $.25 par value		105			105			105			105
Capital in excess of par value		485			472			503			495
Retained earnings		6,087			5,481			6,325			6,122
Treasury stock, at cost		(2,528	)		(1,820	)		(2,835	)		(2,650	)
Accumulated other comprehensive income (loss)		(1,931	)		(1,966	)		(1,789	)		(1,914	)

Total Kellogg Company equity		2,218			2,272			2,309			2,158

Noncontrolling interests		—			3			(5	)		(4	)

Total equity		2,218			2,275			2,304			2,154

Total liabilities and equity	$	11,724		$	11,200		$	12,188		$	11,847


	Quarter ended						Year-to-date period ended						Quarter ended
(Results are unaudited)	October 2, 2010			October 3, 2009			October 2, 2010			October 3, 2009			April 2, 2011			April 3, 2010
Net sales	$	3,157		$	3,277		$	9,537		$	9,675		$	3,485		$	3,318

Cost of goods sold		1,788			1,837			5,438			5,529			2,064			1,893
Selling, general and administrative expense		828			873			2,438			2,497			849			788

Operating profit		541			567			1,661			1,649			572			637

Interest expense		62			65			188			199			67			65
Other income (expense), net		1			(10	)		9			(1	)		—			1

Income before income taxes		480			492			1,482			1,449			505			573
Income taxes		143			132			427			416			140			156
Earnings (loss) from joint ventures		—			—			—			(1	)
Net income	$	337		$	360		$	1,055		$	1,032		$	365		$	417
Net income (loss) attributable to noncontrolling interests		(1	)		(1	)		(3	)		(4	)		(1	)		(1	)
Net income attributable to Kellogg Company	$	338		$	361		$	1,058		$	1,036		$	366		$	418

Per share amounts:
Basic	$	0.91		$	0.94		$	2.80		$	2.71		$	1.00		$	1.10
Diluted	$	0.90		$	0.94		$	2.78		$	2.70		$	1.00		$	1.09

Dividends per share	$	0.4050		$	0.3750		$	1.1550		$	1.0550		$	0.405		$	0.375

Average shares outstanding:
Basic		373			382			378			382			365			380
Diluted		376			384			381			383			368			384

Actual shares outstanding at period end								368			379			362			380


																													Capital in excess of par value			Retained earnings										Accumulated other comprehensive income (loss)				Total Kellogg Company equity				Non- controlling interests	Total equity				Total comprehensive income (loss)
			Capital in excess of par value			Retained earnings						Accumulated other comprehensive income (loss)			Total Kellogg Company equity				Non- controlling interests	Total equity			Total comprehensive income (loss)
	Common stock				Treasury stock									Common stock								Treasury stock
(unaudited)	shares	amount			shares			amount										shares				amount						shares							amount

Balance, January 3, 2009	419	$105			$438				$4,836		37						($1,790)				($2,141)				$ 1,448		$ 7								$ 1,455
Balance, January 2, 2010																										419	$105			$	472		$	5,481			38		$	(1,820	)			$	(1,966	)			$ 2,272		$ 3		$	2,275
Common stock repurchases									4		(187)							(187)				(187)																21			(1,057	)							(1,057	)				(1,057	)
Net income (loss)							1,212									1,212			(4)		1,208			$1,208									1,247														1,247			(7)		1,240			$	1,240
Dividends							(546)									(546)					(546)												(584)														(584	)				(584	)
Other comprehensive income													175			175					175			175																			52				52					52				52
Stock compensation				37												37					37									19																	19					19
Stock options exercised and other				(3)			(21)	(3)		157						133					133									4			(22)			(5)			227								209					209
Balance, January 2, 2010	419	$105		$472			$5,481	38		($1,820)			($1,966)			$ 2,272			$ 3		$ 2,275			$1,383

Balance, January 1, 2011																										419	$105		$	495		$	6,122			54		$	(2,650	)		$	(1,914	)			$ 2,158			$ (4)	$	2,154			$	1,292
Common stock repurchases								18		(907)						(907)					(907)															6			(324	)							(324	)				(324	)
Net income (loss)							1,058									1,058			(3)		1,055			1,055									366														366			(1)		365				365
Dividends							(435)									(435)					(435)												(148)														(148	)				(148	)
Other comprehensive income (loss)													35			35					35			35
Other comprehensive income																																											125				125					125				125
Stock compensation				16												16					16									3																	3					3
Stock options exercised and other				(3)			(17)	(5)		199						179					179									5			(15)			(3)			139								129					129

Balance, October 2, 2010	419	$105		$485			$6,087	51		($2,528)			($1,931)			$ 2,218			$ —		$ 2,218			$1,090
Balance, April 2, 2011																										419	$105		$	503		$	6,325			57		$	(2,835	)		$	(1,789	)			$ 2,309			$(5)	$	2,304			$	490


	Year-to-date period ended						Quarter ended
(unaudited)	October 2, 2010			October 3, 2009			April 2, 2011			April 3, 2010
Operating activities
Net income	$	1,055		$	1,032		$	365		$	417
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization		265			282			89			87
Deferred income taxes		(53	)		(9	)		6			(11	)
Other		116			(18	)		6			44
Postretirement benefit plan contributions		(45	)		(93	)		(178	)		(22	)
Changes in operating assets and liabilities:
Trade receivables		(125	)		(240	)		(301	)		(203	)
Inventories		(43	)		35			81			93
Accounts payable		68			(54	)		50			(48	)
Accrued income taxes		63			84			190			110
Accrued interest expense		(18	)		(33	)		(16	)		(17	)
Accrued and prepaid advertising, promotion and trade allowances		33			151			21			(4	)
Accrued salaries and wages		(161	)		9			25			(133	)
All other current assets and liabilities		(76	)		84			(28	)		(63	)

Net cash provided by operating activities		1,079			1,230			310			250

Investing activities
Additions to properties		(252	)		(252	)		(103	)		(60	)
Other		2			1			4			1

Net cash used in investing activities		(250	)		(251	)		(99	)		(59	)

Financing activities
Net issuances (reductions) of notes payable		547			(915	)
Issuances of long-term debt		—			745
Net issuances of notes payable								1,031			80
Reductions of long-term debt		(1	)		—			(946	)		—
Net issuances of common stock		178			34			122			74
Common stock repurchases		(907	)		(187	)		(329	)		(148	)
Cash dividends		(435	)		(403	)		(148	)		(142	)
Other		7			2			4			2

Net cash used in financing activities		(611	)		(724	)		(266	)		(134	)

Effect of exchange rate changes on cash and cash equivalents		7			17			15			(4	)

Increase in cash and cash equivalents		225			272
Increase (decrease) in cash and cash equivalents								(40	)		53
Cash and cash equivalents at beginning of period		334			255			444			334

Cash and cash equivalents at end of period	$	559		$	527		$	404		$	387

The unaudited interim financial information of Kellogg Company (the Company) included in this report reflects normal recurring adjustments that management believes are necessary for a fair statement of the results of operations, financial position, equity and cash flows for the periods presented. This interim information should be read in conjunction with the financial statements and accompanying notes contained on pages 27 to 5657 of the Company’s ~~2009~~2010 Annual Report on Form 10-K.

The condensed balance sheet data at January ~~2, 2010~~1, 2011 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 ~~October~~April 2, ~~2010~~2011 are not necessarily indicative of the results to be expected for other interim periods or the full year.

In December 2009, the FASB amended the Accounting Standards Codification related to the consolidation provisions that apply to variable interest entities. This guidance is effective for fiscal years that begin after November 15, 2009 and was adopted by the Company on a prospective basis as of January 3, 2010 without material impact to its consolidated financial statements.

Changes in the carrying amount of goodwill for the ~~year-to-date period~~quarter ended ~~October~~April 2, ~~2010~~2011 are presented in the following table. ~~Certain of the Company’s goodwill balances are subject to foreign currency translation adjustments. Fluctuations in exchange rates contributed to the change in goodwill balance for the period.~~


(millions)	North America	Europe	Latin America	Asia Pacific (a)	Consolidated	North America	Europe		Latin America		Asia Pacific (a)		Consolidated
January 2, 2010	$3,539	$62	$—	$42	$3,643
January 1, 2011						$3,539		$62		$—		$27		$3,628
Currency translation adjustment	—	(1)	—	2	1	—		2		—		—		2
October 2, 2010	$3,539	$61	$—	$44	$3,644
April 2, 2011						$3,539		$64		$—		$27		$3,630


	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
(millions)	October 2, 2010	January 2, 2010	October 2, 2010	January 2, 2010	April 2, 2011	January 1, 2011	April 2, 2011	January 1, 2011
Trademarks	$19	$19	$16	$15	$19	$19	$16	$16
Other	41	41	30	30	41	41	31	31

Total	$60	$60	$46	$45	$60	$60	$47	$47

For intangible assets in the preceding table, amortization was less than $1 million for each of the current and prior year comparable quarters. The currently estimated aggregate annual amortization expense for full-year ~~2010~~2011 and each of the four succeeding fiscal years is approximately $2 million.

The Company views its continued spending on cost-reduction activities as part of its ongoing 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 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.

During the ~~third~~first quarter of ~~2010,~~2011, the Company incurred exit costs related to two ongoing programs which will result in cost of goods sold (COGS) and selling, general and administrative (SGA) expense savings. The COGS program relates to Kellogg’s lean, efficient, and agile network (K LEAN). The SGA programs focus on the efficiency and effectiveness of various support functions.

Total charges incurred during the ~~quarter~~quarters ended April 2, 2011 and ~~year-to-date periods ended October 2,~~April 3, 2010 were as follows:


	Quarter ended, October 2, 2010			Year-to-date period ended, October 2, 2010			Quarter ended, April 2, 2011			Quarter ended, April 3, 2010
(millions)	COGS program	SGA programs	Total	COGS program	SGA programs	Total	COGS program	SGA programs	Total	COGS program	SGA programs	Total
Employee severance	$—	$1	$1	$2	$2	$4	$ 4	$—	$ 4	$2	$1	$3
Other cash costs (a)	—	1	1	—	6	6	—	—	—	—	4	4
Retirement benefits (b)	—	5	5	1	5	6
Asset write-offs							1	—	1	—	—	—
Total	$—	$7	$7	$3	$13	$16	$ 5	$—	$ 5	$2	$5	$7

Total program costs incurred through ~~October~~April 2, ~~2010~~2011 were as follows:


	Total program costs through October 2, 2010			Total program costs through April 2, 2011
	COGS program	SGA programs	Total	COGS program	SGA programs	Total
Employee severance	$17	$19	$36	$22	$20	$42
Other cash costs (a)	6	14	20	6	15	21
Asset write-offs				2	—	2
Retirement benefits (b)	4	5	9	3	5	8
Total	$27	$38	$65	$33	$40	$73

In 2009, the Company commenced K LEAN. Refer to page 3536 of the Company’s ~~2009~~2010 Annual Report on Form 10-K for further information on this initiative. ~~Based on forecasted foreign exchange rates,~~Costs for this program impacted the ~~Company currently expects to incur $35 million in total exit costs; $27 million has been incurred to date which represents~~following operating segments during the quarters ended April 2, 2011 and April 3, 2010.

These costs represent employee severance and other cash costs associated with the elimination of hourly and salaried positions, as well as non-cash asset write offs at various global manufacturing facilities. ~~Costs~~To date, we have incurred $33 million in total exit costs for this program. The costs have impacted our operating segments, as follows (in millions): North America-$14; Europe-$18; and Asia Pacific-$1. Based on forecasted exchange rates, the Company currently expects to incur an additional $12 million in exit costs for this program ~~impacted the following operating segments for the quarter and year-to-date periods ended October 2, 2010 and October 3, 2009 as follows:~~

In 2009, the Company commenced various SGA programs which ~~will result~~resulted in an improvement in the efficiency and effectiveness of various support functions. Refer to page 3537 of the Company’s ~~2009~~2010 Annual Report on Form 10-K for further information on this initiative. ~~Based on forecasted foreign exchange rates,~~Costs for these programs impacted the ~~Company currently expects to incur $40 million in total exit costs; $38 million has been incurred to date which represents~~following operating segments during the quarters ended April 2, 2011 and April 3, 2010 as follows:


	SGA programs
	Quarter ended
(millions)	April 2, 2011	April 3, 2010
North America	$—	$3
Europe	—	1
Asia Pacific (a)	—	1
Total	$—	$5

These costs represent severance and other cash costs associated with the elimination of salaried positions. ~~These programs are expected~~To date, we have incurred $40 million in exit costs for these programs. The costs have impacted our operating segments as follows (in millions): North America-$21; Europe-$15; Asia Pacific-$3; and Latin America-$1. Based on forecasted exchange rates, the Company currently expects to ~~be substantially complete by the end of 2010. Costs~~incur an additional $2 in exit costs for these programs ~~impacted the following operating segments for the quarter and year-to-date periods ended October 2, 2010 and October 3, 2009 as follows:~~during 2011.

Reserves for the COGS and SGA programs are primarily for employee severance and will be paid out by the end of ~~2010.~~2011. The detail is as follows:

The Company also incurred $6 million of exit costs for the quarter ended October 3, 2009 for two programs: the European manufacturing optimization plan in Bremen Germany; and the supply chain rationalization in Latin America. These costs were recorded in COGS within the Europe and Latin America operating segments.

~~The programs were completed as of the end of 2009. Refer to page 36 of the Company’s 2009 Annual Report on Form 10-K for further information on these initiatives.~~

~~The following tables present the total exit costs for these programs for the quarter and year-to-date periods ended October 3, 2009.~~

Basic earnings per share is determined by dividing net income attributable to Kellogg Company 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, 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. The total number of anti-dilutive potential common shares excluded from the reconciliation were ~~9 million and 4~~7 million for the quarter ended April 2, 2011 and ~~year-to-date periods ended October 2, 2010, respectively, and 12 million and 20~~1 million for the quarter ~~and year-to-date periods~~ ended ~~October~~April 3, ~~2009, respectively.~~2010.

Quarters ended ~~October~~April 2, ~~2010~~2011 and ~~October~~April 3, ~~2009:~~2010:


(millions, except per share data)	Net income attributable to Kellogg Company		Average shares outstanding		Earnings per share		Net income attributable to Kellogg Company		Average shares outstanding		Earnings per share
2011
Basic								$366		365		$1.00
Dilutive potential common shares										3		—
Diluted								$366		368		$1.00
2010
Basic		$1,058		378		$ 2.80		$418		380		$1.10
Dilutive potential common shares				3		(0.02)				4		(0.01)
Diluted		$1,058		381		$ 2.78		$418		384		$1.09
2009
Basic		$1,036		382		$ 2.71
Dilutive potential common shares				1		(0.01)
Diluted		$1,036		383		$ 2.70

During the ~~year-to-date period~~quarter ended ~~October~~April 2, ~~2010,~~2011, the Company issued ~~0.2~~0.4 million shares to employees and directors under various benefit plans and stock purchase programs, as further discussed in Note 5.6.

On April 23, 2010, the Company’s board of directors authorized a $2.5 billion three-year share repurchase program for 2010 through 2012. ~~This authorization replaced the previous share buyback program which authorized stock repurchases of up to $1,113 million for 2010.~~ During the ~~year-to-date period~~quarter ended ~~October~~April 2, ~~2010,~~2011, the Company repurchased 18

6 million shares of common stock for a total of ~~$907~~$324 million. During ~~the year-to-date period~~quarter ended ~~October~~April 3, ~~2009,~~2010, the Company spent ~~$187~~$148 million to purchase ~~approximately 4~~3 million shares.

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 for all periods presented 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.

Pre-tax adjustments to the Company’s other comprehensive income balances related to pension and post-retirement benefits arising during the periods for net experience gain (loss) and prior service credit (costs) are summarized as follows:

During the first quarter of 2010, the Company amended its U.S. postretirement healthcare benefit plan, which resulted in a $17 million decrease of a deferred tax asset.


(millions)	Pre-tax amount		Tax (expense) or benefit	After-tax amount		Pre-tax amount		Tax (expense) or benefit	After-tax amount
2009
2010
Net income					$1,032					$417
Other comprehensive income:
Foreign currency translation adjustments		$107	$—		107		$(46)	$—		(46)
Cash flow hedges:
Unrealized gain (loss) on cash flow hedges		(8)	3		(5)		(35)	11		(24)
Reclassification to net earnings		(5)	2		(3)		13	(4)		9
Postretirement and postemployment benefits:
Amounts arising during the period:
Net experience gain (loss)		(73)	23		(50)		18	(6)		12
Prior service credit (cost)		(17)	6		(11)		1	(17)		(16)
Reclassification to net earnings:
Net experience loss		47	(15)		32		25	(8)		17
Prior service cost		8	(3)		5		4	(1)		3
		$59	$16		75		$(20)	$(25)		(45)
Total comprehensive income					$1,107					$372

Accumulated other comprehensive income (loss) as of ~~October~~April 2, ~~2010~~2011 and January ~~2, 2010~~1, 2011 consisted of the following:


(millions)	October 2, 2010		January 2, 2010		April 2, 2011		January 1, 2011
Foreign currency translation adjustments		($766)		($771)		$ (680)		$ (789)
Cash flow hedges—unrealized net loss		(32)		(30)		27		25
Postretirement and postemployment benefits:
Net experience loss		(1,061)		(1,104)		(1,062)		(1,075)
Prior service cost		(72)		(61)		(74)		(75)
Total accumulated other comprehensive income (loss)		($1,931)		($1,966)		$(1,789)		$(1,914)

The following table presents the components of notes payable at April 2, 2011 and January 1, 2011:

During the first quarter of 2011, the Company repaid its $946 million, ten-year 6.6% U.S. Dollar Notes at maturity with U.S. commercial paper.

In March 2011, the Company entered into an unsecured Four-Year Credit Agreement to replace its existing unsecured Five-Year Credit Agreement, which would have expired in November 2011. The Four-Year Credit Agreement allows the Company to borrow, on a revolving credit basis, up to $2.0 billion, to obtain letters of credit in an aggregate amount up to $75 million, U.S. swingline loans in an aggregate amount up to $200 million and European swingline loans in an aggregate amount up to $400 million and to provide a procedure for lenders to bid on short-term debt of the Company. The agreement contains customary covenants and warranties, including specified restrictions on indebtedness, liens, sale and leaseback transactions, and a specified interest coverage ratio. If an event of default occurs, then, to the extent permitted, the administrative agent may terminate the commitments under the credit facility, accelerate any outstanding loans under the agreement, and demand the deposit of cash collateral equal to the lender’s letter of credit exposure plus interest.

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, and to a lesser extent, executive performance shares and restricted stock grants. Additionally, the Company awards restricted stock to its non-employee directors. The interim information below should be read in conjunction with the disclosures included on pages 4041 to 4344 of the Company’s ~~2009~~2010 Annual Report inon Form 10-K.

The Company classifies pre-tax stock compensation expense in ~~selling, general and administrative~~SGA expense principally within its corporate operations. For the periods presented, compensation expense for all types of equity-based programs and the related income tax benefit recognized were as follows:


	Quarter ended		Year-to-date period ended		Quarter ended
(millions)	October 2, 2010	October 3, 2009	October 2, 2010	October 3, 2009	April 2, 2011	April 3, 2010
Pre-tax compensation expense	$1	$9	$24	$37	$10	$13
Related income tax benefit	$—	$3	$8	$13	$ 4	$ 5

As of ~~October~~April 2, ~~2010,~~2011, total stock-based compensation cost related to non-vested awards not yet recognized was ~~$40~~$71 million and the weighted-average period over which this amount is expected to be recognized was 2 years.

During the ~~year-to-date periods~~period ended ~~October~~April 2, ~~2010~~2011 and ~~October~~April 3, ~~2009,~~2010, the Company granted non-qualified stock options to eligible employees as presented in the following activity tables. Terms of these grants and the Company’s methods for determining grant-date fair value of the awards were consistent with that described on pages 4142 and 4243 of the Company’s ~~2009~~2010 Annual Report on Form 10-K.

The weighted-average fair value of options granted was $7.59 per share for the period ended April 2, 2011 and $7.90 per share for the ~~year-to-date~~ period ended ~~October 2, 2010 and $6.33 per share for the year-to-date period ended October~~April 3, ~~2009.~~2010. The fair value was estimated using the following assumptions:

The total intrinsic value of options exercised was ~~$40~~$20 million for the ~~year-to-date period~~quarter ended ~~October~~April 2, ~~2010~~2011 and $4$12 million for the ~~year-to-date period~~quarter ended ~~October~~April 3, ~~2009.~~2010.

In the first quarter of ~~2010,~~2011, 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 on the vesting date, provided cumulative three-year operating profit and internal net sales growth targets are achieved.

The ~~2010~~2011 target grant currently corresponds to approximately ~~210,000~~226,000 shares, with a grant-date fair value of $48 per share. The actual number of shares issued on the vesting date could range from 0 to 200% of target, depending on actual performance achieved. Based on the market price of the Company’s common stock at ~~October~~April 2, ~~2010,~~2011, the maximum future value that could be awarded to employees on the vesting date for all outstanding performance share awards was as follows:

The ~~2007~~2008 performance share award, payable in stock, was settled at ~~150%~~69% of target in February ~~2010~~2011 for a total dollar equivalent of ~~$14~~$6 million.

The Company sponsors a number of U.S. and foreign pension, other nonpension postretirement and postemployment plans to provide various benefits for its employees. These plans are described on pages 4344 to 4749 of the Company’s ~~2009~~2010 Annual Report on Form 10-K. Components of Company plan benefit expense for the periods presented are included in the tables below.


	Quarter ended				Year-to-date period ended				Quarter ended
(millions)	October 2, 2010		October 3, 2009		October 2, 2010		October 3, 2009		April 2, 2011	April 3, 2010
Service cost		$22		$20		$66		$60	$ 26	$ 23
Interest cost		52		49		151		147	52	50
Expected return on plan assets		(82)		(80)		(238)		(237)	(92)	(79)
Amortization of unrecognized prior service cost		4		4		11		10	4	3
Recognized net loss		20		12		60		35	26	20
Settlement cost									1	—
Total pension expense		$16		$5		$50		$15	$ 17	$ 17


*Other nonpension postretirement*
	Quarter ended				Year-to-date period ended
(millions)	October 2, 2010		October 3, 2009		October 2, 2010		October 3, 2009
Service cost		$5		$4		$15		$13
Interest cost		16		16		48		49
Expected return on plan assets		(16)		(17)		(48)		(51)
Amortization of unrecognized prior service cost		(1)		(1)		(2)		(2)
Recognized net loss		4		3		13		9
Total postretirement benefit expense		$8		��$5		$26		$18


*Postemployment*
	Quarter ended				Year-to-date period ended
(millions)	October 2, 2010		October 3, 2009		October 2, 2010		October 3, 2009
Service cost		$1		$2		$4		$5
Interest cost		1		1		3		3
Recognized net loss		1		1		3		3
Total postemployment benefit expense		$3		$4		$10		$11

Plan funding strategies may be modified in response to management’s evaluation of tax deductibility, market conditions, and competing investment alternatives.

During the first quarter of ~~2010,~~2011, the Company ~~amended its~~re-measured a U.S. ~~postretirement healthcare~~pension plan’s projected benefit ~~plan, which resulted in~~obligation as a ~~decrease~~result of lump sum settlement activity during 2011. In connection with the re-measurement, the Company incurred settlement expense totaling $1 million and recorded a ~~deferred tax asset~~pre-tax net actuarial gain of ~~$17 million. This impact was recorded~~$6 million in other comprehensive ~~income.~~income during the first quarter.

The consolidated effective income tax rate for ~~2010~~2011 as compared to ~~2009 is~~2010 was as follows:

The consolidated effective tax rate for the quarter ended ~~October~~April 2, 2011, of 28% was comparable to prior year’s rate of 27%. Both periods were positively impacted by discrete items. The effective rate for the first quarter of 2011 benefited from an international legal restructuring, while the effective rate for the first quarter of 2010 ~~was higher than the~~benefited from an immaterial correction of an item related to prior ~~period due to the positive impact of various provision-to-return adjustments.~~years.

As of ~~October~~April 2, ~~2010,~~2011, the Company classified ~~$48~~$11 million of unrecognized tax benefits as a current liability, representing several income tax positions under examination in various jurisdictions. Management’s estimate of reasonably possible changes in unrecognized tax benefits during the next twelve months consists of the current liability balance, expected to be settled within one year, offset by ~~$11~~$10 million of projected additions. Management is currently unaware of any issues under review that could result in significant additional payments, accruals or other material deviation in this estimate.

Following is a reconciliation of the Company’s total gross unrecognized tax benefits for the year-to-date period ended ~~October~~April 2, ~~2010; $106~~2011; $55 million of this total represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.

The current portion of the Company’s unrecognized tax benefits is presented in the balance sheet within accrued income taxes and the amount expected to be settled after one year is recorded in other liabilities.

The Company ~~classifies~~had the following amounts of income ~~tax-related~~tax related interest accrued as of January 1, 2011 and ~~penalties as interest expense and SGA expense,~~April 2, 2011 respectively.

The Company is exposed to certain market risks such as changes in interest rates, foreign currency exchange rates, and commodity prices, which exist as a part of its ongoing business operations. Management uses derivative financial and commodity instruments, including futures, options, and swaps, where appropriate, to manage these risks. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract.

The Company designates derivatives as cash flow hedges, fair value hedges, net investment hedges, orand uses other contracts ~~used~~ to reduce volatility in interest rates and the translation of foreign currency earnings to U.S. dollars. The fair value of derivative instruments is recorded in other prepaid assets, other assets, other current liabilities or other liabilities. Gains and losses representing either hedge ineffectiveness, hedge components excluded from the assessment of effectiveness, or hedges of translational exposure are recorded in the Consolidated Statement of Income in other income (expense), net. Within the Consolidated Statement of Cash Flows, settlements of cash flow and fair value hedges are classified as an operating activity; settlements of all other derivatives are classified as a financing activity. As a matter of policy, the Company does not engage in trading or speculative hedging transactions.

Total notional amounts of the Company’s derivative instruments ~~at October~~as of April 2, ~~2010~~2011 and January ~~2, 2010~~1, 2011 were as follows:

Qualifying derivatives are accounted for as cash flow hedges when the hedged item is a forecasted transaction. Gains and losses on these instruments are recorded in other comprehensive income until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other comprehensive income (loss) (AOCI) to the Consolidated Statement of Income on the same line item as the underlying transaction.

Qualifying derivatives are accounted for as fair value hedges when the hedged item is a recognized asset, liability, or firm commitment. Gains and losses on these instruments are recorded in earnings, offsetting gains and losses on the hedged item.

Qualifying derivative and nonderivative financial instruments are accounted for as net investment hedges when the hedged item is a nonfunctional currency investment in a subsidiary. Gains and losses on these instruments are included in foreign currency translation adjustments in AOCI.

The Company also periodically enters into foreign currency forward contracts and options to reduce volatility in the translation of foreign currency earnings to U.S. dollars. Gains and losses on these instruments are recorded in other income (expense), net, generally reducing the exposure to translation volatility during a full-year period.

The Company is exposed to fluctuations in foreign currency cash flows related primarily to third-party purchases, intercompany transactions and nonfunctional currency denominated third-party debt. The Company is also exposed to fluctuations in the value of foreign currency investments in subsidiaries and cash flows related to repatriation of these investments. Additionally, the Company is exposed to volatility in the translation of foreign currency denominated earnings to U.S. dollars. Management assesses foreign currency risk based on transactional cash flows and translational volatility and enters into forward contracts, options, and currency swaps to reduce fluctuations in net long or short currency positions. Forward contracts and options are generally less than 18 months duration. Currency swap agreements are established in conjunction with the term of underlying debt issues.

~~For foreign currency cash flow and fair value hedges, the assessment of effectiveness is generally based on changes in spot rates. Changes in time value are reported in other income (expense), net.~~

The Company is exposed to interest rate volatility with regard to future issuances of fixed rate debt. The Company periodically uses interest rate swaps, including forward-starting swaps, to reduce interest rate volatility and funding costs associated with certain debt issues, and to achieve a desired proportion of variable versus fixed rate debt, based on current and projected market conditions.

Fixed-to-variable interest rate swaps are accounted for as fair value hedges and the assessment of effectiveness is based on changes in the fair value of the underlying debt, using incremental borrowing rates currently available on loans with similar terms and maturities.

The Company is exposed to price fluctuations primarily as a result of anticipated purchases of raw and packaging materials, fuel, and energy. The Company has historically used the combination of long-term contracts with suppliers, and exchange-traded futures and option contracts to reduce price fluctuations in a desired percentage of forecasted raw material purchases over a duration of generally less than 18 months.

Commodity contracts are accounted for as cash flow hedges. The assessment of effectiveness for exchange-traded instruments is based on changes in futures prices. The assessment of effectiveness for over-the-counter transactions is based on changes in designated indices.

Certain of the Company’s derivative instruments contain provisions requiring the Company to post collateral on those derivative instruments that are in a liability position if the Company’s credit rating falls below BB+ (S&P), or Baa1 (Moody’s). The fair value of all derivative instruments with credit-risk-related contingent features in a liability position on October 2, 2010 was $39 million. If the credit-risk-related contingent features were triggered as of October 2, 2010, the Company would be required to post collateral of $39 million. In addition, certain derivative instruments contain provisions that would be triggered in the event the Company defaults on its debt agreements. There were no collateral posting requirements as of October 2, 2010 triggered by credit-risk-related contingent features.

Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the Company that ~~are~~were included in each category at ~~October~~April 2, ~~2010~~2011 and January ~~2, 2010.~~1, 2011, measured on a recurring basis.

Level 1 –Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market. For the Company, level 1 financial assets and liabilities consist primarily of commodity derivative contracts.

Level 2 –Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

For the Company, level 2 financial assets and liabilities consist of interest rate swaps and over-the-counter commodity and currency contracts.

The Company’s calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve. Commodity derivatives are valued using an income approach based on the commodity index prices less the contract rate multiplied by the notional amount. Foreign currency contracts are valued using an income approach based on forward rates less the contract rate multiplied by the notional amount. The Company’s calculation of the fair value of level 2 financial assets and liabilities takes into consideration the risk of nonperformance, including counterparty credit risk.

Level 3 –Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. The Company did not have any level 3 financial assets or liabilities as of ~~October~~April 2, ~~2010~~2011 or January ~~2, 2010.~~1, 2011.

~~Fair values of these~~The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet ~~measured at fair value~~ on a recurring basis ~~consists of derivatives designated as hedging instruments, and~~ as of ~~October~~April 2, ~~2010~~2011 and January ~~2, 2010 were as follows:~~1, 2011:


	Level 1				Level 2				Total				Level 1				Level 2						Total
(millions)	October 2, 2010		January 2, 2010		October 2, 2010		January 2, 2010		October 2, 2010		January 2, 2010		April 2, 2011		January 1, 2011		April 2, 2011			January 1, 2011			April 2, 2011			January 1, 2011

Derivatives designated as hedging instruments:

Assets:
Foreign currency exchange contracts:
Other prepaid assets		$—		$—		$34		$7		$34		$7		$—		$—		$20			$7			$20			$7
Interest rate contracts:
Other prepaid assets		—		—		1		—		1		—		—		—		—			5			—			5
Other assets		—		—		82		44		82		44		—		—		40			69			40			69
Commodity contracts:
Other prepaid assets		6		4		—		—		6		4		23		23		2			—			25			23
Total assets		$6		$4		$117		$51		$123		$55		$23		$23		$62			$81			$85			$104
Liabilities:
Foreign currency exchange contracts:
Other current liabilities		$—		$—		($11)		($31)		($11)		($31)		$—		$—		$(17	)		$(27	)		$(17	)		$(27	)
Interest rate contracts:
Other liabilities		—		—		—		(1)		—		(1)		—		—		(7	)		—			(7	)		—
Commodity contracts:
Other current liabilities		(3)		—		(11)		(6)		(14)		(6)		—		—		(9	)		(10	)		(9	)		(10	)
Other liabilities		—		—		(30)		(14)		(30)		(14)		—		—		(22	)		(29	)		(22	)		(29	)
Total liabilities		($3)		$—		($52)		($52)		($55)		($52)		$—		$—		$(55	)		$(66	)		$(55	)		$(66	)


Derivatives not designated as hedging instruments:

Assets:
Interest rate contracts:
Other assets														$—		$—		$30			$—			$30			$—
Total assets														$—		$—		$30			$—			$30			$—

The effect of derivative instruments on the Consolidated Statement of Income for the quarters ended ~~October~~April 2, 2011 and April 3, 2010 ~~and October 3, 2009 were~~was as follows:


Derivatives in fair value hedging relationships (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
		October 2, 2010	October 3, 2009		April 2, 2011		April 3, 2010
Foreign currency exchange contracts	Other income (expense), net	$26	$(30)	Other income (expense), net		$22		$(29)
Interest rate contracts	Interest expense	9	9	Interest expense		15		10
Total		$35	$(21)			$37		$(19)


Derivatives in cash flow hedging relationships (millions)	Gain (loss) recognized in AOCI		Location of gain (loss) reclassified from AOCI		Gain (loss) reclassified from AOCI into income		Location of gain (loss) recognized in income (a)	Gain (loss) recognized in income(a)		Gain (loss) recognized in AOCI						Location of gain (loss) reclassified from AOCI		Gain (loss) reclassified from AOCI into income						Location of gain (loss) recognized in income (a)	Gain (loss) recognized in income(a)
	October 2, 2010	October 3, 2009			October 2, 2010	October 3, 2009		October 2, 2010	October 3, 2009	April 2, 2011			April 3, 2010					April 2, 2011			April 3, 2010				April 2, 2011			April 3, 2010
Foreign currency exchange contracts	$ 2	$(16)		COGS	$(8)	$ (3)	Other income (expense), net	$ —	$ —	$	(2	)	$	(12	)		COGS	$	(2	)	$	(7	)	Other income (expense), net	$	(1	)	$	—
Foreign currency exchange contracts	(2)	1		SGA expense	(1)	—	Other income (expense), net	—	—		(1	)		1			SGA expense		—			—		Other income (expense), net		—			—
Interest rate contracts	—	—		Interest expense	(1)	(1)	N/A	—	—		(1	)		—			Interest expense		1			(1	)	N/A		—			—
Commodity contracts	(2)	(11)		COGS	4	(14)	Other income (expense), net	—	(2)		15			(24	)		COGS		9			(5	)	Other income (expense), net		—			(1	)
Total	$(2)	$(26)			$(6)	$(18)		$ —	$(2)	$	11		$	(35	)			$	8		$	(13	)		$	(1	)	$	(1	)

~~The effect~~Certain of the Company’s derivative instruments contain provisions requiring the Company to post collateral on those derivative instruments that are in a liability position if the ~~Consolidated Statement~~Company’s credit rating falls below BB+ (S&P), or Baa1 (Moody’s). The fair value of ~~Income for~~all derivative instruments with credit-risk-related contingent features in a liability position on April 2, 2011 was $30 million. If the ~~year-to-date periods ended October~~credit-risk-related contingent features were triggered as of April 2, ~~2010 and October 3, 2009~~2011, the Company would be required to post collateral of $30 million. In addition, certain derivative instruments contain provisions that would be triggered in the event the Company defaults on its debt agreements. There were no collateral posting requirements as ~~follows:~~of April 2, 2011 triggered by credit-risk-related contingent features.

The carrying values of the Company’s short-term items, including cash, cash equivalents, accounts receivable, accounts payable and notes payable approximate fair value. The fair value of the Company’s long-term debt is calculated based on broker quotes and was as follows at ~~October~~April 2, ~~2010:~~2011:


(millions)	Fair Value	Carrying Value	Fair Value		Carrying Value
Current maturities of long-term debt	$ 975	$ 948
Long-term debt	4,567	3,929	$	5,298	$	4,905

Total	$ 5,542	$ 4,877

The Company is exposed to credit loss in the event of nonperformance by counterparties on derivative financial and commodity contracts. Management believes a concentration of credit risk with respect to derivative counterparties is

limited due to the credit ratings of the counterparties and the use of master netting and reciprocal collateralization agreements.

Master netting agreements apply in situations where the Company executes multiple contracts with the same counterparty. Certain counterparties represent a concentration of credit risk to the Company. If those counterparties fail to perform according to the terms of derivative contracts, this would result in a loss to the Company of ~~$57~~$42 million as of ~~October~~April 2, ~~2010.~~2011.

For certain derivative contracts, reciprocal collateralization agreements with counterparties call for the posting of collateral in the form of cash, treasury securities or letters of credit if a fair value loss position to the Company or our counterparties exceeds a certain amount. There were no collateral balance requirements at ~~October~~April 2, ~~2010.~~2011.

Management believes concentrations of credit risk with respect to accounts receivable is limited due to the generally high credit quality of the Company’s major customers, as well as the large number and geographic dispersion of smaller customers. However, the Company conducts a disproportionate amount of business with a small number of large multinational grocery retailers, with the five largest accounts encompassing approximately ~~28%~~35% of consolidated trade receivables at ~~October~~April 2, ~~2010.~~2011.

On June 25, 2010, the Company announced a voluntary recall of select packages of Kellogg’s cereal in the U.S. due to an odor from waxy resins found in the package liner. Estimated customer returns and consumer rebates were recorded as a reduction of net sales; costs associated with returned product and the disposal and write-off of inventory were recorded as COGS; and other recall costs were recorded as SGA expenses. During the quarter, the Company refined the estimated costs of the recall, which resulted in a reduction of $1 million, for a year-to-date expense through October 2, 2010 of $47 million, or $.09 per share on a diluted basis. In addition to the costs of the voluntary recall, the Company also lost sales of the impacted products in the second and third quarters of 2010.

Kellogg Company is the world’s leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, fruit snacks, frozen waffles, and veggie foods. Kellogg products are manufactured and marketed globally. Principal markets for these products include the United States and United Kingdom. The Company currently manages its operations in four geographic operating segments, ~~consisting~~comprised of North America and the three International operating segments of Europe, Latin America, and Asia Pacific.


	Quarter ended				Year-to-date period ended				Quarter ended
(millions)	October 2, 2010		October 3, 2009		October 2, 2010		October 3, 2009		April 2, 2011			April 3, 2010
Net sales
North America		$2,130		$2,187		$6,469		$6,574		$ 2,364			$ 2,275
Europe		564		631		1,730		1,805		621			606
Latin America		247		262		709		750		261			222
Asia Pacific (a)		216		197		629		546		239			215
Consolidated		$3,157		$3,277		$9,537		$9,675		$ 3,485			$ 3,318
Segment operating profit
North America		$404		$415		$1,261		$1,244
North America (b)										$ 440			$ 498
Europe		102		105		307		304		101			105
Latin America		34		51		126		157		48			45
Asia Pacific (a)		25		28		82		74		31			37
Corporate(b)		(24)		(32)		(115)		(130)		(48	)		(48	)
Consolidated		$541		$567		$1,661		$1,649		$ 572			$ 637

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For more than 100 years, consumers have counted on Kellogg for great-tasting, high-quality and nutritious foods. Kellogg Company is the world’s leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, ~~fruit snacks,~~ frozen waffles and veggie foods. Kellogg products are manufactured and marketed globally. We currently manage our operations in four geographic operating segments, consisting of North America and the three International operating segments of Europe, Latin America and Asia Pacific.

We manage our Company for sustainable performance defined by our long-term annual growth targets. These targets are ~~low single-digit (1~~3 to ~~3%)~~4% for internal net sales, mid single-digit (4 to 6%) for internal operating profit, and high single-digit (7 to 9%) for net earnings per share on a ~~currency neutral~~currency-neutral basis. Internal net sales and internal operating profit exclude the impact of foreign currency translation, acquisitions, dispositions and shipping day differences. See the “Foreign currency translation” section for an explanation of management’s definition of currency neutral.

For the quarter ended ~~October~~April 2, ~~2010,~~2011, our reported net sales ~~decreased 4% compared to the same period last year; internal net sales decreased 2%~~increased 5%. Consolidated operating profit decreased 5%10%, while internal operating profit decreased ~~3%.~~12%, compared to internal growth of 17% in the prior period. Diluted earnings per share (EPS) declined 4%8% to ~~$0.90,~~$1.00, compared to ~~$0.94~~$1.09 in the comparable prior ~~period.~~year quarter. EPS on a ~~currency neutral~~currency-neutral basis was down 2%10%.

~~On a year-to-date basis,~~ Our performance was ahead of our reported net sales were down 1%, with internal net sales down 2%. Consolidated operating profit increased 1% on a reported basis and 1% on an internal basis. Diluted EPS was up 3%, at $2.78, compared to $2.70 in the prior year. EPS on a currency neutral basis was up 4%.

~~We have lowered our guidance~~expectations for the ~~full year to reflect weaker performance~~quarter. We had strong top-line growth and invested in ~~some of~~brand building and in our ~~core cereal markets, continued competitive intensity and the impact of the voluntary cereal recall in the U.S. which is discussed further in the “Voluntary product recall” section.~~ supply chain.

For the full year 2011, we ~~now~~ expect our internal net sales to ~~be down~~increase by approximately 1%4%, at the high end of our previous guidance of 3 to 4%. ~~Internal~~This increase offsets our expectations of higher input costs. We are on track to meet our internal operating profit ~~is expected to be approximately flat compared to the prior year and currency neutral earnings per share is expected to grow 4 to 5%.~~

~~For 2011, we expect to grow internal net sales by low single-digits. Internal operating profit is expected to be~~guidance of flat to down 2%~~. EPS on a~~, and our currency-neutral ~~basis is expected~~earnings per diluted share growth of low single-digits (1 to ~~grow low single-digits.~~

The following table provides an analysis of net sales and operating profit performance for the ~~third~~first quarter of ~~2010~~2011 versus ~~2009:~~2010:


(dollars in millions)	North America			Europe			Latin America			Asia Pacific (a)			Corporate			Consoli- dated			North America			Europe			Latin America			Asia Pacific (a)			Corporate			Consoli- dated
2011 net sales																			$	2,364		$	621		$	261		$	239		$	—		$	3,485

2010 net sales	$	2,130		$	564		$	247		$	216		$	—		$	3,157		$	2,275		$	606		$	222		$	215		$	—		$	3,318

2009 net sales	$	2,187		$	631		$	262		$	197		$	—		$	3,277

% change — 2010 vs. 2009:
% change — 2011 vs. 2010:
Volume (tonnage) (b)		-4.2	%		-4.9	%		-3.8	%		11.1	%		—			-3.4	%		1.8	%		(.6	)%		4.1	%		4.9	%		—			1.8	%
Pricing/mix		1.3	%		-.5	%		8.4	%		-9.4	%		—			.9	%		1.7	%		—	%		6.1	%		(2.7	)%		—			1.3	%
Subtotal — internal business		-2.9	%		-5.4	%		4.6	%		1.7	%		—			-2.5	%		3.5	%		(.6	)%		10.2	%		2.2	%		—			3.1	%
Foreign currency impact		.3	%		-5.0	%		-10.1	%		7.3	%		—			-1.1	%		.4	%		3.1	%		7.2	%		9.2	%		—			1.9	%
Total change		-2.6	%		-10.4	%		-5.5	%		9.0	%		—			-3.6	%		3.9	%		2.5	%		17.4	%		11.4	%		—			5.0	%
(dollars in millions)	North America			Europe			Latin America			Asia Pacific (a)			Corporate			Consoli- dated			North America (c)			Europe			Latin America			Asia Pacific (a)			Corporate (c)			Consoli- dated
2011 operating profit																			$	440		$	101		$	48		$	31		$	(48	)	$	572

2010 operating profit	$	404		$	102		$	34		$	25		$	(24	)	$	541		$	498		$	105		$	45		$	37		$	(48	)	$	637

2009 operating profit	$	415		$	105		$	51		$	28		$	(32	)	$	567

% change — 2010 vs. 2009:
% change — 2011 vs. 2010:
Internal business		-2.9	%		2.4	%		-18.2	%		-16.8	%		20.7	%		-3.0	%		(12.1	)%		(8.7	)%		1.0	%		(23.2	)%		(1.6	)%		(12.3	)%
Foreign currency impact		.3	%		-5.4	%		-14.0	%		6.9	%		—	%		-1.7	%		.4	%		4.7	%		7.3	%		7.8	%		—	%		2.1	%
Total change		-2.6	%		-3.0	%		-32.2	%		-9.9	%		20.7	%		-4.7	%		(11.7	)%		(4.0	)%		8.3	%		(15.4	)%		(1.6	)%		(10.2	)%

Our consolidated net sales ~~were down 4% reflecting weakness~~grew by 5%. The strong net sales growth during the quarter was due to increased volumes resulting from our recently launched innovations and our investment in ~~our core cereal markets, competitive pressures,~~brand building, and ~~the~~favorable pricing/mix. Foreign exchange provided a favorable impact of ~~the second quarter 2010 voluntary recall of select packages of breakfast cereals. Reported net sales was positively impacted by currency, resulting in an internal net sales decline of~~almost 2%.

~~Internal net sales for our~~Our North America operating segment ~~declined~~had internal net sales growth of 3%. North America has three product groups: retail ~~cereal,~~cereal; retail snacks and frozen and specialty channels. ~~Retail cereal’s internal~~Internal net sales ~~declined~~of retail cereal increased 2% driven by 6%pricing and strong innovation. We saw improving trends in ~~the quarter. Heavy promotional pricing drove deflation into the category. Despite the deflation,~~ the cereal category, ~~continued~~which responds well to ~~be weak~~innovation and ~~we experienced a decrease~~brand building investment. Our innovations, launched in ~~consumption. Consumer consumption impacts purchases by retailers, who~~January, performed very well. We are excited about our ~~primary customers. Our consumption was negatively impacted by the ongoing effect of the voluntary cereal recall that occurred in the~~ second quarter of 2010. The brands involved in the recall, our kids’ brands, were the cornerstone of our back-to-school promotions in the third quarter. While we tried to re-work our promotional plans, our competitors were more aggressive than we expected and benefited from our supply issues resulting from the recall. We have also been impacted by less support from non-measured channels this year.half innovations.

The retail snack product group (cookies, crackers, toaster pastries, cereal bars and ~~fruit~~fruit-flavored snacks) grew ~~by less than 1%. The modest~~a strong 5%, on top of 5% growth ~~was driven by~~~~Pop-Tarts~~in the prior year. We saw net sales increases in crackers and ~~strong wholesome snack bar sales including our bar innovations such as~~~~FiberPlus~~~~Chocolate Peanut Butter and~~~~Special K~~~~Fruit Crisps. The good performance in~~ wholesome snacks, while cookie net sales were flat. During the quarter we launched a cracker innovation which has been very successful and helped drive a share gains in measured channels. Although our cookie sales were flat, we did increase share slightly, indicating improved trends in our cookie business. Consumption in the toaster pastry category was ~~masked by weaker performance in cookies.~~down, but we grew share.

Internal net sales in the frozen and specialty channels (frozen foods, food service and vending) ~~decreased~~increased 4%, driven by ~~5%. In our~~growth in ourwaffle business. Our consumption in the waffle business ~~our customers are~~grew by more than 60%; however, shipment growth was not ~~resetting their shelves~~ as ~~quickly~~high as consumption as we ~~had expected and~~were lapping the ~~pace~~rebuilding of ~~consumers’ response is slower than projected.~~trade inventory in the first quarter of 2010. The veggie category remains strong. While our shipments were down, we saw strong underlying consumption growth fromMorningstar Farms.

~~Our International operating segments’ internal~~Internal net sales ~~were down~~in our international operating segments increased 2% ~~compared~~. The growth was driven by higher sales in Latin America and Asia Pacific, which offset Europe’s 1% decline. The U.K. continued to ~~the prior year. Europe’s internal net sales declined 5% in the third quarter. We are seeing price deflation in many food categories across Europe, especially~~be a tough operating environment. The cereal category was flat and highly competitive. The softness in the U.K. ~~Continued weakness~~was partially offset by growth in France, where the ~~Russia snack business drove lower volumes and contributed to Europe’s lower top line results.~~cereal category grew mid single-digit. Latin America’s internal net sales ~~growth was~~grew by 10% due to Brazil and Venezuela where we are lapping soft comparisons from the prior year. Net sales in Mexico were up 5%1%, ~~on top of~~against last year’s strong 9%7% growth. ~~Cereal growth across~~Results in Mexico for the ~~region mitigated a decline in snacks. Our decline in snacks is largely driven by Venezuela where we import products from Mexico. The imports have been~~first quarter were negatively impacted by ~~exchange rate controls in Venezuela. Internal~~a customer dispute that has been resolved. In Asia Pacific, internal net sales were up 2% as a result of the strong sales in ~~Asia Pacific~~our South Africa and India business. This growth was offset by net sales softness in Australia. Consumption in our Australia cereal business grew ~~2% driven~~ by ~~strong~~more than 1% and we gained share. Our net sales performance ~~across Asia and South Africa. This was muted by a decline~~did not reflect the increase in ~~Australia where~~consumption due to higher retailer inventory growth in the ~~cereal category is facing price deflation.~~first quarter of 2010.

Consolidated operating profit declined by 5%10% on ~~an as~~a reported basis, and ~~by 3%~~12% on an internal ~~basis, when excluding the impact of foreign currency translation. Softness in sales, increased investment in advertising, a decrease in volume going~~

~~through our manufacturing plants~~basis. The decline was due to higher input costs, supply chain investments and increased ~~costs more than offset~~brand building. Our price execution lagged the ~~benefit~~significant increase in input cost inflation. In addition, we lapped a strong first quarter 2010 performance with internal operating profit growth of lower incentive compensation expense, resulting in an overall decline in operating profit. Incentive compensation is based upon the Company’s actual results compared to our targets. Given results are lower than expected, incentive compensation decreased in the third quarter, including a year-to-date adjustment.17%.

Internal operating profit in North America ~~decreased by 3%, Europe’s grew by 2%, Latin America’s~~ declined by ~~18%~~12% against an increase of 22% in the prior year. Higher input costs and increased brand building to support our innovation launches were the main drivers. Europe’s internal operating profit declined by 9%, impacted by the difficult operating environment in the U.K. In Latin America, despite 10% net sales growth, internal operating profit increased by only 1% due to increased cost pressures. Asia Pacific’s internal operating profit declined by ~~17%~~23%, lapping last year’s growth of 10%. ~~North America’s~~Australia drove the decline in operating profit, ~~was negatively impacted by increased promotional activity~~due to the lapping of higher retail inventory growth in the ~~cereal category, the ongoing impact~~first quarter of ~~the second quarter~~ 2010 ~~voluntary recall~~ as well as ~~a slower than anticipated rebound in our waffle business. In addition, higher supply chain costs and~~ increased advertising ~~contributed~~ to the decline. This was partially offset by lower up-front costs and lower incentive compensation expense. Europe’s increase in internal operating profit was attributable to supply chain efficiencies, lower up-front costs and a decrease in incentive compensation expense. Latin America’s decline was due primarily to increased commodity costs, incremental operating and distribution costs in Mexico as well as overhead inflation and a modest increase in advertising. Asia Pacific’s decline was due to increased investments in advertising and promotion. Corporate benefited from lower incentive compensation expense.

The following tables provide analysis of our net sales to operating performance for the year-to-date periods of 2010 compared to 2009. Our weak top-line growth in the second and third quarter of 2010 has more than offset our first quarter increase, resulting in a decrease in year-to-date internal net sales of 1%. Internal operating profit is up 1% compared to the prior year due to lower up-front costs and reduced incentive compensation expense which more than offset the softness in the business.

Margin performance for the ~~third~~first quarter ~~and year-to-date periods~~ of ~~2010~~2011 versus ~~2009~~2010 is as follows:


Quarter	2010			2009			Change vs. prior year (pts.)		2011			2010			Change vs. prior year (pts.)
Gross margin (a)		43.4	%		43.9	%		-0.5		40.8	%		43.0	%		(2.2	)
SGA% (b)		-26.3	%		-26.6	%		0.3
SGA (b)										(24.4	)%		(23.8	)%		(0.6	)
Operating margin		17.1	%		17.3	%		-0.2		16.4	%		19.2	%		(2.8	)
Year-to-date	2010			2009			Change
Gross margin (a)		43.0	%		42.9	%		0.1
SGA% (b)		-25.6	%		-25.9	%		0.3
Operating margin		17.4	%		17.0	%		0.4

As illustrated in the preceding table, our consolidated gross margin ~~decreased~~declined by 50220 basis points in ~~the quarter~~2011 due ~~primarily~~ to ~~lower volume. While we are achieving savings from our cost reduction initiatives, we continue to experience inflationary~~increased cost pressures for fuel, energy, commodities, employee benefits and ~~employee benefits.~~other supply chain investments. We have increased price, but those increases lagged input inflation. The full impact of our price increases will be recognized as we progress into the second quarter. Our selling, general and administrative (SGA) ~~expenses were down in~~expense as a percentage of net sales increased by 60 basis points primarily due to increased advertising and promotion investment.

~~On a year-to-date basis, gross margin was flat compared to the prior~~full year, ~~comparable period. We~~we expect ~~our full year~~ gross margin to remain under pressure and be ~~flat or~~ down ~~slightly. Our SGA expenses on a year-to-date~~approximately 50 basis ~~were down due to the third quarter adjustment for lower incentive compensation expense.~~points.

The reporting currency for our financial statements is the U.S. dollar. Certain of our assets, liabilities, expenses and revenues are denominated in currencies other than the U.S. dollar, primarily in the ~~Euro,~~euro, British pound, Mexican peso, Australian dollar and Canadian dollar. To prepare our consolidated financial statements, we must translate those assets, liabilities, expenses and revenues into U.S. dollars at the applicable exchange rates. As a result, increases and decreases in the value of the U.S. dollar against these other currencies will affect the amount of these items in our consolidated financial statements, even if their value has not changed in their original currency. This could have a significant impact on our results if such increase or decrease in the value of the U.S. dollar is substantial.

Volatility in the foreign exchange markets has limited our ability to forecast future U.S. dollar reported earnings. As such, we are measuring diluted earnings per share growth and providing guidance on future earnings on a currency neutral basis, assuming earnings are translated at the prior year’s exchange rates. This non-GAAP financial measure is being used to focus management and investors on local currency business results, thereby providing visibility to the underlying trends of the Company. Management believes that excluding the impact of foreign currency from EPS provides a useful measurement of comparability given the volatility in foreign exchange markets.


	Quarter ended				Year-to-date ended				Quarter ended
Consolidated results	October 2, 2010		October 3, 2009		October 2, 2010		October 3, 2009		April 2, 2011			April 3, 2010
Diluted net earnings per share (EPS)	$	0.90		$ 0.94	$	2.78		$ 2.70	$	1.00		$	1.09
Translational impact (a)		0.02		0.06		0.02		0.23		(0.02	)		(0.02	)
Currency neutral EPS	$	0.92		$ 1.00	$	2.80		$ 2.93	$	0.98		$	1.07
Currency neutral EPS growth (b)		-2%				4%				(10	)%

On June 25, 2010, we announced a voluntary recall of select packages of Kellogg’s cereal in the U.S. due to an odor from waxy resins found in the package liner. Estimated customer returns and consumer rebates were recorded as a reduction of net sales; costs associated with returned product and the disposal and write-off of inventory were recorded as cost of goods sold (COGS); and other recall costs were recorded as selling, general and administrative expenses. During the quarter, we refined the estimated costs of the recall, which resulted in a reduction of $1 million, for a year-to-date expense through October 2, 2010 of $47 million, or $.09 per share on a diluted basis. In addition to the costs of the voluntary recall, we also lost sales of the impacted products in the second and third quarters of 2010.

We view our continued spending on cost reduction initiatives as part of our ongoing operating principles to provide greater visibility in achieving our long-term profit growth targets. Initiatives undertaken are currently expected to recover cash implementation costs within a five-year period of completion. Each cost reduction initiative is normally up to three years in duration. 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. Certain of these initiatives represent exit or disposal plans for which material charges will be incurred. See further discussion in Note 3. We include these charges in our measure of operating segment profitability. In 2009, we announced our intention to achieve $1 billion plus of annual cost savings in three years (beginning in 2012). These initiatives are integral to meeting our $1 billion plus savings challenge.

We incurred costs related to our cost reduction initiatives which do not qualify as exit costs under generally accepted accounting principles in the United States. These represent cash costs for consulting and other charges for our cost of goods sold COGS and ~~selling, general and administrative (SGA)~~SGA programs.

Costs incurred during the quarter ~~and year-to-date period ended October 2, 2010 were~~as well as total program costs are as follows:


	Total program costs through October 2, 2010			Quarter ended, April 2, 2011						Total program costs through, April 2, 2011
(millions)	COGS programs	SGA programs	Total	COGS programs		SGA programs		Total		COGS programs		SGA programs		Total
North America	$62	$15	$ 77	$	1	$	—	$	1	$	68	$	14	$	82
Europe	19	2	21		1		—		1		21		3		24
Latin America	7	—	7		—		—		—		8		—		8
Asia Pacific	7	—	7		1		—		1		9		—		9
Corporate	—	3	3		—		—		—		—		3		3
Total	$95	$20	$115	$	3	$	—	$	3	$	106	$	20	$	126

The additional cost and cash outlay in ~~2010~~2011 for these programs, excluding exit costs, is estimated to be ~~$10~~$5 to ~~$15~~$10 million. The projects are expected to be substantially complete by the end of ~~2010.~~2011.

We are reimplementing SAP which will result in process and productivity improvements. The program is expected to require ~~an investment~~approximately $70 million of ~~approximately $150 million, the majority of which is capital related. In~~incremental expense, including consulting, in addition to ~~internal resources, we are incurring incremental consulting costs associated with the~~capital investments. The reimplementation ~~which~~ will ~~take effect from 2011 through 2013.~~begin in 2011.

In the ~~third~~first quarter of ~~2010,~~2011, we incurred approximately $2 million of consulting costs associated with this program in our North America operating segment. To date, we have incurred $11 million in program costs. These costs impacted our operating segments as follows (in millions): North America-$10; and Latin America-$1. The additional cost and cash outlay in 2011 through 2014 for ~~a year~~this program is expected to ~~date total of $6~~be approximately $60 million.

During the ~~third~~first quarter of ~~October~~April 3, ~~2009,~~2010, we incurred ~~$15~~$10 million of consulting and other costs in connection with our COGS and SGA programs. Costs were recorded in the following operating segments ~~for~~during the quarter ~~and year-to-date period~~ ended ~~October~~April 3, ~~2009.~~2010.


	Quarter ended, October 3, 2009			Year-to-date period ended, October 3, 2009			Quarter ended, April 3, 2010
(millions)	COGS programs	SGA programs	Total	COGS programs	SGA programs	Total	COGS programs		SGA programs		Total
North America	$ 9	$1	$10	$34	$7	$41	$	6	$	1	$	7
Europe	3	—	3	6	—	6		2		—		2
Latin America	1	—	1	3	—	3
Asia Pacific	1	—	1	2	—	2		1		—		1
Total	$14	$1	$15	$45	$7	$52	$	9	$	1	$	10

During the first quarter of 2010, the Company incurred $2 million of costs associated with the SAP reimplementation in our North America operating segment.

For the quarter ~~and year-to-date period~~ ended ~~October~~April 2, ~~2010,~~2011, interest expense was ~~$62~~$67 million, ~~and $188 million, respectively,~~ as compared to the quarter ~~and year-to-date period~~ ended ~~October~~April 3, ~~2009~~2010 with interest expense of $65 ~~million and $199 million, respectively.~~million.

For the full year ~~2010,~~2011, we expect gross interest expense to be approximately ~~$250~~$235 to $245 million, compared to ~~2009’s~~2010’s full year amount of ~~$295~~$248 million. ~~The forecasted decline is driven primarily by costs of the bond tender executed in 2009.~~

The consolidated effective income tax rate was ~~30%~~28% for the quarter ended ~~October~~April 2, ~~2010,~~2011, as compared to 27% for the comparable quarter of ~~2009. The year-to-date consolidated effective tax rate~~2010. Refer to Note 8 of the Consolidated Financial Statements for ~~2010 was 29% consistent with 29% in the previous year.~~further discussion.

For the full year ~~2010,~~2011, we currently expect the consolidated effective income tax rate to be approximately ~~29%. We estimate 2011’s effective rate to be approximately~~ 30%. ~~Our estimate of~~Fluctuations in foreign currency exchange rates could impact the expected effective income tax rate ~~for any period~~as it is ~~highly influenced~~dependent upon U.S. dollar earnings of foreign subsidiaries doing business in various countries with differing statutory rates. Additionally, the rate could be impacted if pending uncertain tax matters, including tax positions that could be affected by ~~country mix of earnings, changes in statutory tax rates, timing of implementation of tax~~ planning initiatives, ~~and developments which affect our evaluation of uncertain tax positions.~~are resolved more or less favorably than we currently expect.

Our principal source of liquidity is operating cash flows supplemented by borrowings for major acquisitions and other significant transactions. Our cash-generating capability is one of our fundamental strengths and provides us with substantial financial flexibility in meeting operating and investing needs.

The principal source of our operating cash flow is net earnings, meaning cash receipts from the sale of our products, net of costs to manufacture and market our products.

Net cash provided by our operating activities for the first quarter of 2011 amounted to $310 million, an increase of $60 million compared with the first quarter of 2010, with the increase primarily attributable to lower incentive compensation payments during first quarter 2011 and the receipt of an income tax refund related to 2010 pension and postretirement plan contributions. The impact of higher pension and postretirement plan contributions in 2011 compared with first quarter 2010 partially offset the increase in operating cash flows during the period.

Our cash conversion cycle (defined as days of inventory and trade receivables outstanding less days of trade payables outstanding, based on a trailing 12 month average) ~~was~~is relatively short, equating to approximately 22 days ~~during~~and 23 days for the 12 month periods ended ~~October~~April 2, 2011 and April 3, 2010, ~~and October 3, 2009. During~~respectively. Compared with the 12 month period ended ~~October 2,~~April 3, 2010, the unfavorable impact on the 2011 cash conversion cycle resulting from higher days of inventory outstanding was more than offset by an increase in days of trade payables outstanding.

~~Lower operating cash flow in 2010 was the result of an unfavorable year-over-year variance in other working capital, which more than offset a favorable variance relating to core working capital.~~

The unfavorable variance in other working capital in 2010 primarily reflected lower salary and wage accruals due to the decrease in incentive compensation and higher payments for advertising. An increase in cash paid for the settlement of hedge contracts in 2010 versus the prior year period was also a factor.

Cash flows associated with core working capital in 2010 were favorable compared with the same period in 2009, largely the result of improvements in trade payables and receivables. We continue to manage core working capital by focusing on the timely collection of trade receivables, extending terms on accounts payable and careful monitoring of inventory.

Our pension and other postretirement benefit plan contributions amounted to ~~$45~~$178 million and ~~$93~~$22 million for the year-to-date periods ended ~~October~~April 2, ~~2010~~2011 and ~~October~~April 3, ~~2009,~~2010, respectively. For full year ~~2010,~~2011, we currently expect that our ~~contribution~~contributions to pension and other postretirement plans will total approximately ~~$615 million, including a voluntary contribution of $500 million, net of tax.~~$200 million. Plan funding strategies may be modified in response to our evaluation of tax deductibility, market conditions and competing investment alternatives.

We measure cash flow as net cash provided by operating activities reduced by expenditures for property additions. We use this non-GAAP financial measure of cash flow to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities, and share repurchases. Our cash flow metric is reconciled to the most comparable GAAP measure, as follows:


	Year-to-date period ended		Change versus prior year	Quarter ended				Change versus prior year
(dollars in millions)	October 2, 2010	October 3, 2009	Change versus prior year					Change versus prior year
(millions)				April 2, 2011		April 3, 2010		Change versus prior year
Net cash provided by operating activities	td,079	td,230	(12.3)%	$	310	$	250	Change versus prior year
Additions to properties	(252)	(252)			(103)		(60)
Cash flow	$ 827	$ 978	(15.4)%	$	207	$	190	8.9 %

For ~~2010,~~2011, we are projecting cash flow (as defined) within a range of ~~$450~~$1.1 billion to ~~$500 million.~~$1.2 billion. This projection ~~has been lowered to reflect~~reflects the impact of our ~~voluntary~~expected pension and ~~post-retirement~~postretirement benefit plan contributions, net of tax.

Our net cash used in investing activities ~~for 2010 year-to-date~~during the year to date period ended 2011 amounted to ~~$250~~$99 million, ~~on par~~an increase of $40 million compared with ~~cash used of $251 million for~~ the same period in ~~2009.~~2010. The increase was primarily attributable to a higher level of capital expenditures in 2011.

For ~~fiscal year 2010,~~full-year 2011, we project ~~that~~ capital spending ~~will total~~of approximately ~~$470 million. This reflects investment~~4% of net sales. In addition to continuing to invest in our supply chain and information technology infrastructure, as we ~~reinstall~~have increased investment in capacity to support growth and ~~upgrade our SAP platform as well as investments in our supply chain.~~innovation.

~~For fiscal year 2011, we expect capital spending to be 4% of net sales, which is at the high end of our range of 3 to 4 percent of net sales.~~

Our net cash used in financing activities for the year-to-date period ended ~~October~~April 2, ~~2010~~2011 amounted to ~~$611~~$266 million compared with ~~$724~~$134 million for the comparable period in ~~2009.~~2010. The increase was primarily attributable to an increase in repurchases of common stock.

We ~~had positive cash flows associated with~~spent $329 million and $148 million to repurchase common stock during the ~~issuance of commercial paper~~year to date periods ended April 2, 2011 and April 3, 2010, respectively. Of the $329 million spent in 2011, $5 million was related to shares purchased in 2010 ~~while we reduced commercial paper outstanding during~~that did not settle prior to the ~~first nine months~~end of ~~2009, primarily through~~ the ~~use of $745~~2010 reporting period, and $324 million ~~proceeds associated with our May 2009 issuance of $750 million in long-term debt.~~

~~Cash inflows from net issuances of common stock amounted~~was spent to ~~$178 million in the first nine months of 2010 compared with $34 million during the same period in 2009, with the increase attributable to a higher level of stock option exercise activity in 2010.~~

~~During the year-to-date period ended October 2, 2010, we repurchased approximately 18~~repurchase 6 million shares of our common stock ~~for a total~~during the first quarter of ~~$907 million.~~2011. During ~~full year~~the first quarter of 2010, we ~~expect repurchases of our common stock~~spent $148 million to be up to $1.2 billion. Actual 2010 repurchases could be different from our current projections, as influenced by factors such as the impact of changes in our stock price and other competing priorities. During the year-to-date period ended Octoberrepurchase approximately 3 ~~2009, we repurchased approximately 4~~ million shares of our common ~~stock for a total of $187 million. The 2010 repurchase activity falls under a program approved in April 2010.~~ stock.

On April 23, 2010, our board of directors authorized a $2.5 billion, three-year share repurchase program for 2010 through 2012. ~~This~~As of April 2, 2011, total purchases under the repurchase authorization ~~replaced~~amounted to 27 million shares totaling $1.4 billion. During the ~~previous share buyback program which authorized stock repurchases~~remainder of ~~up to $1,113 million for 2010.~~

~~During~~ 2011 and 2012, we plan to execute the remaining repurchases under the 2010 authorization. We project total purchases of $800 million in 2011, which includes the $324 million executed in first quarter 2011, with the balance in 2012. Actual repurchases could be different from our current projections, as influenced by factors such as the impact of changes in our stock price and other competing priorities.

We ~~paid cash dividends~~used commercial paper to refinance $946 million of ~~$435 million and $403 million during~~long-term debt that matured in the ~~year-to-date periods ended October 2, 2010 and October 3, 2009, respectively.~~ first quarter of 2011.

In ~~October 2010,~~February 2011, the board of directors declared a dividend of $0.405 per common share, payable on ~~December~~March 15, ~~2010~~2011 to shareholders of record at close of business on ~~December~~March 1, ~~2010.~~2011. In April 2011, our board of directors declared a dividend of $0.405 per common share, payable June 15, 2011 to shareholders of record at close of business on June 1, 2011. We also announced that the board plans to increase the quarterly dividend to $0.43 per share beginning with the third quarter of 2011. This increase is consistent with our current plan to maintain our dividend pay-out ratio between 40% and 50% of reported net income.

In March 2011, we entered into an unsecured Four-Year Credit Agreement to replace our existing unsecured Five-Year Credit Agreement, which would have expired in November 2011. The Four-Year Credit Agreement allows us to borrow, on a revolving credit basis, up to $2.0 billion, although we do not plan to use it. (See Note 5 within Notes to consolidated financial statements for additional information on the Four-Year Credit Agreement.)

We are in compliance with all debt covenants. We continue to believe that we will be able to meet our interest and principal repayment obligations and maintain our debt covenants for the foreseeable future.

~~We plan to refinance our $946 million of debt maturing in March 2011 prior to its maturity.~~ We expect our access to public debt and commercial paper markets, along with operating cash flows, towill be adequate to meet future operating, investing and financing needs, including the pursuit of selected bolt-on acquisitions.

~~There can be no assurance that volatility and/or disruption in the global capital and credit markets will not impair our ability to access these markets on terms acceptable to us, or at all.~~

This Management’s Discussion and Analysis contains “forward-looking statements” with projections concerning, among other things, our strategy, financial principles, and plans; initiatives, improvements and growth; sales, gross margins, advertising, promotion, merchandising, brand building, operating profit, and earnings per share; innovation; investments; capital expenditures; asset write-offs and expenditures and costs related to productivity or efficiency initiatives; the impact of accounting changes and significant accounting estimates; our ability to meet interest and debt principal repayment obligations; minimum contractual obligations; future common stock repurchases or debt reduction; effective income tax rate; cash flow and core working capital improvements; interest expense; commodity, and energy prices; and employee benefit plan costs and funding. Forward-looking statements include predictions of future results or activities and may contain the words “expect,” “believe,” “will,” ~~“will deliver,~~“can,” “anticipate,” “project,” “should,” or words or phrases of similar meaning. Our actual results or activities may differ materially from these predictions. Our future results could be affected by a variety of factors, including:

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

Our Company is exposed to certain market risks, which exist as a part of our ongoing business operations. We use derivative financial and commodity instruments, where appropriate, to manage these risks. Refer to Note 89 within Notes to Consolidated Financial Statements for further information on our derivative financial and commodity instruments.

Refer to disclosures contained on pages ~~24-26~~25-26 of our ~~2009~~2010 Annual Report on Form 10-K. Other than changes noted here, there have been no material changes in the Company’s market risk as of ~~October~~April 2, ~~2010.~~2011.

During the quarter ended April 2, 2011, we entered into additional interest rate swaps in connection with certain U.S. Dollar Notes. The total notional amount of ~~commodity derivative instruments~~interest rate swaps at ~~October~~April 2, ~~2010~~2011 was ~~$207 million,~~$3.1 billion, representing a settlement ~~obligation~~receivable of ~~$38~~$63 million. The total notional amount of ~~commodity derivative instruments~~interest rate swaps at January ~~2, 2010~~1, 2011 was $213 million, representing a settlement obligation of $16 million. Assuming an unfavorable 10% change in period-end commodity prices, the settlement obligation would have increased by $16 million and $18 million as of October 2, 2010 and January 2, 2010, respectively. Those unfavorable changes would generally have been offset by a reduction in the cost of the underlying commodity purchases.

~~The total notional amount of foreign currency derivative instruments at October 2, 2010 was $1,206 million,~~$1.9 billion, representing a settlement receivable of ~~$21~~$74 million. Assuming an unfavorable 10% change in period-end exchange rates, the settlement receivable would have decreased by $121 million, generally offset by favorable changes in the values of the underlying exposures. The total notional amount of foreign currency derivative instruments at January 2, 2010 was $1,588 million, representing a settlement obligation of $24 million. Assuming an unfavorable 10% change in period-end exchange rates, the settlement obligation would have increased by $159 million, generally offset by favorable changes in the values of the underlying exposures.

Venezuela was designated as a highly inflationary economy as of the beginning of our 2010 fiscal year. Gains and losses resulting from the translation of the financial statements of subsidiaries operating in highly inflationary economies are recorded in earnings. As of the end of our 2009 fiscal year, we used the parallel rate to translate our Venezuelan subsidiary’s financial statements to U.S. dollars. In May 2010, the Venezuelan government effectively eliminated the parallel market. In June, several large Venezuelan commercial banks began operating the Transaction System for Foreign Currency Denominated Securities (SITME). We intend to use SITME to settle non-functional currency denominated assets and liabilities. Accordingly, we are using the SITME rate at October 2, 2010 to translate our Venezuelan subsidiary’s financial statements to U.S. dollars. During the second quarter of 2010, we recorded an $8 million foreign exchange gain in other income (expense), net, associated with the translation of our subsidiary’s financials into U.S. dollars. On a year-to-date basis we recorded a $4 million foreign exchange gain in other income (expense), net. On a consolidated basis, Venezuela represents only 1% to 2% of our business; therefore, any ongoing impact is expected to be immaterial.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure under Rules 13a-15(e) and 15d-15(e). Disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives.

As of ~~October~~April 2, ~~2010,~~2011, we carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

During the last fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2010.~~1, 2011. The risk factors disclosed under this Part II, Item 1A and in Part I, Item 1A to our Annual report on Form 10-K for the fiscal year ended January ~~2, 2010,~~1, 2011, in addition to the other information set forth in this Report, could materially affect our business, financial condition, or results. Additional risks and uncertainties not currently known to us or that we deem to be immaterial could also materially adversely affect our business, financial condition, or results.


Period	(a) Total Number of Shares Purchased		(b) Average Price Paid Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs		(a) Total Number of Shares Purchased		(b) Average Price Paid Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1:
7/4/10 -7/31/10		589,237		$51.41		589,237		$2,111
1/2/11-1/29/11										981,295		$50.95		981,295		$1,393
Month #2:
8/1/10 - 8/28/10		9,946,271		$50.27		9,946,271		$1,611
1/30/11-2/26/11										562,994		$53.29		562,994		$1,363
Month #3:
8/29/10 - 10/2/10		401,500		$49.79		401,500		$1,591
2/27/11-4/2/11										4,510,566		$53.96		4,510,566		$1,119
Total		10,937,008		$50.31		10,937,008				6,054,855		$53.41		6,054,855

On April 23, 2010, ~~our~~the board of directors authorized a $2.5 billion three-year share repurchase program for 2010 through 2012. This authorization replaced the previous share buyback program which authorized stock repurchases of up to $1,113 million for 2010. During the year-to-date period ended October 2, 2010, we repurchased 18 million shares of our common stock for a total of $907 million. The 2010 repurchase activity falls under the program approved in April 2010.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

KELLOGG COMPANY

/s/ R. L. Dissinger

R. L. Dissinger

Principal Financial Officer;

Senior Vice President and Chief Financial Officer

/s/ A. R. Andrews

A. R. Andrews

Principal Accounting Officer;

Vice President — Corporate Controller


Large accelerated filer x		Accelerated filer ¨		Non-accelerated filer ¨		Smaller reporting company ¨


	Page
PART I — Financial Information

Item 1:
Financial Statements

Consolidated Balance Sheet — ~~October~~April 2, ~~2010~~2011 and January ~~2, 2010~~		2

~~Consolidated Statement of Income — quarter and year-to-date periods ended October 2, 2010 and October 3, 2009~~1, 2011		3

Consolidated Statement of ~~Equity~~Income — ~~year~~quarters ended ~~January~~April 2, ~~2010~~2011 and ~~year-to-date period ended October 2,~~April 3, 2010		4

Consolidated Statement of ~~Cash Flows~~Equity — ~~year-to-date periods~~year ended ~~October~~January 1, 2011 and quarter ended April 2, ~~2010 and October 3, 2009~~2011		5

Consolidated Statement of Cash Flows — quarters ended April 2, 2011 and April 3, 2010		6

Notes to Consolidated Financial Statements		~~6-23~~7

Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~24-32~~22

Item 3:
Quantitative and Qualitative Disclosures about Market Risk		3329

Item 4:
Controls and Procedures		3329

PART II — Other Information

Item 1A:
Risk Factors		3430

Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds		3430

Item 6:
Exhibits		3430

Signatures		3531

Exhibit Index		3632
~~Rule 13a-14(e)/15d-14(a) Certification from A. D. David Mackay~~
~~Rule 13a-14(e)/15d-14(a) Certification from Ronald L. Dissinger~~
~~Section 1350 Certification from A. D. David Mackay~~
~~Section 1350 Certification from Ronald L. Dissinger~~


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		26		$45
Granted		4		53
Exercised		(4)		44
Forfeitures and expirations		—		—
Outstanding, end of period		26		$46		6.5		$129
Exercisable, end of period		20		$46		5.7		$104


Year-to-date period ended October 3, 2009:

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		26		$45
Granted		4		40
Exercised		(1)		36
Forfeitures and expirations		—		—
Outstanding, end of period		29		$45		6.7		$134
Exercisable, end of period		24		$45		6.1		$102


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		26		$47
Granted		5		53
Exercised		(3)		44
Forfeitures and expirations		—		—
Outstanding, end of period		28		$48		6.8		$166
Exercisable, end of period		20		$46		5.7		$144


Quarter ended April 3, 2010:

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		26		$45
Granted		4		53
Exercised		(1)		43
Forfeitures and expirations		—		—
Outstanding, end of period		29		$46		6.8		$211
Exercisable, end of period		23		$46		6.1		$177


	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 October 2, 2010:	20.00%	4.94	2.54%	2.80%


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


	Total carrying amount
(millions)	October 2, 2010	January 2, 2010
Trademarks	$1,443	$1,443


	COGS program
	Quarter ended
(millions)	April 2, 2011		April 3, 2010
North America		$—		$1
Europe		5		1

Total		$ 5		$2


(millions)	Balance January 2, 2010	Accruals	Payments	Balance October 2, 2010
COGS program	$6	$2	$(5)	$3
SGA programs	12	2	(12)	2
Manufacturing optimization	7	—	(6)	1
Total	$25	$4	$(23)	$6


	Quarter ended, October 3, 2009
(millions)	Employee severance	Other cash costs (a)	Asset write-offs	Retirement benefits (b)	Total
Manufacturing optimization	$1	$—	$—	$—	$1
Supply chain rationalization	2	—	3	—	5
Total	$3	$—	$3	$—	$6


(millions)	Balance January 1, 2011	Accruals	Payments	Balance April 2, 2011
COGS program	$2	$4	$(2)	$4
SGA programs	3	—	(1)	2

Total	$5	$4	$(3)	$6


(millions)		~~October~~April 2, ~~2010~~
~~2008 Award~~		~~$16~~2011
2009 Award		$18
2010 Award		$2122
2011 Award		$24


(millions)	Pension		Nonpension postretirement		Total
Quarter ended:
October 2, 2010		$ 6		$ 3		$ 9
October 3, 2009		$ 6		$ 3		$ 9
Year-to-date period ended:
October 2, 2010		$ 35		$ 10		$ 45
October 3, 2009		$ 83		$ 10		$ 93
Full year:
Fiscal year 2010 (projected)		$335		$280		$615
Fiscal year 2009 (actual)		$ 87		$ 13		$100


	Effective income tax rate
Quarter ended:
~~October~~April 2, ~~2010~~2011		3028	%
~~October~~April 3, ~~2009~~2010		27	%
~~Year-to-date period ended:~~
~~October 2, 2010~~		29	%
~~October 3, 2009~~		29	%


(millions)
January 2, 2010	$	130
Tax positions related to current year:
Additions		10
Tax positions related to prior years:
Additions		2
Reductions		(10	)
Settlements		(4	)
October 2, 2010	$	128


(millions)
Interest expense recognized for the year-to-date period ending October 2, 2010	$	4
Interest accrued at October 2, 2010	$	27


(millions)
Interest accrued at January 1, 2011	$	26
Reduction of interest expense recognized for the period ended April 2, 2011	$	(3	)
Interest accrued at April 2, 2011	$	17


Derivatives in fair value hedging relationships (millions)	Location of gain (loss) recognized in income	Gain (loss) recognized in income
		October 2, 2010	October 3, 2009
Foreign currency exchange contracts	Other income (expense), net	$(25)	$(38)
Interest rate contracts	Interest expense	29	18
Total		$ 4	$(20)



31.1		Rule 13a-14(e)/15d-14(a) Certification from John A. ~~D. David Mackay~~Bryant

31.2		Rule 13a-14(e)/15d-14(a) Certification from Ronald L. Dissinger

32.1		Section 1350 Certification from John A. ~~D. David Mackay~~Bryant

32.2		Section 1350 Certification from Ronald L. Dissinger

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document


Exhibit No.	Description	Electronic (E) Paper (P) Incorp. By Ref. (IBRF)

31.1	Rule 13a-14(e)/15d-14(a) Certification from John A. ~~D. David Mackay~~Bryant	E

31.2	Rule 13a-14(e)/15d-14(a) Certification from Ronald L. Dissinger	E

32.1	Section 1350 Certification from John A. ~~D. David Mackay~~Bryant	E

32.2	Section 1350 Certification from Ronald L. Dissinger	E

101.INS	XBRL Instance Document	E

101.SCH	XBRL Taxonomy Extension Schema Document	E

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	E

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	E

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	E

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	E

Derivatives not designated as hedging
instruments (millions)

Location of gain (loss)
recognized in income

Gain (loss)
recognized in income

~~October~~ April 2,
~~2010~~2011

~~October~~ April 3,
~~2009~~2010

~~Foreign currency exchange~~Interest rate contracts

~~Other income (expense), net~~Interest expense