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 ~~September~~March 30, ~~2017~~2019



¨	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 for such 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

Securities registered pursuant to Section 12(b) of the Act:



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

Common Stock outstanding as of ~~October 28, 2017~~April 27, 2019 — ~~345,472,588~~340,496,962 shares

KELLOGG COMPANY

INDEX



		Page
	PART I — Financial Information
	Item 1:
	Financial Statements
	Consolidated Balance Sheet — ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016~~29, 2018	3
	Consolidated Statement of Income — ~~quarter~~quarters ended March 30, 2019 and ~~year-to-date periods ended September 30, 2017 and October 1, 2016~~March 31, 2018	4
	Consolidated Statement of Comprehensive Income – ~~quarter~~quarters ended March 30, 2019 and ~~year-to-date periods ended September 30, 2017 and October 1, 2016~~March 31, 2018	5
	Consolidated Statement of Equity — ~~year~~quarters ended ~~December~~March 31, ~~2016~~2018 and ~~year-to-date period ended September~~March 30, ~~2017~~2019	6
	Consolidated Statement of Cash Flows — ~~year-to-date periods~~quarters ended ~~September~~March 30, ~~2017~~2019 and ~~October 1, 2016~~March 31, 2018	7
	Notes to Consolidated Financial Statements	8
	Item 2:
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3327
	Item 3:
	Quantitative and Qualitative Disclosures about Market Risk	5840
	Item 4:
	Controls and Procedures	5841
	PART II — Other Information
	Item 1:
	Legal Proceedings	5942
	Item 1A:
	Risk Factors	5942
	Item 2:
	Unregistered Sales of Equity Securities and Use of Proceeds	5943
	Item 6:
	Exhibits	6043
	Signatures	6144
	Exhibit Index	6245

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Kellogg Company and Subsidiaries

CONSOLIDATED BALANCE SHEET

(millions, except per share data)


	September 30, 2017 (unaudited)			December 31, 2016 *			March 30, 2019 (unaudited)			December 29, 2018
Current assets
Cash and cash equivalents	$	267		$	280		$	272		$	321
Accounts receivable, net	1,512			1,231			1,633			1,375
Inventories:
Raw materials and supplies	327			315
Finished goods and materials in process	868			923
Other prepaid assets	198			191
Inventories							1,319			1,330
Other current assets							149			131
Total current assets	3,172			2,940			3,373			3,157
Property, net of accumulated depreciation of $5,636 and $5,280	3,629			3,569
Property, net							3,733			3,731
Operating lease right-of-use assets							438			—
Goodwill							6,054			6,050
Other intangibles, net							3,349			3,361
Investments in unconsolidated entities	432			438			410			413
Goodwill	5,135			5,166
Other intangibles, net of accumulated amortization of $62 and $54	2,442			2,369
Other assets	831			629			1,108			1,068
Total assets	$	15,641		$	15,111		$	18,465		$	17,780
Current liabilities
Current maturities of long-term debt	$	410		$	631		$	509		$	510
Notes payable	572			438			605			176
Accounts payable	2,140			2,014			2,370			2,427
Accrued advertising and promotion	552			436
Accrued income taxes	38			47
Accrued salaries and wages	277			318
Current operating lease liabilities							108			—
Other current liabilities	658			590			1,386			1,416
Total current liabilities	4,647			4,474			4,978			4,529
Long-term debt	7,216			6,698			8,183			8,207
Operating lease liabilities							339			—
Deferred income taxes	411			525			755			730
Pension liability	933			1,024			630			651
Other liabilities	491			464			483			504
Commitments and contingencies
Equity
Common stock, $.25 par value	105			105			105			105
Capital in excess of par value	851			806			877			895
Retained earnings	6,862			6,571			7,762			7,652
Treasury stock, at cost	(4,425		)	(3,997		)	(4,744		)	(4,551		)
Accumulated other comprehensive income (loss)	(1,466		)	(1,575		)	(1,467		)	(1,500		)
Total Kellogg Company equity	1,927			1,910			2,533			2,601
Noncontrolling interests	16			16			564			558
Total equity	1,943			1,926			3,097			3,159
Total liabilities and equity	$	15,641		$	15,111		$	18,465		$	17,780

* 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)	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016		March 30, 2019			March 31, 2018
Net sales	$	3,273		$	3,254		$	9,714		$	9,917	$	3,522		$	3,401
Cost of goods sold	2,041			1,990			6,013			6,138		2,415			2,149
Selling, general and administrative expense	768			854			2,424			2,482		726			742
Operating profit	464			410			1,277			1,297		381			510
Interest expense	64			58			188			343		74			69
Other income (expense), net	(2		)	3			(5		)	7		52			70
Income before income taxes	398			355			1,084			961		359			511
Income taxes	104			62			248			215		72			67
Earnings (loss) from unconsolidated entities	3			(1		)	5			1		(2		)	—
Net Income	$	297		$	292		$	841		$	747
Net income												285			444
Net income attributable to noncontrolling interests												3			—
Net income attributable to Kellogg Company												$	282		$	444
Per share amounts:
Basic earnings	$	0.86		$	0.83		$	2.41		$	2.13	$	0.82		$	1.28
Diluted earnings	$	0.85		$	0.82		$	2.39		$	2.11	$	0.82		$	1.27
Dividends	$	0.54		$	0.52		$	1.58		$	1.52
Average shares outstanding:
Basic	345			350			348			350		342			346
Diluted	348			354			351			354		343			348
Actual shares outstanding at period end							345			351		340			347

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

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(millions)


																			Quarter ended March 30, 2019
(Results are unaudited)																			Pre-tax amount			Tax (expense) benefit			After-tax amount
Net income																									$	285
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during period																			$	66		$	(10	)	56
Cash flow hedges:
Reclassification to net income																			1			—			1
Postretirement and postemployment benefits:
Reclassification to net income:
Net experience (gain) loss																			(1		)	—			(1		)
Unrealized gain (loss) on available-for-sale securities																			2			—			2
Other comprehensive income (loss)																			$	68		$	(10	)	$	58
Comprehensive income																									$	343
Net Income (loss) attributable to noncontrolling interests																									3
Other comprehensive income (loss) attributable to noncontrolling interests																									3
Comprehensive income attributable to Kellogg Company																									$	337

	Quarter ended September 30, 2017									Year-to-date period ended September 30, 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							$	297								$	841								$	444
Other comprehensive income (loss):
Foreign currency translation adjustments	(6		)	33			27			4			99			103			$	30		$	19		49
Cash flow hedges:
Reclassification to net income	3			(1		)	2			7			(2		)	5			2			—			2
Postretirement and postemployment benefits:
Reclassification to net income:
Net experience loss	—			—			—			1			—			1
Net experience (gain) loss																			(1		)	—			(1		)
Other comprehensive income (loss)	$	(3	)	$	32		$	29		$	12		$	97		$	109		$	31		$	19		$	50
Comprehensive income							$	326								$	950								$	494

	Quarter ended October 1, 2016									Year-to-date period ended October 1, 2016
(Results are unaudited)	Pre-tax amount			Tax (expense) benefit			After-tax amount			Pre-tax amount			Tax (expense) benefit			After-tax amount
Net income							$	292								$	747
Other comprehensive income (loss):
Foreign currency translation adjustments	(20		)	7			(13		)	(123		)	20			(103		)
Cash flow hedges:
Unrealized gain (loss) on cash flow hedges	3			(1		)	2			(57		)	23			(34		)
Reclassification to net income	—			(1		)	(1		)	8			(4		)	4
Postretirement and postemployment benefits:
Amount arising during the period:
Prior service cost	—			—			—			(1		)	—			(1		)
Reclassification to net income:
Net experience loss	1			—			1			3			—			3
Prior service cost	1			(1		)	—			3			(1		)	2
Other comprehensive income (loss)	$	(15	)	$	4		$	(11	)	$	(167	)	$	38		$	(129	)
Comprehensive income							$	281								$	618
Net Income (loss) attributable to noncontrolling interests																									—
Other comprehensive income (loss) attributable to noncontrolling interests																									—
Comprehensive income attributable to Kellogg Company																									$	494

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

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF EQUITY

(millions)


																										Quarter ended March 30, 2019
	Common stock			Capital in excess of par value			Retained earnings			Treasury stock					Accumulated other comprehensive income (loss)			Total Kellogg Company equity			Non-controlling interests		Total equity			Common stock			Capital in excess of par value			Retained earnings			Treasury stock					Accumulated other comprehensive income (loss)			Total Kellogg Company equity			Non-controlling interests		Total equity
(unaudited)	shares	amount								shares		amount														shares	amount								shares		amount
Balance, January 2, 2016	420	$	105	$	745		$	6,597		70		$	(3,943	)	$	(1,376	)	$	2,128		$	10	$	2,138
Balance, December 29, 2018																										421	$	105	$	895		$	7,652		77		$	(4,551	)	$	(1,500	)	$	2,601		$	558	$	3,159
Common stock repurchases										6		(426		)				(426		)			(426		)										4		(220		)				(220		)			(220		)
Net income							694											694			1		695									282											282			3		285
Acquisition of noncontrolling interest																		—			5		5
Dividends							(716		)									(716		)			(716		)
Other comprehensive loss															(199		)	(199		)	—		(199		)
Dividends declared ($0.56 per share)																																(192		)									(192		)			(192		)
Other comprehensive income																																								55			55			3		58
Reclassification of tax effects relating to U.S. tax reform																																22								(22		)	—					—
Stock compensation				63														63					63						13														13					13
Stock options exercised and other				(2		)	(4		)	(7	)	372						366					366						(31		)	(2		)	(1	)	27						(6		)			(6		)
Balance, December 31, 2016	420	$	105	$	806		$	6,571		69		$	(3,997	)	$	(1,575	)	$	1,910		$	16	$	1,926
Common stock repurchases										7		(516		)				(516		)			(516		)
Balance, March 30, 2019																										421	$	105	$	877		$	7,762		80		$	(4,744	)	$	(1,467	)	$	2,533		$	564	$	3,097

																										Quarter ended March 31, 2018
																										Common stock			Capital in excess of par value			Retained earnings			Treasury stock					Accumulated other comprehensive income (loss)			Total Kellogg Company equity			Non-controlling interests		Total equity
(unaudited)																										shares	amount								shares		amount
Balance, December 30, 2017																										421	$	105	$	878		$	7,069		75		$	(4,417	)	$	(1,457	)	$	2,178		$	16	$	2,194
Net income							841											841					841									444											444					444
Dividends							(550		)									(550		)			(550		)
Dividends declared ($0.54 per share)																																(187		)									(187		)			(187		)
Other comprehensive income															109			109			—		109																	50			50					50
Stock compensation				53														53					53						16														16					16
Stock options exercised and other				(8		)	—			(1	)	88						80					80						(42		)	8			(1	)	71						37					37
Balance, September 30, 2017	420	$	105	$	851		$	6,862		75		$	(4,425	)	$	(1,466	)	$	1,927		$	16	$	1,943
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)	September 30, 2017			October 1, 2016			March 30, 2019			March 31, 2018
Operating activities
Net income	$	841		$	747		$	285		$	444
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization	366			357			124			122
Postretirement benefit plan expense (benefit)	(191		)	(53		)	(38		)	(47		)
Deferred income taxes	(20		)	(26		)	7			(1		)
Stock compensation	53			45			13			16
Other	32			(3		)	(8		)	(30		)
Postretirement benefit plan contributions	(33		)	(29		)	(5		)	(19		)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables	(223		)	(208		)	(229		)	(175		)
Inventories	78			25			12			13
Accounts payable	135			139			(16		)	(4		)
Accrued income taxes	(10		)	10
Accrued interest expense	43			53
Accrued and prepaid advertising and promotion	83			66
Accrued salaries and wages	(50		)	(45		)
All other current assets and liabilities, net	17			(57		)
All other current assets and liabilities							(75		)	(91		)
Net cash provided by (used in) operating activities	1,121			1,021			70			228
Investing activities
Additions to properties	(374		)	(376		)	(148		)	(132		)
Acquisitions, net of cash acquired	4			(21		)
Investments in unconsolidated entities, net proceeds	14			27
Purchases of available for sale securities							(7		)	—
Sales of available for sale securities							7			—
Other	(7		)	(11		)	(15		)	1
Net cash provided by (used in) investing activities	(363		)	(381		)	(163		)	(131		)
Financing activities
Net issuances (reductions) of notes payable	134			(749		)	429			99
Issuances of long-term debt	656			2,061
Reductions of long-term debt	(626		)	(1,230		)
Net issuances of common stock	87			356			7			50
Common stock repurchases	(516		)	(426		)	(220		)	—
Cash dividends	(550		)	(533		)	(192		)	(187		)
Net cash provided by (used in) financing activities	(815		)	(521		)	24			(38		)
Effect of exchange rate changes on cash and cash equivalents	44			(24		)	20			30
Increase (decrease) in cash and cash equivalents	(13		)	95			(49		)	89
Cash and cash equivalents at beginning of period	280			251			321			281
Cash and cash equivalents at end of period	$	267		$	346		$	272		$	370

Supplemental cash flow disclosures
Interest paid	$	149		$	294		$	8		$	14
Income taxes paid	$	279		$	225		$	79		$	31

Supplemental cash flow disclosures of non-cash investing activities:
Additions to properties included in accounts payable	$	85		$	87		$	122		$	92

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

Notes to Consolidated Financial Statements

for the quarter ended ~~September~~March 30, ~~2017~~2019 (unaudited)

Note 1 Accounting policies

Basis of presentation

The unaudited interim financial information of Kellogg Company (the Company) included in this report reflects all adjustments, all of which are of a normal and recurring nature, that management believes are necessary for a fair statement of the results of operations, comprehensive income, financial position, equity and cash flows for the periods presented. This interim information should be read in conjunction with the financial statements and accompanying footnotes within the Company’s ~~2016~~2018 Annual Report on Form 10-K.

The condensed balance sheet information at December ~~31, 2016~~29, 2018 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the quarterly period ended ~~September~~March 30, ~~2017~~2019 are not necessarily indicative of the results to be expected for other interim periods or the full year.

Accounts payable

The Company has agreements with certain third parties to provide accounts payable tracking systems which facilitates participating suppliers’ ability to monitor and, if elected, sell payment obligations from the Company to designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to sell one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company’s goal in entering into these agreements is to capture overall supplier savings, in the form of payment terms or vendor funding, created by facilitating suppliers’ ability to sell payment obligations, while providing them with greater working capital flexibility. We have no economic interest in the sale of these suppliers’ receivables and no direct financial relationship with the financial institutions concerning these services. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to sell amounts under these arrangements. However, the Company’s right to offset balances due from suppliers against payment obligations is restricted by this agreement for those payment obligations that have been sold by suppliers. As of ~~September~~March 30, ~~2017, $798~~2019, $849 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold ~~$582~~$593 million of those payment obligations to participating financial institutions. As of December ~~31, 2016, $677~~29, 2018, $893 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold ~~$507~~$701 million of those payment obligations to participating financial institutions.

New accounting standards adopted in the period

~~Income Taxes.~~ Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.In ~~October 2016,~~February 2018, the ~~FASB, as part of their simplification initiative,~~Financial Accounting Standards Board (FASB) issued an Accounting Standard Update (ASU) permitting a company to ~~improve~~reclassify the ~~accounting for~~disproportionate income tax ~~consequences~~effects of ~~intra-entity transfers~~the Tax Cuts and Jobs Act of ~~assets~~2017 on items within accumulated other ~~than inventory. Current Generally Accepted Accounting Principles (GAAP) prohibit recognition of current and deferred~~comprehensive income ~~taxes for intra-entity asset transfers until the asset has been sold~~(AOCI) to ~~an outside party, which is an exception~~retained earnings. We elected to ~~the principle of comprehensive recognition of current and deferred income taxes in GAAP. The amendments in~~adopt 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 amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the period of adoption. The Company early adopted the ASUeffective in the first quarter of ~~2017. As a result of intercompany transfers of intellectual property,~~2019 and reclassified the ~~Company recorded reductions totaling $39 million to~~disproportionate income tax ~~expense in the year-to-date period ended September 30, 2017. Upon adoption, there was no cumulative~~ effect ~~adjustment~~recorded within AOCI to retained earnings.

~~Accounting standards~~ This resulted in a decrease to ~~be adopted in future periods~~

~~Derivatives~~AOCI and ~~Hedging: Targeted Improvements~~an increase to ~~Accounting~~retained earnings of $22 million. The adjustment primarily related to deferred taxes previously recorded for ~~Hedging Activities. In August 2017, the FASB issued an ASU intended to simplify hedge accounting by better aligning an entity’s financial reporting~~pension and other postretirement benefits, as well as hedging positions for hedging relationships with its risk management activities. The ASU also simplifies the application of the hedge accounting guidance. The new guidance is effective on January 1, 2019, with early adoption permitted. For cash flow hedges existing at the adoption date, the standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment to the Consolidated Balance Sheet as of the beginning of the year of adoption. The amendments

~~to presentation guidance and disclosure requirements are required to be adopted prospectively. The Company is currently assessing the impact and timing of adoption of this ASU.~~

~~Improving the Presentation of net Periodic Pension Cost~~debt 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 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 the impact and timing of adoption of this ASU.

~~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 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 $45 million and cash flow from investing activities would have increased $45 million for the year-to-date period ended September 30, 2017.investment hedges.

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

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

elected to apply the practical expedient that allows the continued historical treatment of land easements. The Company did not elect the practical expedient for the use of hindsight in evaluating the ~~impact that implementing this ASU will have on its financial statements.~~expected lease term of existing leases.

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

Accounting standards to be adopted in future periods

Cloud Computing Arrangements. In ~~January 2016,~~August 2018, the FASB issued an ASU ~~which which requires equity investments~~2018-15: Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The ASU allows companies to capitalize implementation costs incurred in a hosting arrangement that is a service contract over the term of the hosting arrangement, including periods covered by renewal options that are ~~not accounted for under the equity method of accounting~~reasonably certain to be ~~measured at fair value with changes recognized in net income and which updates certain presentation and disclosure requirements.~~exercised. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, ~~2017.~~2019 and can be applied retrospectively or prospectively. 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.is permitted. The Company ~~will adopt the updated standard in the first quarter of 2018. The Company does not expect the adoption of this ASU to have a material 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 revenuecurrently assessing 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, and 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, as well as reasons for significant changes. Based upon the Company's preliminary assessment,and the impact of adoption is not expected to be material, and is limited to timing and classification differences as well as disaggregated revenue disclosures. The Company will adopt the updated standard in the first quarter of 2018, using a modified retrospective transition method.adoption.

Note 2 Sale of accounts receivable

~~In 2016, the~~The Company ~~entered into~~has a ~~Receivable Sales Agreement and~~program in which a ~~separate U.S. accounts receivable securitization program (the "securitization program"), both described below, which primarily enable the Company~~discrete group of customers are allowed to extend their payment terms ~~for participating customers~~ in exchange for the elimination of ~~the discount the~~early payment discounts (Extended Terms Program).

The Company ~~offered for early payment. The agreements~~has two Receivable Sales Agreements (Monetization Programs) described below, which 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 in~~The Monetization Programs are designed to effectively offset the ~~Liquidity and~~impact on working capital ~~resources~~ ~~section~~ of ~~MD&A.~~

~~In March 2016,~~ the ~~Company entered into a Receivable Sales Agreement to~~Extended Terms Program. The Monetization Programs sell, on a revolving basis, certain trade accounts receivable ~~balances~~invoices to a third party financial ~~institution.~~institutions. Transfers under ~~this agreement~~these agreements are accounted for as sales of receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. The ~~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 $800 million (increased from $700 million as of July 1, 2017). During the year-to-date periods ended September 30, 2017 and October 1, 2016 approximately $1.7 billion and $1.0 billion, respectively, of accounts receivable have been sold via this arrangement. Accounts receivable sold of $629 million and $562 million remained outstanding under this arrangement as of September 30, 2017 and December 31, 2016, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows. The recorded loss on sale of receivables was $3 million and $8 million for the quarter and year-to-date period ended September 30, 2017, respectively, and was $1 million and $3 million for the quarter and year-to-date period ended October 1, 2016, respectively. The recorded loss is included in Other income and expense.

In July 2016, the Company entered into the securitization program with a third party financial institution. Under the program, the Company receives 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 accounted for as sales of receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. This securitization program utilizes Kellogg Funding Company (Kellogg Funding), a wholly-owned subsidiary of the Company. Kellogg Funding's sole business consists 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 in July 2018 but can be renewed with consent from the parties to the program.

During the year-to-date periods ended September 30, 2017 and October 1, 2016, respectively, approximately $2.0 billion and $341 million of accounts receivable were sold via the accounts receivable securitization program. As of September 30, 2017, approximately $480 million of accounts receivable sold to Kellogg Funding under the securitization program remained outstanding, for which the Company received net cash proceeds of approximately $433 million and a deferred purchase price asset of approximately $47$1,033 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 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 assets on the Consolidated Balance Sheet. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows. The recorded loss on sale of receivables was $1 million and $4 million for the quarter and year-to-date periods ended September 30, 2017, respectively and was not material for the 2016 periods. The recorded loss is included in Other income and expense.

The Company has no retained ~~interests~~interest in the receivables sold, ~~under~~however the ~~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 ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016~~29, 2018 for these agreements as the fair value of these servicing arrangements as well as the fees earned were not material to the financial statements.

Accounts receivable sold of $944 million and $900 million remained outstanding under these arrangements as of March 30, 2019 and December 29, 2018, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows in the period of sale. The recorded net loss on sale of receivables was $8 million and $7 million for the quarters ended March 30, 2019 and March 31, 2018, respectively. The recorded loss is included in Other income and expense.

Other programs

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 periods ended September 30, 2017 and October 1, 2016, respectively, $145 million and $33 million of accounts receivable have been sold via these programs.~~ Accounts receivable sold of ~~$45~~$29 million and ~~$124~~$93 million remained outstanding under these programs as of ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016,~~29, 2018, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows in the period of sale. The recorded net loss on the sale of these receivables is included in Other income and expense (OIE) and is not material.

Note 3 ~~Goodwill~~Acquisitions, West Africa investments, goodwill and other intangible assets

~~Parati~~Multipro acquisition

~~In December 2016,~~On May 2, 2018, the Company (i) acquired ~~Ritmo Investimentos, controlling shareholder~~an incremental 1% ownership interest in Multipro, a leading distributor of ~~Parati S/A, Afical Ltda~~a variety of food products in Nigeria and ~~Padua Ltda ("Parati Group")~~Ghana, and (ii) exercised its call option (Purchase Option) to acquire a 50% interest in Tolaram Africa Foods, PTE LTD (TAF), a ~~leading Brazilian~~holding company with a 49% equity interest in an affiliated food ~~group for~~manufacturer, resulting in the Company having a 24.5% interest in the affiliated food manufacturer. The aggregate cash consideration paid was approximately ~~BRL 1.38 billion ($381 million) or $379~~$419 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). The acquisition was accounted for under the purchase price method and was ~~financed with~~funded through cash on hand and short-term ~~borrowings.~~borrowings, which was refinanced with long-term borrowings in May 2018. As part of the consideration for the acquisition, an escrow established in connection with the original Multipro investment in 2015, which represented a significant portion of the amount paid for the Company’s initial investment, was released by the Company.

~~In our Latin America reportable segment, for~~As a result of the ~~quarter ended September 30, 2017~~Company’s incremental ownership interest in Multipro and concurrent changes to the shareholders' agreement, the Company now has a 51% controlling interest in and began consolidating Multipro. Accordingly, the acquisition ~~added $48 million in net sales~~was accounted for as a business combination and ~~$3 million of operating profit. For~~ the ~~year-to-date period ended September 30, 2017 the acquisition added $141 million in net sales and $15 million of operating profit.~~

~~The~~ assets and liabilities of Multipro were included in the ~~Parati Group are~~March 30, 2019 and December 29, 2018 Consolidated Balance Sheet and the results of its operations have been included in the Consolidated ~~Balance Sheet as~~Statement of ~~September 30, 2017~~Income subsequent to the acquisition date within the ~~Latin America~~AMEA reporting segment. The ~~acquired assets~~Multipro investment was previously accounted for under the equity method of accounting and ~~assumed liabilities include~~ the ~~following:~~

(millions) December 1, 2016
Current assets $ 44
Property 72
Goodwill 165
Intangible assets 148
Current liabilities (48 )
Non-current deferred tax liability and other (6 )
$ 375

~~During the year-to-date period ended September 30, 2017, the value~~Company recorded our share of ~~intangible assets subject to amortization increased $38 million and intangible assets not subject to amortization decreased $11 million~~equity income or loss from Multipro within Earnings (loss) from unconsolidated entities. In connection 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 and year-to-date periods ended September 30, 2017,~~combination, the Company recognized ~~$3 million and $7 million, respectively, for certain pre-acquisition contingencies which are considered to be probable of being incurred, which increased goodwill.~~

~~During~~a one-time, non-cash gain in 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 firstsecond quarter of ~~2017. In addition, deferred tax liabilities related to basis differences were reduced by $15~~2018 on the disposition of our previously held equity interest in Multipro of $245 million, ~~with a corresponding reduction in goodwill, for the quarter ended September 30, 2017.~~which is included within Earnings (loss) from unconsolidated entities.

The ~~amounts~~Company's March 31, 2018 quarter-to-date consolidated unaudited pro forma historical net sales and net income, as if Multipro had been acquired at the beginning of 2018 are estimated as follows:



	Quarter ended
(millions)	March 31, 2018
Net sales	$	3,609
Net Income attributable to Kellogg Company	$	444

Investment in TAF

The investment in TAF, our interest in an affiliated food manufacturer, is accounted for under the equity method of accounting with the Company’s share of equity income or loss being recognized within Earnings (loss) from unconsolidated entities. The $458 million aggregate of the consideration paid upon exercise and the historical cost value of the Put Option was compared to the estimated fair value of the Company’s ownership percentage of TAF and the Company recognized a one-time, non-cash loss in the ~~above table represent the allocation~~second quarter of ~~purchase price as~~2018 of ~~September 30, 2017 and represent the finalization~~$45 million within Earnings (loss) from unconsolidated entities, which represents an other than temporary excess of cost over fair value of the ~~appraisals for~~investment. The difference between the carrying amount of TAF and the underlying equity in net assets is primarily attributable to brand and customer list intangible assets, ~~and the Company's evaluation~~a portion of ~~pre-acquisition contingencies. The purchase price allocation remains subject to the Company’s finalization of the merger and the resulting income tax effects,~~ which is ~~expected to occur in November 2017. The goodwill from this acquisition is expected to be deductible for income tax purposes.~~being amortized over future periods, and goodwill.

Goodwill and Intangible Assets

Changes in the carrying amount of goodwill, intangible assets subject to amortization, consisting primarily of customer ~~lists,~~relationships, distribution agreements, and indefinite-lived intangible assets, consisting of brands, 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
December 31, 2016 $ 131
$ 3,568
$ 82
$ 457
$ 376
$ 328
$ 224
$ 5,166
Purchase price allocation adjustment —
—
—
—
—
(79 ) —
(79 )
Purchase price adjustment —
—
—
—
—
(4 ) —
(4 )
Currency translation adjustment —
—
—
4
35
9
4
52
September 30, 2017 $ 131
$ 3,568
$ 82
$ 461
$ 411
$ 254
$ 228
$ 5,135



(millions)	North America		Europe			Latin America			AMEA		Consoli- dated
December 29, 2018	$	4,611	$	346		$	218		$	875	$	6,050
Currency translation adjustment	1		(1		)	(1		)	5		4
March 30, 2019	$	4,612	$	345		$	217		$	880	$	6,054

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			North America			Europe			Latin America			AMEA			Consoli- dated
December 31, 2016	$	8	$	42		$	—	$	5	$	40		$	36		$	10		$	141
Purchase price allocation adjustment	—		—			—		—		—			39			—			39
December 29, 2018																						$	74		$	39		$	63		$	432		$	608
Currency translation adjustment	—		—			—		—		3			2			—			5			—			(2		)	—			2			—
September 30, 2017	$	8	$	42		$	—	$	5	$	43		$	77		$	10		$	185
March 30, 2019																						$	74		$	37		$	63		$	434		$	608

Accumulated Amortization
December 31, 2016	$	8	$	19		$	—	$	4	$	14		$	6		$	3		$	54
December 29, 2018																						$	39		$	18		$	12		$	18		$	87
Amortization	—		2			—		—		2			3			1			8			1			1			1			4			7
September 30, 2017	$	8	$	21		$	—	$	4	$	16		$	9		$	4		$	62
Currency translation adjustment																						—			(1		)	—			—			(1		)
March 30, 2019																						$	40		$	18		$	13		$	22		$	93

Intangible assets subject to amortization, net	Intangible assets subject to amortization, net
December 31, 2016	$	—	$	23		$	—	$	1	$	26		$	30		$	7		$	87
Purchase price allocation adjustment	—		—			—		—		—			39			—			39
December 29, 2018																						$	35		$	21		$	51		$	414		$	521
Amortization																						(1		)	(1		)	(1		)	(4		)	(7		)
Currency translation adjustment	—		—			—		—		3			2			—			5			—			(1		)	—			2			1
Amortization	—		(2		)	—		—		(2		)	(3		)	(1		)	(8		)
September 30, 2017	$	—	$	21		$	—	$	1	$	27		$	68		$	6		$	123
March 30, 2019																						$	34		$	19		$	50		$	412		$	515

For intangible assets in the preceding table, amortization was $8$7 million and $5$3 million for the ~~year-to-date periods~~quarters ended ~~September~~March 30, ~~2017~~2019 and ~~October 1, 2016,~~March 31, 2018, respectively. The currently estimated aggregate annual amortization expense for full-year ~~2017~~2019 is approximately ~~$11~~$27 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
December 31, 2016 $ —
$ 1,625
$ —
$ 176
$ 383
$ 98
$ —
$ 2,282
Purchase price allocation adjustment —
—
—
—
—
(11 ) —
(11 )
Currency translation adjustment —
—
—
—
45
3
—
48
September 30, 2017 $ —
$ 1,625
$ —
$ 176
$ 428
$ 90
$ —
$ 2,319



(millions)	North America		Europe			Latin America			AMEA		Consoli- dated
December 29, 2018	$	1,985	$	401		$	73		$	381	$	2,840
Currency translation adjustment	—		(8		)	(1		)	3		(6		)
March 30, 2019	$	1,985	$	393		$	72		$	384	$	2,834

~~Note 4 Investments~~Impairment Testing

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

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

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

On December 30, 2018 the Company reorganized our North American business. The reorganization eliminated the legacy business unit structure and internal reporting. In addition, the Company changed the internal reporting provided to the chief operating decision maker (CODM) and segment manager. As a result, the Company reevaluated its operating segments and reporting units.

In ~~2015,~~addition, we transferred the management of our Middle East, North Africa, and Turkey businesses from Kellogg Europe to Kellogg AMEA, effective December 30, 2018.

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

Effective December 30, 2018 in North America, the previous U.S. Snacks, U.S. Morning Foods, U.S. Specialty Channels, U.S. Frozen Foods, Kashi, Canada and RX operating segments are now a single operating segment (Kellogg North America). At the beginning of 2019, the Company evaluated the related impacted reporting units for impairment on a ~~final net purchase price~~before and after basis and concluded that the fair values of ~~$418 million,~~each reporting unit exceeded their carrying values. On a ~~50% interest in Multipro Singapore Pte. Ltd. (Multipro), a leading distributor~~before basis, the previous Kashi reporting unit's percentage of ~~a variety~~excess of ~~food products in Nigeria and Ghana and also obtained a call option to acquire 24.5%~~fair value over carrying value was approximately 18% using the same methodology as the 2018 annual impairment analysis, which was performed as of ~~an affiliated food manufacturing entity under common ownership~~the beginning of the fourth quarter of 2018. The fair value of the previous Kashi reporting unit was estimated primarily based on a ~~fixed~~ multiple of ~~future earnings as defined in~~net sales and discounted cash flows.

Approximately $46 million of goodwill was re-allocated between the ~~agreement (Purchase Option).~~impacted reporting units within the Kellogg Europe and Kellogg AMEA related to the transfer of businesses between these operating segments. The ~~acquisition~~Company performed a goodwill evaluation of the ~~50% interest is accounted for under~~impacted reporting units on a before and after basis and concluded that the ~~equity method~~fair value of ~~accounting. The Purchase Option, is recorded at cost and has been monitored for impairment through September~~the impacted reporting units exceeded their carrying values.

Additionally, as of March 30, ~~2017 with no impairment being required. In July 2017,~~2019, the Company ~~received notification~~determined 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,it was more likely than not that the Company would ~~acquire 24.5%~~be selling its selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses within the Kellogg North America reporting unit as previously announced. As a result, the Company performed a goodwill impairment evaluation on the Kellogg North America reporting unit as of March 30, 2019 and concluded that the fair value exceeded the carrying value of the ~~affiliated food manufacturing entity for approximately $400 million.~~reporting unit.

Note 54 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~~3 to 5-year period of completion. Upon completion (or as each major stage is completed in the case of multi-year programs), the project begins to deliver cash savings and/or reduced depreciation.

~~Total Projects~~

During the quarter ended September 30, 2017, the Company recorded total net charges of $1 million across all restructuring and cost reduction activities. The charges were comprised of a net $9 million credit recorded in cost of goods sold (COGS) and a net $10 million expense recorded in selling, general and administrative (SG&A) expense. During the year-to-date period ended September 30, 2017, the Company recorded total charges of $239 million across all restructuring and cost reduction activities. The charges were comprised of $26 million recorded in cost of goods sold (COGS) and $213 million recorded in selling, general and administrative (SG&A) expense.

During the quarter ended October 1, 2016, the Company recorded total charges of $40 million across all restructuring and cost reduction activities. The charges consist of $12 million recorded in COGS and $28 million recorded in SG&A expense. During the year-to-date period ended October 1, 2016, the Company recorded total charges of $164 million across all restructuring and cost reduction activities. The charges consist of $66 million recorded in COGS and $98 million recorded in SG&A expense.Project K

Project K

~~In February 2017, the Company announced an expansion and an extension~~ continued generating savings used 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 investedinvest 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 program’s focus 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~~reduced the Company’s cost structure, and is expected to ~~continue to~~ provide ~~a number of~~enduring benefits, ~~in the future,~~ including an optimized supply chain infrastructure, ~~the implementation of~~an efficient global business services model, a ~~new~~ global focus on categories, increased agility from a more efficient organization design, and improved effectiveness in go-to-market ~~strategies.~~models. These benefits are intended to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.

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

The Company currently anticipates that ~~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~~$1.2 billion. Based on current estimates and actual charges to date, the Company expects the total project charges will consist of asset-related costs of approximately $500 million which will consist primarily of asset impairments, accelerated depreciation and other exit-related costs; employee-related costs of approximately ~~$500~~$400 million which ~~will include~~includes severance, pension and other termination benefits; and other costs of approximately ~~$600~~$700 million which consists primarily of charges related to the design and implementation of global business capabilities and a more efficient go-to-market model.

The Company currently expects that total pre-tax charges related to Project K will impact reportable segments as follows: ~~U.S. Morning Foods (approximately 16%), U.S. Snacks (approximately 35%), U.S. Specialty (approximately 1%),~~ North America ~~Other~~ (approximately ~~13%~~65%), Europe (approximately ~~23%~~22%), Latin America (approximately 2%3%), ~~Asia-Pacific~~AMEA (approximately 5%6%), and Corporate (approximately 5%4%).

During the quarter ended September 30, 2017, the Company recorded a net curtailment gain of $134 million related to certain pension and post-retirement benefit plans. The curtailment gain is primarily the result of an amendment of certain defined benefit pension plans in the U.S. and Canada for salaried employees as well as other project related initiatives. See additional discussion regarding this net curtailment gain in Note 9 Employee benefits.

Since the inception of Project K, the Company has recognized charges of ~~$1,355~~$1,528 million that have been attributed to the program. The charges consist of $6 million recorded as a reduction of revenue, ~~$716~~$899 million recorded in ~~COGS and $633~~cost of goods sold (COGS), $790 million recorded in ~~SG&A expense.~~selling, general and administrative (SG&A) expense, and $(167) 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 $21 million during the year-to-date periods ended September 30, 2017 and October 1, 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 incurred during the quarters ended March 30, 2019 and March 31, 2018 and program costs to date for all programs currently active as of March 30, 2019.



	Quarter ended					Program costs to date
(millions)	March 30, 2019			March 31, 2018		March 30, 2019
Employee related costs	$	(3	)	$	4	$	594
Pension curtailment (gain) loss, net	—			—		(167		)
Asset related costs	3			4		288
Asset impairment	—			—		169
Other costs	8			12		644
Total	$	8		$	20	$	1,528

	Quarter ended					Program costs to date
(millions)	March 30, 2019			March 31, 2018		March 30, 2019
North America	$	4		$	10	$	1,026
Europe	1			7		334
Latin America	2			2		44
AMEA	1			—		99
Corporate	—			1		25
Total	$	8		$	20	$	1,528

During the quarter ended March 30, 2019, the Company recorded total net charges of $8 million across all restructuring and cost reduction ~~activities incurred during~~activities. The charges were comprised of a $6 million expense recorded in COGS, a $2 million expense recorded in SG&A expense.

During the quarter ended March 31, 2018, the Company recorded total charges of $20 million across all restructuring and ~~year-to-date periods ended September 30, 2017 and October 1, 2016 and program costs to date for programs currently active as~~cost reduction activities. The charges were comprised of ~~September 30, 2017.~~

$13 million recorded in COGS, $7 million recorded in SG&A expense.

Quarter ended Year-to-date period ended Program costs to date
(millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 September 30, 2017
Employee related costs $ 31
$ 6
$ 166
$ 26
$ 523
Pension curtailment (gain) loss, net (134 ) —
(133 ) —
(122 )
Asset related costs 38
5
68
32
260
Asset impairment —
—
—
16
155
Other costs 66
29
138
90
577
Total $ 1
$ 40
$ 239
$ 164
$ 1,393

Quarter ended Year-to-date period ended Program costs to date
(millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 September 30, 2017
U.S. Morning Foods $ 14
$ 4
$ 16
$ 13
$ 257
U.S. Snacks 106
8
305
62
507
U.S. Specialty —
1
1
4
20
North America Other 4
7
13
20
141
Europe 13
6
21
34
320
Latin America 2
2
6
6
30
Asia Pacific 1
2
5
6
86
Corporate (139 ) 10
(128 ) 19
32
Total $ 1
$ 40
$ 239
$ 164
$ 1,393

~~For the quarters ended September 30, 2017 and October 1, 2016 employee~~Employee related costs consist primarily of severance and ~~other termination~~ related ~~benefits, pension~~benefits. Pension curtailment (gain) loss consists of curtailment gains or losses that resulted from project ~~initiatives, asset~~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 ~~September~~March 30, ~~2017~~2019 total ~~exit cost~~project reserves were ~~$194~~$74 million, related to severance payments and other costs of which a substantial portion will be paid ~~out~~ in ~~2017 and 2018.~~2019. The following table provides details for exit cost reserves.

Employee
Related
Costs
Pension curtailment (gain) loss, net
Asset
Impairment
Asset
Related
Costs
Other
Costs
Total
Liability as of December 31, 2016 $ 102
$ —
$ —
$ —
$ 29
$ 131
2017 restructuring charges 166
(133 ) —
68
138
239
Cash payments (146 ) —
—
(31 ) (98 ) (275 )
Non-cash charges and other 3
133
—
(37 ) —
99
Liability as of September 30, 2017 $ 125
$ —
$ —
$ —
$ 69
$ 194



	Employee Related Costs			Pension curtailment (gain) loss, net		Asset Impairment		Asset Related Costs			Other Costs			Total
Liability as of December 29, 2018	$	93		$	—	$	—	$	1		$	10		$	104
2019 restructuring charges	(3		)	—		—		3			8			8
Cash payments	(19		)	—		—		(3		)	(15		)	(37		)
Non-cash charges and other	—			—		—		(1		)	—			(1		)
Liability as of March 30, 2019	$	71		$	—	$	—	$	—		$	3		$	74

Note 65 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 514 million anti-dilutive potential common shares excluded from the reconciliation for the quarter ~~and year-to-date periods~~ ended ~~September~~March 30, ~~2017.~~2019. There were 36 million anti-dilutive potential common shares excluded from the reconciliation for the quarter ended March 31, 2018. Please refer to the Consolidated Statement of Income for basic and ~~year-to-date periods~~diluted earnings per share for the quarters ended ~~October 1, 2016, respectively.~~March 30, 2019 and March 31, 2018.

~~Quarters ended September 30, 2017 and October 1, 2016:~~

(millions, except per share data)
Net income

Average
shares
outstanding
Earnings
per share
2017
Basic $ 297
345
$ 0.86
Dilutive potential common shares 3
(0.01 )
Diluted $ 297
348
$ 0.85
2016
Basic $ 292
350
$ 0.83
Dilutive potential common shares 4
(0.01 )
Diluted $ 292
354
$ 0.82

~~Year-to-date periods ended September 30, 2017 and October 1, 2016:~~

(millions, except per share data)
Net income

Average
shares
outstanding
Earnings
per share
2017
Basic $ 841
348
$ 2.41
Dilutive potential common shares 3
(0.02 )
Diluted $ 841
351
$ 2.39
2016

Basic $ 747
350
$ 2.13
Dilutive potential common shares 4
(0.02 )
Diluted $ 747
354
$ 2.11
Share repurchases

In December ~~2015,~~2017, the board of directors approved a new authorization to repurchase up to $1.5 billion of our common stock beginning in ~~2016~~January 2018 through December ~~2017.~~2019. As of ~~September~~March 30, ~~2017, $558~~2019, $960 million remains available under the authorization.

During the ~~year-to-date period~~quarter ended ~~September~~March 30, ~~2017,~~2019, the Company repurchased approximately 74 million shares of common stock for a total of ~~$516~~$220 million. During the ~~year-to-date period~~quarter ended ~~October 1, 2016,~~March 31, 2018, the Company ~~repurchased 6 million~~did not repurchase any shares of common ~~stock for a total of $426 million.~~stock.

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.~~plans, net of related tax effects.

Reclassifications out of AOCI for the ~~quarter~~quarters ended March 30, 2019 and ~~year-to-date periods ended September 30, 2017 and October 1, 2016,~~March 31, 2018, 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 September 30, 2017			Year-to-date period ended September 30, 2017				Quarter ended March 30, 2019			Quarter ended March 31, 2018
(Gains) losses on cash flow hedges:
Foreign currency exchange contracts	$	—		$	(1	)	COGS	$	—		$	—		COGS
Interest rate contracts	3			8			Interest expense	1			2			Interest expense
	$	3		$	7		Total before tax	$	1		$	2		Total before tax
	(1		)	(2		)	Tax expense (benefit)	—			—			Tax expense (benefit)
	$	2		$	5		Net of tax	$	1		$	2		Net of tax
Amortization of postretirement and postemployment benefits:
Net experience loss	$	—		$	1		See Note 9 for further details
Net experience (gain) loss								$	(1	)	$	(1	)	OIE
	$	—		$	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		$	6		Net of tax	$	—		$	1		Net of tax

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

Quarter ended
October 1, 2016
Year-to-date period ended
October 1, 2016

(Gains) losses on cash flow hedges:
Foreign currency exchange contracts $ (4 ) $ (11 ) COGS
Foreign currency exchange contracts (1 ) (1 ) SGA
Interest rate contracts 2
10
Interest expense
Commodity contracts 3
10
COGS
$ —
$ 8
Total before tax
(1 ) (4 ) Tax expense (benefit)
$ (1 ) $ 4
Net of tax
Amortization of postretirement and postemployment benefits:
Net experience loss $ 1
$ 3
See Note 9 for further details
Prior service cost 1
3
See Note 9 for further details
$ 2
$ 6
Total before tax
(1 ) (1 ) Tax expense (benefit)
$ 1
$ 5
Net of tax
Total reclassifications $ —
$ 9
Net of tax

Accumulated other comprehensive income (loss), net of tax, as of ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016~~29, 2018 consisted of the following:


(millions)	September 30, 2017			December 31, 2016			March 30, 2019			December 29, 2018
Foreign currency translation adjustments	$	(1,402	)	$	(1,505	)	$	(1,427	)	$	(1,467	)
Cash flow hedges — unrealized net gain (loss)	(62		)	(67		)	(66		)	(53		)
Postretirement and postemployment benefits:
Net experience loss	(13		)	(14		)
Prior service cost	11			11
Net experience gain (loss)							21			23
Prior service credit (cost)							3			(3		)
Available-for-sale securities unrealized net gain (loss)							2			—
Total accumulated other comprehensive income (loss)	$	(1,466	)	$	(1,575	)	$	(1,467	)	$	(1,500	)

Note 6 Leases

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

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

The leases have remaining terms which range from less than 1 year to 10 years and the majority of leases provide the Company with the option to exercise one or more renewal terms. The length of the lease term used in recording

lease assets and lease liabilities is based on the contractually required lease term adjusted for any options to renew or early terminate the lease that are reasonably certain of being executed.

The Company combines lease and non-lease components together in determining the minimum lease payments for the majority of leases. The Company has elected to not combine lease and non-lease components for certain asset types in service-related agreements that include significant production related costs. The Company has closely analyzed these agreements to ensure any embedded costs related to the securing of the leased asset is properly segregated and accounted for in measuring the lease assets and liabilities.

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

The Company recorded operating lease costs of $32 million for the quarter ended March 30, 2019. Lease related costs associated with variable rent, short-term leases, and sale-leaseback arrangements, as well as sublease income, are each immaterial.



(millions)	Quarter ended March 30, 2019
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	31
Right-of-use assets obtained in exchange for new operating lease liabilities	$	12
Weighted-average remaining lease term - operating leases	6 years
Weighted-average discount rate - operating leases	3.1%

At March 30, 2019 future maturities of operating leases were as follows:



(millions)	Operating leases
2019 (nine months remaining)	93
2020	94
2021	71
2022	57
2023	47
2024 and beyond	125
Total minimum payments	$	487
Less interest	(40		)
Present value of lease liabilities	$	447

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

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



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

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

Note 7 Debt

The following table presents the components of notes payable at ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016:~~29, 2018:

September 30, 2017 December 31, 2016
(millions)
Principal
amount
Effective
interest rate (a)

Principal
amount
Effective
interest rate (a)
U.S. commercial paper $ 285
1.29 % $ 80
0.61 %
Europe commercial paper 201
(0.26 )% 306
(0.18 )%
Bank borrowings 86
52

Total $ 572
$ 438

~~(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.~~



	March 30, 2019				December 29, 2018
(millions)	Principal amount		Effective interest rate		Principal amount		Effective interest rate (a)
U.S. commercial paper	$	409	2.68	%	$	15	2.75	%
Bank borrowings	196				161
Total	$	605			$	176

In May 2017, the Company issued €600 million (approximately $709 million USD at September 30, 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 second 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.

In August 2016, the Company terminated interest rate swaps with notional amounts totaling €600 million, which were designated as fair value hedges of its eight-year 1.00% EUR Notes due 2024. The interest rate swaps effectively converted the interest rate on the Notes from fixed to floating and the unrealized gain upon termination of $13 million will be amortized to interest rate expense over the remaining term of the Notes.

The Company has entered into interest rate swaps with notional amounts totaling $2.2 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 September 30, 2017 were as follows: (a) seven-year 3.25% U.S. Dollar Notes due 2018 – 3.08%; (b) ten-year 4.15% U.S. Dollar Notes due 2019 – 3.51%; (c) ten-year 4.00% U.S. Dollar Notes due 2020 – 3.41%; (d) ten-year 3.125% U.S. Dollar Notes due 2022 – 2.58%; (e) ten-year 2.75% U.S. Dollar Notes due 2023 – 2.72%; (f) seven-year 2.65% U.S. Dollar Notes due 2023 – 2.36%; (g) eight-year 1.00% Euro Notes due 2024 – 0.72%; (h) ten-year 1.25% Euro Notes due 2025 - 1.33% and (i) ten-year 3.25% U.S. Notes due 2026 – 3.64%.

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~~2018 Annual Report on Form 10-K.

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

Quarter ended Year-to-date period ended
(millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Pre-tax compensation expense $ 18
$ 16
$ 57
$ 49
Related income tax benefit $ 7
$ 6
$ 21
$ 18

As of September 30, 2017, total stock-based compensation cost related to non-vested awards not yet recognized was $101 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~~quarter ended ~~September~~March 30, ~~2017 and October 1, 2016,~~2019, the Company granted approximately 0.9 million restricted stock units at a weighted average cost of $56 per share and 2.8 million non-qualified stock options ~~to eligible employees as presented in the following activity tables.~~at a weighted average cost of $7 per share. Terms of these grants and the Company’s methods for determining grant-date fair value of the awards were consistent with that described within the stock compensation footnote in the Company’s ~~2016~~2018 Annual Report on Form 10-K.

~~Year-to-date period ended September 30, 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 (1 ) 70

Outstanding, end of period 15
$ 64
6.8 $ 37
Exercisable, end of period 10
$ 60
5.8 $ 37

~~Year-to-date period ended October 1, 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 (6 ) 56

Forfeitures and expirations (1 ) 67

Outstanding, end of period 15
$ 62
7.2 $ 226
Exercisable, end of period 8
$ 58
6.1 $ 168

The weighted-average grant date fair value of options granted was $10.14 per share and $9.44 per share for the year-to-date periods ended September 30, 2017 and October 1, 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 September 30, 2017: 18 % 6.6 2.26 % 2.80 %
Grants within the year-to-date period ended October 1, 2016: 17 % 6.9 1.60 % 2.60 %

~~The total intrinsic value of options exercised was $21 million and $140 million for the year-to-date periods ended September 30, 2017 and October 1, 2016, respectively.~~

Performance shares

In the first quarter of ~~2017,~~2019, the Company granted performance shares to a limited number of senior executive-level employees, which entitle these employees to receive a specified number of shares of the Company’s common stock upon vesting. The number of shares earned could range between 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~~organic net sales growth and total shareholder return (TSR) of the Company’s common stock relative to a select group of peer companies.

A Monte Carlo valuation model was used to determine the fair value of the awards. The TSR performance metric is a market condition. Therefore, compensation cost of the TSR condition is fixed at the measurement date and is not revised based on actual performance. The TSR metric was valued as a multiplier of possible levels of ~~currency-neutral comparable operating margin expansion.~~organic net sales growth achievement. Compensation cost related to ~~currency-neutral comparable operating margin~~organic net sales growth performance is revised for changes in the expected outcome. The ~~2017~~2019 target grant currently corresponds to approximately ~~186,000~~256,000 shares, with a grant-date fair value of ~~$67~~$59 per share.

Based on the market price of the Company’s common stock at September 30, 2017, the maximum future value that could be awarded to employees on the vesting date for all outstanding performance share awards was as follows:

(millions) September 30, 2017
2015 Award $ 20
2016 Award $ 22
2017 Award $ 23

The ~~2014~~2016 performance share award, payable in stock, was settled at ~~35%~~85% of target in February ~~2017~~2019 for a total dollar equivalent of $5$6 million.

~~Other stock-based awards~~

During the year-to-date period ended September 30, 2017, 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 Annual Report on Form 10-K.~~

~~Year-to-date period ended September 30, 2017:~~

Employee restricted stock and restricted stock units Shares (thousands) Weighted-average grant-date fair value
Non-vested, beginning of year 1,166
$ 63
Granted 666
67
Vested (76 ) 57
Forfeited (125 ) 65
Non-vested, end of period 1,631
$ 65

~~Year-to-date period ended October 1, 2016:~~

Employee restricted stock and restricted stock units Shares (thousands) Weighted-average grant-date fair value
Non-vested, beginning of year 806
$ 58
Granted 589
70
Vested (68 ) 56
Forfeited (85 ) 62
Non-vested, end of period 1,242
$ 63

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~~2018 Annual Report on Form 10-K. Components of Company plan benefit expense for the periods presented are included in the tables below.

In September 2017, the Company amended certain defined benefit pension plans in the U.S. and Canada for salaried employees. As of December 31, 2018, the amendment will freeze the compensation and service periods used to calculate pension benefits for active salaried employees who participate in the affected pension plans. Beginning January 1, 2019, impacted employees will not accrue additional benefits for future service and eligible compensation received under these plans.

Concurrently, the Company also amended its 401(k) savings plans effective January 1, 2019, to make previously ineligible salaried U.S. and Canada employees eligible for Company retirement contributions, which range from 3% to 7% of eligible compensation based on the employee’s length of employment.

Pension


	Quarter ended						Year-to-date period ended						Quarter ended
(millions)	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016			March 30, 2019			March 31, 2018
Service cost	$	22		$	25		$	72		$	74		$	9		$	22
Interest cost	40			43			123			131			45			42
Expected return on plan assets	(97		)	(87		)	(277		)	(266		)	(85		)	(92		)
Amortization of unrecognized prior service cost	3			3			7			10			2			2
Recognized net (gain) loss	83			28			84			28			1			(9		)
Net periodic benefit cost	51			12			9			(23		)
Curtailment (gain) loss	(134		)	—			(136		)	—
Total pension (income) expense	$	(83	)	$	12		$	(127	)	$	(23	)	$	(28	)	$	(35	)

Other nonpension postretirement


	Quarter ended						Year-to-date period ended						Quarter ended
(millions)	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016			March 30, 2019			March 31, 2018
Service cost	$	5		$	5		$	14		$	15		$	3		$	5
Interest cost	10			10			28			29			10			9
Expected return on plan assets	(24		)	(22		)	(73		)	(67		)	(21		)	(24		)
Amortization of unrecognized prior service (gain)	(3		)	(2		)	(7		)	(7		)	(2		)	(2		)
Recognized net (gain) loss	—			—			(29		)	—
Net periodic benefit cost	(12		)	(9		)	(67		)	(30		)
Curtailment loss	—			—			3			—
Total postretirement benefit (income) expense	$	(12	)	$	(9	)	$	(64	)	$	(30	)	$	(10	)	$	(12	)

Postemployment


	Quarter ended				Year-to-date period ended				Quarter ended
(millions)	September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016		March 30, 2019			March 31, 2018
Service cost	$	1	$	1	$	4	$	5	$	1		$	1
Interest cost	—		1		2		3		—			—
Recognized net loss	—		1		1		3
Recognized net (gain) loss									(1		)	(1		)
Total postemployment benefit expense	$	1	$	3	$	7	$	11	$	—		$	—

~~During~~

For the ~~third~~ quarter ~~of 2017,~~ended March 30, 2019, the Company recognized a loss of $1 million related to the remeasurement of a U.S. pension plan ~~curtailment gains totaling $134 million in conjunction with Project K restructuring activity which resulted from the amendment of certain defined benefit pension plans in the U.S.~~as current year distributions are expected to exceed service and ~~Canada and workforce reductions. The Company remeasured the benefit obligation for the impacted pension plans~~interest costs resulting in ~~a mark-to-market~~settlement accounting for that particular plan. The amount of the remeasurement loss ~~of $83 million. The loss~~recognized was due primarily to ~~changes in discount rates, partially offset by plan asset returns in excess of the expected rate of return.~~

On a year-to-date basis, the Company recognized pension plan curtailment gains totaling $136 million and a curtailment loss of $3 million within a nonpension postretirement plan, in conjunction with Project K restructuring activity. The curtailment gains and losses resulted from the amendment of certain defined benefit pension plansan unfavorable change in the U.S. and Canada and global workforce reductions. 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 $84 million on pension plans 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:
September 30, 2017 $ 2
$ 3
$ 5
October 1, 2016 $ 3
$ 3
$ 6
Year-to-date period ended:
September 30, 2017 $ 25
$ 8
$ 33
October 1, 2016 $ 18
$ 11
$ 29
Full year:
Fiscal year 2017 (projected) $ 26
$ 16
$ 42
Fiscal year 2016 (actual) $ 18
$ 15
$ 33



(millions)	Pension		Nonpension postretirement		Total
Quarter ended:
March 30, 2019	$	1	$	4	$	5
March 31, 2018	$	15	$	4	$	19
Full year:
Fiscal year 2019 (projected)	$	7	$	18	$	25
Fiscal year 2018 (actual)	$	270	$	17	$	287

Prior year contributions included $250 million of pre-tax discretionary contributions to U.S. plans in the second quarter of 2018 designated for the 2017 tax year. Plan funding strategies may be modified in response to ~~management’s~~management's evaluation of tax deductibility, market conditions, and competing investment alternatives.

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

The consolidated effective tax rate for the quarter ended ~~September~~March 30, ~~2017~~2019 was ~~26%~~20% as compared to 13% in the same quarter of the prior ~~year’s rate of 18%.~~year. The effective tax rate for the first quarter ~~ended October 1, 2016 benefited from excess tax benefits from share-based compensation totaling $16 million.~~

The consolidated effective tax rates for the year-to-date periods ended September 30, 2017 and October 1, 2016 were 23% and 22%, respectively. For the year-to-date period ended September 30, 2017, the effective tax rateof 2018 benefited from a ~~deferred~~$44 million discrete tax benefit ~~of $39 million resulting from intercompany transfers of intellectual property under the application~~as a result of the ~~newly adopted standard. See discussion regarding the adoption~~remeasurement of ~~ASU 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory,~~ in Note 1. The effective tax rate for the year-to-date period ended October 1, 2016 benefited from excess tax benefits from share-based compensation totaling $34 million as well as the completion of certain tax examinations.deferred taxes following a legal entity restructuring.

As of ~~September~~March 30, ~~2017,~~2019, 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$2 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~~The Company’s total gross unrecognized tax benefits ~~for the quarter ended September~~as of March 30, ~~2017; $37~~2019 was $97 million, ofunchanged from year-end. Of this ~~total~~balance, $87 million represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.

(millions)
December 31, 2016 $ 63
Tax positions related to current year:
Additions 4
Reductions —
Tax positions related to prior years:
Additions 3
Reductions (8 )
Settlements (4 )
Lapse in statute of limitations (2 )
September 30, 2017 $ 56

The accrual balance for tax-related interest was approximately ~~$20~~$22 million at ~~September~~March 30, ~~2017.~~2019.

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 ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016~~29, 2018 were as follows:


(millions)	September 30, 2017		December 31, 2016		March 30, 2019		December 29, 2018
Foreign currency exchange contracts	$	2,079	$	1,396	$	2,371	$	1,863
Cross-currency contracts					1,372		1,197
Interest rate contracts	2,232		2,185		1,646		1,608
Commodity contracts	294		437		535		417
Total	$	4,605	$	4,018	$	5,924	$	5,085

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 ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016,~~29, 2018, 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. Cross-currency contracts are valued based on changes in the spot rate at the time of valuation compared to the spot rate at the time of execution, as well as the change in the interest differential between the two currencies. 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 ~~September~~March 30, ~~2017~~2019 or December ~~31, 2016.~~29, 2018.

The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet on a recurring basis as of ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016:~~29, 2018:

Derivatives designated as hedging instruments


	September 30, 2017								December 31, 2016								March 30, 2019								December 29, 2018
(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
Cross-currency contracts:
Other assets																	$	—	$	71		$	71		$	—	$	79		$	79
Interest rate contracts:
Other assets (a)	—		—			—			—		1			1			—		35			35			—		17			17
Total assets	$	—	$	—		$	—		$	—	$	3		$	3		$	—	$	106		$	106		$	—	$	96		$	96
Liabilities:
Interest rate contracts:
Other liabilities (a)	—		(43		)	(43		)	—		(65		)	(65		)	—		(15		)	(15		)	—		(22		)	(22		)
Total liabilities	$	—	$	(43	)	$	(43	)	$	—	$	(65	)	$	(65	)	$	—	$	(15	)	$	(15	)	$	—	$	(22	)	$	(22	)

(a) The fair value of the related hedged portion of the Company's long-term debt, a level 2 liability, was ~~$2.2~~$1.7 billion and $1.6 billion as of ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016,~~29, 2018, respectively.

Derivatives not designated as hedging instruments


	September 30, 2017									December 31, 2016									March 30, 2019									December 29, 2018
(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	$	—		$	10		$	10		$	—		$	25		$	25
Other current assets																			$	—		$	11		$	11		$	—		$	3		$	3
Commodity contracts:
Other prepaid assets	4			—			4			13			—			13
Other current assets																			3			—			3			3			—			3
Total assets	$	4		$	10		$	14		$	13		$	25		$	38		$	3		$	11		$	14		$	3		$	3		$	6
Liabilities:
Foreign currency exchange contracts:
Other current liabilities	$	—		$	(23	)	$	(23	)	$	—		$	(11	)	$	(11	)	$	—		$	(17	)	$	(17	)	$	—		$	(4	)	$	(4	)
Commodity contracts:
Other current liabilities	(5		)	—			(5		)	$	(7	)	$	—		$	(7	)	(13		)	—			(13		)	(9		)	—			(9		)
Total liabilities	$	(5	)	$	(23	)	$	(28	)	$	(7	)	$	(11	)	$	(18	)	$	(13	)	$	(17	)	$	(30	)	$	(9	)	$	(4	)	$	(13	)

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 ~~$2.7 billion and $1.8~~$2.6 billion as of ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016,~~29, 2018.

The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for existing fair value hedges as of March 30, 2019 and December 29, 2018.



(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 30, 2019		December 29, 2018		March 30, 2019		December 29, 2018
Interest rate contracts	Current maturities of long-term debt	$	502	$	503	$	2	$	3
Interest rate contracts	Long-term debt	$	3,354	$	3,354	$	7	$	(18	)

(a) The current maturities of hedged long-term debt includes $2 million and $3 million of hedging adjustment on discontinued hedging relationships as of March 30, 2019 and December 29, 2018, respectively. The hedged long-term debt includes $(11) million and $(12) million of hedging adjustment on discontinued hedging relationships as of March 30, 2019 and December 29, 2018, 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 ~~September~~March 30, ~~2017~~2019 and December ~~31, 2016~~29, 2018 would be adjusted as detailed in the following table:


As of September 30, 2017:
As of March 30, 2019:
				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	$	14		$	(14	)	$	—	$	—		$	120		$	(32	)	$	—	$	88
Total liability derivatives	$	(71	)	$	14		$	16	$	(41	)	$	(45	)	$	32		$	2	$	(11	)


As of December 31, 2016:
As of December 29, 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	$	41		$	(24	)	$	—	$	17		$	102		$	(27	)	$	(2	)	$	73
Total liability derivatives	$	(83	)	$	24		$	48	$	(11	)	$	(35	)	$	27		$	—		$	(8	)

The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the quarters ended ~~September~~March 30, ~~2017~~2019 and ~~October 1, 2016~~March 31, 2018 was as follows:

~~Derivatives in fair value hedging relationships~~

(millions)
Location of gain (loss)
recognized in income
Gain (loss)
recognized in
income (a)
September 30,
2017 October 1,
2016
Interest rate contracts Interest expense $ 4
$ 6
Total $ 4

$ 6


~~(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)
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Foreign currency exchange contracts $ —
$ 1
COGS $ —
$ 4
Other income (expense), net $ —
$ (1 )
Foreign currency exchange contracts —
1
SGA
expense
—
1
Other income (expense), net —
—
Interest rate contracts —
1
Interest
expense
(3 ) (2 ) N/A —
—
Commodity contracts —
—
COGS —
(3 ) Other income (expense), net —
—
Total $ —

$ 3
$ (3 )
$ —

$ —

$ (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
September 30,
2017 October 1,
2016
Foreign currency denominated long-term debt $ (90 ) $ (19 )

~~Derivatives not designated as hedging instruments~~

(millions)
Location of gain
(loss) recognized
in income
Gain (loss)
recognized in
income
September 30,
2017 October 1,
2016
Foreign currency exchange contracts COGS $ —
$ 3
Foreign currency exchange contracts Other income (expense), net (3 ) (1 )
Foreign currency exchange contracts SG&A (1 ) —
Commodity contracts COGS (13 ) (14 )
Commodity contracts SG&A (16 ) —
Total $ (33 )
$ (12 )

~~The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the year-to-date periods ended September 30, 2017 and October 1, 2016 was as follows:~~

~~Derivatives in fair value hedging relationships~~

(millions)
Location of gain (loss)
recognized in income
Gain (loss)
recognized in
income (a)
September 30,
2017 October 1,
2016
Interest rate contracts Interest expense $ 14
$ 15

~~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)
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Foreign currency exchange contracts $ —
$ 10
COGS $ 1
$ 11
Other income (expense), net $ —
$ (2 )
Foreign currency exchange contracts —
1
SGA expense —
1
Other income (expense), net —
—
Interest rate contracts 1
(68 ) Interest expense (8 ) (10 ) N/A —
—
Commodity contracts —
—
COGS —
(10 ) Other income (expense), net —
—
Total $ 1

$ (57 ) $ (7 )
$ (8 )
$ —

$ (2 )


~~(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
	September 30, 2017			October 1, 2016			March 30, 2019			March 31, 2018			March 30, 2019		March 31, 2018
Foreign currency denominated long-term debt	$	(272	)	$	(31	)	$	51		$	(73	)	$	—	$	—
Foreign currency exchange contracts	—			(23		)
Cross-currency contracts							(8		)	(8		)	8		3		Interest expense
Total	$	(272	)	$	(54	)	$	43		$	(81	)	$	8	$	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
		September 30, 2017			October 1, 2016				March 30, 2019			March 31, 2018
Foreign currency exchange contracts	COGS	$	(13	)	$	(7	)	COGS	$	(11	)	$	3
Foreign currency exchange contracts	Other income (expense), net	(11		)	9			Other income (expense), net	(1		)	(4		)
Foreign currency exchange contracts	SGA	(2		)	—			SG&A	—			1
Commodity contracts	COGS	(16		)	(4		)	COGS	(32		)	5
Commodity contracts	SGA	(15		)	2
Total		$	(57	)	$	—			$	(44	)	$	5

The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the quarters ended March 30, 2019 and March 31, 2018:



		March 30, 2019			March 31, 2018
(millions)		Interest Expense			Interest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded		$	74		$	69
	Gain (loss) on fair value hedging relationships:
	Interest contracts:
	Hedged items	(24		)	32
	Derivatives designated as hedging instruments	24			(28		)

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

During the next 12 months, the Company expects $8$10 million of net deferred losses reported in AOCI at ~~September~~March 30, ~~2017~~2019 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 ~~September~~March 30, ~~2017~~2019 was ~~$55~~$3 million. If the credit-risk-related contingent features were triggered as of ~~September~~March 30, ~~2017,~~2019, the Company would be required to post ~~additional~~ collateral of ~~$48~~$3 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 ~~September~~March 30, ~~2017~~2019 triggered by credit-risk-related contingent features.

~~Fair~~

Other fair value measurements

The following is a summary of the carrying and market values of the Company's available for sale securities:



	March 30, 2019						December 29, 2018
			Unrealized						Unrealized
(millions)	Cost		Gain (Loss)		Market Value		Cost		Gain (Loss)		Market Value
Corporate bonds	$	59	$	2	$	61	$	59	$	—	$	59

The market values of the Company's investments in level 2 corporate bonds are based on ~~a nonrecurring basis~~matrices or models from pricing vendors. Unrealized gains and losses are included in the Consolidated Statement of Comprehensive Income.

~~As part~~

The Company reviews its investment portfolio for any unrealized losses that would be deemed other-than-temporary and requires the recognition of ~~Project K,~~an impairment loss in earnings. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than its cost, the Company's intent to hold the investment, and whether it is more likely than not that the Company will be ~~consolidating~~required to sell the ~~usage of and disposing certain long-lived assets, including manufacturing facilities and Corporate owned assets over the term~~investment before recovery of the ~~program. See Note 5 for more information regarding Project K.~~

~~During~~cost basis. The Company also considers the ~~year-to-date period ended September 30, 2017, there were no long-lived asset~~type of security, related industry and sector performance, and published investment ratings. Once a decline in fair value is determined to be other-than-temporary, an impairment ~~related to Project K.~~

~~During the year-to-date period ended October 1, 2016, long-lived assets of $26 million related to~~charge is recorded and a ~~manufacturing facility~~new cost basis 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.~~ investment is established. If conditions within individual markets, industry segments, or macro-economic environments deteriorate, the Company could incur future impairments.

The ~~Company's calculation~~investments are recorded within Other current assets and Other assets on the Consolidated Balance Sheet, based on the maturity of the ~~fair value of these long-lived assets is based on level 3 inputs, including market comparables, market trends and the condition~~individual security. The maturity dates of the ~~assets.~~securities range from 2020 to 2029.

~~The following table presents level 3 assets that were measured at fair value on the consolidated Balance Sheet on a nonrecurring basis as of October 1, 2016:~~

(millions) Fair Value Total Loss
Description:
Long-lived assets $ 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 ~~$7,575 million~~$8.4 billion and ~~$7,216 million,~~$8.2 billion, respectively, as of ~~September~~March 30, ~~2017.~~2019. The fair value and carrying value of the Company's long-term debt were both $8.2 billion as of December 29, 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 ~~September~~March 30, ~~2017,~~2019, the Company was not in a ~~significant~~material 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 ~~September~~March 30, ~~2017,~~2019, the Company ~~posted $7 million~~had no collateral posting requirements related to reciprocal collateralization ~~agreements.~~agreements and collected approximately $20 million of collateral related to reciprocal collaterization agreements which is reflected as an increase in other liabilities. As of ~~September~~March 30, ~~2017~~2019 the Company posted $9$30 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 ~~28%~~20% of consolidated trade receivables at ~~September~~March 30, ~~2017.~~2019.

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, veggie foods and ~~veggie foods.~~noodles. Kellogg products are manufactured and marketed globally. Principal markets for these products include the United States, United Kingdom, and ~~United Kingdom.~~Nigeria.

On December 30, 2018 the Company reorganized its North American business. The reorganization eliminated the legacy business unit structure and internal reporting. In addition, the Company changed the internal reporting provided to the chief operating decision maker (CODM) and segment manager. As a result, the Company reevaluated its operating segments. In conjunction with the reorganization, certain global research and development resources and related costs were transferred from the North America business to Corporate. Prior period segment results were not restated for the transfer as the impacts were not considered material.

In addition, the Company transferred its Middle East, North Africa, and Turkey businesses from Kellogg Europe to Kellogg AMEA, effective December 30, 2018. This consolidated the Company's Africa business under a single regional management team. All comparable prior periods have been restated to reflect the change. For the quarter ended March 31, 2018, the change resulted in $67 million of reported net sales and $14 million of reported operating profit transferring from Kellogg Europe to Kellogg AMEA.

The Company manages its operations through ~~nine~~four 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 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. 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 and Canada 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 – North America which includes U.S. businesses and Canada; Europe which consists principally of European countries; Latin America which consists of Central and South America and includes Mexico; and AMEA

(Asia ~~Pacific~~Middle East Africa) which consists of ~~Sub-Saharan~~ Africa, Middle East, Australia and other Asian and Pacific markets. These operating segments also represent our reportable segments.

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~~Reportable segment results were ~~insignificant in all periods presented.~~as follows:

Quarter ended Year-to-date period ended
(millions) September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net sales
U.S. Morning Foods $ 710
$ 733
$ 2,108
$ 2,227
U.S. Snacks 760
796
2,344
2,431
U.S. Specialty 290
284
961
931
North America Other 420
402
1,204
1,222
Europe 599
594
1,677
1,821
Latin America 240
197
696
593
Asia Pacific 254
248
724
692
Consolidated $ 3,273
$ 3,254
$ 9,714
$ 9,917
Operating profit
U.S. Morning Foods $ 141
$ 144
$ 477
$ 457
U.S. Snacks 14
78
(8 ) 230
U.S. Specialty 76
68
242
214
North America Other 65
43
173
135
Europe 72
78
214
216
Latin America (a) 23
27
82
70
Asia Pacific 25
21
66
50
Total Reportable Segments 416
459
1,246
1,372
Corporate (b) 48
(49 ) 31
(75 )
Consolidated $ 464
$ 410
$ 1,277
$ 1,297



	Quarter ended
(millions)	March 30, 2019			March 31, 2018
Net sales
North America	$	2,289		$	2,330
Europe	497			520
Latin America	225			232
AMEA	511			319
Consolidated	$	3,522		$	3,401
Operating profit
North America	$	380		$	399
Europe	60			60
Latin America	21			22
AMEA	47			41
Total Reportable Segments	508			522
Corporate	(127		)	(12		)
Consolidated	$	381		$	510

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


~~(a)~~	Includes non-cash losses totaling $13 million associated with the remeasurement of the financial statements of the Company's Venezuela subsidiary during the year-to-date period ended October 1, 2016, respectively.

~~(b)~~

Includes mark-to-market adjustments for pension and postretirement plans, commodity and foreign currency contracts totaling ($104) million and ($31) million for the quarters ended September 30, 2017 and October 1, 2016, respectively. Includes mark-to-market adjustments for pension and postretirement plans, commodity and foreign currency contracts totaling ($118) million and ($35) million for the year-to-date periods ended September 30, 2017 and October 1, 2016, respectively. See further discussion in ~~Note 9 Employee benefits~~.



	Quarter ended
(millions)	March 30, 2019		March 31, 2018
Snacks	$	1,780	$	1,775
Cereal	1,275		1,351
Frozen	271		275
Noodles and other	196		—
Consolidated	$	3,522	$	3,401

Note 13 Supplemental Financial Statement Data



Consolidated Balance Sheet
(millions)	March 30, 2019 (unaudited)			December 29, 2018
Trade receivables	$	1,394		$	1,163
Allowance for doubtful accounts	(10		)	(10		)
Refundable income taxes	22			28
Other receivables	227			194
Accounts receivable, net	$	1,633		$	1,375
Raw materials and supplies	$	356		$	339
Finished goods and materials in process	963			991
Inventories	$	1,319		$	1,330
Property	$	9,279		$	9,173
Accumulated depreciation	(5,546		)	(5,442		)
Property, net	$	3,733		$	3,731
Pension	$	251		$	228
Deferred income taxes	245			246
Other	612			594
Other assets	$	1,108		$	1,068
Accrued income taxes	$	29		$	48
Accrued salaries and wages	205			309
Accrued advertising and promotion	582			557
Other	570			502
Other current liabilities	$	1,386		$	1,416
Income taxes payable	$	118		$	115
Nonpension postretirement benefits	35			34
Other	330			355
Other liabilities	$	483		$	504

Note 1314 Subsequent Event

On ~~October 27, 2017,~~March 31, 2019, the Company ~~completed its acquisition of Chicago Bar Co., LLC, the manufacturer of RXBAR,~~entered into a definitive agreement to sell selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero International S.A. (Ferrero) for approximately ~~$600 million, funded through short-term borrowings.~~$1.3 billion in cash, subject to a working capital adjustment mechanism. In addition, the Company will have royalty free licenses to utilize certain brands for a specified transition period and, indefinitely on selected cracker products. The ~~purchase price is~~fair value of these licenses will be incremental non-cash consideration for the sale. The Company expects the businesses to be classified as held for sale during the second quarter and the transaction to be completed in the third quarter of 2019, subject to certain customary closing conditions including regulatory approvals. Both the total assets and net assets of the businesses, including a targeted working capital amount is estimated to be approximately $1.3 billion, and net debt adjustments based on the actual working capital and net debt existing on the acquisition date compared to targeted amounts. The major classes of assets and liabilities of Chicago Bar Co., LLC areis expected to beresult in an immaterial pre-tax gain when recognized upon closing. During the year ended December 29, 2018, these businesses recorded net ~~working capital, intangible assets (primarily, customer lists~~sales of approximately $900 million and ~~brands), and goodwill.~~operating profit of approximately $75 million, including an allocation of indirect corporate expenses, primarily in the North America reportable segment.

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, veggie ~~foods.~~ foods, and noodles.

Kellogg products are manufactured and marketed globally.

~~Corporate responsibility~~Segments

On December 30, 2018 we reorganized our North American business. The reorganization eliminated the legacy business unit structure 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.internal reporting. In addition, we ~~established third-party approved science-based targets~~changed the internal reporting provided to ~~measure progress against~~the chief operating decision maker (CODM) and segment manager. As a result, we reevaluated 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.operating segments.

WeIn addition, we transferred our Middle East, North Africa, and Turkey businesses from Kellogg Europe to Kellogg AMEA, effective December 30, 2018. This consolidated all of the Company's Africa business under a single regional management team. All comparable prior periods have ~~incorporated~~been restated to reflect the ~~risks~~change. For the quarter ended March 31, 2018, the change resulted in $67 million of reported net sales and ~~opportunities~~$14 million of ~~climate change and food security into the Global 2020 Growth Strategy and Global Heart and Soul Strategy by continuing~~reported operating profit transferring from Europe 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.AMEA.

~~Segments~~On March 31, 2019, we entered into a stock and asset purchase agreement with Ferrero International S.A. (“Ferrero”), pursuant to which, subject to the satisfaction or waiver of certain conditions, we will divest to Ferrero selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses for $1.3 billion in cash, on a cash-free, debt-free basis and subject to a working capital adjustment mechanism.

Consummation of the divestiture is subject to customary closing conditions, including the receipt of certain regulatory approvals, the absence of any law, injunction or other judgment prohibiting the divestiture, the accuracy of the representations and warranties of each party (subject to materiality qualifiers) and the compliance by each party with its covenants in all material respects. The divestiture is currently expected to close at the end of July 2019.

We manage our operations through ~~nine~~four operating segments that are based primarily on ~~product category or~~ geographic ~~location.~~location – North America which includes the U.S. businesses and Canada; Europe which consists principally of European countries; Latin America which consists of Central and South America and includes Mexico; and AMEA (Asia Middle East Africa) which consists of Africa, Middle East, Australia and other Asian and Pacific markets. 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 intoalso represent our reportable segments. We report results of operations in the following reportable segments: 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~~

~~In 2016 we announced a plan to increase our currency-neutral comparable operating margin by 350 basis points from 2015 through 2018. 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 initiative 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 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.

~~We are currently on pace to deliver the 350 basis point improvement.~~

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, by approximately 175-185 basis points. The adoption is anticipated to impact only the Corporate segment, and is 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 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 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.

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~~adjusted and currency-neutral adjusted operating profit, ~~comparable operating~~adjusted and currency-neutral adjusted diluted EPS, currency-neutral gross profit, currency-neutral gross margin, ~~comparable effective tax rate, comparable net income, comparable 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, 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 gross profit, comparable gross margin, comparable SG&A, comparable SG&A%, comparable~~Adjusted: 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~~restructuring and cost reduction activities, ~~acquisitions, divestitures, integration costs,~~ mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodities and certain foreign currency contracts, and other costs ~~associated with the early redemption of debt outstanding, and impacts of the prior-year Venezuela remeasurement and deconsolidation.~~impacting comparability resulting in 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,~~ 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~~Currency-neutral adjusted: gross profit, gross margin, operating profit, net income, and diluted EPS: We adjust the GAAP financial measures to exclude the effect of restructuring and cost reduction activities, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodities and certain foreign currency contracts, other costs impacting comparability, and foreign currency, resulting in currency-neutral adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. 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, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.

Adjusted effective income tax rate: We adjust the GAAP financial ~~measure~~measures to exclude ~~tax~~the effect of ~~Project K~~restructuring and cost reduction activities, ~~divestitures, integration costs,~~ mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodities and certain foreign currency contracts, and other costs ~~associated with the early redemption of debt outstanding, and costs associated with prior-year Venezuela remeasurement.~~impacting comparability. 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 $1 million and $238 million for the quarter and year-to-date periods ended September 30, 2017, respectively. We also recorded pre-tax charges of $36 million and $143 million for the quarter and year-to-date periods ended October 1, 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 $1 million for the year-to-date period ended September 30, 2017. We also incurred

~~pre-tax charges of $4 million and $21 million for the quarter and year-to-date periods ended October 1, 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. In our Latin America reportable segment, for the quarter ended September 30, 2017 the acquisition added $48 million in net sales and $3 million of operating profit (before integration costs) that impacted the comparability of our reported results. For the year-to-date period ended September 30, 2017 the acquisition added $141 million in net sales and $15 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~~a pre-tax mark-to-market ~~charges~~expense of ~~$104 million and $31 million for quarters ended September 30, 2017 and October 1, 2016, respectively, and $118 million and $35~~$41 million for the ~~year-to-date periods~~quarter ended ~~September~~March 30, ~~2017 and October 1, 2016, respectively.~~2019. Included within the aforementioned ~~charges are~~was a pre-tax mark-to-market ~~charges~~benefit for pension plans of ~~$76 million and $28 million for quarters ended September 30, 2017 and October 1, 2016, respectively, and $73 million and $62~~$1 million for the ~~year-to-date periods~~quarter ended ~~September~~March 30, ~~2017~~2019. Additionally, we recorded a pre-tax mark-to-market benefit of $39 million for the quarter ended March 31, 2018. Included within the aforementioned was a pre-tax mark-to-market benefit for pension plans of $25 million for the quarter ended March 31, 2018.

Restructuring and ~~October 1, 2016,~~cost reduction activities

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 $8 million and $20 million for the quarters ended March 30, 2019 and March 31, 2018, respectively.

~~Other costs impacting comparability~~See the Restructuring and cost reduction activities section for more information.

~~During~~

Brexit impacts

With the uncertainty of the United Kingdom (U.K.) exiting the European Union (EU), commonly referred to as Brexit, we have begun preparations to proactively prepare for the potential adverse impacts of Brexit, such as delays at ports of entry and departure. As a result, we incurred pre-tax charges of $3 million for the quarter ended ~~April 2, 2016, we redeemed $475 million~~March 30, 2019.

Business and portfolio realignment

Up front and/or one-time costs related to: pending and prospective divestitures and acquisitions, including our previously announced proposed divestiture of our ~~7.45% U.S. Dollar Debentures due 2031. In connection with the debt redemption,~~cookies, fruit snacks, pie crusts, and ice-cream cone businesses; reorganizations in support of our Deploy for Growth priorities and a reshaped portfolio; and investments in enhancing capabilities prioritized by our Deploy for Growth strategy. As a result, we incurred ~~$153~~pre-tax charges of $31 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.

~~Venezuela~~

There was a material change in the business environment, including a worsening of our access to key raw materials subject to restrictions, 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.

~~As of December 31, 2016, we deconsolidated and changed to the cost method of accounting~~ for ~~our Venezuelan subsidiary. For~~ the quarter ended ~~October 1, 2016~~March 30, 2019.

Acquisitions

In May of 2018, the ~~deconsolidation reduced~~Company acquired an incremental 1% ownership interest in Multipro, which along with concurrent changes to the shareholders' agreement, resulted in the Company now having a 51% controlling interest in and began consolidating Multipro, a leading distributor of a variety of food products in Nigeria and Ghana. In our AMEA reportable segment, for the quarter ended March 30, 2019, the acquisition added $198 million in net sales ~~by $7 million and operating profit by $3 million which~~that impacted the comparability of our reported results. ~~For the year-to-date period ended October 1, 2016 the deconsolidation reduced net sales by $23 million and operating profit by $8 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 operating profit impact of $13 million for year-to-date period ended October 1, 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 ~~September~~March 30, ~~2017,~~2019, our reported net sales improved by ~~0.6%~~3.5% due primarily to the ~~Parati acquisition in Brazil as well as favorable foreign currency translation. This principally reflects on the previously announced list-price adjustments and other~~consolidation of Multipro results (May 2018). These impacts ~~in U.S. Snacks related to its transition from DSD. Currency-neutral comparable net sales~~ were ~~down 1.4% after eliminating the impact of acquisitions, foreign currency, and prior year Venezuela results.~~

Reported operating profit increased 13.1%, as a result of productivity savings from Project K restructuring, which includes this year's exit from its U.S. Snacks segment's Direct Store Delivery sales and delivery system. Reported operating profit also benefited from lower year-over-year restructuring and integration expense, and the impact of acquisitions and foreign currency. This was partially offset by unfavorable foreign currency which reduced net sales 3.7 percentage points. Organic net sales increased 0.3% from the ~~impact of mark-to-market accounting for pension plans, commodities,~~ prior year Venezuela operations, and foreign currency contracts. Currency-neutral comparable operating profit increased by 17.5% excluding the impact of mark-to-market, restructuring, integration costs, acquisitions, prior year Venezuela operations, and foreign currency.

Reported operating margin for the quarter was favorable 160 basis points due primarily to COGS and SG&A savings realized from Project K and ZBB initiatives, lower restructuring costs, and acquisitions, partially offset by the year-over-year impact of market-to-market. Currency-neutral comparable operating margin was favorable 280 basis points after excluding the impact of ~~restructuring,~~Multipro and foreign currency, due to growth in our international businesses and favorable price realization.

First quarter reported operating profit decreased 25% versus the year-ago quarter, driven primarily by higher input and distribution costs, business realignment costs in the current quarter, and unfavorable year-on-year mark-to-market and ~~acquisitions.~~foreign currency impacts. Currency-neutral adjusted operating profit decreased 4.6% after excluding foreign currency, mark-to-market, business realignment, restructuring, and costs preparing for potential Brexit.

Reported diluted EPS of ~~$.85~~$0.82 for the quarter was ~~up almost 4%~~down 35% compared to the prior year quarter of ~~$.82. Higher operating profit as a result of productivity savings from Project K restructuring more than offset~~$1.27 due primarily to higher input and distribution costs, a higher ~~effective~~ tax ~~rate.~~rate, business realignment costs in the current quarter, and unfavorable year-on-year mark-to-market and foreign currency impacts. Currency-neutral ~~comparable~~adjusted diluted EPS of ~~$1.05 increased~~$1.04 decreased by 9%15% compared to prior year quarter of ~~$.96, due to higher profit margins driven by productivity initiatives.~~$1.23, after excluding the impact of foreign currency, mark-to-market, business realignment, restructuring, and costs preparing for potential Brexit.

Reconciliation of certain non-GAAP Financial Measures

Quarter ended Year-to-date period ended
Consolidated results
(dollars in millions, except per share data)
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Reported net income $ 297
$ 292
$ 841
$ 747
Mark-to-market (pre-tax) (104 ) (31 ) (118 ) (35 )
Project K and cost reduction activities (pre-tax) (1 ) (40 ) (239 ) (164 )
Other costs impacting comparability (pre-tax) —
—
—
(153 )
Integration and transaction costs (pre-tax) (1 ) (2 ) (2 ) (3 )
Venezuela operations impact (pre-tax) —
3
—
8
Venezuela remeasurement (pre-tax) —
—
—
(11 )
Income tax benefit applicable to adjustments, net* 36
23
117
106
Comparable net income $ 367
$ 339
$ 1,083
$ 999
Foreign currency impact 4
(10 )
Currency-neutral comparable net income $ 363

$ 1,093

Reported diluted EPS $ 0.85
$ 0.82
$ 2.39
$ 2.11
Mark-to-market (pre-tax) (0.30 ) (0.09 ) (0.34 ) (0.10 )
Project K and cost reduction activities (pre-tax) —
(0.11 ) (0.68 ) (0.46 )
Other costs impacting comparability (pre-tax) —
—
—
(0.43 )
Integration and transaction costs (pre-tax) —
(0.01 ) —
(0.01 )
Venezuela operations impact (pre-tax) —
—
—
0.01
Venezuela remeasurement (pre-tax) —
—
—
(0.03 )
Income tax benefit applicable to adjustments, net* 0.10
0.07
0.33
0.31
Comparable diluted EPS $ 1.05
$ 0.96
$ 3.08
$ 2.82
Foreign currency impact —
(0.03 )
Currency-neutral comparable diluted EPS $ 1.05

$ 3.11

Currency-neutral comparable diluted EPS growth 9.4 % 15.1 % 10.3 % 7.4 %



	Quarter ended
Consolidated results (dollars in millions, except per share data)	March 30, 2019			March 31, 2018
Reported net income	$	282		$	444
Mark-to-market (pre-tax)	(41		)	39
Restructuring and cost reduction activities (pre-tax)	(8		)	(20		)
Brexit impacts (pre-tax)	(3		)	—
Business and portfolio realignment (pre-tax)	(31		)	—
Income tax impact applicable to adjustments, net*	19			(3		)
Adjusted net income	$	346		$	428
Foreign currency impact	(11		)
Currency-neutral adjusted net income	$	357		$	428
Reported diluted EPS	$	0.82		$	1.27
Mark-to-market (pre-tax)	(0.12		)	0.11
Restructuring and cost reduction activities (pre-tax)	(0.02		)	(0.06		)
Brexit impacts (pre-tax)	(0.01		)	—
Business and portfolio realignment (pre-tax)	(0.09		)	—
Income tax impact applicable to adjustments, net*	0.05			(0.01		)
Adjusted diluted EPS	$	1.01		$	1.23
Foreign currency impact	(0.03		)
Currency-neutral adjusted diluted EPS	$	1.04		$	1.23
Currency-neutral adjusted diluted EPS growth	(15.4		)%

Note: Tables may not foot due to rounding.

* 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 ~~third~~first quarter of ~~2017~~2019 versus ~~2016:~~2018:

Quarter ended September 30, 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 $ 710
$ 760
$ 290
$ 420
$ 599
$ 240
$ 254
$ —
$ 3,273
Acquisitions —
—
—
—
4
48
—
—
52
Comparable net sales $ 710
$ 760
$ 290
$ 420
$ 595
$ 192
$ 254
$ —
$ 3,221
Foreign currency impact —
—
—
7
7
6
1
—
21
Currency-neutral comparable net sales $ 710
$ 760
$ 290
$ 413
$ 588
$ 186
$ 253
$ —
$ 3,200
Quarter ended October 1, 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 $ 733
$ 796
$ 284
$ 402
$ 594
$ 197
$ 248
$ —
$ 3,254
Venezuela operations impact —
—
—
—
—
7
—
—
7
Comparable net sales $ 733
$ 796
$ 284
$ 402
$ 594
$ 190
$ 248
$ —
$ 3,247
% change - 2017 vs. 2016:
Reported growth (3.0 )% (4.5 )% 1.9 % 4.4 % 0.8 % 21.5 % 2.9 % — % 0.6 %
Acquisitions — % — % — % — % 0.7 % 24.4 % — % — % 1.6 %
Venezuela operations impact — % — % — % — % — % (4.0 )% — % — % (0.2 )%
Comparable growth (3.0 )% (4.5 )% 1.9 % 4.4 % 0.1 % 1.1 % 2.9 % — % (0.8 )%
Foreign currency impact — % — % — % 1.5 % 1.2 % 3.2 % 0.9 % — % 0.6 %
Currency-neutral comparable growth (3.0 )% (4.5 )% 1.9 % 2.9 % (1.1 )% (2.1 )% 2.0 % — % (1.4 )%



Quarter ended March 30, 2019
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported net sales	$	2,289		$	497		$	225		$	511		$	—		$	3,522
Foreign currency impact on total business (inc)/dec	(6		)	(46		)	(17		)	(55		)	—			(123		)
Currency-neutral net sales	$	2,295		$	543		$	242		$	566		$	—		$	3,645
Acquisitions	—			—			—			198			—			198
Foreign currency impact on acquisitions (inc)/dec	—			—			—			36			—			36
Organic net sales	$	2,295		$	543		$	242		$	332		$	—		$	3,411

Quarter ended March 31, 2018
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported net sales	$	2,330		$	520		$	232		$	319		$	—		$	3,401

% change - 2019 vs. 2018:
Reported growth	(1.8		)%	(4.4		)%	(3.0		)%	60.4		%	—		%	3.5		%
Foreign currency impact on total business (inc)/dec	(0.3		)%	(8.8		)%	(7.3		)%	(17.1		)%	—		%	(3.7		)%
Currency-neutral growth	(1.5		)%	4.4		%	4.3		%	77.5		%	—		%	7.2		%
Acquisitions	—		%	—		%	—		%	62.0		%	—		%	5.8		%
Foreign currency impact on acquisitions (inc)/dec	—		%	—		%	—		%	11.4		%	—		%	1.1		%
Organic growth	(1.5		)%	4.4		%	4.3		%	4.1		%	—		%	0.3		%

Note: Tables may not foot due to rounding.

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

Quarter ended September 30, 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 $ 141
$ 14
$ 76
$ 65
$ 72
$ 23
$ 25
$ 48
$ 464
Mark-to-market —
—
—
—
—
—
—
(104 ) (104 )
Project K and cost reduction activities (14 ) (106 ) —
(4 ) (13 ) (2 ) (1 ) 139
(1 )
Integration and transaction costs —
—
—
—
—
(1 ) —
—
(1 )
Acquisitions —
—
—
—
(1 ) 3
—
—
2
Comparable operating profit $ 155
$ 120
$ 76
$ 69
$ 86
$ 23
$ 26
$ 13
$ 568
Foreign currency impact —
—
—
2
3
—
—
(1 ) 4
Currency-neutral comparable operating profit $ 155
$ 120
$ 76
$ 67
$ 83
$ 23
$ 26
$ 14
$ 564
Quarter ended October 1, 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 $ 144
$ 78
$ 68
$ 43
$ 78
$ 27
$ 21
$ (49 ) $ 410
Mark-to-market —
—
—
—
—
—
—
(31 ) (31 )
Project K and cost reduction activities (4 ) (8 ) (1 ) (7 ) (6 ) (2 ) (2 ) (10 ) (40 )
Integration and transaction costs —
—
—
—
(1 ) 1
—
(2 ) (2 )
Venezuela operations impact —
—
—
—
—
3
—
—
3
Comparable operating profit $ 148
$ 86
$ 69
$ 50
$ 85
$ 25
$ 23
$ (6 ) $ 480
% change - 2017 vs. 2016:
Reported growth (2.6 )% (82.5 )% 12.2 % 52.8 % (9.2 )% (13.2 )% 18.7 % 197.0 % 13.1 %
Mark-to-market — % — % — % — % — % — % — % (721.7 )% (15.6 )%
Project K and cost reduction activities (6.8 )% (121.3 )% 0.7 % 12.7 % (9.3 )% (1.7 )% 7.0 % 647.7 % 10.3 %
Integration and transaction costs — % — % — % 0.2 % 1.3 % (3.5 )% 0.8 % (28.0 )% 0.4 %
Acquisitions — % — % — % — % (0.3 )% 8.7 % — % — % 0.4 %
Venezuela operations impact — % — % — % — % — % (9.8 )% — % (1.4 )% (0.7 )%
Comparable growth 4.2 % 38.8 % 11.5 % 39.9 % (0.9 )% (6.9 )% 10.9 % 300.4 % 18.3 %
Foreign currency impact — % — % — % 2.0 % 2.0 % 2.3 % 0.2 % 4.4 % 0.8 %
Currency-neutral comparable growth 4.2 % 38.8 % 11.5 % 37.9 % (2.9 )% (9.2 )% 10.7 % 296.0 % 17.5 %



Quarter ended March 30, 2019
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported operating profit	$	380		$	60		$	21		$	47		$	(127	)	$	381
Mark-to-market	—			—			—			—			(42		)	(42		)
Restructuring and cost reduction activities	(4		)	(1		)	(2		)	(1		)	—			(8		)
Brexit impacts	—			(3		)	—			—			—			(3		)
Business and portfolio realignment	(11		)	(4		)	—			—			(16		)	(31		)
Adjusted operating profit	$	395		$	67		$	22		$	48		$	(68	)	$	465
Foreign currency impact	(1		)	(7		)	(1		)	(4		)	—			(12		)
Currency-neutral adjusted operating profit	$	396		$	74		$	23		$	52		$	(68	)	$	477

Quarter ended March 31, 2018
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported operating profit	$	399		$	60		$	22		$	41		$	(12	)	$	510
Mark-to-market	—			—			—			—			30			30
Restructuring and cost reduction activities	(10		)	(7		)	(2		)	—			(1		)	(20		)
Adjusted operating profit	$	409		$	67		$	24		$	41		$	(41	)	$	500

% change - 2019 vs. 2018:
Reported growth	(4.7		)%	(1.2		)%	(8.1		)%	15.8		%	(907.7		)%	(25.4		)%
Mark-to-market	—		%	—		%	—		%	—		%	(812.2		)%	(13.7		)%
Restructuring and cost reduction activities	1.6		%	8.3		%	(1.1		)%	(1.4		)%	4.0		%	2.1		%
Brexit impacts	—		%	(4.5		)%	—		%	—		%	—		%	(0.6		)%
Business and portfolio realignment	(2.7		)%	(5.8		)%	—		%	(0.1		)%	(38.4		)%	(6.3		)%
Adjusted growth	(3.6		)%	0.8		%	(7.0		)%	17.3		%	(61.1		)%	(6.9		)%
Foreign currency impact	(0.2		)%	(9.1		)%	(4.4		)%	(9.4		)%	—		%	(2.3		)%
Currency-neutral adjusted growth	(3.4		)%	9.9		%	(2.6		)%	26.7		%	(61.1		)%	(4.6		)%

Note: Tables may not foot due to rounding.

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

~~U.S. Morning Foods~~North America

~~This segment consists of cereal, toaster pastries, and health and wellness bars. As reported and Currency-neutral comparable~~Reported net sales ~~declined 3.0% as a result~~decreased 1.8% versus the comparable quarter of ~~decreased~~2018 due primarily to lower volume ~~partially~~partly offset by favorable pricing/mix. Organic net sales decreased 1.5% after excluding the impact of foreign currency.



Net sales % change - first quarter 2019 vs. 2018:
North America	Reported net sales		Foreign currency		Currency-neutral net sales
Snacks	(0.2	)%	(0.2	)%	—	%
Cereal	(4.9	)%	(0.5	)%	(4.4	)%
Frozen	(1.5	)%	(0.2	)%	(1.3	)%

~~In our cereal business, kid-oriented brands performed well during~~North America snacks currency-neutral net sales were flat in the quarter asdue to sustained momentum and innovations in key brands, including ~~Froot Loops~~Cheez-It, Rice Krispies Treats, Pringles and ~~Frosted Flakes~~Pop-Tarts, which ~~continued to gain share behind effective media and innovation. Adult-oriented brands declined, reflecting a category trend and our lack~~all grew consumption during the quarter. These impacts were mostly offset by the unfavorable impact of ~~sufficient food news and brand activity.~~the RXBAR recall.

~~Toaster pastries grew~~

North America cereal currency-neutral net sales declined by 4.4% driven by loss of share and lower consumption of our Special K branded cereals, continued category softness, and a shift in overall cereal trade inventory. While our consumption trend did not change significantly, shipments lagged during the quarter ~~despite lower consumption~~suggesting the shift in trade inventory.

North America frozen currency-neutral net sales declined by 1.3%, comparing against a notably strong, double-digit growth in the ~~category.~~prior year quarter.

North America reported operating profit decreased 4.7% due to higher input and distribution costs and lower net sales. Currency-neutral adjusted operating profit declined 3.4% after excluding the impact of restructuring, business realignment costs, and foreign currency.

Europe

Reported net sales decreased 4.4% due to unfavorable foreign currency. Organic net sales increased 4.4% after excluding the impact of foreign currency driven by higher volume and favorable price/mix.

Growth was driven by snacks, led by Pringles and accompanied by a return to growth in wholesome snacks. Pringles grew behind innovation and an effective marketing campaign.

Cereal sales declined during the quarter but moderated from the prior year. The declines were isolated to the UK and France markets as cereal grew almost everywhere else in the region.

As reported operating profit decreased ~~2.6%~~1.2% due primarily to ~~higher restructuring charges and lower net sales.~~unfavorable foreign currency. Currency-neutral ~~comparable~~adjusted operating profit increased ~~4.2% 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 4.5% lower versus the comparable quarter due to price/mix and lower volume. During the quarter the Company discontinued shipping through its DSD distribution system. Accordingly, all sales are now made at a list-price that is reduced by a cost-to-serve for various DSD services no longer provided by the Company. As reported net sales were also affected by a pull-back in merchandising to facilitate customer transitions early in the quarter, and the impact of eliminating smaller, less productive SKUs.

Crackers, Cookies, and Wholesome Snacks declined in consumption in the third quarter due to the reduction of promotion activity related to our efforts to smoothly transition out of DSD. Savory snacks consumption was pulled down, in part, on the elimination of a promotion-sized can but Core Four flavors grew during the quarter.

As reported operating profit declined 82.5% due to increased Project K restructuring charges in the current year associated with our DSD transition. Currency-neutral comparable operating profit increased 38.8% after excluding the impact of restructuring charges; this was driven by DSD-related overhead reductions partially offset by increased brand investment.

~~U.S. Specialty~~

~~As reported and Currency-neutral comparable net sales improved 1.9%~~9.9% as a result of higher ~~volume~~sales and improved ~~pricing/mix.~~

~~Shipments grew in the quarter led by both our Convenience and Foodservice channels, with the latter additionally benefiting from hurricane-related orders.~~

~~As Reported operating~~gross profit increased 12.2% due to the higher net sales and savings from Project K and ZBB initiatives. Currency-neutral comparable operating profit increased 11.5% after excluding the impact of restructuring charges.

~~North America Other~~

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

As reported net sales increased 4.4% due to higher volume, favorable pricing/mix, and favorable foreign currency. Currency-neutral comparable net sales increased 2.9% after excluding the impact of foreign currency.

~~The U.S. Frozen business reported increased shipments on higher volume and favorable price/mix.~~ ~~Eggo~~^®grew share and consumption during the quarter, benefiting from the removal of artificial ingredients and the success of Disney-shaped waffles, as well as the exit of a competitor. Our frozen veggie business, under the ~~Morningstar Farms~~^®~~and~~ ~~Gardenburger~~^®~~brands, returned to consumption and share growth during the quarter, reflecting focused marketing support on our core burger offerings during the summer grilling season.~~

Canada reported increased shipments during the quarter on higher volume, positive price/mix, and favorable foreign currency. We generated continued improvement in consumption with broad-based share gains in both cereal and snacks. The business is past the elasticity impact of currency-driven pricing actions taken in the second quarter of 2016, and is showing consistent improvement as we invest in brand building and innovation.

Kashi Company posted lower net sales in the quarter due to the decision to eliminate less profitable SKUs in certain channels, but its sales performance did continue to improve sequentially from previous quarters. Our cereal business grew share, led by ~~Bear Naked, which is now the largest granola brand in the U.S. Additionally, our renovated snacks offerings are stabilizing share more quickly than anticipated, with share flat during the quarter.~~

As Reported operating profit increased 52.8% due to lower restructuring charges, Project K and ZBB savings and favorable foreign currency. Currency-neutral comparable operating profit increased 37.9% after excluding the impact of restructuring charges and foreign currency.

~~Europe~~

~~As Reported net sales increased 0.8% due to favorable foreign currency, pricing/mix, and acquisitions, partially offset by lower volume. Currency-neutral comparable net sales declined 1.1%~~margin after excluding the impact of foreign currency and ~~acquisitions.~~

~~Pringles returned~~costs related to ~~growth during the quarter, following temporary declines in the first half of 2017, when prolonged customer negotiations resulted in reduced promotional activity.~~

~~Cereal net sales declined due to softness in adult-oriented brands in continental Europe~~restructuring, business realignment and economic softness in our Mediterranean, Middle East, and Africa sub-region. The U.K. cereal business grew consumption and share during the quarter, continuing its improving trend with growth in several brands.

As reported operating profit decreased 9.2% due to higher restructuring charges partially mitigated by incremental Project K savings and favorable foreign currency. Currency-neutral comparable operating profit declined 2.9% after excluding the impact of restructuring charges, acquisitions and foreign currency.Brexit.

Latin America

~~As reported~~Reported net sales ~~improved 21.5%~~decreased 3.0% due to ~~increased volume as a result of the Parati acquisition 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 2.1% after excluding the impact of acquisitions, prior year Venezuela results, and foreign currency.~~

~~This decline was due solely to the Caribbean/Central America sub-region, where economic softness was exacerbated by shipment disruptions due to hurricanes Maria and Irma.~~

We did post growth in each of the other sub-regions within Latin America. Our Mexico business continued to perform well, despite disruptions related to two major earthquakes. Mercosur posted particularly strong growth in ~~Pringles, despite a challenging environment.~~

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

As reported operating profit decreased 13.2%, primarily due to the impact of prior year Venezuela results partially mitigated by efficiencies from productivity initiatives and the impact of the Parati acquisition. Currency-neutral comparable operating profit decreased 9.2% after excluding the impact of restructuring costs, acquisitions, prior year Venezuela remeasurement and foreign currency.

~~Asia Pacific~~

~~As reported net sales improved 2.9% due to higher volume and favorable foreign currency partially offset by unfavorable price/mix. Currency-neutral comparable~~Organic net sales increased ~~2.0%,~~4.3% after excluding the impact of foreign ~~currency.~~currency driven by both favorable price/mix and higher volume.

~~Good~~Growth was driven by Mexico cereal and Parati in Brazil. Mexico's cereal consumption growth continues to accelerate behind strong commercial programs, effective in-store execution, and continued expansion in high-frequency stores. Parati posted growth in ~~cereal was broad-based~~net sales, share, and consumption during the quarter in key categories.

Reported operating profit decreased 8.1% due primarily to unfavorable foreign currency, higher input costs and investments. Currency-neutral adjusted operating profit decreased 2.6% after excluding the impact of foreign currency and restructuring.

AMEA

Reported net sales improved 60% due to higher volume from the consolidation of Multipro results, Pringles growth across the region, ~~led by Asia's expansion in granola, e-commerce,~~ and ~~the re-acceleration of~~double-digit growth in ~~India. Australia, our largest market in~~ the ~~region, posted consumption~~Middle East, North Africa, Turkey business, partially offset by unfavorable foreign currency. Organic net sales increased 4.1% due to favorable price/mix and ~~share gains during~~higher volume after excluding the ~~quarter, continuing its stabilization trend.~~impact of Multipro and foreign currency.

~~Our Pringles business posted growth for the quarter across the region.~~

~~As reported~~Reported operating profit increased ~~18.7%~~16% due to the consolidation of Multipro results and higher organic net ~~sales, lower restructuring charges, and brand-building efficiencies related to ZBB.~~sales. Currency-neutral ~~comparable~~adjusted operating profit improved ~~10.7%~~27% after excluding the impact of restructuring and foreign currency.

Outside of reported results, our joint ventures in West Africa and China continued to perform well. Our venture in West Africa posted double-digit growth for the quarter driven by strong noodles volume. The China JV is benefiting from granola cereal and rapid expansion of e-commerce sales.

Corporate

~~As reported~~Reported operating profit ~~increased $97~~decreased $115 million versus the comparable prior year quarter due primarily to ~~pension curtailment gains related to Project K restructuring partially offset by higher~~unfavorable mark-to-market impacts and business realignment costs. Currency-neutral ~~comparable operating profit improved $20 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 September 30, 2017 versus October 1, 2016:~~

Year-to-date period ended September 30, 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 $ 2,108
$ 2,344
$ 961
$ 1,204
$ 1,677
$ 696
$ 724
$ —
$ 9,714
Acquisitions —
—
—
1
11
141
—
—
153
Comparable net sales $ 2,108
$ 2,344
$ 961
$ 1,203
$ 1,666
$ 555
$ 724
$ —
$ 9,561
Foreign currency impact —
—
—
6
(55 ) (1 ) 16
—
(34 )
Currency-neutral comparable net sales $ 2,108
$ 2,344
$ 961
$ 1,197
$ 1,721
$ 556
$ 708
$ —
$ 9,595
Year-to-date period ended October 1, 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 $ 2,227
$ 2,431
$ 931
$ 1,222
$ 1,821
$ 593
$ 692
$ —
$ 9,917
Venezuela operations impact —
—
—
—
—
23
—
—
23
Comparable net sales $ 2,227
$ 2,431
$ 931
$ 1,222
$ 1,821
$ 570
$ 692
$ —
$ 9,894
% change - 2017 vs. 2016:
Reported growth (5.3 )% (3.6 )% 3.2 % (1.5 )% (7.9 )% 17.3 % 4.7 % — % (2.0 )%
Acquisitions — % — % — % 0.1 % 0.6 % 23.7 % — % — % 1.6 %
Venezuela operations impact — % — % — % — % — % (3.8 )% — % — % (0.2 )%
Comparable growth (5.3 )% (3.6 )% 3.2 % (1.6 )% (8.5 )% (2.6 )% 4.7 % — % (3.4 )%
Foreign currency impact — % — % — % 0.4 % (3.0 )% (0.2 )% 2.4 % — % (0.4 )%
Currency-neutral comparable growth (5.3 )% (3.6 )% 3.2 % (2.0 )% (5.5 )% (2.4 )% 2.3 % — % (3.0 )%

~~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 September 30, 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 $ 477
$ (8 ) $ 242
$ 173
$ 214
$ 82
$ 66
$ 31
$ 1,277
Mark-to-market —
—
—
—
—
—
—
(118 ) (118 )
Project K and cost reduction activities (16 ) (305 ) (1 ) (13 ) (21 ) (6 ) (5 ) 128
(239 )
Integration and transaction costs —
—
—
—
—
(2 ) —
—
(2 )
Acquisitions —
—
—
(2 ) (1 ) 15
—
—
12
Comparable operating profit $ 493
$ 297
$ 243
$ 188
$ 236
$ 75
$ 71
$ 21
$ 1,624
Foreign currency impact —
—
—
1
(8 ) (3 ) 2
(3 ) (11 )
Currency-neutral comparable operating profit $ 493
$ 297
$ 243
$ 187
$ 244
$ 78
$ 69
$ 24
$ 1,635
Year-to-date period ended October 1, 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 $ 457
$ 230
$ 214
$ 135
$ 216
$ 70
$ 50
$ (75 ) $ 1,297
Mark-to-market —
—
—
—
—
—
—
(35 ) (35 )
Project K and cost reduction activities (13 ) (62 ) (4 ) (20 ) (34 ) (6 ) (6 ) (19 ) (164 )
integration and transaction costs —
—
—
—
(2 ) 1
—
(2 ) (3 )
Venezuela operations impact —
—
—
—
—
8
—
—
8
Venezuela remeasurement —
—
—
—
—
(13 ) —
—
(13 )
Comparable operating profit $ 470
$ 292
$ 218
$ 155
$ 252
$ 80
$ 56
$ (19 ) $ 1,504
% change - 2017 vs. 2016:
Reported growth 4.3 % (103.7 )% 13.2 % 28.8 % (1.2 )% 17.6 % 32.7 % 141.1 % (1.6 )%
Mark-to-market — % — % — % — % — % — % — % (335.9 )% (6.3 )%
Project K and cost reduction activities (0.6 )% (105.3 )% 1.6 % 8.2 % 5.0 % 0.7 % 5.8 % 270.8 % (4.5 )%
Integration and transaction costs — % — % — % 0.1 % 0.7 % (3.0 )% 1.0 % (8.3 )% 0.1 %
Acquisitions — % — % — % (1.2 )% (0.3 )% 19.2 % — % — % 0.8 %
Venezuela operations impact — % — % — % — % — % (13.0 )% — % (1.6 )% (0.6 )%
Venezuela remeasurement — % — % — % — % — % 18.4 % — % — % 0.9 %
Comparable growth 4.9 % 1.6 % 11.6 % 21.7 % (6.6 )% (4.7 )% 25.9 % 216.1 % 8.0 %
Foreign currency impact — % — % — % 0.5 % (3.3 )% (2.8 )% 3.4 % (15.9 )% (0.7 )%
Currency-neutral comparable growth 4.9 % 1.6 % 11.6 % 21.2 % (3.3 )% (1.9 )% 22.5 % 232.0 % 8.7 %

~~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 5.3% as a result of decreased volume partially offset by favorable pricing/mix.

Cereal consumption declined due to our adult-oriented brands, for which we have not supported with enough food news and brand activity to reverse a category-wide trend. Our kid-oriented brands have continued to perform well. ~~Frosted Flakes~~ ~~grew consumption and share during the year-to-date period behind effective media and innovation, including new Cinnamon~~ ~~Frosted Flakes~~. ~~Froot Loops~~ ~~also grew consumption and share during the year-to-date period reflecting effective innovation and brand-building.~~

~~Toaster pastries grew share during year-to-date period, despite lower consumption in the category.~~

As Reported operating profit increased 4.3% due to productivity initiatives partially offset by lower net sales and higher restructuring charges. Currency-neutral comparable operating profit increased 4.9% 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 3.6% primarily due to impacts related to our conversion from DSD to warehouse distribution; specifically, reduced merchandising during the transition, reduction of SKUs, and a list-price adjustment.

As reported operating profit declined 103.7% due to increased Project K restructuring charges in the current year associated with our DSD transition. Currency-neutral comparable operating profit increased 1.6% after excluding the impact of restructuring charges; this was driven by DSD-related overhead reductions partially offset by increased brand investment.

~~U.S. Specialty~~

As reported and Currency-neutral comparable net sales improved 3.2% as a result of higher volume and improved pricing/mix aided by innovation and expansion in core and emerging growth channels, and the third quarter benefit of hurricane-related shipments.

As reported operating profit increased 13.2% 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 Company, and Canada businesses.~~

As reported net sales declined 1.5% due to decreased volume and foreign currency partially offset by acquisitions. Currency-neutral comparable net sales declined 2.0% after excluding the impact of acquisitions and foreign currency.

~~In U.S. Frozen,~~ ~~Eggo~~^®grew share and consumption during the year-to-date period, benefiting from the removal of artificial ingredients and the success of Disney-shaped waffles, as well as the exit of a competitor. Our frozen veggie business, under the ~~Morningstar Farms~~^®~~and~~ ~~Gardenburger~~^®~~brands, returned to growth in the second and third quarters reflecting focused marketing support on our core burger offerings during the summer grilling season.~~

~~In Canada, consumption and share performance continued to improve in both cereal and in snacks.~~

Kashi Company shipments were impacted by the exit of non-core or less profitable SKUs, promotions, or categories. Our cereal business grew share during the year-to-date period. We also saw improved trends for the wholesome snacks business, as recent innovations and media are starting to take hold.

Reported operating profit increased 28.8% due to lower restructuring charges and by Project K and ZBB savings. Currency-neutral comparable operating profit increased 21.2% after excluding the impact of restructuring charges and foreign currency.

~~Europe~~

Reported net sales declined 7.9% due to lower volume partially offset by the favorable impact of foreign currency, pricing/mix and acquisitions. Currency-neutral comparable net sales declined 5.5% 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 first and second quarter merchandising programs. Promotional activity resumed in the third quarter and the brand returned to year-over-year growth.

~~Cereal consumption has declined due to sluggish categories across the region and particular softness in the adult-oriented brands across the category, notably our~~ ~~Special K. In the U.K., our largest market in the region, consumption and share turned positive in the third quarter, continuing an improving trend that began early this year.~~

~~As reported~~adjusted operating profit decreased 1.2% due to lower sales offset somewhat by lower restructuring charges, incremental Project K savings, and favorable foreign currency. Currency-neutral comparable operating profit declined 3.3% after excluding the impact of restructuring charges, prior year integration costs, acquisitions and foreign currency.

~~Latin America~~

Reported net sales improved 17.3% 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 2.4% after excluding the impact of acquisitions, prior year Venezuela results, and foreign currency.

This decline was due solely to the Caribbean/Central America sub-region, where distributor transitions and economic softness were exacerbated during the third quarter by shipment disruptions due to hurricanes Maria and Irma.

We did post growth in each of the other sub-regions within Latin America. Our Mexico business continued to perform well with consumption increasing year-on-year. Mercosur posted particularly strong growth in ~~Pringles, despite a challenging environment, and continued its expansion in Argentina and Chile.~~

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

As Reported operating profit increased 17.6%, primarily due to the impact of the Parati acquisition. Currency-neutral comparable operating profit decreased 1.9% after excluding the impact of restructuring costs, acquisitions, prior year Venezuela remeasurement and foreign currency.

~~Asia Pacific~~

Reported net sales improved 4.7% due to favorable foreign currency and pricing/mix as well as a slight increase in volume. Currency-neutral comparable net sales increased 2.3%, after excluding the impact of foreign currency.

~~Growth in cereal was led by India and Korea. Australia, our largest market in the region, gained share during the period, reflecting continued stabilization.~~

~~Our Pringles business posted growth for the period across the region.~~

As reported operating profit increased 32.7% due to higher net sales, lower restructuring charges, and brand-building efficiencies. Currency-neutral comparable operating profit improved 22.5% after excluding the impact of restructuring, prior year integration costs and foreign currency.

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 e-commerce sales in China.

~~Corporate~~

As Reported operating profit improved $106 million due primarily to pension curtailments gains in conjunction with Project K restructuring mitigated somewhat by higher mark-to-market costs. Currency-neutral comparable operating profit improved $43$27 million after excluding the impact of mark-to-market ~~restructuring charges,~~ and ~~foreign currency.~~business realignment costs.

Margin performance

~~Margin~~Our currency-neutral adjusted gross profit and gross profit margin performance for the ~~quarter and year-to-date periods of 2017 versus 2016 is as follows:~~

Quarter 2017 2016
Change vs. prior
year (pts.)
Reported gross margin (a) 37.7 % 38.9 % (1.2 )
Mark-to-market (COGS) (2.0 ) (0.1 ) (1.9 )
Project K and cost reduction activities (COGS) 0.2
(0.4 ) 0.6
Acquisitions (COGS) 0.1
—
0.1
Comparable gross margin 39.4 % 39.4 % —
Foreign currency impact —
—
Currency-neutral comparable gross margin 39.4 %

—
Reported SG&A% (23.5 )% (26.3 )% 2.8
Mark-to-market (SG&A) (1.1 ) (0.8 ) (0.3 )
Project K and cost reduction activities (SG&A) (0.3 ) (0.9 ) 0.6
Acquisitions (SG&A) (0.3 ) —
(0.3 )
Comparable SG&A% (21.8 )% (24.6 )% 2.8
Foreign currency impact —

—
Currency-neutral comparable SG&A% (21.8 )%

2.8
Reported operating margin 14.2 % 12.6 % 1.6
Mark-to-market (3.1 ) (0.9 ) (2.2 )
Project K and cost reduction activities (0.1 ) (1.3 ) 1.2
Acquisitions (0.2 ) —
(0.2 )
Comparable operating margin 17.6 % 14.8 % 2.8
Foreign currency impact —
—
Currency-neutral comparable operating margin 17.6 %

2.8

~~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 unfavorable 120 basis points due primarily to the impact of mark-to-market accounting for pension, commodities and foreign currency contracts, as well as the impact of U.S. Snacks transition out of DSD distribution, namely the list price adjustment and increased resources in warehouse logistics due to the DSD transition. This was partially offset by the impact of productivity and cost-savings under the Project K restructuring program, lower restructuring charges, and acquisitions. Currency-neutral comparable gross margin was flat compared to the thirdfirst quarter of ~~2016 after eliminating the impact of mark-to-market, restructuring, and acquisitions.~~

Reported SG&A% for the quarter was favorable 280 basis points due primarily to overhead savings realized from Project K and ZBB, lower Project K restructuring charges, and acquisitions. These impacts were partially mitigated by higher year-over-year mark-to-market charges. Currency-neutral comparable SG&A% was favorable 280 basis points after excluding the impact of restructuring, mark-to-market, and acquisitions.

Reported operating margin for the quarter was favorable 160 basis points due primarily to COGS and SG&A savings realized from Project K and ZBB initiatives, lower restructuring charges, and acquisitions partially mitigated by the impact of mark-to-market accounting for pension, commodities and foreign currency contracts. Currency-neutral comparable operating margin was favorable 280 basis points after excluding the year-over-year impact of restructuring, mark-to-market, and acquisitions.

Year-to-date 2017 2016
Change vs. prior
year (pts.)
Reported gross margin (a) 38.1 % 38.1 % —
Mark-to-market (COGS) (0.9 ) (0.1 ) (0.8 )
Project K and cost reduction activities (COGS) (0.3 ) (0.7 ) 0.4
Acquisitions (COGS) 0.1
—
0.1
Venezuela remeasurement (COGS) —
(0.1 ) 0.1
Comparable gross margin 39.2 % 39.0 % 0.2
Foreign currency impact —
—
Currency-neutral comparable gross margin 39.2 % 0.2
Reported SG&A% (25.0 )% (25.0 )% —
Mark-to-market (SG&A) (0.4 ) (0.2 ) (0.2 )
Project K and cost reduction activities (SG&A) (2.1 ) (1.0 ) (1.1 )
Acquisitions (SG&A) (0.3 ) —
(0.3 )
Venezuela operations impact (SG&A) —
0.1
(0.1 )
Venezuela remeasurement (SG&A) —
(0.1 ) 0.1
Comparable SG&A% (22.2 )% (23.8 )% 1.6
Foreign currency impact —
—
Currency-neutral comparable SG&A% (22.2 )% 1.6
Reported operating margin 13.1 % 13.1 % —
Mark-to-market (1.3 ) (0.3 ) (1.0 )
Project K and cost reduction activities (2.4 ) (1.7 ) (0.7 )
Acquisitions (0.2 ) —
(0.2 )
Venezuela operations impact —
0.1
(0.1 )
Venezuela remeasurement —
(0.2 ) 0.2
Comparable operating margin 17.0 % 15.2 % 1.8
Foreign currency impact —
—
Currency-neutral comparable operating margin 17.0 % 1.8

~~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 flat~~2019 versus the comparable prior year period. The impact of productivity and cost-savings under Project K, favorable net input costs, lower restructuring costs, and Venezuela remeasurement were partially offset by the impact of U.S. Snacks transition out of DSD distribution, namely the list price adjustment and increased resources in warehouse logistics due to the DSD transition, impact of acquisitions, 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, and Venezuela remeasurement.

Reported SG&A% for the year-to-date period was flat versus the comparable prior year period. Overhead savings realized from Project K and ZBB, the impact to brand-building investment from ZBB efficiencies, and acquisitions were mitigated by increased Project K restructuring and mark-to-market costs. Currency-neutral comparable SG&A% was favorable 160 basis points after excluding the impact of restructuring, mark-to-market, and acquisitions.

Reported operating margin for the year-to-date period was flat compared to the prior year. The favorable impact to COGS and SG&A expense realized from Project K and ZBB initiatives, acquisitions and Venezuela remeasurement were partially mitigated by higher market-to-market and restructuring charges. Currency-neutral comparable operating margin was favorable 180 basis points after excluding the year-over-year impact of restructuring, mark-to-market, acquisitions, and Venezuela remeasurement.

~~Our currency-neutral comparable gross profit, currency-neutral comparable SG&A, and currency-neutral comparable operating profit measures~~2018 are reconciled to the directly comparable GAAP measures as follows:

Quarter ended Year-to-date period ended
(dollars in millions) September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Reported gross profit (a) $ 1,232
$ 1,264
$ 3,701
$ 3,779
Mark-to-market (COGS) (69 ) (3 ) (90 ) (12 )
Project K and cost reduction activities (COGS) 9
(12 ) (26 ) (66 )
Integration and transaction costs (COGS) —
—
—
(1 )
Acquisitions (COGS) 22
—
65
—
Venezuela operations impact (COGS) —
2
—
9
Venezuela remeasurement (COGS) —
—
—
(12 )
Comparable gross profit $ 1,270
$ 1,277
$ 3,752
$ 3,861
Foreign currency impact 10
(10 )
Currency-neutral comparable gross profit $ 1,260

$ 3,762

Reported SG&A $ 768
$ 854
$ 2,424
$ 2,482
Mark-to-market (SG&A) 35
28
28
23
Project K and cost reduction activities (SG&A) 10
28
213
98
Integration and transaction costs (SG&A) 1
2
2
2
Acquisitions (SG&A) 20
—
53
—
Venezuela operations impact (SGA) —
(1 ) —
1
Venezuela remeasurement (SG&A) —
—
—
1
Comparable SG&A $ 702
$ 797
$ 2,128
$ 2,357
Foreign currency impact 6

1

Currency-neutral comparable SG&A $ 696

$ 2,127

Reported operating profit $ 464
$ 410
$ 1,277
$ 1,297
Mark-to-market (104 ) (31 ) (118 ) (35 )
Project K and cost reduction activities (1 ) (40 ) (239 ) (164 )
Integration and transaction costs (1 ) (2 ) (2 ) (3 )
Acquisitions 2
—
12
—
Venezuela operations impact —
3
—
8
Venezuela remeasurement —
—
—
(13 )
Comparable operating profit $ 568
$ 480
$ 1,624
$ 1,504
Foreign currency impact 4
(11 )
Currency-neutral comparable operating profit $ 564

$ 1,635



Quarter	2019					2018					GM change vs. prior year (pts.)
	Gross Profit (a)			Gross Margin (b)		Gross Profit (a)			Gross Margin (b)		GM change vs. prior year (pts.)
Reported	$	1,107		31.4	%	$	1,252		36.8	%	(5.4	)
Mark-to-market	(42		)	(1.2	)%	30			0.9	%	(2.1	)
Restructuring and cost reduction activities	(6		)	(0.2	)%	(13		)	(0.4	)%	0.2
Brexit impacts	(3		)	(0.1	)%	—			—	%	(0.1	)
Business and portfolio realignment	(4		)	(0.1	)%	—			—	%	(0.1	)
Foreign currency impact	(36		)	0.1	%	—			—	%	0.1
Currency-neutral adjusted	$	1,198		32.9	%	$	1,235		36.3	%	(3.4	)

Note: Tables may not foot due to rounding.

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.

(b) Gross profit as a percentage of net sales.

Reported gross margin for the quarter was unfavorable 540 basis points due primarily to the consolidation of Multipro results, higher input and distribution costs, mix shifts and costs related to growth in new pack formats, as well as unfavorable mark-to-market and foreign currency impacts. Currency-neutral adjusted gross margin was unfavorable 340 basis points compared to the first quarter of 2018 after eliminating the impact of mark-to-market and foreign currency.

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. We continually evaluate potential restructuring and cost reduction initiatives and may pursue future initiatives that generate meaningful savings that can be utilized in achieving our long-term profit growth targets.

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

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

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

We currently anticipate that Project K will result in total pre-tax charges, once all phases are approved and implemented, of ~~$1.5 to~~approximately $1.6 billion, with after-tax cash costs, including incremental capital investments, estimated to be approximately ~~$1.1~~$1.2 billion. Cash expenditures of approximately ~~$725~~$1,150 million have been incurred through the end of fiscal year ~~2016. Total cash expenditures, as defined, are expected to be approximately $250 million for 2017 and~~2018. As we complete the ~~balance thereafter. Total charges for~~implementation of previously approved Project K initiatives in ~~2017 are expected~~2019, we expect to beincur additional charges of approximately ~~$325 to $375~~$50 million.

We 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 reflects our go-to-market initiatives that will

impact both selling, general and administrative expense and gross profit. We have realized approximately ~~$300~~$650 million of annual savings through the end of ~~2016.~~2018. Cost savings have been utilized to ~~increase margins~~offset inflation and ~~be strategically invested~~fund investments 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.

Refer to Note 54 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 $21 million during the year-to-date periods ended September 30, 2017 and October 1, 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~~primarily in the euro, British pound, Mexican peso, Australian dollar, Canadian dollar, ~~Mexican peso~~Brazilian Real, Nigerian Naira, and Russian ruble. 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 ~~September~~March 30, ~~2017~~2019 and ~~October 1, 2016,~~March 31, 2018, interest expense was ~~$188~~$74 million and ~~$343~~$69 million, respectively. ~~Prior~~The increase from the comparable prior year ~~interest expense includes $153 million charge~~quarter is due primarily to ~~redeem $475~~the issuance of $400 million of ~~7.45% U.S. Dollar Debentures~~three-year 3.25% Senior Notes due ~~2031. The charge consisted primarily~~2021 in conjunction with our purchase of ~~a premium on~~additional equity interests in Tolaram Africa Foods, PTE LTD and Multipro in the ~~tender offer and also including accelerated losses on pre-issuance interest rate hedges, acceleration~~second quarter of ~~fees and debt discount on the redeemed debt and fees.~~

~~For the full year 2017, we expect gross interest expense to be approximately $255 million. Full year interest expense for 2016 was $406 million, including $153 million related to the tender offer.~~2018.

Income ~~taxes~~Taxes

Our reported effective tax rate for the quarters ended ~~September~~March 30, ~~2017~~2019 and ~~October 1, 2016~~March 31, 2018 was ~~26%~~20% and ~~18%~~13%, respectively. ~~The reported effective tax rate for the year-to-date periods ended September 30, 2017 and October 1, 2016 was 23% and 22%, respectively.~~

~~For the year-to-date period ended September 30, 2017, the effective tax rate benefited from a deferred tax benefit of $39 million resulting from the intercompany transfer of intellectual property.~~ The effective tax rate for the first quarter ~~and year-to-date periods ended October 1, 2016,~~of 2018 benefited from ~~excess~~a $44 million discrete tax ~~benefits from share-based compensation and~~benefit as a result of the ~~completion~~remeasurement of ~~certain tax examinations. Refer to Note 10 within Notes to Consolidated Financial Statements for further information.~~

deferred taxes following a legal entity restructuring.

The ~~comparable~~adjusted effective income tax rate for the quarters ended ~~September~~March 30, ~~2017~~2019 and ~~October 1, 2016~~March 31, 2018 was ~~28%~~21% and ~~20%, respectively. The comparable effective tax rate for the year-to-date periods ended September 30, 2017 and October 1, 2016 was 25% and 24%~~13%, respectively.

~~For the full year 2017, we currently expect the comparable effective tax rate to be approximately 26-27%.~~ 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.



	Quarter ended
Consolidated results (dollars in millions)	March 30, 2019			March 31, 2018
Reported income taxes	$	72		$	67
Mark-to-market	(12		)	7
Restructuring and cost reduction activities	—			(4		)
Brexit impacts	—			—
Business and portfolio realignment	(7		)	—
Adjusted income taxes	$	91		$	64
Reported effective income tax rate	20.0		%	13.1		%
Mark-to-market	(0.8		)%	0.5		%
Restructuring and cost reduction activities	0.4		%	(0.3		)%
Brexit impacts	0.1		%	—		%
Business and portfolio realignment	(0.2		)%	—		%
Adjusted effective income tax rate	20.5		%	12.9		%

Brexit

In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. In February 2017, the British Parliament voted in favor of allowing the British government to begin negotiating the terms of the United Kingdom’s withdrawal from the European Union, and, in March 2017, the British government invoked Article 50 of the Treaty on European Union, which, per the terms of the treaty, formally triggered a two-year negotiation process and put the United Kingdom on a course to withdraw from the European Union by the end of March 2019. The ~~following table provides~~European Union recently granted an extension of the withdrawal date to October 31, 2019. With no agreement concluded as yet, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the event of a ~~reconciliation~~withdrawal.

The impact to the financial trends of our European and Consolidated businesses resulting from Brexit is currently being evaluated. During 2018 we generated approximately 5% of our net sales and hold approximately 3% of consolidated assets in the United Kingdom as ~~reported~~of March 30, 2019. As details of the United Kingdom’s withdrawal from the European Union are finalized, we will continue to ~~comparable income taxes and effective tax rate for~~evaluate the ~~quarter and year-to-date periods ended September 30, 2017 and October 1, 2016.~~

Quarter ended Year-to-date period ended
Consolidated results (dollars in millions) September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Reported income taxes $ 104
$ 62
$ 248
$ 215
Mark-to-market (38 ) (13 ) (39 ) (11 )
Project K and cost reduction activities 2
(11 ) (78 ) (43 )
Other costs impacting comparability —
—
—
(54 )
Venezuela operations impact —
1
—
2
Comparable income taxes $ 140
$ 85
$ 365
$ 321
Reported effective income tax rate 26.3 % 17.5 % 22.9 % 22.3 %
Mark-to-market (2.0 )% (1.8 )% (1.0 )% (0.3 )%
Project K and cost reduction activities 0.5 % (0.8 )% (1.4 )% (0.5 )%
Other costs impacting comparability — % — % — % (1.4 )%
Venezuela operations impact — % 0.1 % — % — %
Venezuela remeasurement — % — % — % 0.2 %
Comparable effective income tax rate 27.8 % 20.0 % 25.3 % 24.3 %



		~~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.

impacts to our business.

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~~The impacts of the extended customer terms program and the monetization programs are included in our calculation of core working capital and are largely offsetting. Core working capital was improved by the extension of supplier payment terms. These programs are all part of our ongoing working capital management.

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~~$1.6 billion and ~~$1.7~~$1.2 billion as of ~~September~~March 30, ~~2017~~2019 and ~~October 1, 2016,~~March 31, 2018, 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)	September 30, 2017			October 1, 2016			March 30, 2019			March 31, 2018
Net cash provided by (used in):
Operating activities	$	1,121		$	1,021		$	70		$	228
Investing activities	(363		)	(381		)	(163		)	(131		)
Financing activities	(815		)	(521		)	24			(38		)
Effect of exchange rates on cash and cash equivalents	44			(24		)	20			30
Net increase (decrease) in cash and cash equivalents	$	(13	)	$	95		$	(49	)	$	89

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 ~~September~~March 30, ~~2017,~~2019, totaled ~~$1,121~~$70 million, ~~an increase~~a decrease of ~~$100~~$158 million over the same period in ~~2016. Pre-tax cash costs totaling $144 million in the year-to-date period ended October 1, 2016 related~~2018, due to 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 an increase in tax cash payments during the year-to-date period ended September 30, 2017 as welllower net income primarily as a ~~lower year-over-year~~result of higher input and distribution costs and the timing of tax payments. First quarter operating cash flow ~~impact from the supplier financing initiative.~~

~~After-tax Project K cash payments were $185 million and $112 million for the year-to-date periods ended September 30, 2017 and October 1, 2016, respectively.~~exceeded our expectations.

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 ~~slightly below zero~~approximately negative 6 days ~~and 3 days~~ for both of the 12 month periods ended ~~September~~March 30, ~~2017~~2019 and October 1, 2016, respectively. Compared with the 12 month period ended October 1, 2016, the 2017 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 $33 million and $29 million for the year-to-date periods ended September 30, 2017 and October 1, 2016, respectively. For the full year 2017, we currently expect that our contributions to pension and other postretirement plans will total approximately $42 million. Plan funding strategies may be modified in response to our evaluation of tax deductibility, market conditions and competing investment alternatives.March 31, 2018.

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)	September 30, 2017			October 1, 2016			Approximate 2017 full year guidance	March 30, 2019			March 31, 2018
Net cash provided by operating activities	$	1,121		$	1,021		$1,600-$1,700	$	70		$	228
Additions to properties	(374		)	(376		)	(500)	(148		)	(132		)
Cash flow	$	747		$	645		$1,100-$1,200	$	(78	)	$	96

Our non-GAAP measure for cash flow decreased to ($78) million in the first quarter of 2019 from $96 million in the comparable prior year quarter due to lower net income, the timing of tax payments, and higher capital expenditures.

Investing activities

Our net cash used in investing activities totaled ~~$363~~$163 million for the ~~year-to-date period~~quarter ended ~~September~~March 30, ~~2017~~2019 compared to ~~$381~~$131 million in the same ~~period of 2016. The slight decrease was primarily due to an $18 million acquisition during the first~~ quarter of ~~2016.~~2018 due primarily higher capital expenditures.

During the second quarter of 2019, we entered into a definitive agreement to sell selected cookie, fruit snacks, pie crusts, and ice cream cone businesses. Upon closing, we expect to use the divestiture proceeds to reduce debt, creating financial flexibility for opportunistic share repurchases or potential future acquisitions.

Financing activities

Our net cash ~~used in~~provided by financing activities for the ~~year-to-date period~~quarter ended ~~September~~March 30, ~~2017~~2019 totaled ~~$815~~$24 million compared to ~~$521~~cash used of $38 million induring the ~~same period~~comparable quarter of ~~2016. The difference is~~2018 due primarily to ~~lower~~ proceeds from ~~issuance~~commercial paper borrowings partially offset by share repurchases. Commercial paper outstanding as of

~~common stock related primarily to option exercises. Proceeds from issuance of common stock was $87~~ March 30, 2019 totaled $409 million ~~in the current year-to-date period~~ compared to ~~$356~~$388 million ~~in the prior year-to-date period.~~

~~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 2031.31, 2018.

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. Total purchases for the ~~year-to-date period~~quarter ended ~~September~~March 30, ~~2017,~~2019, were 74 million shares for ~~$516~~$220 million. ~~Total purchases for~~We did not repurchase shares during the ~~year-to-date period~~quarter ended ~~October 1, 2016, were 6 million shares for $426 million.~~March 31, 2018.

We paid cash dividends of ~~$550~~$192 million in the ~~year-to-date period~~quarter ended ~~September~~March 30, ~~2017,~~2019, compared to ~~$533~~$187 million during the same period in ~~2016.~~2018. The increase in dividends paid reflects our third quarter ~~2016~~2018 increase in the quarterly dividend to ~~$.52~~$.56 per common share from the previous ~~$.50~~$.54 per common share. In ~~October 2017,~~April 2019, the board of directors declared a dividend of ~~$.54~~$.56 per common share, payable on ~~December 15, 2017~~June 14, 2019 to shareholders of record at the close of business on ~~December 1, 2017.~~June 3, 2019. In addition, the board of directors announced plans to increase the dividend to $.57 per common share beginning with the third quarter of 2019. 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 ~~February 2014,~~January 2018, we entered into an unsecured ~~five year credit~~Five-Year Credit Agreement to replace the existing agreement ~~expiring in 2019, which allows~~allowing us to borrow up to $1.5 billion, on a revolving ~~credit basis, up to $2.0 billion.~~basis.

In January ~~2017,~~2019, 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 $1.0 billion 364-day facility that expired in January 2019. 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.

~~On October 27, 2017, we completed our acquisition of Chicago Bar Co., LLC, the manufacturer of RXBAR, for approximately $600 million, funded through short-term borrowings.~~

~~During the first half of 2016, we executed~~Monetization programs

We have 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 ~~$800~~$1,033 million, but may be increased or decreased as customers move in or out of the Extended Terms Program and as additional financial institutions ~~are added to~~move in or out of 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 September 30, 2017, approximately $1.7 billion of accounts receivable have been sold via this arrangement.Monetization Programs. Accounts receivable sold of ~~$629~~$944 million and $900 million remained outstanding under this arrangement as of ~~September~~March 30, ~~2017.~~2019 and December 29, 2018, respectively.

In addition to the discrete customer program above, 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, we entered into an agreement with a financial institution to sell these receivables resulting in the receivables being de-recognized from our consolidated balance sheet. The ~~agreement is intended~~Monetization Programs are designed to directly offset the impact ~~that extended customer payment terms~~the Extended Terms Program would have on ~~our~~the days-sales-outstanding (DSO) metric that is critical to the effective management of the Company's accounts receivable balance and overall working capital. Current DSO levels within North America are consistent with DSO levels prior to the execution of the Extended Term Program and Monetization Programs.

If financial institutions were to terminate their participation in the Monetization Programs and we were unable secure alternative arrangements, our ability to offer our Extended Terms Program and effectively manage 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~~capital could be sold at any time is currently $600 million, 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 up to approximately $1 billion. During the year-to-date period ended September 30, 2017, $2.0 billion of accounts receivable have been sold through this program. As of September 30, 2017, approximately $480 million of accounts receivable sold under the securitization program remained outstanding, for which we received cash of approximately $433 million and a deferred purchase price asset of approximately $47 million.negatively impacted.

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

~~Accounting standards~~Future outlook

Excluding divestiture impacts, guidance previously provided is unchanged. The estimated divestiture impacts provided below assume the transaction closes at the end of July 2019.

Pre-divestiture, we expect currency-neutral net sales to be ~~adopted~~up 3-4% in ~~future periods~~2019, as previously guided. The divestiture would reduce our outlook by approximately 2-3% as we lose net sales for the divested brands for approximately five months. There is no change to our outlook for organic net sales growth of 1-2% as divestitures are excluded from organic.

~~Derivatives and Hedging: Targeted Improvements~~

Pre-divestiture, currency-neutral adjusted operating profit is expected to ~~Accounting for Hedging Activities~~. In August 2017, the FASB issued an ASU intended to simplify hedge accounting by better aligning an entity’s financial reporting for hedging relationships with its risk management activities. The ASU also simplifies the application of the hedge accountingbe approximately flat during 2019, per our previous guidance. The ~~new guidance is effective on January 1, 2019, with early adoption permitted. For cash flow hedges existing at~~divestiture would reduce our forecast approximately 4-5%, reflecting the ~~adoption date,~~loss of operating profit for the ~~standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment~~divested brands and includes certain indirect expenses expected to remain during the Consolidated Balance Sheet as of the beginning of the year of adoption. The amendments to presentation guidance and disclosure requirements are required to be adopted prospectively. The Company is currently assessing the impact and timing of adoption of this ASU.transition period.

~~In March 2017, the FASB issued an ASU~~Pre-divestiture, currency-neutral adjusted EPS is expected 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~~decrease in the ~~same line item or items~~range of 5 to 7% in 2019, as ~~other compensation costs arising from services rendered by~~previously guided. This decline reflects 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. We will adopt the ASU2018 discrete tax benefits, especially in the first ~~quarter of 2018. If we had adopted the ASU in the first quarter of 2017, on an~~half, as ~~reported basis,~~well as the impact to our Corporate segment would have been an increase to COGS and SG&A of $157 million and $120 million, respectively, with an offsetting decrease to other income (expense), net (OIE) of $277 million in the year-to-date period ended September 30, 2017. For the year-to-date period ended October 1, 2016, the impact to our Corporate segment would have been an increase to COGS and SG&A of $107 million and $35 million, respectively, with an offsetting decrease toon OIE of ~~$142 million. Adoption~~the financial markets' decline in late 2018, which reduced the value of pension assets entering the new year. The pending divestiture will ~~have no impact on net income or cash flow. The impact to the Consolidated Balance Sheet at September 30, 2017 and October 1, 2016 would have been insignificant.~~likely reduce currency-neutral adjusted EPS by approximately 4-5% suggesting an overall 10-11% decline in currency-neutral adjusted EPS in 2019.

On a comparable basis, the impact would have been an increase to COGS and SG&A of $128 million and $71 million, respectively, with an offsetting decrease to OIE of $199 million in the year-to-date period ended September 30, 2017, and an increase to COGS and SG&A of $107 million and $63 million, respectively, with a decrease to OIE of $170 million in the year-to-date period ended October 1, 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~~Pre-divestiture, full-year non-GAAP 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. 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 $45 million and cash flow from investing activities would have increased $45 million for the year-to-date period ended September 30, 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 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. 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 adoption of this ASU to have a material impact on our financial statements.

In May 2014, the FASB issued 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 customers in an amount that reflects the consideration the entity expectsexpected 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 asroughly flat compared to the prior year. The lapping of the 2018 voluntary pension contribution is offset by increased tax cash payments. We will provide updated cash flow guidance ~~in effect prior~~for the divestiture when we have improved visibility to all of 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 in therelated impacts.

~~first quarter~~We are unable to reasonably estimate the potential full-year financial impact of ~~2018, using a modified retrospective transition method,~~mark-to-market adjustments, costs associated with Brexit and ~~the adoption is not expected~~business and portfolio realignment because these impacts are dependent on future changes in market conditions (interest rates, return on assets, and commodity prices) or future decisions to ~~have a material impact on its financial statements.~~be made by our management team and Board of Directors. Similarly, because of volatility in foreign exchange rates

and shifts in country mix of our international earnings, we are unable to reasonably estimate the potential full-year financial impact of foreign currency translation.

~~Future outlook~~

~~We affirm~~As a result, these impacts are not included in the guidance provided. Therefore, we are unable to provide a full reconciliation of these non-GAAP measures used in our guidance ~~for currency-neutral comparable net sales, operating profit~~without unreasonable effort as certain information necessary to calculate such measure on a GAAP basis is unavailable, dependent on future events outside of our control and ~~earnings per share, as well as for cash flow, as strong productivity performance offsets a softened outlook for currency neutral comparable net sales. The company affirms its~~cannot be predicted without unreasonable efforts by the Company.

See the table below that outlines the projected impact of certain other items that are excluded from non-GAAP guidance for about 3% decline in currency-neutral comparable net sales in 2017. This figure includes the expected (1%) impact from the U.S. Snacks transition to warehouse distribution from DSD, an estimate that has not changed.2019:

Guidance is affirmed for currency-neutral comparable operating profit, which we believe will grow 7-9% year on year, as productivity savings offset the impact of lower net sales. The Company's currency-neutral comparable operating profit margin remains on pace to improve by 350 basis points 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 ($0.06) 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 $4.00-4.06.

Comparable-basis and currency-neutral comparable-basis earnings per share guidance by definition exclude up-front costs, principally related to the Project K program. These up-front costs are now expected to be after-tax $(0.65)-(0.75) per share, or $(325)-(375) million pretax, down from previous guidance of $(0.80)-(0.90) per share after tax and $(400)-(450) million pretax. The EPS guidance also continues to exclude integration costs, related to the Company's acquisition in Brazil, as well as previous acquisitions. These integration costs are now expected to come in toward the low end of our previous guidance range of $(0.01)-(0.03) per share after-tax.

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 billion.

Reconciliation of Non-GAAP amounts - 2017 Full Year Guidance*
Net sales Operating profit EPS
Currency-Neutral Comparable Guidance (3.0%) 7.0% - 9.0% $4.03 - $4.09
Foreign currency impact (0.5%) (0.6%) ($.03)
Comparable Guidance (3.5%) 6.4% - 8.4% $4.00 - $4.06

Impact of certain items excluded from Non-GAAP guidance:
Project K and cost reduction activities (pre-tax) 1.9% - (1.5%) ($1.07) - ($.93)
Integration costs (pre-tax) 0.3% ($.02)
Acquisitions/dispositions (pre-tax) 1.4% 0.7% $.07
Income tax benefit applicable to adjustments, net** $.31 - $.27



Impact of certain items excluded from Non-GAAP guidance:	Net Sales	Operating Profit	Earnings Per Share
Project K and cost restructuring activities (pre-tax)		$45-55M	$0.13-0.16
Income tax impact applicable to adjustments, net**			$0.03-0.04
Currency-neutral adjusted guidance (before pending divestiture)*	3-4%	~Flat	(5)-(7)%

Pending divestiture impacts	~(2)-(3)%	~(4)-(5)%	~(4)-(5)%
Updated Currency-neutral adjusted guidance (including pending divestiture)*	1-2%	(4)-(5)%	(10)-(11)%
Subtract: Acquisitions	2%
Add Back: Divestiture	~(2)-(3)%
Organic guidance	1-2%

* ~~2017~~2019 full year guidance for net sales, operating profit, and earnings per share are provided on a non-GAAP ~~comparable and currency-neutral comparable~~ 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. These items for 2019 include impacts of Brexit, costs associated with business and portfolio realignment, and mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodities and certain foreign currency contracts. 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~~2019
Net cash provided by (used in) operating activities	~$~~1,600 - $1,700~~1.5-1.6
Additions to properties	~($~~500)~~0.6)
Cash ~~Flow~~Flow*	~$~~1,100 - $1,200~~0.9-1.0

* Represents pre-divestiture forecast. We will provide updated cash flow guidance for the divestiture when we have improved visibility to all of the related impacts.

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 expected benefits and costs of the divestiture of selected cookies, fruit and fruit flavored-snacks, pie crusts, and ice-cream cones businesses of the Company, the expected timing of the completion of the divestiture, the ability of the Company to complete the divestiture considering the various conditions to the completion of the divestiture, some of which are outside the Company’s control, including those conditions related to regulatory approvals, the risk that disruptions from the divestiture will divert management's focus or harm the Company’s business, risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures,

revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects, risks associated with the Company’s provision of transition services to the divested businesses post-closing;

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 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 and transportation 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~~2018 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 ~~September~~March 30, 2019.

There have also been periods of increased market volatility and currency exchange rate fluctuations specifically within the United Kingdom and Europe, as a result of the UK referendum held on June 23, 2016, in which voters approved an exit from the European Union, commonly referred to as Brexit. As a result of the referendum, the British government formally initiated the process for withdrawal in March 2017. In January 2019, the draft of the withdrawal agreement, that was previously published in November 2018, was rejected by the UK parliament. The terms of withdrawal have not been established. The European Union granted an extension from the original March

29, 2019 deadline to October 31, 2019. If no agreement is concluded by that date, the United Kingdom will leave the European Union at such time. Accordingly, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal. We recognize that there are still significant uncertainties surrounding the ultimate resolution of Brexit negotiations, and we will continue to monitor any changes that may arise and assess their potential impact on our business.

During ~~2017,~~2019, we entered into forward starting interest swaps with notional amounts totaling €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 upon issuance 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 related to the fixed rate debt issuance.

~~During the year-to-date period ended~~ ~~September 30, 2017, we entered into interest rate~~cross currency swaps with notional amounts totaling approximately ~~€600~~€150 million, ~~that are~~as hedges against foreign currency volatility associated with our net investment in our wholly-owned foreign subsidiaries. These swaps were designated as ~~fair value hedges of certain Euro debt. Additionally, we settled interest rate~~net investment hedges. We have cross currency swaps with notional amounts totaling approximately $700 million which were previously designated as fair value hedges of certain U.S. Dollar Notes. We recorded an aggregate loss of $14 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~~$1.4 billion outstanding ~~at September~~as of March 30, ~~2017 and December 31, 2016,~~2019 representing a settlement ~~obligation~~receivable of ~~$43 million and $64 million, respectively.~~$71 million. The ~~interest rate~~total notional amount of cross currency swaps ~~are designated~~outstanding as ~~fair value hedges~~ of ~~certain U.S. Dollar and Euro debt. Assuming average variable rate debt levels during the year,~~December 29, 2018 was $1.2 billion representing a ~~one percentage point increase in interest rates would have increased interest expense by approximately $26 million and $17 million at~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively.~~

net settlement receivable of $79 million.

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 ~~September~~March 30, ~~2017,~~2019, 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 September 30, 2017, 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~~The following risk factors ~~from~~are in addition to those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016.~~29, 2018. 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.

In our pursuit of strategic acquisitions, alliances, divestitures (such as the recently-announced divestiture of selected cookies, fruit and fruit flavored-snacks, pie crusts and ice cream cones businesses) or joint ventures, we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses.

From time to time, we may evaluate potential acquisitions, alliances, divestitures (such as the recently-announced divestiture of selected cookies, fruit and fruit flavored-snacks, pie crusts and ice cream cones businesses) or joint ventures that would further our strategic objectives. With respect to acquisitions, we may not be able to identify suitable candidates, consummate a transaction on terms that are favorable to us, or achieve expected returns, expected synergies and other benefits as a result of integration challenges, or may not achieve those objectives on a timely basis. Future acquisitions of foreign companies or new foreign ventures would subject us to local laws and regulations and could potentially lead to risks related to, among other things, increased exposure to foreign exchange rate changes, government price control, repatriation of profits and liabilities relating to the U.S. Foreign Corrupt Practices Act.

With respect to proposed divestitures of assets or businesses, we may encounter difficulty in finding acquirers or alternative exit strategies on terms that are favorable to us, which could delay the accomplishment of our strategic objectives, or our divestiture activities may require us to recognize impairment charges. Companies or operations acquired or joint ventures created may not be profitable or may not achieve sales levels and profitability that justify the investments made. Our corporate development activities may present financial and operational risks, including diversion of management attention from existing core businesses, integrating or separating personnel and financial and other systems, and adverse effects on existing business relationships with suppliers and customers. Future acquisitions could also result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to certain intangible assets and increased operating expenses, which could adversely affect our results of operations and financial condition.

The recently-announced divestiture of selected cookies, fruit and fruit flavored-snacks, pie crusts and ice cream cones businesses is subject to various risks and uncertainties, and may not be completed on the terms or timeline currently contemplated, if at all.

On April 1, 2019, we announced our entry into a stock and asset purchase agreement pursuant to which, subject to the satisfaction or waiver of certain conditions, we will divest to Ferrero International S.A. (“Ferrero”) selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses (such businesses, collectively, the “Business” and the divestiture of the Business, the “Divestiture”). There can be no assurance that we will be able to complete the Divestiture on the terms currently contemplated or at all. The Divestiture is subject to certain closing conditions, including, among others, the receipt of certain regulatory approvals and the absence of any law, injunction or other judgment prohibiting the Divestiture.

If we complete the Divestiture, there can be no assurance that we will achieve all of the anticipated benefits and we could face unanticipated challenges.

Executing the Divestiture will require us to incur costs and will require the time and attention of our senior management and key employees, which could distract them from operating our business, disrupt operations, and result in the loss of business opportunities, each of which could adversely affect our business, financial condition, and results of operations. We may also experience increased difficulty in attracting, retaining and motivating key employees during the pendency of the Divestiture and following its completion, which could harm our business. Even if the Divestiture is completed, we may not realize some or all of the anticipated benefits from the Divestiture and the Divestiture may in fact adversely affect our remaining business following the completion of the Divestiture and risks associated with our provision of transition services to the Business post-closing.

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:
7/02/2017 - 7/29/2017 1.2
$ 66.82
—
$ 558
Month #2:
7/30/2017 - 8/26/2017 —
$ —
—
$ 558
Month #3:
8/27/2017 - 9/30/2017 —
$ —
—
$ 558
Total 1.2
$ 66.82
—

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 ~~third~~first quarter of ~~2017,~~2019, the Company repurchased ~~1.2~~4 million shares for a total of ~~$81~~$220 million.

The following table provides information with respect to purchases of common shares under programs authorized by our board of directors during the quarter ended March 30, 2019.

(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:
12/30/2018 - 1/26/2019	—	$	—	—	$	1,180
Month #2:
1/27/2019 - 2/23/2019	3.9	$	56.62	3.9	$	960
Month #3:
2/24/2019 - 3/30/2019	—	$	—	—	$	960
Total	3.9	$	56.62	3.9

Item 6. Exhibits


(a)	Exhibits:




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

~~Donald O. Mondano~~Kurt Forche

Principal Accounting Officer;

Vice President and Corporate Controller

Date: ~~November~~May 3, ~~2017~~2019

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 Steven A. Cahillane	E
31.2	Rule 13a-14(e)/15d-14(a) Certification from Fareed Khan	E
32.1	Section 1350 Certification from Steven A. 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

6245



(millions)		December 1, 2016
Current assets		$	44
Property	72
Goodwill	165
Intangible assets	148
Current liabilities	(48			)
Non-current deferred tax liability and other	(6			)
		$	375



(millions, except per share data)	Net income		Average shares outstanding	Earnings per share
2017
Basic	$	297	345	$	0.86
Dilutive potential common shares			3	(0.01		)
Diluted	$	297	348	$	0.85
2016
Basic	$	292	350	$	0.83
Dilutive potential common shares			4	(0.01		)
Diluted	$	292	354	$	0.82



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	)	57
Forfeitures and expirations	(1	)	70
Outstanding, end of period	15		$	64	6.8	$	37
Exercisable, end of period	10		$	60	5.8	$	37



	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 September 30, 2017:	18	%	6.6	2.26	%	2.80	%
Grants within the year-to-date period ended October 1, 2016:	17	%	6.9	1.60	%	2.60	%



(millions)	September 30, 2017
2015 Award	$	20
2016 Award	$	22
2017 Award	$	23



Employee restricted stock and restricted stock units	Shares (thousands)		Weighted-average grant-date fair value
Non-vested, beginning of year	1,166		$	63
Granted	666		67
Vested	(76	)	57
Forfeited	(125	)	65
Non-vested, end of period	1,631		$	65



(millions)
December 31, 2016	$	63
Tax positions related to current year:
Additions	4
Reductions	—
Tax positions related to prior years:
Additions	3
Reductions	(8		)
Settlements	(4		)
Lapse in statute of limitations	(2		)
September 30, 2017	$	56



(millions)	Location of gain (loss) recognized in income	Gain (loss) recognized in income (a)
		September 30, 2017		October 1, 2016
Interest rate contracts	Interest expense	$	4	$	6
Total		$	4	$	6



(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)
	September 30, 2017		October 1, 2016			September 30, 2017			October 1, 2016				September 30, 2017		October 1, 2016
Foreign currency exchange contracts	$	—	$	1	COGS	$	—		$	4		Other income (expense), net	$	—	$	(1	)
Foreign currency exchange contracts	—		1		SGA expense	—			1			Other income (expense), net	—		—
Interest rate contracts	—		1		Interest expense	(3		)	(2		)	N/A	—		—
Commodity contracts	—		—		COGS	—			(3		)	Other income (expense), net	—		—
Total	$	—	$	3		$	(3	)	$	—			$	—	$	(1	)



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



Quarter ended September 30, 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	$	710		$	760		$	290		$	420		$	599		$	240		$	254		$	—		$	3,273
Acquisitions	—			—			—			—			4			48			—			—			52
Comparable net sales	$	710		$	760		$	290		$	420		$	595		$	192		$	254		$	—		$	3,221
Foreign currency impact	—			—			—			7			7			6			1			—			21
Currency-neutral comparable net sales	$	710		$	760		$	290		$	413		$	588		$	186		$	253		$	—		$	3,200
Quarter ended October 1, 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	$	733		$	796		$	284		$	402		$	594		$	197		$	248		$	—		$	3,254
Venezuela operations impact	—			—			—			—			—			7			—			—			7
Comparable net sales	$	733		$	796		$	284		$	402		$	594		$	190		$	248		$	—		$	3,247
% change - 2017 vs. 2016:
Reported growth	(3.0		)%	(4.5		)%	1.9		%	4.4		%	0.8		%	21.5		%	2.9		%	—		%	0.6		%
Acquisitions	—		%	—		%	—		%	—		%	0.7		%	24.4		%	—		%	—		%	1.6		%
Venezuela operations impact	—		%	—		%	—		%	—		%	—		%	(4.0		)%	—		%	—		%	(0.2		)%
Comparable growth	(3.0		)%	(4.5		)%	1.9		%	4.4		%	0.1		%	1.1		%	2.9		%	—		%	(0.8		)%
Foreign currency impact	—		%	—		%	—		%	1.5		%	1.2		%	3.2		%	0.9		%	—		%	0.6		%
Currency-neutral comparable growth	(3.0		)%	(4.5		)%	1.9		%	2.9		%	(1.1		)%	(2.1		)%	2.0		%	—		%	(1.4		)%



Year-to-date	2017		2016		Change vs. prior year (pts.)
Reported gross margin (a)	38.1	%	38.1	%	—
Mark-to-market (COGS)	(0.9	)	(0.1	)	(0.8	)
Project K and cost reduction activities (COGS)	(0.3	)	(0.7	)	0.4
Acquisitions (COGS)	0.1		—		0.1
Venezuela remeasurement (COGS)	—		(0.1	)	0.1
Comparable gross margin	39.2	%	39.0	%	0.2
Foreign currency impact	—				—
Currency-neutral comparable gross margin	39.2	%			0.2
Reported SG&A%	(25.0	)%	(25.0	)%	—
Mark-to-market (SG&A)	(0.4	)	(0.2	)	(0.2	)
Project K and cost reduction activities (SG&A)	(2.1	)	(1.0	)	(1.1	)
Acquisitions (SG&A)	(0.3	)	—		(0.3	)
Venezuela operations impact (SG&A)	—		0.1		(0.1	)
Venezuela remeasurement (SG&A)	—		(0.1	)	0.1
Comparable SG&A%	(22.2	)%	(23.8	)%	1.6
Foreign currency impact	—				—
Currency-neutral comparable SG&A%	(22.2	)%			1.6
Reported operating margin	13.1	%	13.1	%	—
Mark-to-market	(1.3	)	(0.3	)	(1.0	)
Project K and cost reduction activities	(2.4	)	(1.7	)	(0.7	)
Acquisitions	(0.2	)	—		(0.2	)
Venezuela operations impact	—		0.1		(0.1	)
Venezuela remeasurement	—		(0.2	)	0.2
Comparable operating margin	17.0	%	15.2	%	1.8
Foreign currency impact	—				—
Currency-neutral comparable operating margin	17.0	%			1.8



	Quarter ended						Year-to-date period ended
(dollars in millions)	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Reported gross profit (a)	$	1,232		$	1,264		$	3,701		$	3,779
Mark-to-market (COGS)	(69		)	(3		)	(90		)	(12		)
Project K and cost reduction activities (COGS)	9			(12		)	(26		)	(66		)
Integration and transaction costs (COGS)	—			—			—			(1		)
Acquisitions (COGS)	22			—			65			—
Venezuela operations impact (COGS)	—			2			—			9
Venezuela remeasurement (COGS)	—			—			—			(12		)
Comparable gross profit	$	1,270		$	1,277		$	3,752		$	3,861
Foreign currency impact	10						(10		)
Currency-neutral comparable gross profit	$	1,260					$	3,762
Reported SG&A	$	768		$	854		$	2,424		$	2,482
Mark-to-market (SG&A)	35			28			28			23
Project K and cost reduction activities (SG&A)	10			28			213			98
Integration and transaction costs (SG&A)	1			2			2			2
Acquisitions (SG&A)	20			—			53			—
Venezuela operations impact (SGA)	—			(1		)	—			1
Venezuela remeasurement (SG&A)	—			—			—			1
Comparable SG&A	$	702		$	797		$	2,128		$	2,357
Foreign currency impact	6						1
Currency-neutral comparable SG&A	$	696					$	2,127
Reported operating profit	$	464		$	410		$	1,277		$	1,297
Mark-to-market	(104		)	(31		)	(118		)	(35		)
Project K and cost reduction activities	(1		)	(40		)	(239		)	(164		)
Integration and transaction costs	(1		)	(2		)	(2		)	(3		)
Acquisitions	2			—			12			—
Venezuela operations impact	—			3			—			8
Venezuela remeasurement	—			—			—			(13		)
Comparable operating profit	$	568		$	480		$	1,624		$	1,504
Foreign currency impact	4						(11		)
Currency-neutral comparable operating profit	$	564					$	1,635

Quarter ended

(millions)

March 30, 2019

March 31, 2018

Pre-tax compensation expense

Related income tax benefit