Table of Contents


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 30, 201726, 2020
OR
 
¨☐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—DelawareDelawareIRS Employer Identification No.38-0710690No.38-0710690
One Kellogg Square, P.O. Box 3599, Battle Creek, MI 49016-3599
Registrant’s telephone number: 269-961-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $.25 par value per shareKNew York Stock Exchange
1.750% Senior Notes due 2021K 21New York Stock Exchange
0.800% Senior Notes due 2022K 22ANew York Stock Exchange
1.000% Senior Notes due 2024K 24New York Stock Exchange
1.250% Senior Notes due 2025K 25New York Stock Exchange
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 filerx
☒
Accelerated filer¨
☐
Non-accelerated filer¨
☐
Smaller reporting company¨
☐
Emerging growth companyo☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨☐    No  x☒
Common Stock outstanding as of October 28, 2017September 26, 2020 — 345,472,588343,712,976 shares


Table of Contents

KELLOGG COMPANY
INDEX
 
Page
Financial Statements
Consolidated Balance Sheet — September 30, 201726, 2020 and December 31, 201628, 2019
3
Consolidated Statement of Income — quarter and year-to-date periods ended September 30, 201726, 2020 and October 1, 2016September 28, 2019
4
Consolidated Statement of Comprehensive Income – quarter and year-to-date periods ended September 30, 201726, 2020 and October 1, 2016September 28, 2019
5
Consolidated Statement of Equity — year ended December 31, 2016quarter and year-to-date period ended September 30, 201726, 2020
6
Consolidated Statement of Equity — quarter and year-to-date period ended September 28, 2019
6
Consolidated Statement of Cash Flows — year-to-date periods ended September 30, 201726, 2020 and October 1, 2016September 28, 2019
78
Notes to Consolidated Financial Statements
89
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3330
Quantitative and Qualitative Disclosures about Market Risk
5850
Controls and Procedures
5851
Legal ProceedingsRisk Factors
5951
Risk Factors
59
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
5952
Exhibits
6053
6154
6255



Table of Contents

Part I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
September 26,
2020 (unaudited)		December 28,
2019
Current assets
Cash and cash equivalents$1,329 $397 
Marketable securities250 0 
Accounts receivable, net1,626 1,576 
Inventories1,263 1,226 
Other current assets285 232 
Total current assets4,753 3,431 
Property, net3,484 3,612 
Operating lease right-of-use assets657 541 
Goodwill5,780 5,861 
Other intangibles, net2,498 2,576 
Investments in unconsolidated entities398 404 
Other assets1,352 1,139 
Total assets$18,922 $17,564 
Current liabilities
Current maturities of long-term debt$1,417 $620 
Notes payable116 107 
Accounts payable2,449 2,387 
Current operating lease liabilities120 114 
Accrued advertising and promotion807 641 
Other current liabilities1,125 909 
Total current liabilities6,034 4,778 
Long-term debt7,000 7,195 
Operating lease liabilities523 433 
Deferred income taxes587 596 
Pension liability672 705 
Other liabilities520 543 
Commitments and contingencies
Equity
Common stock, $.25 par value105 105 
Capital in excess of par value948 921 
Retained earnings8,318 7,859 
Treasury stock, at cost(4,570)(4,690)
Accumulated other comprehensive income (loss)(1,757)(1,448)
Total Kellogg Company equity3,044 2,747 
Noncontrolling interests542 567 
Total equity3,586 3,314 
Total liabilities and equity$18,922 $17,564 
 September 30,
2017 (unaudited)		December 31,
2016 *
Current assets  
Cash and cash equivalents$267
$280
Accounts receivable, net1,512
1,231
Inventories:  
Raw materials and supplies327
315
Finished goods and materials in process868
923
Other prepaid assets198
191
Total current assets3,172
2,940
Property, net of accumulated depreciation of $5,636 and $5,2803,629
3,569
Investments in unconsolidated entities432
438
Goodwill5,135
5,166
Other intangibles, net of accumulated amortization of $62 and $542,442
2,369
Other assets831
629
Total assets$15,641
$15,111
Current liabilities  
Current maturities of long-term debt$410
$631
Notes payable572
438
Accounts payable2,140
2,014
Accrued advertising and promotion552
436
Accrued income taxes38
47
Accrued salaries and wages277
318
Other current liabilities658
590
Total current liabilities4,647
4,474
Long-term debt7,216
6,698
Deferred income taxes411
525
Pension liability933
1,024
Other liabilities491
464
Commitments and contingencies

Equity  
Common stock, $.25 par value105
105
Capital in excess of par value851
806
Retained earnings6,862
6,571
Treasury stock, at cost(4,425)(3,997)
Accumulated other comprehensive income (loss)(1,466)(1,575)
Total Kellogg Company equity1,927
1,910
Noncontrolling interests16
16
Total equity1,943
1,926
Total liabilities and equity$15,641
$15,111
* Condensed from audited financial statements.

Refer toSee accompanying Notes to Consolidated Financial Statements.


3
Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share data)
 Quarter endedYear-to-date period ended
(unaudited)September 26,
2020		September 28,
2019		September 26,
2020		September 28,
2019
Net sales$3,429 $3,372 $10,306 $10,355 
Cost of goods sold2,228 2,372 6,764 7,062 
Selling, general and administrative expense790 737 2,166 2,252 
Operating profit411 263 1,376 1,041 
Interest expense63 72 196 221 
Other income (expense), net70 150 151 247 
Income before income taxes418 341 1,331 1,067 
Income taxes65 91 268 237 
Earnings (loss) from unconsolidated entities(1)(2)(7)(5)
Net income352 248 1,056 825 
Net income attributable to noncontrolling interests4 1 10 10 
Net income attributable to Kellogg Company$348 $247 $1,046 $815 
Per share amounts:
Basic earnings$1.02 $0.73 $3.05 $2.39 
Diluted earnings$1.01 $0.72 $3.03 $2.38 
Average shares outstanding:
Basic343 341 343 341 
Diluted346 342 345 342 
Actual shares outstanding at period end344 341 
 Quarter ended Year-to-date period ended
(Results are unaudited)September 30,
2017		October 1,
2016		 September 30,
2017		October 1,
2016
Net sales$3,273
$3,254
 $9,714
$9,917
Cost of goods sold2,041
1,990
 6,013
6,138
Selling, general and administrative expense768
854
 2,424
2,482
Operating profit464
410
 1,277
1,297
Interest expense64
58
 188
343
Other income (expense), net(2)3
 (5)7
Income before income taxes398
355
 1,084
961
Income taxes104
62
 248
215
Earnings (loss) from unconsolidated entities3
(1) 5
1
Net Income$297
$292
 $841
$747
Per share amounts:     
Basic earnings$0.86
$0.83
 $2.41
$2.13
Diluted earnings$0.85
$0.82
 $2.39
$2.11
Dividends$0.54
$0.52
 $1.58
$1.52
Average shares outstanding:     
Basic345
350
 348
350
Diluted348
354
 351
354
Actual shares outstanding at period end



 345
351
Refer toSee accompanying Notes to Consolidated Financial Statements.


4
Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(millions)
Quarter endedYear-to-date period ended

Quarter ended
September 30, 2017		Year-to-date period ended
September 30, 2017		September 26, 2020September 26, 2020
(Results are unaudited)Pre-tax
amount		Tax (expense)
benefit		After-tax
amount		Pre-tax
amount		Tax (expense)
benefit		After-tax
amount
(unaudited)(unaudited)Pre-tax
amount		Tax (expense)
benefit		After-tax
amount		Pre-tax
amount		Tax (expense)
benefit		After-tax
amount
Net income $297
 $841
Net income$352 $1,056 
Other comprehensive income (loss): Other comprehensive income (loss):
Foreign currency translation adjustments(6)33
27
4
99
103
Foreign currency translation adjustments:Foreign currency translation adjustments:
Foreign currency translation adjustments during periodForeign currency translation adjustments during period$(91)$39 (52)$(352)$29 (323)
Cash flow hedges: Cash flow hedges:
Unrealized gain (loss)Unrealized gain (loss)15 (4)11 (38)10 (28)
Reclassification to net income3
(1)2
7
(2)5
Reclassification to net income4 (1)3 11 (3)8 
Postretirement and postemployment benefits: Postretirement and postemployment benefits:
Reclassification to net income: Reclassification to net income:
Net experience loss—
—
—
1
—
1
Net experience (gain) loss Net experience (gain) loss0 0 0 (2)1 (1)
Prior service costPrior service cost0 0 0 (1)0 (1)
Available-for-sale securities:Available-for-sale securities:
Unrealized gain (loss)Unrealized gain (loss)0 0 0 2 0 2 
Other comprehensive income (loss)$(3)$32
$29
$12
$97
$109
Other comprehensive income (loss)$(72)$34 $(38)$(380)$37 $(343)
Comprehensive income $326
 $950
Comprehensive income$314 $713 
Net Income attributable to noncontrolling interestsNet Income attributable to noncontrolling interests4 10 
Other comprehensive income (loss) attributable to noncontrolling interestsOther comprehensive income (loss) attributable to noncontrolling interests2 (34)
Comprehensive income attributable to Kellogg CompanyComprehensive income attributable to Kellogg Company$308 $737 













Quarter ended
October 1, 2016		Year-to-date period ended
October 1, 2016		Quarter endedYear-to-date period ended
(Results are unaudited)Pre-tax
amount		Tax (expense)
benefit		After-tax
amount		Pre-tax
amount		Tax (expense)
benefit		After-tax
amount
September 28, 2019September 28, 2019
(unaudited)(unaudited)Pre-tax
amount		Tax (expense)
benefit		After-tax
amount		Pre-tax
amount		Tax (expense)
benefit		After-tax
amount
Net income $292
 $747
Net income$248 $825 
Other comprehensive income (loss): Other comprehensive income (loss):
Foreign currency translation adjustments(20)7
(13)(123)20
(103)
Foreign currency translation adjustments:Foreign currency translation adjustments:
Foreign currency translation adjustments during periodForeign currency translation adjustments during period$35 $(38)(3)$96 $(47)49 
Cash flow hedges: Cash flow hedges:
Unrealized gain (loss) on cash flow hedges3
(1)2
(57)23
(34)Unrealized gain (loss) on cash flow hedges(12)4 (8)(12)4 (8)
Reclassification to net income—
(1)(1)8
(4)4
Reclassification to net income(1)0 (1)2 (1)1 
Postretirement and postemployment benefits: Postretirement and postemployment benefits:
Amount arising during the period: 
Prior service cost—
—
—
(1)—
(1)
Reclassification to net income: Reclassification to net income:
Net experience loss1
—
1
3
—
3
Prior service cost1
(1)—
3
(1)2
Net experience (gain) lossNet experience (gain) loss(1)0 (1)(3)1 (2)
Available-for-sale securities:Available-for-sale securities:
Unrealized gain (loss)Unrealized gain (loss)1 0 1 4 0 4 
Reclassification to net incomeReclassification to net income(4)0 (4)(4)0 (4)
Other comprehensive income (loss)$(15)$4
$(11)$(167)$38
$(129)Other comprehensive income (loss)$18 $(34)$(16)$83 $(43)$40 
Comprehensive income $281
 $618
Comprehensive income$232 $865 
Net Income attributable to noncontrolling interestsNet Income attributable to noncontrolling interests1 10 
Other comprehensive income (loss) attributable to noncontrolling interestsOther comprehensive income (loss) attributable to noncontrolling interests(2)1 
Comprehensive income attributable to Kellogg CompanyComprehensive income attributable to Kellogg Company$233 $854 
Refer toSee accompanying Notes to Consolidated Financial Statements.

5
Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EQUITY
(millions)
 
Quarter ended September 26, 2020
 
 
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)sharesamountsharesamount
Balance, June 27, 2020421 $105 $929 $8,166 78 $(4,613)$(1,717)$2,870 $536 $3,406 
Net income348 348 4 352 
Dividends declared ($0.57 per share)(196)(196)(196)
Other comprehensive income(40)(40)2 (38)
Stock compensation18 18 18 
Stock options exercised and other1 0 (1)43 44 44 
Balance, September 26, 2020421 $105 $948 $8,318 77 $(4,570)$(1,757)$3,044 $542 $3,586 
 
 
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)sharesamountsharesamount
Balance, January 2, 2016420
$105
$745
$6,597
70
$(3,943)$(1,376)$2,128
$10
$2,138
Common stock repurchases  

 6
(426) (426) (426)
Net income   694
   694
1
695
Acquisition of noncontrolling interest       —
5
5
Dividends   (716)   (716)

(716)
Other comprehensive loss      (199)(199)—
(199)
Stock compensation  63
    63
 63
Stock options exercised and other  (2)(4)(7)372
 366
 366
Balance, December 31, 2016420
$105
$806
$6,571
69
$(3,997)$(1,575)$1,910
$16
$1,926
Common stock repurchases  

 7
(516) (516) (516)
Net income   841
   841


841
Dividends   (550)   (550) (550)
Other comprehensive income      109
109
—
109
Stock compensation  53
    53
 53
Stock options exercised and other  (8)—
(1)88
 80


80
Balance, September 30, 2017420
$105
$851
$6,862
75
$(4,425)$(1,466)$1,927
$16
$1,943
Year-to-date period ended September 26, 2020
 
 
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)sharesamountsharesamount
Balance, December 28, 2019421 $105 $921 $7,859 79 $(4,690)$(1,448)$2,747 $567 $3,314 
Net income1,046 1,046 10 1,056 
Dividends declared ($1.71 per share)(586)(586)(586)
Distributions to noncontrolling interest0 (1)(1)
Other comprehensive income(309)(309)(34)(343)
Stock compensation55 55 55 
Stock options exercised and other(28)(1)(2)120 91 91 
Balance, September 26, 2020421 $105 $948 $8,318 77 $(4,570)$(1,757)$3,044 $542 $3,586 
Refer to notesSee accompanying Notes to Consolidated Financial Statements.



6
Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EQUITY (cont.)
(millions)
Quarter ended September 28, 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
(unaudited)sharesamountsharesamount
Balance, June 29, 2019421 $105 $895 $7,858 80 $(4,739)$(1,469)$2,650 $562 $3,212 
Net income247 247 1 248 
Dividends declared ($0.57 per share)(194)(194)(194)
Other comprehensive income(14)(14)(2)(16)
Stock compensation13 13 13 
Stock options exercised and other1 (1)0 25 25 25 
Balance, September 28, 2019421 $105 $909 $7,910 80 $(4,714)$(1,483)$2,727 $561 $3,288 
Year-to-date period ended September 28, 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
(unaudited)sharesamountsharesamount
Balance, December 29, 2018421 $105 $895 $7,652 77 $(4,551)$(1,500)$2,601 $558 $3,159 
Common stock repurchases4 (220)(220)(220)
Net income815 815 10 825 
Sale of subsidiary shares to noncontrolling interest0 1 1 
Dividends declared ($1.69 per share)(574)(574)(574)
Distributions to noncontrolling interest0 (9)(9)
Other comprehensive income39 39 1 40 
Reclassification of tax effects relating to U.S. tax reform22 (22)0 0 
Stock compensation42 42 42 
Stock options exercised and other(28)(5)(1)57 24 24 
Balance, September 28, 2019421 $105 $909 $7,910 80 $(4,714)$(1,483)$2,727 $561 $3,288 
See accompanying Notes to Consolidated Financial Statements.

Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
 Year-to-date period ended
(unaudited)September 26,
2020		September 28,
2019
Operating activities
Net income$1,056 $825 
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization355 360 
Postretirement benefit plan expense (benefit)(113)(158)
Deferred income taxes57 (206)
Stock compensation55 42 
Multi-employer pension plan exit liability(5)132 
Other(34)(70)
Postretirement benefit plan contributions(19)(19)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables(113)(253)
Inventories(57)16 
Accounts payable108 0 
All other current assets and liabilities303 256 
Net cash provided by (used in) operating activities1,593 925 
Investing activities
Additions to properties(326)(436)
Purchase of marketable securities(250)0 
Acquisitions, net of cash acquired0 (8)
Acquisition of cost method investments(4)0 
Divestiture0 1,332 
Purchases of available for sale securities(75)(18)
Sales of available for sale securities13 83 
Other(7)(22)
Net cash provided by (used in) investing activities(649)931 
Financing activities
Net issuances (reductions) of notes payable9 9 
Issuances of long-term debt554 40 
Reductions of long-term debt(45)(1,000)
Debt redemption costs0 (17)
Net issuances of common stock105 40 
Common stock repurchases0 (220)
Cash dividends(586)(574)
Collateral received on derivative instruments(14)0 
Other(2)(9)
Net cash provided by (used in) financing activities21 (1,731)
Effect of exchange rate changes on cash and cash equivalents(33)7 
Increase (decrease) in cash and cash equivalents932 132 
Cash and cash equivalents at beginning of period397 321 
Cash and cash equivalents at end of period$1,329 $453 
Supplemental cash flow disclosures
Interest paid$124 $180 
Income taxes paid$212 $211 
Supplemental cash flow disclosures of non-cash investing activities:
   Additions to properties included in accounts payable$108 $93 
 Year-to-date period ended
(unaudited)September 30,
2017		October 1,
2016
Operating activities  
Net income$841
$747
Adjustments to reconcile net income to operating cash flows:  
Depreciation and amortization366
357
Postretirement benefit plan expense (benefit)(191)(53)
Deferred income taxes(20)(26)
Stock compensation53
45
Other32
(3)
Postretirement benefit plan contributions(33)(29)
Changes in operating assets and liabilities, net of acquisitions:  
Trade receivables(223)(208)
Inventories78
25
Accounts payable135
139
Accrued income taxes(10)10
Accrued interest expense43
53
Accrued and prepaid advertising and promotion83
66
Accrued salaries and wages(50)(45)
All other current assets and liabilities, net17
(57)
Net cash provided by (used in) operating activities1,121
1,021
Investing activities  
Additions to properties(374)(376)
Acquisitions, net of cash acquired4
(21)
Investments in unconsolidated entities, net proceeds

14
27
Other(7)(11)
Net cash provided by (used in) investing activities(363)(381)
Financing activities  
Net issuances (reductions) of notes payable134
(749)
Issuances of long-term debt656
2,061
Reductions of long-term debt(626)(1,230)
Net issuances of common stock87
356
Common stock repurchases(516)(426)
Cash dividends(550)(533)
Net cash provided by (used in) financing activities(815)(521)
Effect of exchange rate changes on cash and cash equivalents44
(24)
Increase (decrease) in cash and cash equivalents(13)95
Cash and cash equivalents at beginning of period280
251
Cash and cash equivalents at end of period$267
$346
   
Supplemental cash flow disclosures  
Interest paid$149
$294
Income taxes paid$279
$225
   
Supplemental cash flow disclosures of non-cash investing activities:  
   Additions to properties included in accounts payable$85
$87

Refer toSee accompanying Notes to Consolidated Financial Statements.

8
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Notes to Consolidated Financial Statements
for the quarter ended September 30, 201726, 2020 (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 20162019 Annual Report on Form 10-K.


The condensed balance sheet information at December 31, 201628, 2019 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 periodquarter ended September 30, 201726, 2020 are not necessarily indicative of the results to be expected for other interim periods or the full year.


During the quarter ended September 26, 2020, the Company began to recognize an estimate of certain customer allowances at the time of sale in accordance with ASC 606, resulting in an out-of-period adjustment of $14 million decreasing net sales and accounts receivable. The Company determined the adjustment to be immaterial to current and previously issued financial statements.

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. The payment of these obligations by the Company is included in cash used in operating activities in the Consolidated Statement of Cash Flows. As of September 30, 2017, $79826, 2020, $893 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold $582$651 million of those payment obligations to participating financial institutions. As of December 31, 2016, $67728, 2019, $812 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold $507$605 million of those payment obligations to participating financial institutions.


NewAdoption of new accounting standards
Income Taxes. In October 2016, the FASB, as part of their simplification initiative, issued an Accounting Standard Update (ASU) to improve the accounting for income tax consequences of intra-entity transfers of assets other than inventory. Current Generally Accepted Accounting Principles (GAAP) prohibit recognition of current and deferred income taxes for intra-entity asset transfers until the asset has been sold to an outside party, which is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The amendments in the ASU eliminate the exception, such that entities should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The 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 ASU in the first quarter of 2017. As a result of intercompany transfers of intellectual property, the Company recorded reductions totaling $39 million to income tax expense in the year-to-date period ended September 30, 2017. Upon adoption, there was no cumulative effect adjustment to retained earnings.

Accounting standards to be adopted in future periods
Derivatives and Hedging: Targeted Improvements to Accounting for Hedging ActivitiesCloud Computing Arrangements. In August 2017,2018, the FASB issued an ASU intended to simplify hedge accounting by better aligning an entity’s financial reporting2018-15: Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for hedging relationships with its risk management activities.Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The ASU also simplifiesallows companies to capitalize implementation costs incurred in a hosting arrangement that is a service contract over the applicationterm 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 requirementshosting arrangement, including periods covered by renewal options that are requiredreasonably certain 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 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.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 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.permitted. The Company will adoptadopted the ASU in the first quarter of 2018. See further discussion in 2020 and elected to apply it prospectively. The adoption did not have a material impact to the Company's Consolidated Financial Statements.

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Accounting policiesstandards to be adopted in future periods section of MD&A.


Simplifying the test for goodwill impairment.Compensation Retirement Benefits. In January 2017,August 2018, the FASB issued an ASU 2018-14: Disclosure Framework—Changes to simplify how an entity is required to test goodwillthe Disclosure Requirements 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.Defined Benefit Plans. 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 assessingremoved disclosures that no longer are considered cost beneficial, clarified the impactspecific requirements of disclosures, 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.added disclosure requirements identified as relevant. 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 should2020 and can 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.

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

Recognition and measurement of financial assets and liabilities. In January 2016, the FASB issued an ASU which which requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and which updates certain presentation and disclosure requirements. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption can be elected for all financial statements of fiscal years and interim periods that have not yet been issued or that have not yet been made available for issuance. Entities should apply the update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company 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 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, 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, 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, theThe Company entered intohas a Receivable Sales Agreement andprogram in which a separate U.S. accounts receivable securitization program (the "securitization program"), both described below, which primarily enable the Companydiscrete group of customers are allowed to extend their payment terms for participating customers in exchange for the elimination of the discount theearly payment discounts (Extended Terms Program).

The Company offered for early payment. The agreementshas two Receivable Sales Agreements (Monetization Programs) described below, which are intended to directly offset the impact that extended customer payment termsthe 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 inThe Monetization Programs are designed to effectively offset the Liquidity andimpact on working capital resources section of MD&A.

In March 2016, the Company entered into a Receivable Sales Agreement toExtended Terms Program. The Monetization Programs sell, on a revolving basis, certain trade accounts receivable balancesinvoices to a third party financial institution.institutions. Transfers under this agreementthese agreements are accounted for as sales of receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. The Receivable Sales Agreement providesMonetization 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.$1,033 million. 

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 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 interestsinterest in the receivables sold, underhowever 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 30, 201726, 2020 and December 31, 201628, 2019 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 $929 million and $774 million remained outstanding under these arrangements as of September 26, 2020 and December 28, 2019, 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 $3 million and $11 million for the quarter and year-to-date periods ended September 26, 2020, respectively and was $6 million and $21 million for the quarter and year-to-date periods ended September 28, 2019, respectively. The recorded loss is included in Other income and expense (OIE).

Other programs
Additionally, from time to time certain of the Company's foreign subsidiaries will transfer, without recourse, accounts receivable balancesinvoices 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$22 million and $124$89 million remained outstanding under these programs as of September 30, 201726, 2020 and December 31, 2016,28, 2019, 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 expenseOIE and is not material.


Note 3 Divestiture
On July 28, 2019, the Company completed its sale of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero International S.A. (“Ferrero”) for approximately $1.3 billion in cash, subject to a working capital adjustment mechanism.  Both the total assets and net assets of the businesses were approximately $1.3 billion, resulting in a net pre-tax gain of $38 million during the third quarter of 2019, recorded in OIE, after including related costs to sell of $14 million. Additionally, the Company recognized curtailment gains related to the divestiture totaling $17 million in our U.S. pension and nonpension postretirement plans. The operating results for these businesses were primarily included in the North America reportable segment prior to the sale.Proceeds from the divestiture were used primarily to redeem $1.0 billion of debt during the third quarter of 2019.

In connection with the sale, the Company entered into a transition services agreement (TSA) with Ferrero, under which the Company will provide certain services to Ferrero to help facilitate an orderly transition of the businesses
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following the sale. In return for these services, Ferrero is required to pay certain agreed upon fees that are designed to reimburse the Company for certain costs incurred by the Company in providing such services, plus specified nominal margins which are immaterial. The TSA provides for a term of services starting at the sale completion date and continuing for a period of up to 18 months.

Note 34 Goodwill and otherOther intangible assets


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

In our Latin America reportable segment, for the quarter ended September 30, 2017 the acquisition added $48 million in net sales 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 the Parati Group are included in the Consolidated Balance Sheet as of September 30, 2017 within the Latin America segment. The acquired assets 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 of intangible assets subject to amortization increased $38 million and intangible assets not subject to amortization decreased $11 million with an offsetting $27 million adjustment to goodwill in conjunction with an updated allocation of the purchase price.

A portion of the acquisition price aggregating $67 million was placed in escrow in favor of the seller for general representations and warranties, as well as pending resolution of certain contingencies arising from the business prior to the acquisition. During the quarter and year-to-date periods ended September 30, 2017, 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 the quarter ended April 1, 2017, the Company finalized plans to merge the acquired and pre-existing Brazilian legal entities, which resulted in tax basis of the acquired intangible assets. Accordingly, deferred tax liabilities and goodwill were both reduced by $41 million during the first quarter of 2017. In addition, deferred tax liabilities related to basis differences were reduced by $15 million with a corresponding reduction in goodwill, for the quarter ended September 30, 2017.

The amounts in the above table represent the allocation of purchase price as of September 30, 2017 and represent the finalization of the appraisals for intangible assets and the Company's evaluation 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.

Intangible Assets
Changes in the carrying amount of goodwill, intangible assets subject to amortization, consisting primarily of customer lists,relationships, and indefinite-lived intangible assets, consisting of brands and distribution agreements, 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		EuropeLatin
America		AMEAConsoli-
dated
December 28, 2019$4,422 $347 $213 $879 $5,861 
Currency translation adjustment(1)0 (44)(36)(81)
September 26, 2020$4,421 $347 $169 $843 $5,780 
Intangible assets subject to amortization
Gross carrying amount Gross carrying amount
(millions)
U.S.
Morning
Foods
U.S.
Snacks
U.S.
Specialty
North
America
Other
Europe
Latin
America
Asia
Pacific
Consoli-
dated
(millions)North
America		EuropeLatin
America		AMEAConsoli-
dated
December 31, 2016$8
$42
$—
$5
$40
$36
$10
$141
Purchase price allocation adjustment—
—
—
—
—
39
—
39
December 28, 2019December 28, 2019$64 $41 $60 $429 $594 
Currency translation adjustment—
—
—
—
3
2
—
5
Currency translation adjustment0 0 (16)(24)(40)
September 30, 2017$8
$42
$—
$5
$43
$77
$10
$185
September 26, 2020September 26, 2020$64 $41 $44 $405 $554 
 
Accumulated Amortization Accumulated Amortization
December 31, 2016$8
$19
$—
$4
$14
$6
$3
$54
December 28, 2019December 28, 2019$31 $21 $15 $34 $101 
Amortization—
2
—
—
2
3
1
8
Amortization3 3 2 13 21 
September 30, 2017$8
$21
$—
$4
$16
$9
$4
$62
Currency translation adjustmentCurrency translation adjustment0 0 (4)(2)(6)
September 26, 2020September 26, 2020$34 $24 $13 $45 $116 
 
Intangible assets subject to amortization, netIntangible 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 28, 2019December 28, 2019$33 $20 $45 $395 $493 
AmortizationAmortization(3)(3)(2)(13)(21)
Currency translation adjustment—
—
—
—
3
2
—
5
Currency translation adjustment0 0 (12)(22)(34)
Amortization—
(2)—
—
(2)(3)(1)(8)
September 30, 2017$—
$21
$—
$1
$27
$68
$6
$123
September 26, 2020September 26, 2020$30 $17 $31 $360 $438 
For intangible assets in the preceding table, amortization was $8$21 million and $5$20 million for the year-to-date periods ended September 30, 201726, 2020 and October 1, 2016,September 28, 2019, respectively. The currently estimated aggregate annual amortization expense for full-year 20172020 is approximately $11$28 million.
Intangible assets not subject to amortization
(millions)North
America		EuropeLatin
America		AMEAConsoli-
dated
December 28, 2019$1,238 $392 $70 $383 $2,083 
Currency translation adjustment0 17 (19)(21)(23)
September 26, 2020$1,238 $409 $51 $362 $2,060 
11
(millions)
U.S.
Morning
Foods
U.S.
Snacks
U.S.
Specialty
North
America
Other
Europe
Latin
America
Asia
Pacific
Consoli-
dated
December 31, 2016$—
$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
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Note 4 Investments in unconsolidated entities
In 2015, the Company acquired, for a final net purchase price of $418 million, a 50% interest in Multipro Singapore Pte. Ltd. (Multipro), a leading distributor of a variety of food products in Nigeria and Ghana and also obtained a call option to acquire 24.5% of an affiliated food manufacturing entity under common ownership based on a fixed multiple of future earnings as defined in the agreement (Purchase Option).  The acquisition of the 50% interest is accounted for under the equity method of accounting.  The Purchase Option, is recorded at cost and has been monitored for impairment through September 30, 2017 with no impairment being required.  In July 2017, the Company received notification that the entity, through June 30, 2017, had achieved the level of earnings as defined in the agreement for the purchase option to become exercisable for a one year period.  During the exercise period, the Company will validate the information provided in the notification and evaluate whether to exercise its right to acquire the 24.5% interest. While no decision to exercise the option has been made by the Company, if the option is exercised, the Company would acquire 24.5% of the affiliated food manufacturing entity for approximately $400 million.


Note 5 Restructuring and cost reduction activitiesprograms
The Company views its restructuring and cost reduction activitiesprograms 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-year3 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.


During the second quarter of 2019, the Company announced a reorganization plan for the European reportable segment designed to simplify the organization, increase organizational efficiency, and enhance key processes. The overall project is expected to be substantially completed by the end of fiscal year 2020.
The project is expected to result in cumulative pretax net charges of approximately $40 million, including certain non-cash credits. Cash costs are expected to be approximately $50 million. The total expected charges will include severance and other termination benefits and charges related to relocation, third party legal and consulting fees, and contract termination costs.
The charges related to this initiative were less than $1 million during the quarter ended September 26, 2020 and were $3 million for year-to-date period ended September 26, 2020. These charges were recorded in SG&A expense. Since inception, the Company has recognized total charges, including non-cash credits, of $41 million attributed to this initiative.
Additionally during the second quarter of 2019, the Company announced a reorganization plan which primarily impacted the North America reportable segment. The reorganization plan was designed to simplify the organization that supports the remaining North America reportable segment after the divestiture and related transition. The overall project is expected to be substantially completed by the end of fiscal year 2020.
The overall project is expected to result in cumulative pretax charges of approximately $25 million. Cash costs are expected to approximate the pretax charges. Total expected charges will include severance and other termination benefits and charges related to third party consulting fees.
The charges related to this initiative were less than $1 million during the quarter ended and year-to-date period ended September 26, 2020. Since inception, the Company has recognized total charges of $21 million attributed to this initiative. These charges were recorded in SG&A expense.

In addition to the projects discussed above, during the year-to-date period ended September 26, 2020 the Company also incurred restructuring costs of $4 million in the Latin America reportable segment and $8 million in the AMEA reportable segment related to reorganization and simplification of those businesses. These costs primarily relate to severance and other termination benefits.
Project K
As of the end of 2019, the Company completed implementation of all Project K initiatives. Total project charges, after-tax cash costs and annual savings delivered by Project K were in line with expectations.

During the quarter and year-to-date period ended September 28, 2019, the Company recorded total charges of $15 million and $38 million, respectively, related to Project K.












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Total Projects
The tables below provide the details for charges incurred during the quarters and year-to-date periods ended September 26, 2020 and September 28, 2019 and program costs to date for all programs currently active as of September 26, 2020.
 Quarter endedYear-to-date period endedProgram costs to date
(millions)September 26, 2020September 28, 2019September 26, 2020September 28, 2019September 26, 2020
Employee related costs$0 $(1)$13 $41 $63 
Pension curtailment (gain) loss, net0 0 0 0 (5)
Asset related costs0 5 0 15 0 
Other costs0 14 2 35 16 
Total$0 $18 $15 $91 $74 
 Quarter endedYear-to-date period endedProgram costs to date
(millions)September 26, 2020September 28, 2019September 26, 2020September 28, 2019September 26, 2020
North America$0 $13 $(2)$45 $19 
Europe0 1 3 35 41 
Latin America0 4 4 8 4 
AMEA0 0 8 3 8 
Corporate0 0 2 0 2 
Total$0 $18 $15 $91 $74 

Charges related to restructuring programs were less than $1 million during the quarter ended September 26, 2020. During the year-to-date period ended September 26, 2020, the Company recorded total charges of $15 million across all restructuring programs. The charges were comprised of $6 million recorded in COGS and $9 million recorded in SG&A expense.
During the quarter ended September 30, 2017,28, 2019, the Company recorded total net charges of $1$18 million across all restructuring and cost reduction activities.programs. The charges were comprised of a net $9$13 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$5 million of expense recorded in SG&A expense. During the year-to-date period ended October 1, 2016,September 28, 2019, the Company recorded total charges of $164$91 million across all restructuring and cost reduction activities.programs. The charges consistwere comprised of $66$30 million recorded in COGS and $98$61 million recorded in SG&A expense.
Project K
In February 2017, the Company announced an expansion and an extension to its previously-announced global efficiency and effectiveness program (“Project K”), to reflect additional and changed initiatives. Project K is expected to continue generating a significant amount of savings that may be invested in key strategic areas of focus for the business to drive future growth or utilized to achieve our 2018 Margin Expansion target.
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 and is expected to continue to provide a number of benefits in the future, including an optimized supply chain infrastructure, the implementation of global business services, a new global focus on categories, increased agility from a more efficient organization design, and improved effectiveness in go-to-market strategies.
The Company currently anticipates that Project K will result in total pre-tax charges, once all phases are approved and implemented, of $1.5 to $1.6 billion, with after-tax cash costs, including incremental capital investments, estimated to be approximately $1.1 billion. Based on current estimates and actual charges to date, the Company expects the total project charges will consist of asset-related costs of approximately $500 million which will consist primarily of asset impairments, accelerated depreciation and other exit-related costs; employee-related costs of approximately $500 million which will include severance, pension and other termination benefits; and other costs of approximately $600 million which consists primarily of charges related to the design and implementation of global business capabilities and a more efficient go-to-market model.
The Company currently expects that total pre-tax charges 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%), Europe (approximately 23%), Latin America (approximately 2%), Asia-Pacific (approximately 5%), and Corporate (approximately 5%).

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 million that have been attributed to the program. The charges consist of $6 million recorded as a reduction of revenue, $716 million recorded in COGS and $633 million recorded in SG&A expense.


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 across all restructuring and cost reduction activities incurred during the quarter and year-to-date periods ended September 30, 2017 and October 1, 2016 and program costs to date for programs currently active as of September 30, 2017.
 Quarter ended Year-to-date period ended Program costs to date
(millions)September 30, 2017October 1, 2016 September 30, 2017October 1, 2016 September 30, 2017
Employee related costs$31
$6
 $166
$26
 $523
Pension curtailment (gain) loss, net(134)—
 (133)—
 (122)
Asset related costs38
5
 68
32
 260
Asset impairment—
—
 —
16
 155
Other costs66
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, 2017October 1, 2016 September 30, 2017October 1, 2016 September 30, 2017
U.S. Morning Foods$14
$4
 $16
$13
 $257
U.S. Snacks106
8
 305
62
 507
U.S. Specialty—
1
 1
4
 20
North America Other4
7
 13
20
 141
Europe13
6
 21
34
 320
Latin America2
2
 6
6
 30
Asia Pacific1
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 related costs consist primarily of severance and other termination related benefits, pensionbenefits. Pension curtailment (gain) loss consists of curtailment gains or losses that resulted from project initiatives, assetinitiatives. Asset related costs consist primarily of accelerated depreciation and otherasset write-offs. Other costs consist primarily of lease termination costs as well as third-party incremental costs related to the development and implementation of enhanced global business capabilitiesstructures and a more efficient go-to-market model.capabilities.
At September 30, 201726, 2020 total exit costproject reserves were $194$22 million, related to severance payments and other costs of which a substantial portion will be paid out in 2017 and 2018.2020. The following table provides details for exit cost reserves.reserves related to the reorganizations described above.
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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 charges166
(133)—
68
138
239
Cash payments(146)—
—
(31)(98)(275)
Non-cash charges and other3
133
—
(37)—
99
Liability as of September 30, 2017$125
$—
$—
$—
$69
$194
Employee
Related
Costs		Pension curtailment (gain) loss, netOther
Costs		Total
Liability as of December 28, 2019$37 $0 $1 $38 
2020 restructuring charges13 0 2 15 
Cash payments(28)0 (3)(31)
Non-cash charges and other0 0 0 0 
Liability as of September 26, 2020$22 $0 $0 $22 

Note 6 Equity

Earnings per share
Basic earnings per share is determined by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Dilutive potential common shares consist principally of employee stock options issued by the Company, restricted stock units, and to a lesser extent, certain contingently issuable performance shares. Basic earnings per share is reconciled to diluted earnings per share in the following table. There were 57 million anti-dilutive potential common shares excluded from the reconciliation for the quarter and year-to-date periods ended September 30, 2017.26, 2020. There were 310 million and 14 million anti-dilutive potential common shares excluded from the reconciliation for the quarter and year-to-date periods ended October 1, 2016, respectively.

Quarters ended September 30, 201728, 2019. Please refer to the Consolidated Statement of Income for basic 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-datediluted earnings per share for the quarter and year-to-date periods ended September 30, 201726, 2020 and October 1, 2016:September 28, 2019.

(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,February 2020, the board of directors approved a new authorization to repurchase up to $1.5 billion of our common stock beginning in 2016 through December 2017. As2022. During the year-to-date period ended September 26, 2020, the company did not repurchase any shares of September 30, 2017, $558 millioncommon stock and $1.5 billion remains available under the authorization.
During the year-to-date period ended September 30, 2017,28, 2019, the Company repurchased approximately 74 million shares of common stock for a total of $516$220 million. During the year-to-date period ended October 1, 2016, the Company repurchased 6 million shares of common stock for a total of $426 million.

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

Reclassifications out of AOCIAccumulated other comprehensive income (AOCI) for the quarter and year-to-date periods ended September 30, 201726, 2020 and October 1, 2016,September 28, 2019, consisted of the following:
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(millions)
  
  
(millions)
  
  
  
Details about AOCI
components
Amount reclassified
from AOCI
Line item impacted
within Income Statement
Details about AOCI
components		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
September 26, 2020		Year-to-date period ended
September 26, 2020
  
(Gains) losses on cash flow hedges:  (Gains) losses on cash flow hedges:
Foreign currency exchange contracts$—
$(1)COGS
Interest rate contracts3
8
Interest expenseInterest rate contracts$4 $11 Interest expense
$3
$7
Total before tax
(1)(2)Tax expense (benefit)$4 $11 Total before tax
$2
$5
Net of tax(1)(3)Tax expense (benefit)
$3 $8 Net of tax
Amortization of postretirement and postemployment benefits:  Amortization of postretirement and postemployment benefits:
Net experience loss$—
$1
See Note 9 for further details
Net experience (gain) lossNet experience (gain) loss$0 $(2)OIE
Prior service costPrior service cost0 (1)See Note 9 for further details
$0 $(3)Total before tax
0 1 Tax expense (benefit)
$0 $(2)Net of tax
$—
$1
Total before tax
—
—
Tax expense (benefit)
$—
$1
Net of tax
Total reclassifications$2
$6
Net of taxTotal reclassifications$3 $6 Net of tax
(millions)      
Details about AOCI
components		Amount reclassified
from AOCI		Line item impacted
within Income Statement
 Quarter ended
September 28, 2019		Year-to-date period ended
September 28, 2019		  
(Gains) losses on cash flow hedges:
Interest rate contracts$(1)$2 Interest expense
$(1)$2 Total before tax
0 (1)Tax expense (benefit)
$(1)$1 Net of tax
Amortization of postretirement and postemployment benefits:
Net experience loss$(1)$(3)See Note 9 for further details
$(1)$(3)Total before tax
0 1 Tax expense (benefit)
$(1)$(2)Net of tax
(Gain) loss on available-for-sale securities:
Corporate bonds$(4)$(4)OIE
$(4)$(4)Total before tax
0 0 Tax expense (benefit)
$(4)$(4)Net of tax
Total reclassifications$(6)$(5)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 contracts2
10
Interest expense
Commodity contracts3
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 cost1
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 30, 201726, 2020 and December 31, 201628, 2019 consisted of the following:
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(millions)September 30,
2017
December 31,
 2016
(millions)September 26,
2020		December 28,
2019
Foreign currency translation adjustments$(1,402)$(1,505)Foreign currency translation adjustments$(1,688)$(1,399)
Cash flow hedges — unrealized net gain (loss)(62)(67)Cash flow hedges — unrealized net gain (loss)(80)(60)
Postretirement and postemployment benefits: Postretirement and postemployment benefits:
Net experience loss(13)(14)
Prior service cost11
11
Net experience gain (loss)Net experience gain (loss)6 7 
Prior service credit (cost)Prior service credit (cost)3 4 
Available-for-sale securities unrealized net gain (loss)Available-for-sale securities unrealized net gain (loss)2 0 
Total accumulated other comprehensive income (loss)$(1,466)$(1,575)Total accumulated other comprehensive income (loss)$(1,757)$(1,448)

Note 7 DebtNotes payable and long-term debt
The following table presents the components of notes payable at September 30, 201726, 2020 and December 31, 2016:28, 2019:
 September 26, 2020December 28, 2019
(millions)Principal
amount		Effective
interest rate		Principal
amount		Effective
interest rate
U.S. commercial paper$0 0 %$3 1.78 %
Bank borrowings116 104 
Total$116 $107 
 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 paper201
(0.26)% 306
(0.18)%
Bank borrowings86
  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.

In May 2017,of 2020, the Company issued €600$500 million (approximately $709 million USD at September 30, 2017, which reflects the discount and translation adjustments) of five-year 0.80% Euroten-year 2.10% Notes due 2022,2030, resulting in aggregate net proceeds after debt discount of $656$496 million. The proceeds from these Notesnotes were used for general corporate purposes, including together with cashthe payment of offering related fees and expenses, repayment of a portion of the $600 million 4.00% Notes due 2020 when they mature on handDecember 15, 2020, and additionalrepayment of a portion of commercial paper borrowings, repayment of the Company's $400 million, five-year 1.75% U.S. Dollar Notes due 2017 at maturity.borrowings. 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

In connection with the Company's investment in its Europe subsidiary when issued.

During the second quarter of 2017,May 2020 debt issuance, the Company repaid its Cdn.$300 million three year 2.05% Canadian Dollar Notes.

In the second quarter of 2017, the Company entered intoterminated forward starting interest rate swaps with notional amounts totaling approximately €600$500 million, which effectively converted €600resulting in a $51 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 whichthat will be amortized to interest expense over the remaining term of the related Notes.


In March 2016,August 2019, the Company redeemed $475$191 million of its 7.45%4.15% U.S. Dollar DebenturesNotes due 2031.November 2019, $248 million of its 4.00% U.S. Dollar Notes due 2020, $202 million of its 3.25% U.S. Dollar Notes due 2021, and $50 million of its 2.65% U.S. Dollar Notes due 2023. In connection with the debt redemption, the Company incurred $153$15 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 unamortized debt discount and fees on the redeemed
debt and fees related to the tender offer.

In September 2019, the Company redeemed $309 million of its 4.15% U.S. Dollar Notes due November 2019, the
remaining principal balance subsequent to the August redemption. In connection with the debt redemption, the
Company incurred $1 million of interest expense, consisting primarily of a premium 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.make whole call.

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.shares. 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 20162019 Annual Report on Form 10-K.

In April 2020, the Amended and Restated Kellogg Company 2002 Employee Stock Purchase Plan was approved by shareholders, effective July 1, 2020. The plan is a tax-qualified employee stock purchase plan made available to substantially all U.S. employees, which allows participants to acquire Kellogg stock at a discounted price. The purpose of the plan is to encourage employees at all levels to purchase stock and become shareholders.

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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 endedYear-to-date period ended
(millions)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Pre-tax compensation expense$18 $14 $59 $46 
Related income tax benefit$5 $4 $16 $12 
 Quarter ended Year-to-date period ended
(millions)September 30, 2017October 1, 2016 September 30, 2017October 1, 2016
Pre-tax compensation expense$18
$16
 $57
$49
Related income tax benefit$7
$6
 $21
$18
In February, the Company granted stock options, restricted stock units, and performance shares, in conjunction with our primary annual award, under the 2017 Long-Term Incentive Plan, approved by shareholders in 2017.
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 periodsperiod ended September 30, 2017 and October 1, 2016,26, 2020, the Company granted approximately 0.6 million restricted stock units at a weighted average cost of $66 per share and 2.3 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 20162019 Annual Report on Form 10-K.
Year-to-date period ended September 30, 2017:
 Employee and director stock optionsShares (millions)
Weighted-
average
exercise price
Weighted-
average
remaining
contractual term (yrs.)
Aggregate
intrinsic
value (millions)
 
 Outstanding, beginning of period15
$62
  
 Granted2
73
  
 Exercised(1)57
  
 Forfeitures and expirations(1)70
  
 Outstanding, end of period15
$64
6.8$37
 Exercisable, end of period10
$60
5.8$37

Year-to-date period ended October 1, 2016:
 Employee and director stock optionsShares (millions)
Weighted-
average
exercise price
Weighted-
average
remaining
contractual term (yrs.)
Aggregate
intrinsic
value (millions)
 
 Outstanding, beginning of period19
$58
  
 Granted3
76
  
 Exercised(6)56
  
 Forfeitures and expirations(1)67
  
 Outstanding, end of period15
$62
7.2$226
 Exercisable, end of period8
$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%6.62.26%2.80%
Grants within the year-to-date period ended October 1, 2016:17%6.91.60%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 2017,2020, the Company granted performance shares to a limited number of senior executive-levellevel 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 comparablethree year cumulative organic net sales growth and three year aggregate operating margin and total shareholder return (TSR) of the Company’s common stock relative to a select group of peer companies.cash flow.
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. Compensation cost related to currency-neutral comparable operating marginorganic net sales growth performance isand cash flow targets are revised for changes in the expected outcome. The 20172020 target grant currently corresponds to approximately 186,000337,000 shares, with a grant-date fair value of $67$66 per share.
Based on the market price of the Company’s common stock at September 30,The 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 performance share award, payable in stock, was settled at 35%90% of target in February 20172020 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 unitsShares (thousands)Weighted-average grant-date fair value
Non-vested, beginning of year1,166
$63
Granted666
67
Vested(76)57
Forfeited(125)65
Non-vested, end of period1,631
$65
Year-to-date period ended October 1, 2016:
Employee restricted stock and restricted stock unitsShares (thousands)Weighted-average grant-date fair value
Non-vested, beginning of year806
$58
Granted589
70
Vested(68)56
Forfeited(85)62
Non-vested, end of period1,242
$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 20162019 Annual Report on Form 10-K. Components of Company plan benefit expense for the periods presented are included in the tables below.

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In
Pension
 Quarter endedYear-to-date period ended
(millions)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Service cost$9 $9 $27 $27 
Interest cost31 42 99 131 
Expected return on plan assets(87)(86)(257)(254)
Amortization of unrecognized prior service cost1 1 5 5 
Recognized net (gain) loss7 23 64 34 
Net periodic benefit cost$(39)$(11)$(62)$(57)
Curtailment (gain) loss0 (11)(7)(11)
Total pension (income) expense$(39)$(22)$(69)$(68)
Other nonpension postretirement
 Quarter endedYear-to-date period ended
(millions)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Service cost$2 $5 $9 $12 
Interest cost7 10 23 30 
Expected return on plan assets(24)(23)(70)(65)
Amortization of unrecognized prior service cost(1)(2)(6)(6)
Recognized net (gain) loss0 (55)0 (55)
Net periodic benefit cost(16)(65)(44)(84)
Curtailment (gain) loss0 (6)0 (6)
Total postretirement benefit (income) expense$(16)$(71)$(44)$(90)
Postemployment
 Quarter endedYear-to-date period ended
(millions)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Service cost$1 $1 $3 $3 
Interest cost1 0 1 1 
Recognized net (gain) loss0 (1)(2)(3)
Total postemployment benefit expense$2 $0 $2 $1 

For the quarter and year-to-date periods ended September 2017,26, 2020, the Company amended certain defined benefitrecognized a loss of $7 million and $15 million, respectively, related to the remeasurement of a U.S. pension plansplan as current year distributions are expected to exceed service and interest costs resulting in settlement accounting for that particular plan. The amount of the remeasurement recognized was due primarily to changes in the U.S. and Canada for salaried employees. As of December 31, 2018,discount rate relative to 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.previous measurement.


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
(millions)September 30, 2017October 1, 2016 September 30, 2017October 1, 2016
Service cost$22
$25
 $72
$74
Interest cost40
43
 123
131
Expected return on plan assets(97)(87) (277)(266)
Amortization of unrecognized prior service cost3
3
 7
10
Recognized net (gain) loss83
28
 84
28
Net periodic benefit cost51
12
 9
(23)
Curtailment (gain) loss(134)—
 (136)—
Total pension (income) expense$(83)$12
 $(127)$(23)
Other nonpension postretirement
 Quarter ended Year-to-date period ended
(millions)September 30, 2017October 1, 2016 September 30, 2017October 1, 2016
Service cost$5
$5
 $14
$15
Interest cost10
10
 28
29
Expected return on plan assets(24)(22) (73)(67)
Amortization of unrecognized prior service (gain)(3)(2) (7)(7)
Recognized net (gain) loss—
—
 (29)—
Net periodic benefit cost(12)(9) (67)(30)
Curtailment loss—
—
 3
—
Total postretirement benefit (income) expense$(12)$(9) $(64)$(30)
Postemployment
 Quarter ended Year-to-date period ended
(millions)September 30, 2017October 1, 2016 September 30, 2017October 1, 2016
Service cost$1
$1
 $4
$5
Interest cost—
1
 2
3
Recognized net loss—
1
 1
3
Total postemployment benefit expense$1
$3
 $7
$11

During the thirdsecond quarter of 2017,2020, the Company recognized a curtailment gain of $7 million, as certain U.S. pension plan curtailment gains totaling $134 million in conjunction with Project K restructuring activity which resulted frombenefits were frozen for a portion of the amendment of certain defined benefit pension plans in the U.S. and Canada and workforce reductions.population. The Company remeasured the benefit obligation for the impacted pension plansplan, resulting in a mark-to-market loss of $83$49 million. TheThe loss was due primarily to changes ina lower discount rates,rate partially offset by plan asset returns in excess of the expected rate of return.


On aFor the quarter and year-to-date basis,periods ended September 28, 2019, the Company recognized a loss of $15 million and $26 million, respectively, related to the remeasurement of a U.S. pension plan as current year distributions were expected to exceed service and interest costs, resulting in settlement accounting for that particular plan. The amount of the remeasurement loss recognized was due primarily to an unfavorable change in the discount rate.

In conjunction with the completion of the sale of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice
18
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cream cones businesses on July 28, 2019, the Company recognized curtailment gains totaling $136in its U.S. pension and
nonpension postretirement plans of $11 million and a curtailment loss$6 million, respectively, during the third quarter 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 plans in the U.S. and Canada and global workforce reductions. In addition,2019. Additionally, the Company remeasured the benefit obligation for impacted pension and nonpension postretirementwas required to remeasure those plans. The remeasurement resulted inCompany recorded a mark-to-market loss of $84$8 million onin our U.S. pension plansplan due primarily to a lower discount rate and a $29reduction of the expected return on assets from 7.5% to 7.0% based on an updated target portfolio mix. These decreases were partially offset by better than expected asset returns. We recorded a mark-to-market gain of $55 million gain onrelated to the remeasurement of a U.S. nonpension postretirement plan primarily due to planas a result of better than expected asset investment returns, slightly mitigatedpartially offset by the impact of a lower discount rate.rate and a reduction of the expected return on assets from 7.5% to 7.0% based on an updated target portfolio mix.


Company contributions to employee benefit plans are summarized as follows:
(millions)PensionNonpension postretirementTotal
Quarter ended:
September 26, 2020$1 $6 $7 
September 28, 2019$2 $5 $7 
Year-to-date period ended:
September 26, 2020$4 $15 $19 
September 28, 2019$6 $13 $19 
Full year:
Fiscal year 2020 (projected)$7 $19 $26 
Fiscal year 2019 (actual)$10 $18 $28 
(millions)PensionNonpension postretirementTotal
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

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


Additionally, duringMulti-employer pension plan exit liability
During the firstthird quarter of 2017,2019, the Company recognized expense totaling $26incurred a pre-tax charge of $132 million relateddue to the exit of severalwithdrawing from
two multi-employer plans associated with Project K restructuring activity. This amount represents management's best estimate, actual results could differ.pension plans. The cash obligation is payable overwas originally estimated to be approximately $8 million annually for 20 years. The net present value of the liability was determined using a maximum 20-year period; management has not determinedrisk free interest rate. The charge was recorded within COGS on the actual period overConsolidated Statement of Income and Other current liabilities and Other liabilities on the Consolidated Balance Sheet.

During the second quarter of 2020, the Company adjusted the estimated withdrawal liability associated with a plan withdrawn from during the third quarter of 2019.The adjustment resulted in a gain of $5 million during the second quarter and resulted from a July 2020 agreement with the plan under which the payments will be made.Company paid $7 million in full settlement of the withdrawal liability.

Note 10 Income taxes
The consolidated effective tax rate for the quarter ended September 30, 201726, 2020 and September 28, 2019 was 26% as compared to the prior year’s rate of 18%.16% and 27%, respectively. The effective tax rate for the quarter ended October 1, 2016 benefitedwas favorably impacted by the reversal of a liability for uncertain tax positions of $32 million, resulting from excessthe finalization of a tax benefits from share-based compensation totaling $16 million.examination. The reserves were related to the Company's estimate of the transition tax liability in conjunction with the finalization of accounting under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.


The consolidated effective tax ratesrate for the year-to-date periods ended September 30, 201726, 2020 and October 1, 2016 were 23% andSeptember 28, 2019 was 20% 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 intercompany transfers of intellectual property under the application of the newly adopted standard. See discussion regarding the adoption of ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, in Note 1.respectively. 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 aswas favorably impacted by the completionreversal of certain tax examinations.the liability noted above.


19
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As of September 30, 2017,26, 2020, the Company classified $8$16 million of unrecognized tax benefits as a net current tax liability. Management’sManagement'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$3 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 theThe Company’s total gross unrecognized tax benefits for the quarter endedas of September 30, 2017; $3726, 2020 was $62 million. Of this balance, $53 million of this total represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.
December 28, 2019$90
Tax positions related to current year:
Additions3
Reductions0
Tax positions related to prior years:
Additions5
Reductions(34)
Settlements(2)
Lapse in statute of limitations0
September 26, 2020$62
(millions)
December 31, 2016$63
Tax positions related to current year: 
Additions4
Reductions—
Tax positions related to prior years: 
Additions3
Reductions(8)
Settlements(4)
Lapse in statute of limitations(2)
September 30, 2017$56


The accrual balance for tax-related interest was approximately $20$13 million at September 30, 2017.26, 2020.
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.

Derivative instruments are classified on the Consolidated Balance Sheet based on the contractual maturity of the instrument or the timing of the underlying cash flows of the instrument for derivatives with contractual maturities beyond one year.  Any collateral associated with derivative instruments is classified as other assets or other current liabilities on the Consolidated Balance Sheet depending on whether the counterparty collateral is in an asset or liability position.  Margin deposits related to exchange-traded commodities are recorded in accounts receivable, net on the Consolidated Balance Sheet.  On the Consolidated Statement of Cash Flows, cash flows associated with derivative instruments are classified according to the nature of the underlying hedged item.  Cash flows associated with collateral and margin deposits on exchange-traded commodities are classified as investing cash flows when the collateral account is in an asset position and as financing cash flows when the collateral account is in a liability position.
Total notional amounts of the Company’s derivative instruments as of September 30, 201726, 2020 and December 31, 201628, 2019 were as follows:
(millions)September 26,
2020		December 28,
2019
Foreign currency exchange contracts$4,288 $2,628 
Cross-currency contracts1,556 1,540 
Interest rate contracts2,339 1,871 
Commodity contracts300 524 
Total$8,483 $6,563 
20
(millions)September 30,
2017		December 31,
2016
Foreign currency exchange contracts$2,079
$1,396
Interest rate contracts2,232
2,185
Commodity contracts294
437
Total$4,605
$4,018
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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 30, 201726, 2020 and December 31, 2016,28, 2019, 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 30, 201726, 2020 or December 31, 2016.28, 2019.
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 30, 201726, 2020 and December 31, 2016:28, 2019:
Derivatives designated as hedging instruments
September 30, 2017 December 31, 2016 September 26, 2020December 28, 2019
(millions)Level 1Level 2Total Level 1Level 2Total(millions)Level 1Level 2TotalLevel 1Level 2Total
Assets:   Assets:
Foreign currency exchange contracts:   
Other prepaid assets$—
$—
$—
 $—
$2
$2
Cross-currency contracts:Cross-currency contracts:
Other current assetsOther current assets$0 $50 $50 $0 $45 $45 
Other assetsOther assets0 45 45 0 40 40 
Interest rate contracts: 
  
Interest rate contracts:
Other current assetsOther current assets0 0 0 0 7 7 
Other assets (a)—
—
—
 —
1
1
Other assets (a)0 30 30 0 4 4 
Total assets$—
$—
$—

$—
$3
$3
Total assets$0 $125 $125 $0 $96 $96 
Liabilities: 
  
Liabilities:
Cross-currency contracts:Cross-currency contracts:
Other current liabilitiesOther current liabilities$0 $(5)$(5)$0 $0 $0 
Other Liabilities Other Liabilities0 (1)(1)0 0 0 
Interest rate contracts: 
  
Interest rate contracts:
Other liabilities (a)—
(43)(43) —
(65)(65)
Other current liabilitiesOther current liabilities0 (2)(2)0 (4)(4)
Other liabilitiesOther liabilities0 (1)(1)0 0 0 
Total liabilities$—
$(43)$(43)
$—
$(65)$(65)Total liabilities$0 $(9)$(9)$0 $(4)$(4)
(a) The fair value of the related hedged portion of the Company's long-term debt, a level 2 liability, was $2.2$0.7 billion as of September 30, 201726, 2020 and December 31, 2016, respectively.28, 2019.
21
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Derivatives not designated as hedging instruments
September 30, 2017 December 31, 2016 September 26, 2020December 28, 2019
(millions)Level 1Level 2Total Level 1Level 2Total(millions)Level 1Level 2TotalLevel 1Level 2Total
Assets:   Assets:
Foreign currency exchange contracts:   Foreign currency exchange contracts:
Other prepaid assets$—
$10
$10
 $—
$25
$25
Other current assetsOther current assets$0 $63 $63 $0 $12 $12 
Other assets Other assets0 5 5 0 0 0 
Interest rate contracts:Interest rate contracts:
Other current assetsOther current assets0 4 4 0 0 0 
Other assetsOther assets0 15 15 0 0 0 
Commodity contracts:   Commodity contracts:
Other prepaid assets4
—
4
 13
—
13
Other current assetsOther current assets2 0 2 9 0 9 
Total assets$4
$10
$14

$13
$25
$38
Total assets$2 $87 $89 $9 $12 $21 
Liabilities:   Liabilities:
Foreign currency exchange contracts:   Foreign currency exchange contracts:
Other current liabilities$—
$(23)$(23) $—
$(11)$(11)Other current liabilities$0 $(47)$(47)$0 $(18)$(18)
Other liabilitiesOther liabilities0 (7)(7)0 0 0 
Interest rate contracts:Interest rate contracts:
Other current liabilitiesOther current liabilities0 (6)(6)0 0 0 
Other liabilitiesOther liabilities0 (25)(25)0 (13)(13)
Commodity contracts:   Commodity contracts:
Other current liabilities(5)—
(5) $(7)$—
$(7)Other current liabilities(1)0 (1)(1)0 (1)
Total liabilities$(5)$(23)$(28)
$(7)$(11)$(18)Total liabilities$(1)$(85)$(86)$(1)$(31)$(32)
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, including current and long-term, was approximately $2.7 billion as of September 26, 2020 and $1.8$2.6 billion as of December 28, 2019.
The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for existing fair value hedges as of September 30, 201726, 2020 and December 31, 2016,28, 2019.
(millions)Line Item in the Consolidated Balance Sheet in which the hedged item is includedCarrying amount of the hedged liabilitiesCumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)
September 26,
2020		December 28,
2019		September 26,
2020		December 28,
2019
Interest rate contractsCurrent maturities of long-term debt$494 $493 $0 $0 
Interest rate contractsLong-term debt$2,853 $2,643 $23 $19 
(a) The hedged long-term debt includes $14 million and $15 millionof hedging adjustment on discontinued hedging relationships as of September 26, 2020 and December 28, 2019, respectively.

22
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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 30, 201726, 2020 and December 31, 201628, 2019 would be adjusted as detailed in the following table:
    
As of September 26, 2020:
  
Gross Amounts Not Offset in the
Consolidated Balance Sheet
  
  
Amounts
Presented in the
Consolidated
Balance Sheet		Financial
Instruments		Cash Collateral
Received/
Posted		Net
Amount
Total asset derivatives$214 $(94)$0 $120 
Total liability derivatives$(95)$94 $0 $(1)
As of September 30, 2017:   
  
  
Gross Amounts Not Offset in the
Consolidated Balance Sheet
  
  
Amounts
Presented in
the
Consolidated
Balance Sheet
Financial
Instruments
Cash Collateral
Received/
Posted
Net
Amount
Total asset derivatives$14
$(14)$—
$—
Total liability derivatives$(71)$14
$16
$(41)

As of December 31, 2016: 
  
Gross Amounts Not Offset in the
Consolidated Balance Sheet
  
As of December 28, 2019:As of December 28, 2019:
  
Gross Amounts Not Offset in the
Consolidated Balance Sheet
  
Amounts
Presented in the
Consolidated
Balance Sheet
Financial
Instruments
Cash Collateral
Received/
Posted
Net
Amount
Amounts
Presented in the
Consolidated
Balance Sheet		Financial
Instruments		Cash Collateral
Received/
Posted		Net
Amount
Total asset derivatives$41
$(24)$—
$17
Total asset derivatives$117 $(27)$(7)$83 
Total liability derivatives$(83)$24
$48
$(11)Total liability derivatives$(36)$27 $0 $(9)
The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the quarters ended September 30, 201726, 2020 and October 1, 2016September 28, 2019 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 contractsInterest 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)










(millions)Gain (loss)
recognized in
AOCI		Gain (loss) excluded from assessment of hedge effectivenessLocation of gain (loss) in income of excluded component
 September 26,
2020		September 28,
2019		September 26,
2020		September 28,
2019
Foreign currency denominated long-term debt$(94)$99 $0 $0 
Cross-currency contracts(61)49 8 9 Interest expense
Total$(155)$148 $8 $9 
Derivatives not designated as hedging instruments
(millions)Location of gain
(loss) recognized
in income		Gain (loss)
recognized in
income
  September 26,
2020		September 28,
2019
Foreign currency exchange contractsCOGS$(3)$7 
Foreign currency exchange contractsOther income (expense), net(1)0 
Foreign currency exchange contractsSG&A(1)0 
Commodity contractsCOGS17 (21)
Total$12 $(14)
23
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(millions)
Location of gain
(loss) recognized
in income
Gain (loss)
recognized in
income
  September 30,
2017		 October 1,
2016
Foreign currency exchange contractsCOGS$—
 $3
Foreign currency exchange contractsOther income (expense), net(3) (1)
Foreign currency exchange contractsSG&A(1) —
Commodity contractsCOGS(13) (14)
Commodity contractsSG&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, 201726, 2020 and October 1, 2016September 28, 2019 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 contractsInterest 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 contracts1
 (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
(millions)Gain (loss)
recognized in
AOCI		Gain (loss) excluded from assessment of hedge effectivenessLocation of gain (loss) in income of excluded component
September 30,
2017		 October 1,
2016		 September 26,
2020		September 28,
2019		September 26,
2020		September 28,
2019
Foreign currency denominated long-term debt$(272) $(31)Foreign currency denominated long-term debt$(103)$115 $0 $0 
Foreign currency exchange contracts—
 (23)
Cross-currency contractsCross-currency contracts1 64 26 25 Interest expense
Total$(272)
$(54)Total$(102)$179 $26 $25 
Derivatives not designated as hedging instruments
(millions)Location of gain
(loss) recognized
in income		Gain (loss)
recognized in
income
  September 26,
2020		September 28,
2019
Foreign currency exchange contractsCOGS$43 $(3)
Foreign currency exchange contractsOther income (expense), net5 (1)
Foreign currency exchange contractsSGA3 0 
Interest rate contractsInterest expense1 0 
Commodity contractsCOGS(33)(13)
Total$19 $(17)

The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the quarters ended September 26, 2020 and September 28, 2019:
September 26, 2020September 28, 2019
(millions)Interest ExpenseInterest 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$63 $72 
Gain (loss) on fair value hedging relationships:
Interest contracts:
Hedged items(2)(5)
Derivatives designated as hedging instruments2 7 
Gain (loss) on cash flow hedging relationships:
Interest contracts:
Amount of gain (loss) reclassified from AOCI into income(4)1 
24
Table of Contents

(millions)
Location of gain
(loss) recognized
in income
Gain (loss)
recognized in
income
  September 30,
2017		 October 1,
2016
Foreign currency exchange contractsCOGS$(13) $(7)
Foreign currency exchange contractsOther income (expense), net(11) 9
Foreign currency exchange contractsSGA(2) —
Commodity contractsCOGS(16) (4)
Commodity contractsSGA(15) 2
Total $(57)
$—
     
The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the year-to-date periods ended September 26, 2020 and September 28, 2019:
September 26, 2020September 28, 2019
(millions)Interest ExpenseInterest 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$196 $221 
Gain (loss) on fair value hedging relationships:
Interest contracts:
Hedged items(5)(42)
Derivatives designated as hedging instruments6 44 
Gain (loss) on cash flow hedging relationships:
Interest contracts:
Amount of gain (loss) reclassified from AOCI into income(11)(2)
During the next 12 months, the Company expects $8$16 million of net deferred losses reported in AOCI at September 30, 201726, 2020 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 30, 201726, 2020 was $55 million. If the credit-risk-related contingent features were triggered as of September 30, 2017, the Company would be required to post additional collateral of $48 million.not material. In addition, certain derivative instruments contain provisions that would be triggered in the event the Company defaults on its debt agreements. There were no0 collateral posting as of September 30, 201726, 2020 triggered by credit-risk-related contingent features.
Fair
Other fair value measurements

Marketable securities

During the quarter and year-to-date periods ended September 26, 2020, the Company invested $50 million and $250 million, respectively, in a mutual fund holding short term debt securities. The investment is measured at fair value using the net asset value (NAV) per share as a practical expedient and as a result, this investment has not been classified in the fair value hierarchy. As of September 26, 2020, fair value using the NAV was $250 million.

Available for sale securities

September 26, 2020December 28, 2019
UnrealizedUnrealized
(millions)CostGain (Loss)Market ValueCostGain (Loss)Market Value
Corporate bonds$62 $2 $64 $0 $0 $0 
The market values of the Company's investments in level 2 corporate bonds were based on a nonrecurring basismatrices or models from pricing vendors. Unrealized gains and losses were included in the Consolidated Statement of Comprehensive Income. Additionally, these investments were recorded within Other current assets and Other assets on the Consolidated Balance Sheet, based on the maturity of the individual security. The maturity dates of the securities range from 2020 to 2036.
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 consolidatingrequired to sell the usage of and disposing certain long-lived assets, including manufacturing facilities and Corporate owned assets over the terminvestment before recovery of the program. See Note 5 for more information regarding Project K.
Duringcost basis. The Company also considers the year-to-date period ended September 30, 2017, there were no long-lived assettype 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 tocharge is recorded and a manufacturing facilitynew cost basis in the Company's U.S. Snacks reportable segment, were written down to an estimated fair value
25
Table of $10 million due to Project K activities. The Company's calculation ofContents

investment is established. If conditions within individual markets, industry segments, or macro-economic environments deteriorate, the fair value of these long-lived assets is based on level 3 inputs, including market comparables, market trends and the condition of the assets.Company could incur future impairments.

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$7.9 billion and $7,216 million,$7.0 billion, respectively, as of September 30, 2017.26, 2020. The fair value and carrying value of the Company's long-term debt were $7.8 billion and $7.2 billion, respectively, as of December 28, 2019.
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. AsCompany of approximately $96 million, net of collateral already received from those counterparties, as of September 30, 2017, the Company was not in a significant net asset position with any counterparties with which a master netting agreement would apply.26, 2020.
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 30, 2017, the Company posted $7 million26, 2020, collateral related to reciprocal collateralization agreements. As of September 30, 2017 the Company posted $9 million inagreements and margin deposits for exchange-traded commodity derivative instruments, which was reflected as an increase in accounts receivable, net on the Consolidated Balance Sheet.were immaterial.
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%22% of consolidated trade receivables at September 30, 2017.26, 2020.
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 snacksveggie 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.
The Company manages its operations through nine4 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 Asia PacificAMEA (Asia 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.
On July 28, 2019, the Company completed its sale of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero for approximately $1.3 billion in cash.  Both the total assets and net assets, consisting primarily of goodwill and intangibles, property, plant and equipment, and inventory, of the businesses were approximately $1.3 billion. The operating results for these businesses were primarily included in the North America reportable segment prior to the sale. Reported net sales for the divested businesses totaled $55 million and $562 million for the quarter and year-to-date periods ended September 28, 2019, respectively.

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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 transactionsReportable segment results were as follows:
 Quarter endedYear-to-date period ended
(millions)September 26,
2020		September 28,
2019		September 26,
2020		September 28,
2019
Net sales
North America$2,059 $2,059 $6,323 $6,496 
Europe552 527 1,624 1,566 
Latin America236 244 686 707 
AMEA582 542 1,673 1,586 
Consolidated$3,429 $3,372 $10,306 $10,355 
Operating profit
North America$321 $208 $1,151 $910 
Europe63 68 224 164 
Latin America31 23 84 61 
AMEA58 53 142 145 
Total Reportable Segments473 352 1,601 1,280 
Corporate(62)(89)(225)(239)
Consolidated$411 $263 $1,376 $1,041 

Supplemental product information is provided below for net sales to external customers:
Quarter endedYear-to-date period ended
(millions)September 26,
2020		September 28,
2019		September 26,
2020		September 28,
2019
Snacks*$1,593 $1,610 $4,669 $5,132 
Cereal*1,3241,2804,0933,811
Frozen279260857786
Noodles and other233222687626
Consolidated$3,429 $3,372 $10,306 $10,355 
* The year-to-date snacks and cereal net sales reflect the correction of an error in the Company’s first quarter 2020 disclosure. First quarter net
sales for snacks was understated $229 million and net sales for cereal was overstated $229 million within the disclosure included in our
previously issued first quarter financial statements. The revisions, which did not impact consolidated net sales, are not considered material to the
first, second or third quarter 2020 financial statements.

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Note 13 Supplemental Financial Statement Data
Consolidated Balance Sheet
(millions)September 26, 2020 (unaudited)December 28, 2019
Trade receivables$1,414 $1,315 
Allowance for doubtful accounts(22)(10)
Refundable income taxes17 56 
Other receivables217 215 
Accounts receivable, net$1,626 $1,576 
Raw materials and supplies$334 $303 
Finished goods and materials in process929 923 
Inventories$1,263 $1,226 
Property$9,100 $9,051 
Accumulated depreciation(5,616)(5,439)
Property, net$3,484 $3,612 
Pension$298 $241 
Deferred income taxes219 231 
Nonpension postretirement benefits328 283 
Other507 384 
Other assets$1,352 $1,139 
Accrued income taxes$29 $42 
Accrued salaries and wages316 290 
Other780 577 
Other current liabilities$1,125 $909 
Income taxes payable$54 $81 
Nonpension postretirement benefits32 33 
Other434 429 
Other liabilities$520 $543 

Note 14 Contingencies
The Company is subject to various legal proceedings, claims, and governmental inspections or investigations in the ordinary course of business covering matters such as general commercial, governmental regulations, antitrust and trade regulations, product liability, environmental, intellectual property, workers’ compensation, employment and other actions. These matters are subject to uncertainty and the outcome is not predictable with assurance. The Company uses a combination of insurance and self-insurance for a number of risks, including workers’ compensation, general liability, automobile liability and product liability.

In 2016, a class action complaint was filed against Kellogg in the Northern District of California relating to statements made on packaging for certain products. In August 2019, the Court ruled in favor of the plaintiff regarding certain statements made on the Company’s products and ordered the parties to conduct settlement discussions related to all matters in dispute. In October 2019, the plaintiff filed a motion to the Court to approve a settlement between operating segments were insignificantKellogg and the class. During 2019, the Company concluded that the contingency related to the unfavorable ruling was probable and estimable, resulting in all periods presented.a liability being recorded. In February 2020, the Court denied plaintiff’s motion to approve the settlement and the parties are continuing arbitration. This litigation, including any potential settlement, is not expected to have a material impact on the Company’s consolidated financial statements.  The Company will continue to evaluate the likelihood of potential outcomes as the litigation continues.

The Company has established accruals for certain matters where losses are deemed probable and reasonably estimable. There are other claims and legal proceedings pending against the Company for which accruals have not been established. It is reasonably possible that some of these matters could result in an unfavorable judgment against the Company and could require payment of claims in amounts that cannot be estimated at September 26, 2020. Based upon current information, management does not expect any of the claims or legal proceedings pending against the Company to have a material impact on the Company’s consolidated financial statements.

28
 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. Snacks760
796
 2,344
2,431
U.S. Specialty290
284
 961
931
North America Other420
402
 1,204
1,222
Europe599
594
 1,677
1,821
Latin America240
197
 696
593
Asia Pacific254
248
 724
692
Consolidated$3,273
$3,254
 $9,714
$9,917
Operating profit     
U.S. Morning Foods$141
$144
 $477
$457
U.S. Snacks14
78
 (8)230
U.S. Specialty76
68
 242
214
North America Other65
43
 173
135
Europe72
78
 214
216
Latin America (a)23
27
 82
70
Asia Pacific25
21
 66
50
Total Reportable Segments416
459
 1,246
1,372
Corporate (b)48
(49) 31
(75)
Consolidated$464
$410
 $1,277
$1,297
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(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.



Note 1315 Subsequent Eventevents

OnDuring October 27, 2017,of 2020, the Company completed its acquisitionsettled obligations associated with approximately 8,000 retired participants within our U.S. defined benefit pension plan to reduce pension obligations and administrative expenses. A group annuity contract was purchased on behalf of Chicago Bar Co., LLC,these participants with a third-party insurance provider resulting in a reduction of the manufacturerCompany's pension benefit obligations and plan assets of RXBAR, for approximately $600 million, funded through short-term borrowings.  The purchase price is 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. The major classes$470 million.


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Table of assets and liabilities of Chicago Bar Co., LLC are expected to be net working capital, intangible assets (primarily, customer lists and brands), and goodwill.Contents



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. Our MD&A references consumption and net sales in discussing our sales trends for certain categories and brands.  We record net sales upon delivery of shipments to our customers.  Consumption and share data noted within is based on Nielsen x-AOC or other comparable source, for the applicable period. Consumption refers to consumer purchases of our products from our customers. Unless otherwise noted, consumption and shipment trends are materially consistent.


For more than 100110 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 cookies andThese foods include snacks, such as crackers, and a leading producer of savory snacks, and frozen foods. Additional product offerings include toaster pastries, cereal bars fruit-flavored snacks and bites; and convenience foods, such as, ready-to-eat cereals, frozen waffles, veggie foods.foods and noodles. Kellogg products are manufactured and marketed globally.


Corporate responsibilityCOVID-19 Response
In March 2020, the World Health Organization categorized the novel coronavirus (COVID-19) as a pandemic, and sustainabilityit has spread across the world.  To limit the spread of COVID-19, governments took various actions to slow and otherwise control the spread of COVID-19, including the issuance of stay-at-home orders and social distancing guidelines. While many governments have eased stay-at-home orders, some governments have taken steps to reimplement restrictions. The Company has taken proactive steps to protect our people and otherwise mitigate the impact to our business. The Company’s business has been designated as “essential services”, “critical infrastructure” and the like by governments where we operate. The Company has taken numerous measures during the pandemic to fulfill our key objectives: 1) ensuring the health and safety of our employees, 2) safely producing and delivering our foods to customers and consumers, 3) supporting the communities in which we operate, and 4) maintaining financial flexibility. Our efforts have been led by the Company’s Executive Committee, a committee composed of senior leaders, and our global Crisis Management Process. As part of that process, we have worked closely with medical, regulatory and other experts as we deliver on our objectives.

Employee health and safety
The health and safety of our employees is our top priority. As a grain-basedresult, the Company has designed and implemented a number of actions across the business. From the outset of the pandemic, the Company restricted travel and visitors to its facilities, prohibited external group meetings and established quarantine procedures for any potentially exposed employees. The Company subsequently required employees who could do so to work remotely to further minimize the exposure of our employees to COVID-19. At this time, most of our office employees continue to work remotely. For those who are not able to work remotely, the Company implemented new protocols at all of our facilities to protect our employees, including temperature checks, social distancing, response plans, face coverings, contact tracing, enhanced sanitation procedures, and additional personal protection equipment

Maintain our ability to produce and deliver essential food company,supply
In addition to our success is dependent on timelyefforts to keep our people safe, the Company has taken several actions to ensure that we maintain our ability to operate effectively during this pandemic, providing our foods to our customers and consumers. While we have experienced limited disruption in the operation of our facilities, we are taking the appropriate actions to ensure the continuity of our business. We are working proactively with our suppliers to maintain our supply of raw materials and packaging during this time of increased demand for our products. We have secured access to high quality, low cost ingredients,contracted labor forces. We have made incremental investments in our workforce, additional warehouse capacity and water and energy forincreased access to transportation so that our global manufacturing operations. We rely on natural capital including energy for product manufacturing and distribution, waterproducts are delivered in a timely manner to our customers. In conjunction with our management of production capacity, we have simplified our operations (as well 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 dueour customers' operations) by prioritizing our offerings to climate change which is assessed as partincrease the supply of our overall enterprise risk management program. Duemost demanded products to these risks, we have implemented major short and long-term initiatives to mitigate and adapt to these environmental pressures,our customers, as well as delaying innovation launches and commercial activities. At the resulting challenges ofsame time, the Company reinforced food security.safety practices across our manufacturing network.


To address these risks, we partnerWe have partnered with suppliers, customers, governmentsour strategic technology providers in order to maintain support for our critical business 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) emissionsfinance systems as well as additional network bandwidth and support for the transition to a work-from-home
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environment. We have worked to mitigate system-related risks in this environment through heightened monitoring of cybersecurity and network capacity as well as reevaluation of contingency plans.

Community support
Kellogg is a company with a heart and soul, and we are working together across our supply chaincompany to help our food bank partners and neighbors in need. Kellogg and our charitable funds have donated cash and food to global COVID-19 hunger relief efforts. As always, through our global Kellogg’s® Better Days purpose platform, we help deliver critical nourishment to people when they need it most. Local governments have identified food security as a top priority in their fight against COVID-19. With school and business closures and “shelter-at-home” mandates, Kellogg is providing support to our food bank partners on the front-lines, helping those who may not know where their next meal is coming from.
Maintain financial flexibility
At this time, the COVID-19 pandemic has not materially impacted our liquidity and we anticipate current cash and marketable security balances, operating cash flows, together with our credit facilities and other financing sources including commercial paper, credit and bond markets, will be adequate to meet our operating, investing and financing needs. We expect cash provided by operating activities of $1.8-$1.9 billion and capital expenditures of approximately $500 million in 2020. We currently have $2.5 billion of unused revolving credit agreements, including $1.5 billion effective through 2023 and $1.0 billion effective through January 2021, as well as continued access to the goalcommercial paper markets. We are currently in compliance with all debt covenants and do not have material uncertainty about our ability to maintain compliance in future periods. In May, we issued $500 million of reducing risk of disruptions from unexpected constraintsten-year 2.10% Notes in natural resource availability or impacts on raw material pricing. In addition, we established third-party approved science-based targets to measure progress against our goal to significantly reduce absolute GHG emissions across our own footprint and thatanticipation of our suppliers.$600 million December maturity. We continue to utilize available capacity within the Monetization Programs to maintain financial flexibility without negatively impacting working capital. Additionally, we utilized certain aspects of the Coronavirus Aid, Relief and Economic Security Act, to delay the employer share of certain U.S. payroll taxes until 2021 and 2022. Our utilization does not include a government loan and is not expected to result in any restrictions on the Company’s decisions on executive compensation, payment of dividends, or share buy-back programs. As the impact of COVID-19 on the economy and our operations evolves, we will continue to assess our liquidity needs.

Monitoring future impacts
The severity, magnitude and duration of the current COVID-19 pandemic is uncertain and rapidly changing. The Company is actively monitoring the pandemic and related governmental actions as they continue to develop and evolve. We will adjust our mitigation strategies as necessary to address any changing health, operational or financial risks that may arise. Beginning in March, the Company experienced a significant increase in demand for our retail products as consumers stocked up on food for at-home consumption in those markets. While this demand has moderated for certain products, we will continue to manage our production capacity during this period of high demand. We continue to monitor the business for adverse impacts of the pandemic, including volatility in the foreign exchange markets, reduced demand in our away from home businesses, supply-chain disruptions in certain markets, increased costs of employee safety and maintaining food supply, and lower revenues for certain emerging market countries with a higher concentration of traditional trade outlets. In 2016,the event the Company experiences adverse impacts from the above or other factors, the Company would also evaluate the need to perform interim impairment tests for the Company’s goodwill, indefinite lived intangible assets, investments in unconsolidated affiliates and property, plant and equipment. 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. See further discussion within Future Outlook.

Segments
On July 28, 2019, we expanded our global signature cause platform, Breakfastscompleted the sale of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero International S.A. (“Ferrero”) for Better Days, with the intent$1.3 billion in cash, on a cash-free, debt-free basis and subject to help address hunger relief and food security.

We have incorporated the risks and opportunities of climate change and food security into the Global 2020 Growth Strategy and Global Heart and Soul Strategy by continuing to identify risk, incorporating environmental and social indicators into strategic priorities and reporting regularly to leadership, the board of directors, and publicly. Future reporting on our environmental and social risks and performance against targets will bea working capital adjustment mechanism. The operating results for these businesses were included in our Annual Report on Form 10-K.North America and Latin America reportable segments prior to the sale.

Segments
We manage our operations through ninefour 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 classesalso represent our reportable segments.

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Table of customers, distribution methods and regulatory environments to determine if they can be aggregated into reportable segments. We report results of operations in the following reportable segments: U.S. 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.Contents


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 for evaluation of performance include comparablecurrency-neutral and organic net sales, comparableadjusted and currency-neutral adjusted operating profit, adjusted and currency-neutral adjusted diluted earnings per share (EPS), currency-neutral adjusted gross profit, currency neutral adjusted gross margin, comparable SG&A, comparable operating profit, comparable operating profit margin, comparable effective tax rate, comparableadjusted other income (expense), net income, comparable diluted EPS,debt, 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 measuresmeasure to exclude the pre-tax effectimpact of foreign currency, resulting in currency-neutral net sales. In addition, we exclude the impact of acquisitions, divestitures, foreign currency, and divestitures.differences in shipping days resulting in organic net sales. We excluded the items which we believe may obscure trends in our underlying net sales performance. By providing thisthese 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 thisthese non-GAAP measuremeasures to evaluate the effectiveness of initiatives behind net sales growth, pricepricing realization, and the impact of mix on our business results. ThisThese non-GAAP measure ismeasures 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 and cost reduction activities, acquisitions, divestitures, integration costs,restructuring programs, 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, multi-employer pension plan withdrawal liabilities, the gain on the divestiture of selected cookies, fruit snacks, pie crusts, and ice cream cone businesses, 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 effective tax rate:adjusted: gross profit, gross margin, operating profit, and diluted EPS: We adjust the GAAP financial measuremeasures to exclude taxthe effect of Project K and cost reduction activities, divestitures, integration costs,restructuring programs, 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, multi-employer pension plan withdrawal liabilities, the gain on the divestiture of selected cookies, fruit snacks, pie crusts, and ice cream cone businesses, other costs associatedimpacting 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 measures to exclude the effect of restructuring programs, mark-to-market adjustments for pension plans (service cost, interest cost, expected
32

return on plan assets, and other net periodic pension costs are not excluded), commodities and certain foreign currency contracts, multi-employer pension plan withdrawal liabilities, the gain on the divestiture of selected cookies, fruit snacks, pie crusts, and ice cream cone businesses, and other costs impacting comparability. In addition, we have excluded an adjustment for the reversal of a liability for uncertain tax positions, resulting from the finalization of a tax examination. The liability was related to the Company's estimate of the transition tax liability in conjunction with the early redemptionfinalization of debt outstanding,accounting under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and costs associated with prior-year Venezuela remeasurement. Jobs Act. 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 underlyingadjusted 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.


•Net debt: Defined as the sum of long-term debt, current maturities of long-term debt and notes payable,
less cash and cash equivalents and marketable securities. With respect to net debt, cash and cash equivalents and marketable securities are subtracted from the GAAP measure, total debt liabilities, because they could be used to reduce the Company’s debt obligations. Company management and investors use this non-GAAP measure to evaluate changes to the Company's capital structure and credit quality assessment.

•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 totala pre-tax mark-to-market chargesbenefit of $104$3 million and $31pre-tax mark-to-market expense of $71 million for quarters ended September 30, 2017for the quarter and October 1, 2016, respectively, and $118 million and $35 million for the year-to-date periods ended September 30, 2017 and October 1, 2016,26, 2020, respectively. Included within the aforementioned charges arewas a pre-tax mark-to-market expense for pension plans of $7 million and $64 million for the quarter and year-to-date periods ended September 26, 2020, respectively. Additionally, we recorded a pre-tax mark-to-market chargesbenefit of $21 million and $15 million for the quarter and year-to-date periods ended September 28, 2019, respectively. Included within the aforementioned was a pre-tax mark-to-market benefit for pension plans of $76$32 million and $28$22 million for quarters ended September 30, 2017the quarter and October 1, 2016, respectively, and $73 million and $62 million for the year-to-date periods ended September 30, 201728, 2019, respectively.

Project K
In 2019, the Company completed implementation of all Project K initiatives. We recorded pre-tax charges related to this program of $15 million and October 1, 2016,$38 million for the quarter and year-to-date periods ended September 28, 2019, respectively.


OtherBrexit impacts
During 2019, with the uncertainty of the United Kingdom's (U.K.) exit from the European Union (EU), commonly referred to as Brexit, we incurred certain costs impacting comparabilityto proactively prepare for the potential adverse impacts, such as delays at ports of entry and departure. As a result, we incurred pretax charges of $1 million and $7 million for the quarter and year-to-date periods ended September 28, 2019, respectively.

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Business and portfolio realignment
One-time costs related to reorganizations in support of our Deploy for Growth priorities and a reshaped portfolio; investments in enhancing capabilities prioritized by our Deploy for Growth strategy; and completed and prospective divestitures and acquisitions, including the divestiture of our cookies, fruit snacks, pie crusts, and ice-cream cone businesses. As a result, we incurred pre-tax charges, primarily related to reorganizations, of $23 million for the year-to-date period ended September 26, 2020. We also recorded pre-tax charges of $21 million and $135 million for the quarter and year-to-date periods ended September 28, 2019, respectively.

Multi-employer pension plan withdrawal
During the third quarter ended April 2, 2016, we redeemed $475of 2019, the Company incurred a pre-tax charge of $132 million due to withdrawing from two multi-employer pension plans. During the second quarter of our 7.45% U.S. Dollar Debentures due 2031. In connection with2020, the debt redemption, we incurred $153Company recorded a pre-tax gain of approximately $5 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.settlement of one multi-employer pension plan withdrawal liability from the prior year.


VenezuelaDivestiture
There was a material changeOn July 28, 2019, the Company completed its sale of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero for approximately $1.3 billion in the business environment, including a worsening of our access to key raw materialscash, subject to restrictions,a working capital adjustment mechanism.  The operating results for these businesses were included primarily in our North America reportable segment, and to a related significant drop in production volume inlesser extent, Latin America, prior to the fourthsale. Reported net sales for the divested businesses totaled $55 million and $562 for the quarter and year-to-date periods ended September 28, 2019.

U.S. Tax Reform
During the third quarter of 2016. These supply chain disruptions, along with other factors such as2020, the worsening economic environment in Venezuela andCompany reversed a liability for uncertain tax positions of $32 million, related to the finalization of a tax examination. The liability was related to the limited access to dollars to import goods through the use of anyCompany's estimate 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 totransition tax liability in conjunction with the cost methodfinalization of accounting for our Venezuelan subsidiary. For the quarter ended October 1, 2016 the deconsolidation reduced net sales by $7 million and operating profit by $3 million which 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 resultunder Staff Accounting Bulletin No. 118, Income Tax Accounting Implications 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.Tax Cuts and Jobs Act.


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 30, 2017,26, 2020, our reported net sales improved by 0.6% due primarily toincreased 1.7% versus the Parati acquisition in Brazilprior year as well as favorable foreign currency translation. This principally reflects on the previously announced list-price adjustments and other impacts in U.S. Snacks related to its transition from DSD. Currency-neutral comparablestrong organic net sales were down 1.4% after eliminatinggrowth was partially offset by our final month lapping results from the impactbusinesses divested at the end of acquisitions,July 2019 and unfavorable foreign currency, and prior year Venezuela results.


Reported operating profit increased 13.1%,currency. Demand for packaged foods for at-home consumption remained elevated as a result of productivity savingsthe pandemic, although moderating from Project K restructuring, which includes this year's exitthe previous quarter. This growth more than offset a decline in away-from-home channel net sales. Organic net sales increased 4.5% 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 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,the divestiture and foreign currency.

Third quarter reported operating profit increased 56% versus the year-ago quarter due primarily to substantially lower charges for multi-employer pension plan withdrawal, business and portfolio realignment, and Project K, as well as higher net sales and favorable mark-to-market impacts. These impacts were partially offset by higher expense for advertising and promotion and performance-based compensation, and the impact of the divestiture. Currency-neutral adjusted operating profit decreased 9.1%, after excluding the impact of the multi-employer pension plan withdrawal, mark-to-market, and acquisitions.business and portfolio realignment.




Reported diluted EPS of $.85$1.01 for the quarter was up almost 4%40% compared to the prior year quarter of $.82. Higher$0.72 due primarily to higher operating profit, as a resultlower tax rate due to the release of productivity savings from Project K restructuring more thanreserves for uncertain tax positions related to U.S. Tax reform, and lower interest expense. These impacts were partially offset aby higher effective tax rate.advertising and promotion and performance-based compensation costs, unfavorable year-over-year mark-to-market impacts, and the prior year gain on the divestiture. Currency-neutral comparableadjusted diluted EPS of $1.05 increased by 9%$0.91 for the quarter decreased 11.7% compared to prior year quarter of $.96, due to higher profit margins driven by productivity initiatives.$1.03, after excluding the impact of multi-employer pension plan withdrawal, gain on divestiture, U.S. Tax Reform, mark-to-market, and business and portfolio realignment.
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Reconciliation of certain non-GAAP Financial Measures
 Quarter endedYear-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 impact4
 (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 growth9.4%15.1%10.3%7.4%
 Quarter endedYear-to-date period ended
Consolidated results
(dollars in millions, except per share data)		September 26,
2020		September 28,
2019		September 26,
2020		September 28,
2019
Reported net income$348 $247 $1,046 $815 
Mark-to-market (pre-tax)3 21 (71)15 
Project K (pre-tax)— (15)— (38)
Brexit impacts (pre-tax)— (1)— (7)
Business and portfolio realignment (pre-tax)— (21)(23)(135)
Multi-employer pension plan withdrawal (pre-tax)— (132)5 (132)
Gain on divestiture (pre-tax)— 55 — 55 
Income tax impact applicable to adjustments, net*(1)(13)22 21 
U.S. Tax Reform32 — 32 — 
Adjusted net income$313 $353 $1,080 $1,036 
Foreign currency impact(2)— (15)— 
Currency-neutral adjusted net income$315 $353 $1,095 $1,036 
Reported diluted EPS$1.01 $0.72 $3.03 $2.38 
Mark-to-market (pre-tax)0.01 0.06 (0.21)0.04 
Project K (pre-tax)— (0.04)— (0.11)
Brexit impacts (pre-tax)— — — (0.02)
Business and portfolio realignment (pre-tax)— (0.06)(0.06)(0.39)
Multi-employer pension plan withdrawal (pre-tax)— (0.39)0.01 (0.39)
Gain on divestiture (pre-tax)— 0.16 — 0.16 
Income tax impact applicable to adjustments, net*— (0.04)0.07 0.06 
U.S. Tax Reform0.09 — 0.09 — 
Adjusted diluted EPS$0.91 $1.03 $3.13 $3.03 
Foreign currency impact— — (0.04)— 
Currency-neutral adjusted diluted EPS$0.91 $1.03 $3.17 $3.03 
Currency-neutral adjusted diluted EPS growth(11.7)%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.
* 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.


























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Table of Contents

Net sales and operating profit
The following tables provide an analysis of net sales and operating profit performance for the third quarter of 20172020 versus 2016:2019:

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 September 26, 2020
(millions)North
America		EuropeLatin
America		AMEACorporateKellogg
Consolidated
Reported net sales$2,059 $552 $236 $582 $— $3,429 
Foreign currency impact on total business (inc)/dec(1)21 (39)(18)— (37)
Organic net sales$2,059 $531 $275 $600 $— $3,466 
Quarter ended September 28, 2019
(millions)
Reported net sales$2,059 $527 $244 $542 $— $3,372 
Divestiture54 — 1 — — 55 
Organic net sales$2,005 $527 $242 $542 $— $3,317 
% change - 2020 vs. 2019:
Reported growth— %4.7 %(3.0)%7.3 %— %1.7 %
Foreign currency impact on total business (inc)/dec— %4.0 %(16.0)%(3.4)%— %(1.1)%
Currency-neutral growth— %0.7 %13.0 %10.7 %— %2.8 %
Divestiture(2.7)%— %(0.4)%— %— %(1.7)%
Organic growth2.7 %0.7 %13.4 %10.7 %— %4.5 %
Volume (tonnage)2.2 %(1.6)%6.8 %7.1 %— %3.3 %
Pricing/mix0.5 %2.3 %6.6 %3.6 %— %1.2 %
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.


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Table of Contents

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 September 26, 2020
(millions)North
America		EuropeLatin
America		AMEACorporateKellogg
Consolidated
Reported operating profit$321 $62 $31 $59 $(62)$411 
Mark-to-market— — — — 10 10 
Business and portfolio realignment— — — — — — 
Multi-employer pension plan withdrawal— — — — — — 
Adjusted operating profit$321 $62 $31 $59 $(72)$400 
Foreign currency impact— 2 (5)(1)1 (3)
Currency-neutral adjusted operating profit$321 $60 $36 $59 $(73)$403 
Quarter ended September 28, 2019
(millions)
Reported operating profit$208 $68 $23 $53 $(89)$263 
Mark-to-market— — — — (11)(11)
Project K(9)(1)(4)— — (15)
Brexit impacts— (1)— — — (1)
Business and portfolio realignment(2)1 — (2)(18)(21)
Multi-employer pension plan exit liability(132)— — — — (132)
Adjusted operating profit$351 $69 $28 $56 $(61)$444 
% change - 2020 vs. 2019:
Reported growth54.1 %(8.9)%34.3 %8.8 %30.8 %55.9 %
Mark-to-market— %— %— %— %22.2 %10.0 %
Project K6.5 %1.1 %21.3 %— %0.1 %7.2 %
Brexit impacts— %1.8 %— %— %— %0.7 %
Business and portfolio realignment1.7 %(2.2)%0.1 %4.5 %26.4 %9.4 %
Multi-employer pension plan withdrawal54.8 %— %— %— %— %38.3 %
Adjusted growth(8.9)%(9.6)%12.9 %4.3 %(17.9)%(9.7)%
Foreign currency impact— %3.3 %(17.0)%(1.7)%1.3 %(0.6)%
Currency-neutral adjusted growth(8.9)%(12.9)%29.9 %6.0 %(19.2)%(9.1)%
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 FoodsNorth America
This segment consists of cereal, toaster pastries, and health and wellness bars. As reported and Currency-neutral comparableReported net sales declined 3.0%for the third quarter were flat versus the prior year due primarily to strong organic net sales growth offset by our final month lapping results from the businesses divested at the end of July 2019. Demand for packaged foods for at-home consumption remained elevated as a result of decreased volume partially offset by favorable pricing/mix.

In our cereal business, kid-oriented brands performed well during the quarter as Froot Loops and Frosted Flakes continued to gain share behind effective media and innovation. Adult-oriented brands declined, reflecting a category trend and our lack of sufficient food news and brand activity.

Toaster pastries grew share duringpandemic, although moderating from the quarter despite lower consumptionprevious quarter. Net sales in the category.

As reported operating profit decreased 2.6% due to higher restructuring charges and lower net sales. Currency-neutral comparable 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 comparableaway-from-home channels declined. Organic 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%2.7% after excluding the impact of restructuring charges; this was driven by DSD-related overhead reductions partially offset by increased brand investment.the divestiture.


U.S. Specialty
Net sales % change - third quarter 2020 vs. 2019:
North AmericaReported net salesForeign currencyCurrency-neutral net salesDivestitureOrganic net sales
Snacks(2.0)%— %(2.0)%(5.6)%3.6 %
Cereal0.5 %(0.1)%0.6 %— %0.6 %
Frozen7.3 %(0.1)%7.4 %— %7.4 %
As reported and Currency-neutral comparable
North America snacks net sales improved 1.9%decreased 2.0% due primarily to our final month lapping results from the businesses divested at the end of July 2019. Organic net sales increased 3.6% in the quarter due to high demand for packaged foods for at-home consumption as a result of higher volumethe pandemic. Cracker consumption in the U.S. outpaced mid-single-digit growth in the category, led by Cheez-it, Club, Townhouse and improved pricing/mix.Carr's. In salty snacks, Pringles posted double-digit consumption growth during the quarter, despite softness in on-the-go pack formats.


Shipments
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North America cereal net sales increased 0.5% during the third quarter, as pandemic-related consumption growth slowed from the previous quarter and net sales in away-from-home channels declined. U.S. cereal consumption grew faster than the category, led by Mini-Wheats and Special K.

North America frozen foods net sales increased 7.3% during the third quarter, driven by double-digit consumption growth of Eggo and Morningstar Farms partially offset by declines in away-from-home channels and phasing out of certain non-core products. In frozen veggie foods, our MorningStar Farms brand grew consumption nearly 18% in the quarter, ledwith growth being limited by bothcapacity limitations. In frozen breakfast, our ConvenienceEggo brand grew share on strong growth in waffles, French toast, and Foodservice channels, with the latter additionally benefitingpancakes.

Canada net sales increased, despite unfavorable foreign currency, due to growth in cereal and frozen foods resulting from hurricane-related orders.share gains as well as pandemic-related consumption growth.


As ReportedNorth America operating profit increased 12.2%54% due primarily to lapping prior year charges for multi-employer pension plan withdrawal and Project K. These impacts were partially offset by higher expense for advertising and promotion, incremental COVID-19-related expenses, and the higher net sales and savings from Project K and ZBB initiatives.impact of the divestiture. Currency-neutral comparableadjusted operating profit increased 11.5%decreased 8.9%, after excluding the impact of restructuring charges.multi-employer pension withdrawal, Project K, and business and portfolio realignment.


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

As reportedReported net sales increased 4.4%4.7% due primarily to favorable foreign currency translation, as pandemic-related consumption growth slowed from the previous quarter and net sales in away-from-home channels declined. Organic net sales increased 0.7%.

Cereal net sales growth for the quarter was driven largely by consumption and share growth in developed markets. Snacks net sales declined due primarily to portable wholesome snacks category weakness as a result of reduced demand for on-the-go foods and pack formats during the pandemic, partially offset by growth in consumption and share for Pringles in the U.K.

Reported operating profit decreased 8.9% due primarily to higher advertising and promotion costs and incremental COVID-19-related expenses. Currency-neutral adjusted operating profit decreased 12.9% after excluding the impact of foreign currency, Project K, and business and portfolio realignment.

Latin America
Reported net sales decreased 3.0% due primarily to unfavorable foreign currency impacts partially offset by higher sales volume. Organic net sales increased 13.4%, after excluding the impact of the divestiture, and foreign currency.

Cereal net sales growth was led by growth in Mexico, Caricam, and Brazil due to elevated demand in modern trade channels. Snacks net sales increased slightly due to growth in Brazil, where local production and a new distributor are benefiting Pringles, and share gains in cookies.

Reported operating profit increased 34% due to higher volume, favorable pricing/mix,organic net sales, and favorablelack of Project K costs, partially offset by unfavorable foreign currency. Currency-neutral comparableadjusted operating profit increased almost 30% after excluding the impact of foreign currency and Project K.

AMEA
Reported net sales increased 2.9%7.3% due to broad-based growth across the region and categories, partially offset by unfavorable foreign currency. Organic net sales increased almost 11% after excluding the impact of foreign currency.


The U.S. Frozen business reported increased shipments on higher volumeCereal net sales growth was driven by elevated demand in modern trade channels 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 cerealAustralia, South Korea, Saudi Arabia, 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.South Africa.


Kashi Company posted lowerSnacks net sales increased due primarily to strong growth in the quarter due to the decision to eliminate less profitable SKUsPringles, reflecting increased investment 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 flatadvertising and promotion during the quarter.


As Reported operating profit increased 52.8%8.8% due primarily to lower restructuringoperating leverage from higher net sales and the lapping of prior year business and portfolio realignment charges, Project Kpartially offset by higher advertising and ZBB savings promotion costs
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and favorableunfavorable foreign currency. Currency-neutral comparableadjusted 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% after excluding the impact of foreign currency and acquisitions.

Pringles returned 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 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.

Latin America
As reported net sales improved 21.5% 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 net sales increased 2.0%6.0%, after excluding the impact of business and portfolio realignment, and foreign currency.


Good growth in cereal was broad-based across the region, led by Asia's expansion in granola, e-commerce, and the re-acceleration of growth in India. Australia, our largest market in the region, posted consumption and share gains during the quarter, continuing its stabilization trend.Corporate

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

As reportedReported operating profit increased 18.7% due to higher net sales, lower restructuring charges, and brand-building efficiencies related to ZBB. Currency-neutral$27 million versus the comparable operating profit improved 10.7% 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 theprior year quarter driven by strong noodles volume. The China JV is benefiting from granola cereal and rapid expansion of e-commerce sales.

Corporate
As reported operating profit increased $97 million due primarily to pension curtailment gains related to Project K restructuringlower business and portfolio realignment charges, and favorable mark-to-market impacts, partially offset by higher mark-to-market costs. performance-based compensation costs. Currency-neutral comparableadjusted operating profit improved $20decreased $12 million due to lower pension and postretirement benefit costsfrom the prior year after excluding the impact of mark-to-market restructuring charges, and foreign currency.business and portfolio realignment.



The following tables provide an analysis of net sales and operating profit performance for the year-to-date periods ended September 30, 201726, 2020 versus October 1, 2016:September 28, 2019:

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)%
Year-to-date period ended September 26, 2020
(millions)North
America		EuropeLatin
America		AMEACorporateKellogg
Consolidated
Reported net sales$6,323 $1,624 $686 $1,673 $— $10,306 
Foreign currency impact on total business (inc)/dec(9)(11)(107)(66)— (193)
Organic net sales$6,332 $1,635 $792 $1,739 $— $10,499 
Year-to-date period ended September 28, 2019
(millions)
Reported net sales$6,496 $1,566 $707 $1,586 $— $10,355 
Divestiture556 — 6 — — 562 
Organic net sales$5,940 $1,566 $702 $1,586 $— $9,794 
% change - 2020 vs. 2019:
Reported growth(2.7)%3.7 %(3.1)%5.5 %— %(0.5)%
Foreign currency impact on total business (inc)/dec(0.2)%(0.7)%(15.1)%(4.2)%— %(1.9)%
Currency-neutral growth(2.5)%4.4 %12.0 %9.7 %— %1.4 %
Divestiture(9.1)%— %(0.9)%— %— %(5.8)%
Organic growth6.6 %4.4 %12.9 %9.7 %— %7.2 %
Volume (tonnage)6.7 %5.3 %9.4 %8.9 %— %7.3 %
Pricing/mix(0.1)%(0.9)%3.5 %0.8 %— %(0.1)%
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.





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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 %
Year-to-date period ended September 26, 2020
(millions)North
America		EuropeLatin
America		AMEACorporateKellogg
Consolidated
Reported operating profit$1,151 $224 $84 $142 $(225)$1,376 
Mark-to-market— — — — (7)(7)
Business and portfolio realignment1 (3)(4)(12)(4)(23)
Multi-employer pension plan withdrawal5 — — — — 5 
Adjusted operating profit$1,145 $227 $88 $155 $(214)$1,401 
Foreign currency impact(1)(2)(12)(6)2 (20)
Currency-neutral adjusted operating profit$1,146 $229 $100 $161 $(216)$1,421 
Year-to-date period ended September 28, 2019
(millions)
Reported operating profit$910 $164 $61 $145 $(239)$1,041 
Mark-to-market— — — — (7)(7)
Project K(23)(2)(8)(4)— (38)
Brexit impacts— (7)— — — (7)
Business and portfolio realignment(55)(35)(2)(4)(39)(135)
Multi-employer pension plan exit liability(132)— — — — (132)
Adjusted operating profit$1,120 $208 $72 $153 $(193)$1,361 
% change - 2020 vs. 2019:
Reported growth26.5 %36.7 %37.4 %(2.0)%5.7 %32.1 %
Mark-to-market— %— %— %— %(0.1)%0.2 %
Project K3.2 %1.9 %16.8 %2.4 %0.1 %4.6 %
Brexit impacts— %5.5 %— %— %— %0.8 %
Business and portfolio realignment6.9 %20.4 %(2.6)%(5.3)%16.8 %12.1 %
Multi-employer pension plan withdrawal14.2 %— %— %— %— %11.5 %
Adjusted growth2.2 %8.9 %23.2 %0.9 %(11.1)%2.9 %
Foreign currency impact(0.1)%(1.1)%(17.0)%(4.0)%0.8 %(1.5)%
Currency-neutral adjusted growth2.3 %10.0 %40.2 %4.9 %(11.9)%4.4 %
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.


U.S. Morning FoodsNorth America
This segment consists of cereal, toaster pastries, and health and wellness bars. As reported and currency-neutral comparableReported net sales declined 5.3% as a resultdecreased 2.7% versus the prior year-to-date period, due primarily to the absence of decreased volumeresults from the businesses divested in July 2019, partially offset by favorable pricing/mix.

Cerealstrong organic growth. Net sales growth was driven by the acceleration of demand for snacks, cereal, and frozen food as consumers increased purchases of food for at-home 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.

Crackers, Cookies, and Wholesome Snacks declined in consumptionpandemic, though this has moderated in the third quarter due to the reductionquarter. This acceleration of promotion activitydemand was partly offset by a related to our efforts to smoothly transition out of DSD. Savory snacks consumption was pulled down,decline in part, on the elimination of a promotion-sized can.

As reported operating profit declined 103.7% due tonet sales in away-from-home channels. Organic net sales increased Project K restructuring charges in the current year associated with our DSD transition. Currency-neutral comparable operating profit increased 1.6%6.6% after excluding the impact of restructuring charges; this was driven by DSD-related overhead reductions partially offset by increased brand investment.the divestiture and foreign currency.


U.S. Specialty
Net sales % change - third quarter year-to-date 2020 vs. 2019:
North AmericaReported net salesForeign currencyCurrency-neutral net salesDivestitureOrganic net sales
Snacks(11.1)%(0.1)%(11.0)%(17.7)%6.7 %
Cereal9.1 %(0.3)%9.4 %— %9.4 %
Frozen8.8 %(0.1)%8.9 %— %8.9 %
As reported and Currency-neutral comparableNorth America snacks net sales improved 3.2%decreased 11% due to the absence of the divested businesses, whose results were seasonally weighted to the first half of the year. Organic net sales increased 6.7% due to high demand for packaged foods for at-home consumption as a result of higher volumethe pandemic.

North America cereal and improved pricing/mix aidedfrozen foods net sales grew 9.1% and 8.8%, respectively, due to elevated demand for packaged foods for at-home consumption as a result of the pandemic.
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Canada net sales growth was led by innovationcereal and expansion in core and emergingfrozen foods, resulting from market share gains as well as pandemic-related consumption growth channels, and the third quarter benefit of hurricane-related shipments.despite unfavorable foreign currency.


AsNorth America reported operating profit increased 13.2%27% due primarily to the higher net sales savingsand operating leverage, and the lapping of prior year charges for multi-employer pension plan withdrawal and Project K, partially offset by the absence of results from Project K and ZBB initiatives, and lower restructuring charges.the divested businesses. Currency-neutral comparableadjusted operating profit increased 11.6%2.3%, after excluding the impact of restructuring charges.multi-employer pension plan withdrawal, business and portfolio realignment, Project K and foreign currency.


North America OtherEurope
This segment is composedReported net sales increased 3.7% due to elevated demand for at-home consumption of cereal partially offset by unfavorable foreign currency. Organic net sales increased 4.4%.

Cereal net sales growth for the year-to-date period was driven largely by accelerated consumption in our U.S. Frozen Foods, Kashi Company, and Canada businesses.developed markets as a result of the pandemic.


As reportedSnacks net sales declined 1.5%slightly as a result of reduced demand for on-the-go foods and pack formats during the pandemic and a reduction in advertising and promotional activity in the first half of the year related to Pringles .

Reported operating profit increased 37% due primarily to decreased volumelower business and foreign currency partially offset by acquisitions.portfolio realignment costs. Currency-neutral comparable net sales declined 2.0%adjusted operating profit increased 10% after excluding the impact of acquisitionsbusiness and portfolio realignment, Project K, and foreign currency.


In U.S. Frozen, Eggo® grew shareLatin America
Reported net sales decreased 3.1% due primarily to the impact of unfavorable foreign currency and the divestiture. Organic net sales increased 13%, after excluding the impact of the divestiture and foreign currency. Organic net sales growth was driven by higher cereal sales, which accelerated during the pandemic as consumers increased purchases of food for at-home consumption in modern trade channels as a result of the pandemic.

Cereal net sales growth was led by growth in Mexico, Caricam, and Brazil.

Snacks net sales declined during the year-to-date period benefiting from the removaldue to shut-downs of artificial ingredientshigh frequency stores 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 offeringsdiminished on-the-go snacking occasions during the summer grilling season.pandemic.

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%37% due to lower restructuring chargesoperating leverage from higher net sales volume and bylapping of prior year Project K and ZBB savings.costs, partially offset by unfavorable foreign currency. Currency-neutral comparableadjusted 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%40% 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 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, acquisitionsbusiness and foreign currency.portfolio realignment.


Latin AmericaAMEA
Reported net sales improved 17.3%5.5% due to increased volume as a result ofgrowth in cereal, snacks, and noodles during the Parati acquisition and the impact of favorable pricing/mix. This wasyear-to-date period, 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 comparableOrganic net sales increased 2.3%,9.7% after excluding the impact of foreign currency.


GrowthCereal net sales growth for the region was driven by elevated demand for at-home consumption of our products in cerealdeveloped markets, primarily Japan and Australia, as well as emerging markets in our MENAT business.

Snacks net sales increased despite pandemic-related disruptions, slowing economies in the region, and unfavorable foreign currency. Growth was led by IndiaPringles, which gained share in in key markets within Asia, Africa, and Korea. Australia, our largest market in the region, gained shareMiddle East.

Noodles net sales growth 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.

Outsideexpansion of our reported results, our joint venturesbusiness in West Africathe Middle East and China continued to perform extremely well. Growth was driven by strong noodles volume in West Africa and e-commerce sales in China.South Africa.


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 million after excluding the impact of mark-to-market, restructuring charges, and foreign currency.


Margin performance
Margin performance for the quarter and year-to-date periods of 2017 versus 2016 is as follows:
Quarter20172016
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 margin39.4 %39.4 %—
Foreign currency impact—
 —
Currency-neutral comparable gross margin39.4 %

—
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 margin14.2 %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 margin17.6 %14.8 %2.8
Foreign currency impact—
 —
Currency-neutral comparable operating margin17.6 %

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 pointsdecreased 2.0% due primarily to the negative 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 washigher business and portfolio realignment charges, partially offset by the impact of productivity and cost-savings under the Project K restructuring program, lower restructuring charges, and acquisitions.higher net sales volume. Currency-neutral comparable gross margin was flat compared to the third 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 pointsadjusted operating profit increased 4.9%, after excluding the impact of restructuring, mark-to-market,business and acquisitions.portfolio realignment, Project K, and foreign currency.


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Corporate
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-date20172016
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 margin39.2 %39.0 %0.2
Foreign currency impact—
 —
Currency-neutral comparable gross margin39.2 % 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 margin13.1 %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 margin17.0 %15.2 %1.8
Foreign currency impact—
 —
Currency-neutral comparable operating margin17.0 % 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 flatincreased $14 million versus the comparable prior year period. The impact of productivityyear-to-date period due primarily to lower business and cost-savings under Project K, favorable net inputportfolio realignment costs lower restructuring costs, and Venezuela remeasurement wereduring the current year, partially offset by higher performance-based compensation costs. Currency-neutral adjusted operating profit decreased $23 million from 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 theprior 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,business and acquisitions.portfolio realignment and foreign currency.


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.

Margin performance
Our currency-neutral comparableadjusted gross profit currency-neutral comparable SG&A, and currency-neutral comparable operatinggross profit measuresmargin performance for the quarter ended September 26, 2020 and September 28, 2019 are reconciled to the directly comparable GAAP measures as follows:

 Quarter endedYear-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 impact10
 (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 impact6


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)
Acquisitions2
—
12
—
Venezuela operations impact—
3
—
8
Venezuela remeasurement—
—
—
(13)
Comparable operating profit$568
$480
$1,624
$1,504
Foreign currency impact4
 (11) 
Currency-neutral comparable operating profit$564


$1,635


Quarter endedSeptember 26, 2020September 28, 2019GM change vs. prior
year (pts.)
Gross Profit (a)Gross Margin (b)Gross Profit (a)Gross Margin (b)
Reported$1,200 35.0 %$1,000 29.7 %5.3 
Mark-to-market11 0.3 %(12)(0.3)%0.6 
Project K— — %(13)(0.4)%0.4 
Brexit impacts— — %(1)(0.1)%0.1 
Business and portfolio realignment— — %(3)— %— 
Multi-employer pension plan withdrawal— — %(132)(4.0)%4.0 
Foreign currency impact(10)0.1 %— — %0.1 
Currency-neutral adjusted$1,199 34.6 %$1,162 34.5 %0.1 
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 favorable 530 basis points due primarily to lower charges for multi-employer pension plan withdrawal, favorable year-over-year mark-to-market impacts, partially offset by incremental COVID-19-related costs during the current quarter. Currency-neutral adjusted gross margin increased 10 basis points compared to the third quarter of 2019 after eliminating the impact of multi-employer pension plan withdrawal, mark-to-market, Project K, and foreign currency.

Our currency-neutral adjusted gross profit and gross profit margin performance for the year-to-date periods ended September 26, 2020 and September 28, 2019 are reconciled to the directly comparable GAAP measures as follows:
Year-to-date period endedSeptember 26, 2020September 28, 2019GM change vs. prior
year (pts.)
Gross Profit (a)Gross Margin (b)Gross Profit (a)Gross Margin (b)
Reported$3,542 34.4 %$3,293 31.8 %2.6 
Mark-to-market(10)(0.1)%(7)(0.1)%— 
Project K— — %(30)(0.3)%0.3 
Brexit impacts— — %(7)— %— 
Business and portfolio realignment(4)— %(11)(0.1)%0.1 
Multi-employer pension plan withdrawal5 — %$(132)(1.3)%1.3 
Foreign currency impact(59)0.1 %— — %0.1 
Currency-neutral adjusted$3,610 34.4 %$3,481 33.6 %0.8 
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 year-to-date period increased 260 basis points due primarily to operating leverage as a result of higher net sales, lower charges for multi-employer pension plan withdrawal, and Project K, partially offset by incremental COVID-19-related costs, and unfavorable foreign currency. Currency-neutral adjusted gross margin increased 80 basis points compared to the prior year-to-date period after eliminating the impact of multi-employer pension plan withdrawal, Project K, and foreign currency.

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Restructuring and cost reduction activitiesPrograms
We view our restructuring and cost reduction activitiesprograms 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-year3 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. We continually evaluate potential restructuring programs 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,During the second quarter of 2019, the Company announced an expansion and an extensiona reorganization plan for the European reportable segment designed to its previously-announced globalsimplify the organization, increase organizational efficiency, and effectivenessenhance key processes. The overall program (“Project K”), to reflect additional and changed initiatives. Project K is

expected to continue generatingbe substantially completed by the end of fiscal year 2020.

The program is expected to result in cumulative pretax charges of approximately $40 million, including certain non-cash credits. Cash costs are expected to be approximately $50 million. The total expected charges will include severance and other termination benefits; and charges related to relocation, third party legal and consulting fees, and contract termination costs. Annual savings from the program are expected to be approximately $35 million, with the majority of the savings realized by the end of 2020. Since inception, the Company has recognized total charges, including non-cash credits, of $41 million attributed to this initiative.

Additionally during the second quarter of 2019, the Company announced a significant amountreorganization plan which primarily impacted the North America reportable segment. The reorganization plan was designed to simplify the organization that supports the remaining North America reportable segment after the divestiture and related transition. This program is expected to be substantially completed by the end of fiscal year 2020.
The overall program is expected to result in cumulative pretax charges of approximately $25 million. Cash costs are expected to approximate the pretax charges. Total expected charges will include severance and other termination benefits and charges related to third party consulting fees. Annual savings that mayfrom the project are expected to be invested in key strategic areasapproximately $50 million, with the majority of focus for the businesssavings realized by the end of 2020. Since inception, the Company has recognized total charges of $21 million attributed to drive future growth or utilized to achieve our 2018 Margin Expansion target.this initiative.
In addition to the original program’s focus on strengthening existing businessesprojects discussed above, during the year-to-date period ended September 26, 2020 the Company also incurred restructuring costs of $4 million in core markets, increasing growththe Latin America reportable segment and $8 million in developingthe AMEA reportable segment related to reorganization and emerging markets,simplification of those businesses. These costs primarily relate to severance and driving an increased levelother termination benefits.
Project K
As 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,end of 2019, the Company completed implementation of all Project K has provided significant benefits and is expected to continue to provide a number of benefits in the future, including an optimized supply chain infrastructure, the implementation of global business services, a new global focus on categories, increased agility from a more efficient organization design, and improved effectiveness in go-to-market models.
We currently anticipate that Project K will result in total pre-taxinitiatives. Total project charges, once all phases are approved and implemented, of $1.5 to $1.6 billion, with after-tax cash costs including incremental capital investments, estimated to be approximately $1.1 billion. Cash expenditures of approximately $725 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 the balance thereafter. Total charges forannual savings delivered by Project K were in 2017 are expected to be approximately $325 to $375 million.line with expectations.
We expect annual cost savings generated from Project K will be approximately $600 to $700
During the quarter and year-to-date period ended September 28, 2019, the Company recorded total net charges of $15 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$38 million, of annual savings through the end of 2016. Cost savings have been utilized to increase margins and be strategically invested in areas such as in-store execution, sales capabilities, including adding sales representatives, re-establishing the Kashi business unit, and in the design and quality of our products. We have also invested in production capacity in developing and emerging markets, and in global category teams.
We funded much of the initial cash requirements for Project K through our supplier financing initiative. We are now able to fund much of the cash costs for the project through cash on hand as we have started to realize cash savings from the project.
We also expect that the project will have an impact on our consolidated effective income tax rate during the execution of the project due to the timing of charges being taken in different tax jurisdictions. The impact of this project on our consolidated effective income tax rate will be excluded from the comparable income tax rate that will be disclosed on a quarterly basis.
Refer to Note 5 within Notes to Consolidated Financial Statements for further informationrespectively related to Project K and other restructuring activities.K.


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, includingprimarily in the euro, British pound, Mexican peso, Australian dollar, Canadian dollar, Mexican pesoBrazilian 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 quarters ended September 26, 2020 and September 28, 2019, interest expense was $63 million and $72 million, respectively. For the year-to-date periods ended September 30, 201726, 2020 and October 1, 2016,September 28, 2019, interest expense was $188$196 million and $343$221 million, respectively. PriorThe decrease from the prior year interest expense includes $153 million charge to redeem $475 million of 7.45% U.S. Dollar Debenturesis due 2031. The charge consisted primarily of a premium on the tender offer and also including accelerated losses on pre-issuance interest rate hedges, acceleration of fees and debt discount on the redeemed debt and fees.

For the full year 2017, we expect gross interest expense to be approximately $255 million. Full year interest expense for 2016 was $406 million, including $153 million related to the tender offer.redemption of approximately $1.0 billion of debt in conjunction with the July 2019 divestiture.

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Income taxesTaxes
Our reported effective tax rate for the quarters ended September 30, 201726, 2020 and October 1, 2016September 28, 2019 was 26%16% and 18%27%, respectively. The reported effective tax rate for the year-to-date periods ended September 30, 201726, 2020 and October 1, 2016September 28, 2019 was 23%20% 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 quarter was favorably impacted by the reversal of a liability for uncertain tax positions of $32 million, resulting from the finalization of a tax examination. The liability was related to the Company's estimate of the transition tax liability in conjunction with the finalization of accounting under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and year-to-date periods ended October 1, 2016, benefited from excess tax benefits from share-based compensation and the completion of certain tax examinations. Refer to Note 10 within Notes to Consolidated Financial Statements for further information.

Jobs Act.
The comparableadjusted effective tax rate for the quarters ended September 30, 201726, 2020 and October 1, 2016September 28, 2019 was 28%23% and 20%18%, respectively. The comparableadjusted effective tax rate for the year-to-date periods ended September 30, 201726, 2020 and October 1, 2016September 28, 2019 was 25%23% and 24%20%, 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 endedYear-to-date period ended
Consolidated results (dollars in millions)September 26,
2020		September 28,
2019		September 26,
2020		September 28,
2019
Reported income taxes$65 $91 $268 $237 
Mark-to-market1 5 (19)3 
Project K— (4)— (8)
Brexit impacts— — — (1)
Business and portfolio realignment— (12)(4)(39)
Multi-employer pension plan withdrawal— (31)1 (31)
Gain on divestiture— 55 — 55 
U.S. Tax Reform(32)— (32)— 
Adjusted income taxes$97 $78 $323 $258 
Reported effective income tax rate15.6 %26.7 %20.1 %22.2 %
Mark-to-market— %— %(0.3)%— %
Project K— %— %— %— %
Brexit impacts— %— %— %0.1 %
Business and portfolio realignment— %(1.8)%— %(0.7)%
Multi-employer pension plan withdrawal— %1.3 %— %(0.1)%
Gain on divestiture— %9.3 %— %3.3 %
U.S. Tax Reform(7.8)%— %(2.3)%— %
Adjusted effective income tax rate23.3 %17.9 %22.7 %19.6 %
The followingNote: Tables may not foot due to rounding.
For more information on the reconciling items in the table provides a reconciliation of as reportedabove, please refer to comparable income taxes and effective tax rate for the quarter and year-to-date periods ended September 30, 2017 and October 1, 2016.Significant items impacting comparability section.

 Quarter endedYear-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 activities2
(11)(78)(43)
Other costs impacting comparability—
—
—
(54)
Venezuela operations impact—
1
—
2
Comparable income taxes$140
$85
$365
$321
Reported effective income tax rate26.3 %17.5 %22.9 %22.3 %
Mark-to-market(2.0)%(1.8)%(1.0)%(0.3)%
Project K and cost reduction activities0.5 %(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 rate27.8 %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 rateApprox.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.


Liquidity and capital resources
At this time, the COVID-19 pandemic has not materially impacted our liquidity and we anticipate current cash and marketable security balances, operating cash flows, together with our credit facilities and other financing sources including commercial paper, credit and bond markets, will be adequate to meet our operating, investing and financing needs. We expect cash provided by operating activities of $1.8-$1.9 billion and capital expenditures of approximately $500 million in 2020. We currently have $2.5 billion of unused revolving credit agreements, including $1.5 billion effective through 2023 and $1.0 billion effective through January 2021, as well as continued access to the commercial paper markets. We are currently in compliance with all debt covenants and do not have material uncertainty about our ability to maintain compliance in future periods. In May, we issued $500 million of ten-year 2.10% Notes in anticipation of our $600 million December maturity. We continue to utilize available capacity within the Monetization Programs to maintain financial flexibility without negatively impacting working capital. Additionally, we utilized certain aspects of the Coronavirus Aid, Relief and Economic Security Act, to delay the employer share of certain U.S. payroll taxes until 2021 and 2022. Our utilization does not include a government loan and is not expected to result in any restrictions on the Company’s decisions on executive compensation, payment of dividends, or share buy-back programs.
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As the impact of COVID-19 on the economy and our operations evolves, we will continue to assess our liquidity needs. 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.

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, weThe impacts of the extended customer terms program and the monetization programs on core working capital are largely offsetting. 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$1.3 billion and $1.7$0.9 billion as of September 30, 201726, 2020 and October 1, 2016,September 28, 2019, respectively.


We believe that ourThe following table reflects net debt amounts:
(millions, unaudited)September 26, 2020December 28, 2019
Notes payable$116 $107 
Current maturities of long-term debt1,417 620 
Long-term debt7,000 7,195 
Total debt liabilities$8,533 $7,922 
Less:
Cash and cash equivalents(1,329)(397)
Marketable securities(250)— 
Net debt$6,954 $7,525 

The decrease in net debt from the prior year-end is primarily due to increased operating cash flows, together withflow as the increase in cash and cash equivalents and marketable securities balances more than offset the $500 million debt issue during the second quarter. Marketable securities consists of our credit facilities and other availableinvestment in a mutual fund holding short-term debt financing, will be adequateinstruments, which we expect to meethold until 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.December 2020 debt maturity.


The following table sets forth a summary of our cash flows:
Year-to-date Period ended Year-to-date period ended
(millions)September 30, 2017October 1, 2016(millions)September 26, 2020September 28, 2019
Net cash provided by (used in): Net cash provided by (used in):
Operating activities$1,121
$1,021
Operating activities$1,593 $925 
Investing activities(363)(381)Investing activities(649)931 
Financing activities(815)(521)Financing activities21 (1,731)
Effect of exchange rates on cash and cash equivalents44
(24)Effect of exchange rates on cash and cash equivalents(33)7 
Net increase (decrease) in cash and cash equivalents$(13)$95
Net increase (decrease) in cash and cash equivalents$932 $132 
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.
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Net cash provided by our operating activities for the year-to-date period ended September 30, 2017,26, 2020, totaled $1,121$1,593 million an increase of $100 million over the same period in 2016. Pre-tax cash costs totaling $144compared to $925 million in the year-to-date period ended October 1, 2016prior year period. The increase is due primarily to increased profitability, and lower cash outflows related to the $475 million redemption of our 7.45% U.S. Dollar Debentures due 2031restructuring 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 well as a lower year-over-year cash flow impact from the supplier financing initiative.business realignment.
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.
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 zeroapproximately negative 10 days and 3negative 5 days for the 12 month periods ended September 30, 201726, 2020 and October 1, 2016,September 28, 2019, respectively. Compared withThe improvement from the 12 month period ended October 1, 2016,prior year is due primarily to improvement in the 2017 cash conversion cycle was positively impacted by an increase in thenumber of days of trade payables outstanding attributablewhich results from a decrease in charges related to a supplier financing initiative.prior restructuring activity.
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.
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  Year-to-date period ended
(millions)September 30, 2017October 1, 2016Approximate 2017 full year guidance(millions)September 26, 2020September 28, 2019
Net cash provided by operating activities$1,121
$1,021
$1,600-$1,700Net cash provided by operating activities$1,593 $925 
Additions to properties(374)(376)(500)Additions to properties(326)(436)
Cash flow$747
$645
$1,100-$1,200Cash flow$1,267 $489 
Our non-GAAP measure for cash flow increased to $1,267 million in the year-to-date period ended September 26, 2020, from $489 million in the prior year period due primarily to increased profitability, divestiture-related restructuring costs in the prior year, and lower capital expenditures.

Investing activities
Our net cash used in investing activities totaled $363$649 million for the year-to-date period ended September 30, 201726, 2020 compared to $381cash provided of $931 million in the same periodcomparable prior year period. The decrease is due primarily to proceeds from the sale of 2016. The slight decrease was primarily dueselected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to an $18 million acquisitionFerrero for approximately $1.3 billion in cash in the prior year and the purchase of marketable securities during the first quarter of 2016.current year-to-date period as we invested in a mutual fund holding short-term debt instruments that we expect to hold until our December debt maturity.

Financing activities
Our net cash used inprovided by financing activities for the year-to-date period ended September 30, 201726, 2020 totaled $815$21 million compared to $521cash used of $1,731 million induring the samecomparable prior year period, of 2016. The difference is due primarily to lower proceeds from issuance of

common stock related primarily to option exercises. Proceeds fromthe issuance of common stock was $87 million in the current year-to-date period compared to $356 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. Dollar2.10% Notes due 2030 in May 2020 and $650 milliondebt redemptions during the third quarter 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 2031.2019.


In December 2015,2017, the board of directors approved an authorization to repurchase up to $1.5 billion of our common stock beginning in January 2018 through December 2019. In February 2020, the board of directors approved a new authorization to repurchase up to $1.5 billion in shares beginning in 2016of the Company's common stock through December 2017.2022. These authorizations are intended to allow us to repurchase shares for general corporate purposes and to offset issuances for employee benefit programs. Total purchases for the year-to-date period ended September 30, 2017,28, 2019, were 74 million shares for $516$220 million. Total purchases forThe Company did not purchase shares in the year-to-date period ended October 1, 2016, were 6 millionSeptember 26, 2020 and does not expect to purchase shares for $426 million.during the remainder of 2020.


We paid cash dividends of $550$586 million in the year-to-date period ended September 30, 2017,26, 2020, compared to $533$574 million during the same period in 2016.comparable prior year period. The increase in dividends paid reflects our third quarter 2016of 2019 increase in the quarterly dividend to $.52$.57 per common share from the previous $.50$.56 per common share.share. In October 2017,2020, the board of directors declared a dividend of $.54$.57 per common share, payable on December 15, 20172020 to shareholders of record at the close of business on December 1, 2017.  The dividend is broadly in line with our current plan to maintain our long-term dividend pay-out of approximately 50% of comparable net income.2020.


In February 2014, weWe entered into an unsecured five year credit agreement expiringFive-Year Credit Agreement in 2019, which allowsJanuary 2018, allowing us to borrow, on a revolving credit basis, up to $2.0 billion.$1.5 billion and expiring in January 2023.


In January 2017,2020, 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 2020.

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The new credit facility containsFive-Year and 364 Day Credit Agreements, which had no outstanding borrowings as September 26, 2020, contain 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 agentagents may terminate the commitments under the credit facility,facilities, accelerate any outstanding loans under the agreement,agreements, and demand the deposit of cash collateral equal to the lender's letter of credit exposure plus interest.

Our 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 and also contain a change of control provision. There are no borrowings outstanding undersignificant restrictions on the new credit facility.
payment of dividends. We arewere in compliance with all debt covenants. We continue to believecovenants as of September 26, 2020.

The Notes do not contain acceleration of maturity clauses that we will be able to meetare dependent on credit ratings. A change in our interest and principal repayment obligations and maintain our debt covenants for the foreseeable future. We expectcredit ratings could limit our access to publicthe U.S. short-term debt market and/or increase the cost of refinancing long-term debt in the future. However, even under these circumstances, we would continue to have access to our 364-Day Credit Facility, which expires in January 2021, as well as our Five-Year Credit Agreement, which expires in January 2023. This source of liquidity is unused and commercial paper markets, along with operating cash flows, will be adequateavailable on an unsecured basis, although we do not currently plan to meet future operating, investinguse it.

Monetization and financing needs, including the pursuit of selected acquisitions.Accounts Payable programs
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 executedWe have a discrete customer program toin which customers could extend customertheir 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 agreementagreements 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 agreementthe Monetization Programs are accounted for as sales of receivables resulting in the receivables being de-recognized from our Consolidated Balance Sheet. The agreement providesMonetization 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 tomove 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$929 million and $774 million remained outstanding under this arrangement as of September 30, 2017.26, 2020 and December 28, 2019, 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 intendedMonetization Programs are designed to directly offset the impact that extended customer payment termsthe Extended Terms Program would have on ourthe days-sales-outstanding (DSO) metric that is critical to the effective management of ourthe Company's accounts receivable balance and our overall working capital. Consequently, we realize no negative effect on our net income or cash flow associatedCurrent DSO levels within North America are consistent with the extended customer payment terms. The maximum funding from receivables that may be sold at any time is currently $600 million, but may be increased as additional financial institutions are addedDSO levels prior to the agreement. We currently estimate thatexecution of 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 millionExtended Term Program and a deferred purchase price asset of approximately $47 million.Monetization Programs.

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


Accounting standardsWe periodically monitor our supplier payment terms to be adoptedassess whether our terms are competitive and in future periods
Derivatives and Hedging: Targeted Improvementsline with local market terms. To the extent that such assessment indicates that our supplier payment terms are not aligned with local market terms, we may seek to Accounting for Hedging Activities. In August 2017, the FASB issued an ASU intended to simplify hedge accounting by better aligning an entity’s financial reporting for hedging relationships with its risk management activities. The ASU also simplifies the application of the hedge accounting guidance. The new guidance is effective on January 1, 2019, with early adoption permitted. For cash flow hedges existing at the adoption date, the standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment to the Consolidated Balance Sheetadjust our terms, including extending or shortening our payment due dates 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.

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. We will adopt the ASU in the first quarter of 2018. Ifappropriate, however, we had adopted the ASU in the first quarter of 2017, on an as reported basis, the impact to our Corporate segment would have been an increase to COGS and SG&A of $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 to OIE of $142 million. Adoption 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.

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 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 ASUsupplier payment term modifications to have a material impact on our cash flows during 2020.

We have agreements with third parties (Accounts Payable Program) to provide accounts payable tracking systems which facilitate participating suppliers’ ability to monitor and, if elected, sell our payment obligations to designated third-party financial statements.

In May 2014,institutions. Participating suppliers may, at their sole discretion, make offers to sell one or more of our payment obligations prior to their scheduled due dates at a discounted price to participating financial institutions. Our goal is to capture overall supplier savings, in the FASB issued an ASU which provides guidance for accounting for revenueform of payment terms or vendor funding, and the agreements facilitate the 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. Our obligations to our suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to sell amounts under the arrangements. However, our right to offset balances due from contracts with customers. The core principle of this ASUsuppliers against payment obligations is that an entity should recognize revenue to depictrestricted by the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled in exchangeagreements for those goods or services. To achievepayment obligations that core principle, an entity would be requiredhave been sold by suppliers.

Refer to apply the following five steps: 1) identify the contract(s) with a customer; 2) identify the performance obligationsNote 1 within Notes to Consolidated Financial Statements for further information related to accounts payable.
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If financial institutions were to terminate their participation in the contract; 3) determine the transaction price; 4) allocate the transaction priceMonetization Programs and we are not able to the performance obligationsmodify related customer payment terms, working capital could be negatively impacted. Additionally, working capital could be negatively impacted if we shorten our supplier payment terms as a result of supplier negotiations. For suppliers participating in the contractAccounts Payable Programs, financial institutions may terminate their participation or we could experience a downgrade in our credit rating that could result in higher costs to suppliers. If working capital is negatively impacted as a result of these events and 5) recognize revenue when (or as) the entity satisfies a performance obligation. When the ASU was originally issued it was effectivewe were unable to secure alternative programs, we may have to utilize our various financing arrangements 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 retrospectivelyshort-term liquidity or use a modified retrospective method, recognizing the cumulative effect of the ASU in retained earnings at the date of initial application. An entity will not restate prior periods if it uses the modified retrospective method, but will be required to disclose the amount by which each financial statement line item is affected in the current reporting period by the application of the ASU as compared to the guidance in effect prior to the change, as well as reasons for significant changes. Based upon the Company's preliminary assessment, there will be some limited timing and classification differences upon adoption. The Company will adopt the updated standard in theincrease our long-term borrowings.


first quarter of 2018, using a modified retrospective transition method, and the adoption is not expected to have a material impact on its financial statements.

Future outlook
We affirm ourThe Company raised full-year guidance, for currency-neutral comparablereflecting net sales and profit over-delivery during the third quarter. The Company has made certain assumptions about the fourth quarter amidst an uncertain environment. Notably, the Company assumes at-home consumption growth will moderate in the fourth quarter, with away-from-home demand taking longer to stabilize, and emerging markets growth decelerating in the quarter. In addition, we expect advertising and promotion costs to increase during the fourth quarter and continued incremental COVID-19-related costs.

Specifically, based on these assumption, the revised guidance ranges are:

Organic net sales growth for the full year is projected to be approximately 6%, versus previous guidance of 5% growth.

Currency-neutral adjusted operating profit is expected to increase approximately 2%, versus previous guidance of a 1% decline, 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 guidance for about 3% decline in currency-neutral comparable net sales in 2017. This figure includesstill weighed down by the expected (1%) impactabsence of results from the U.S. Snacks transitiondivested businesses.

Currency-neutral adjusted EPS for the full year is expected to warehouse distribution from DSD, an estimate that has not changed.

Guidance is affirmed for currency-neutral comparable operating profit, which we believe will grow 7-9% year on year, as productivity savings offset the impactincrease by approximately 2%, versus previous guidance 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 driven1% decline, and still weighed down by the aforementioned 7-9% growth inabsence of results from the divested businesses.

Cash provided by operating profit, with roughly 1%activities is projected to be $1.8-$1.9 billion, versus previous guidance 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 shareapproximately $1.6 billion. Capital expenditures are expected to be $4.00-4.06.approximately $0.5 billion, versus previous guidance of $0.6 billion as certain capital projects were delayed as a result of the pandemic. Cash flow, defined as cash provided by operating activities reduced by capital expenditures, is projected to be $1.3-$1.4 billion, versus previous guidance of $1.0 billion, reflecting third quarter performance partially offset by lower anticipated fourth quarter earnings.


Comparable-basis and currency-neutral comparable-basis earnings per shareExcluded from this guidance by definition exclude up-front costs, principallyare significant supply chain or other prolonged market disruptions related to the Project K program. These up-front costspandemic or global economy.

We are now expectedunable to be after-tax $(0.65)-(0.75) per share, or $(325)-(375) million pretax, down from previous guidancereasonably estimate the potential full-year financial impact of $(0.80)-(0.90) per share after taxmark-to-market adjustments because these impacts are dependent on future changes in market conditions. Similarly, because of volatility in foreign exchange rates and $(400)-(450) million pretax. The EPS guidance also continues to exclude integration costs, related to the Company's acquisitionshifts in Brazil, as well as previous acquisitions. These integration costs are now expected to come in toward the low endcountry mix of our previousinternational earnings, we are unable to reasonably estimate the potential full-year financial impact of foreign currency translation. 
As a result, these impacts are not included in the guidance rangeprovided. Therefore, we are unable to provide a full reconciliation of $(0.01)-(0.03) per share after-tax.

We also affirmedthese non-GAAP measures used in our guidance for 2017 cash flow. Specifically, cash from operating activities shouldwithout 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 cannot be approximately $1.6-1.7 billion, which after capital expenditure translates into cash flowpredicted without unreasonable efforts by the Company.
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Reconciliation of Non-GAAP amounts - 2017 Full Year Guidance*   
 Net salesOperating profitEPS
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
See the table below that outlines the projected impact of certain other items that are excluded from non-GAAP guidance for 2020:
Impact of certain items excluded from Non-GAAP guidance:Net SalesOperating ProfitEarnings Per Share
Business and portfolio realignment (pre-tax)~$40-$50M~$0.12-$0.15
Income tax impact applicable to adjustments, net**~$0.02-$0.03
U.S. Tax Reform~$0.09
Currency-neutral adjusted guidance*~3-4%~2%~2%
Absence of results from divested business~4%
53rd Week(1)-(2)%
Organic guidance*~6%
* 20172020 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 2020 include impacts of 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
(billions)ApproximateFull Year 2020
(millions)Full Year 2017
Net cash provided by (used in) operating activities~$1,600 - $1,7001.8-1.9
Additions to properties~($500)0.5)
Cash Flow~$1,100 - $1,2001.3-1.4



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),restructuring programs, the integration of acquired businesses, our strategy, zero-based budgeting, financial principles, and plans;plans, initiatives, improvements and growth; sales, gross margins, advertising, promotion, merchandising, brand building, operating profit, and earnings per share; innovation; investments; capital expenditures;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;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,” “estimate,” “project,” “should,” “estimate,” or words or phrases of similar meaning. For example, forward-looking statements are found in this 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 other factors, including:
including uncertainty of the magnitude, duration, geographic reach, impact on the global economy and current and potential travel restrictions of the COVID-19 outbreak, the current, and uncertain future, impact of the COVID-19 outbreak on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results), and cash flows and liquidity, 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 risk that disruptions from the divestiture will divert management's focus or harm our 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 our provision of transition services to the divested businesses post-closing, the ability to implement Project K, including exiting our Direct-Store-Door distribution system,restructuring as planned, whether the expected amount of costs associated with Project Krestructuring will exceeddiffer from forecasts, whether the Companywe will be able to realize the anticipated benefits from Project Krestructuring 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;
expected, the ability to realize the anticipated benefits and synergies from acquired businessesbusiness acquisitions in the amounts and at the times expected;
expected, the impact of competitive conditions;
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;
intangibles, the success of productivity improvements and business transitions;
transitions, commodity and energy prices;
prices, transportation costs, labor costs;
costs, disruptions or inefficiencies in supply chain;
chain, the availability of and interest rates on short-term and long-term financing;
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financing, actual market performance of benefit plan trust investments;
investments, the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs;
costs, changes in consumer behavior and preferences;
preferences, the effect of U.S. and foreign economic conditions on items such as interest rates, statutory tax rates, currency conversion and availability;
availability, legal and regulatory factors including changes in food safety, advertising and labeling laws and regulations;
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,in Item 1A.
1A below. 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 20162019 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 30, 2017.26, 2020.

Volatile market conditions arising from the COVID-19 pandemic may result in significant changes in foreign exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our net sales and operating profit when translated to U.S. dollars.  Primary exposures include the U.S. dollar versus the euro, British pound, Australian dollar, Canadian dollar, Mexican peso, Brazilian real, Nigerian naira, Russian ruble and Egyptian pound, and in the case of inter-subsidiary transactions, the British pound versus the euro. There is significant uncertainty surrounding the impact of COVID-19 on financial markets and we will continue to monitor the business for adverse impacts related to the pandemic. 

During 2017, we2020, we've entered into forward starting interest swaps with notional amounts totaling €300€250 million and $550 million, as hedges against interest rate volatility associated with a forecasted issuance of fixed rate Euro debt to be used for general corporate purposes.and U.S. Dollar denominated debt. These swaps were designated as cash flow hedges. The EuroIn May of 2020, the Company issued $500 million of ten-year 2.10% Notes due 2030, resulting in net proceeds after debt discount of $496 million. In connection with this debt issuance, the company terminated forward starting interest rate swaps with notional amounts totaling $500 million, resulting in a $51 million loss. These forward starting interest rate swaps were settled upon issuance of fixed rate Euro debt. A resulting aggregate gain of $1 millionaccounted for as cash flow hedges and the related loss was recorded in accumulated other comprehensive income (loss) and will be amortized asto interest expense over the lifeterm of the related fixedNotes.

We have interest rate debt. Refer to Note 7 within Notes to Consolidated Financial Statements for further information related to the fixedcontracts with notional amounts totaling $2.3 billion representing a net settlement receivable of $15 million as of September 26, 2020. We had interest rate debt issuance.contracts with notional amounts totaling $1.9 billion representing a net settlement obligation of $6 million as of December 28, 2019.


During the year-to-date period ended September 30, 2017, we entered into interest rateWe have cross currency swaps with notional amounts totaling approximately €600 million that are designated as fair value hedges of certain Euro debt. Additionally, we settled interest rate 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$1.6 billion outstanding atas of September 30, 2017 and December 31, 2016,26, 2020 representing a net settlement obligationreceivable of $43 million and $64 million, respectively.$89 million. The interest ratetotal notional amount of cross currency swaps are designatedoutstanding as fair value hedges of certain U.S. Dollar and Euro debt. Assuming average variable rate debt levels during the year,December 28, 2019 was $1.5 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 $85 million.

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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 30, 2017,26, 2020, 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
Except as set forth below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.28, 2019. 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.
The COVID-19 pandemic could materially adversely affect our business, financial condition, results of operations and/or cash flows.
The severity, magnitude and duration of the current COVID-19 pandemic is uncertain and rapidly changing.
Measures enacted by authorities, and actions taken by the Company, to mitigate the spread of the COVID-19 pandemic, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns, have impacted and may further impact all or portions of our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers. There is no certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the COVID-19 pandemic, and our ability to perform critical functions could be harmed. A shutdown of one or more of our manufacturing, warehousing or distribution facilities as a result of illness, government restrictions or other workforce disruptions orabsenteeism, or reductions in capacity utilization levels, could result in us incurring additional direct costs and experiencing lost revenue. Illness, travel restrictions or workforce disruptions could negatively affect our supply chain, manufacturing, distribution or other business.The COVID-19 pandemic could disrupt our supply chain, operations and routes to market or those of our suppliers, their suppliers or our brokers or distributors. These disruptions or our failure to effectively respond to them, could increase product or distribution costs, or cause delays or inability to deliver products to our customers. We have experienced temporary disruptions to our supply chain in certain markets that, to date, have not been material to our consolidated results. These disruptions to our work force and supply could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Further, we have delayed certain capital and innovation projects due to the COVID-19 pandemic. Continued disruptions and uncertainties related to the COVID-19 pandemic for a sustained period could result in additional delays or modifications to these projects and other productivity, capital and innovation projects and hinder our ability to achieve the project objectives.
The COVID-19 pandemic has also significantly increased economic and demand uncertainty, including inflation, interest rates, availability of capital markets, consumer spending rates and energy availability and costs (including
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fuel surcharges). We expect the COVID-19 pandemic may result in lower revenues in some of our emerging market countries that have a higher concentration of traditional trade outlets (such as small family-run stores).
The duration and significance of this sustained demand is uncertain. Volatility in financial markets and deterioration of national and global economic conditions could impact our business and operations in a variety of ways, including as follows:
•Consumers may shift purchases to more generic, lower-priced, or other value offerings, or may forego certain purchases altogether during economic downturns, which could result in a reduction in sales of higher margin products or a shift in our product mix to lower margin offerings adversely affecting the results of our operations;
•Disruptions or uncertainties related to the COVID-19 pandemic could result in delays or modifications to our strategic plans and initiatives and hinder our ability to achieve our objective to reduce our operating cost structure in both our supply chain and overhead costs;
•A strengthening in the U.S. dollar relative to other currencies in the countries in which we operate would negatively affect our reported results of operations and financial results due to currency translation losses and currency transaction losses;
•Decreased demand for our products due to unemployment as a result of the COVID-19 pandemic;
•Volatility in commodity and other input costs could substantially impact our result of operations and our commodity hedging activities might not sufficiently offset this volatility;
•Volatility in the equity markets or interest rates could substantially impact our pension costs and required pension contributions; and
•Increased volatility and pricing in the capital markets and commercial paper markets could limit our access to our preferred sources of liquidity when we would like, and our borrowing costs could increase.
These and other impacts of the COVID-19 pandemic could have the effect of heightening many of the other risks described in this “Risk Factors” section of our 10-K, such as those relating to our reputation, brands, product sales, results of operations or financial condition. The severity, magnitude and duration of the current COVID-19 pandemic is uncertain, rapidly changing and depends on events beyond our knowledge or control. We might not be able to anticipate or respond to all impacts on a timely basis to prevent near- or long-term adverse impacts to our results. As a result, the impact of the COVID-19 pandemic could have a material adverse effect on our business, results of operations, financial condition and cash flows.
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 - 7/29/20171.2
$66.82
—
$558
Month #2:    
7/30/2017 - 8/26/2017—
$—
—
$558
Month #3:    
8/27/2017 - 9/30/2017—
$—
—
$558
Total1.2
$66.82
—
 
In December 2015, ourFebruary 2020, the board of directors approved a share repurchase program authorizing usan authorization to repurchase shares of our common stock amountingup to $1.5 billion beginning in January 2016of the Company's common stock through December 2017. This authorization is2022. These authorizations are intended to allow usthe Company to repurchase shares for general corporate purposes and to offset issuances for employee benefit programs. During

The following table provides information with respect to purchases of common shares under programs authorized by our board of directors during the third quarter ended September 26, 2020.

(c) Issuer Purchases of 2017, the Company repurchased 1.2 million shares for a totalEquity 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:
6/28/2020 - 7/25/2020— $— — $1,500 
Month #2:
7/26/2020 - 8/22/2020— $— — $1,500 
Month #3:
8/23/2020 - 9/26/2020— $— — $1,500 
Total— $— — 
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Table of $81 million.Contents


Item 6. Exhibits
(a)Exhibits:         
(a)31.1Exhibits:
31.1Rule 13a-14(e)/15d-14(a) Certification from Steven A. Cahillane
31.2Rule 13a-14(e)/15d-14(a) Certification from Fareed KhanAmit Banati
32.1Section 1350 Certification from Steven A. Cahillane
32.2Section 1350 Certification from Fareed KhanAmit Banati
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

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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
KELLOGG COMPANY/s/ Amit Banati
Amit Banati
/s/ Fareed Khan
Fareed Khan
Principal Financial Officer;

Senior Vice President and Chief Financial Officer
/s/ Donald O. MondanoKurt Forche
Donald O. MondanoKurt Forche
Principal Accounting Officer;

Vice President and Corporate Controller

Date: October 30, 2020
Date: November 3, 2017
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KELLOGG COMPANY
EXHIBIT INDEX
 
Exhibit No.Description
Electronic (E)

Paper (P)

Incorp. By

Ref. (IBRF)
Rule 13a-14(e)/15d-14(a) Certification from Steven A. CahillaneE
Rule 13a-14(e)/15d-14(a) Certification from Fareed KhanAmit BanatiE
Section 1350 Certification from Steven A. CahillaneE
Section 1350 Certification from Fareed KhanAmit BanatiE
101.INSXBRL Instance DocumentE
101.SCHXBRL Taxonomy Extension Schema DocumentE
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentE
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentE
101.LABXBRL Taxonomy Extension Label Linkbase DocumentE
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentE


6255