UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)



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

For the quarterly period ended ~~July 1, 2017~~March 31, 2018



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

For the transition period from to

Commission file number 1-4171

KELLOGG COMPANY



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

One Kellogg Square, P.O. Box 3599, Battle Creek, MI 49016-3599

Registrant’s telephone number: 269-961-2000

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.

Yes x No ¨

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).

Yes x No ¨

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



Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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).

Yes ¨ No x

Common Stock outstanding as of ~~July 29, 2017~~April 28, 2018 — ~~345,134,700~~346,848,322 shares

KELLOGG COMPANY

INDEX



		Page
	PART I — Financial Information
	Item 1:
	Financial Statements
	Consolidated Balance Sheet — ~~July 1, 2017~~March 31, 2018 and December ~~31, 2016~~30, 2017	3
	Consolidated Statement of Income — ~~quarter~~quarters ended March 31, 2018 and ~~year-to-date periods ended July~~April 1, 2017 ~~and July 2, 2016~~	4
	Consolidated Statement of Comprehensive Income – ~~quarter~~quarters ended March 31, 2018 and ~~year-to-date periods ended July~~April 1, 2017 ~~and July 2, 2016~~	5
	Consolidated Statement of Equity — year ended December 30, 2017 and quarter ended March 31, ~~2016 and year-to-date period ended July 1, 2017~~2018	6
	Consolidated Statement of Cash Flows — ~~year-to-date periods~~quarters ended ~~July~~March 31, 2018 and April 1, 2017 ~~and July 2, 2016~~	7
	Notes to Consolidated Financial Statements	8
	Item 2:
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
	Item 3:
	Quantitative and Qualitative Disclosures about Market Risk	5747
	Item 4:
	Controls and Procedures	5747
	PART II — Other Information
	Item 1:
	Legal Proceedings	5848
	Item 1A:
	Risk Factors	5848
	Item 2:
	Unregistered Sales of Equity Securities and Use of Proceeds	5848
	Item 6:
	Exhibits	5948
	Signatures	6049
	Exhibit Index	6150

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Kellogg Company and Subsidiaries

CONSOLIDATED BALANCE SHEET

(millions, except per share data)


	July 1, 2017 (unaudited)			December 31, 2016 *			March 31, 2018 (unaudited)			December 30, 2017
Current assets
Cash and cash equivalents	$	334		$	280		$	370		$	281
Accounts receivable, net	1,427			1,231			1,601			1,389
Inventories:
Raw materials and supplies	324			315
Finished goods and materials in process	877			923
Other prepaid assets	205			191
Inventories							1,214			1,217
Other current assets							135			149
Total current assets	3,167			2,940			3,320			3,036
Property, net of accumulated depreciation of $5,530 and $5,280	3,613			3,569
Property, net							3,713			3,716
Goodwill							5,514			5,504
Other intangibles, net							2,650			2,639
Investments in unconsolidated entities	435			438			425			429
Goodwill	5,127			5,166
Other intangibles, net of accumulated amortization of $58 and $54	2,423			2,369
Other assets	770			629			1,080			1,027
Total assets	$	15,535		$	15,111		$	16,702		$	16,351
Current liabilities
Current maturities of long-term debt	$	411		$	631		$	408		$	409
Notes payable	724			438			469			370
Accounts payable	2,057			2,014			2,230			2,269
Accrued advertising and promotion	512			436
Accrued income taxes	48			47
Accrued salaries and wages	269			318
Other current liabilities	667			590			1,408			1,474
Total current liabilities	4,688			4,474			4,515			4,522
Long-term debt	7,123			6,698			7,881			7,836
Deferred income taxes	401			525			357			355
Pension liability	997			1,024			812			839
Other liabilities	476			464			583			605
Commitments and contingencies
Equity
Common stock, $.25 par value	105			105			105			105
Capital in excess of par value	836			806			852			878
Retained earnings	6,752			6,571			7,334			7,069
Treasury stock, at cost	(4,364		)	(3,997		)	(4,346		)	(4,417		)
Accumulated other comprehensive income (loss)	(1,495		)	(1,575		)	(1,407		)	(1,457		)
Total Kellogg Company equity	1,834			1,910			2,538			2,178
Noncontrolling interests	16			16			16			16
Total equity	1,850			1,926			2,554			2,194
Total liabilities and equity	$	15,535		$	15,111		$	16,702		$	16,351

* Condensed from audited financial statements.

~~Refer to~~See accompanying Notes to Consolidated Financial Statements.

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME

(millions, except per share data)


	Quarter ended					Year-to-date period ended					Quarter ended
(Results are unaudited)	July 1, 2017			July 2, 2016		July 1, 2017			July 2, 2016		March 31, 2018		April 1, 2017
Net sales	$	3,187		$	3,268	$	6,441		$	6,663	$	3,401	$	3,248
Cost of goods sold	1,922			1,998		3,972			4,148		2,149		2,088
Selling, general and administrative expense	812			821		1,656			1,628		742		880
Operating profit	453			449		813			887		510		280
Interest expense	63			68		124			285		69		61
Other income (expense), net	(6		)	4		(3		)	4		70		88
Income before income taxes	384			385		686			606		511		307
Income taxes	102			106		144			153		67		43
Earnings (loss) from unconsolidated entities	—			1		2			2		—		2
Net Income	$	282		$	280	$	544		$	455
Net income											$	444	$	266
Per share amounts:
Basic earnings	$	0.81		$	0.80	$	1.56		$	1.30	$	1.28	$	0.76
Diluted earnings	$	0.80		$	0.79	$	1.54		$	1.29	$	1.27	$	0.75
Dividends	$	0.52		$	0.50	$	1.04		$	1.00	$	0.54	$	0.52
Average shares outstanding:
Basic	349			350		350			350		346		351
Diluted	352			354		353			354		348		354
Actual shares outstanding at period end						346			349		347		350

~~Refer to~~See accompanying Notes to Consolidated Financial Statements.

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(millions)


	Quarter ended July 1, 2017									Year-to-date period ended July 1, 2017									Quarter ended March 31, 2018
(Results are unaudited)	Pre-tax amount			Tax (expense) benefit			After-tax amount			Pre-tax amount			Tax (expense) benefit			After-tax amount			Pre-tax amount			Tax (expense) benefit			After-tax amount
Net income							$	282								$	544								$	444
Other comprehensive income (loss):
Foreign currency translation adjustments	(66		)	57			(9		)	10			66			76			$	30		$	19		49
Cash flow hedges:
Reclassification to net income	2			—			2			4			(1		)	3			2			—			2
Postretirement and postemployment benefits:
Reclassification to net income:
Net experience loss	—			—			—			1			—			1			(1		)	—			(1		)
Other comprehensive income (loss)	$	(64	)	$	57		$	(7	)	$	15		$	65		$	80		$	31		$	19		$	50
Comprehensive income							$	275								$	624								$	494

	Quarter ended July 2, 2016									Year-to-date period ended July 2, 2016									Quarter ended April 1, 2017
(Results are unaudited)	Pre-tax amount			Tax (expense) benefit			After-tax amount			Pre-tax amount			Tax (expense) benefit			After-tax amount			Pre-tax amount			Tax (expense) benefit			After-tax amount
Net income							$	280								$	455								$	266
Other comprehensive income (loss):
Foreign currency translation adjustments	(48		)	(16		)	(64		)	(103		)	13			(90		)	$	76		$	9		85
Cash flow hedges:
Unrealized gain (loss) on cash flow hedges	(3		)	1			(2		)	(60		)	24			(36		)
Reclassification to net income	6			(2		)	4			8			(3		)	5			2			(1		)	1
Postretirement and postemployment benefits:
Amount arising during the period:
Prior service cost	(1		)	—			(1		)	(1		)	—			(1		)
Reclassification to net income:
Net experience loss	1			—			1			2			—			2			1			—			1
Prior service cost	2			—			2			2			—			2
Other comprehensive income (loss)	$	(43	)	$	(17	)	$	(60	)	$	(152	)	$	34		$	(118	)	$	79		$	8		$	87
Comprehensive income							$	220								$	337								$	353

~~Refer to~~See accompanying Notes to Consolidated Financial Statements.

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF EQUITY

(millions)


	Common stock			Capital in excess of par value			Retained earnings			Treasury stock					Accumulated other comprehensive income (loss)			Total Kellogg Company equity			Non-controlling interests		Total equity			Common stock			Capital in excess of par value			Retained earnings			Treasury stock					Accumulated other comprehensive income (loss)			Total Kellogg Company equity			Non-controlling interests		Total equity
(unaudited)	shares	amount								shares		amount														shares	amount								shares		amount
Balance, January 2, 2016	420	$	105	$	745		$	6,597		70		$	(3,943	)	$	(1,376	)	$	2,128		$	10	$	2,138
Common stock repurchases										6		(426		)				(426		)			(426		)
Net income							694											694			1		695
Acquisition of noncontrolling interest																		—			5		5
Dividends							(716		)									(716		)			(716		)
Other comprehensive loss															(199		)	(199		)	—		(199		)
Stock compensation				63														63					63
Stock options exercised and other				(2		)	(4		)	(7	)	372						366					366
Balance, December 31, 2016	420	$	105	$	806		$	6,571		69		$	(3,997	)	$	(1,575	)	$	1,910		$	16	$	1,926		420	$	105	$	806		$	6,552		69		$	(3,997	)	$	(1,575	)	$	1,891		$	16	$	1,907
Common stock repurchases										6		(435		)				(435		)			(435		)										7		(516		)				(516		)			(516		)
Net income							544											544					544									1,254											1,254			—		1,254
Dividends							(363		)									(363		)			(363		)							(736		)									(736		)			(736		)
Other comprehensive income															80			80			—		80																	118			118			—		118
Stock compensation				36														36					36						66														66					66
Stock options exercised and other				(6		)	—			(1	)	68						62					62			1			6			(1		)	(1	)	96						101					101
Balance, July 1, 2017	420	$	105	$	836		$	6,752		74		$	(4,364	)	$	(1,495	)	$	1,834		$	16	$	1,850
Balance, December 30, 2017																										421	$	105	$	878		$	7,069		75		$	(4,417	)	$	(1,457	)	$	2,178		$	16	$	2,194
Common stock repurchases																																			—		—						—					—
Net income																																444											444					444
Dividends																																(187		)									(187		)			(187		)
Other comprehensive income																																								50			50			—		50
Stock compensation																													16														16					16
Stock options exercised and other																													(42		)	8			(1	)	71						37					37
Balance, March 31, 2018																										421	$	105	$	852		$	7,334		74		$	(4,346	)	$	(1,407	)	$	2,538		$	16	$	2,554

~~Refer to notes~~See accompanying Notes to Consolidated Financial Statements.

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWS

(millions)


	Year-to-date period ended						Quarter ended
(unaudited)	July 1, 2017			July 2, 2016			March 31, 2018			April 1, 2017
Operating activities
Net income	$	544		$	455		$	444		$	266
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization	240			251			122			121
Postretirement benefit plan expense (benefit)	(96		)	(56		)	(47		)	(56		)
Deferred income taxes	(67		)	7			(1		)	(66		)
Stock compensation	36			30			16			17
Other	30			11			(30		)	30
Postretirement benefit plan contributions	(28		)	(23		)	(19		)	(24		)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables	(148		)	(159		)	(175		)	(437		)
Inventories	63			17			13			58
Accounts payable	70			157			(4		)	11
Accrued income taxes	—			54
Accrued interest expense	(13		)	(2		)
Accrued and prepaid advertising and promotion	56			10
Accrued salaries and wages	(56		)	(87		)
All other current assets and liabilities, net	23			(17		)
All other current assets and liabilities							(91		)	46
Net cash provided by (used in) operating activities	654			648			228			(34		)
Investing activities
Additions to properties	(268		)	(249		)	(132		)	(130		)
Acquisitions, net of cash acquired	4			(15		)
Investments in unconsolidated entities, net proceeds	6			29
Collections of deferred purchase price on securitized trade receivables							—			245
Other	(4		)	(15		)	1			(1		)
Net cash provided by (used in) investing activities	(262		)	(250		)	(131		)	114
Financing activities
Net issuances (reductions) of notes payable	287			(424		)	99			191
Issuances of long-term debt	655			2,061
Reductions of long-term debt	(626		)	(1,227		)	—			(1		)
Net issuances of common stock	65			233			50			40
Common stock repurchases	(390		)	(386		)	—			(125		)
Cash dividends	(363		)	(351		)	(187		)	(182		)
Other	—			—
Net cash provided by (used in) financing activities	(372		)	(94		)	(38		)	(77		)
Effect of exchange rate changes on cash and cash equivalents	34			(24		)	30			15
Increase (decrease) in cash and cash equivalents	54			280			89			18
Cash and cash equivalents at beginning of period	280			251			281			280
Cash and cash equivalents at end of period	$	334		$	531		$	370		$	298

Supplemental cash flow disclosures
Interest paid	$	138		$	284		$	14		$	16
Income taxes paid	$	205		$	85		$	31		$	16

Supplemental cash flow disclosures of non-cash investing activities:
Beneficial interests obtained in exchange for securitized trade receivables							$	—		$	256
Additions to properties included in accounts payable	$	82		$	89		$	92		$	106

~~Refer to~~See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

for the quarter ended ~~July 1, 2017~~March 31, 2018 (unaudited)

Note 1 Accounting policies

Basis of presentation

The unaudited interim financial information of Kellogg Company (the Company) included in this report reflects all adjustments, all of which are of a normal and recurring nature, that management believes are necessary for a fair statement of the results of operations, comprehensive income, financial position, equity and cash flows for the periods presented. This interim information should be read in conjunction with the financial statements and accompanying footnotes within the Company’s ~~2016~~2017 Annual Report on Form 10-K.

The condensed balance sheet information at December ~~31, 2016~~30, 2017 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 ~~July 1, 2017~~March 31, 2018 are not necessarily indicative of the results to be expected for other interim periods or the full year.

Accounts payable

The Company has agreements with certain third parties to provide accounts payable tracking systems which facilitates participating suppliers’ ability to monitor and, if elected, sell payment obligations from the Company to designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to sell one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company’s goal in entering into these agreements is to capture overall supplier savings, in the form of payment terms or vendor funding, created by facilitating suppliers’ ability to sell payment obligations, while providing them with greater working capital flexibility. We have no economic interest in the sale of these suppliers’ receivables and no direct financial relationship with the financial institutions concerning these services. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to sell amounts under these arrangements. However, the Company’s right to offset balances due from suppliers against payment obligations is restricted by this agreement for those payment obligations that have been sold by suppliers. As of ~~July 1, 2017, $769~~March 31, 2018, $724 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold ~~$556~~$547 million of those payment obligations to participating financial institutions. As of December ~~31, 2016, $677~~30, 2017, $850 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold ~~$507~~$674 million of those payment obligations to participating financial institutions.

Revenue

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

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

Performance obligations

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

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

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

Significant Judgments

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

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

Practical expedients

For the quarter ended March 30, 2018, the Company elected the following practical expedients in accordance with ASU 2014-09:

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

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

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

New accounting standards adopted in the period

~~Income Taxes.~~ Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. In ~~October 2016,~~August 2017, the FASB ~~as part of their simplification initiative,~~ issued an ASU intended to ~~improve~~simplify hedge accounting by better aligning an entity’s financial reporting for hedging relationships with its risk management activities. The ASU also simplifies the application of the hedge accounting for income tax consequences of intra-entity transfers of assets other than inventory. Current Generally Accepted Accounting Principles (GAAP) prohibit recognition of current and deferred income taxes for intra-entity asset transfers untilguidance. The new guidance is effective on January 1, 2019, with early adoption permitted. For cash flow hedges existing at the ~~asset has been sold to an outside party, which is an exception~~adoption date, the standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The amendments in the ASU eliminate the exception, such that entities should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted,Consolidated Balance Sheet as of the beginning of ~~an annual reporting period for which financial statements have not been issued or made available for issuance. That is, early adoption should be~~ the first interim period if an entity issues interim financial statements. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the periodyear of adoption. The amendments to presentation guidance and disclosure requirements are required to be adopted prospectively. The Company ~~early~~ adopted the ASU in the first quarter of ~~2017. As a result~~2018. The impact of ~~an intercompany transfer of intellectual property,~~adoption was immaterial to the ~~Company recorded a $38 million reduction in income tax expense in the quarter ended April 1, 2017. Upon adoption, there was no cumulative effect adjustment to retained earnings.~~financial statements.

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

Improving the Presentation of net Periodic Pension Cost and net Periodic Postretirement Benefit Cost. In March 2017, the FASB issued an ASU to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The ASU requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the

period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, early adoption should be the first interim period if an entity issues interim financial statements. The amendments in this ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company ~~will adopt~~adopted the ASU in the first quarter of 2018. ~~See further discussion in~~ ~~Accounting policies to be adopted in future periods~~ ~~section of MD&A.~~

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

Statement of Cash Flows. In August 2016, the FASB issued an ASU to provide cash flow statement classification guidance for certain cash receipts and payments including (a) debt prepayment or extinguishment costs; (b) contingent consideration payments made after a business combination; (c) insurance settlement proceeds; (d) distributions from equity method investees; (e) beneficial interests in securitization transactions and (f) application of the predominance principle for cash receipts and payments with aspects of more than one class of cash flows. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period, in which case adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. The amendments in this ASU should be applied retrospectively. The Company ~~will adopt~~adopted the new ASU in the first quarter of 2018. If the Company adopted the ASU in the first quarter of 2017, cash flow from operations would have decreased $24 million and cash flow from investing activities would have increased $24 million for the year-to-date period ended July 1, 2017.

~~Leases.~~ In February 2016, the FASB issued an ASU which will require the recognition of lease assets and lease liabilities by lessees for all leases with terms greater than 12 months. The distinction between finance leases and operating leases will remain, with similar classification criteria as current GAAP to distinguish between capital and operating leases. The principal difference from current guidance is that the lease assets and lease liabilities arising from operating leases will be recognized on the Consolidated Balance Sheet. Lessor accounting remains substantially similar to current GAAP. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company will adopt the ASU in the first quarter of 2019, and is currently evaluating the impact that implementing this ASU will have on its financial statements.

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

Revenue from contracts with customers. In May 2014, the FASB issued an ASU, as amended, which provides guidance for accounting for revenue from contracts with customers. The core principle of this ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. To achieve that core principle, an entity would be required to apply the following five steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract and 5) recognize revenue when (or as) the entity

satisfies a performance obligation. ~~When~~The Company adopted the updated standard in the first quarter of 2018 using the full retrospective method and restated previously reported amounts. In connection with the adoption, the Company made reclassification of certain customer allowances. The adoption effects relate to the timing of recognition and classification of certain promotional allowances. The updated revenue standard also required additional disaggregated revenue disclosures. Refer to Impacts to Previously Reported Results below for the impact of adoption of the standard on our consolidated financial statements.

Impacts to Previously Reported Results

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



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



	Quarter ended April 1, 2017
Consolidated Statement of Income	Previously Reported		Revenue Recognition ASU			Pension ASU		Restated
Net sales	$	3,254	$	(6	)	$	—	$	3,248
Cost of goods sold	$	2,050	$	(16	)	$	54	$	2,088
Selling, general and administrative expense	$	844	$	5		$	31	$	880
Other income (expense), net	$	3	$	—		$	85	$	88
Income taxes	$	42	$	1		$	—	$	43
Net income	$	262	$	4		$	—	$	266
Per share amounts:
Basic earnings	$	0.75	$	0.01		$	—	$	0.76
Diluted earnings	$	0.74	$	0.01		$	—	$	0.75



	Quarter ended April 1, 2017
Consolidated Statement of Cash Flows	Previously Reported			Revenue Recognition ASU			Cash Flow ASU			Restated
Net income	$	262		$	4		$	—		$	266
Deferred income taxes	$	(67	)	$	1		$	—		$	(66	)
Trade receivables	$	(192	)	$	—		$	(245	)	$	(437	)
Other	$	30		$	—		$	—		$	30
All other current assets and liabilities	$	51		$	(5	)	$	—		$	46
Net cash provided by (used in) operating activities	$	211		$	—		$	(245	)	$	(34	)
Collections of deferred purchase price on securitized trade receivables	$	—		$	—		$	245		$	245
Net cash provided by (used in) investing activities	$	(131	)	$	—		$	245		$	114

Accounting standards to be adopted in future periods

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the FASB issued an ASU permitting a company to reclassify the disproportionate income tax effects of the Tax Cuts and Jobs Act of 2017 on items within accumulated other comprehensive income (AOCI). The reclassification is optional. Regardless of whether or not a company opts to make the reclassification, the new guidance requires all companies to include certain disclosures in their financial statements. The guidance is effective for all fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing whether to adopt the ASU ~~was originally~~and the impact of adoption.

Leases. In February 2016, the FASB issued ~~it was~~an ASU which will require the recognition of lease assets and lease liabilities by lessees for all leases with terms greater than 12 months. The distinction between finance leases and operating leases will remain, with similar classification criteriaas current GAAP to distinguish between capital and operating leases. The principal difference from current guidance is that the lease assets and lease liabilities arising from operating leases will be recognized on the Consolidated Balance Sheet. Lessor accounting remains substantially similar to current GAAP. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, ~~2016, and early~~2018. Early adoption ~~was not~~is permitted. On July 9, 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The updated standard will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Entities will be permitted to adopt the new revenue standard early, but not before the original effective date. Entities will have the option to apply the final standard retrospectively or use a modified retrospective method, recognizing the cumulative effect of the ASU in retained earnings at the date of initial application. An entity will not restate prior periods if it uses the modified retrospective method, but will be required to disclose the amount by which each financial statement line item is affected in the current reporting period by the application of the ASU as compared to the guidance in effect prior to the change, as well as reasons for significant changes. Based upon the Company's preliminary assessment, there will be some limited timing and classification differences upon adoption. The Company will adopt the ~~updated standard~~ASU in the first quarter of ~~2018, using a modified retrospective transition method,~~2019, and is currently evaluating the ~~adoption is not expected to~~impact that implementing this ASU will have ~~a significant impact~~ on its financial statements.

Note 2 Sale of accounts receivable

InDuring 2016, The Company initiated a program in which a customer could extend their payment terms in exchange for the elimination of early payment discounts (Extended Terms Program).

The Company ~~entered into a~~has two Receivable Sales ~~Agreement~~Agreements (Monetization Programs) and previously had a separate U.S. accounts receivable securitization program ~~(the "securitization program")~~(Securitization Program), both described below, which ~~primarily enable the Company to extend customers payment terms in exchange for elimination of the discount the Company offered for early payment. The agreements~~ are intended to directly offset the impact ~~that extended customer payment terms~~the Extended Terms Program would have on the days-sales-outstanding (DSO) metric that is critical to the effective management of the Company's accounts receivable balance and overall working capital. ~~See further discussion~~The Company terminated the Securitization Program at the end of 2017 and entered into the second monetization program during the quarter ended March 31, 2018.

The Company has no retained interest in the ~~Liquidity and capital resources~~ ~~section of MD&A.~~

~~In March 2016,~~receivables sold, however the Company ~~entered into~~does have collection and administrative responsibilities for the sold receivables. The Company has not recorded any servicing assets or liabilities as of March 31, 2018 and December 30, 2017 for these agreements as the fair value of these servicing arrangements as well as the fees earned were not material to the financial statements.

Monetization Programs

The Company has two Monetization Programs, for a ~~Receivable Sales Agreement~~discrete group of customers, to sell, on a revolving basis, certain trade accounts receivable ~~balances~~invoices to a third party financial ~~institution.~~institutions. Transfers under this agreement are accounted for as sales of receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. The ~~Receivable Sales Agreement provides~~Monetization Programs provide for the continuing sale of certain receivables on a revolving basis until terminated by either party; however the maximum receivables that may be sold at any time is ~~$700 million. During~~$988 million (increased from $800 million as of December 30, 2017, reflecting the ~~year-to-date periods ended July 1, 2017 and July 2, 2016 approximately $1.1 billion and $529 million, respectively,~~execution of ~~accounts receivable have been sold via this arrangement.~~a second monetization program on March 20, 2018). Accounts receivable sold of ~~$655~~$927 million and ~~$562~~$601 million remained outstanding under ~~this~~these arrangement as of ~~July 1, 2017~~March 31, 2018 and December ~~31, 2016,~~30, 2017, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows. The recorded net loss on sale of receivables was ~~$3 million and $5~~$7 million for the quarter ~~and year-to-date period~~ ended ~~July 1, 2017, respectively,~~March 31, 2018 and was immaterial for the ~~2016 periods.~~quarter ended April 1, 2017. The recorded loss is included in Other income and expense.

Securitization Program

InBetween July 2016 and December 2017, the Company ~~entered into the securitization program~~had a Securitization Program with a third party financial institution. Under the program, the Company ~~receives~~received cash consideration of up to $600 million and a deferred purchase price asset for the remainder of the purchase price. Transfers under ~~this agreement are~~the Securitization Program were accounted for as sales of receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. This ~~securitization program utilizes~~Securitization Program utilized Kellogg Funding Company (Kellogg Funding), a wholly-owned subsidiary of the Company. Kellogg Funding's sole business ~~consists~~consisted of the purchase of receivables, from its parent or other subsidiary and subsequent transfer of such receivables and related assets to financial institutions. Although Kellogg Funding is included in the Company's consolidated financial statements, it is a separate legal entity with separate creditors who will be entitled, upon its liquidation, to be satisfied out of Kellogg Funding assets prior to any assets or value in Kellogg Funding becoming available to the Company or its subsidiaries. The assets of Kellogg Funding are not available to pay creditors of the Company or its subsidiaries. ~~This program expires~~The Securitization Program was structured to expire in July 2018, but ~~can be renewed~~was terminated at the end of 2017. In March 2018 the Company substantially replaced the securitization program with ~~consent from~~ the ~~parties to the~~second monetization program.

~~During the year-to-date period ended July 1, 2017, $1.3 billion of accounts receivable were sold via the accounts receivable securitization program.~~ As of ~~July 1,~~December 30, 2017, approximately ~~$443~~$433 million of accounts receivable sold to Kellogg Funding under the ~~securitization program~~Securitization Program remained outstanding, for which the Company received net cash proceeds of approximately ~~$404~~$412 million and a deferred purchase price asset of approximately $39 million. As of December 31, 2016, approximately $292 million of accounts receivable sold to Kellogg Funding under the securitization program remained outstanding, for which the Company received net cash proceeds of approximately $255 million and a deferred purchase price asset of approximately $37$21 million. The portion of the purchase price for the receivables which is not paid in cash by the financial institutions is a deferred purchase price asset, which is

paid to Kellogg Funding as payments on the receivables are collected from customers. The deferred purchase price asset represents a beneficial interest in the transferred financial assets and is recognized at fair value as part of the sale transaction. The deferred purchase price asset is included in Other ~~prepaid~~current assets on the Consolidated Balance Sheet. ~~The proceeds from these sales~~Upon final settlement of ~~receivables are included~~the program in ~~cash from operating activities in~~March 2018, the ~~Consolidated Statement~~outstanding deferred purchase price asset of ~~Cash Flows.~~ $21 million was exchanged for previously sold trade accounts receivable.

The recorded net loss on sale of receivables ~~was $2 million and $3 million~~ for the quarter ~~and year-to-date periods~~ ended ~~July~~April 1, 2017 ~~respectively. The recorded loss~~ is included in Other income and ~~expense.~~expense and is not material.

~~The Company has no retained interests in the receivables sold under the~~

Other programs above. The Company does have collection and administrative responsibilities for the sold receivables. The Company has not recorded any servicing assets or liabilities as of July 1, 2017 and December 31, 2016 for these agreements as the fair value of these servicing arrangements as well as the fees earned were not material to the financial statements.

Additionally, from time to time certain of the Company's foreign subsidiaries will transfer, without recourse, accounts receivable balances of certain customers to financial institutions. These transactions are accounted for as sales of the receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. ~~During the year-to-date period ended July 1, 2017, $94 million of accounts receivable have been sold via these programs.~~ Accounts receivable sold of ~~$35~~$43 million and ~~$124~~$86 million remained outstanding under these programs as of ~~July 1, 2017~~March 31, 2018 and December ~~31, 2016,~~30, 2017, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows. The recorded net loss on the sale of these receivables is included in Other income and expense and is not material.

Note 3 Goodwill and other intangible assets

~~Parati~~RXBAR acquisition

In ~~December 2016,~~October 2017, the Company ~~acquired Ritmo Investimentos, controlling shareholder~~completed its acquisition of ~~Parati S/A, Afical Ltda and Padua Ltda ("Parati Group")~~Chicago Bar Co., ~~a leading Brazilian food group~~LLC, the manufacturer of RXBAR, for ~~approximately BRL 1.38 billion ($381 million)~~$600 million, or ~~$379~~$596 million net of cash and cash equivalents. The purchase price was subject to certain working capital ~~and net debt~~ adjustments based on the actual working capital ~~and net debt existing~~ on the acquisition date compared to targeted amounts. These adjustments were finalized during the quarter ended ~~July 1, 2017~~March 31, 2018 and resulted in a purchase price reduction of ~~BRL 14 million ($4 million).~~$1 million. The acquisition was accounted for under the purchase price method and was financed with ~~cash on hand and~~ short-term borrowings.

~~In our Latin America reportable segment, for~~For the quarter ended ~~July 1, 2017~~March 31, 2018, the acquisition added ~~$46~~$51 million in net sales ~~and $4 million of operating profit. For~~in the ~~year-to-date period ended July 1, 2017 the acquisition added $93 million in net sales and $12 million of operating profit.~~Company's North America Other reporting segment.

The assets and liabilities ~~of the Parati Group~~ are included in the Consolidated Balance Sheet as of ~~July 1, 2017~~March 31, 2018 within the ~~Latin~~North America Other reporting segment. The acquired assets and assumed liabilities include the following:

(millions) December 1, 2016
Current assets $ 46
Property 72
Goodwill 177
Intangible assets 147
Current liabilities (48 )
Non-current deferred tax liability and other (19 )
$ 375

During the year-to-date period ended July 1, 2017, the value of intangible assets subject to amortization increased $38 million and intangible assets not subject to amortization decreased $11 million with an offsetting $27 million adjustment to goodwill in conjunction with an updated allocation of the purchase price.

A portion of the acquisition price aggregating $67 million was placed in escrow in favor of the seller for general representations and warranties, as well as pending resolution of certain contingencies arising from the business prior to the acquisition. During the quarter ended July 1, 2017, the Company recognized $4 million for certain pre-acquisition contingencies which are considered to be probable of being incurred, which increased goodwill. The Company is still evaluating other potential contingencies, which could result in the recognition of certain contingent liabilities along with corresponding receivables from the escrow account.

During the quarter ended April 1, 2017, the Company finalized plans to merge the acquired and pre-existing Brazilian legal entities, which resulted in tax basis of the acquired intangible assets. Accordingly, deferred tax liabilities and goodwill were both reduced by $41 million during the first quarter of 2017.



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

The amounts in the above table represent the allocation of purchase price as of ~~July 1, 2017~~March 31, 2018 and ~~are subject to revision when appraisals are finalized~~represent the finalization of the valuations for intangible assets, ~~and the evaluation~~which resulted in a $2 million increase in amortizable intangible assets with a corresponding reduction of ~~pre-acquisition contingencies are completed, which will be finalized during 2017.~~goodwill.

Goodwill and Intangible Assets

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

Carrying amount of goodwill


(millions)	U.S. Morning Foods		U.S. Snacks		U.S. Specialty		North America Other		Europe		Latin America			Asia Pacific		Consoli- dated			U.S. Snacks		U.S. Morning Foods		U.S. Specialty		North America Other			Europe		Latin America		Asia Pacific		Consoli- dated
December 31, 2016	$	131	$	3,568	$	82	$	457	$	376	$	328		$	224	$	5,166
December 30, 2017																			$	3,568	$	131	$	82	$	836		$	414	$	244	$	229	$	5,504
Purchase price allocation adjustment	—		—		—		—		—		(64		)	—		(64		)	—		—		—		(1		)	—		—		—		(1		)
Purchase price adjustment	—		—		—		—		—		(4		)	—		(4		)	—		—		—		(1		)	—		—		—		(1		)
Currency translation adjustment	—		—		—		1		24		—			4		29			—		—		—		(1		)	10		3		—		12
July 1, 2017	$	131	$	3,568	$	82	$	458	$	400	$	260		$	228	$	5,127
March 31, 2018																			$	3,568	$	131	$	82	$	833		$	424	$	247	$	229	$	5,514

Intangible assets subject to amortization


Gross carrying amount
(millions)	U.S. Morning Foods		U.S. Snacks			U.S. Specialty		North America Other		Europe			Latin America			Asia Pacific		Consoli- dated			U.S. Snacks			U.S. Morning Foods		U.S. Specialty		North America Other		Europe			Latin America			Asia Pacific		Consoli- dated
December 31, 2016	$	8	$	42		$	—	$	5	$	40		$	36		$	10	$	141
December 30, 2017																					$	42		$	8	$	—	$	22	$	45		$	74		$	10	$	201
Purchase price allocation adjustment	—		—			—		—		—			38			—		38			—			—		—		2		—			—			—		2
Currency translation adjustment	—		—			—		—		1			—			—		1			—			—		—		—		1			—			—		1
July 1, 2017	$	8	$	42		$	—	$	5	$	41		$	74		$	10	$	180
March 31, 2018																					$	42		$	8	$	—	$	24	$	46		$	74		$	10	$	204

Accumulated Amortization
December 31, 2016	$	8	$	19		$	—	$	4	$	14		$	6		$	3	$	54
December 30, 2017																					$	22		$	8	$	—	$	5	$	18		$	10		$	4	$	67
Amortization	—		2			—		—		1			1			—		4			1			—		—		—		1			1			—		3
July 1, 2017	$	8	$	21		$	—	$	4	$	15		$	7		$	3	$	58
Currency translation adjustment																					—			—		—		—		—			—			—		—
March 31, 2018																					$	23		$	8	$	—	$	5	$	19		$	11		$	4	$	70

Intangible assets subject to amortization, net	Intangible assets subject to amortization, net																				Intangible assets subject to amortization, net
December 31, 2016	$	—	$	23		$	—	$	1	$	26		$	30		$	7	$	87
December 30, 2017																					$	20		$	—	$	—	$	17	$	27		$	64		$	6	$	134
Purchase price allocation adjustment	—		—			—		—		—			38			—		38			—			—		—		2		—			—			—		2
Amortization																					(1		)	—		—		—		(1		)	(1		)	—		(3		)
Currency translation adjustment	—		—			—		—		1			—			—		1			—			—		—		—		1			—			—		1
Amortization	—		(2		)	—		—		(1		)	(1		)	—		(4		)
July 1, 2017	$	—	$	21		$	—	$	1	$	26		$	67		$	7	$	122
March 31, 2018																					$	19		$	—	$	—	$	19	$	27		$	63		$	6	$	134

For intangible assets in the preceding table, amortization was $4$3 million and $2 million for the ~~year-to-date periods~~quarters ended ~~July~~March 31, 2018 and April 1, 2017, ~~and July 2, 2016.~~respectively. The currently estimated aggregate annual amortization expense for full-year ~~2017~~2018 is approximately $8$12 million.

Intangible assets not subject to amortization


(millions)	U.S. Morning Foods		U.S. Snacks		U.S. Specialty		North America Other		Europe		Latin America			Asia Pacific		Consoli- dated			U.S. Snacks		U.S. Morning Foods		U.S. Specialty		North America Other		Europe		Latin America		Asia Pacific		Consoli- dated
December 31, 2016	$	—	$	1,625	$	—	$	176	$	383	$	98		$	—	$	2,282
December 30, 2017																			$	1,625	$	—	$	—	$	360	$	434	$	86	$	—	$	2,505
Purchase price allocation adjustment	—		—		—		—		—		(11		)	—		(11		)	—		—		—		—		—		—		—		—
Currency translation adjustment	—		—		—		—		31		(1		)	—		30			—		—		—		—		11		—		—		11
July 1, 2017	$	—	$	1,625	$	—	$	176	$	414	$	86		$	—	$	2,301
March 31, 2018																			$	1,625	$	—	$	—	$	360	$	445	$	86	$	—	$	2,516

Note 4 Investments in unconsolidated entities

In 2015, the Company acquired, for a final net purchase price of $418 million, a 50% interest in Multipro Singapore Pte. Ltd. (Multipro), a leading distributor of a variety of food products in Nigeria and Ghana and also obtained a call option to indirectly acquire 24.5% of an affiliated food manufacturing entity under common ownership based on a fixed multiple of future earnings as defined in the agreement (Purchase Option).

In January 2016, the Company formed a Joint Venture with Tolaram Africa to develop snacks and breakfast foods for the West African market. In connection with the formation, the Company contributed rights to indefinitely use the Company's brands for this market and these categories, including the Pringles brand. Accordingly, the Company recorded a contribution of $5 million of intangible assets not subject to amortization with a corresponding increase in the investments in unconsolidated entities during 2016, which represents the value attributed to the Pringles brand for this market.

The acquisition of the 50% interest is accounted for under the equity method of accounting. The Purchase Option, is recorded at cost and has been monitored for impairment through ~~July 1, 2017~~March 31, 2018 with no impairment being required. In July 2017, the Company received notification that the entity, through June 30, 2017, had achieved the level of earnings as defined in the agreement for the purchase option to become exercisable for a one year period. During the exercise period, the Company will validate the information provided in the notification and evaluate whether to exercise its right to acquire the 24.5% interest. While no decision to exercise the option has been made by the Company, if the option is exercised, the Company would acquire 24.5% of the affiliated food manufacturing entity for approximately $400 million.

See Note 14 Subsequent Events for additional information related to Multipro and the Purchase Option.

Note 5 Restructuring and cost reduction activities

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

Total Projects

During the quarter ended ~~July 1, 2017,~~March 31, 2018, the Company recorded total charges of ~~$96~~$20 million across all restructuring and cost reduction activities. The charges were comprised of ~~$20~~$13 million recorded in cost of goods sold (COGS) and ~~$76~~a $7 million expense recorded in selling, general and administrative (SG&A) expense.

During the ~~year-to-date period~~quarter ended ~~July~~April 1, 2017, the Company recorded total charges of ~~$238~~$142 million across all restructuring and cost reduction activities. The charges were comprised of ~~$35 million recorded in cost of goods sold (COGS) and $203 million recorded in selling, general and administrative (SG&A) expense.~~

~~During the quarter ended July 2, 2016, the Company recorded total charges of $72 million across all restructuring and cost reduction activities. The charges consist of $36~~$13 million recorded in COGS, ~~and $36~~$125 million recorded in SG&A ~~expense. During the year-to-date period ended July 2, 2016, the Company recorded total charges of $124 million across all restructuring~~expense and ~~cost reduction activities. The charges consist of $54~~$4 million recorded in ~~COGS and $70 million recorded in SG&A expense.~~other (income) expense, net (OIE).

Project K

In February 2017, the Company announced an expansion and an extension to its previously-announced global efficiency and effectiveness program (“Project K”), to reflect additional and changed initiatives. Project K is expected to continue generating ~~a significant amount of~~ savings that may be invested in key strategic areas of focus for the business ~~to drive future growth~~ or utilized to achieve our ~~2018 Margin Expansion target.~~growth initiatives.

~~In addition to the original~~The program’s focus is on strengthening existing businesses in core markets, increasing growth in developing and emerging markets, ~~and~~ driving an increased level of value-added innovation, ~~the extended program will also focus on~~ implementing a more efficient go-to-market model for certain businesses and creating a more efficient organizational design in several markets. Since inception, Project K has provided significant benefits and is expected to continue to provide a number of benefits in the future, including an optimized supply chain

infrastructure, the implementation of global business services, a new global focus on categories, increased agility from a more efficient organization design, and improved effectiveness in go-to-market strategies.

The Company currently anticipates that ~~Project K~~the program will result in total pre-tax charges, once all phases are approved and implemented, of $1.5 to $1.6 billion, with after-tax cash costs, including incremental capital investments, estimated to be approximately $1.1 billion. Based on current estimates and actual charges to date, the Company expects the total project charges will consist of asset-related costs of approximately $500 million which will consist primarily of asset impairments, accelerated depreciation and other exit-related costs; employee-related costs of approximately $500 million which will include severance, pension and other termination benefits; and other costs of approximately $600 million which consists primarily of charges related to the design and implementation of global business capabilities and a more efficient go-to-market model.

The Company currently expects that total pre-tax charges related to Project K will impact reportable segments as follows: U.S. Snacks (approximately 34%), U.S. Morning Foods (approximately ~~13%), U.S. Snacks (approximately 35%~~17%), U.S. Specialty (approximately 1%), North America Other (approximately ~~11%~~13%), Europe (approximately ~~21%~~22%), Latin America (approximately 1%2%), Asia-Pacific (approximately 6%), and Corporate (approximately ~~12%~~5%).

Since the inception of Project K, the Company has recognized charges of ~~$1,354~~$1,397 million that have been attributed to the program. The charges consist of $6 million recorded as a reduction of revenue, ~~$725~~$807 million recorded in COGS, ~~and $623~~$721 million recorded in SG&A, ~~expense.~~and ($137 million) recorded in OIE.

~~Other Projects~~

In 2015 the Company implemented a zero-based budgeting (ZBB) program in its North America business that has delivered ongoing annual savings. During 2016, ZBB was expanded to include the international segments of the business. In support of the ZBB initiative, the Company incurred pre-tax charges of approximately $1 million and $17 million during the year-to-date periods ended July 1, 2017 and July 2, 2016, respectively. Total charges of $38 million have been recognized since the inception of the ZBB program.

The tables below provide the details for charges ~~across all restructuring and cost reduction activities~~ incurred during the ~~quarter~~quarters ended March 31, 2018 and ~~year-to-date periods ended July~~April 1, 2017 ~~and July 2, 2016~~ and program costs to date for programs currently active as of ~~July 1, 2017.~~March 31, 2018.


	Quarter ended				Year-to-date period ended				Program costs to date		Quarter ended				Program costs to date
(millions)	July 1, 2017		July 2, 2016		July 1, 2017		July 2, 2016		July 1, 2017		March 31, 2018		April 1, 2017		March 31, 2018
Employee related costs	$	25	$	6	$	136	$	20	$	504	$	4	$	107	$	538
Pension curtailment (gain) loss, net											—		4		(137		)
Asset related costs	20		17		30		27		222		4		10		273
Asset impairment	—		16		—		16		155		—		—		155
Other costs	51		33		72		61		511		12		21		568
Total	$	96	$	72	$	238	$	124	$	1,392	$	20	$	142	$	1,397

	Quarter ended				Year-to-date period ended				Program costs to date		Quarter ended				Program costs to date
(millions)	July 1, 2017		July 2, 2016		July 1, 2017		July 2, 2016		July 1, 2017		March 31, 2018		April 1, 2017		March 31, 2018
U.S. Snacks											$	6	$	120	$	509
U.S. Morning Foods	$	1	$	4	$	2	$	9	$	243	2		1		253
U.S. Snacks	79		34		199		54		401
U.S. Specialty	1		1		1		3		20		—		—		21
North America Other	2		4		9		13		137		2		7		142
Europe	2		14		8		28		307		7		6		337
Latin America	3		4		4		4		28		2		1		29
Asia Pacific	3		4		4		4		85		—		1		87
Corporate	5		7		11		9		171		1		6		19
Total	$	96	$	72	$	238	$	124	$	1,392	$	20	$	142	$	1,397

~~For the quarters ended July 1, 2017 and July 2, 2016 employee~~Employee related costs consist primarily of severance and ~~other termination~~ related ~~benefits, asset~~benefits. Pension curtailment (gain) loss consists of curtailment gains or losses that resulted from project initiatives. Asset related costs consist primarily of accelerated ~~depreciation~~depreciation. Asset impairments were recorded for fixed assets that were determined to be impaired and ~~other~~were written down to their estimated fair value. Other costs consist ~~primarily~~ of lease termination costs as well as third-party incremental costs related to the development and implementation of global business capabilities and a more efficient go-to-market model.

At ~~July 1, 2017~~March 31, 2018 total ~~exit cost~~project reserves were ~~$221~~$94 million, related to severance payments and other costs of which a substantial portion will be paid ~~out~~ in ~~2017~~2018 and ~~2018.~~2019. The following table provides details for exit cost reserves.

Employee
Related
Costs
Asset
Impairment
Asset
Related
Costs
Other
Costs
Total
Liability as of December 31, 2016 $ 102
$ —
$ —
$ 29
$ 131
2017 restructuring charges 136
—
30
72
238
Cash payments (52 ) —
(8 ) (67 ) (127 )
Non-cash charges and other 1
—
(22 ) —
(21 )
Liability as of July 1, 2017 $ 187
$ —
$ —
$ 34
$ 221



	Employee Related Costs			Pension curtailment (gain) loss, net		Asset Impairment		Asset Related Costs			Other Costs			Total
Liability as of December 31, 2017	$	97		$	—	$	—	$	—		$	63		$	160
2018 restructuring charges	4			—		—		4			12			20
Cash payments	(28		)	—		—		—			(54		)	(82		)
Non-cash charges and other	—			—		—		(4		)	—			(4		)
Liability as of March 31, 2018	$	73		$	—	$	—	$	—		$	21		$	94

Note 6 Equity

Earnings per share

Basic earnings per share is determined by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Dilutive potential common shares consist principally of employee stock options issued by the Company, restricted stock units, and to a lesser extent, certain contingently issuable performance shares. Basic earnings per share is reconciled to diluted earnings per share in the following table. There were 56 million anti-dilutive potential common shares excluded from the reconciliation for the quarter ~~and year-to-date periods~~ ended ~~July 1, 2017.~~March 31, 2018. There were 34 million ~~and~~ ~~2 million~~ ~~anti dilutive~~anti-dilutive potential common shares excluded from the reconciliation for the quarter ~~and year-to-date periods~~ ended ~~July 2, 2016,~~April 1, 2017, respectively.

Quarters ended ~~July~~March 31, 2018 and April 1, ~~2017 and July 2, 2016:~~2017:



(millions, except per share data)	Net income		Average shares outstanding	Earnings per share			Net income		Average shares outstanding	Earnings per share
2018
Basic							$	444	346	$	1.28
Dilutive potential common shares									2	(0.01		)
Diluted							$	444	348	$	1.27
2017
Basic	$	282	349	$	0.81		$	266	351	$	0.76
Dilutive potential common shares			3	(0.01		)			3	(0.01		)
Diluted	$	282	352	$	0.80		$	266	354	$	0.75
2016
Basic	$	280	350	$	0.80
Dilutive potential common shares			4	(0.01		)
Diluted	$	280	354	$	0.79

~~Year-to-date periods ended July 1, 2017 and July 2, 2016:~~

(millions, except per share data)
Net income

Average
shares
outstanding
Earnings
per share
2017
Basic $ 544
350
$ 1.56
Dilutive potential common shares 3
(0.02 )
Diluted $ 544
353
$ 1.54
2016

Basic $ 455
350
$ 1.30
Dilutive potential common shares 4
(0.01 )
Diluted $ 455
354
$ 1.29

In December ~~2015,~~2017, the board of directors approved a new authorization to repurchase of up to $1.5 billion of our common stock beginning in ~~2016~~January 2018 through December ~~2017.~~2019. As of ~~July 1, 2017, $639 million~~March 31, 2018, $1.5 billion remains available under the authorization.

During the ~~year-to-date period~~quarter ended ~~July~~March 31, 2018, the Company did not repurchase any shares of common stock. During the quarter ended April 1, 2017, the Company repurchased ~~approximately 6~~2 million shares of common stock for a total of $435 million, of which $390 million was paid and $45 million was payable at July 1, 2017. During the year-to-date period ended July 2, 2016, the Company repurchased 5 million shares of common stock for a total of $386$125 million.

Comprehensive income

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

Reclassifications out of AOCI for the ~~quarter~~quarters ended March 31, 2018 and ~~year-to-date periods ended July~~April 1, 2017, ~~and July 2, 2016,~~ consisted of the following:


(millions)
Details about AOCI components	Amount reclassified from AOCI					Line item impacted within Income Statement	Amount reclassified from AOCI						Line item impacted within Income Statement
	Quarter ended July 1, 2017		Year-to-date period ended July 1, 2017				Quarter ended March 31, 2018			Quarter ended April 1, 2017
(Gains) losses on cash flow hedges:
Foreign currency exchange contracts	$	—	$	(1	)	COGS	$	—		$	(1	)	COGS
Foreign currency exchange contracts	—		—			SG&A
Interest rate contracts	2		5			Interest expense	2			2			Interest expense
Commodity contracts	—		—			COGS
	$	2	$	4		Total before tax	$	2		$	1		Total before tax
	—		(1		)	Tax expense (benefit)	—			—			Tax expense (benefit)
	$	2	$	3		Net of tax	$	2		$	1		Net of tax
Amortization of postretirement and postemployment benefits:
Net experience loss	$	—	$	1		See Note 9 for further details	$	(1	)	$	1		OIE
Prior service cost	—		—			See Note 9 for further details
	$	—	$	1		Total before tax	$	(1	)	$	1		Total before tax
	—		—			Tax expense (benefit)	—			—			Tax expense (benefit)
	$	—	$	1		Net of tax	$	(1	)	$	1		Net of tax
Total reclassifications	$	2	$	4		Net of tax	$	1		$	2		Net of tax

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

Quarter ended
July 2, 2016
Year-to-date period ended
July 2, 2016

(Gains) losses on cash flow hedges:
Foreign currency exchange contracts $ —
$ (7 ) COGS
Foreign currency exchange contracts —
—
SGA
Interest rate contracts 2
8
Interest expense
Commodity contracts 4
7
COGS
$ 6
$ 8
Total before tax
(2 ) (3 ) Tax expense (benefit)
$ 4
$ 5
Net of tax
Amortization of postretirement and postemployment benefits:
Net experience loss $ 1
$ 2
See Note 9 for further details
Prior service cost 2
2
See Note 9 for further details
$ 3
$ 4
Total before tax
—
—
Tax expense (benefit)
$ 3
$ 4
Net of tax
Total reclassifications $ 7
$ 9
Net of tax

Accumulated other comprehensive income (loss), net of tax, as of ~~July 1, 2017~~March 31, 2018 and December ~~31, 2016~~30, 2017 consisted of the following:


(millions)	July 1, 2017			December 31, 2016			March 31, 2018			December 30, 2017
Foreign currency translation adjustments	$	(1,429	)	$	(1,505	)	$	(1,377	)	$	(1,426	)
Cash flow hedges — unrealized net gain (loss)	(64		)	(67		)	(59		)	(61		)
Postretirement and postemployment benefits:
Net experience loss	(13		)	(14		)	33			34
Prior service cost	11			11			(4		)	(4		)
Total accumulated other comprehensive income (loss)	$	(1,495	)	$	(1,575	)	$	(1,407	)	$	(1,457	)

Note 7 Debt

The following table presents the components of notes payable at ~~July 1, 2017~~March 31, 2018 and December ~~31, 2016:~~30, 2017:


	July 1, 2017				December 31, 2016				March 31, 2018				December 30, 2017
(millions)	Principal amount		Effective interest rate (a)		Principal amount		Effective interest rate (a)		Principal amount		Effective interest rate (a)		Principal amount		Effective interest rate (a)
U.S. commercial paper	$	229	1.15	%	$	80	0.61	%	$	191	2.15	%	$	196	1.76	%
Europe commercial paper	423		(0.23	)%	306		(0.18	)%	197		(0.31	)%	96		(0.32	)%
Bank borrowings	72				52				81				78
Total	$	724			$	438			$	469			$	370

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

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

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

In the second quarter of 2017, the Company entered into interest rate swaps with notional amounts totaling approximately €600 million which effectively converted €600 million of its 1.25% Euro Notes due 2025 from fixed to floating rate obligations. The U.S. Dollar interest rate swaps were settled during the quarter for an unrealized loss of $14 million which will be amortized to interest expense over the remaining term of the related Notes.

In March 2016, the Company redeemed $475 million of its 7.45% U.S. Dollar Debentures due 2031. In connection with the debt redemption, the Company incurred $153 million of interest expense, consisting primarily of a premium on the tender offer and also including accelerated losses on pre-issuance interest rate hedges, acceleration of fees and debt discount on the redeemed debt and fees related to the tender offer.

The Company has entered into interest rate swaps with notional amounts totaling ~~$2.2~~$1.4 billion, which effectively converts a portion of the associated U.S. Dollar Notes and Euro Notes from fixed rate to floating rate obligations. These derivative instruments are designated as fair value hedges. The effective interest rates on debt obligations resulting from the Company’s interest rate swaps as of ~~July 1, 2017~~March 31, 2018 were as follows: (a) seven-year 3.25% U.S. Dollar Notes due 2018 – ~~2.75%~~2.57%; (b) ten-year 4.15% U.S. Dollar Notes due 2019 – ~~3.52%~~3.51%; (c) ten-year 4.00% U.S. Dollar Notes due 2020 – ~~3.41%~~3.39%; (d) ten-year 3.125% U.S. Dollar Notes due 2022 – ~~2.46%~~3.97%; (e) ten-year 2.75% U.S. Dollar Notes due 2023 – ~~2.61%~~4.09%; (f) seven-year 2.65% U.S. Dollar Notes due 2023 – ~~2.30%~~3.47%; (g) eight-year

1.00% Euro Notes due 2024 – 0.75%; (h) ten-year 1.25% Euro Notes due 2025 - ~~1.27%~~1.28% and (i) ten-year 3.25% U.S. Notes due 2026 – ~~3.58%~~3.82%.

Note 8 Stock compensation

The Company uses various equity-based compensation programs to provide long-term performance incentives for its global workforce. Currently, these incentives consist principally of stock options, restricted stock units, and to a lesser extent, executive performance shares and restricted stock grants. The Company also sponsors a discounted stock purchase plan in the United States and matching-grant programs in several international locations. Additionally, the Company awards restricted stock to its outside directors. The interim information below should be read in conjunction with the disclosures included within the stock compensation footnote of the Company’s ~~2016~~2017 Annual Report on Form 10-K.

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


	Quarter ended				Year-to-date period ended				Quarter ended
(millions)	July 1, 2017		July 2, 2016		July 1, 2017		July 2, 2016		March 31, 2018		April 1, 2017
Pre-tax compensation expense	$	21	$	17	$	39	$	33	$	17	$	18
Related income tax benefit	$	8	$	6	$	14	$	12	$	4	$	6

As of ~~July 1, 2017,~~March 31, 2018, total stock-based compensation cost related to non-vested awards not yet recognized was ~~$125~~$130 million and the weighted-average period over which this amount is expected to be recognized was 2 years.

Stock options

During the ~~year-to-date periods~~quarters ended ~~July~~March 31, 2018 and April 1, 2017, ~~and July 2, 2016,~~ 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 within the stock compensation footnote in the Company’s ~~2016~~2017 Annual Report on Form 10-K.

~~Year-to-date period~~Quarter ended ~~July~~March 31, 2018:



Employee and director stock options	Shares (millions)		Weighted- average exercise price		Weighted- average remaining contractual term (yrs.)	Aggregate intrinsic value (millions)
Employee and director stock options	Shares (millions)		Weighted- average exercise price		Weighted- average remaining contractual term (yrs.)	Aggregate intrinsic value (millions)
Outstanding, beginning of period	14		$	64
Granted	3		70
Exercised	(1	)	57
Forfeitures and expirations	—		—
Outstanding, end of period	16		$	65	6.9	$	52
Exercisable, end of period	11		$	63	5.9	$	52

Quarter ended April 1, 2017:

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

Outstanding, beginning of period 15
$ 62

Granted 2
73

Exercised (1 ) 57

Forfeitures and expirations —
—

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

~~Year-to-date period ended July 2, 2016:~~

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 19
$ 58

Granted 3
76

Exercised (4 ) 56
��
Forfeitures and expirations —
—

Outstanding, end of period 18
$ 61
7.2 $ 335
Exercisable, end of period 10
$ 57
6.2 $ 247



Employee and director stock options	Shares (millions)		Weighted- average exercise price		Weighted- average remaining contractual term (yrs.)	Aggregate intrinsic value (millions)
Employee and director stock options	Shares (millions)		Weighted- average exercise price		Weighted- average remaining contractual term (yrs.)	Aggregate intrinsic value (millions)
Outstanding, beginning of period	15		$	62
Granted	2		73
Exercised	(1	)	56
Forfeitures and expirations	—		—
Outstanding, end of period	16		$	64	7.2	$	147
Exercisable, end of period	11		$	60	6.3	$	140

The weighted-average grant date fair value of options granted was ~~$10.14~~$10.00 per share and ~~$9.44~~$10.14 per share for the ~~year-to-date periods~~quarters ended ~~July~~March 31, 2018 and April 1, 2017, ~~and July 2, 2016,~~ respectively. The fair value was estimated using the following assumptions:

Weighted-
average
expected
volatility
Weighted-
average
expected
term
(years)
Weighted-
average
risk-free
interest
rate
Dividend
yield
Grants within the year-to-date period ended July 1, 2017: 18 % 6.6 2.26 % 2.80 %
Grants within the year-to-date period ended July 1, 2016: 17 % 6.9 1.60 % 2.60 %



	Weighted- average expected volatility		Weighted- average expected term (years)	Weighted- average risk-free interest rate		Dividend yield
Grants within the quarter ended March 31, 2018:	18	%	6.6	2.82	%	3.00	%
Grants within the quarter ended April 1, 2017:	18	%	6.6	2.26	%	2.80	%

The total intrinsic value of options exercised was ~~$17~~$10 million and ~~$79~~$12 million for the ~~year-to-date periods~~quarters ended ~~July~~March 31, 2018 and April 1, 2017, ~~and July 2, 2016,~~ respectively.

Performance shares

In the first quarter of ~~2017,~~2018, the Company granted performance shares to a limited number of senior executive-level employees, which entitle these employees to receive a specified number of shares of the Company’s common stock upon vesting. The number of shares earned could range between 00% and 200% of the target amount depending upon performance achieved over the three year vesting period. The performance conditions of the award include ~~currency-neutral comparable operating margin~~adjusted net sales growth and total shareholder return (TSR) of the Company’s common stock relative to a select group of peer companies.

A Monte Carlo valuation model was used to determine the fair value of the awards. The TSR performance metric is a market condition. Therefore, compensation cost of the TSR condition is fixed at the measurement date and is not revised based on actual performance. The TSR metric was valued as a multiplier of possible levels of ~~currency-neutral comparable operating margin expansion.~~adjusted net sales growth achievement. Compensation cost related to ~~currency-neutral comparable operating margin~~adjusted net sales growth performance is revised for changes in the expected outcome. The ~~2017~~2018 target grant currently corresponds to approximately ~~186,000~~188,000 shares, with a grant-date fair value of ~~$67~~$72 per share.

Based on the market price of the Company’s common stock at ~~July 1, 2017,~~March 31, 2018, the maximum future value that could be awarded to employees on the vesting date for all outstanding performance share awards was as follows:


(millions)	July 1, 2017		March 31, 2018
2015 Award	$	22
2016 Award	$	24	$	17
2017 Award	$	26	$	15
2018 Award			$	24

The ~~2014~~2015 performance share award, payable in stock, was settled at ~~35%~~75% of target in February ~~2017~~2018 for a total dollar equivalent of $5$8 million.

Other stock-based awards

During the ~~year-to-date period~~quarter ended ~~July 1, 2017,~~March 31, 2018, the Company granted restricted stock units and a nominal number of restricted stock awards to eligible employees as presented in the following table. Terms of these grants and the Company’s method of determining grant-date fair value were consistent with that described within the stock compensation footnote in the Company’s ~~2016~~2017 Annual Report on Form 10-K.

~~Year-to-date period~~Quarter ended ~~July 1, 2017:~~March 31, 2018:


Employee restricted stock and restricted stock units	Shares (thousands)		Weighted-average grant-date fair value
Employee restricted stock units					Shares (thousands)		Weighted-average grant-date fair value
Non-vested, beginning of year	1,166		$	63	1,673		$	65
Granted	654		67		635		64
Vested	(35	)	57		(399	)	59
Forfeited	(72	)	65		(44	)	67
Non-vested, end of period	1,713		$	65	1,865		$	66

~~Year-to-date period~~Quarter ended ~~July 2, 2016:~~April 1, 2017:


Employee restricted stock and restricted stock units	Shares (thousands)		Weighted-average grant-date fair value		Shares (thousands)		Weighted-average grant-date fair value
Non-vested, beginning of year	806		$	58	1,166		$	63
Granted	574		70		629		67
Vested	(51	)	55		(25	)	55
Forfeited	(55	)	62		(22	)	64
Non-vested, end of period	1,274		$	63	1,748		$	65

Note 9 Employee benefits

The Company sponsors a number of U.S. and foreign pension plans as well as other nonpension postretirement and postemployment plans to provide various benefits for its employees. These plans are described within the footnotes to the Consolidated Financial Statements included in the Company’s ~~2016~~2017 Annual Report on Form 10-K. Components of Company plan benefit expense for the periods presented are included in the tables below.

Pension


	Quarter ended						Year-to-date period ended						Quarter ended
(millions)	July 1, 2017			July 2, 2016			July 1, 2017			July 2, 2016			March 31, 2018			April 1, 2017
Service cost	$	25		$	25		$	50		$	49		$	22		$	25
Interest cost	42			44			83			88			42			41
Expected return on plan assets	(90		)	(90		)	(180		)	(179		)	(92		)	(90		)
Amortization of unrecognized prior service cost	2			4			4			7			2			2
Recognized net (gain) loss	(2		)	—			1			—			(9		)	3
Net periodic benefit cost													(35		)	(19		)
Curtailment (gain) loss	(3		)	—			(2		)	—			—			1
Total pension (income) expense	$	(26	)	$	(17	)	$	(44	)	$	(35	)	$	(35	)	$	(18	)

Other nonpension postretirement


	Quarter ended						Year-to-date period ended						Quarter ended
(millions)	July 1, 2017			July 2, 2016			July 1, 2017			July 2, 2016			March 31, 2018			April 1, 2017
Service cost	$	4		$	5		$	9		$	10		$	5		$	5
Interest cost	9			9			18			19			9			9
Expected return on plan assets	(25		)	(23		)	(49		)	(45		)	(24		)	(24		)
Amortization of unrecognized prior service (gain)	(2		)	(2		)	(4		)	(5		)	(2		)	(2		)
Recognized net (gain) loss	—			—			(29		)	—			—			(29		)
Net periodic benefit cost													(12		)	(41		)
Curtailment loss	—			—			3			—			—			3
Total postretirement benefit (income) expense	$	(14	)	$	(11	)	$	(52	)	$	(21	)	$	(12	)	$	(38	)

Postemployment


	Quarter ended				Year-to-date period ended				Quarter ended
(millions)	July 1, 2017		July 2, 2016		July 1, 2017		July 2, 2016		March 31, 2018			April 1, 2017
Service cost	$	2	$	2	$	3	$	4	$	1		$	1
Interest cost	1		1		2		2		—			1
Recognized net loss	—		1		1		2
Recognized net (gain) loss									(1		)	1
Total postemployment benefit expense	$	3	$	4	$	6	$	8	$	—		$	3

During the ~~second~~ quarter ~~of 2017,~~ended March 31, 2018, the Company recognized a ~~curtailment~~ gain of $3$9 million ~~within~~related to the remeasurement of a U.S. pension plan ~~in conjunction with Project K restructuring activity. The Company remeasured the benefit obligation for the impacted pension plan~~as current year distributions are expected to exceed service and interest costs resulting in ~~a mark-to-market~~settlement accounting for that particular plan. The amount of the remeasurement gain ~~of $2 million. The gain~~recognized during the quarter was due primarily to ~~plan asset returns~~a favorable change in ~~excess of~~ the ~~expected~~discount rate ~~of return.~~relative to prior year end.

During the ~~first~~ quarter ofended April 1, 2017, the Company recognized curtailment losses of $1 million and $3 million within pension and nonpension postretirement ~~plans,~~plan, respectively, in conjunction with Project K restructuring activity. In addition, the Company remeasured the benefit obligation for impacted pension and nonpension postretirement plans. The remeasurement resulted in a mark-to-market loss of $3 million on a pension plan due primarily to a lower discount rate and a $29 million gain on a nonpension postretirement plan primarily due to plan asset investment returns slightly mitigated by the impact of a lower discount rate.

Company contributions to employee benefit plans are summarized as follows:

(millions) Pension Nonpension postretirement Total
Quarter ended:
July 1, 2017 $ 2
$ 2
$ 4
July 2, 2016 $ 2
$ 4
$ 6
Year-to-date period ended:
July 1, 2017 $ 23
$ 5
$ 28
July 2, 2016 $ 15
$ 8
$ 23
Full year:
Fiscal year 2017 (projected) $ 26
$ 16
$ 42
Fiscal year 2016 (actual) $ 18
$ 15
$ 33



(millions)	Pension		Nonpension postretirement		Total
Quarter ended:
March 31, 2018	$	15	$	4	$	19
April 1, 2017	$	21	$	3	$	24
Full year:
Fiscal year 2018 (projected)	$	24	$	13	$	37
Fiscal year 2017 (actual)	$	31	$	13	$	44

~~Plan~~

Actual 2018 contributions could be different from current projections, as influenced by potential discretionary funding ~~strategies may be modified in response to management’s evaluation~~ of ~~tax deductibility, market conditions, and~~our benefit trusts versus other competing investment ~~alternatives.~~priorities.

Additionally, during the first quarter of 2017, the Company recognized expense totaling $26 million related to the exit of several multi-employer plans associated with Project K restructuring activity. This amount represents management's best estimate, actual results could differ. The cash obligation is payable over a maximum 20-year period; management has not determined the actual period over which the payments will be made.

Note 10 Income taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code including but not limited to, reducing the corporate tax rate from 35% to 21%, requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that may be electively paid over eight years, and accelerating first year expensing of certain capital expenditures.

The SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which provides guidance on accounting for the Tax Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Act enactment date, during which a company may complete the accounting for the impacts of the Tax Act under ASC Topic 740. Per SAB 118, the Company must reflect the income tax effects of the Tax Act in the reporting period in which the accounting under ASC Topic 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, the Company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined. If a Company cannot determine a provisional estimate to be included in the financial statements, the Company should continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted. If a Company is unable to provide a reasonable estimate of the impacts of the Tax Act in a reporting period, a provisional amount must be recorded in the first reporting period in which a reasonable estimate can be determined.

The transition tax is on previously untaxed accumulated and current earnings and profits of certain of our foreign subsidiaries. In order to determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 earnings and profits (E&P) of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. E&P is similar to retained earnings of the subsidiary, but requires other adjustments to conform to U.S. tax rules. The Company's estimate was unchanged during the first quarter of 2018. The Company is awaiting further interpretative guidance, continuing to assess available tax methods and elections, and continuing to gather additional information in order to finalize calculations and complete the accounting for the transition tax liability.

In addition to the transition tax, the Tax Act introduced a territorial tax system, which was effective beginning in 2018. The territorial tax system will impact the Company’s overall global capital and legal entity structure, working capital, and repatriation plan on a go-forward basis. In light of the territorial tax system, and other new international provisions within the Tax Act effective beginning in 2018, the Company is currently analyzing its global capital and legal entity structure, working capital requirements, and repatriation plans. Based on the Company's analysis of the territorial tax system and other new international tax provisions as of March 31, 2018, the Company continues to support the assertion to indefinitely reinvest $2.6 billion of accumulated foreign earnings and profits in Europe and other non-U.S. jurisdictions. As a result, as a reasonable provisional estimate, the Company did not record any new deferred tax liabilities associated with the territorial tax system or any changes to the indefinite reinvestment

assertion. Further, it is impracticable for the Company to estimate any future tax costs for any unrecognized deferred tax liabilities associated with its indefinite reinvestment assertion as of March 31, 2018, because the actual tax liability, if any, would be dependent on complex analysis and calculations considering various tax laws, exchange rates, circumstances existing when a repatriation, sale, or liquidation occurs, or other factors. If there are any changes to our indefinite reinvestment assertion as a result of finalizing our assessment of the new Tax Act, the Company will adjust its provisional estimates, record, and disclose any tax impacts in the appropriate period, pursuant to SAB 118.

The consolidated effective tax rate for the quarter ended ~~July 1, 2017~~March 31, 2018 was ~~26%~~13% as compared to 14% in the same quarter of the prior ~~year’s rate of 27%.~~year. The ~~consolidated effective tax rates for the year-to-date periods ended July 1, 2017 and July 2, 2016 were 21% and 25%, respectively. For the year-to-date period ended July 1, 2017, the~~ effective tax rate for the quarter ended March 31, 2018 benefited from a $44 million discrete tax benefit as a result of the remeasurement of deferred taxes following a legal entity restructuring as well as the reduction in the U.S. corporate tax rate effective at the beginning of 2018. These impacts were mitigated somewhat by an increased weighting of taxable income in higher tax rate jurisdictions versus the prior year. The effective tax rate for the quarter ended April 1, 2017 benefited from a deferred tax benefit of $38 million resulting from an intercompany ~~transfer~~transfers of intellectual ~~property under the application of the newly adopted standard. See discussion regarding the adoption of ASU 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory,~~ ~~in Note 1.~~property.

~~The effective tax rate for the first half of 2016 benefited from excess tax benefits from share-based compensation and the completion of certain tax examinations.~~

As of ~~July 1, 2017,~~March 31, 2018, the Company classified $8$10 million of unrecognized tax benefits as a net current liability. 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 approximately $5$6 million of projected additions related primarily to ongoing intercompany transfer pricing activity. 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 quarter ended ~~July 1, 2017; $38~~March 31, 2018; $50 million of this total represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.

						(millions)
December 31, 2016	$	63
December 30, 2017				$	60
Tax positions related to current year:
Additions	2			2
Reductions	—			—
Tax positions related to prior years:
Additions	2			1
Reductions	(6		)	—
Settlements	(4		)	—
Lapse in statute of limitations	—			—
July 1, 2017	$	57
March 31, 2018				$	63

The accrual balance for tax-related interest was ~~$20~~approximately $24 million at ~~July 1, 2017.~~March 31, 2018.

Note 11 Derivative instruments and fair value measurements

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 and nonderivative financial instruments 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.

The Company designates derivatives and nonderivative hedging instruments as cash flow hedges, fair value hedges, net investment hedges, and uses other contracts to reduce volatility in interest rates, foreign currency and commodities. 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 as of ~~July 1, 2017~~March 31, 2018 and December ~~31, 2016~~30, 2017 were as follows:


(millions)	July 1, 2017		December 31, 2016		March 31, 2018		December 30, 2017
Foreign currency exchange contracts	$	2,253	$	1,396	$	1,277	$	2,172
Cross-currency contracts					736		—
Interest rate contracts	2,197		2,185		1,710		2,250
Commodity contracts	423		437		550		544
Total	$	4,873	$	4,018	$	4,273	$	4,966

Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the Company that were included in each category at ~~July 1, 2017~~March 31, 2018 and December ~~31, 2016,~~30, 2017, 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, cross-currency 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. Over-the-counter 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 ~~July 1, 2017~~March 31, 2018 or December ~~31, 2016.~~30, 2017.

The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet on a recurring basis as of ~~July 1, 2017~~March 31, 2018 and December ~~31, 2016:~~30, 2017:

Derivatives designated as hedging instruments


	July 1, 2017								December 31, 2016								March 31, 2018								December 30, 2017
(millions)	Level 1		Level 2			Total			Level 1		Level 2			Total			Level 1		Level 2			Total			Level 1		Level 2			Total
Assets:
Foreign currency exchange contracts:
Other prepaid assets	$	—	$	—		$	—		$	—	$	2		$	2
Interest rate contracts:
Other assets (a)	—		—			—			—		1			1
Total assets	$	—	$	—		$	—		$	—	$	3		$	3
Liabilities:
Cross-currency contracts:
Other Liabilities																			$	(8	)	$	(8	)
Interest rate contracts:
Other liabilities (a)	—		(46		)	(46		)	—		(65		)	(65		)	—		(32		)	(32		)	—		(54		)	(54		)
Total liabilities	$	—	$	(46	)	$	(46	)	$	—	$	(65	)	$	(65	)	$	—	$	(40	)	$	(40	)	$	—	$	(54	)	$	(54	)

(a) The fair value of the related hedged portion of the Company's long-term debt, a level 2 liability, was ~~$2.2~~$1.4 billion and ~~$2.2~~$2.3 billion as of ~~July 1, 2017~~March 31, 2018 and December ~~31, 2016,~~30, 2017, respectively.

Derivatives not designated as hedging instruments


	July 1, 2017									December 31, 2016									March 31, 2018									December 30, 2017
(millions)	Level 1			Level 2			Total			Level 1			Level 2			Total			Level 1			Level 2			Total			Level 1			Level 2			Total
Assets:
Foreign currency exchange contracts:
Other prepaid assets	$	—		$	16		$	16		$	—		$	25		$	25		$	—		$	9		$	9		$	—		$	10		$	10
Commodity contracts:
Other prepaid assets	13			—			13			13			—			13			5			—			5			6			—			6
Total assets	$	13		$	16		$	29		$	13		$	25		$	38		$	5		$	9		$	14		$	6		$	10		$	16
Liabilities:
Foreign currency exchange contracts:
Other current liabilities	$	—		$	(21	)	$	(21	)	$	—		$	(11	)	$	(11	)	$	—		$	(6	)	$	(6	)	$	—		$	(14	)	$	(14	)
Commodity contracts:
Other current liabilities	(5		)	—			(5		)	$	(7	)	$	—		$	(7	)	(7		)	—			(7		)	$	(7	)	$	—		$	(7	)
Total liabilities	$	(5	)	$	(21	)	$	(26	)	$	(7	)	$	(11	)	$	(18	)	$	(7	)	$	(6	)	$	(13	)	$	(7	)	$	(14	)	$	(21	)

The Company has designated its outstanding foreign currency denominated long-term debt as a net investment hedge of a portion of the Company’s investment in its subsidiaries’ foreign currency denominated net assets. The carrying value of this debt was approximately ~~$2.6~~$2.8 billion and ~~$1.8~~$2.7 billion as of ~~July 1, 2017~~March 31, 2018 and December 30, 2017, respectively.

The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for existing fair value hedges as of March 31, ~~2016,~~2018 and December 30, 2017.



(millions)	Line Item in the Consolidated Balance Sheet in which the hedged item is included	Carrying amount of the hedged liabilities				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)
		March 31, 2018		December 30, 2017		March 31, 2018			December 30, 2017
Interest rate contracts	Current maturities of long-term debt	$	401	$	402	$	1		$	2
Interest rate contracts	Long-term debt	$	3,406	$	3,481	$	(53	)	$	(22	)

(a) The current maturities of hedged long-term debt includes $1 million and $2 million of hedging adjustment on discontinued hedging relationships as of March 31, 2018 and December 30, 2017, respectively. The hedged long-term debt includes $(20) million and $32 million of hedging adjustment on discontinued hedging relationships as of March 31, 2018 and December 30, 2017, respectively.

The Company has elected to not to offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable netting agreements. However, if the Company were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in the Consolidated Balance Sheet as of ~~July 1, 2017~~March 31, 2018 and December ~~31, 2016~~30, 2017 would be adjusted as detailed in the following table:


As of July 1, 2017:
As of March 31, 2018:
				Gross Amounts Not Offset in the Consolidated Balance Sheet											Gross Amounts Not Offset in the Consolidated Balance Sheet
	Amounts Presented in the Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received/ Posted		Net Amount			Amounts Presented in the Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received/ Posted		Net Amount
Total asset derivatives	$	29		$	(18	)	$	—	$	11		$	14		$	(12	)	$	—	$	2
Total liability derivatives	$	(72	)	$	18		$	18	$	(36	)	$	(53	)	$	12		$	30	$	(11	)


As of December 31, 2016:
As of December 30, 2017:
				Gross Amounts Not Offset in the Consolidated Balance Sheet											Gross Amounts Not Offset in the Consolidated Balance Sheet
	Amounts Presented in the Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received/ Posted		Net Amount			Amounts Presented in the Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received/ Posted		Net Amount
Total asset derivatives	$	41		$	(24	)	$	—	$	17		$	16		$	(15	)	$	—	$	1
Total liability derivatives	$	(83	)	$	24		$	48	$	(11	)	$	(75	)	$	15		$	37	$	(23	)

The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the quarters ended ~~July~~March 31, 2018 and April 1, 2017 ~~and July 2, 2016~~ was as follows:

~~Derivatives in fair value hedging relationships~~

(millions)
Location of gain (loss)
recognized in income
Gain (loss)
recognized in
income (a)
July 1,
2017 July 2,
2016
Interest rate contracts Interest expense $ 5
$ 3
Total $ 5

$ 3


~~(a)~~	~~Includes the ineffective portion and amount excluded from effectiveness testing.~~

~~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)
July 1,
2017 July 2,
2016 July 1,
2017 July 2,
2016 July 1,
2017 July 2,
2016
Foreign currency exchange contracts $ —
$ (1 ) COGS $ —
$ —
Other income (expense), net $ —
$ (1 )
Interest rate contracts 1
(3 )
Interest
expense
(3 ) (2 ) N/A —
—
Commodity contracts —
1
COGS —
(4 ) Other income (expense), net —
—
Total $ 1

$ (3 ) $ (3 )
$ (6 )
$ —

$ (1 )


~~(a)~~	~~Includes the ineffective portion and amount excluded from effectiveness testing.~~

~~Derivatives and non-derivatives in net investment hedging relationships~~

(millions)
Gain (loss)
recognized in
AOCI
July 1,
2017 July 2,
2016
Foreign currency denominated long-term debt $ (157 ) $ 46
Foreign currency exchange contracts —
(1 )
Total $ (157 )
$ 45

~~Derivatives not designated as hedging instruments~~

(millions)
Location of gain
(loss) recognized
in income
Gain (loss)
recognized in
income
July 1,
2017 July 2,
2016
Foreign currency exchange contracts COGS $ (4 ) $ (1 )
Foreign currency exchange contracts Other income (expense), net (3 ) (1 )
Foreign currency exchange contracts SG&A (1 ) —
Commodity contracts COGS 10
6
Commodity contracts SG&A —
2
Total $ 2

$ 6

~~The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the year-to-date periods ended July 1, 2017 and July 2, 2016 was as follows:~~

~~Derivatives in fair value hedging relationships~~

(millions)
Location of gain (loss)
recognized in income
Gain (loss)
recognized in
income (a)
July 1,
2017 July 2,
2016
Foreign currency exchange contracts Other income (expense), net $ —
$ —
Interest rate contracts Interest expense 10
9
Total $ 10

$ 9

~~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)
July 1,
2017 July 2,
2016 July 1,
2017 July 2,
2016 July 1,
2017 July 2,
2016
Foreign currency exchange contracts $ —
$ 9
COGS $ 1
$ 7
Other income (expense), net $ —
$ (1 )
Foreign currency exchange contracts —
—
SGA expense —
—
Other income (expense), net —
—
Interest rate contracts 1
(69 ) Interest expense (5 ) (8 ) N/A —
—
Commodity contracts —
—
COGS —
(7 ) Other income (expense), net —
—
Total $ 1

$ (60 ) $ (4 )
$ (8 )
$ —

$ (1 )


~~(a)~~	~~Includes the ineffective portion and amount excluded from effectiveness testing.~~

Derivatives and non-derivatives in net investment hedging relationships



(millions)	Gain (loss) recognized in AOCI						Gain (loss) recognized in AOCI						Gain (loss) excluded from assessment of hedge effectiveness				Location of gain (loss) in income of excluded component
	July 1, 2017			July 2, 2016			March 31, 2018			April 1, 2017			March 31, 2018		April 1, 2017
Foreign currency denominated long-term debt	$	(182	)	$	(12	)	$	(73	)	$	(25	)	$	—	$	—
Foreign currency exchange contracts	—			(23		)
Cross-currency contracts							(8		)	—			3		—		Other income (expense), net
Total	$	(182	)	$	(35	)	$	(81	)	$	(25	)	$	3	$	—

Derivatives not designated as hedging instruments


(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
		July 1, 2017			July 2, 2016				March 31, 2018			April 1, 2017
Foreign currency exchange contracts	COGS	$	(13	)	$	(10	)	COGS	$	3		$	(9	)
Foreign currency exchange contracts	Other income (expense), net	(8		)	10			Other income (expense), net	(4		)	(5		)
Foreign currency exchange contracts	SGA	(1		)	—			SG&A	1			—
Interest rate contracts	Interest expense	—			—
Commodity contracts	COGS	(3		)	10			COGS	5			(13		)
Commodity contracts	SGA	1			2			SG&A	—			1
Total		$	(24	)	$	12			$	5		$	(26	)

The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the quarters ended March 31, 2018 and April 1, 2017:



		March 31, 2018			April 1, 2017
(millions)		Interest Expense			COGS		Interest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded		$	69		$	2,088	$	61
	Gain (loss) on fair value hedging relationships:
	Interest contracts:
	Hedged items	32			—		9
	Derivatives designated as hedging instruments	(28		)	—		(4		)

	Gain (loss) on cash flow hedging relationships:
	Interest contracts:
	Amount of gain (loss) reclassified from AOCI into income	(2		)	—		(2		)
	Foreign exchange contracts:
	Amount of gain (loss) reclassified from AOCI into income	—			1		—

During the next 12 months, the Company expects $9$7 million of net deferred losses reported in AOCI at ~~July 1, 2017~~March 31, 2018 to be reclassified to income, assuming market rates remain constant through contract maturities.

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 is at or 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 ~~July 1, 2017~~March 31, 2018 was ~~$54~~$39 million. If the credit-risk-related contingent features were triggered as of ~~July 1, 2017,~~March 31, 2018, the Company would be required to post additional collateral of ~~$45~~$23 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 as of ~~July 1, 2017~~March 31, 2018 triggered by credit-risk-related contingent features.

~~Fair value measurements on a nonrecurring basis~~

As part of Project K, the Company will be consolidating the usage of and disposing certain long-lived assets, including manufacturing facilities and Corporate owned assets over the term of the program. See Note 5 for more information regarding Project K.

~~During the quarter ended July 1, 2017, there were no long-lived asset impairment related to Project K.~~

During the quarter ended July 2, 2016, long-lived assets of $26 million related to a manufacturing facility in the Company's U.S. Snacks reportable segment, were written down to an estimated fair value of $10 million due to Project K activities. The Company's calculation of the fair value of these long-lived assets is based on level 3 inputs, including market comparables, market trends and the condition of the assets.

~~The following table presents level 3 assets that were measured at fair value on the consolidated Balance Sheet on a nonrecurring basis as of July 2, 2016:~~

(millions) Fair Value Total Loss
Description:
Long-lived assets $ 10
$ (16 )
Total $ 10
$ (16 )

Financial instruments

The carrying values of the Company’s short-term items, including cash, cash equivalents, accounts receivable, accounts payable, notes payable and current maturities of long-term debt approximate fair value. The fair value of the Company’s long-term debt, which are level 2 liabilities, is calculated based on broker quotes. The fair value and carrying value of the Company's long-term debt was ~~$7,442 million~~$8.1 billion and ~~$7,123 million,~~$7.9 billion, respectively, as of ~~July 1, 2017.~~March 31, 2018.

Counterparty credit risk concentration and collateral requirements

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 and use of master netting and reciprocal collateralization agreements with the counterparties and the use of exchange-traded commodity contracts.

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. As of ~~July 1, 2017,~~March 31, 2018, the Company was not in a significant net asset position with any counterparties with which a master netting agreement would apply.

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 its counterparties exceeds a certain amount. In addition, the Company is required to maintain cash margin accounts in connection with its open positions for exchange-traded commodity derivative instruments executed with the

counterparty that are subject to enforceable netting agreements. As of ~~July 1, 2017,~~March 31, 2018, the Company posted $9$16 million related to reciprocal collateralization agreements. As of ~~July 1, 2017~~March 31, 2018 the Company posted $9$14 million in margin deposits for exchange-traded commodity derivative instruments, which was reflected as an increase in accounts receivable, net on the Consolidated Balance Sheet.

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 ~~27%~~21% of consolidated trade receivables at ~~July 1, 2017.~~March 31, 2018.

Note 12 Reportable segments

Kellogg Company is the world’s leading producer of cereal, second largest producer of cookies and crackers, and a leading producer of savory snacks and frozen foods. Additional product offerings include toaster pastries, cereal bars, fruit-flavored snacks and veggie foods. Kellogg products are manufactured and marketed globally. Principal markets for these products include the United States and United Kingdom.

The Company manages its operations through ~~nine~~ten operating segments that are based on product category or geographic location. These operating segments are evaluated for similarity with regards to economic characteristics, products, production processes, types or classes of customers, distribution methods and regulatory environments to determine if they can be aggregated into reportable segments. The reportable segments are discussed in greater detail below.

The U.S. ~~Morning Foods~~Snacks operating segment ~~includes cereal, toaster pastries, and health and wellness beverages and bars.~~

~~U.S. Snacks~~ includes cookies, crackers, cereal bars, savory snacks and fruit-flavored snacks.

U.S. Morning Foods includes primarily cereal and toaster pastries.

U.S. Specialty primarily represents food away from home channels, including food service, convenience, vending, Girl Scouts and food manufacturing. The food service business is mostly non-commercial, serving institutions such as schools and hospitals. The convenience business includes traditional convenience stores as well as alternate retail outlets.

North America Other includes the U.S. Frozen, Kashi, Canada, and ~~Canada~~RXBAR operating segments. As these operating segments are not considered economically similar enough to aggregate with other operating segments and are immaterial for separate disclosure, they have been grouped together as a single reportable segment.

The three remaining reportable segments are based on geographic location – Europe which consists principally of European countries; Latin America which consists of Central and South America and includes Mexico; and Asia Pacific which consists of Sub-Saharan Africa, Australia and other Asian and Pacific markets.

The measurement of reportable segment results is based on segment operating profit which is generally consistent with the presentation of operating profit in the Consolidated Statement of Income. Intercompany transactions between operating segments were insignificant in all periods presented. Certain immaterial reclassifications have been made to the prior year amounts to conform with current year presentation.


	Quarter ended				Year-to-date period ended						Quarter ended
(millions)	July 1, 2017		July 2, 2016		July 1, 2017			July 2, 2016			March 31, 2018			April 1, 2017
Net sales
U.S. Snacks											$	762		$	795
U.S. Morning Foods	$	679	$	727	$	1,398		$	1,494		691			708
U.S. Snacks	803		803		1,584			1,635
U.S. Specialty	276		271		671			647			398			393
North America Other	391		406		784			820			479			392
Europe	566		629		1,078			1,227			587			513
Latin America	234		204		456			396			232			220
Asia Pacific	238		228		470			444			252			227
Consolidated	$	3,187	$	3,268	$	6,441		$	6,663		$	3,401		$	3,248
Operating profit
U.S. Snacks											$	102		$	(36	)
U.S. Morning Foods	$	176	$	165	$	336		$	313		150			157
U.S. Snacks	22		69		(22		)	152
U.S. Specialty	70		60		166			146			80			96
North America Other	59		47		108			92			67			49
Europe	76		68		142			138			74			66
Latin America ~~(a)~~	26		20		59			43			22			33
Asia Pacific	19		12		41			29			27			22
Total Reportable Segments	448		441		830			913			522			387
Corporate ~~(b)~~	5		8		(17		)	(26		)	(12		)	(107		)
Consolidated	$	453	$	449	$	813		$	887		$	510		$	280

Supplemental product information is provided below for net sales to external customers:



	Quarter ended
(millions)	March 31, 2018		April 1, 2017
Snacks	$	1,775	$	1,717
Cereal	1,351		1,298
Frozen	275		233
Consolidated	$	3,401	$	3,248


~~(a)~~	Includes non-cash losses totaling $7 million and $13 million associated with the remeasurement of the financial statements of the Company's Venezuela subsidiary during the quarter and year-to-date periods ended July 2, 2016, respectively.

~~(b)~~

Includes mark-to-market adjustments for pension and postretirement plans, commodity and foreign currency contracts totaling $7 million and $20 million for the quarters ended July 1, 2017 and July 2, 2016, respectively. Includes mark-to-market adjustments for pension and postretirement plans, commodity and foreign currency contracts totaling ($14) million and ($4) million for the year-to-date periods ended July 1, 2017 and July 2, 2016, respectively.

Note 13 Supplemental Financial Statement Data



Consolidated Balance Sheet
(millions)	March 31, 2018 (unaudited)			December 30, 2017
Trade receivables	$	1,459		$	1,250
Allowance for doubtful accounts	(11		)	(10		)
Refundable income taxes	26			23
Other receivables	127			126
Accounts receivable, net	$	1,601		$	1,389
Raw materials and supplies	$	335		$	333
Finished goods and materials in process	879			884
Inventories	$	1,214		$	1,217
Property	$	9,471		$	9,366
Accumulated depreciation	(5,758		)	(5,650		)
Property, net	$	3,713		$	3,716
Pension	$	290		$	252
Deferred income taxes	254			246
Other	536			529
Other assets	$	1,080		$	1,027
Accrued income taxes	$	65		$	30
Accrued salaries and wages	199			311
Accrued advertising and promotion	597			582
Other	547			551
Other current liabilities	$	1,408		$	1,474
Income taxes payable	$	192		$	192
Nonpension postretirement benefits	39			40
Other	352			373
Other liabilities	$	583		$	605

Note 14 Subsequent Event

On May 2, 2018, the Company (i) acquired additional ownership in Multipro, a leading distributor of a variety of food products in Nigeria and Ghana, and (ii) exercised its call option (Purchase Option) to acquire an ownership interest in Tolaram Africa Foods, PTE LTD (TAF), one of the holding companies of an affiliated food manufacturing entity under common ownership. The aggregate consideration paid was approximately $420 million and was funded through cash on hand and short-term borrowings.

As a result of the Company’s additional ownership in Multipro as well as certain concurrent changes to the shareholders’ agreement, the assets and liabilities of Multipro will be included in the Consolidated Balance Sheet and the results of its operations will be included in the Consolidated Statement of Income subsequent to the acquisition date. The major classes of assets and liabilities of Multipro are expected to be net working capital (deficit), property, intangible assets (amortizable and non-amortizable), non-controlling interests and goodwill.

The consideration paid for the exercise of the call option in TAF, together with the existing cost value of the Purchase Option, will be (i) evaluated for impairment and (ii) accounted for under the equity method of accounting subsequent to the acquisition date. Any difference between the amount paid and the underlying equity in net assets will be identified and amortized over future periods, as appropriate.

KELLOGG COMPANY

PART I—FINANCIAL INFORMATION

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

Business overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand Kellogg Company, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes thereto contained in Item 1 of this report.

For more than 100 years, consumers have counted on Kellogg for great-tasting, high-quality and nutritious foods. ~~Kellogg is the world’s leading producer of cereal, second largest producer of~~These foods include snacks, such as cookies, ~~and~~ crackers, ~~and a leading producer of~~ savory snacks, ~~and frozen foods. Additional product offerings include~~ toaster pastries, cereal bars and bites, fruit-flavored ~~snacks~~snacks; and convenience foods, such as, ready-to-eat cereals, frozen waffles and veggie foods.

Kellogg products are manufactured and marketed globally.

~~Corporate responsibility and sustainability~~

As a grain-based food company, our success is dependent on timely access to high quality, low cost ingredients, and water and energy for our global manufacturing operations. We rely on natural capital including energy for product manufacturing and distribution, water as an ingredient, for facility cleaning and steam power, and food crops and commodities as an ingredient. These natural capital dependencies are at risk of shortage, price volatility, regulation, and quality impacts due to climate change which is assessed as part of our overall enterprise risk management program. Due to these risks, we have implemented major short and long-term initiatives to mitigate and adapt to these environmental pressures, as well as the resulting challenges of food security.

To address these risks, we partner with suppliers, customers, governments and non-governmental organizations, including the World Business Council for Sustainable Development and the Consumer Goods Forum. We are also committed to improving efficiency and technologies in our owned manufacturing footprint by reducing water use, total waste, energy use, and greenhouse gas (GHG) emissions as well as working across our supply chain with the goal of reducing risk of disruptions from unexpected constraints in natural resource availability or impacts on raw material pricing. In addition, we established third-party approved science-based targets to measure progress against our goal to significantly reduce absolute GHG emissions across our own footprint and that of our suppliers. In 2016, we expanded our global signature cause platform, Breakfasts for Better Days, with the intent to help address hunger relief and food security.

We have incorporated the risks and opportunities of climate change and food security into the Global 2020 Growth Strategy and Global Heart and Soul Strategy by continuing to identify risk, incorporating environmental and social indicators into strategic priorities and reporting regularly to leadership, the board of directors, and publicly. Future reporting on our environmental and social risks and performance against targets will be included in our Annual Report on Form 10-K.

Segments

We manage our operations through ~~nine~~ten operating segments that are based on product category or geographic location. These operating segments are evaluated for similarity with regards to economic characteristics, products, production processes, types or classes of customers, distribution methods and regulatory environments to determine if they can be aggregated into reportable segments. We report results of operations in the following reportable segments: U.S. Snacks: U.S. Morning Foods; ~~U.S. Snacks;~~ U.S. Specialty; North America Other; Europe; Latin America; and Asia Pacific. The reportable segments are discussed in greater detail in Note 12 within Notes to Consolidated Financial Statements.

~~Operating margin expansion through 2018~~Restatement of 2017 financial statements

~~In 2016 we announced a plan~~Financial statements for 2017 were restated to ~~increase our currency-neutral comparable operating margin. Specifically, we are targeting an expansion of 350 basis points. There are four elements to this margin expansion plan:~~

Productivity and savings - In addition to annual productivity savings to offset inflation, we have expanded our Project K restructuring program, and we have expanded our zero-based budgeting initiativereflect changes in ~~the U.S. and our international regions. These initiatives are expected to result in higher annual savings.~~

~~Price and Mix - We have established a more formal Revenue Growth Management discipline around the world, to help us ensure our products and pack-sizes are priced correctly, and~~accounting standards that ~~we are generating a positive mix of sales volume.~~

~~Investing for Impact - We are updating our investment model to align with today's consumer and technology in order to optimize the return on investment in our brands.~~

~~On-Trend Foods and Packaging - We are adopting a more impactful approach to renovation and innovation of our foods.~~

During this time period, we will be working to stabilize net sales, with an aim to returning to growth. Accordingly, our margin expansion target incorporates continued investment in food and packaging, investment in new capabilities, and an increase in brand investment in our U.S. Snacks business. These margin-expansion actions are expected to drive accelerated growth in currency-neutral comparable operating profit and currency neutral comparable earnings per share in 2017 and 2018.

In March 2017, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) changing the presentation of net periodic pension and postretirement benefit costs within the income statement. The ASU requires all components of net periodic benefit cost, other than service cost, be presented in the income statement outside of income from operations. We expect to adopt the ASU retrospectively in the first quarter of 2018. The impact of adoption, when applied retrospectively, is expected to reduce our 2015 currency-neutral comparable operating margin, the basis for our 350 basis point improvement target, by approximately 175-185 basis points. The adoption, which is anticipated to impact only the Corporate segment, and not expected to impact our ability to achieve 350 basis points of currency-neutral comparable operation margin expansion from this new base by the end of 2018. See the ~~Accounting standards to be~~were adopted ~~in future periods~~ ~~section of the MD&A for additional information regarding the impact of this ASU.~~

~~Guidance on operating profit margin expansion and net sales growth outlook is provided~~ on a ~~non-GAAP, currency-neutral comparable~~retrospective basis, only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. Please refer to the "Non-GAAP Financial Measures" section for a further discussion of our use of non-GAAP measures, including quantification of known expected adjustment items.as well as product transfer between reportable segments.

Non-GAAP financial measures

This filing includes non-GAAP financial measures that we provide to management and investors that exclude certain items that we do not consider part of on-going operations. Items excluded from our non-GAAP financial measures are discussed in the "Significant items impacting comparability" section of this filing. Our management team consistently utilizes a combination of GAAP and non-GAAP financial measures to evaluate business results, to make decisions regarding the future direction of our business, and for resource allocation decisions, including incentive compensation. As a result, we believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team and improves investors’ understanding of our underlying operating performance and in their analysis of ongoing operating trends. All historic non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures.

Non-GAAP financial measures used include ~~comparable~~currency-neutral and organic net sales, ~~comparable gross margin, comparable SG&A, comparable~~currency-neutral adjusted operating profit, ~~comparable operating profit margin, comparable effective tax rate, comparable net income, comparable~~currency-neutral adjusted diluted EPS, and cash flow. These non-GAAP financial measures are also evaluated for year-over-year growth and on a currency-neutral basis to evaluate the underlying growth of the business and to exclude the effect of foreign currency. We determine currency-neutral ~~operating~~ results by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. These non-GAAP financial measures may not be comparable to similar measures used by other companies.

~~Comparable~~Currency-neutral net ~~sales:~~sales and organic net sales: We adjust the GAAP financial ~~measures~~measure to exclude the ~~pre-tax effect~~impact of foreign currency, resulting in currency-neutral sales. In addition, we exclude the impact of acquisitions, dispositions, related integration costs, shipping day differences, and ~~divestitures.~~foreign currency, resulting in organic net sales. We excluded the items which we believe may obscure trends in our underlying net sales performance. By providing ~~this~~these non-GAAP net sales ~~measure,~~measures, management intends to

provide investors with a meaningful, consistent comparison of net sales performance for the Company and each of our reportable segments for the periods presented. Management uses ~~this~~these non-GAAP ~~measure~~measures to evaluate the effectiveness of initiatives behind net sales growth, ~~price~~pricing realization, and the impact of mix on our business results. ~~This~~These non-GAAP ~~measure is~~measures are also used to make decisions regarding the future direction of our business, and for resource allocation decisions. ~~Currency-neutral comparable net sales represents comparable net sales excluding the impact of foreign currency.~~

~~Comparable~~Currency-neutral adjusted: gross profit, ~~comparable~~ gross margin, ~~comparable~~ SG&A, ~~comparable~~ SG&A%, ~~comparable~~ operating profit, ~~comparable~~ operating profit margin, ~~comparable~~ net income, and ~~comparable~~ diluted EPS: We adjust the GAAP financial measures to exclude the effect of Project K and cost reduction activities, ~~acquisitions, divestitures, integration costs,~~ mark-to-market adjustments for pension plans, commodities and certain foreign currency contracts, ~~costs associated with the early redemption of debt outstanding,~~ and ~~impacts of the prior-year Venezuela remeasurement and deconsolidation.~~foreign currency, resulting in currency-neutral adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. ~~The impact of acquisitions and divestitures are not excluded from comparable diluted EPS.~~ By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, such as Project K, ZBB, and Revenue Growth Management, to assess performance of newly acquired businesses, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments. ~~Currency-neutral comparable represents comparable excluding foreign currency impact.~~

~~Comparable~~Adjusted effective income tax rate: We adjust the GAAP financial ~~measure~~measures to exclude ~~tax~~the effect of Project K and cost reduction activities, ~~divestitures, integration costs,~~ mark-to-market adjustments for pension plans, commodities and certain foreign currency ~~contracts, costs associated with the early redemption of debt outstanding, and costs associated with prior-year Venezuela remeasurement.~~contracts. We excluded the items which we believe may obscure trends in our pre-tax income and the related tax effect of those items on our ~~underlying~~adjusted effective income tax rate. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's effective tax rate, excluding the pre-tax income and tax effect of the items noted above, for the periods presented. Management uses this non-GAAP measure to monitor the effectiveness of initiatives in place to optimize our global tax rate.

Cash flow: Defined as net cash provided by operating activities reduced by expenditures for property additions. Cash flow does not represent the residual cash flow available for discretionary expenditures. 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 once all of the Company’s business needs and obligations are met. Additionally, certain performance-based compensation includes a component of this non-GAAP measure.

These measures have not been calculated in accordance with GAAP and should not be viewed as a substitute for GAAP reporting measures.

Significant items impacting comparability

~~Project K and cost reduction activities~~

In February 2017, the Company announced an expansion and an extension to its previously-announced global efficiency and effectiveness program ("Project K"). Project K is expected to continue generating a significant amount of savings that may be invested in key strategic areas of focus for the business. The Company expects that these savings may be used to drive future growth in the business. We recorded pre-tax charges related to this program of $96 million and $237 million for the quarter and year-to-date periods ended July 1, 2017, respectively. We also recorded pre-tax charges of $60 million and $107 million for the quarter and year-to-date periods ended July 2, 2016, respectively.

In 2015 we initiated the implementation of a Zero-Based Budgeting (ZBB) program in our North America business. During 2016 ZBB was expanded to include international segments of the business. In support of the ZBB initiative, we incurred pre-tax charges of less than $1 million for the quarter ended July 1, 2017 and $1 million for the year-to-date period ended July 1, 2017. We also incurred pre-tax charges of $12 million and $17 million for the quarter and year-to-date periods ended July 2, 2016, respectively.

~~See the Restructuring and cost reduction activities section for more information.~~

~~Acquisitions~~

In December 2016, the Company acquired Ritmo Investimentos, controlling shareholder of Parati S/A, Afical Ltda and Padua Ltda ("Parati Group"), a leading Brazilian food group for approximately BRL 1.38 billion ($381 million) or $379 million, net of cash and cash equivalents. The purchase price was subject to certain working capital and net debt adjustments based on the actual working capital and net debt existing on the acquisition date compared to targeted amounts. These adjustments were finalized during the quarter ended July 1, 2017 and resulted in a purchase price reduction of BRL 14 million ($4 million). In our Latin America reportable segment, for the quarter ended July 1, 2017 the acquisition added $46 million in net sales and $4 million of operating profit (before integration costs) that impacted the comparability of our reported results. For the year-to-date period ended July 1, 2017 the acquisition added $93 million in net sales and $12 million of operating profit (before integration costs) that impacted the comparability of our reported results.

Mark-to-market accounting for pension plans, commodities and certain foreign currency contracts

We recognize mark-to-market adjustments for pension plans, commodity contracts, and certain foreign currency contracts as incurred. Actuarial gains/losses for pension plans are recognized in the year they occur. Changes between contract and market prices for commodities contracts and certain foreign currency contracts result in gains/losses that are recognized in the quarter they occur. We recorded ~~total pre-tax mark-to-market benefit of $7 million and a pre-tax charge of $14 million for the quarter and year-to-date periods ended July 1, 2017, respectively. We also recorded~~ a pre-tax mark-to-market benefit of ~~$20~~$39 million and a pre-tax mark-to-market charge of $4$21 million for the quarter ended March 31, 2018 and ~~year-to-date periods~~April 1, 2017, respectively. Included within the aforementioned was a pre-tax mark-to-market benefit for pension plans of $25 million and $1 million for the quarter ended ~~July 2, 2016,~~March 31, 2018 and April 1, 2017, respectively.

~~Other costs impacting comparability~~Project K and cost reduction activities

~~During~~Project K continued generating savings used to invest in key strategic areas of focus for the business. We recorded pre-tax charges related to this program of $20 million and $142 million for the quarter ended March 31, 2018 and April 2, 2016, we redeemed $475 million of our 7.45% U.S. Dollar Debentures due 2031. In connection with the debt redemption, we incurred $153 million of interest expense, consisting primarily of a premium on the tender offer and also including accelerated losses on pre-issuance interest rate hedges, acceleration of fees and debt discount on the redeemed debt and fees related to the tender offer.1, 2017, respectively.

~~Venezuela~~

~~There was a material change in~~See the ~~business environment, including a worsening of our access to key raw materials subject to restrictions,~~Restructuring and a related significant drop in production volume in the fourth quarter of 2016. These supply chain disruptions, along with other factors such as the worsening economic environment in Venezuela and the limited access to dollars to import goods through the use of any of the available currency mechanisms, have impaired our ability to effectively operate and fully control our Venezuelan subsidiary.cost reduction activities section for more information.

AsAcquisitions

In October of ~~December 31, 2016, we deconsolidated and changed to~~2017, the ~~cost method~~Company acquired Chicago Bar Company LLC, manufacturer of ~~accounting~~RXBAR, a high protein snack bar made of simple ingredients. In our North America Other reportable segment, for ~~our Venezuelan subsidiary. For~~ the quarter ended ~~July 2, 2016~~March 31, 2018 the ~~deconsolidation reduced~~acquisition added $51 million in net sales ~~by $7 million and operating profit by less than $1 million which~~that impacted the comparability of our reported results. ~~For the year-to-date period ended July 2, 2016 the deconsolidation reduced net sales by $16 million and operating profit by $5 million which impacted the comparability of our reported results.~~

In 2016 certain non-monetary assets related to our Venezuelan subsidiary continued to be remeasured at historical exchange rates. As these assets were utilized by our Venezuelan subsidiary during 2016 they were recognized in the income statement at historical exchange rates resulting in an unfavorable impact. As a result of the utilization of the remaining non-monetary assets, we experienced an unfavorable pre-tax impact approximately $5 million and $11 million during the quarter and year-to-date periods ended July 2, 2016, primarily impacting COGS.

Foreign currency translation

We evaluate the operating results of our business on a currency-neutral basis. We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency operating results by the

currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.

Financial results

For the quarter ended ~~July 1, 2017,~~March 31, 2018, our reported net sales ~~declined~~improved by ~~2.5%~~4.7% due primarily to ~~soft consumption trends~~the RXBAR acquisition in ~~the U.S.~~North America Other, favorable foreign currency translation, and ~~reduced merchandising activity in Europe related to pricing actions on Pringles.~~improved business delivery. These ~~declines~~impacts were partially offset by the ~~impact of the Parati acquisition,~~previously announced list-price adjustments and ~~growth~~other impacts in U.S. ~~Specialty and Asia-Pacific.~~Snacks related to its transition from DSD. Currency-neutral ~~comparable~~ net sales ~~were down 3.1%~~increased 2.2% after eliminating the impact ~~of acquisitions,~~ foreign ~~currency, and~~currency. Organic net sales increased 0.6% from the prior year ~~Venezuela~~after excluding RXBAR results.

~~Reported~~First quarter reported operating profit and operating profit margin increased ~~0.7%, as~~versus the year-ago quarter, driven by productivity savings ~~more than offset~~and higher net sales, as well as by significantly lower restructuring charges and favorable mark-to-market impacts year-on-year. Operating profit and operating profit margin both increased on a currency-neutral adjusted basis, as well, owing to the higher sales growth and strong productivity savings related to the Project K restructuring ~~program, which includes this year's~~program. These savings, driven primarily by last summer's exit and elimination of overhead from its U.S. Snacks segment's Direct Store Delivery ~~sales~~system, more than offset a substantial year-on-year increase in advertising and ~~delivery system. Currency-neutral comparable operating profit increased by 6.9% due to efficiencies~~promotion investment, as well as various cost pressures, including a significant rise in ~~COGS and SG&A expense related to ZBB and Project K.~~

Reported operating margin for the quarter was favorable 40 basis points due primarily to COGS and SG&A savings realized from Project K and ZBB initiatives partially offset by higher restructuring charges. Currency-neutral comparable operating margin was favorable 160 basis points after excluding the year-over-year impact of restructuring, mark-to-market, acquisitions, and prior year Venezuela remeasurement.freight costs.

Reported diluted EPS of ~~$.80~~$1.27 for the quarter was up 1%69% compared to the prior year of ~~$.79. Higher operating profit and~~$.75 due to lower restructuring charges, favorable mark-to-market adjustments, favorable currency translation, a lower effective tax rate ~~more than offset the impact of higher restructuring charges.~~and improved business delivery. Currency-neutral ~~comparable~~adjusted diluted EPS of ~~$.98~~$1.19 increased by 8%11% compared to prior year of ~~$.91, due to higher profit margins driven by productivity initiatives~~$1.07, after excluding the impact of mark-to-market, restructuring, and ~~ZBB savings.~~foreign currency.

Reconciliation of certain non-GAAP Financial Measures

Quarter ended Year-to-date period ended
Consolidated results
(dollars in millions, except per share data)
July 1,
2017 July 2,
2016 July 1,
2017 July 2,
2016
Reported net income $ 282
$ 280
$ 544
$ 455
Mark-to-market (pre-tax) 7
20
(14 ) (4 )
Project K and cost reduction activities (pre-tax) (96 ) (72 ) (238 ) (124 )
Other costs impacting comparability (pre-tax) —
—
—
(153 )
Integration and transaction costs (pre-tax) —
—
(1 ) (1 )
Venezuela operations impact (pre-tax) —
—
—
5
Venezuela remeasurement (pre-tax) —
(5 ) —
(11 )
Income tax benefit applicable to adjustments, net* 31
16
81
83
Comparable net income $ 340
$ 321
$ 716
$ 660
Foreign currency impact (5 ) (14 )
Currency-neutral comparable net income $ 345

$ 730

Reported diluted EPS $ 0.80
$ 0.79
$ 1.54
$ 1.29
Mark-to-market (pre-tax) 0.02
0.05
(0.04 ) (0.01 )
Project K and cost reduction activities (pre-tax) (0.27 ) (0.20 ) (0.67 ) (0.35 )
Other costs impacting comparability (pre-tax) —
—
—
(0.43 )
Venezuela operations impact (pre-tax) —
—
—
0.01
Venezuela remeasurement (pre-tax) —
(0.01 ) —
(0.03 )
Income tax benefit applicable to adjustments, net* 0.08
0.04
0.22
0.24
Comparable diluted EPS $ 0.97
$ 0.91
$ 2.03
$ 1.86
Foreign currency impact (0.01 ) (0.04 )
Currency-neutral comparable diluted EPS $ 0.98

$ 2.07

Currency-neutral comparable diluted EPS growth 7.7 % 5.6 % 11.3 % 3.2 %



	Quarter ended
Consolidated results (dollars in millions, except per share data)	March 31, 2018			April 1, 2017
Reported net income	$	444		$	266
Mark-to-market (pre-tax)	39			(21		)
Project K and cost reduction activities (pre-tax)	(20		)	(142		)
Income tax impact applicable to adjustments, net*	(3		)	50
Foreign currency impact	13
Currency-neutral adjusted net income	$	415		$	379
Reported diluted EPS	$	1.27		$	0.75
Mark-to-market (pre-tax)	0.11			(0.06		)
Project K and cost reduction activities (pre-tax)	(0.06		)	(0.40		)
Income tax impact applicable to adjustments, net*	(0.01		)	0.14
Foreign currency impact	0.04
Currency-neutral adjusted diluted EPS	$	1.19		$	1.07
Currency-neutral adjusted diluted EPS growth	11.2		%

* Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.

For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

Net sales and operating profit

The following tables provide an analysis of net sales and operating profit performance for the ~~second~~first quarter of ~~2017~~2018 versus ~~2016:~~2017:

Quarter ended July 1, 2017
(millions)
U.S.
Morning
Foods

U.S.
Snacks

U.S.
Specialty

North
America
Other
Europe
Latin
America

Asia
Pacific
Corporate
Kellogg
Consolidated
Reported net sales $ 679
$ 803
$ 276
$ 391
$ 566
$ 234
$ 238
$ —
$ 3,187
Acquisitions —
—
—
—
4
46
—
—
50
Comparable net sales $ 679
$ 803
$ 276
$ 391
$ 562
$ 188
$ 238
$ —
$ 3,137
Foreign currency impact —
—
—
(5 ) (23 ) (1 ) 6
—
(23 )
Currency-neutral comparable net sales $ 679
$ 803
$ 276
$ 396
$ 585
$ 189
$ 232
$ —
$ 3,160
Quarter ended July 2, 2016
(millions)
U.S.
Morning
Foods

U.S.
Snacks

U.S.
Specialty

North
America
Other
Europe
Latin
America

Asia
Pacific
Corporate
Kellogg
Consolidated
Reported net sales $ 727
$ 803
$ 271
$ 406
$ 629
$ 204
$ 228
$ —
$ 3,268
Venezuela operations impact —
—
—
—
—
7
—
—
7
Comparable net sales $ 727
$ 803
$ 271
$ 406
$ 629
$ 197
$ 228
$ —
$ 3,261
% change - 2017 vs. 2016:
Reported growth (6.6 )% — % 1.8 % (3.6 )% (10.0 )% 14.8 % 4.3 % — % (2.5 )%
Acquisitions — % — % — % — % 0.6 % 22.4 % — % — % 1.5 %
Venezuela operations impact — % — % — % — % — % (2.7 )% — % — % (0.2 )%
Comparable growth (6.6 )% — % 1.8 % (3.6 )% (10.6 )% (4.9 )% 4.3 % — % (3.8 )%
Foreign currency impact — % — % — % (1.0 )% (3.6 )% (0.9 )% 2.2 % — % (0.7 )%
Currency-neutral comparable growth (6.6 )% — % 1.8 % (2.6 )% (7.0 )% (4.0 )% 2.1 % — % (3.1 )%



Quarter ended March 31, 2018
(millions)	U.S. Snacks			U.S. Morning Foods			U.S. Specialty			North America Other			Europe			Latin America			Asia Pacific			Corporate			Kellogg Consolidated
Reported net sales	$	762		$	691		$	398		$	479		$	587		$	232		$	252		$	—		$	3,401
Foreign currency impact	—			—			—			5			62			4			11			—			82
Currency-neutral net sales	$	762		$	691		$	398		$	474		$	525		$	228		$	241		$	—		$	3,319
Acquisitions/divestitures	—			—			—			51			—			—			—			—			51
Organic net sales	$	762		$	691		$	398		$	423		$	525		$	228		$	241		$	—		$	3,268

Quarter ended April 1, 2017
(millions)	U.S. Snacks			U.S. Morning Foods			U.S. Specialty			North America Other			Europe			Latin America			Asia Pacific			Corporate			Kellogg Consolidated
Reported net sales	$	795		$	708		$	393		$	392		$	513		$	220		$	227		$	—		$	3,248

% change - 2018 vs. 2017:
Reported growth	(4.1		)%	(2.4		)%	1.3		%	22.1		%	14.4		%	5.3		%	11.0		%	—		%	4.7		%
Foreign currency impact	—		%	—		%	—		%	1.2		%	12.2		%	2.0		%	4.8		%	—		%	2.5		%
Currency-neutral growth	(4.1		)%	(2.4		)%	1.3		%	20.9		%	2.2		%	3.3		%	6.2		%	—		%	2.2		%
Acquisitions/divestitures	—		%	—		%	—		%	13.1		%	—		%	—		%	—		%	—		%	1.6		%
Organic growth	(4.1		)%	(2.4		)%	1.3		%	7.8		%	2.2		%	3.3		%	6.2		%	—		%	0.6		%

For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

Quarter ended July 1, 2017
(millions)
U.S.
Morning
Foods

U.S.
Snacks

U.S.
Specialty

North
America
Other
Europe
Latin
America

Asia
Pacific
Corporate
Kellogg
Consolidated
Reported operating profit $ 176
$ 22
$ 70
$ 59
$ 76
$ 26
$ 19
$ 5
$ 453
Mark-to-market —
—
—
—
—
—
—
7
7
Project K and cost reduction activities (1 ) (79 ) (1 ) (2 ) (2 ) (3 ) (3 ) (5 ) (96 )
Acquisitions —
—
—
—
—
4
—
—
4
Comparable operating profit $ 177
$ 101
$ 71
$ 61
$ 78
$ 25
$ 22
$ 3
$ 538
Foreign currency impact —
—
—
(1 ) (4 ) —
1
(2 ) (6 )
Currency-neutral comparable operating profit $ 177
$ 101
$ 71
$ 62
$ 82
$ 25
$ 21
$ 5
$ 544
Quarter ended July 2, 2016
(millions)
U.S.
Morning
Foods

U.S.
Snacks

U.S.
Specialty

North
America
Other
Europe
Latin
America

Asia
Pacific
Corporate
Kellogg
Consolidated
Reported operating profit $ 165
$ 69
$ 60
$ 47
$ 68
$ 20
$ 12
$ 8
$ 449
Mark-to-market —
—
—
—
—
—
—
20
20
Project K and cost reduction activities (4 ) (34 ) (1 ) (4 ) (14 ) (4 ) (4 ) (7 ) (72 )
Venezuela remeasurement —
—
—
—
—
(7 ) —
—
(7 )
Comparable operating profit $ 169
$ 103
$ 61
$ 51
$ 82
$ 31
$ 16
$ (5 ) $ 508
% change - 2017 vs. 2016:
Reported growth 6.4 % (68.0 )% 16.9 % 26.1 % 11.9 % 29.2 % 57.1 % (44.9 )% 0.7 %
Mark-to-market — % — % — % — % — % — % — % (126.2 )% (3.1 )%
Project K and cost reduction activities 1.4 % (66.6 )% 1.6 % 8.6 % 16.9 % 6.6 % 16.8 % (110.3 )% (4.2 )%
Integration and transaction costs — % — % — % — % 0.4 % (2.0 )% 1.5 % — % — %
Acquisitions — % — % — % — % (0.3 )% 19.2 % — % — % 0.8 %
Venezuela operations impact — % — % — % — % — % (0.8 )% — % (1.5 )% — %
Venezuela remeasurement — % — % — % — % — % 22.5 % — % — % 1.3 %
Comparable growth 5.0 % (1.4 )% 15.3 % 17.5 % (5.1 )% (16.3 )% 38.8 % 193.1 % 5.9 %
Foreign currency impact — % — % — % (1.0 )% (4.0 )% (1.7 )% 3.9 % (41.2 )% (1.0 )%
Currency-neutral comparable growth 5.0 % (1.4 )% 15.3 % 18.5 % (1.1 )% (14.6 )% 34.9 % 234.3 % 6.9 %



Quarter ended March 31, 2018
(millions)	U.S. Snacks			U.S. Morning Foods			U.S. Specialty			North America Other			Europe			Latin America			Asia Pacific			Corporate			Kellogg Consolidated
Reported operating profit	$	102		$	150		$	80		$	67		$	74		$	22		$	27		$	(12	)	$	510
Mark-to-market	—			—			—			—			—			—			—			30			30
Project K and cost reduction activities	(6		)	(2		)	—			(2		)	(7		)	(2		)	—			(1		)	(20		)
Foreign currency impact	—			—			—			—			8			1			1			1			11
Currency-neutral adjusted operating profit	$	108		$	152		$	80		$	69		$	73		$	23		$	26		$	(42	)	$	489

Quarter ended April 1, 2017
(millions)	U.S. Snacks			U.S. Morning Foods			U.S. Specialty			North America Other			Europe			Latin America			Asia Pacific			Corporate			Kellogg Consolidated
Reported operating profit	$	(36	)	$	157		$	96		$	49		$	66		$	33		$	22		$	(107	)	$	280
Mark-to-market	—			—			—			—			—			—			—			(47		)	(47		)
Project K and cost reduction activities	(120		)	(1		)	—			(7		)	(6		)	(1		)	(1		)	(2		)	(138		)
Adjusted operating profit	$	84		$	158		$	96		$	56		$	72		$	34		$	23		$	(58	)	$	465

% change - 2018 vs. 2017:
Reported growth	382.7		%	(4.8		)%	(16.2		)%	36.6		%	11.8		%	(33.0		)%	25.6		%	88.2		%	81.7		%
Mark-to-market	—		%	—		%	—		%	—		%	—		%	—		%	—		%	59.6		%	35.3		%
Project K and cost reduction activities	353.8		%	(0.9		)%	—		%	14.3		%	0.1		%	(2.4		)%	3.6		%	0.3		%	38.9		%
Foreign currency impact	—		%	—		%	—		%	0.9		%	10.6		%	2.2		%	4.7		%	2.1		%	2.4		%
Currency-neutral adjusted growth	28.9		%	(3.9		)%	(16.2		)%	21.4		%	1.1		%	(32.8		)%	17.3		%	26.2		%	5.1		%

For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

U.S. ~~Morning Foods~~

This segment consists of cereal, toaster pastries, and health and wellness bars. As reported and Currency-neutral comparable net sales declined 6.6% as a result of decreased volume partially offset by favorable pricing/mix. Volume declined as a result of lower category-wide consumption.

~~Our Core 6 cereal brands collectively held share during the quarter, led by taste-oriented brands like~~ ~~Froot Loops~~ ~~and~~ ~~Frosted Flakes,~~ ~~which continue to gain share behind effective media and innovation, respectively.~~ ~~Special K~~ ~~shipments were down year-on-year~~, ~~but improved sequentially and returned to share growth in June~~.

~~Toaster pastries grew share by 50 basis points during the quarter despite lower consumption in the category.~~

As reported operating profit increased 6.4% due to productivity initiatives and reduced restructuring charges partially offset by lower net sales. Currency-neutral comparable operating profit increased 5.0% after excluding restructuring charges.

~~U.S.~~ Snacks

This segment consists of crackers, cookies, savory snacks, wholesome snacks and fruit-flavored snacks.

As reported and Currency-neutral ~~comparable~~ net sales were ~~flat~~4.1% lower versus the comparable ~~quarter. Price/~~quarter due primarily to price/mix as a result of the year on year impact of list-price adjustments and ~~volume were both roughly flat compared~~rationalization of stock-keeping units related to the DSD exit during the second half of 2017. These impacts were partially offset by offset by improved performance by key brands.

All of our ex-DSD categories experienced year over year gains in velocity during the first quarter, as we now have a stronger set of ~~2016. The inventory pipeline-fill of customer warehouses offset~~SKUs on the ~~consumption impact of reduced promotional activity in conjunction~~shelf which are being supported with ~~conversion from DSD to warehouse distribution.~~sufficient brand-building.

~~Crackers consumption in the second quarter declined on category softness~~The Big 3 crackers brands (Cheez-it, Club and ~~a reduction of promotion activity related~~Townhouse) collectively returned to ~~our efforts to smoothly transition out of DSD. However, our big-three brands (Cheez-it~~^®~~, Club~~^®~~, and Townhouse~~^®~~) held share during the quarter.~~

~~Cookies posted a decline in consumption and share for the quarter, owing to reduced promotion activity during our transition out of DSD. However,~~ ~~Keebler~~ ~~Fudge Shoppe maintained~~ consumption and share growth during the ~~quarter.~~first quarter of 2018.

~~Wholesome Snacks posted a decline~~Pringles, which was never in ~~consumption and share primarily due to certain lines of~~ ~~Special K~~^® ~~bars and cracker-chips. However,~~ ~~Rice Krispies Treats~~^®DSD, grew ~~share during the quarter.~~

~~Savory snacks posted a decline in shipments~~both consumption and share during the first quarter ~~partially mitigated by favorable price/mix.~~as a result of our successful flavor-stacking campaign, involving both media and in-store activation.

As reported operating profit ~~declined 68.0%~~increased significantly due to ~~increased~~lower Project K restructuring charges and overhead reductions in ~~the current year associated~~conjunction with our DSD ~~transition. Additionally, we increased~~transition partially offset by a significant increase in brand ~~building investment, as planned, and we also added incremental logistics costs as we resource our warehousing distribution ahead of the exit from DSD.~~investment. Currency-neutral ~~comparable~~adjusted operating profit ~~decreased 1.4%~~increased 29% after excluding the impact of restructuring charges.

U.S. ~~Specialty~~Morning Foods

This segment consists of cereal and toaster pastries. As reported and Currency-neutral ~~comparable~~net sales declined 2.4% as a result of decreased volume partially offset by favorable pricing/mix.

Despite heavy competitor promotion that held back our performance in kid-oriented brands, a focus on food news and brand communication in the adult-oriented Health & Wellness segment helped moderate our declines from

2017. Special K returned to consumption and share growth during the first quarter as a result of communication around its new inner-strength positioning. Similarly, Mini-Wheats, Raisin Bran, and Rice Krispies all started to improve their trends during the quarter as we renewed communication about their key wellness attributes.

As reported operating profit decreased 4.8% due to higher restructuring charges and lower net sales. Currency-neutral adjusted operating profit decreased 3.9% after excluding restructuring charges.

U.S. Specialty

This segment is comprised of sales of most of our brands through channels such as foodservice, convenience stores, vending, and others. As reported and Currency-neutral net sales improved ~~1.8%~~1.3% as a result of higher volume and improved pricing/~~mix aided by innovation and expansion in core and emerging growth channels.~~mix.

~~Shipments grew for our three core channels;~~The Vending, Convenience, and Girls Scouts channels posted strong growth. Foodservice ~~Convenience Stores, and Vending. In Foodservice, our growth was led by the K-12 segment, and in Convenience Stores and Vending growth was aided by innovation.~~

~~In the second~~posted a modest decline against a strong first quarter ~~we implemented a transformation~~ of our salesforce to a hybrid, direct-and-broker model. This is expected to offer us stronger focus on core accounts, while expanding our market coverage across the Foodservice and Convenience Store channels.2017.

As Reported operating profit ~~increased 16.9%~~and Currency-neutral adjusted operating profit decreased 16.2% due to ~~the higher net sales and savings from Project K and ZBB initiatives. Currency-neutral comparable~~a revised allocation of costs between U.S. operating ~~profit increased 15.3% after excluding the impact of restructuring charges.~~segments.

North America Other

This segment is composed of our U.S. Frozen Foods, Kashi Company, Canada, and ~~Canada~~RXBAR businesses.

As reported net sales ~~declined 3.6%~~increased 22.1% due to ~~decreased~~the RXBAR acquisition, higher volume, ~~and unfavorable foreign currency partially offset by~~ favorable pricing/~~mix.~~mix, and favorable foreign currency. Currency-neutral ~~comparable~~ net sales ~~declined 2.6%~~increased 20.9% after excluding the impact of foreign currency. Organic net sales increased 7.8% from the prior year after excluding RXBAR results, led by growth momentum in U.S. Frozen Foods.

RXBAR consumption and share grew as we continued to expand distribution of core bars.

The U.S. Frozen business ~~posted~~reported increased ~~shipments due to~~net sales on higher volume ~~partially mitigated by unfavorable~~and favorable price/mix. Eggo^®andMorningstar Farmsboth grew share and consumption during the quarter, benefiting from ~~the removal of artificial ingredients~~renovated food and ~~the launch of kid-loved shapes, with Mickey Mouse-shaped waffles leading the way. Our frozen veggie business, under the~~ ~~Morningstar Farms~~^®packaging, new innovations, and ~~Gardenburger~~^®~~brands, added another quarter of consumption growth, due to our~~a focus on core ~~burger~~ offerings.

In Canada, shipments decreased during the quarter due to lower volume and foreign currency partially offset by favorable pricing/mix. We are seeing the impacts of our efforts to improve price realization due to transactional foreign exchange pressure and we have started to lap our initial pricing action in the second quarter. Our in-market performance has started to improve, as well. In cereal, our consumption declines moderated sharply, and our base consumption remains strong, and we gained share as a result. In wholesome snacks, we gained share, also with strong base consumption, and Pringles gained consumption and share in the quarter, as well.

Kashi posted lower shipments in the quarter due to last year's exiting of non-core or less profitable SKUs, promotions, or categories. Our overhauled cereal business grew consumption and share. We also saw improved trends in these channels for the wholesome snacks business, as recent innovations and media are starting to take hold.

As Reported operating profit increased ~~26.1%~~36.6% due to lower restructuring charges, ~~in addition to~~ Project K and ZBB savings ~~partially offset by lower net sales~~ and favorable foreign currency. Currency-neutral ~~comparable~~adjusted operating profit increased ~~18.5%~~21.4% after excluding the impact of restructuring charges and ~~translational~~ foreign currency.

Europe

As Reported net sales ~~declined 10.0%~~increased 14.4% due to ~~unfavorable~~favorable foreign currency and ~~lower~~higher volume partially offset by ~~the favorable impact of~~unfavorable pricing/~~mix and acquisitions.~~mix. Currency-neutral ~~comparable~~ net sales ~~declined 7.0%~~and Organic net sales increased 2.2% after excluding the impact of foreign currency, as the impact of sales growth and ~~acquisitions.~~productivity savings more than offset the effect of a significant increase in brand investment.

~~Pringles volume~~Growth was ~~lower due primarily~~led by Pringles, which lapped year-ago promotional disruptions in some markets. Pringlescontinued to prolonged negotiations with our customers as we sought to price behind our food and packaging upgrades. These negotiations were resolved by April but caused us to miss out on several second quarter merchandising programs.grow across the region, well beyond the markets that experienced last year's disruption.

Cereal ~~shipments~~currency-neutral net sales declined ~~on lower volume and foreign currency. However, the~~modestly due to softness in Northern Europe, but trends continue to improve. The U.K. cereal business ~~realized sequential improvement as~~grew consumption ~~was down significantly less than~~and share during the quarter, continuing its improving trend with growth in ~~recent quarters. We gained share~~several brands.

Additionally, emerging markets were also a driver of Europe's growth in ~~All-family brands like~~ ~~Corn Flakes, Rice Krispies~~,both cereal and ~~Crunchy Nut~~.snacks, led by Egypt and Russia.

As reported operating profit increased ~~11.9%~~11.8% due primarily to ~~lower restructuring charges as well as incremental Project K savings partially mitigated by~~favorable foreign currency. Currency-neutral ~~comparable~~adjusted operating profit ~~declined~~increased 1.1% after excluding the impact of restructuring charges ~~acquisitions~~ and foreign currency.

Latin America

As reported net sales improved ~~14.8%~~5.3% due to increased volume, ~~as a result of the Parati acquisition~~favorable pricing/mix and favorable ~~pricing/mix. This was partially offset by lower volume in the base business and the unfavorable impact of~~ foreign currency. Currency-neutral ~~comparable~~ net sales ~~declined 4.0%~~increased 3.3% after excluding the impact of ~~acquisitions, prior year Venezuela results, and~~ foreign currency.

~~The integration~~Mexico posted its eighth straight quarter of ~~Parati, our acquisition~~organic net sales growth, growing consumption and share in ~~Brazil, continues~~cereal, while snacks growth was led by Pringles. Mercosur posted double-digit growth driven by cereal, Pringles, and Parati. We continue to ~~progress well, as the business posted solid growth.~~leverage Parati's presence and expertise in high-frequency stores.

~~Offsetting the impact of Parati, volume of the base business was adversely impacted by softness related to market conditions and distributor transitions~~

Caribbean/Central America declines moderated sequentially in the ~~Caribbean/Central America sub-region. However, our large Mexico business continued to perform well, as did our legacy South America operations.~~first quarter despite post-hurricane store closings in Puerto Rico.

As reported operating profit ~~increased 29.2%~~and Currency-neutral adjusted operating profit decreased 33%, primarily due to ~~efficiencies from productivity initiatives,~~ the expected negative impact of transactional currency exchange on cost of goods sold. We expect this impact is isolated to the ~~Parati acquisition, lower restructuring costs, and Venezuela remeasurement. Currency-neutral comparable operating profit decreased 14.6% after excluding the~~first quarter. The positive impact of foreign currency translation was mostly offset by the higher restructuring ~~costs, acquisitions, prior year Venezuela remeasurement and foreign currency.~~charges.

Asia Pacific

As reported net sales improved ~~4.3%~~11.0% due to higher volume and favorable ~~pricing/mix and~~ foreign currency partially offset by ~~lower volume.~~unfavorable price/mix. Currency-neutral ~~comparable~~ net sales increased ~~2.1%~~6.2%, after excluding the impact of foreign currency.

~~Shipments increased~~Cereal and wholesome snacks businesses experienced growth across Asia and Africa, including double-digit growth in India, South East Asia, and Korea. To achieve this growth, we are executing our emerging market cereal category development model: leveraging the Kellogg master brand, launching affordable and locally relevant innovation, offering the right price/pack combination across retail channels, and expanding the quantity and quality of our distribution.

Our Pringles business posted double-digit growth for the quarter in Asia Pacific. We continue to expand product offerings in certain markets while launching new pack-formats in others, extending the brand's distribution reach.

Australia, our largest market in the region, ~~due primarily to innovation and renovation. In Asia, we generated growth in Korea and Japan with India down modestly because of a short-term disruption from~~posted share gains during the ~~country's new Goods and Services Tax.~~quarter, continuing its stabilization trend.

~~Across~~As reported operating profit increased 25.6% due to higher net sales, lower restructuring charges, and productivity and brand-building efficiencies as a result of Project K and ZBB initiatives, partially offset by a double-digit increase in brand building. Currency-neutral adjusted operating profit improved 17.3% after excluding the ~~region, our Pringles business posted high single-digit growth for the quarter.~~impact of restructuring and foreign currency.

Outside of our reported results, our joint ventures in West Africa and China continued to perform extremely well. ~~Growth in West Africa was driven by strong noodles volume. The China JV more than tripled its e-commerce sales.~~

As reported operating profit increased 57.1% due to higher net sales, lower restructuring charges, and brand-building efficiencies. Currency-neutral comparable operating profit improved 34.9% after excluding the impact of restructuring, prior year integration costs and foreign currency.

~~Corporate~~

As reported operating profit declined $3 million due primarily to higher mark-to-market costs. Currency-neutral comparable operating profit improved $10 million due to lower pension and postretirement benefit costs after excluding the impact of mark-to-market, restructuring charges, and foreign currency.

~~The following tables provide an analysis of net sales and operating profit performance for the year-to-date periods ended July 1, 2017 versus July 2, 2016:~~

Year-to-date period ended July 1, 2017
(millions)
U.S.
Morning
Foods

U.S.
Snacks

U.S.
Specialty

North
America
Other
Europe
Latin
America

Asia
Pacific
Corporate
Kellogg
Consolidated
Reported net sales $ 1,398
$ 1,584
$ 671
$ 784
$ 1,078
$ 456
$ 470
$ —
$ 6,441
Acquisitions —
—
—
1
7
93
—
—
101
Comparable net sales $ 1,398
$ 1,584
$ 671
$ 783
$ 1,071
$ 363
$ 470
$ —
$ 6,340
Foreign currency impact —
—
—
(1 ) (62 ) (7 ) 15
—
(55 )
Currency-neutral comparable net sales $ 1,398
$ 1,584
$ 671
$ 784
$ 1,133
$ 370
$ 455
$ —
$ 6,395
Year-to-date period ended July 2, 2016
(millions)
U.S.
Morning
Foods

U.S.
Snacks

U.S.
Specialty

North
America
Other
Europe
Latin
America

Asia
Pacific
Corporate
Kellogg
Consolidated
Reported net sales $ 1,494
$ 1,635
$ 647
$ 820
$ 1,227
$ 396
$ 444
$ —
$ 6,663
Venezuela operations impact —
—
—
—
—
16
—
—
16
Comparable net sales $ 1,494
$ 1,635
$ 647
$ 820
$ 1,227
$ 380
$ 444
$ —
$ 6,647
% change - 2017 vs. 2016:
Reported growth (6.5 )% (3.1 )% 3.7 % (4.3 )% (12.1 )% 15.3 % 5.7 % — % (3.3 )%
Acquisitions — % — % — % 0.2 % 0.6 % 23.4 % — % — % 1.5 %
Venezuela operations impact — % — % — % — % — % (3.7 )% — % — % (0.2 )%
Comparable growth (6.5 )% (3.1 )% 3.7 % (4.5 )% (12.7 )% (4.4 )% 5.7 % — % (4.6 )%
Foreign currency impact — % — % — % (0.1 )% (5.1 )% (1.9 )% 3.2 % — % (0.8 )%
Currency-neutral comparable growth (6.5 )% (3.1 )% 3.7 % (4.4 )% (7.6 )% (2.5 )% 2.5 % — % (3.8 )%

~~For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.~~

Year-to-date period ended July 1, 2017
(millions)
U.S.
Morning
Foods

U.S.
Snacks

U.S.
Specialty

North
America
Other
Europe
Latin
America

Asia
Pacific
Corporate
Kellogg
Consolidated
Reported operating profit $ 336
$ (22 ) $ 166
$ 108
$ 142
$ 59
$ 41
$ (17 ) $ 813
Mark-to-market —
—
—
—
—
—
—
(14 ) (14 )
Project K and cost reduction activities (2 ) (199 ) (1 ) (9 ) (8 ) (4 ) (4 ) (11 ) (238 )
Integration and transaction costs —
—
—
—
—
(1 ) —
—
(1 )
Acquisitions —
—
—
(2 ) —
12
—
—
10
Comparable operating profit $ 338
$ 177
$ 167
$ 119
$ 150
$ 52
$ 45
$ 8
$ 1,056
Foreign currency impact —
—
—
(1 ) (11 ) (3 ) 2
(2 ) (15 )
Currency-neutral comparable operating profit $ 338
$ 177
$ 167
$ 120
$ 161
$ 55
$ 43
$ 10
$ 1,071
Year-to-date period ended July 2, 2016
(millions)
U.S.
Morning
Foods

U.S.
Snacks

U.S.
Specialty

North
America
Other
Europe
Latin
America

Asia
Pacific
Corporate
Kellogg
Consolidated
Reported operating profit $ 313
$ 152
$ 146
$ 92
$ 138
$ 43
$ 29
$ (26 ) $ 887
Mark-to-market —
—
—
—
—
—
—
(4 ) (4 )
Project K and cost reduction activities (9 ) (54 ) (3 ) (13 ) (28 ) (4 ) (4 ) (9 ) (124 )
integration and transaction costs —
—
—
—
(1 ) —
—
—
(1 )
Venezuela operations impact —
—
—
—
—
5
—
—
5
Venezuela remeasurement —
—
—
—
—
(13 ) —
—
(13 )
Comparable operating profit $ 322
$ 206
$ 149
$ 105
$ 167
$ 55
$ 33
$ (13 ) $ 1,024
% change - 2017 vs. 2016:
Reported growth 7.4 % (114.5 )% 13.7 % 17.7 % 3.3 % 36.7 % 43.0 % 30.6 % (8.4 )%
Mark-to-market — % — % — % — % — % — % — % (53.6 )% (1.2 )%
Project K and cost reduction activities 2.2 % (100.5 )% 2.1 % 6.2 % 12.8 % 2.6 % 4.9 % (79.3 )% (12.1 )%
Integration and transaction costs — % — % — % — % 0.3 % (2.3 )% 1.1 % (1.8 )% — %
Acquisitions — % — % — % (1.7 )% (0.3 )% 25.5 % — % — % 1.0 %
Venezuela operations impact — % — % — % — % — % (15.1 )% — % (1.1 )% (0.6 )%
Venezuela remeasurement — % — % — % — % — % 29.7 % — % — % 1.3 %
Comparable growth 5.2 % (14.0 )% 11.6 % 13.2 % (9.5 )% (3.7 )% 37.0 % 166.4 % 3.2 %
Foreign currency impact — % — % — % (0.2 )% (6.0 )% (5.2 )% 5.7 % (27.8 )% (1.4 )%
Currency-neutral comparable growth 5.2 % (14.0 )% 11.6 % 13.4 % (3.5 )% 1.5 % 31.3 % 194.2 % 4.6 %

~~For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.~~

~~U.S. Morning Foods~~

This segment consists of cereal, toaster pastries, and health and wellness bars. As reported and Currency-neutral comparable net sales declined 6.5% as a result of decreased volume partially offset by favorable pricing/mix. Volume declined as a result of lower category-wide consumption.

~~Frosted Flakes~~ ~~grew consumption and share during the first half of the year behind effective media and innovation, including new Cinnamon~~ ~~Frosted Flakes. Froot Loops also grew share during the year-to-date period ended July 1, 2017.~~ ~~Special K~~ ~~shipments were down year-on-year~~, ~~but improved sequentially and returned to share~~Double-digit growth ~~in June~~.

~~Toaster pastries grew share by 60 basis points during the first half of the year despite lower consumption in the category.~~

As Reported operating profit increased 7.4% due to productivity initiatives and reduced restructuring charges partially offset by lower net sales. Currency-neutral comparable operating profit increased 5.2% after eliminating the impact of restructuring charges.

~~U.S. Snacks~~

This segment consists of crackers, cookies, savory snacks, wholesome snacks and fruit-flavored snacks. As reported and Currency-neutral comparable net sales declined 3.1% as a result of decreased volume due to lower category-wide consumption and reduced promotional activity in conjunction with conversion from DSD to warehouse distribution.

~~Crackers share declined compared to the prior year due to slowing consumption. Despite reduced promotional activity, our big-three brands (Cheez-it~~^®~~, Club~~^®~~, and Townhouse~~^®~~) gained share during the first half of the year.~~

~~Wholesome Snacks posted a decline in consumption and share primarily due to certain lines of~~ ~~Special K~~^® ~~bars and cracker-chips. However,~~ ~~Rice Krispies Treats~~^® ~~grew share during the first half of the year.~~

~~Cookies posted a decline in consumption and share for the quarter. However,~~ ~~Keebler~~ ~~Fudge Shoppe maintained consumption and share growth during the first half of the year.~~

~~Savory snacks posted a decline in shipments and share during the year-to-date period partially mitigated by favorable price/mix.~~

As reported operating profit declined 114.5% due to increased Project K restructuring charges in the current year and sales performance. Currency-neutral comparable operating profit decreased 14.0% after excluding the impact of restructuring charges.

~~U.S. Specialty~~

~~As reported and Currency-neutral comparable net sales improved 3.7% as a result of higher volume and improved pricing/mix aided by innovation and expansion in core and emerging growth channels.~~

As reported operating profit increased 13.7% due to the higher net sales, savings from Project K and ZBB initiatives, and lower restructuring charges. Currency-neutral comparable operating profit increased 11.6% after excluding the impact of restructuring charges.

~~North America Other~~

This segment is composed of our U.S. Frozen Foods, Kashi, and Canada businesses. As reported net sales declined 4.3% due to decreased volume and foreign currency partially offset by acquisitions. Currency-neutral comparable net sales declined 4.4% after excluding the impact of acquisitions and foreign currency.

~~The U.S. Frozen business posted slightly lower As reported net sales due to lower volume.~~ ~~Eggo~~^®grew share and consumption during the year-to-date period, benefiting from the removal of artificial ingredients and the launch of kid-loved shapes, with Mickey Mouse-shaped waffles leading the way. Our frozen veggie business, under the ~~Morningstar Farms~~^®~~and~~ ~~Gardenburger~~^®~~brands, returned to growth in the second quarter as our renovated product lines are on the shelf and supported by a solid commercial plan.~~

In Canada, shipments decreased during the period due to lower volume and foreign currency partially offset by favorable pricing/mix. We are seeing the impacts of our efforts to improve price realization due to transactional foreign exchange pressure and we have started to lap our pricing action in the second quarter.

Kashi posted lower shipments during the period on lower volume due to last year's exiting of non-core or less profitable SKUs, promotions, or categories. Our cereal business grew consumption and share. We also saw improved trends for the wholesome snacks business, as recent innovations and media are starting to take hold.

As Reported operating profit increased 17.7% due to lower restructuring charges in addition to Project K and ZBB savings partially offset by lower net sales and foreign currency. Currency-neutral comparable operating profit increased 13.4% after excluding the impact of restructuring charges and translational foreign currency.

~~Europe~~

As Reported net sales declined 12.1% due to unfavorable foreign currency and lower volume partially offset by the favorable impact of pricing/mix and acquisitions. Currency-neutral comparable net sales declined 7.6% after excluding the impact of foreign currency and acquisitions.

Pringles volume was lower due primarily to prolonged negotiations with our customers as we sought to price behind our food and packaging upgrades. These negotiations were resolved by April but caused us to miss out on several second quarter merchandising programs.

~~Cereal shipments declined on lower volume and foreign currency. However, the U.K. cereal business realized sequential improvement as consumption was down significantly less in the second quarter.~~

As reported operating profit increased 3.3% due to lower restructuring charges as well as incremental Project K savings partially mitigated by foreign currency. Currency-neutral comparable operating profit declined 3.5% after excluding the impact of restructuring charges, prior year integration costs, acquisitions and foreign currency.

~~Latin America~~

As Reported net sales improved 15.3% due to increased volume as a result of the Parati acquisition and the impact of favorable pricing/mix. This was partially offset by lower volume in the base business and the unfavorable impact of foreign currency. Currency-neutral comparable net sales declined 2.5% after excluding the impact of acquisitions, prior year Venezuela results, and foreign currency.

~~The integration of Parati, our acquisition in Brazil, continues to progress well, as the business posted solid growth.~~

~~Offsetting the impact of Parati, volume of the base business was adversely impacted by softness related to market conditions and distributor transitions in the Caribbean/Central America sub-region.~~

~~Across the region, we sustained strong momentum in Pringles, including gains in Chile, Argentina, Mexico, Colombia and Brazil.~~

As Reported operating profit increased 36.7%, primarily due to the impact of the Parati acquisition, which more than offset the impact of foreign currency. Currency-neutral comparable operating profit increased 1.5% after excluding the impact of restructuring costs, acquisitions, prior year Venezuela remeasurement and foreign currency.

~~Asia Pacific~~

As Reported net sales improved 5.7% due to favorable foreign currency and pricing/mix as well as a slight increase in volume. Currency-neutral comparable net sales increased 2.5%, after excluding the impact of foreign currency.

Shipments increased in Australia, our largest market in the region, due primarily to innovation and renovation. In Asia, we generated broad-based growth, where Korea, India, and Southeast Asia all posted higher shipments.

~~Across the region, our Pringles business posted high single-digit growth.~~

~~Outside of our reported results, our joint ventures in West Africa and China continued to perform extremely well. Growth~~ was driven by strong noodles volume in West Africa and by e-commerce sales in China.

Corporate

As reported operating profit increased 43.0% due to higher net sales, lower restructuring charges, and brand-building efficiencies. Currency-neutral comparable operating profit improved 31.3% after excluding the impact of restructuring, prior year integration costs and foreign currency.

~~Corporate~~

~~As Reported operating profit improved $9~~$95 million due primarily to ~~lower pension and postretirement benefit~~the favorable impact of year on year mark-to-market costs. Currency-neutral ~~comparable~~adjusted operating profit improved ~~$23~~$16 million after excluding the impact of mark-to-market, restructuring charges, and foreign currency.

Margin performance

Margin performance for the quarter and year-to-date periods of ~~2017~~2018 versus ~~2016~~2017 is as follows:


Quarter	2017		2016		Change vs. prior year (pts.)		2018		2017		Change vs. prior year (pts.)
Reported gross margin (a)	39.7	%	38.9	%	0.8		36.8	%	35.7	%	1.1
Mark-to-market (COGS)	0.3		0.5		(0.2	)	0.9	%	(1.4	)%	2.3
Project K and cost reduction activities (COGS)	(0.7	)	(1.0	)	0.3		(0.4	)%	(0.4	)%	—
Acquisitions (COGS)	0.1		—		0.1
Venezuela operations impact (COGS)	—		(0.1	)	0.1
Venezuela remeasurement (COGS)	—		(0.2	)	0.2
Comparable gross margin	40.0	%	39.7	%	0.3
Foreign currency impact	—				—		—	%	—	%	—
Currency-neutral comparable gross margin	40.0	%			0.3
Currency-neutral adjusted gross margin							36.3	%	37.5	%	(1.2	)
Reported SG&A%	(25.5	)%	(25.1	)%	(0.4	)	(21.8	)%	(27.1	)%	5.3
Mark-to-market (SG&A)	(0.1	)	0.1		(0.2	)	—	%	(0.1	)%	0.1
Project K and cost reduction activities (SG&A)	(2.3	)	(1.2	)	(1.1	)	(0.2	)%	(3.8	)%	3.6
Acquisitions (SG&A)	(0.3	)	—		(0.3	)
Venezuela operations impact (SG&A)	—		0.1		(0.1	)
Comparable SG&A%	(22.8	)%	(24.1	)%	1.3
Foreign currency impact	—				—		—	%	—	%	—
Currency-neutral comparable SG&A%	(22.8	)%			1.3
Currency-neutral adjusted SG&A%							(21.6	)%	(23.2	)%	1.6
Reported operating margin	14.2	%	13.8	%	0.4		15.0	%	8.6	%	6.4
Mark-to-market	0.2		0.6		(0.4	)	0.9	%	(1.5	)%	2.4
Project K and cost reduction activities	(3.0	)	(2.2	)	(0.8	)	(0.6	)%	(4.2	)%	3.6
Acquisitions	(0.2	)	—		(0.2	)
Venezuela remeasurement	—		(0.2	)	0.2
Comparable operating margin	17.2	%	15.6	%	1.6
Foreign currency impact	—				—		—	%	—	%	—
Currency-neutral comparable operating margin	17.2	%			1.6
Currency-neutral adjusted operating margin							14.7	%	14.3	%	0.4

For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.

(a) Reported gross profit as a percentage of net sales. Gross profit is equal to net sales less cost of goods sold.

Reported gross margin for the quarter was favorable 80110 basis points ~~driven by good~~due primarily to productivity ~~and cost-savings under~~savings as a result of Project K restructuring initiatives and ~~ZBB,~~ favorable ~~net input costs as well as the benefit of acquisitions, lower restructuring costs, Venezuela prior year operations, and Venezuela remeasurement. This was~~mark-to-market adjustments, partially offset by the impact of ~~mark-to-market accounting for pension, commodities~~U.S. Snacks transition out of DSD distribution and ~~foreign currency contracts.~~a substantial year-over-year increase in freight costs. The former reflects the elimination of the list price premium, as DSD services are no longer provided, and the inclusion of logistics costs in COGS in a warehouse distribution model. Logistics costs were expensed to SG&A in the DSD model. Currency-neutral ~~comparable~~adjusted gross margin ~~improved 30~~was unfavorable 120 basis points compared to the first quarter of 2017 after eliminating the impact of mark-to-market ~~restructuring, acquisitions, Venezuela remeasurement,~~ and ~~Venezuela prior year operations.~~restructuring.

Reported SG&A% for the quarter was ~~unfavorable 40~~favorable 530 basis points due primarily to ~~increased Project K restructuring charges associated with our Direct Store Delivery (DSD) exit. The impact of restructuring charges was partially mitigated by~~ overhead savings realized from Project K and ~~ZBB and the impact to brand-building investment from ZBB efficiencies.~~lower Project K restructuring charges. Currency-neutral ~~comparable~~adjusted SG&A% was favorable ~~130~~160 basis points after excluding the impact of restructuring ~~mark-to-market, acquisitions,~~ and ~~prior year Venezuela operations.~~mark-to-market

Reported operating margin for the quarter was favorable 40640 basis points due ~~primarily~~ to ~~COGS~~significantly lower restructuring charges, favorable market-to-market and ~~SG&A~~foreign currency impacts, as well as productivity savings ~~realized~~ from Project K restructuring, which includes this year's exit from its U.S. Snacks segment's Direct Store Delivery sales and ~~ZBB initiatives partially~~delivery system. These savings more than offset ~~by higher restructuring charges.~~a substantial year-over-year increase in advertising and promotion investment. Currency-neutral ~~comparable~~adjusted operating margin was favorable ~~160 basis points after excluding the year-over-year impact of restructuring, mark-to-market, acquisitions, and Venezuela remeasurement.~~

Year-to-date 2017 2016
Change vs. prior
year (pts.)
Reported gross margin (a) 38.3 % 37.7 % 0.6
Mark-to-market (COGS) (0.4 ) (0.2 ) (0.2 )
Project K and cost reduction activities (COGS) (0.5 ) (0.8 ) 0.3
Acquisitions (COGS) 0.1
—
0.1
Venezuela remeasurement (COGS) —
(0.2 ) 0.2
Comparable gross margin 39.1 % 38.9 % 0.2
Foreign currency impact —
—
Currency-neutral comparable gross margin 39.1 % 0.2
Reported SG&A% (25.7 )% (24.4 )% (1.3 )
Mark-to-market (SG&A) 0.2
0.1
0.1
Project K and cost reduction activities (SG&A) (3.2 ) (1.1 ) (2.1 )
Integration and transaction costs (SG&A) (0.1 ) —
(0.1 )
Acquisitions (SG&A) (0.2 ) —
(0.2 )
Venezuela operations impact (SG&A) —
0.1
(0.1 )
Comparable SG&A% (22.4 )% (23.5 )% 1.1
Foreign currency impact —
—
Currency-neutral comparable SG&A% (22.4 )% 1.1
Reported operating margin 12.6 % 13.3 % (0.7 )
Mark-to-market (0.2 ) (0.1 ) (0.1 )
Project K and cost reduction activities (3.7 ) (1.9 ) (1.8 )
Integration and transaction costs (0.1 ) —
(0.1 )
Acquisitions (0.1 ) —
(0.1 )
Venezuela operations impact —
0.1
(0.1 )
Venezuela remeasurement —
(0.2 ) 0.2
Comparable operating margin 16.7 % 15.4 % 1.3
Foreign currency impact —
—
Currency-neutral comparable operating margin 16.7 % 1.3

~~For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.~~

~~(a) Reported gross profit as a percentage of net sales. Gross profit is equal to net sales less cost of goods sold.~~

Reported gross margin for the year-to-date period was favorable 60 basis points driven by good productivity and cost-savings under Project K and ZBB, favorable net input costs, lower restructuring costs as well as the year-over-year benefit of acquisitions and Venezuela remeasurement. This was partially offset by the impact of mark-to-market accounting for pension plans, commodities and foreign currency contracts. Currency-neutral comparable gross margin improved 20 basis points after eliminating the impact of mark-to-market, restructuring, acquisitions, Venezuela remeasurement, and foreign currency.

Reported SG&A% for the quarter was unfavorable 130 basis points due to increased Project K restructuring charges associated with our Direct Store Delivery (DSD) exit. The impact of restructuring charges was partially mitigated by overhead savings realized from Project K and ZBB, the impact to brand-building investment from ZBB efficiencies, and mark-to-market. Currency-neutral comparable SG&A% was favorable 11040 basis points after excluding the impact of ~~restructuring,~~ mark-to-market, ~~integration costs, acquisitions, prior year Venezuela operations,~~restructuring, and foreign currency.

Reported operating margin for the quarter was unfavorable 70 basis points primarily due to increased Project K restructuring charges. These impacts were partially offset by the favorable impact to COGS and SG&A expense realized from Project K and ZBB initiatives. Currency-neutral comparable operating margin was favorable 130 basis points after excluding the year-over-year impact of restructuring, mark-to-market, integration costs, acquisitions, Venezuela remeasurement, prior year Venezuela operations, and foreign currency.

Our currency-neutral ~~comparable~~adjusted gross profit, currency-neutral ~~comparable~~adjusted SG&A, and currency-neutral ~~comparable~~adjusted operating profit measures are reconciled to the directly comparable GAAP measures as follows:

Quarter ended Year-to-date period ended
(dollars in millions) July 1,
2017 July 2,
2016 July 1,
2017 July 2,
2016
Reported gross profit (a) $ 1,265
$ 1,270
$ 2,469
$ 2,515
Mark-to-market (COGS) 8
16
(21 ) (9 )
Project K and cost reduction activities (COGS) (20 ) (36 ) (35 ) (54 )
Integration and transaction costs (COGS) —
—
—
(1 )
Acquisitions (COGS) 21
—
43
—
Venezuela operations impact (COGS) —
2
—
7
Venezuela remeasurement (COGS) —
(7 ) —
(12 )
Comparable gross profit $ 1,256
$ 1,295
$ 2,482
$ 2,584
Foreign currency impact (7 ) (20 )
Currency-neutral comparable gross profit $ 1,263

$ 2,502

Reported SG&A $ 812
$ 821
$ 1,656
$ 1,628
Mark-to-market (SG&A) 1
(4 ) (7 ) (5 )
Project K and cost reduction activities (SG&A) 76
36
203
70
Integration and transaction costs (SG&A) —
—
1
—
Acquisitions (SG&A) 17
—
33
—
Venezuela operations impact (SGA) —
2
—
2
Venezuela remeasurement (SG&A) —
—
—
1
Comparable SG&A $ 718
$ 787
$ 1,426
$ 1,560
Foreign currency impact (1 )

(5 )

Currency-neutral comparable SG&A $ 719

$ 1,431

Reported operating profit $ 453
$ 449
$ 813
$ 887
Mark-to-market 7
20
(14 ) (4 )
Project K and cost reduction activities (96 ) (72 ) (238 ) (124 )
Integration and transaction costs —
—
(1 ) (1 )
Acquisitions 4
—
10
—
Venezuela operations impact —
—
—
5
Venezuela remeasurement —
(7 ) —
(13 )
Comparable operating profit $ 538
$ 508
$ 1,056
$ 1,024
Foreign currency impact (6 ) (15 )
Currency-neutral comparable operating profit $ 544

$ 1,071

~~For more information on the reconciling items in the table above, please refer to the Significant items impacting comparability section.~~

~~(a) Gross profit is equal to net sales less cost of goods sold.~~



	Quarter ended
(dollars in millions)	March 31, 2018			April 1, 2017
Reported gross profit (a)	$	1,252		$	1,160
Mark-to-market (COGS)	30			(45		)
Project K and cost reduction activities (COGS)	(13		)	(13		)
Foreign currency impact	29			—
Currency-neutral adjusted gross profit	1,206			1,218
Reported SG&A	$	742		$	880
Mark-to-market (SG&A)	—			2
Project K and cost reduction activities (SG&A)	7			125
Foreign currency impact	18			—
Currency-neutral adjusted SG&A%	717			753
Reported operating profit	$	510		$	280
Mark-to-market	30			(47		)
Project K and cost reduction activities	(20		)	(138		)
Foreign currency impact	11			—
Currency-neutral adjusted operating profit	489			465

Restructuring and cost reduction activities

We view our restructuring and cost reduction activities as part of our 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. 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.

Project K

expected to continue generating ~~a significant amount of~~ savings that may be invested in key strategic areas of focus for the business to drive future growth or utilized to achieve our ~~2018 Margin Expansion target.~~growth initiatives.

We currently anticipate that Project K will result in total pre-tax charges, once all phases are approved and implemented, of $1.5 to $1.6 billion, with after-tax cash costs, including incremental capital investments, estimated to be approximately $1.1 billion. Cash expenditures of approximately ~~$725~~$950 million have been incurred through the end of fiscal year ~~2016.~~2017. Total cash expenditures, as defined, are expected to be approximately ~~$300~~$175 million for ~~2017 and the balance thereafter.~~2018. Total charges for Project K in ~~2017~~2018 are expected to be approximately ~~$400~~$75 to ~~$450~~$125 million.

We ~~now~~ expect annual cost savings generated from Project K will be approximately $600 to $700 million in 2019. The savings will be realized primarily in selling, general and administrative expense with additional benefit realized in gross profit as cost of goods sold savings are partially offset by negative volume and price impacts resulting from go-to-market business model changes. The overall savings profile of the project ~~has been updated to reflect~~reflects our go-to-market initiatives that will impact both selling, general and administrative expense and gross profit. We have realized approximately ~~$300~~$480 million of annual savings through the end of ~~2016.~~2017. Cost savings ~~will continue to be~~have been utilized to increase margins and be strategically invested in areas such as in-store execution, sales capabilities, including adding sales representatives, re-establishing the Kashi business unit, and in the design and quality of our products. We have also invested in production capacity in developing and emerging markets, and in global category teams.

We funded much of the initial cash requirements for Project K through our supplier financing initiative. We are now able to fund much of the cash costs for the project through cash on hand as we have started to realize cash savings from the project.

We also expect that the project will have an impact on our consolidated effective income tax rate during the execution of the project due to the timing of charges being taken in different tax jurisdictions. The impact of this project on our consolidated effective income tax rate will be excluded from the ~~comparable~~adjusted income tax rate that will be disclosed on a quarterly basis.

We will complete the implementation of Project K in 2018, with annual savings expected to increase through 2019. Project charges, after-tax cash costs and annual savings remain in line with expectations.

Refer to Note 5 within Notes to Consolidated Financial Statements for further information related to Project K and other restructuring activities.

~~Other Projects~~

In 2015 we implemented a zero-based budgeting (ZBB) program in our North America business and during the first half of 2016 the program was expanded into our international businesses. We expect cumulative savings from the ZBB program to be approximately $450 to $500 million by the end of 2018, realized largely in selling, general and administrative expense.

In support of the ZBB initiative, we incurred pre-tax charges of approximately $1 million and $17 million during the year-to-date periods ended July 1, 2017 and July 2, 2016, respectively. Total charges of $38 million have been recognized since the inception of the ZBB program. We anticipate that ZBB will result in total cumulative pre-tax charges of approximately $40 million through 2017 which will consist primarily of the design and implementation of business capabilities.

Foreign currency translation

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, including the euro, British pound, Australian dollar, Canadian dollar, Mexican peso, Russian ruble, Brazilian Real, and ~~Russian ruble.~~Nigerian Naira. 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.

Interest expense

For the ~~year-to-date periods~~quarters ended ~~July~~March 31, 2018 and April 1, 2017, ~~and July 2, 2016,~~ interest expense was ~~$124~~$69 million and ~~$285~~$61 million, respectively. ~~Prior~~The increase from the comparable prior year period is due to higher interest ~~expense includes $153 million charge to redeem $475 million~~rates on floating rate debt as well as Senior Notes issued in November 2017 in conjunction with our acquisition of ~~7.45% U.S. Dollar Debentures due 2031. The charge consisted primarily of a premium on~~ the ~~tender offer and also including accelerated losses on pre-issuance interest rate hedges, acceleration of fees and debt discount on the redeemed debt and fees.~~

~~For the full year 2017, we expect gross interest expense to be approximately $250 million. Full year interest expense for 2016 was $406 million, including $153 million related to the tender offer.~~

RXBAR business.

Income taxes

Our reported effective tax rate for the quarters ended ~~July~~March 31, 2018 and April 1, 2017 was 13% and ~~July 2, 2016 was 26% and 27%~~14%, respectively. For the quarter ended March 31, 2018, the effective tax rate benefited from a $44 million discrete tax benefit as a result of the remeasurement of deferred taxes following a legal entity restructuring, as well as the reduction in the U.S. corporate tax rate effective at the beginning of 2018. These impacts were mitigated somewhat by an increased weighting of taxable income in higher tax rate jurisdictions versus the prior year. The ~~reported~~ effective tax rate for the ~~year-to-date periods~~quarter ended ~~July~~April 1, 2017, ~~and July 2, 2016 was 21% and 25%, respectively.~~

~~For the year-to-date period ended July 1, 2017, the effective tax rate~~ benefited from a deferred tax benefit of $38 million resulting from the intercompany transfer of intellectual property. ~~The effective tax rate for the quarter and year-to-date periods ended July 2, 2016, benefited from excess tax benefits from share-based compensation and the completion of certain tax examinations.~~

The ~~comparable~~adjusted effective income tax rate for the quarters ended ~~July~~March 31, 2018 and April 1, 2017 was 13% and ~~July 2, 2016 was 28%. The comparable effective tax rate for the year-to-date periods ended July 1, 2017 and July 2, 2016 was 24% and 26%~~20%, respectively. ~~Refer~~The decrease from the comparable prior year quarter is due primarily to ~~Note 10 within Notes to Consolidated Financial Statements for further information.~~the reduction in the U.S. corporate tax rate.

For the full year ~~2017,~~2018, we currently expect the ~~comparable~~ effective income tax rate to be approximately ~~26-27%~~20-21%. Fluctuations in foreign currency exchange rates could impact the expected effective income tax rate as it is dependent upon U.S. dollar earnings of foreign subsidiaries doing business in various countries with differing statutory rates. Additionally, the rate could be impacted by tax legislation and if pending uncertain tax matters, including tax positions that could be affected by planning initiatives, are resolved more or less favorably than we currently expect.

The following table provides a reconciliation of as reported to ~~comparable~~adjusted income taxes and effective tax rate for the ~~quarter~~quarters ended March 31, 2018 and ~~year-to-date periods ended July~~April 1, ~~2017 and July 2, 2016.~~2017.

Quarter ended Year-to-date period ended
Consolidated results (dollars in millions, except per share data) July 1,
2017 July 2,
2016 July 1,
2017 July 2,
2016
Reported income taxes $ 102
$ 106
$ 144
$ 153
Mark-to-market 3
7
(1 ) 2
Project K and cost reduction activities (34 ) (23 ) (80 ) (32 )
Other costs impacting comparability —
—
—
(54 )
Venezuela operations impact —
—
—
1
Venezuela remeasurement —
—
—
—
Comparable income taxes $ 133
$ 122
$ 225
$ 236
Reported effective income tax rate 26.4 % 27.4 % 20.9 % 25.2 %
Mark-to-market 0.1 % 0.5 % 0.2 % 0.5 %
Project K and cost reduction activities (1.9 )% (1.0 )% (3.3 )% (0.2 )%
Other costs impacting comparability — % — % — % (1.7 )%
Venezuela operations impact — % — % — % (0.1 )%
Venezuela remeasurement — % 0.3 % — % 0.3 %
Comparable effective income tax rate 28.2 % 27.6 % 24.0 % 26.4 %



	Quarter ended
Consolidated results (dollars in millions)	March 31, 2018			April 1, 2017
Reported income taxes	$	67		$	43
Mark-to-market	7			(4		)
Project K and cost reduction activities	(4		)	(46		)
Adjusted income taxes	64			93
Reported effective income tax rate	13.1		%	14.0		%
Mark-to-market	0.5		%	(0.2		)%
Project K and cost reduction activities	(0.3		)%	(5.5		)%
Adjusted effective income tax rate	12.9		%	19.7		%

Investments in Unconsolidated entities

After-tax earnings from unconsolidated entities for the quarter ended March 31, 2018 decreased to less than $1 million loss compared to prior year income of $2 million. The decrease was driven by increased advertising and promotional activities in one of our joint ventures within the all other unconsolidated entities. Net sales attributable to our share of the unconsolidated entities were approximately $104 million for Multipro and approximately $7 million for all other unconsolidated entities.

The components of our unconsolidated entities’ net sales growth for first quarter of 2018 versus 2017 are shown in the following table:



		~~2017 full year guidance~~
~~Reported effective income tax rate~~		*
~~Mark-to-market~~		*
~~Project K and cost reduction activities~~		(2	)%
~~Integration costs~~		*
~~Comparable effective income tax rate~~	~~Approx.~~	~~26-27%~~
* Full year guidance for this measure cannot be reasonably estimated as certain information necessary to calculate such measure on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company.



	Multipro		Other		Total unconsolidated entities
Contributions from volume growth (a)	26.4	%	55.9	%	27.1	%
Net price realization and mix	(4.5	)	(23.2	)	(4.6	)
Currency-neutral adjusted growth	21.9		32.7		22.5
Foreign currency impact	(0.1	)	5.6		0.3
Reported net sales growth	21.8	%	38.3	%	22.8	%
(a) Measured in tons based on the stated weight of our product shipments.

Liquidity and capital resources

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.

We have historically reported negative working capital primarily as the result of our focus to improve core working capital by reducing our levels of trade receivables and inventory while extending the timing of payment of our trade payables. In addition, we have a substantial amount of indebtedness which results in current maturities of long-term debt and notes payable which can have a significant impact on working capital as a result of the timing of these required payments. These factors, coupled with the use of our ongoing cash flows from operations to service our debt obligations, pay dividends, fund acquisition opportunities, and repurchase our common stock, reduce our working capital amounts. We had negative working capital of ~~$1.5~~$1.2 billion and ~~$1.9~~$1.6 billion as of ~~July~~March 31, 2018 and April 1, 2017, ~~and July 2, 2016,~~ respectively.

We believe that our operating cash flows, together with our credit facilities and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. However, 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.

The following table sets forth a summary of our cash flows:


	Year-to-date Period ended						Quarter ended
(millions)	July 1, 2017			July 2, 2016			March 31, 2018			April 1, 2017
Net cash provided by (used in):
Operating activities	$	654		$	648		$	228		$	(34	)
Investing activities	(262		)	(250		)	(131		)	114
Financing activities	(372		)	(94		)	(38		)	(77		)
Effect of exchange rates on cash and cash equivalents	34			(24		)	30			15
Net increase (decrease) in cash and cash equivalents	$	54		$	280		$	89		$	18

Operating activities

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 ~~year-to-date period~~quarter ended ~~July 1, 2017,~~March 31, 2018, totaled ~~$654~~$228 million, an increase of $6$262 million over the same period in ~~2016. Pre-tax cash costs totaling $144~~2017, as restated, due primarily to the termination of our accounts receivable securitization program at the end of 2017. Collections of deferred purchase price on securitized trade receivables totaled $245 million in the ~~first half of 2016 related to~~quarter ended April 1, 2017 versus zero in the $475 million redemption of our 7.45% U.S. Dollar Debentures due 2031 and $59 million cash settlement of forward starting swaps were offset by $120 million increase in tax cash payments during the first half of 2017 as well as a lower year-over-year cash flow impact from the supplier financing initiative.current quarter.

After-tax Project K cash payments were ~~$95~~$66 million and ~~$82~~$37 million for the ~~year-to-date periods~~quarters ended ~~July~~March 31, 2018 and April 1, 2017, ~~and July 2, 2016,~~ respectively.

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 approximately ~~zero~~negative 6 days and 7zero days for the 12 month periods ended ~~July~~March 31, 2018 and April 1, 2017, ~~and July 2, 2016,~~ respectively. Compared with the 12 month period ended ~~July 2, 2016,~~April 1, 2017, the ~~2017~~2018 cash conversion cycle was positively impacted by an increase in the days of trade payables outstanding attributable to a supplier financing initiative.

Our pension and other postretirement benefit plan contributions amounted to ~~$28~~$19 million and ~~$23~~$24 million for the ~~year-to-date periods~~quarters ended ~~July~~March 31, 2018 and April 1, 2017, ~~and July 2, 2016,~~ respectively. For the full year ~~2017,~~2018, we currently expect that our contributions to pension and other postretirement plans will total approximately ~~$42~~$37 million. ~~Plan~~Actual 2018 contributions could be different from our current projections, as influenced by potential discretionary funding ~~strategies may be modified in response to~~of our ~~evaluation of tax deductibility, market conditions and~~benefit trusts versus other competing investment ~~alternatives.~~priorities.

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:


	Quarter ended							Quarter ended
(millions)	July 1, 2017			July 2, 2016			Approximate 2017 full year guidance	March 31, 2018			April 1, 2017
Net cash provided by operating activities	$	654		$	648		$1,600-$1,700	$	228		$	(34	)
Additions to properties	(268		)	(249		)	(500)	(132		)	(130		)
Cash flow	$	386		$	399		$1,100-$1,200	$	96		$	(164	)

Investing activities

Our net cash used in investing activities totaled ~~$262~~$131 million for the ~~year-to-date period~~quarter ended ~~July 1, 2017~~March 31, 2018 compared to ~~$250~~cash provided of $114 million in the same period of ~~2016.~~2017, as restated. The ~~increase~~decrease from the prior year was primarily due to ~~higher current year capital expenditures and and a~~the impact of collections of deferred purchase price ~~adjustment~~ on ~~our investment in Multipro resulting in a refund of $28 million during the second quarter of 2016 mitigated by an $18 million acquisition~~securitized trade receivables during the first quarter of ~~2016.~~2017. This program was terminated at the end of 2017.

Financing activities

Our net cash used in financing activities for the ~~year-to-date period~~quarter ended ~~July 1, 2017~~March 31, 2018 totaled ~~$372~~$38 million compared to ~~$94~~$77 million in the same period of ~~2016.~~2017. The difference is due to common stock repurchases of $125 million during the

first quarter of 2017 mitigated somewhat by lower proceeds from net issuance of notes payable during the first quarter of 2018 versus 2017.

In November 2017, we issued $600 million of ten-year 3.4% Senior Notes to pay down commercial paper issued in conjunction with the purchase of Chicago Bar Co., LLC, manufacturer of RXBAR.

In May 2017, we issued €600 million of five-year 0.80% Euro Notes due 2022 and repaid our 1.75% fixed rate $400 million U.S. Dollar Notes due 2017 at maturity. Additionally, we repaid our 2.05% fixed rate Cdn. $300 million Canadian Dollar Notes at maturity.

In ~~November 2016, we issued $600 million of seven-year 2.65% U.S. Dollar Notes and repaid our 1.875% $500 million U.S. Dollar Notes due 2016 at maturity.~~

~~In May 2016, we issued €600 million of eight-year 1.00% Euro Notes due 2024 and repaid our 4.45% fixed rate $750 million U.S. Dollar Notes due 2016 at maturity.~~

In March 2016, we issued $750 million of ten-year 3.25% U.S. Dollar Notes and $650 million of thirty-year 4.50% U.S. Dollar Notes. Also in March 2016, we redeemed $475 million of our 7.45% U.S. Dollar Debentures due 2031.

In December ~~2015,~~2017, the board of directors approved a new authorization to repurchase up to $1.5 billion in shares beginning in ~~2016~~2018 through December ~~2017.~~2019. We did not repurchase shares during the quarter ended March 31, 2018 as we weighed several investment alternatives, including additional investments in West Africa and discretionary pension contributions. Total purchases for the ~~year-to-date period~~quarter ended ~~July~~April 1, 2017, were 62 million shares for $435 million, of which $390 million was paid during the year-to-date period and $45 million was payable at July 1, 2017. Total purchases for the year-to-date period ended July 2, 2016, were 5 million shares for $386$125 million.

We paid cash dividends of ~~$363~~$187 million in the ~~year-to-date period~~quarter ended ~~July 1, 2017,~~March 31, 2018, compared to ~~$351~~$182 million during the same period in ~~2016.~~2017. The increase in dividends paid reflects our third quarter ~~2016~~2017 increase in the quarterly dividend to ~~$.52~~$.54 per common share from the previous ~~$.50~~$.52 per common share. In ~~July 2017,~~April 2018, the board of directors declared a dividend of $.54 per common share, payable on ~~September~~June 15, ~~2017~~2018 to shareholders of record at the close of business on ~~September~~June 1, ~~2017.~~2018. The dividend is broadly in line with our current plan to maintain our long-term dividend pay-out of approximately 50% of ~~comparable~~adjusted net income. In addition, the board of directors announced plans to increase the quarterly dividend to $.56 per common share beginning with the third quarter of 2018.

~~In February 2014, we~~We entered into an unsecured ~~five year credit agreement expiring~~Five-Year Credit Agreement in ~~2019, which allows~~February 2014, allowing us to borrow, on a revolving credit basis, up to $2.0 ~~billion.~~billion and expiring in 2019. In January 2018, we entered into an unsecured Five-Year Credit Agreement to replace the existing agreement allowing us to borrow up to $1.5 billion, on a revolving basis.

In January ~~2017,~~2018, we entered into an unsecured 364-Day Credit Agreement to borrow, on a revolving credit basis, up to ~~$800 million~~$1.0 billion at any time ~~outstanding.~~outstanding, to replace the $800 million 364-day facility that expired in January 2018. The new credit ~~facility~~facilities contains customary covenants and warranties, including specified restrictions on indebtedness, liens and a specified interest expense 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. There are no borrowings outstanding under the new credit ~~facility.~~facilities.

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 expect our access to public debt and commercial paper markets, along with operating cash flows, will be adequate to meet future operating, investing and financing needs, including the pursuit of selected acquisitions.

During ~~the first half of~~ 2016, we ~~executed~~initiated a ~~discrete customer~~ program toin which customers could extend ~~customer~~their payment terms in exchange for the elimination of ~~the discount we had offered for~~ early ~~payment.~~ payment discounts (Extended Terms Program).

In order to mitigate the net working capital impact of the ~~extended payment terms,~~Extended Terms Program for discrete customers, we entered into ~~an agreement~~agreements to sell, on a revolving basis, certain trade accounts receivable balances ~~of the customer~~ to a third party financial institution. The agreement is intended to directly offset the impact that extended customer payment terms would have on our days-sales-outstanding (DSO) metric that is critical to the effective management of our accounts receivable balance and our overall working capital. Consequently, we realize no negative effect on our net income or cash flow associated with the extended customer payment terms.institutions (Monetization Programs). Transfers under ~~this agreement~~the Monetization Programs are accounted for as sales of receivables resulting in the receivables being de-recognized from our Consolidated Balance Sheet. The ~~agreement provides~~Monetization Programs provide for the continuing sale of certain receivables on a revolving basis until terminated by either ~~party to the agreement;~~party; however the maximum funding from receivables that may be sold at any time is currently ~~$700~~$988 million (increased from $800 million as of December 30, 2017, reflecting the execution of a second monetization program on March 20, 2018), but may be increased as additional financial institutions are added to the agreement. We currently estimate that the amount of these receivables held at any time by the financial institution(s) will be approximately $550 to $650 million. During the year-to-date period ended July 1, 2017, approximately $1.1 billion of accounts receivable have been sold via this arrangement.Monetization Programs. Accounts receivable sold of ~~$655~~$929 million and $601 million remained outstanding under this arrangement as of ~~July 1, 2017.~~March 31, 2018 and December 30, 2017, respectively.

~~In addition to the discrete customer program above,~~Previously, in July 2016 we established an accounts receivable securitization program for certain customers which allows for extended customer payment terms in exchange for the elimination of the discount we had offered for early payment. In order to mitigate the net working capital impact of the ~~extended payment terms,~~Extended Terms Program for certain customers, we entered into ~~an agreement~~agreements with a financial ~~institution~~institutions (Securitization Program) to sell these receivables resulting in the receivables being de-recognized from our consolidated balance sheet. The agreement is intended to directly offset the impact that extended customer payment terms would have on our days-sales-outstanding (DSO) metric that is critical to the effective management of our accounts receivable balance and our overall working capital. Consequently, we realize no negative effect on our net income or cash flow associated with the extended customer payment terms. The maximum funding from receivables that may be sold at any time ~~is currently~~was $600 ~~million, but may be increased as additional financial institutions are added to~~million. In December 2017, we terminated the ~~agreement. We currently estimate~~Securitization Program, such that no receivables were sold after December 28, 2017. In March 2018 we substantially replaced the ~~amount of these receivables held at any time by~~securitization

program with a second monetization program. Terminating the ~~financial institution(s) will be up to approximately $1 billion. During the year-to-date period ended July 1, 2017, $1.3 billion of accounts receivable have been sold through this program.~~ Securitization Program had no impact on our Cash Flow.

As of ~~July 1,~~December 30, 2017, approximately ~~$443~~$433 million of accounts receivable sold under the ~~securitization program~~Securitization Program remained outstanding, for which we received cash of approximately ~~$404~~$412 million and a deferred purchase price asset of approximately ~~$39~~$21 million.

Refer to Note 2 within Notes to Consolidated Financial Statements for further information related to the sale of accounts receivable.

~~Accounting standards~~Future outlook

The Company updated financial guidance for 2018. While we reaffirmed previous guidance for the base business, we are raising guidance for currency-neutral net sales and currency-neutral adjusted operating profit to reflect the impact of our expanded investment in West Africa and the resultant consolidation of Multipro's results.

We expect currency-neutral net sales to be ~~adopted~~up 3-4% in ~~future periods~~

~~In March 2017, the FASB issued an ASU to improve the presentation~~2018. This reflects eight months of net ~~periodic pension cost and net periodic postretirement benefit cost. The ASU requires that an employer report~~sales for Multipro, which adds to the ~~service cost component in~~base business. There were no changes to the ~~same line item or items as other compensation costs arising from services rendered by~~outlook for the ~~pertinent employees during the period. The other components~~base business of ~~net benefit cost are required~~Kellogg, which is expected to be ~~presented in~~flat.

We expect currency-neutral adjusted operating profit will be up 5-7% with the ~~income statement separately from~~addition of Multipro for the service cost component and outside a subtotal of income from operations, if one is presented. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, asremaining eight months of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. That is, early adoption should be the first interim period if an entity issues interim financial statements. The amendments in this ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. We will adopt the ASU in the first quarter of 2018. If we had adopted the ASU in the first quarter of 2017, on an as reported basis, the impact to our Corporate segment would have been an increase to COGS and SG&A of $70 million and $54 million, respectively, with an offsetting decrease to other income (expense), net (OIE) of $124 million in the year-to-date period ended July 1, 2017. For the year-to-date period ended July 2, 2016, the impact to our Corporate segment would have been an increase to COGS and SG&A of $38 million and $42 million, respectively, with an offsetting decrease to OIE of $80 million. Adoption will have no impact on net income or cash flow. The impact to the Consolidated Balance Sheet at July 1, 2017 and July 2, 2016 would have been insignificant.

On a comparable basis, the impact would have been an increase to COGS and SG&A of $79 million and $47 million, respectively, with an offsetting decrease to OIE of $126 million in the year-to-date period ended July 1, 2017, and an increase to COGS and SG&A of $72 million and $42 million, respectively, with a decrease to OIE of $114 million in the year-to-date period ended July 2, 2016. On a comparable basis for the year ~~ended December 31, 2016, the impact would have been an increase to COGS and SG&A of $144 million and $83 million, respectively, with an offsetting decrease to OIE of $227 million.~~

In January 2017, the FASB issued an ASU to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The ASU is effective for an entity's annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments in this ASU should be applied on a prospective basis. We are currently assessing the impact and timing of adoption of this ASU.

In August 2016, the FASB issued an ASU to provide cash flow statement classification guidance for certain cash receipts and payments including (a) debt prepayment or extinguishment costs; (b) contingent consideration

payments made after a business combination; (c) insurance settlement proceeds; (d) distributions from equity method investees; (e) beneficial interests in securitization transactions and (f) application of the predominance principle for cash receipts and payments with aspects ofcontributing more than one ~~class~~point of ~~cash flows. The ASU~~additional growth. RXBAR is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period, in which case adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. The amendments in this ASU should be applied retrospectively. We will adopt the new ASU in the first quarter of 2018. If we had adopted the ASU in the first quarter of 2017, cash flow from operations would have decreased $24 million and cash flow from investing activities would have increased $24 million for the year-to-date period ended July 1, 2017.

In February 2016, the FASB issued an ASU which will require the recognition of lease assets and lease liabilities by lessees for all leases with terms greater than 12 months. The distinction between finance leases and operating leases will remain, with similar classification criteria as current GAAPexpected to distinguish between capital and operating leases. The principal difference from current guidance is that the lease assets and lease liabilities arising from operating leases will be recognized on the Consolidated Balance Sheet. Lessor accounting remains substantially similar to current GAAP. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. We will adopt the ASU in the first quarter of 2019, and are currently evaluating the impact that implementing this ASU will have on our financial statements.

In January 2016, the FASB issued an ASU which primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption can be elected for all financial statements of fiscal years and interim periods that have not yet been issued or that have not yet been made available for issuance. Entities should apply the update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We will adopt the updated standard in the first quarter of 2018. We do not expect the adoptioncontribute 1-2% of this ~~ASU to have a significant impact on our financial statements.~~

~~In May 2014,~~growth, while the ~~FASB issued~~remaining growth is driven by remaining Project K and ZBB savings, partially offset by an ASU which provides guidance for accounting for revenue from contracts with customers. The core principle of this ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customersincrease in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity would be required to apply the following five steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract and 5) recognize revenue when (or as) the entity satisfies a performance obligation. When the ASU was originally issued it was effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption was not permitted. On July 9, 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The updated standard will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Entities will be permitted to adopt the new revenue standard early, but not before the original effective date. Entities will have the option to apply the final standard retrospectively or use a modified retrospective method, recognizing the cumulative effect of the ASU in retained earnings at the date of initial application. An entity will not restate prior periods if it uses the modified retrospective method, but will be required to disclose the amount by which each financial statement line item is affected in the current reporting period by the application of the ASU as compared to the guidance in effect prior to the change,brand building as well as ~~reasons for~~a significant ~~changes. We will adopt the updated standard~~increase in freight costs.

Finally, we expect currency-neutral adjusted EPS to grow in the ~~first quarter~~range of 9 to 11% in 2018, using a modified retrospective transition method, and the adoption is not expected to have a significant impact on our historical financial statements or future financial position or results of operations.

~~Future outlook~~

~~We affirm our~~unchanged from previous guidance, ~~for currency-neutral comparable net sales,~~driven by growth in adjusted operating profit and ~~earnings per share,~~the benefit on effective tax rate of recent U.S. Tax Reform. The increased investments in Multipro and TAF should have an immaterial impact on currency-neutral adjusted EPS in 2018, as well as for cash flow, as strong productivity performance offsets a softened outlook for currency neutral comparable net sales. The company affirms its guidance for about 3% decline in currency-neutral comparable net sales in 2017. This figure includescontribution to operating profit from consolidating Multipro is largely offset by increased interest expense and the ~~expected (1%) impact~~combination of lower Earnings from ~~the U.S. Snacks transition~~unconsolidated entities and higher deduction related to ~~warehouse distribution from DSD, an estimate that has not changed.~~Net income attributable to noncontrolling interests.

~~Guidance is affirmed for currency-neutral comparable~~We continue to project Net cash provided by operating ~~profit, which we believe will grow 7-9% year on year, as productivity savings offset the impact of lower~~activities to increase to $1.7-1.8 billion in 2018, driven by higher net ~~sales. The exit~~income, sustained working-capital improvement, and benefits from ~~DSD~~U.S. Tax Reform. Capital expenditure is still expected to be ~~neutral to operating profit, as overhead savings later in the year offset the negative net sales impact from list-price~~

adjustments, rationalization of stockkeeping units, and potential disruption during the transition. The Company's currency-neutral comparable operating profit margin is still expected to improve by more than a full percentage

~~point, keeping it well on track toward its goal of 350 basis points of expansion from 2015 through~~

~~2018.~~

Guidance is also affirmed for earnings per share on a currency-neutral comparable basis. Specifically, we expect to generate growth of 8-10% off a 2016 base that excludes after-tax $0.02 from deconsolidated Venezuela results, to $4.03-$4.09. The growth should be driven by the aforementioned 7-9% growth in operating profit, with roughly ~~1% of additional leverage from modestly lower shares outstanding and other items, which slightly more than offsets a higher effective tax rate and~~ flat ~~interest expense. This earnings per share guidance excludes currency translation impact, which we now believe may come in~~ at roughly half of our previous forecast of after-tax ($0.12) per share, owing to the year-to-date weakening of the U.S. dollar against certain currencies. Including this impact, comparable-basis earnings per share are expected to be $3.97-4.03.

Comparable-basis and currency-neutral comparable-basis earnings per share guidance by definition excludes up-front costs of about after-tax $(0.80)-(0.90) per share, or $(400)-(450) million pretax, related to the Project K program, and these cost estimates are unchanged. The EPS guidance also continues to exclude after-tax $(0.01)-(0.03) per share of integration costs, related to the recent acquisition in Brazil, as well as previous acquisitions. Excluding these integration costs, the Brazil acquisition is expected to be neutral to currency-neutral comparable earnings per share.

We also affirmed our guidance for 2017 cash flow. Specifically, cash from operating activities should be approximately $1.6-1.7 billion, which after capital expenditure translates into cash flow of $1.1-1.2$0.5 billion. The ~~latter would be an increase over 2016's $1.1 billion, as higher earnings and continued trimming~~impact of ~~working capital and capital expenditure more than cover increased cash outlays related~~Multipro is immaterial to ~~Project K restructuring programs.~~our Cash Flow in 2018. This estimate excludes the potential impact of discretionary pension contributions, which are being contemplated.

Reconciliation of Non-GAAP amounts - 2017 Full Year Guidance*
Net sales Operating profit EPS
Currency-Neutral Comparable Guidance Approx. (3.0%) 7.0% - 9.0% $4.03 - $4.09
Foreign currency impact (1.3%) (1.6%) Approx. ($.06)
Comparable Guidance Approx. (4.3%) 5.4% - 7.4% $3.97 - $4.03

Impact of certain items excluded from Non-GAAP guidance:
Project K and cost reduction activities (pre-tax) - (2.8%) - (6.3%) ($1.28) - ($1.14)
Integration costs (pre-tax) - 0.3% ($.03) - ($.02)
Acquisitions/dispositions (pre-tax) 1.4% 1.0% $.08
Income tax benefit applicable to adjustments, net** $.37 - $.33



Impact of certain items excluded from Non-GAAP guidance:	Net sales	Operating profit	EPS
Project K and cost reduction activities (pre-tax)		$90-110M	$0.27-$0.32
Income tax benefit applicable to adjustments, net**			$0.05 - $0.27
Currency-neutral adjusted guidance*	3-4%	5-7%	9-11%

* ~~2017~~2018 full year guidance for net sales, operating profit, and earnings per share are provided on a non-GAAP, ~~comparable and~~ currency-neutral ~~comparable~~adjusted basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. The Company is providing quantification of known adjustment items where available.

** Represents the estimated income tax effect on the reconciling items, using weighted-average statutory tax rates, depending upon the applicable jurisdiction.



Reconciliation of Non-GAAP amounts - Cash Flow Guidance
	Approximate
~~(millions)~~(billions)	Full Year ~~2017~~2018
Net cash provided by (used in) operating activities	$~~1,600~~1.7 - ~~$1,700~~$1.8
Additions to properties	($~~500)~~.5)
Cash Flow	$~~1,100~~1.2 - ~~$1,200~~$1.3

Forward-looking statements

This Report contains “forward-looking statements” with projections concerning, among other things, the Company’s global growth and efficiency program (Project K), the integration of acquired businesses, our strategy, zero-based budgeting, 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,” “can,” “anticipate,” “project,” “should,” “estimate,” or words or phrases of similar meaning. For example, forward-looking statements are found in Item 1 and in several sections of Management’s Discussion and Analysis. Our actual results or activities may differ materially from these predictions. Our future results could be affected by a variety of factors, including:

the ability to implement Project K, including exiting our Direct-Store-Door distribution system, as planned, whether the expected amount of costs associated with Project K will exceed forecasts, whether the Company will be able to realize the anticipated benefits from Project K in the amounts and times expected;

the ability to realize the benefits we expect from the adoption of zero-based budgeting in the amounts and at the times expected;

the ability to realize the anticipated benefits from our implementation of a more formal revenue growth ~~management;~~management discipline;

the ability to realize the anticipated benefits and synergies from acquired businesses in the amounts and at the times expected;

the impact of competitive conditions;

the effectiveness of pricing, advertising, and promotional programs;

the success of innovation, renovation and new product introductions;

the recoverability of the carrying value of goodwill and other intangibles;

the success of productivity improvements and business transitions;

commodity and energy prices;

labor costs;

disruptions or inefficiencies in supply chain;

the availability of and interest rates on short-term and long-term financing;

actual market performance of benefit plan trust investments;

the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs;

changes in consumer behavior and preferences;

the effect of U.S. and foreign economic conditions on items such as interest rates, statutory tax rates, currency conversion and availability;

legal and regulatory factors including changes in food safety, advertising and labeling laws and regulations;

the ultimate impact of product recalls;

adverse changes in global climate or extreme weather conditions;

business disruption or other losses from natural disasters, war, terrorist acts, or political unrest; and,

the risks and uncertainties described herein under Part II, Item 1A.

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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 11 within Notes to Consolidated Financial Statements for further information on our derivative financial and commodity instruments.

Refer to disclosures contained within Item 7A of our ~~2016~~2017 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 ~~July 1, 2017.~~March 31, 2018.

~~During 2017,~~In the first quarter in 2018, we entered into forward starting interest rate swaps with notional amounts totaling ~~€300~~$300 million, as hedges against interest rate volatility associated with a forecasted issuance of fixed rate ~~Euro~~ debt to be used for general corporate purposes. These swaps were designated as cash flow hedges. The ~~Euro~~ forward starting interest rate swaps were ~~settled during the quarter ended July 1, 2017 upon issuance~~still outstanding as of fixed rate Euro debt. A resulting aggregate gain of $1 million was recorded in accumulated other comprehensive income (loss) and will be amortized as interest expense over the life of the related fixed rate debt. Refer to Note 7 within Notes to Consolidated Financial Statements for further information relatedMarch 31, 2018 with a loss immaterial to the ~~fixed rate debt issuance.~~financial statements.

During the quarter ended ~~July 1, 2017,~~March 31, 2018, we entered into cross currency swaps with notional amounts totaling approximately $737 million, as hedges against foreign currency volatility associated with our net investment in our wholly-owned foreign subsidiaries. These swaps were designated as net investment hedges. The cross currency swaps were still outstanding as of March 31, 2018 with a loss of $8M.

We have interest rate swaps with notional amounts totaling ~~approximately €600~~$1.4 billion and $2.3 billion outstanding at March 31, 2018 and December 31, 2017, respectively, representing a settlement obligation of $32 million ~~that~~and $54 million, respectively. The interest rate swaps are designated as fair value hedges of certain ~~Euro~~U.S. Dollar debt. ~~Additionally during~~During the ~~year-to-date period~~quarter ended ~~July 1, 2017~~March 31, 2018, we settled interest rate swaps with notional amounts totaling approximately ~~$700~~$869 million which were previously designated as fair value hedges of certain U.S. Dollar Notes.

We recorded an aggregate loss of ~~$14~~$49 million related to the settled swaps that will be amortized as interest expense over the life of the related fixed rate ~~debt. Refer to Note 7 within Notes to Consolidated financial Statements.~~

We have interest rate swaps with notional amounts totaling $2.2 billion outstanding at July 1, 2017 and December 31, 2016, representing a settlement obligation of $46 million and $64 million, respectively. The interest rate swaps are designated as fair value hedges of certain U.S. Dollar and Euro debt. Assuming average variable rate debt levels during the year, a one percentage point increase in interest rates would have increased interest expense by approximately ~~$26~~$15 million and ~~$17~~$27 million at ~~July 1, 2017~~March 31, 2018 and December 31, 2016, respectively.

Item 4. Controls and Procedures

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 ~~July 1, 2017,~~March 31, 2018, 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.

Kellogg’s Project K initiative which includes the reorganization and relocation of certain financial, information technology, and logistics and distribution processes; internal to the organization was initiated in 2014. This initiative is expected to continue through 2018 and will continue to impact the design of our control framework. During efforts associated with Project K, we have implemented additional controls to monitor and maintain appropriate internal controls over financial reporting. There were no other changes during the quarter ended ~~July 1, 2017,~~March 31, 2018, that materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

KELLOGG COMPANY

PART II — OTHER INFORMATION

~~Item 1. Legal Proceedings~~

In April, 2016, the United States Environmental Protection Agency (the “EPA”) issued to The Eggo Company, a subsidiary of the Company, a notice of potential violation alleging that the Company’s Rossville, Tennessee facility had violated certain recordkeeping and reporting requirements under Section 112(r)(7) of the Clean Air Act (the “Notification”). The Notification was based on the findings of an August 2013 inspection of the Company’s Rossville, Tennessee facility by the EPA relating to the ammonia refrigeration system operated at the facility. The Company and the EPA resolved this matter through a Consent Agreement and Final Order which was signed and filed with the EPA Region 4 Clerk on April 6, 2017. In accordance with the provisions of the Consent Agreement and Final Order, the Company paid a civil penalty of $133,000 in full settlement of the allegations set forth in the Consent Agreement and Final Order, but without admitting or denying the factual allegations set forth in that Consent Agreement and Final Order.

Item 1A. Risk Factors

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 December ~~31, 2016.~~30, 2017. The risk factors disclosed under those Reports 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~(c) Issuer Purchases of Equity Securities~~

~~(millions, except per share data)~~

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
Month #1:
4/02/2017 - 4/29/2017 —
$ —
—
$ 949
Month #2:
4/30/2017 - 5/27/2017 2.3
$ 70.79
2.3
$ 789
Month #3:
5/28/2017 - 7/01/2017 2.1
$ 70.67
2.1
$ 639
Total 4.4
$ 70.73
4.4

In December ~~2015, our~~2017, the board of directors approved ~~a share repurchase program authorizing us~~an authorization to repurchase ~~shares~~of up to $1.5 billion of our common stock ~~amounting to $1.5 billion~~ beginning in January ~~2016~~2018 through December ~~2017.~~2019. This authorization is intended to allow us to repurchase shares for general corporate purposes and to offset issuances for employee benefit programs. During the ~~second~~first quarter of ~~2017,~~2018, the Company ~~repurchased 4.4 million~~did not repurchase any shares ~~for a total~~ of ~~$310 million,~~common stock.

The following table provides information with respect to purchases of ~~which $265 million was paid~~common shares under programs authorized by our board of directors during the quarter ~~and $45 million was payable at July 1, 2017.~~ended March 31, 2018.

(millions, except per share data)



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
Month #1:
12/31/2017 - 1/27/2018	—	$	—	—	$	1,500
Month #2:
1/28/2018 - 2/24/2018	—	$	—	—	$	1,500
Month #3:
2/25/2018 - 3/31/2018	—	$	—	—	$	1,500
Total	—	$	—	—

Item 6. Exhibits


(a)	Exhibits:




31.1	Rule 13a-14(e)/15d-14(a) Certification from ~~John~~Steven A. ~~Bryant~~Cahillane
31.2	Rule 13a-14(e)/15d-14(a) Certification from Fareed Khan
32.1	Section 1350 Certification from ~~John~~Steven A. ~~Bryant~~Cahillane
32.2	Section 1350 Certification from Fareed Khan
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

KELLOGG COMPANY

SIGNATURES

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/ Fareed Khan

Fareed Khan

Principal Financial Officer;

Senior Vice President and Chief Financial Officer

/s/ Donald O. Mondano

Donald O. Mondano

Principal Accounting Officer;

Vice President and Corporate Controller

Date: ~~August~~May 4, ~~2017~~2018

KELLOGG COMPANY

EXHIBIT INDEX



Exhibit No.	Description	Electronic (E) Paper (P) Incorp. By Ref. (IBRF)
31.1	Rule 13a-14(e)/15d-14(a) Certification from ~~John~~Steven A. ~~Bryant~~Cahillane	E
31.2	Rule 13a-14(e)/15d-14(a) Certification from Fareed Khan	E
32.1	Section 1350 Certification from ~~John~~Steven A. ~~Bryant~~Cahillane	E
32.2	Section 1350 Certification from Fareed Khan	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

6150



(millions)		December 1, 2016
Current assets		$	46
Property	72
Goodwill	177
Intangible assets	147
Current liabilities	(48			)
Non-current deferred tax liability and other	(19			)
		$	375



(millions)	Location of gain (loss) recognized in income	Gain (loss) recognized in income (a)
		July 1, 2017		July 2, 2016
Interest rate contracts	Interest expense	$	5	$	3
Total		$	5	$	3



(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)
	July 1, 2017		July 2, 2016				July 1, 2017			July 2, 2016				July 1, 2017		July 2, 2016
Foreign currency exchange contracts	$	—	$	(1	)	COGS	$	—		$	—		Other income (expense), net	$	—	$	(1	)
Interest rate contracts	1		(3		)	Interest expense	(3		)	(2		)	N/A	—		—
Commodity contracts	—		1			COGS	—			(4		)	Other income (expense), net	—		—
Total	$	1	$	(3	)		$	(3	)	$	(6	)		$	—	$	(1	)



(millions)	Fair Value		Total Loss
Description:
Long-lived assets	$	10	$	(16	)
Total	$	10	$	(16	)



Quarter ended July 1, 2017
(millions)	U.S. Morning Foods			U.S. Snacks			U.S. Specialty			North America Other			Europe			Latin America			Asia Pacific			Corporate			Kellogg Consolidated
Reported net sales	$	679		$	803		$	276		$	391		$	566		$	234		$	238		$	—		$	3,187
Acquisitions	—			—			—			—			4			46			—			—			50
Comparable net sales	$	679		$	803		$	276		$	391		$	562		$	188		$	238		$	—		$	3,137
Foreign currency impact	—			—			—			(5		)	(23		)	(1		)	6			—			(23		)
Currency-neutral comparable net sales	$	679		$	803		$	276		$	396		$	585		$	189		$	232		$	—		$	3,160
Quarter ended July 2, 2016
(millions)	U.S. Morning Foods			U.S. Snacks			U.S. Specialty			North America Other			Europe			Latin America			Asia Pacific			Corporate			Kellogg Consolidated
Reported net sales	$	727		$	803		$	271		$	406		$	629		$	204		$	228		$	—		$	3,268
Venezuela operations impact	—			—			—			—			—			7			—			—			7
Comparable net sales	$	727		$	803		$	271		$	406		$	629		$	197		$	228		$	—		$	3,261
% change - 2017 vs. 2016:
Reported growth	(6.6		)%	—		%	1.8		%	(3.6		)%	(10.0		)%	14.8		%	4.3		%	—		%	(2.5		)%
Acquisitions	—		%	—		%	—		%	—		%	0.6		%	22.4		%	—		%	—		%	1.5		%
Venezuela operations impact	—		%	—		%	—		%	—		%	—		%	(2.7		)%	—		%	—		%	(0.2		)%
Comparable growth	(6.6		)%	—		%	1.8		%	(3.6		)%	(10.6		)%	(4.9		)%	4.3		%	—		%	(3.8		)%
Foreign currency impact	—		%	—		%	—		%	(1.0		)%	(3.6		)%	(0.9		)%	2.2		%	—		%	(0.7		)%
Currency-neutral comparable growth	(6.6		)%	—		%	1.8		%	(2.6		)%	(7.0		)%	(4.0		)%	2.1		%	—		%	(3.1		)%



Year-to-date period ended July 1, 2017
(millions)	U.S. Morning Foods			U.S. Snacks			U.S. Specialty			North America Other			Europe			Latin America			Asia Pacific			Corporate			Kellogg Consolidated
Reported net sales	$	1,398		$	1,584		$	671		$	784		$	1,078		$	456		$	470		$	—		$	6,441
Acquisitions	—			—			—			1			7			93			—			—			101
Comparable net sales	$	1,398		$	1,584		$	671		$	783		$	1,071		$	363		$	470		$	—		$	6,340
Foreign currency impact	—			—			—			(1		)	(62		)	(7		)	15			—			(55		)
Currency-neutral comparable net sales	$	1,398		$	1,584		$	671		$	784		$	1,133		$	370		$	455		$	—		$	6,395
Year-to-date period ended July 2, 2016
(millions)	U.S. Morning Foods			U.S. Snacks			U.S. Specialty			North America Other			Europe			Latin America			Asia Pacific			Corporate			Kellogg Consolidated
Reported net sales	$	1,494		$	1,635		$	647		$	820		$	1,227		$	396		$	444		$	—		$	6,663
Venezuela operations impact	—			—			—			—			—			16			—			—			16
Comparable net sales	$	1,494		$	1,635		$	647		$	820		$	1,227		$	380		$	444		$	—		$	6,647
% change - 2017 vs. 2016:
Reported growth	(6.5		)%	(3.1		)%	3.7		%	(4.3		)%	(12.1		)%	15.3		%	5.7		%	—		%	(3.3		)%
Acquisitions	—		%	—		%	—		%	0.2		%	0.6		%	23.4		%	—		%	—		%	1.5		%
Venezuela operations impact	—		%	—		%	—		%	—		%	—		%	(3.7		)%	—		%	—		%	(0.2		)%
Comparable growth	(6.5		)%	(3.1		)%	3.7		%	(4.5		)%	(12.7		)%	(4.4		)%	5.7		%	—		%	(4.6		)%
Foreign currency impact	—		%	—		%	—		%	(0.1		)%	(5.1		)%	(1.9		)%	3.2		%	—		%	(0.8		)%
Currency-neutral comparable growth	(6.5		)%	(3.1		)%	3.7		%	(4.4		)%	(7.6		)%	(2.5		)%	2.5		%	—		%	(3.8		)%



Year-to-date	2017		2016		Change vs. prior year (pts.)
Reported gross margin (a)	38.3	%	37.7	%	0.6
Mark-to-market (COGS)	(0.4	)	(0.2	)	(0.2	)
Project K and cost reduction activities (COGS)	(0.5	)	(0.8	)	0.3
Acquisitions (COGS)	0.1		—		0.1
Venezuela remeasurement (COGS)	—		(0.2	)	0.2
Comparable gross margin	39.1	%	38.9	%	0.2
Foreign currency impact	—				—
Currency-neutral comparable gross margin	39.1	%			0.2
Reported SG&A%	(25.7	)%	(24.4	)%	(1.3	)
Mark-to-market (SG&A)	0.2		0.1		0.1
Project K and cost reduction activities (SG&A)	(3.2	)	(1.1	)	(2.1	)
Integration and transaction costs (SG&A)	(0.1	)	—		(0.1	)
Acquisitions (SG&A)	(0.2	)	—		(0.2	)
Venezuela operations impact (SG&A)	—		0.1		(0.1	)
Comparable SG&A%	(22.4	)%	(23.5	)%	1.1
Foreign currency impact	—				—
Currency-neutral comparable SG&A%	(22.4	)%			1.1
Reported operating margin	12.6	%	13.3	%	(0.7	)
Mark-to-market	(0.2	)	(0.1	)	(0.1	)
Project K and cost reduction activities	(3.7	)	(1.9	)	(1.8	)
Integration and transaction costs	(0.1	)	—		(0.1	)
Acquisitions	(0.1	)	—		(0.1	)
Venezuela operations impact	—		0.1		(0.1	)
Venezuela remeasurement	—		(0.2	)	0.2
Comparable operating margin	16.7	%	15.4	%	1.3
Foreign currency impact	—				—
Currency-neutral comparable operating margin	16.7	%			1.3