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)



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

For the quarterly period ended June ~~29, 2019~~27, 2020



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

For the transition period from to

Commission file number 1-4171

KELLOGG COMPANY

State of Incorporation—

Delaware

IRS Employer Identification No.

38-0710690

One Kellogg Square,, P.O. Box 3599,, Battle Creek,, MI49016-3599

Registrant’s telephone number: ~~269~~-~~961-2000~~269-961-2000

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

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $.25 par value per share

New York Stock Exchange

1.750% Senior Notes due 2021

K 21

New York Stock Exchange

0.800% Senior Notes due 2022

K 22A

New York Stock Exchange

1.000% Senior Notes due 2024

K 24

New York Stock Exchange

1.250% Senior Notes due 2025

K 25

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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 ☒

Common Stock outstanding as of ~~July~~June 27, ~~2019~~2020 — ~~340,631,924~~342,919,265 shares

Table of Contents

KELLOGG COMPANY

INDEX



			Page
		PART I — Financial Information
		Item 1:
		Financial Statements
		Consolidated Balance Sheet — June ~~29, 2019~~27 , 2020 and December ~~29, 2018~~28, 2019	3
		Consolidated Statement of Income — quarter and year-to-date ~~periods~~ period s ended June 27 , 2020 and June 29 , 2019 ~~and June 30, 2018~~	4
		Consolidated Statement of Comprehensive Income – quarter and year-to-date ~~periods~~period s ended June ~~29, 2019~~27, 2020 and June ~~30, 2018~~29,2019	5
		Consolidated Statement of Equity — quarter and year-to-date ~~periods~~ period ended June ~~29, 2019~~27 , 2020	6
		Consolidated Statement of Equity — quarter and year-to-date ~~periods~~ period ended June ~~30, 2018~~29 , 2019	76
		Consolidated Statement of Cash Flows — year-to-date periods ended June 27 , 2020 and June 29 , 2019 ~~and June 30, 2018~~	8
		Notes to Consolidated Financial Statements	9
		Item 2:
		Management’s Discussion and Analysis of Financial Condition and Results of Operations	3128
		Item 3:
		Quantitative and Qualitative Disclosures about Market Risk	4947
		Item 4:
		Controls and Procedures	5047
		PART II — Other Information
		Item 1:1A:
		~~Legal Proceedings~~Risk Factors	5148
		Item ~~1A:~~2:
		~~Risk Factors~~	51
~~Item 2:~~
Unregistered Sales of Equity Securities and Use of Proceeds	5149
		Item 6:
		Exhibits	5149
		Signatures	5250
		Exhibit Index	5351

Table of Contents

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Kellogg Company and Subsidiaries

CONSOLIDATED BALANCE SHEET

(millions, except per share data)

June 29,
2019 (unaudited) December 29,
2018
Current assets
Cash and cash equivalents $ 340
$ 321
Accounts receivable, net 1,643
1,375
Inventories 1,234
1,330
Other current assets 175
131
Current assets held for sale 112
—
Total current assets 3,504
3,157
Property, net 3,526
3,731
Operating lease right-of-use assets 415
—
Goodwill 5,871
6,050
Other intangibles, net 2,587
3,361
Investments in unconsolidated entities 407
413
Other assets 1,171
1,068
Noncurrent assets held for sale 1,188
—
Total assets $ 18,669
$ 17,780
Current liabilities
Current maturities of long-term debt $ 508
$ 510
Notes payable 568
176
Accounts payable 2,401
2,427
Current operating lease liabilities 103
—
Other current liabilities 1,409
1,416
Total current liabilities 4,989
4,529
Long-term debt 8,262
8,207
Operating lease liabilities 321
—
Deferred income taxes 778
730
Pension liability 619
651
Other liabilities 488
504
Commitments and contingencies

Equity
Common stock, $.25 par value 105
105
Capital in excess of par value 895
895
Retained earnings 7,858
7,652
Treasury stock, at cost (4,739 ) (4,551 )
Accumulated other comprehensive income (loss) (1,469 ) (1,500 )
Total Kellogg Company equity 2,650
2,601
Noncontrolling interests 562
558
Total equity 3,212
3,159
Total liabilities and equity $ 18,669
$ 17,780


	June 27, 2020 (unaudited)		December 28, 2019
Current assets
Cash and cash equivalents	$	1,047	$	397
Marketable securities	200		—
Accounts receivable, net	1,692		1,576
Inventories	1,230		1,226
Other current assets	323		232
Total current assets	4,492		3,431
Property, net	3,436		3,612
Operating lease right-of-use assets	662		541
Goodwill	5,768		5,861
Other intangibles, net	2,486		2,576
Investments in unconsolidated entities	399		404
Other assets	1,308		1,139
Total assets	$	18,551	$	17,564
Current liabilities
Current maturities of long-term debt	$	1,396	$	620
Notes payable	121		107
Accounts payable	2,393		2,387
Current operating lease liabilities	115		114
Accrued advertising and promotion	694		641
Other current liabilities	1,137		909
Total current liabilities	5,856		4,778
Long-term debt	6,929		7,195
Operating lease liabilities	532		433
Deferred income taxes	597		596
Pension liability	697		705
Other liabilities	534		543
Commitments and contingencies
Equity
Common stock, $.25 par value	105		105
Capital in excess of par value	929		921
Retained earnings	8,166		7,859
Treasury stock, at cost	(4,613)		(4,690)
Accumulated other comprehensive income (loss)	(1,717)		(1,448)
Total Kellogg Company equity	2,870		2,747
Noncontrolling interests	536		567
Total equity	3,406		3,314
Total liabilities and equity	$	18,551	$	17,564

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME

(millions, except per share data)

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

341
346


	Quarter ended						Year-to-date period ended
(unaudited)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net sales	$	3,465	$	3,461	$	6,877	$	6,983
Cost of goods sold	2,268		2,275		4,536		4,690
Selling, general and administrative expense	691		789		1,375		1,515
Operating profit	506		397		966		778
Interest expense	69		75		133		149
Other income (expense), net	30		45		79		97
Income before income taxes	467		367		912		726
Income taxes	109		74		203		146
Earnings (loss) from unconsolidated entities	(4)		(1)		(5)		(3)
Net income	354		292		704		577
Net income attributable to noncontrolling interests	3		6		6		9
Net income attributable to Kellogg Company	$	351	$	286	$	698	$	568
Per share amounts:
Basic earnings	$	1.02	$	0.84	$	2.04	$	1.66
Diluted earnings	$	1.02	$	0.84	$	2.02	$	1.66

Average shares outstanding:
Basic	343		340		342		341
Diluted	345		341		345		342
Actual shares outstanding at period end					343		341

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(millions)

Quarter ended
June 29, 2019
Year-to-date period ended
June 29, 2019
(Results are unaudited) Pre-tax
amount Tax (expense)
benefit After-tax
amount
Pre-tax
amount Tax (expense)
benefit After-tax
amount
Net income $ 292
$ 577
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during period $ (5 ) $ 1
(4 ) $ 61
$ (9 ) 52
Cash flow hedges:
Reclassification to net income 2
(1 ) 1
3
(1 ) 2
Postretirement and postemployment benefits:
Reclassification to net income:
Net experience (gain) loss (1 ) 1
—
(2 ) 1
(1 )
Unrealized gain (loss) on available-for-sale securities 1
—
1
3
—
3
Other comprehensive income (loss) $ (3 ) $ 1
$ (2 ) $ 65
$ (9 ) $ 56
Comprehensive income $ 290
$ 633
Net Income attributable to noncontrolling interests

6
9
Other comprehensive income (loss) attributable to noncontrolling interests —
3
Comprehensive income attributable to Kellogg Company $ 284
$ 621

Quarter ended
June 30, 2018
Year-to-date period ended
June 30, 2018
(Results are unaudited) Pre-tax
amount Tax (expense)
benefit After-tax
amount
Pre-tax
amount Tax (expense)
benefit After-tax
amount
Net income $ 599
$ 1,043
Other comprehensive income (loss):
Foreign currency translation adjustments $ (54 ) $ (46 ) (100 ) $ (24 ) $ (27 ) (51 )
Cash flow hedges:
Unrealized gain (loss) on cash flow hedges 3
(1 ) 2
3
(1 ) 2
Reclassification to net income 2
(1 ) 1
4
(1 ) 3
Postretirement and postemployment benefits:
Reclassification to net income:
Net experience (gain) loss (1 ) —
(1 ) (2 ) —
(2 )
Other comprehensive income (loss) $ (50 ) $ (48 ) $ (98 ) $ (19 ) $ (29 ) $ (48 )
Comprehensive income $ 501
$ 995
Net Income attributable to noncontrolling interests 3
3
Other comprehensive income (loss) attributable to noncontrolling interests (4 ) (4 )
Comprehensive income attributable to Kellogg Company $ 502
$ 996


	Quarter ended June 27, 2020										Year-to-date period ended June 27, 2020
(unaudited)	Pre-tax amount		Tax (expense) benefit		After-tax amount		Pre-tax amount		Tax (expense) benefit		After-tax amount
Net income					$	354					$	704
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during period	$	(20)	$	10	(10)		$	(261)	$	(10)	(271)
Cash flow hedges:
Unrealized gain (loss)	12		(3)		9		(53)		14		(39)
Reclassification to net income	5		(2)		3		7		(2)		5
Postretirement and postemployment benefits:


Reclassification to net income:
Net experience (gain) loss	(1)		1		—		(2)		1		(1)
Prior service cost	(1)		—		(1)		(1)		—		(1)
Available-for-sale securities:
Unrealized gain (loss)	5		—		5		2		—		2

Other comprehensive income (loss)	$	—	$	6	$	6	$	(308)	$	3	$	(305)
Comprehensive income					$	360					$	399
Net Income attributable to noncontrolling interests					3						6
Other comprehensive income (loss) attributable to noncontrolling interests					(4)						(36)
Comprehensive income attributable to Kellogg Company					$	361					$	429

	Quarter ended June 29, 2019										Year-to-date period ended June 29, 2019
(unaudited)	Pre-tax amount		Tax (expense) benefit		After-tax amount		Pre-tax amount		Tax (expense) benefit		After-tax amount
Net income					$	292					$	577
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during period	$	(5)	$	1	(4)		$	61	$	(9)	52
Cash flow hedges:

Reclassification to net income	2		(1)		1		3		(1)		2
Postretirement and postemployment benefits:


Reclassification to net income:
Net experience (gain) loss	(1)		1		—		(2)		1		(1)

Available-for-sale securities:
Unrealized gain (loss)	1		—		1		3		—		3

Other comprehensive income (loss)	$	(3)	$	1	$	(2)	$	65	$	(9)	$	56
Comprehensive income					$	290					$	633
Net Income attributable to noncontrolling interests					6						9
Other comprehensive income (loss) attributable to noncontrolling interests					—						3
Comprehensive income attributable to Kellogg Company					$	284					$	621

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF EQUITY

(millions)


	Quarter ended June 27, 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)	shares	amount									shares		amount
Balance, March 28, 2020	421	$	105	$	911	$	8,010	78	$	(4,625)	$	(1,727)	$	2,674	$	538	$	3,212

Net income						351							351		3		354

Dividends declared ($0.57 per share)						(195)							(195)				(195)
Distributions to noncontrolling interest													—		(1)		(1)
Other comprehensive income											10		10		(4)		6

Stock compensation				18									18				18
Stock options exercised and other				—		—		—	12				12				12
Balance, June 27, 2020	421	$	105	$	929	$	8,166	78	$	(4,613)	$	(1,717)	$	2,870	$	536	$	3,406

Quarter ended June 29, 2019

Common
stock
Capital in
excess of
par value
Retained
earnings

Treasury
stock
Accumulated
other
comprehensive
income (loss)
Total Kellogg
Company
equity
Non-controlling
interests
Total
equity
(unaudited) shares amount shares amount
Balance, March 30, 2019 421
$ 105
$ 877
$ 7,762
80
$ (4,744 ) $ (1,467 ) $ 2,533
$ 564
$ 3,097
Net income 286
286
6
292
Sale of subsidiary shares to noncontrolling interest —
1
1
Dividends declared ($0.56 per share) (188 ) (188 ) (188 )
Distributions to noncontrolling interest —
(9 ) (9 )
Other comprehensive income (2 ) (2 ) (2 )
Stock compensation 16
16
16
Stock options exercised and other 2
(2 ) —
5
5
5
Balance, June 29, 2019 421
$ 105
$ 895
$ 7,858
80
$ (4,739 ) $ (1,469 ) $ 2,650
$ 562
$ 3,212


	Year-to-date period ended June 29, 2019																											Year-to-date period ended June 27, 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				Common stock					Capital in excess of par value		Retained earnings		Treasury stock						Accumulated other comprehensive income (loss)		Total Kellogg Company equity		Non-controlling interests		Total equity
(unaudited)	shares	amount								shares		amount															(unaudited)	shares	amount								shares		amount
Balance, December 29, 2018	421	$	105	$	895		$	7,652		77		$	(4,551	)	$	(1,500	)	$	2,601		$	558		$	3,159
Common stock repurchases										4		(220		)				(220		)				(220		)
Balance, December 28, 2019																											Balance, December 28, 2019	421	$	105	$	921			$	7,859	79		$	(4,690)	$	(1,448)					$	2,747	$	567	$	3,314

Net income							568											568			9			577			Net income						698								698		6		704
Sale of subsidiary shares to noncontrolling interest																		—			1			1
Dividends declared ($1.12 per share)							(380		)									(380		)				(380		)

Dividends declared ($1.14 per share)																											Dividends declared ($1.14 per share)						(390)								(390)				(390)
Distributions to noncontrolling interest																		—			(9		)	(9		)	Distributions to noncontrolling interest														—		(1)		(1)
Other comprehensive income															53			53			3			56			Other comprehensive income												(269)		(269)		(36)		(305)
Reclassification of tax effects relating to U.S. tax reform							22								(22		)	—						—

Stock compensation				29														29						29			Stock compensation				37										37				37
Stock options exercised and other				(29		)	(4		)	(1	)	32						(1		)				(1		)	Stock options exercised and other				(29)		(1)		(1)		77				47				47
Balance, June 29, 2019	421	$	105	$	895		$	7,858		80		$	(4,739	)	$	(1,469	)	$	2,650		$	562		$	3,212
Balance, June 27, 2020																											Balance, June 27, 2020	421	$	105	$	929	$	8,166	78		$	(4,613)	$	(1,717)	$	2,870	$	536	$	3,406

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF EQUITY (cont.)

(millions)


	Quarter ended June 29, 2019
	Common stock					Capital in excess of par value		Retained earnings	Treasury stock						Accumulated other comprehensive income (loss)		Total Kellogg Company equity		Non-controlling interests	Total equity
(unaudited)	shares	amount									shares		amount
Balance, March 30, 2019	421	$	105	$	877	$	7,762	80	$	(4,744)	$	(1,467)	$	2,533	$	564	$	3,097

Net income						286							286		6		292
Sale of subsidiary shares to noncontrolling interest													—		1		1
Dividends declared ($0.56 per share)						(188)							(188)				(188)
Distributions to noncontrolling interest													—		(9)		(9)
Other comprehensive income											(2)		(2)		—		(2)
Reclassification of tax effects relating to U.S. tax reform						—					—		—				—
Stock compensation				16									16				16
Stock options exercised and other				2		(2)		—	5				5				5
Balance, June 29, 2019	421	$	105	$	895	$	7,858	80	$	(4,739)	$	(1,469)	$	2,650	$	562	$	3,212

Quarter ended June 30, 2018

Common
stock
Capital in
excess of
par value
Retained
earnings

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


	Year-to-date period ended June 30, 2018																											Year-to-date period ended June 29, 2019
	Common stock			Capital in excess of par value			Retained earnings			Treasury stock					Accumulated other comprehensive income (loss)			Total Kellogg Company equity			Non-controlling interests			Total equity				Common stock					Capital in excess of par value		Retained earnings		Treasury stock						Accumulated other comprehensive income (loss)		Total Kellogg Company equity		Non-controlling interests		Total equity
(unaudited)	shares	amount								shares		amount															(unaudited)	shares	amount								shares		amount
Balance, December 30, 2017	421	$	105	$	878		$	7,069		75		$	(4,417	)	$	(1,457	)	$	2,178		$	16		$	2,194
Balance, December 29, 2018																											Balance, December 29, 2018	421	$	105	$	895			$	7,652	77		$	(4,551)	$	(1,500)					$	2,601	$	558	$	3,159
Common stock repurchases										1		(50		)				(50		)				(50		)	Common stock repurchases								4		(220)				(220)				(220)
Net income							1,040											1,040			3			1,043			Net income						568								568		9		577
Acquisition of noncontrolling interest - Multipro																		—			552			552
Dividends declared ($1.08 per share)							(374		)									(374		)				(374		)
Sale of subsidiary shares to noncontrolling interest																											Sale of subsidiary shares to noncontrolling interest														—		1		1
Dividends declared ($1.12 per share)																											Dividends declared ($1.12 per share)						(380)								(380)				(380)
Distributions to noncontrolling interest																		—			(1		)	(1		)	Distributions to noncontrolling interest														—		(9)		(9)
Other comprehensive income															(44		)	(44		)	(4		)	(48		)	Other comprehensive income												53		53		3		56
Reclassification of tax effects relating to U.S. tax reform																											Reclassification of tax effects relating to U.S. tax reform						22						(22)		—				—
Stock compensation				30			—											30						30			Stock compensation				29										29				29
Stock options exercised and other				(42		)	8			(2	)	92						58						58			Stock options exercised and other				(29)		(4)		(1)		32				(1)				(1)
Balance, June 30, 2018	421	$	105	$	866		$	7,743		74		$	(4,375	)	$	(1,501	)	$	2,838		$	566		$	3,404
Balance, June 29, 2019																											Balance, June 29, 2019	421	$	105	$	895	$	7,858	80		$	(4,739)	$	(1,469)	$	2,650	$	562	$	3,212

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) June 29,
2019 June 30,
2018
Operating activities
Net income $ 577
$ 1,043
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization 243
234
Postretirement benefit plan expense (benefit) (65 ) (86 )
Deferred income taxes 23
69
Stock compensation 29
30
Gain on unconsolidated entities, net —
(200 )
Other 1
(67 )
Postretirement benefit plan contributions (12 ) (274 )
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables (239 ) (83 )
Inventories (6 ) (38 )
Accounts payable 29
64
All other current assets and liabilities (60 ) (245 )
Net cash provided by (used in) operating activities 520
447
Investing activities
Additions to properties (294 ) (270 )
Acquisitions, net of cash acquired (8 ) (28 )
Investments in unconsolidated entities

—
(388 )
Acquisition of cost method investments —
(4 )
Purchases of available for sale securities (16 ) —
Sales of available for sale securities 16
—
Other (25 ) 29
Net cash provided by (used in) investing activities (327 ) (661 )
Financing activities
Net issuances (reductions) of notes payable 391
(76 )
Issuances of long-term debt 28
993
Reductions of long-term debt —
(401 )
Net issuances of common stock 12
70
Common stock repurchases (220 ) (50 )
Cash dividends (380 ) (374 )
Other (8 ) —
Net cash provided by (used in) financing activities (177 ) 162
Effect of exchange rate changes on cash and cash equivalents 3
28
Increase (decrease) in cash and cash equivalents 19
(24 )
Cash and cash equivalents at beginning of period 321
281
Cash and cash equivalents at end of period $ 340
$ 257

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

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


	Year-to-date period ended
(unaudited)	June 27, 2020		June 29, 2019
Operating activities
Net income	$	704	$	577
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization	234		243
Postretirement benefit plan expense (benefit)	(58)		(65)
Deferred income taxes	23		23
Stock compensation	37		29


Other	(17)		1
Postretirement benefit plan contributions	(12)		(12)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables	(165)		(239)
Inventories	(33)		(6)
Accounts payable	105		29
All other current assets and liabilities	153		(60)
Net cash provided by (used in) operating activities	971		520
Investing activities
Additions to properties	(218)		(294)
Purchase of marketable securities	(200)		—
Acquisitions, net of cash acquired	—		(8)


Acquisition of cost method investments	(4)		—
Purchases of available for sale securities	(70)		(16)
Sales of available for sale securities	7		16
Other	(30)		(25)
Net cash provided by (used in) investing activities	(515)		(327)
Financing activities
Net issuances (reductions) of notes payable	13		391
Issuances of long-term debt	554		28
Reductions of long-term debt	(40)		—

Net issuances of common stock	60		12
Common stock repurchases	—		(220)
Cash dividends	(390)		(380)
Collateral received on derivative instruments	38		—
Other	(1)		(8)
Net cash provided by (used in) financing activities	234		(177)
Effect of exchange rate changes on cash and cash equivalents	(40)		3
Increase (decrease) in cash and cash equivalents	650		19
Cash and cash equivalents at beginning of period	397		321
Cash and cash equivalents at end of period	$	1,047	$	340

Supplemental cash flow disclosures
Interest paid	$	140	$	154
Income taxes paid	$	33	$	157

Supplemental cash flow disclosures of non-cash investing activities:

Additions to properties included in accounts payable	$	78	$	100

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

Notes to Consolidated Financial Statements

for the quarter ended June ~~29, 2019~~27, 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 ~~2018~~2019 Annual Report on Form 10-K.

The condensed balance sheet information at December ~~29, 2018~~28, 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 period~~quarter ended June ~~29, 2019~~27, 2020 are not necessarily indicative of the results to be expected for other interim periods or the full year.

Accounts payable

The Company has agreements with certain third parties to provide accounts payable tracking systems which facilitates participating suppliers’ ability to monitor and, if elected, sell payment obligations from the Company to designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to sell one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company’s goal in entering into these agreements is to capture overall supplier savings, in the form of payment terms or vendor funding, created by facilitating suppliers’ ability to sell payment obligations, while providing them with greater working capital flexibility. We have no economic interest in the sale of these suppliers’ receivables and no direct financial relationship with the financial institutions concerning these services. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to sell amounts under these arrangements. However, the Company’s right to offset balances due from suppliers against payment obligations is restricted by this agreement for those payment obligations that have been sold by suppliers. 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 June ~~29, 2019, $823~~27, 2020, $899 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold ~~$595~~$667 million of those payment obligations to participating financial institutions. As of December ~~29, 2018, $893~~28, 2019, $812 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold ~~$701~~$605 million of those payment obligations to participating financial institutions.

~~New~~Adoption of new accounting standards ~~adopted in the period~~

~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~
In February 2018, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Update (ASU) permitting a company to reclassify the disproportionate income tax effects of the Tax Cuts and Jobs Act of 2017 on items within accumulated other comprehensive income (AOCI) to retained earnings. We elected to adopt the ASU effective in the first quarter of 2019 and reclassified the disproportionate income tax effect recorded within AOCI to retained earnings. This resulted in a decrease to AOCI and an increase to retained earnings of $22 million. The adjustment primarily related to deferred taxes previously recorded for pension and other postretirement benefits, as well as hedging positions for debt and net investment hedges.

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

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

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

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

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

Cloud Computing Arrangements. In August 2018, the FASB issued ASU 2018-15: Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The ASU allows companies to capitalize implementation costs incurred in a hosting arrangement that is a service contract over the term of the hosting arrangement, including periods covered by renewal options that are reasonably certain to be exercised. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 and can be applied retrospectively or prospectively. Early adoption is permitted. The Company adopted the ASU in the first quarter of 2020 and elected to apply it prospectively. The adoption did not have a material impact to the Company's Consolidated Financial Statements.

Accounting standards to be adopted in future periods

Compensation Retirement Benefits. In August 2018, the FASB issued ASU 2018-14: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The ASU removed disclosures that no longer are considered cost beneficial, clarified the specific requirements of disclosures, and added disclosure requirements identified as relevant. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020 and can be applied retrospectively or prospectively. Early adoption is permitted. The Company is currently assessing when to adopt the ASU and the impact of adoption.

Table of Contents

Note 2 Sale of accounts receivable

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

The Company has two Receivable Sales Agreements (Monetization Programs) described below, which are intended to directly offset the impact the Extended Terms Program would have on the days-sales-outstanding (DSO) metric that is critical to the effective management of the Company's accounts receivable balance and overall working capital. The Monetization Programs are designed to effectively offset the impact on working capital of the Extended Terms Program. The Monetization Programs sell, on a revolving basis, certain trade accounts receivable invoices to third party financial institutions. Transfers under these agreements are accounted for as sales of receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. The Monetization Programs provide for the continuing sale of certain receivables on a revolving basis until terminated by either party; however the maximum receivables that may be sold at any time is $1,033 million.

The Company has no retained interest in the receivables sold, however the Company does have collection and administrative responsibilities for the sold receivables. The Company has not recorded any servicing assets or liabilities as of June ~~29, 2019~~27, 2020 and December ~~29, 2018~~28, 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 ~~$947~~$964 million and ~~$900~~$774 million remained outstanding under these arrangements as of June ~~29, 2019~~27, 2020 and December ~~29, 2018,~~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 $8 million for the quarter and year-to-date periods ended June 27, 2020, respectively and was $7 million and $15 million for the quarter and year-to-date periods ended June 29, 2019, ~~respectively and was $6 million and $12 million for the quarter and year-to-date periods ended June 30, 2018,~~ respectively. The recorded loss is included in Other income and ~~expense.~~expense (OIE).

Other programs

Additionally, from time to time certain of the Company's foreign subsidiaries will transfer, without recourse, accounts receivable invoices of certain customers to financial institutions. These transactions are accounted for as sales of the receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. Accounts receivable sold of ~~$21~~$30 million and ~~$93~~$89 million remained outstanding under these programs as of June ~~29, 2019~~27, 2020 and December ~~29, 2018,~~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 expense (OIE)~~OIE and is not material.

Note 3 ~~Divestitures and held for sale~~Divestiture

On ~~March 31,~~July 28, 2019, the Company ~~entered into a definitive agreement to sell~~completed its sale of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero International S.A. ~~(Ferrero)~~(“Ferrero”) for approximately $1.3 billion in cash, subject to a working capital adjustment mechanism. Both the total assets and net assets of the businesses ~~including a targeted working capital amount is estimated to be~~were approximately $1.3 billion, ~~and is expected to result~~resulting in ~~an immaterial~~a net pre-tax gain ~~when~~of $38 million during the third quarter of 2019, recorded in Other income and (expense), after including related costs to sell of $14 million. Additionally, the Company recognized ~~upon closing.~~

curtailment gains related to the divestiture totaling $17 million in our U.S. pension and nonpension postretirement plans. The ~~net assets and liabilities of~~operating results for these businesses were classified as held for sale during the second quarter of 2019. The following table presents the major classes of assets and liabilities classified as held for sale on the Consolidated Balance Sheet as of June 29, 2019:

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

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

~~Note 4 Acquisitions, West Africa investments, goodwill and other intangible assets~~

~~Multipro acquisition~~

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

As a result of the Company’s incremental ownership interest in Multipro and concurrent changes to the shareholders' agreement, the Company has a 51% controlling interest in and is consolidating Multipro. The acquisition was accounted for as a business combination and the assets and liabilities of Multipro wereprimarily included in the ~~June 29, 2019 and December 29, 2018 Consolidated Balance Sheet and the results of its operations have been included in the Consolidated Statement of Income subsequent~~North America reporting segment prior to the ~~acquisition date within~~sale.Proceeds from the ~~AMEA reporting segment. The Multipro investment was previously accounted for under~~divestiture were used primarily to redeem $1.0 billion of debt during the ~~equity method~~third quarter of ~~accounting and the Company recorded our share of equity income or loss from Multipro within Earnings (loss) from unconsolidated entities.~~ 2019.

In connection with the ~~business combination,~~sale, the Company ~~recognized~~entered into a ~~one-time, non-cash gain~~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 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 ~~the second quarter~~providing such services, plus specified nominal margins. The TSA provides for a term of ~~2018 on the disposition of our previously held equity interest in Multipro of $245 million, which is included within Earnings (loss) from unconsolidated entities.~~

~~The Company's June 30, 2018 quarter-to-date and year-to-date consolidated unaudited pro forma historical net sales and net income, as if Multipro had been acquired~~services starting at the ~~beginning~~sale completion date and continuing for a period of ~~2018, exclusive~~up to 18 months.

Table of ~~the non-cash $245 million gain on the disposition of the equity interest recognized in the second quarter of 2018, are estimated as follows:~~

Contents

Quarter ended Year-to-date period ended
(millions) June 30, 2018 June 30, 2018
Net sales $ 3,433

$ 7,043
Net Income attributable to Kellogg Company $ 596

$ 1,040

~~Investment in TAF~~

The investment in TAF, our interest in an affiliated food manufacturer, is accounted for under the equity method of accounting with the Company’s share of equity income or loss being recognized within Earnings (loss) from unconsolidated entities. The $458 million aggregate of the consideration paid upon exerciseNote 4 Goodwill and the historical cost value of the Put Option was compared to the estimated fair value of the Company’s ownership percentage of TAF and the Company recognized a one-time, non-cash loss in the second quarter of 2018 of $45 million within Earnings (loss) from unconsolidated entities, which represents an other than temporary excess of cost over fair value of the investment. The difference between the carrying amount of TAF and the underlying equity in net assets is primarily attributable to brand and customer listOther intangible assets ~~a portion of which is being amortized over future periods, and goodwill.~~

Goodwill and Intangible Assets

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

Carrying amount of goodwill

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


(millions)	North America		Europe		Latin America		AMEA		Consoli- dated
December 28, 2019	$	4,422	$	347	$	213	$	879	$	5,861




Currency translation adjustment	(2)		(8)		(43)		(40)		(93)
June 27, 2020	$	4,420	$	339	$	170	$	839	$	5,768

Intangible assets subject to amortization

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

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

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


Gross carrying amount
(millions)	North America		Europe		Latin America		AMEA		Consoli- dated
December 28, 2019	$	64	$	41	$	60	$	429	$	594



Currency translation adjustment	—		—		(15)		(26)		(41)
June 27, 2020	$	64	$	41	$	45	$	403	$	553

Accumulated Amortization
December 28, 2019	$	31	$	21	$	15	$	34	$	101
Amortization	2		3		1		8		14

Currency translation adjustment	—		—		(3)		(2)		(5)
June 27, 2020	$	33	$	24	$	13	$	40	$	110

Intangible assets subject to amortization, net
December 28, 2019	$	33	$	20	$	45	$	395	$	493


Amortization	(2)		(3)		(1)		(8)		(14)

Currency translation adjustment	—		—		(12)		(24)		(36)
June 27, 2020	$	31	$	17	$	32	$	363	$	443

For intangible assets in the preceding table, amortization was $14 million ~~and $9 million~~ for each of the year-to-date periods ended June ~~29, 2019~~27, 2020 and June ~~30, 2018, respectively.~~29, 2019. The currently estimated aggregate annual amortization expense for full-year ~~2019~~2020 is approximately ~~$27~~$28 million.

Intangible assets not subject to amortization

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


(millions)	North America		Europe		Latin America		AMEA		Consoli- dated
December 28, 2019	$	1,238	$	392	$	70	$	383	$	2,083



Currency translation adjustment	—		2		(19)		(23)		(40)
June 27, 2020	$	1,238	$	394	$	51	$	360	$	2,043

~~Impairment Testing~~

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

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

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

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

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

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

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

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

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

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

Note 5 Restructuring Programs

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

~~Project K~~

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

Table of ~~value-added innovation.~~Contents

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

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

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

The Company currently expects that total pre-tax charges related to Project K will impact reportable segments as follows: North America (approximately 65%), Europe (approximately 22%), Latin America (approximately 3%), AMEA (approximately 6%), and Corporate (approximately 4%).

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

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

~~Other Programs~~

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

The project is expected to result in cumulative pretax net charges of approximately ~~$50~~$40 million, including certain non-cash credits. Cash costs are expected to be approximately ~~$57~~$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.

During the quarter and year-to-date periods ended June ~~29, 2019,~~27, 2020, the Company recorded total charges of ~~$32~~$2 million and $3 million, respectively, related to this initiative. ~~The~~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 ~~impacts~~impacted the North America reportable segment. The reorganization plan iswas designed to simplify the organization that supports the remaining North America reportable segment after the divestiture and related transition. The overall project is expected to be substantially completed by ~~December 31,~~the end of fiscal year 2020.

The overall project is expected to result in cumulative pretax charges of approximately ~~$35~~$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 not material during the quarter ended and year-to-date period ended June 27, 2020. These charges were recorded in SG&A expense. Since inception, the Company has recognized total charges of $21 million attributed to this initiative.

In addition to the projects discussed above, during the quarter-end June 27, 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 June 29, 2019, the Company recorded total charges of ~~$18~~$15 million and $23 million, respectively, related to ~~this initiative.~~ Project K.

Table of Contents

Total Projects

The tables below provide the details for charges incurred during the quarters and year-to-date periods ended June 27, 2020 and June 29, 2019 and program costs to date for all programs currently active as of June 27, 2020.


	Quarter ended						Year-to-date period ended				Program costs to date
(millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019		June 27, 2020
Employee related costs	$	13	$	45	$	13	$	42	$	63
Pension curtailment (gain) loss, net	—		—		—		—		(5)
Asset related costs	—		7		—		10		—

Other costs	1		13		2		21		16
Total	$	14	$	65	$	15	$	73	$	74

	Quarter ended						Year-to-date period ended				Program costs to date
(millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019		June 27, 2020
North America	$	(1)	$	28	$	(2)	$	32	$	19
Europe	2		33		3		34		41
Latin America	4		2		4		4		4
AMEA	8		2		8		3		8
Corporate	1		—		2		—		2
Total	$	14	$	65	$	15	$	73	$	74

During the quarter ended June 27, 2020, the Company recorded total net charges of $14 million across all restructuring programs. These charges were comprised of $6 million recorded in COGS and $8 million recorded in SG&A expense.

~~All Programs~~ During the year-to-date period ended June 27, 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 June 29, 2019, the Company recorded total net charges of $65 million across all restructuring programs. The charges were comprised of $11 million of expense recorded in COGS and $54 million of expense recorded in SG&A expense. During the year-to-date period ended June 29, 2019, the Company recorded total charges of $73 million across all restructuring programs. The charges were comprised of $17 million recorded in COGS and $56 million recorded in SG&A expense.

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

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

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

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

Employee related costs consist primarily of severance and related benefits. Pension curtailment (gain) loss consists of curtailment gains or losses that resulted from project initiatives. Asset related costs consist primarily of accelerated ~~depreciation. Asset impairments were recorded for fixed assets that were determined to be impaired~~depreciation and ~~were written down to their estimated fair value.~~asset write-offs. Other costs consist of third-party incremental costs related to the development and implementation of enhanced global structures and capabilities.

At June ~~29, 2019~~27, 2020 total project reserves were ~~$104~~$29 million, related to severance payments and other costs of which a substantial portion will be paid in ~~2019.~~2020. The following table provides details for exit cost ~~reserves.~~reserves related to the reorganizations described above.


	Employee Related Costs		Pension curtailment (gain) loss, net		Other Costs		Total
Liability as of December 28, 2019	$	37	$	—	$	1	$	38
2020 restructuring charges	13		—		2		15
Cash payments	(21)		—		(3)		(24)
Non-cash charges and other	—		—		—		—
Liability as of June 27, 2020	$	29	$	—	$	—	$	29

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

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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. There were 8 million and 7 million anti-dilutive potential common shares excluded from the reconciliation for the quarter and year-to-date periods ended June 27, 2020. There were 15 million and 14 million anti-dilutive potential common shares excluded from the reconciliation for the quarter and year-to-date periods ended June 29, 2019. ~~There were~~ ~~9 million~~ ~~and 6 million anti-dilutive potential common shares excluded from the reconciliation for the quarter and year-to-date periods ended June 30, 2018.~~ Please refer to the Consolidated Statement of Income for basic and diluted earnings per share for the ~~quarters~~quarter and year-to-date periods ended June ~~29, 2019~~27, 2020 and June ~~30, 2018.~~29, 2019.

Share repurchases

In ~~December 2017,~~February 2020, the board of directors approved a new authorization to repurchase up to $1.5 billion of our common stock ~~beginning in January 2018~~ through December ~~2019. As~~2022. During the year-to-date period ended June 27, 2020, the company did not repurchase any shares of ~~June 29, 2019, $960 million~~common stock and $1.5 billion remains available under the authorization.

During the year-to-date period ended June 29, 2019, the Company repurchased approximately 4 million shares of common stock for a total of $220 million. ~~During the year-to-date period ended June 30, 2018, the Company repurchased less than 1 million shares of common stock for a total of $50 million.~~

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, and adjustments for unrealized gains and losses on available-for-sale securities, net of related tax effects.

Reclassifications out of AOCI for the quarter and year-to-date periods ended June ~~29, 2019~~27, 2020 and June ~~30, 2018,~~29, 2019, consisted of the following:


(millions)
Details about AOCI components	Amount reclassified from AOCI					Line item impacted within Income Statement
	Quarter ended June 27, 2020		Year-to-date period ended June 27, 2020
(Gains) losses on cash flow hedges:


Interest rate contracts	$	5	$	7	Interest expense

	$	5	$	7	Total before tax
	(2)		(2)		Tax expense (benefit)
	$	3	$	5	Net of tax
Amortization of postretirement and postemployment benefits:
Net experience (gain) loss	$	(1)	$	(2)	OIE
Prior service cost	(1)		(1)		See Note 9 for further details
	$	(2)	$	(3)	Total before tax
	1		1		Tax expense (benefit)
	$	(1)	$	(2)	Net of tax





Total reclassifications	$	2	$	3	Net of tax

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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 June 29, 2019			Year-to-date period ended June 29, 2019					Quarter ended June 29, 2019		Year-to-date period ended June 29, 2019
(Gains) losses on cash flow hedges:								(Gains) losses on cash flow hedges:

Interest rate contracts	$	2		$	3		Interest expense	Interest rate contracts	$	2	$	3	Interest expense
	$	2		$	3		Total before tax
	(1		)	(1		)	Tax expense (benefit)		$	2	$	3	Total before tax
	$	1		$	2		Net of tax		(1)		(1)		Tax expense (benefit)
									$	1	$	2	Net of tax
Amortization of postretirement and postemployment benefits:								Amortization of postretirement and postemployment benefits:
Net experience (gain) loss	$	(1	)	$	(2	)	OIE
Net experience loss								Net experience loss	$	(1)	$	(2)	See Note 9 for further details

	$	(1	)	$	(2	)	Total before tax		$	(1)	$	(2)	Total before tax
	1			1			Tax expense (benefit)		1		1		Tax expense (benefit)
	$	—		$	(1	)	Net of tax		$	—	$	(1)	Net of tax
Total reclassifications	$	1		$	1		Net of tax	Total reclassifications	$	1	$	1	Net of tax

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

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

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

Accumulated other comprehensive income (loss), net of tax, as of June ~~29, 2019~~27, 2020 and December ~~29, 2018~~28, 2019 consisted of the following:

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


(millions)	June 27, 2020		December 28, 2019
Foreign currency translation adjustments	$	(1,634)	$	(1,399)
Cash flow hedges — unrealized net gain (loss)	(94)		(60)
Postretirement and postemployment benefits:
Net experience gain (loss)	6		7
Prior service credit (cost)	3		4
Available-for-sale securities unrealized net gain (loss)	2		—
Total accumulated other comprehensive income (loss)	$	(1,717)	$	(1,448)

Note 7 ~~Leases~~

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

~~Note 8~~ Debt

The following table presents the components of notes payable at June ~~29, 2019~~27, 2020 and December ~~29, 2018:~~28, 2019:


	June 27, 2020						December 28, 2019
(millions)	Principal amount		Effective interest rate		Principal amount		Effective interest rate
U.S. commercial paper	$	—	—	%	$	3	1.78	%
Bank borrowings	121				104
Total	$	121			$	107

June 29, 2019 December 29, 2018
(millions)
Principal
amount
Effective
interest rate

Principal
amount
Effective
interest rate (a)
U.S. commercial paper $ 355
2.55 % $ 15
2.75 %
Bank borrowings 213
161

Total $ 568
$ 176

In 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. The proceeds from these notes were used for general corporate purposes, including the payment of offering related fees and expenses, repayment of a portion of the $600 million 4.00% Notes due 2020 when they mature on December 15, 2020, and repayment of a portion of commercial paper 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.

In connection with the May 2020 debt issuance, the Company terminated forward starting interest rate swaps with notional amounts totaling $500 million, resulting in a $51 million loss that will be amortized to interest expense over

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the term of the Notes. The effective interest rate on the Notes, reflecting issuance discount and hedge settlement, was 3.03% at June 27, 2020.

Note 98 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 ~~2018~~2019 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.

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


	Quarter ended						Year-to-date period ended
(millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Pre-tax compensation expense	$	21	$	18	$	41	$	32
Related income tax benefit	$	6	$	5	$	11	$	8

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

During the year-to-date period ended June ~~29, 2019,~~27, 2020, the Company granted approximately ~~0.9~~0.6 million restricted stock units at a weighted average cost of ~~$56~~$66 per share and ~~2.8~~2.3 million non-qualified stock options 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 ~~2018~~2019 Annual Report on Form 10-K.

Performance shares

In the first quarter of ~~2019,~~2020, the Company granted performance shares to a limited number of senior ~~executive-level~~level employees, which entitle these employees to receive a specified number of shares of the Company’s common stock upon vesting. The number of shares earned could range between 0% and 200% of the target amount depending upon performance achieved over the three year vesting period. The performance conditions of the award include three year cumulative organic net sales growth and ~~total shareholder return (TSR) of the Company’s common stock relative to a select group of peer companies.~~three year aggregate operating 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 organic net sales growth achievement. Compensation cost related to organic net sales growth performance isand cash flow targets are revised for changes in the expected outcome. The ~~2019~~2020 target grant currently corresponds to approximately ~~239,000~~338,000 shares, with a grant-date fair value of ~~$59~~$66 per share.

The ~~2016~~2017 performance share award, payable in stock, was settled at ~~85%~~90% of target in February ~~2019~~2020 for a total dollar equivalent of $6 million.

Note 109 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 ~~2018~~2019 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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Pension


	Quarter ended						Year-to-date period ended							Quarter ended						Year-to-date period ended
(millions)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			(millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Service cost	$	9		$	22		$	18		$	44		Service cost	$	9	$	9	$	18	$	18
Interest cost	44			41			89			83			Interest cost	33		44		68		89
Expected return on plan assets	(83		)	(90		)	(168		)	(182		)	Expected return on plan assets	(85)		(83)		(170)		(168)
Amortization of unrecognized prior service cost	2			2			4			4			Amortization of unrecognized prior service cost	2		2		4		4
Recognized net (gain) loss	10			(2		)	11			(11		)	Recognized net (gain) loss	43		10		57		11
Net periodic benefit cost	$	(18	)	$	(27	)	$	(46	)	$	(62	)	Net periodic benefit cost	$	2	$	(18)	$	(23)	$	(46)
Curtailment (gain) loss													Curtailment (gain) loss	(7)		—		(7)		—
Total pension (income) expense													Total pension (income) expense	$	(5)	$	(18)	$	(30)	$	(46)

Other nonpension postretirement


	Quarter ended						Year-to-date period ended
(millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Service cost	$	4	$	4	$	7	$	7
Interest cost	8		10		16		20
Expected return on plan assets	(23)		(21)		(46)		(42)
Amortization of unrecognized prior service cost	(3)		(2)		(5)		(4)



Total postretirement benefit (income) expense	$	(14)	$	(9)	$	(28)	$	(19)

Postemployment


	Quarter ended						Year-to-date period ended
(millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Service cost	$	1	$	1	$	2	$	2
Interest cost	—		1		—		1
Recognized net (gain) loss	(1)		(1)		(2)		(2)
Total postemployment benefit expense	$	—	$	1	$	—	$	1

~~Other nonpension postretirement~~

Quarter ended Year-to-date period ended
(millions) June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
Service cost $ 4
$ 4
$ 7
$ 9
Interest cost 10
9
20
18
Expected return on plan assets (21 ) (23 ) (42 ) (47 )
Amortization of unrecognized prior service (gain) (2 ) (2 ) (4 ) (4 )
Total postretirement benefit (income) expense $ (9 ) $ (12 ) $ (19 ) $ (24 )

~~Postemployment~~

Quarter ended Year-to-date period ended
(millions) June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
Service cost $ 1
$ 1
$ 2
$ 2
Interest cost 1
—
1
—
Recognized net (gain) loss (1 ) (1 ) (2 ) (2 )
Total postemployment benefit expense $ 1
$ —
$ 1
$ —

For the quarter and year-to-date ~~period~~periods ended June ~~29, 2019,~~27, 2020, the Company recognized a gain of $6 million and loss of ~~$11~~$8 million, respectively, related to the remeasurement of a U.S. pension plan 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 discount rate relative to the previous measurement.

During the second quarter of 2020, the Company recognized a curtailment gain of $7 million, as certain U.S. pension plan benefits were frozen for a portion of the population. The Company remeasured the benefit obligation for the impacted pension plan, resulting in a mark-to-market loss of $49 million. The loss was due primarily to a lower discount rate partially offset by plan asset returns in excess of the expected rate of return.

For the quarter and year-to-date periods ended June 29, 2019, the Company recognized a loss of $10 million and $11 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.

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Company contributions to employee benefit plans are summarized as follows:


(millions)	Pension		Nonpension postretirement		Total
Quarter ended:
June 27, 2020	$	—	$	6	$	6
June 29, 2019	$	3	$	4	$	7
Year-to-date period ended:
June 27, 2020	$	3	$	9	$	12
June 29, 2019	$	4	$	8	$	12
Full year:
Fiscal year 2020 (projected)	$	7	$	19	$	26
Fiscal year 2019 (actual)	$	10	$	18	$	28

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

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

Multi-employer pension plan exit liability

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 Company paid $7 million in full settlement of the withdrawal liability.

Note 1110 Income taxes

The consolidated effective tax rate for the quarter ended June ~~29, 2019~~27, 2020 was ~~20%~~23% as compared to ~~15%~~20% in the same quarter of the prior year. The effective tax rate for the second quarter of 2018 benefited $31 million due to discretionary pension contributions made in the second quarter of 2018 totaling $250 million, which were designated as 2017 tax year contributions.

The consolidated effective tax rate for the year-to-date periods ended June 27, 2020 and June 29, 2019 was 22%and ~~June 30, 2018 was~~ 20% ~~and 14%~~, respectively. The effective tax rate for the quarter and year-to-date ~~period~~periods ended June ~~30, 2018 benefited from a discretionary pension contribution and a $44 million discrete tax benefit as a result of~~27, 2020, were unfavorably impacted by the remeasurement of deferred taxes ~~following~~primarily due to a ~~legal entity restructuring.~~change in the Company's indefinite reinvestment assertion on foreign earnings of a subsidiary during the second quarter.

As of June ~~29, 2019,~~27, 2020, the Company classified ~~$10~~$22 million of unrecognized tax benefits as a net current tax liability. ~~Management’s estimate~~The Company believes a decrease of ~~reasonably possible changes~~$44 million in unrecognized tax benefits during the next twelve months ~~consists~~is reasonably possible, primarily due to finalization of ~~the current liability balance~~tax examinations. In addition, this decrease is expected to be ~~settled within one year,~~ offset by approximately $2$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.

The Company’s total gross unrecognized tax benefits as of June ~~29, 2019~~27, 2020 was ~~$97 million, unchanged from year-end.~~$95 million. Of this balance, ~~$87~~$85 million 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:
Additions	3
Reductions	—
Tax positions related to prior years:
Additions	3
Reductions	—
Settlements	(1)
Lapse in statute of limitations	—
June 27, 2020	$	95

The accrual balance for tax-related interest was approximately ~~$22~~$13 million at June ~~29, 2019.~~27, 2020.

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Note 1211 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 June ~~29, 2019~~27, 2020 and December ~~29, 2018~~28, 2019 were as follows:

(millions) June 29,
2019 December 29,
2018
Foreign currency exchange contracts $ 1,623
$ 1,863
Cross-currency contracts 1,363
1,197
Interest rate contracts 1,507
1,608
Commodity contracts 322
417
Total $ 4,815
$ 5,085


(millions)	June 27, 2020		December 28, 2019
Foreign currency exchange contracts	$	4,236	$	2,628
Cross-currency contracts	1,503		1,540
Interest rate contracts	2,162		1,871
Commodity contracts	516		524
Total	$	8,417	$	6,563

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 June ~~29, 2019~~27, 2020 and December ~~29, 2018,~~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

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liability. The Company did not have any level 3 financial assets or liabilities as of June ~~29, 2019~~27, 2020 or December ~~29, 2018.~~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 June ~~29, 2019~~27, 2020 and December ~~29, 2018:~~28, 2019:

Derivatives designated as hedging instruments

June 29, 2019 December 29, 2018
(millions) Level 1 Level 2 Total Level 1 Level 2 Total
Assets:
Cross-currency contracts:
Other assets $ —
$ 95
$ 95
$ —
$ 79
$ 79
Interest rate contracts:

Other assets (a) —
6
6
—
17
17
Total assets $ —
$ 101
$ 101

$ —
$ 96
$ 96
Liabilities:

Interest rate contracts:

Other liabilities (a) —
—
—
—
(22 ) (22 )
Total liabilities $ —
$ —
$ —

$ —
$ (22 ) $ (22 )


	June 27, 2020										December 28, 2019
(millions)	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:
Cross-currency contracts:
Other current assets	$	—	$	74	$	74	$	—	$	45	$	45
Other assets	—		71		71		—		40		40
Interest rate contracts:
Other current assets	—		—		—		—		7		7
Other assets (a)	—		13		13		—		4		4
Total assets	$	—	$	158	$	158	$	—	$	96	$	96
Liabilities:




Interest rate contracts:
Other current liabilities	$	—	$	(1)	$	(1)	$	—	$	(4)	$	(4)
Other liabilities	—		(3)		(3)		—		—		—



Total liabilities	$	—	$	(4)	$	(4)	$	—	$	(4)	$	(4)

(a) The fair value of the related hedged portion of the Company's long-term debt, a level 2 liability, was $0.7 billion ~~and $1.6 billion~~ as of June ~~29, 2019~~27, 2020 and December ~~29, 2018, respectively.~~

28, 2019.

Derivatives not designated as hedging instruments

June 29, 2019 December 29, 2018
(millions) Level 1 Level 2 Total Level 1 Level 2 Total
Assets:
Foreign currency exchange contracts:
Other current assets $ —
$ 10
$ 10
$ —
$ 3
$ 3
Commodity contracts:
Other current assets 3
—
3
3
—
3
Total assets $ 3
$ 10
$ 13

$ 3
$ 3
$ 6
Liabilities:
Foreign currency exchange contracts:
Other current liabilities $ —
$ (10 ) $ (10 ) $ —
$ (4 ) $ (4 )
Other liabilities —
(1 ) (1 ) —
—
—
Interest rate contracts:
Other liabilities —
(14 ) (14 ) —
—
—
Commodity contracts:
Other current liabilities (8 ) —
(8 ) (9 ) —
(9 )
Total liabilities $ (8 ) $ (25 ) $ (33 )
$ (9 ) $ (4 ) $ (13 )


	June 27, 2020										December 28, 2019
(millions)	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:
Foreign currency exchange contracts:
Other current assets	$	—	$	61	$	61	$	—	$	12	$	12
Other assets	—		8		8		—		—		—
Interest rate contracts:
Other current assets	—		4		4		—		—		—
Other assets	—		16		16		—		—		—
Commodity contracts:
Other current assets	3		—		3		9		—		9
Total assets	$	3	$	89	$	92	$	9	$	12	$	21
Liabilities:
Foreign currency exchange contracts:
Other current liabilities	$	—	$	(31)	$	(31)	$	—	$	(18)	$	(18)
Other liabilities	—		(6)		(6)		—		—		—
Interest rate contracts:
Other current liabilities	—		(6)		(6)		—		—		—
Other liabilities	—		(26)		(26)		—		(13)		(13)
Commodity contracts:
Other current liabilities	(14)		—		(14)		(1)		—		(1)

Total liabilities	$	(14)	$	(69)	$	(83)	$	(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 $2.6 billion as of June ~~29, 2019~~27, 2020 and December ~~29, 2018.~~28, 2019.

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The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for existing fair value hedges as of June ~~29, 2019~~27, 2020 and December ~~29, 2018.~~28, 2019.


(millions)	Line Item in the Consolidated Balance Sheet in which the hedged item is included	Carrying amount of the hedged liabilities				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)					(millions)	Line Item in the Consolidated Balance Sheet in which the hedged item is included	Carrying amount of the hedged liabilities						Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)
		June 29, 2019		December 29, 2018		June 29, 2019		December 29, 2018					June 27, 2020		December 28, 2019		June 27, 2020		December 28, 2019
Interest rate contracts	Current maturities of long-term debt	$	501	$	503	$	1	$	3		Interest rate contracts	Current maturities of long-term debt	$	493	$	493	$	—	$	—
Interest rate contracts	Long-term debt	$	3,388	$	3,354	$	22	$	(18	)	Interest rate contracts	Long-term debt	$	2,802	$	2,643	$	22	$	19

(a) The current maturities of hedged long-term debt includes $1 million and $3 million of hedging adjustment on discontinued hedging relationships as of June 29, 2019 and December 29, 2018, respectively. The hedged long-term debt includes ~~$16~~$14 million and $15 million~~$(12) million~~ of hedging adjustment on discontinued hedging relationships as of June ~~29, 2019~~27, 2020 and December ~~29, 2018,~~28, 2019, respectively.

The Company has elected to not 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 June ~~29, 2019~~27, 2020 and December ~~29, 2018~~28, 2019 would be adjusted as detailed in the following table:



As of June 27, 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	$	250	$	(73)	$	(32)	$	145
Total liability derivatives	$	(87)	$	73	$	—	$	(14)

As of June 29, 2019:

Gross Amounts Not Offset in the
Consolidated Balance Sheet


Amounts
Presented in the
Consolidated
Balance Sheet
Financial
Instruments
Cash Collateral
Received/
Posted
Net
Amount
Total asset derivatives $ 114
$ (25 ) $ (7 ) $ 82
Total liability derivatives $ (33 ) $ 25
$ —
$ (8 )



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
Total asset derivatives	$	117	$	(27)	$	(7)	$	83
Total liability derivatives	$	(36)	$	27	$	—	$	(9)

As of December 29, 2018:

Gross Amounts Not Offset in the
Consolidated Balance Sheet


Amounts
Presented in the
Consolidated
Balance Sheet
Financial
Instruments
Cash Collateral
Received/
Posted
Net
Amount
Total asset derivatives $ 102
$ (27 ) $ (2 ) $ 73
Total liability derivatives $ (35 ) $ 27
$ —
$ (8 )

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The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the quarters ended June ~~29, 2019~~27, 2020 and June ~~30, 2018~~29, 2019 was as follows:

Derivatives and non-derivatives in net investment hedging relationships


(millions)	Gain (loss) recognized in AOCI					Gain (loss) excluded from assessment of hedge effectiveness				Location of gain (loss) in income of excluded component	(millions)	Gain (loss) recognized in AOCI						Gain (loss) excluded from assessment of hedge effectiveness			Location of gain (loss) in income of excluded component
	June 29, 2019			June 30, 2018		June 29, 2019		June 30, 2018				June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Foreign currency denominated long-term debt	$	(35	)	$	146	$	—	$	—		Foreign currency denominated long-term debt	$	(18)	$	(35)	$	—	$	—
Cross-currency contracts	23			35		8		3		Interest expense	Cross-currency contracts	(4)		23		9		8		Interest expense
Total	$	(12	)	$	181	$	8	$	3		Total	$	(22)	$	(12)	$	9	$	8

Derivatives not designated as hedging instruments


(millions)	Location of gain (loss) recognized in income	Gain (loss) recognized in income
		June 27, 2020		June 29, 2019
Foreign currency exchange contracts	COGS	$	(5)	$	1
Foreign currency exchange contracts	Other income (expense), net	(3)		—

Interest rate contracts	Interest expense	1		—
Commodity contracts	COGS	(26)		40

Total		$	(33)	$	41

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(millions)
Location of gain
(loss) recognized
in income
Gain (loss)
recognized in
income
June 29,
2019 June 30,
2018
Foreign currency exchange contracts COGS $ 1
$ 4
Commodity contracts COGS 40
(8 )
Total $ 41

$ (4 )

The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the year-to-date periods ended June ~~29, 2019~~27, 2020 and June ~~30, 2018~~29, 2019 was as follows:

Derivatives and non-derivatives in net investment hedging relationships



(millions)	Gain (loss) recognized in AOCI				Gain (loss) excluded from assessment of hedge effectiveness				Location of gain (loss) in income of excluded component	(millions)	Gain (loss) recognized in AOCI						Gain (loss) excluded from assessment of hedge effectiveness			Location of gain (loss) in income of excluded component
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018				June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Foreign currency denominated long-term debt	$	16	$	73	$	—	$	—		Foreign currency denominated long-term debt	$	(9)	$	16	$	—	$	—
Cross-currency contracts	15		27		16		6		Other income (expense), net	Cross-currency contracts	62		15		18		16		Interest expense
Total	$	31	$	100	$	16	$	6		Total	$	53	$	31	$	18	$	16

Derivatives not designated as hedging instruments


(millions)	Location of gain (loss) recognized in income	Gain (loss) recognized in income
		June 27, 2020		June 29, 2019
Foreign currency exchange contracts	COGS	$	46	$	(10)
Foreign currency exchange contracts	Other income (expense), net	6		(1)
Foreign currency exchange contracts	SGA	4		—
Interest rate contracts	Interest expense	1		—
Commodity contracts	COGS	(50)		8

Total		$	7	$	(3)

(millions)
Location of gain
(loss) recognized
in income
Gain (loss)
recognized in
income
June 29,
2019 June 30,
2018
Foreign currency exchange contracts COGS $ (10 ) $ 7
Foreign currency exchange contracts Other income (expense), net (1 ) (4 )
Foreign currency exchange contracts SGA —
1
Commodity contracts COGS 8
(3 )
Total $ (3 ) $ 1

The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the quarters ended June ~~29, 2019~~27, 2020 and June ~~30, 2018:~~29, 2019:


		June 29, 2019			June 30, 2018					June 27, 2020				June 29, 2019
(millions)	(millions)	Interest Expense			Interest Expense			(millions)				Interest Expense				Interest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded	Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded	$	75		$	72		Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded				$	69			$	75
	Gain (loss) on fair value hedging relationships:								Gain (loss) on fair value hedging relationships:
	Interest contracts:								Interest contracts:
	Hedged items	(13		)	(7		)		Hedged items		(2)				(13)
	Derivatives designated as hedging instruments	13			7				Derivatives designated as hedging instruments		2				13

	Gain (loss) on cash flow hedging relationships:								Gain (loss) on cash flow hedging relationships:
	Interest contracts:								Interest contracts:
	Amount of gain (loss) reclassified from AOCI into income	(2		)	(2		)		Amount of gain (loss) reclassified from AOCI into income		(5)				(2)

The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the year-to-date periods ended June ~~29, 2019~~27, 2020 and June ~~30, 2018:~~29, 2019:

June 29, 2019 June 30, 2018
(millions) Interest Expense Interest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded $ 149
$ 141
Gain (loss) on fair value hedging relationships:
Interest contracts:
Hedged items (37 ) 25
Derivatives designated as hedging instruments 37
(21 )

Gain (loss) on cash flow hedging relationships:
Interest contracts:
Amount of gain (loss) reclassified from AOCI into income (3 ) (4 )

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		June 27, 2020				June 29, 2019
(millions)				Interest Expense				Interest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded				$	133			$	149
	Gain (loss) on fair value hedging relationships:
	Interest contracts:
	Hedged items		(3)				(37)
	Derivatives designated as hedging instruments		4				37

	Gain (loss) on cash flow hedging relationships:
	Interest contracts:
	Amount of gain (loss) reclassified from AOCI into income		(7)				(3)

During the next 12 months, the Company expects $5$16 million of net deferred losses reported in AOCI at June ~~29, 2019~~27, 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 June ~~29, 2019~~27, 2020 was 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 June ~~29, 2019~~27, 2020 triggered by credit-risk-related contingent features.

Other fair value measurements

Marketable securities

During the quarter ended June 27, 2020, the Company invested $200 million in a mutual fund holding short term debt securities. The ~~following~~investment is measured at fair value using the net asset value (NAV) per share as a ~~summary~~practical expedient and as a result, this investment has not been classified in the fair value hierarchy. As of June 27, 2020, fair value using the ~~carrying and market values of the Company's available~~NAV was $200 million.

Available for sale ~~securities:~~securities

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


	June 27, 2020										December 28, 2019
			Unrealized						Unrealized
(millions)	Cost		Gain (Loss)		Market Value		Cost		Gain (Loss)		Market Value
Corporate bonds	$	62	$	2	$	64	$	—	$	—	$	—

The market values of the Company's investments in level 2 corporate bonds ~~are~~were based on matrices or models from pricing vendors. Unrealized gains and losses ~~are~~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.

The Company reviews its investment portfolio for any unrealized losses that would be deemed other-than-temporary and requires the recognition of 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 required to sell the investment before recovery of the cost basis. The Company also considers the type of security, related industry and sector performance, and published investment ratings. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. If conditions within individual markets, industry segments, or macro-economic environments deteriorate, the Company could incur future impairments.

~~The investments are recorded within Other current assets and Other assets on the Consolidated Balance Sheet, based on the maturity~~

Table of ~~the individual security. The maturity dates of the securities range from 2020 to 2028.~~Contents

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 ~~$8.7~~$7.7 billion and ~~$8.3~~$6.9 billion, respectively, as of June ~~29, 2019.~~27, 2020. The fair value and carrying value of the Company's long-term debt were ~~both $8.2~~$7.8 billion and $7.2 billion, respectively, as of December ~~29, 2018.~~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. As~~Company of approximately $86 million, net of collateral already received from those counterparties, as of June ~~29, 2019, the Company was not in a material net asset position with any counterparties with which a master netting agreement would apply.~~27, 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 June ~~29, 2019,~~27, 2020, the Company ~~had no collateral posting requirements related to reciprocal collateralization agreements and~~ collected approximately ~~$19~~$58 million of collateral related to reciprocal ~~collaterization~~collateralization agreements which is ~~reflected as an increase~~recorded in other current liabilities. As of June ~~29, 2019~~27, 2020 the Company posted ~~$12~~$28 million in margin deposits for exchange-traded commodity derivative instruments, which was ~~reflected as an increase~~recorded in accounts receivable, net on the Consolidated Balance Sheet.

Management believes concentrations of credit risk with respect to accounts receivable is limited due to the generally high credit quality of the Company’s major customers, as well as the large number and geographic dispersion of smaller customers. However, the Company conducts a disproportionate amount of business with a small number of large multinational grocery retailers, with the five largest accounts encompassing approximately ~~20%~~24% of consolidated trade receivables at June ~~29, 2019.~~27, 2020.

Note 1312 Reportable segments

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

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

In addition, the Company transferred its Middle East, North Africa, and Turkey businesses from Kellogg Europe to Kellogg AMEA, effective December 30, 2018. This consolidated the Company's Africa business under a single regional management team. All comparable prior periods have been restated to reflect the change. For the quarter and year-to-date periods ended June 30, 2018, the change resulted in $62 million and $129 million, respectively, of reported net sales and $10 million and $24 million, respectively, of reported operating profit transferring from Kellogg Europe to Kellogg AMEA.

The Company manages its operations through ~~four~~4 operating segments that are based on geographic location – North America which includes U.S. businesses and Canada; Europe which consists principally of European

countries; Latin America which consists of Central and South America and includes Mexico; and AMEA (Asia Middle East Africa) which consists of 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 reporting segment prior to the sale. Reported net sales for the divested businesses totaled $194 million and $507 million for the quarter and year-to-date periods ended June 29, 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. Reportable segment results were as follows:


	Quarter ended						Year-to-date period ended
(millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net sales
North America	$	2,167	$	2,148	$	4,264	$	4,437
Europe	546		541		1,072		1,038
Latin America	223		239		450		464
AMEA	529		533		1,091		1,044
Consolidated	$	3,465	$	3,461	$	6,877	$	6,983
Operating profit
North America	$	464	$	322	$	830	$	702
Europe	92		36		162		96
Latin America	31		17		53		38
AMEA	38		45		84		92
Total Reportable Segments	625		$	420	$	1,129	$	928
Corporate	(119)		(23)		(163)		(150)
Consolidated	$	506	$	397	$	966	$	778

Quarter ended Year-to-date period ended
(millions) June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Net sales
North America $ 2,148
$ 2,127
$ 4,437
$ 4,457
Europe 541
559
1,038
1,079
Latin America 239
239
464
471
AMEA 533
435
1,044
754
Consolidated $ 3,461
$ 3,360
$ 6,983
$ 6,761
Operating profit
North America* $ 322
$ 385
$ 702
$ 784
Europe 36
87
96
147
Latin America 17
20
38
42
AMEA 45
38
92
79
Total Reportable Segments 420
530
928
1,052
Corporate* (23 ) (56 ) (150 ) (68 )
Consolidated $ 397
$ 474
$ 778
$ 984

* Corporate in 2019 includes the cost of certain global research and development activities that were previously included in the North America reportable segment in 2018 that totaled approximately $12 million and $24 million for the quarter and year-to-date periods, respectively.

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


	Quarter ended						Year-to-date period ended
(millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Snacks*	$	1,522	$	1,741	$	3,076	$	3,521
Cereal*	1,444		1,256		2,769		2,531
Frozen	284		256		578		527
Noodles and other	215		208		454		404
Consolidated	$	3,465	$	3,461	$	6,877	$	6,983

Quarter ended Year-to-date period ended
(millions) June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Snacks $ 1,741
$ 1,684
$ 3,521
$ 3,458
Cereal 1,256
1,304
2,531
2,655
Frozen 256
247
527
523
Noodles and other 208
125
404
125
Consolidated $ 3,461
$ 3,360
$ 6,983
$ 6,761
* 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 or second quarter 2020 financial statements.

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Note 1413 Supplemental Financial Statement Data


Consolidated Balance Sheet
(millions)	June 27, 2020 (unaudited)		December 28, 2019
Trade receivables	$	1,452	$	1,315
Allowance for doubtful accounts	(23)		(10)
Refundable income taxes	13		56
Other receivables	250		215
Accounts receivable, net	$	1,692	$	1,576
Raw materials and supplies	$	327	$	303
Finished goods and materials in process	903		923
Inventories	$	1,230	$	1,226
Property	$	8,921	$	9,051
Accumulated depreciation	(5,485)		(5,439)
Property, net	$	3,436	$	3,612
Pension	$	269	$	241
Deferred income taxes	223		231
Nonpension postretirement benefits	312		283
Other	504		384
Other assets	$	1,308	$	1,139
Accrued income taxes	$	146	$	42
Accrued salaries and wages	253		290
Other	738		577
Other current liabilities	$	1,137	$	909
Income taxes payable	$	82	$	81
Nonpension postretirement benefits	31		33
Other	421		429
Other liabilities	$	534	$	543

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

Note ~~15 Subsequent events~~14 Contingencies

~~On July 24,~~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 Kellogg and the class. During 2019, the Company ~~announced~~concluded that the contingency related to the unfavorable ruling was probable and estimable, resulting in a ~~tender offer~~liability being recorded. In February 2020, the Court denied plaintiff’s motion to ~~purchase~~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 ~~cash~~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 June 27, 2020. Based upon current information, management does not expect any ~~and all~~ of the $$500 million 4.15% Senior Notes due November 2019, plus up to $500 million of aggregate principal of its 4.0% Senior Notes due December 2020, 3.25% Senior Notes due May 2021, 2.65% Senior Notes due May 2023, and 3.4% Senior Notes due November 2027.

~~On July 28, 2019,~~claims or legal proceedings pending against the Company ~~completed its sale~~to have a material impact on the Company’s consolidated financial statements.

Table of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero for approximately $1.3 billion in cash, subject to a working capital adjustment mechanism. Both the total assets and net assets of the businesses, including a targeted working capital amount is estimated to be approximately $1.3 billion, and resulted in an immaterial pre-tax gain upon closing. After-tax proceeds from the divestiture are expected to be utilized to repay debt.

In conjunction with the completion of the sale, the Company incurred closing costs of approximately $15 million in the third quarter and expects to incur a cash tax liability of approximately $260 million to be paid in the fourth quarter of 2019.

Subsequent to quarter end, the Company is no longer obligated to contribute to certain multi-employer pension plans and it is probable it will incur a withdrawal liability estimated at $110 million related to its exit from these plans. This amount represents management's best estimate. Actual results could differ. The cash obligation is payable over a maximum period of 20 years; management has not determined the actual period over which payments will be made.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,~~customers. Unless otherwise noted, consumption and ~~is based on third party consumption data.~~ shipment trends are materially consistent.

For more than ~~100~~110 years, consumers have counted on Kellogg for great-tasting, high-quality and nutritious foods. These foods include snacks, such as crackers, savory snacks, toaster pastries, cereal bars and ~~bites, cookies;~~bites; and convenience foods, such as, ready-to-eat cereals, frozen waffles, veggie foods and noodles.

Kellogg products are manufactured and marketed globally.

COVID-19 Response

In March 2020, the World Health Organization categorized the novel coronavirus (COVID-19) as a pandemic, and it continues to 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 result, 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 supply

In addition to our efforts 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 contracted labor forces. We have made incremental investments in our workforce, additional warehouse capacity and increased access to transportation so that our products 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 our customers' operations) by prioritizing our offerings to increase the supply of our most demanded products to our customers, as well as delaying innovation launches and commercial activities. At the same time, the Company reinforced food safety practices across our manufacturing network.

We have partnered with our strategic technology providers in order to maintain support for our critical business and finance systems as well as additional network bandwidth and support for the transition to a work-from-home

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environment. We are also working 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 company to help our food bank partners and neighbors in need. To date, Kellogg and our charitable funds have donated almost $15 million in 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 reduced by capital expenditures of approximately $1.0 billion 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 and Accounts Payable 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 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 December 30, 2018 we reorganized our North American business. The reorganization eliminated the legacy business unit structure and internal reporting. In addition, we changed the internal reporting provided to the chief operating decision maker (CODM) and segment manager. As a result, we reevaluated our operating segments. In conjunction with the reorganization, certain global research and development resources and related activities were transferred from the North America business to Corporate. Prior period segment results were not restated for the transfer as the impacts were not considered material.

In addition, we transferred our Middle East, North Africa, and Turkey businesses from Kellogg Europe to Kellogg AMEA, effective December 30, 2018. This consolidated all of the Company's Africa business under a single regional management team. All comparable prior periods have been restated to reflect the change. For the quarter and year-to-date periods ended June 30, 2018, the change resulted in $62 million and $129 million, respectively, of reported net sales and $10 million and $24 million, respectively, of reported operating profit transferring from Europe to AMEA.

~~On March 31,~~July 28, 2019, we ~~entered into a stock and asset purchase agreement with Ferrero International S.A. (“Ferrero”), pursuant to which, subject to~~completed the ~~satisfaction or waiver~~sale of ~~certain conditions, we will divest to Ferrero~~ selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero International S.A. (“Ferrero”) for $1.3 billion in cash, on a cash-free, debt-free basis and subject to a working capital adjustment mechanism. ~~On July 28, 2019, we completed~~The operating results for these businesses were included in our North America and Latin America reporting segments prior to the ~~sale of the businesses to Ferrero.~~sale.

We manage our operations through four operating segments that are based primarily on geographic 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 also represent our reportable segments.

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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 currency-neutral and organic net sales, adjusted and currency-neutral adjusted operating profit, adjusted and currency-neutral adjusted diluted ~~EPS,~~earnings per share (EPS), currency-neutral adjusted gross profit, ~~currency-neutral~~currency neutral adjusted gross margin, adjusted other income (expense), net debt, and cash flow. We determine currency-neutral 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.

•

~~Currency-neutral net sales and organic net sales~~: We adjust the GAAP financial measure to exclude the impact of foreign currency, resulting in currency-neutral sales. In addition, we exclude the impact of acquisitions, dispositions, and foreign currency, resulting in organic net sales. We excluded the items which we believe may obscure trends in our underlying net sales performance. By providing these non-GAAP net sales 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 these non-GAAP measures to evaluate the effectiveness of initiatives behind net sales growth, pricing realization, and the impact of mix on our business results. These non-GAAP measures are also used to make decisions regarding the future direction of our business, and for resource allocation decisions.

•

~~Adjusted: operating profit, net income, and diluted EPS:~~ 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 return on plan assets, and other net periodic pension costs are not excluded), commodities and certain foreign currency contracts, and other costs impacting comparability resulting in 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.

•

~~Currency-neutral adjusted: gross profit, gross margin, operating profit, net income, and diluted EPS:~~ We adjust the GAAP financial measures to exclude the effect of restructuring 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, other costs impacting comparability, and foreign currency, resulting in currency-neutral adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.

•

~~Adjusted effective income tax rate:~~ We adjust the GAAP financial measures to exclude the effect of 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, and other costs impacting comparability. We excluded the items which we believe may obscure trends in our pre-tax income and the related tax effect of those items on our adjusted effective income tax rate. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's effective tax rate, excluding the pre-tax income and tax effect of the items noted above, for the periods presented. Management uses this non-GAAP measure to monitor the effectiveness of initiatives in place to optimize our global tax rate.

•

~~Cash flow:~~ Defined as net cash provided by operating activities reduced by expenditures for property additions. Cash flow does not represent the residual cash flow available for discretionary expenditures. We use this non-GAAP financial measure of cash flow to focus management and investors on the amount of cash available for debt repayment, dividend distributions, acquisition opportunities, and share repurchases once all of the Company’s business needs and obligations are met. Additionally, certain performance-based compensation includes a component of this non-GAAP measure.

•Currency-neutral net sales and organic net sales: We adjust the GAAP financial measure to exclude the impact of foreign currency, resulting in currency-neutral net sales. In addition, we exclude the impact of acquisitions, divestitures, and foreign currency, resulting in organic net sales. We excluded the items which we believe may obscure trends in our underlying net sales performance. By providing these non-GAAP net sales 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 these non-GAAP measures to evaluate the effectiveness of initiatives behind net sales growth, pricing realization, and the impact of mix on our business results. These non-GAAP measures are also used to make decisions regarding the future direction of our business, and for resource allocation decisions.

•Adjusted: operating profit and diluted EPS: 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 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 resulting in 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.

•Currency-neutral adjusted: gross profit, gross margin, operating profit, and diluted EPS: 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 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 impacting comparability, and foreign currency, resulting in currency-neutral adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.

•Adjusted effective income tax rate: We adjust the GAAP financial measures to exclude the effect of restructuring programs, mark-to-market adjustments for pension plans (service cost, interest cost, expected

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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. 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 adjusted effective income tax rate. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's effective tax rate, excluding the pre-tax income and tax effect of the items noted above, for the periods presented. Management uses this non-GAAP measure to monitor the effectiveness of initiatives in place to optimize our global tax rate.

•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

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 a pre-tax mark-to-market loss of $86 million and $74 million for the quarter and year-to-date periods ended June 27, 2020, respectively. Included within the aforementioned was a pre-tax mark-to-market expense for pension plans of $43 million and $57 million for the quarter and year-to-date periods ended June 27, 2020, respectively. Additionally, we recorded a pre-tax mark-to-market benefit of $35 ~~million~~ million and a pre-tax mark-to-market expense of $6 million for the quarter and year-to-date periods ended June 29, 2019, respectively. Included within the aforementioned was a pre-tax mark-to-market expense for pension plans of $11 million and $10 million for the quarter and year-to-date periods ended June 29, 2019, respectively. We also recorded a pre-tax mark-to-market benefit of $5 million and $44 million for the quarter and year-to-date periods ended June 30, 2018, respectively. Included within the aforementioned was a pre-tax mark-to-market benefit for pension plans of $2 million and $27 million for the quarter and year-to-date periods ended June 30, 2018, respectively.2019.

Project K

In 2019, the Company completed implementation of all Project K ~~continued generating savings used to invest in key strategic areas of focus for the business.~~initiatives. We recorded pre-tax charges related to this program of $15 million and $23 million for the quarter and year-to-date periods ended June 29, 2019, respectively. ~~We also recorded pre-tax charges related to this program of $5 million and $25 million for the quarter and year-to-date periods ended June 30, 2018, respectively.~~

See the Restructuring Programs section for more information.

Brexit impacts

~~With~~During 2019, with the uncertainty of the United ~~Kingdom~~Kingdom's (U.K.) ~~exiting~~exit from the European Union (EU), commonly referred to as Brexit, we ~~have begun preparations~~incurred certain costs to proactively prepare for the potential adverse impacts, ~~of Brexit,~~ such as delays at ports of entry and departure. As a result, we incurred ~~pre-tax~~pretax charges of $3 million and $6 million for the quarter and year-to-date periods ended June 29, 2019, respectively.

Business and portfolio realignment

One-time costs related ~~to: pending~~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; reorganizations in support~~

Table of ~~our Deploy for Growth priorities and~~Contents

businesses. As a ~~reshaped portfolio; and investments in enhancing capabilities prioritized by our Deploy for Growth strategy. We~~result, we incurred pre-tax charges, primarily related ~~primarily~~ to reorganizations, of $17 million and $23 million for the quarter and year-to-date periods ended June 27, 2020, respectively. We also recorded pre-tax charges of $83 million and $114 million for the quarter and year-to-date periods ended June 29, 2019, respectively.

~~Acquisitions~~Multi-employer pension plan withdrawal

~~In May~~During the second quarter of ~~2018,~~2020, the Company ~~acquired an incremental 1% ownership interest in Multipro, which along with concurrent changes~~recorded a pre-tax gain of approximately $5 million related to the ~~shareholders' agreement, resulted in~~settlement of a multi-employer pension plan withdrawal liability.

Divestiture

On July 28, 2019, the Company ~~now having~~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, subject to a ~~51% controlling interest~~working capital adjustment mechanism. The operating results for these businesses were included primarily in ~~and began consolidating Multipro, a leading distributor of a variety of food products in Nigeria and Ghana. In~~ our ~~AMEA~~North America reportable segment, and to a lesser extent, Latin America, prior to the sale. Reported net sales for the divested businesses totaled $194 million and $507 for the quarter and year-to-date periods ended June 29, ~~2019, the acquisition added $73 million and $271 million, respectively, in net sales that impacted the comparability of our reported results.~~2019.

~~Gain on unconsolidated entities, net~~

In connection with the Multipro business combination, the Company recognized a one-time, non-cash gain on the disposition of our previously held equity interest in Multipro of $245 million. Additionally, the Company exercised its call option to acquire a 50% interest in Tolaram Africa Foods, PTE LTD, a holding company with a 49% equity interest in an affiliated food manufacturer, resulting in the Company having a 24.5% interest in the affiliated food manufacturer. In conjunction with the exercise, the Company recognized a one-time, non-cash loss of $45 million, which represents an other than temporary excess of cost over fair value of the investment. These amounts were recorded within Earnings (loss) from unconsolidated entities during the second quarter of 2018.

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 June ~~29, 2019,~~27, 2020, our reported net sales ~~improved~~were flat versus the prior year as the absence of results from the businesses divested in July 2019 and unfavorable foreign currency were offset by ~~3.0% due primarily~~strong organic growth. Net sales growth was mostly attributable to increased demand for packaged foods for at-home consumption as a result of the ~~consolidation of Multipro results (May 2018). These impacts were~~global pandemic, partially offset by ~~unfavorable foreign currency which reduced net sales 1.9 percentage points.~~a decline in away-from-home channels and modestly negative price/mix due to country and category mix. Organic net sales increased ~~2.3%~~9% from the prior year after excluding the impact of ~~Multipro~~the divestiture and foreign ~~currency, due to growth in our international businesses and favorable pricing/mix.~~currency.

Second quarter reported operating profit ~~decreased 16%~~increased 27% versus the year-ago quarter ~~driven~~due primarily byto higher ~~input costs~~net sales and ~~higher Project K and~~operating leverage, lower business and portfolio realignment ~~costs in~~charges, and lower brand building due to the ~~current quarter, as well as unfavorable foreign currency,~~phasing of spending towards the back half of the year, partially offset by ~~favorable~~unfavorable mark-to-market impacts, the absence of results from the divested businesses, incremental safety, sanitation, and labor costs related to the pandemic, and foreign currency impacts. Currency-neutral adjusted operating profit ~~decreased 3.8%~~increased almost 27%, after excluding ~~foreign currency,~~the impact of the divested businesses, mark-to-market, ~~Project K,~~ business and portfolio realignment, Project K, and ~~Brexit.~~foreign currency.

Reported diluted EPS of ~~$0.84~~$1.02 for the quarter was ~~down 51%~~up 21% compared to the prior year quarter of ~~$1.71~~$0.84 due ~~primarily~~ to higher ~~input costs, higher Project K~~operating profit and lower business and portfolio realignment ~~costs in~~charges versus the ~~current quarter, unfavorable foreign currency, and lower expected return on pension assets,~~prior year. These impacts were partially offset by ~~favorable mark-to-market.~~the absence of results from the businesses divested in July 2019, a higher tax rate and unfavorable foreign currency. Currency-neutral adjusted diluted EPS of ~~$1.00 decreased by 12%~~$1.26 for the quarter increased 27% compared to prior year quarter of ~~$1.14,~~$0.99, after excluding the impact of ~~foreign currency,~~ mark-to-market, ~~Project K,~~ business and portfolio realignment, Project K, and ~~Brexit.~~foreign currency.

Table of Contents

Reconciliation of certain non-GAAP Financial Measures

Quarter ended Year-to-date period ended
Consolidated results
(dollars in millions, except per share data)
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Reported net income $ 286
$ 596
$ 568
$ 1,040
Mark-to-market (pre-tax) 35
5
(6 ) 44
Project K (pre-tax) (15 ) (5 ) (23 ) (25 )
Brexit impacts (pre-tax) (3 ) —
(6 ) —
Business and portfolio realignment (pre-tax) (83 ) —
(114 ) —
Income tax impact applicable to adjustments, net* 15
—
34
(3 )
Gain from unconsolidated entities, net —
200
—
200
Adjusted net income $ 337
$ 396
$ 683
$ 824
Foreign currency impact (6 ) (17 )
Currency-neutral adjusted net income $ 343
$ 396
$ 700
$ 824
Reported diluted EPS $ 0.84
$ 1.71
$ 1.66
$ 2.99
Mark-to-market (pre-tax) 0.10
0.01
(0.02 ) 0.13
Project K (pre-tax) (0.05 ) (0.01 ) (0.07 ) (0.07 )
Brexit impacts (pre-tax) (0.01 ) —
(0.02 ) —
Business and portfolio realignment (pre-tax) (0.24 ) —
(0.33 ) —
Income tax impact applicable to adjustments, net* 0.05
—
0.10
(0.01 )
Gain from unconsolidated entities, net —
0.57
—
0.57
Adjusted diluted EPS $ 0.99
$ 1.14
$ 2.00
$ 2.37
Foreign currency impact (0.01 ) (0.05 )
Currency-neutral adjusted diluted EPS $ 1.00
$ 1.14
$ 2.05
$ 2.37
Currency-neutral adjusted diluted EPS growth (12.3 )%

(13.5 )%

~~Note: Tables may not foot due to rounding.~~

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

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

~~Net sales and operating profit~~

~~The following tables provide an analysis of net sales and operating profit performance for the second quarter of 2019 versus 2018:~~

Quarter ended June 29, 2019
(millions)
North
America
Europe
Latin
America
AMEA Corporate
Kellogg
Consolidated
Reported net sales $ 2,148
$ 541
$ 239
$ 533
$ —
$ 3,461
Foreign currency impact on total business (inc)/dec (4 ) (28 ) (5 ) (25 ) —
(62 )
Currency-neutral net sales $ 2,151
$ 569
$ 245
$ 558
$ —
$ 3,524
Acquisitions —
—
—
73
—
73
Foreign currency impact on acquisitions (inc)/dec —
—
—
13
—
13
Organic net sales $ 2,151
$ 569
$ 245
$ 471
$ —
$ 3,437

Quarter ended June 30, 2018
(millions)
North
America
Europe
Latin
America
AMEA Corporate
Kellogg
Consolidated
Reported net sales $ 2,127
$ 559
$ 239
$ 435
$ —
$ 3,360

% change - 2019 vs. 2018:
Reported growth 1.0 % (3.2 )% 0.2 % 22.6 % — % 3.0 %
Foreign currency impact on total business (inc)/dec (0.1 )% (5.0 )% (2.1 )% (5.8 )% — % (1.9 )%
Currency-neutral growth 1.1 % 1.8 % 2.3 % 28.4 % — % 4.9 %
Acquisitions — % — % — % 16.9 % — % 2.2 %
Foreign currency impact on acquisitions (inc)/dec — % — % — % 3.0 % — % 0.4 %
Organic growth 1.1 % 1.8 % 2.3 % 8.5 % — % 2.3 %
Volume (tonnage) (1.8 )% 1.3 % (2.1 )% — % — % (1.0 )%
Pricing/mix 2.9 % 0.5 % 4.4 % 8.5 % — % 3.3 %


	Quarter ended								Year-to-date period ended
Consolidated results (dollars in millions, except per share data)	June 27, 2020			June 29, 2019		June 27, 2020			June 29, 2019
Reported net income	$	351		$	286	$	698		$	568
Mark-to-market (pre-tax)	(86)			35		(74)			(6)
Project K (pre-tax)	—			(15)		—			(23)
Brexit impacts (pre-tax)	—			(3)		—			(6)
Business and portfolio realignment (pre-tax)	(17)			(83)		(23)			(114)
Multi-employer pension plan withdrawal (pre-tax)	5			—		5			—

Income tax impact applicable to adjustments, net*	23			15		23			34
Adjusted net income	$	426		$	337	$	766		$	683
Foreign currency impact	(9)			—		(13)			—
Currency-neutral adjusted net income	$	435		$	337	$	780		$	683
Reported diluted EPS	$	1.02		$	0.84	$	2.02		$	1.66
Mark-to-market (pre-tax)	(0.25)			0.10		(0.21)			(0.02)
Project K (pre-tax)	—			(0.05)		—			(0.07)
Brexit impacts (pre-tax)	—			(0.01)		—			(0.02)
Business and portfolio realignment (pre-tax)	(0.05)			(0.24)		(0.07)			(0.33)
Multi-employer pension plan withdrawal (pre-tax)	0.01			—		0.01			—

Income tax impact applicable to adjustments, net*	0.07			0.05		0.07			0.10
Adjusted diluted EPS	$	1.24		$	0.99	$	2.22		$	2.00
Foreign currency impact	(0.02)					(0.04)
Currency-neutral adjusted diluted EPS	$	1.26		$	0.99	$	2.26		$	2.00
Currency-neutral adjusted diluted EPS growth	27.3		%			13.0		%

Note: Tables may not foot due to rounding.

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

Quarter ended June 29, 2019
(millions)
North
America*
Europe
Latin
America
AMEA Corporate*
Kellogg
Consolidated
Reported operating profit $ 322
$ 36
$ 17
$ 45
$ (23 ) $ 397
Mark-to-market —
—
—
—
46
46
Project K (10 ) —
(2 ) (3 ) —
(15 )
Brexit impacts —
(3 ) —
—
—
(3 )
Business and portfolio realignment (42 ) (32 ) (2 ) (2 ) (5 ) (83 )
Adjusted operating profit $ 374
$ 72
$ 22
$ 49
$ (64 ) $ 452
Foreign currency impact —
(3 ) —
(2 ) —
(6 )
Currency-neutral adjusted operating profit $ 373
$ 75
$ 22
$ 51
$ (64 ) $ 458

Quarter ended June 30, 2018
(millions)
North
America*
Europe
Latin
America
AMEA Corporate*
Kellogg
Consolidated
Reported operating profit $ 385
$ 87
$ 20
$ 38
$ (56 ) $ 474
Mark-to-market —
—
—
—
3
3
Project K (12 ) 13
(2 ) (3 ) (1 ) (5 )
Adjusted operating profit $ 397
$ 74
$ 22
$ 41
$ (58 ) $ 476

% change - 2019 vs. 2018:
Reported growth (16.6 )% (58.4 )% (12.8 )% 16.3 % 60.8 % (16.2 )%
Mark-to-market — % — % — % — % 77.2 % 9.4 %
Project K (0.2 )% (7.7 )% (0.6 )% (0.2 )% 2.2 % (2.7 )%
Brexit impacts — % (3.6 )% — % — % — % (0.5 )%
Business and portfolio realignment (10.5 )% (43.8 )% (8.4 )% (5.0 )% (8.0 )% (17.3 )%
Adjusted growth (5.9 )% (3.3 )% (3.8 )% 21.5 % (10.6 )% (5.1 )%
Foreign currency impact — % (5.0 )% 0.7 % (5.6 )% 0.2 % (1.3 )%
Currency-neutral adjusted growth (5.9 )% 1.7 % (4.5 )% 27.1 % (10.8 )% (3.8 )%

~~Note: Tables may not foot due to rounding.~~

* ~~Corporate in 2019 includes~~Represents the ~~cost of certain global research and development activities that were previously included in the North America reportable segment in 2018 that totaled approximately $12 million.~~

~~For more information~~estimated income tax effect on the reconciling items, inusing weighted-average statutory tax rates, depending upon the ~~table above, please refer to the Significant items impacting comparability section.~~applicable jurisdiction.

~~North America~~Net sales and operating profit

~~Reported~~The following tables provide an analysis of net sales ~~increased 1.0% versus~~and operating profit performance for the ~~comparable~~second quarter of ~~2018 due primarily to favorable pricing/mix partially offset by lower volume. Currency-neutral net sales increased 1.1% after excluding the impact of foreign currency.~~

Net sales % change - second quarter 2019 vs. 2018:
North America Reported net sales Foreign currency Currency-neutral net sales
Snacks 3.6 % (0.1 )% 3.7 %
Cereal (4.8 )% (0.3 )% (4.5 )%
Frozen 3.1 % (0.1 )% 3.2 %

~~North America snacks currency-neutral net sales increased 3.7% in the quarter due to sustained momentum and innovations in key brands, including~~ 2020 versus 2019:~~Pringles, Cheez-It, Rice Krispies Treats~~, ~~Pop-Tarts, and RXBAR~~.

~~North America cereal currency-neutral net sales declined by 4.5% largely due to reduced promotional activity during our second and final wave of pack-size harmonization as well as category softness.~~

~~Frozen foods currency-neutral net sales increased 3.2%, led by innovation and effective commercial programs for~~ ~~Morningstar Farms~~ ~~veggie foods and~~ ~~Eggo~~ ~~waffles and french toast.~~

North America reported operating profit decreased 16.6% due to higher input costs, business and portfolio realignment charges during the quarter and lower net sales in cereal. Currency-neutral adjusted operating profit declined 5.9% after excluding the impact of Project K, business and portfolio realignment, and foreign currency. Additionally, North America operating profit benefited from the transfer of certain global research and development activities from North America to Corporate at the beginning of 2019.

~~Europe~~

Reported net sales decreased 3.2% due primarily to unfavorable foreign currency. Currency-neutral net sales increased 1.8% after excluding the impact of foreign currency, driven by higher volume and favorable price/mix.

~~Growth was driven by snacks, led by~~ ~~Pringles,~~ ~~as well as higher net sales in Russia. Growth was partially offset by modest declines in certain developed markets' cereal and wholesome snacks businesses.~~

Reported operating profit decreased 58% due primarily to business and portfolio realignment costs as well as unfavorable foreign currency. Currency-neutral adjusted operating profit increased 1.7% after excluding the impact of foreign currency, and costs related to Project K, business and portfolio realignment, and Brexit.

~~Latin America~~

Reported net sales increased 0.2% due to favorable pricing/mix partially offset by lower volume and unfavorable foreign currency. Currency-neutral net sales increased 2.3% after excluding the impact of foreign currency.

~~Cereal net sales growth was led by share growth in Mexico.~~

~~Pringles~~ net sales grew in Mexico but were more than offset by lower sales in Argentina related to economic and currency weakness, and in Caribbean/Central America due to economic conditions and a distributor transition.

Reported operating profit decreased 12.8% due primarily to business and portfolio realignment charges during the quarter, higher input costs, and investments in capabilities. Currency-neutral adjusted operating profit decreased 4.5% after excluding the impact of foreign currency, Project K, and business and portfolio realignment.

~~AMEA~~

~~Reported net sales improved 22.6% due to higher volume from the consolidation of Multipro results beginning in May 2018, improved price realization, and~~ ~~Pringles~~ growth across the region, particularly in emerging markets, partially offset by unfavorable foreign currency. Organic net sales increased 8.5% after excluding the impact of Multipro and foreign currency.

~~Multipro posted double-digit reported net sales growth during the quarter and contributed to organic growth beginning in May, lapping last year's consolidation of the business.~~

~~Snacks posted solid growth in the quarter, led by sustained momentum in~~ ~~Pringles,~~ ~~which gained share collectively across the region.~~

~~Cereal posted growth across the region, with the exception of Australia where shipment timing resulted in a modest decline, but consumption remained positive.~~

Reported operating profit increased 16% due to the consolidation of Multipro results and higher organic net sales. Currency-neutral adjusted operating profit improved 27% after excluding the impact of Project K, business and portfolio realignment, and foreign currency.

~~Corporate~~

Reported operating profit increased $33 million versus the comparable prior year quarter due primarily to favorable mark-to-market impacts. Currency-neutral adjusted operating profit decreased $6 million after excluding the impact of mark-to-market, Project K, and business and portfolio realignment, due primarily to the transfer of certain global research and development activities from North America to Corporate at the beginning of 2019.


Year-to-date period ended June 29, 2019
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported net sales	$	4,437		$	1,038		$	464		$	1,044		$	—		$	6,983
Foreign currency impact on total business (inc)/dec	(10		)	(74		)	(22		)	(80		)	—			(185		)
Currency-neutral net sales	$	4,446		$	1,112		$	487		$	1,124		$	—		$	7,169
Acquisitions	—			—			—			271			—			271
Foreign currency impact on acquisitions (inc)/dec	—			—			—			49			—			49
Organic net sales	$	4,446		$	1,112		$	487		$	803		$	—		$	6,848

Year-to-date period ended June 30, 2018
Quarter ended June 27, 2020																			Quarter ended June 27, 2020
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated			(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported net sales	$	4,457		$	1,079		$	471		$	754		$	—		$	6,761		Reported net sales	$	2,167		$	546		$	223		$	529		$	—		$	3,465

% change - 2019 vs. 2018:

Foreign currency impact on total business (inc)/dec																			Foreign currency impact on total business (inc)/dec	(6)			(18)			(48)			(31)			—			(103)

Organic net sales																			Organic net sales	$	2,173		$	564		$	271		$	560		$	—		$	3,569

Quarter ended June 29, 2019																			Quarter ended June 29, 2019
(millions)																			(millions)
Reported net sales																			Reported net sales	$	2,148		$	541		$	239		$	533		$	—		$	3,461

Divestiture																			Divestiture	191			—			2			—			—			194

Organic net sales																			Organic net sales	$	1,956		$	542		$	237		$	533		$	—		$	3,268

% change - 2020 vs. 2019:																			% change - 2020 vs. 2019:
Reported growth	(0.5		)%	(3.8		)%	(1.4		)%	38.6		%	—		%	3.3		%	Reported growth	0.9		%	0.8		%	(6.9)		%	(0.7)		%	—		%	0.1		%

Foreign currency impact on total business (inc)/dec	(0.2		)%	(6.8		)%	(4.7		)%	(10.6		)%	—		%	(2.7		)%	Foreign currency impact on total business (inc)/dec	(0.3)		%	(3.3)		%	(20.0)		%	(5.8)		%	—		%	(3.0)		%
Currency-neutral growth	(0.3		)%	3.0		%	3.3		%	49.2		%	—		%	6.0		%	Currency-neutral growth	1.2		%	4.1		%	13.1		%	5.1		%	—		%	3.1		%
Acquisitions	—		%	—		%	—		%	36.0		%	—		%	4.0		%
Foreign currency impact on acquisitions (inc)/dec	—		%	—		%	—		%	6.6		%	—		%	0.7		%

Divestiture																			Divestiture	(9.9)		%	—		%	(1.2)		%	—		%	—		%	(6.1)		%

Organic growth	(0.3		)%	3.0		%	3.3		%	6.6		%	—		%	1.3		%	Organic growth	11.1		%	4.1		%	14.3		%	5.1		%	—		%	9.2		%
Volume (tonnage)	(1.7		)%	2.0		%	(0.8		)%	0.2		%	—		%	(0.7		)%	Volume (tonnage)	13.0		%	8.7		%	11.4		%	5.8		%	—		%	10.3		%
Pricing/mix	1.4		%	1.0		%	4.1		%	6.4		%	—		%	2.0		%	Pricing/mix	(1.9)		%	(4.6)		%	2.9		%	(0.7)		%	—		%	(1.1)		%

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.

Table of Contents


Quarter ended June 27, 2020																			Quarter ended June 27, 2020
(millions)																			(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported operating profit																			Reported operating profit	$	464		$	92		$	31		$	38		$	(119)		$	506
Mark-to-market																			Mark-to-market	—			—			—			—			(43)			(43)

Year-to-date period ended June 29, 2019
Business and portfolio realignment																			Business and portfolio realignment	—			(1)			(4)			(10)			(1)			(17)
Multi-employer pension plan withdrawal																			Multi-employer pension plan withdrawal	5			—			—			—			—			5
Adjusted operating profit																			Adjusted operating profit	$	459		$	94		$	35		$	48		$	(75)		$	562
Foreign currency impact																			Foreign currency impact	(1)			(3)			(6)			(3)			1			(11)
Currency-neutral adjusted operating profit																			Currency-neutral adjusted operating profit	$	460		$	97		$	42		$	51		$	(76)		$	573

Quarter ended June 29, 2019																			Quarter ended June 29, 2019
(millions)	North America*			Europe			Latin America			AMEA			Corporate*			Kellogg Consolidated			(millions)
Reported operating profit	$	702		$	96		$	38		$	92		$	(150	)	$	778		Reported operating profit	$	322		$	36		$	17		$	45		$	(23)		$	397
Mark-to-market	—			—			—			—			4			4			Mark-to-market	—			—			—			—			46			46
Project K	(14		)	(1		)	(4		)	(4		)	—			(23		)	Project K	(10)			—			(2)			(3)			—			(15)
Brexit impacts	—			(6		)	—			—			—			(6		)	Brexit impacts	—			(3)			—			—			—			(3)
Business and portfolio realignment	(53		)	(36		)	(2		)	(2		)	(21		)	(114		)	Business and portfolio realignment	(42)			(32)			(2)			(2)			(5)			(83)
Adjusted operating profit	$	769		$	139		$	44		$	97		$	(132	)	$	917
Foreign currency impact	(1		)	(10		)	(1		)	(6		)	—			(18		)
Currency-neutral adjusted operating profit	$	769		$	149		$	45		$	103		$	(132	)	$	935

Year-to-date period June 30, 2018
(millions)	North America*			Europe			Latin America			AMEA			Corporate*			Kellogg Consolidated
Reported operating profit	$	784		$	147		$	42		$	79		$	(68	)	$	984
Mark-to-market	—			—			—			—			33			33
Project K	(22		)	6			(4		)	(3		)	(2		)	(25		)
Adjusted operating profit	$	806		$	141		$	46		$	82		$	(99	)	$	976		Adjusted operating profit	$	374		$	72		$	22		$	49		$	(64)		$	452

% change - 2019 vs. 2018:

% change - 2020 vs. 2019:																			% change - 2020 vs. 2019:
Reported growth	(10.5		)%	(34.9		)%	(10.3		)%	16.0		%	(117.8		)%	(20.9		)%	Reported growth	44.2		%	156.6		%	77.1		%	(13.7)		%	(445.3)		%	27.3		%
Mark-to-market	—		%	—		%	—		%	—		%	(67.9		)%	(2.3		)%	Mark-to-market	—		%	—		%	—		%	—		%	(434.2)		%	(29.2)		%
Project K	0.8		%	(3.8		)%	(0.8		)%	(0.8		)%	2.9		%	(0.3		)%	Project K	4.5		%	3.5		%	21.7		%	4.6		%	0.4		%	6.8		%
Brexit impacts	—		%	(4.0		)%	—		%	—		%	—		%	(0.6		)%	Brexit impacts	—		%	17.1		%	—		%	—		%	—		%	1.1		%
Business and portfolio realignment	(6.6		)%	(25.7		)%	(4.1		)%	(2.6		)%	(20.8		)%	(11.7		)%	Business and portfolio realignment	15.5		%	104.9		%	(5.3)		%	(16.7)		%	6.1		%	23.4		%
Multi-employer pension plan withdrawal																			Multi-employer pension plan withdrawal	1.2		%	—		%	—		%	—		%	—		%	1.0		%
Adjusted growth	(4.7		)%	(1.4		)%	(5.4		)%	19.4		%	(32.0		)%	(6.0		)%	Adjusted growth	23.0		%	31.1		%	60.7		%	(1.6)		%	(17.6)		%	24.2		%
Foreign currency impact	(0.1		)%	(7.0		)%	(1.9		)%	(7.5		)%	0.1		%	(1.8		)%	Foreign currency impact	(0.2)		%	(4.1)		%	(28.7)		%	(5.3)		%	1.7		%	(2.5)		%
Currency-neutral adjusted growth	(4.6		)%	5.6		%	(3.5		)%	26.9		%	(32.1		)%	(4.2		)%	Currency-neutral adjusted growth	23.2		%	35.2		%	89.4		%	3.7		%	(19.3)		%	26.7		%

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.

North America

Reported net sales ~~decreased 0.5%~~for the second quarter increased almost 1% versus the ~~comparable year-to-date period of 2018 due primarily to lower volume~~prior year as strong organic growth was partially offset by ~~favorable pricing/mix.~~the absence of results from the businesses divested in July 2019. Net sales growth was driven by increased demand for packaged foods for at-home consumption as a result of the pandemic. This acceleration of demand was partly offset by a related decline in net sales in the away from home channels, also due to the pandemic. Organic net sales ~~decreased 0.3%~~increased 11% after excluding the impact of the divestiture and foreign currency.

Net sales % change - second quarter year-to-date 2019 vs. 2018:
North America Reported net sales Foreign currency Currency-neutral net sales
Snacks 1.6 % (0.2 )% 1.8 %
Cereal (4.8 )% (0.3 )% (4.5 )%
Frozen 0.7 % (0.1 )% 0.8 %

~~North America snacks currency-neutral net sales increased 1.8%~~During the second quarter, shipments exceeded consumption across most of our retail categories resulting in the ~~year-to-date period due to sustained momentum and innovations in key brands, including~~ ~~Cheez-It, Rice Krispies Treats~~, ~~Pringles~~ ~~and~~ ~~Pop-Tarts. These impacts were partially offset~~anticipated replenishment of trade inventory held by ~~the unfavorable impact of the RXBAR recall~~retailers, which was largely depleted during the first quarter. In general, trade inventory levels at the end of the second quarter approximate typical pre-pandemic levels. Our net sales performance could be impacted in future periods by fluctuations in trade inventory levels. The timing and extent of any impact will depend on the how the pandemic impacts demand in subsequent periods as well as decisions made by our retail customers.


Net sales % change - second quarter 2020 vs. 2019:
North America	Reported net sales		Foreign currency		Currency-neutral net sales		Divestiture		Organic net sales
Snacks	(12.8)	%	(0.1)	%	(12.7)	%	(18.7)	%	6.0	%
Cereal	25.0	%	(0.6)	%	25.6	%	—	%	25.6	%
Frozen	10.6	%	(0.3)	%	10.9	%	—	%	10.9	%

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North America ~~cereal currency-neutral~~snacks reported net sales ~~declined by 4.5% largely~~decreased 13% due to ~~reduced promotional activity during two waves~~the absence of ~~pack-size harmonization during~~the divested businesses, whose results were seasonally weighted to the first half of the ~~year~~year. Organic net sales increased 6.0% in the quarter due to high demand for packaged foods for at-home consumption as a result of the pandemic. Cracker consumption in the U.S. increased nearly 9%, resulting in gained share, led by Cheez-it, Club and Carr's. In salty snacks, Pringles grew consumption, with it's core-four flavors growing in line with the category.

North America cereal reported net sales increased 25% during the second quarter, as a result of share gains as well as pandemic-related consumption growth. U.S. cereal consumption was up almost 16% year on year, outpacing the ~~loss of~~category. Importantly, we are gaining share ~~of our~~ not only behind taste-fun brands like Froot Loops and Frosted Flakes, but also behind Health & Wellness-oriented brands that we set out to revitalize this year through refreshed messaging and media. Special K ~~branded cereals.~~ gained share in Q2, as did Mini-Wheats and Raisin Bran.

North America frozen ~~currency-neutral~~foods reported net sales increased 11% during the second quarter, driven by ~~0.8%, comparing against a notably~~share gains of our Eggo brand and double-digit consumption growth of Morningstar Farms. In the frozen “from the griddle” category, our Eggo brand posted consumption growth of approximately 26% during the quarter, gaining substantial share, while our Kashi brand grew consumption by approximately 19%. We outpaced each of the category’s three product segments – waffles, pancakes, and French toast – aided by the strong ~~double-digit~~innovation and renovation we have completed over the past year. In frozen veggie foods, our MorningStar Farms brand grew consumption by more than 31% in the quarter, with growth being limited only by capacity limitations in the quarter.

Canada reported net sales growth, despite unfavorable foreign currency, due to growth in ~~the prior year-to-date period.~~cereal and frozen foods resulting from share gains as well as pandemic-related consumption growth.

North America reported operating profit ~~decreased 10.5%~~increased 44% due to higher ~~input costs,~~net sales and operating leverage, lower ~~cereal volume,~~Project K and ~~business and portfolio realignment charges during the year-to-date period. Currency-neutral adjusted operating profit declined 4.6% after excluding the impact of restructuring,~~ business and portfolio realignment costs, and ~~foreign currency. Additionally, North America~~lower brand building due to the phasing of spending towards the back half of the year, partially offset by the absence of results of the divested businesses. Currency-neutral adjusted operating profit ~~benefited from~~increased 23%, after excluding the ~~transfer~~impact of ~~certain global research~~Project K, business and ~~development activities from North America to Corporate at the beginning of 2019.~~portfolio realignment, multi-employer pension withdrawal impacts and foreign currency.

Europe

Reported net sales ~~decreased 3.8%~~increased 0.8% due ~~primarily~~ to ~~unfavorable foreign currency~~elevated demand for at-home consumption of our products partially offset by ~~higher volume and favorable pricing/mix.~~unfavorable foreign currency. Organic net sales increased ~~3.0% after excluding~~4.1%.

Cereal reported net sales growth for the ~~impact of foreign currency.~~

~~Growth~~quarter was driven largely by ~~snacks, led by~~ ~~Pringles,~~ accelerated consumption in our developed markets as a result of share gains in our five largest markets (UK, France, Germany, Italy, and Spain) as well as ~~higher~~pandemic-related consumption growth during the stay-at-home mandates. Snacks reported net sales ~~in Russia. Growth was partially offset by modest declines in certain developed markets' cereal and wholesome snacks.~~

~~Cereal sales~~ declined ~~during the year-to-date period but the decline moderated from the prior year. The declines were primarily~~ due to ~~performance in France~~reduced demand for on-the-go foods and ~~Benelux as cereal grew in most other markets in~~pack formats, and the ~~region.~~repurpose of marketing programs for Pringles due to the cancellation of a major sporting event.

~~As reported~~Reported operating profit ~~decreased 35%~~increased 157% due primarily to higher sales, lower business and portfolio realignment costs, and lower brand building due to the phasing of spending towards the back half of the year, partially offset by unfavorable foreign currency. Currency-neutral adjusted operating profit increased ~~5.6%~~35% after excluding the impact of foreign currency, and costs related to Project K, business and portfolio ~~realignment, and Brexit.~~realignment.

Latin America

Reported net sales decreased ~~1.4%~~6.9% due primarily to ~~favorable pricing/mix partially offset by lower volume and~~the impact of unfavorable foreign ~~currency.~~currency and the divestiture. Organic net sales increased ~~3.3%~~14%, after excluding the impact of the divestiture and foreign ~~currency.~~

~~Growth was~~currency, driven by higher cereal sales, which accelerated during stay-at-home mandates as consumers increased purchases of food for at-home consumption in modern trade channels as a result of the pandemic.

Cereal performance was led by growth in Mexico, ~~cereal and Parati in Brazil. Mexico's cereal~~including strong growth prior to stay-at-home mandates.

Snacks net sales ~~growth continues to accelerate behind strong commercial programs, effective in-store execution, and continued expansion in high-frequency stores. Parati posted growth in net sales and share~~declined during the quarter ~~in key categories.~~

Reported operating profit decreased 10.3% due primarily to higher input costs and investments. Currency-neutral adjusted operating profit decreased 3.5% after excluding the impact of foreign currency, Project K, and business and portfolio realignment.

~~AMEA~~

~~Reported net sales improved 39%~~ due to ~~higher volume from~~ the ~~consolidation~~shut-downs of ~~Multipro results beginning in May 2018,~~high frequency stores and ~~Pringles~~ growth across the region, partially offset by unfavorable foreign currency. Organic net sales increased 6.6% due primarily to favorable pricing/mix after excluding the impact of Multipro and foreign currency.

~~Multipro posted double-digit reported net sales growth~~diminished on-the-go snacking occasions during the ~~year-to-date period and contributed to organic growth beginning in May, lapping last year's consolidation of the business.~~

pandemic.

~~Snacks posted solid growth in the first half, led by sustained momentum in~~
~~Pringles,~~ ~~which gained share collectively across the region.~~

Reported operating profit increased ~~16%~~77% due to ~~the consolidation of Multipro results and~~ higher organic net sales partially offset by unfavorable foreign currency. Currency-neutral adjusted operating profit ~~improved 27%~~increased 89% after excluding the impact of foreign currency, business and portfolio realignment and Project K.

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AMEA

Reported net sales declined 0.7% due primarily to unfavorable foreign currency offset by growth in developed market cereal and our West Africa distribution business, Multipro. Organic net sales increased 5.1% after excluding the impact of foreign currency.

Cereal reported net sales growth for the region was driven by elevated demand for at-home consumption of our products in developed markets, primarily Australia and South Africa as well as emerging markets in our MENAT business.

Snacks reported net sales declined due to pandemic-related disruptions and slowing economies in the region in the Middle East and other emerging markets, like India.

Reported operating profit decreased 14% due primarily to the negative impact of foreign currency and higher business and portfolio realignment charges, partially offset by higher organic net sales. Currency-neutral adjusted operating profit increased 3.7%, after excluding the impact of business and portfolio realignment, Project K, and ~~business and portfolio realignment.~~foreign currency.

Corporate

Reported operating profit decreased ~~$82~~$96 million versus the comparable prior year quarter due primarily to ~~favorable~~unfavorable mark-to-market impacts. Currency-neutral adjusted operating profit decreased ~~$33~~$12 million from the prior year after excluding the impact of mark-to-market ~~Project K,~~ and business and portfolio realignment ~~due primarily to the transfer~~activities.

The following tables provide an analysis of ~~certain global research~~net sales and ~~development activities from North America to Corporate at the beginning of 2019.~~

~~Margin performance~~

~~Our currency-neutral adjusted gross~~operating profit ~~and gross profit margin~~ performance for the ~~quarter and~~ year-to-date periods ended June 27, 2020 versus June 29, ~~2019 and June 30, 2018 are reconciled to the directly comparable GAAP measures as follows:~~2019:

Quarter ended June 29, 2019 June 30, 2018
GM change vs. prior
year (pts.)
Gross Profit (a) Gross Margin (b) Gross Profit (a) Gross Margin (b)
Reported $ 1,186
34.3 % $ 1,209
36.0 % (1.7 )
Mark-to-market 47
1.4 % 2
— % 1.4
Project K (11 ) (0.3 )% 4
0.2 % (0.5 )
Brexit impacts (3 ) (0.1 )% —
— % (0.1 )
Business and portfolio realignment (4 ) (0.1 )% —
— % (0.1 )
Foreign currency impact (19 ) — % —
— % —
Currency-neutral adjusted $ 1,176
33.4 % $ 1,203
35.8 % (2.4 )


Year-to-date period ended June 27, 2020
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported net sales	$	4,264		$	1,072		$	450		$	1,091		$	—		$	6,877




Foreign currency impact on total business (inc)/dec	(8)			(31)			(68)			(48)			—			(156)






Organic net sales	$	4,272		$	1,103		$	518		$	1,139		$	—		$	7,033

Year-to-date period ended June 29, 2019
(millions)
Reported net sales	$	4,437		$	1,038		$	464		$	1,044		$	—		$	6,983







Divestiture	502			—			5			—			—			507



Organic net sales	$	3,935		$	1,038		$	460		$	1,044		$	—		$	6,476

% change - 2020 vs. 2019:
Reported growth	(3.9)		%	3.3		%	(3.2)		%	4.5		%	—		%	(1.5)		%




Foreign currency impact on total business (inc)/dec	(0.2)		%	(3.0)		%	(14.6)		%	(4.6)		%	—		%	(2.2)		%
Currency-neutral growth	(3.7)		%	6.3		%	11.4		%	9.1		%	—		%	0.7		%


Divestiture	(12.3)		%	—		%	(1.2)		%	—		%	—		%	(7.9)		%



Organic growth	8.6		%	6.3		%	12.6		%	9.1		%	—		%	8.6		%
Volume (tonnage)	8.9		%	9.0		%	10.8		%	9.8		%	—		%	9.4		%
Pricing/mix	(0.3)		%	(2.7)		%	1.8		%	(0.7)		%	—		%	(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~~

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Year-to-date period ended June 27, 2020
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported operating profit	$	830		$	162		$	53		$	84		$	(163)		$	966
Mark-to-market	—			—			—			—			(17)			(17)


Business and portfolio realignment	—			(2)			(4)			(12)			(4)			(23)
Multi-employer pension plan withdrawal	5			—			—			—			—			5
Adjusted operating profit	$	825		$	164		$	57		$	96		$	(142)		$	1,001
Foreign currency impact	(1)			(4)			(8)			(5)			1			(17)
Currency-neutral adjusted operating profit	$	826		$	169		$	65		$	102		$	(143)		$	1,018







Year-to-date period ended June 29, 2019
(millions)
Reported operating profit	$	702		$	96		$	38		$	92		$	(150)		$	778
Mark-to-market	—			—			—			—			4			4
Project K	(14)			(1)			(4)			(4)			—			(23)
Brexit impacts	—			(6)			—			—			—			(6)
Business and portfolio realignment	(53)			(36)			(2)			(2)			(21)			(114)

Adjusted operating profit	$	769		$	139		$	44		$	97		$	(132)		$	917









% change - 2020 vs. 2019:
Reported growth	18.2		%	69.2		%	39.3		%	(8.2)		%	(9.5)		%	24.1		%
Mark-to-market	—		%	—		%	—		%	—		%	(13.8)		%	(2.8)		%
Project K	2.3		%	2.5		%	13.7		%	3.5		%	0.1		%	3.7		%
Brexit impacts	—		%	9.2		%	—		%	—		%	—		%	0.9		%
Business and portfolio realignment	8.0		%	39.4		%	(3.9)		%	(10.7)		%	12.1		%	12.7		%
Multi-employer pension plan withdrawal	0.6		%	—		%	—		%	—		%	—		%	0.5		%
Adjusted growth	7.3		%	18.1		%	29.5		%	(1.0)		%	(7.9)		%	9.1		%
Foreign currency impact	(0.2)		%	(3.2)		%	(17.1)		%	(5.4)		%	0.7		%	(1.9)		%
Currency-neutral adjusted growth	7.5		%	21.3		%	46.6		%	4.4		%	(8.6)		%	11.0		%

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.

North America

Reported net sales ~~less cost~~decreased 3.9% versus the first half of ~~goods sold.~~

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

~~Reported gross margin for the quarter was unfavorable 170 basis points~~2019, due primarily to the ~~consolidation~~absence of ~~Multipro~~ results from the businesses divested in July 2019, partially offset by strong organic growth. Net sales growth was driven by the acceleration of demand in March for snacks, cereal, and frozen food as consumers increased purchases of food for at-home consumption when the stay-at-home mandates went into effect in most of North America. This acceleration of demand was partly offset by a related decline in net sales in the away from home channels, also due to the pandemic. Organic net sales increased 8.6% after excluding the impact of the divestiture and foreign currency.


Net sales % change - second quarter year-to-date 2020 vs. 2019:
North America	Reported net sales		Foreign currency		Currency-neutral net sales		Divestiture		Organic net sales
Snacks	(15.1)	%	(0.1)	%	(15.0)	%	(23.4)	%	8.4	%
Cereal	13.5	%	(0.3)	%	13.8	%	—	%	13.8	%
Frozen	9.5	%	(0.2)	%	9.7	%	—	%	9.7	%

North America snacks reported net sales decreased 15% due to the absence of the divested businesses, whose results were seasonally weighted to the first half of the year. Organic net sales increased 8.4% during the first half of 2020, as strong growth in the first two months of the year-to-date period accelerated in March when stay-at-home mandates went into effect as a result of the pandemic.

North America cereal and frozen foods reported net sales during the first half of 2020 increased 13.5% and 9.5%, respectively, as growth accelerated in March when stay-at-home mandates went into effect as a result of the pandemic.

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

North America reported operating profit increased 18% due primarily to higher ~~input~~net sales and operating leverage, lower Project K and business and portfolio realignment costs, ~~mix shifts~~and lower brand building due to the phasing of spending towards the back half of the year, partially offset by the absence of results from the businesses divested. Currency-neutral adjusted operating profit increased 7.5%, after excluding the impact of Project K, business and portfolio realignment, multi-employer pension plan withdrawal impact and foreign currency.

Europe

Reported net sales increased 3.3% due to elevated demand for at-home consumption of our products partially offset by unfavorable foreign currency. Organic net sales increased 6.3%.

Cereal reported net sales growth for the year-to-date period was driven largely by accelerated consumption in our developed markets as a result of the stay-at-home mandates. Growth in cereal was partially offset by a decline in snacks, related to reduced demand for on-the-go foods and pack formats and the repurpose of marketing programs related to Pringles due to the cancellation of major sporting event.

Reported operating profit increased 69% due primarily to higher organic net sales, lower business and portfolio realignment costs, and lower brand building due to the phasing of spending towards the back half of the year, partially offset by unfavorable foreign currency. Currency-neutral adjusted operating profit increased 21% after excluding the impact of foreign currency, and costs related to ~~growth in new pack formats, as well as unfavorable mark-to-market. Currency-neutral adjusted gross margin was unfavorable 240 basis points compared~~Project K, business and portfolio realignment.

Latin America

Reported net sales decreased 3.2% due primarily to ~~the second quarter of 2018 after eliminating~~ the impact of ~~mark-to-market, Project K, Brexit,~~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 stay-at-home mandates as consumers increased purchases of food for at-home consumption in modern trade channels as a result of the pandemic.

Cereal performance was led by growth in Mexico, including strong growth prior to stay-at-home mandates.

Snacks net sales declined during the year-to-date period due to the shut-downs of high frequency stores and diminished on-the-go snacking occasions during the pandemic.

Reported operating profit increased 39% due to higher organic net sales partially offset by unfavorable foreign currency. Currency-neutral adjusted operating profit increased 47% after excluding the impact of foreign currency, business and portfolio realignment and Project K costs.

AMEA

Reported net sales improved 4.5% due primarily to growth in Multipro and cereal, partially offset by unfavorable foreign currency. Organic net sales increased 9.1% after excluding the impact of foreign currency.

Snacks reported net sales declined due to pandemic-related disruptions and slowing economies in the region.

Reported operating profit decreased 8.2% due primarily to the negative impact of foreign currency and higher business and portfolio realignment charges, partially offset by higher organic net sales. Currency-neutral adjusted operating profit increased 4.4%, after excluding the impact of business and portfolio realignment, Project K, and foreign currency.

Corporate

Reported operating profit decreased $13 million versus the comparable prior year-to-date period due primarily to unfavorable mark-to-market impacts partially offset by lower business and portfolio realignment costs during the current year. Currency-neutral adjusted operating profit decreased $11 million from the prior year-to-date period after excluding the impact of mark-to-market and business and portfolio realignment activities.

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Year-to-date period ended June 29, 2019 June 30, 2018
GM change vs. prior
year (pts.)
Gross Profit (a) Gross Margin (b) Gross Profit (a) Gross Margin (b)
Reported $ 2,293
32.8 % $ 2,461
36.4 % (3.6 )
Mark-to-market 5
— % 32
0.5 % (0.5 )
Project K (17 ) (0.2 )% (9 ) (0.2 )% —
Brexit impacts (6 ) (0.1 )% —
— % (0.1 )
Business and portfolio realignment (8 ) (0.1 )% —
— % (0.1 )
Foreign currency impact (55 ) 0.1 % —
— % 0.1
Currency-neutral adjusted $ 2,374
33.1 % $ 2,438
36.1 % (3.0 )

Margin performance

Our currency-neutral adjusted gross profit and gross profit margin performance for the quarter ended June 27, 2020 and June 29, 2019 are reconciled to the directly comparable GAAP measures as follows:


Quarter ended	June 27, 2020						June 29, 2019			GM change vs. prior year (pts.)
	Gross Profit (a)		Gross Margin (b)		Gross Profit (a)		Gross Margin (b)
Reported	$	1,197	34.5	%	$	1,186	34.3	%	0.2
Mark-to-market	(43)		(1.3)	%	47		1.4	%	(2.7)
Project K	—		—	%	(11)		(0.3)	%	0.3
Brexit impacts	—		—	%	(3)		(0.1)	%	0.1
Business and portfolio realignment	(4)		(0.1)	%	(4)		(0.1)	%	—
Multi-employer pension plan withdrawal	5		0.1	%	—		—	%	0.1

Foreign currency impact	(32)		0.2	%	—		—	%	0.2
Currency-neutral adjusted	$	1,271	35.6	%	$	1,157	33.4	%	2.2

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.

(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 20 basis points due primarily to operating leverage as a result of higher net sales partially offset by incremental costs of safety, sanitation, and labor related to the pandemic, unfavorable quarter over quarter mark-to-market impacts and foreign currency. Currency-neutral adjusted gross margin increased 220 basis points compared to the second quarter of 2019 after eliminating the impact of mark-to-market and foreign currency.

Our currency-neutral adjusted gross profit and gross profit margin performance for the year-to-date periods ended June 27, 2020 and June 29, 2019 are reconciled to the directly comparable GAAP measures as follows:


Year-to-date period ended	June 27, 2020						June 29, 2019			GM change vs. prior year (pts.)
	Gross Profit (a)		Gross Margin (b)		Gross Profit (a)		Gross Margin (b)
Reported	$	2,341	34.0	%	$	2,293	32.8	%	1.2
Mark-to-market	(21)		(0.3)	%	5		—	%	(0.3)
Project K	—		—	%	(17)		(0.2)	%	0.2
Brexit impacts	—		—	%	(6)		(0.1)	%	0.1
Business and portfolio realignment	(4)		(0.1)	%	(8)		(0.1)	%	—
Multi-employer pension plan withdrawal	5		0.1	%	$	—	—	%	0.1

Foreign currency impact	(50)		—	%	—		—	%	—
Currency-neutral adjusted	$	2,411	34.3	%	$	2,319	33.2	%	1.1

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 year-to-date period ~~ended June 29, 2019, was unfavorable 360~~increased 120 basis points due primarily to ~~the consolidation~~operating leverage as a result of ~~Multipro results,~~ higher ~~input costs, mix shifts and costs related to growth in new pack formats,~~net sales partially offset by ~~favorable~~incremental costs of safety, sanitation, and labor related to the pandemic, unfavorable year over year mark-to-market ~~impacts.~~impacts and foreign currency. Currency-neutral adjusted gross margin ~~was unfavorable 300~~increased 110 basis points compared to the ~~prior year-to-date period~~first half of 2019 after eliminating the impact of mark-to-market ~~Project K, Brexit, business and portfolio realignment,~~ and foreign currency.

Restructuring Programs

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

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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~~

The Company approved all remaining Project K initiatives as of the end of 2018 and implementation of these remaining initiatives will be completed in 2019. We expect to incur total charges of approximately $50 million in 2019 as we complete the implementation of previously approved Project K initiatives. For year-to-date period ended June 29, 2019, the Company has recorded total net charges of approximately $23 million related to Project K.

We currently anticipate that Project K will result in total pre-tax charges, once all phases are approved and implemented, of approximately $1.6 billion, with after-tax cash costs, including incremental capital investments, estimated to be approximately $1.2 billion. Cash expenditures of approximately $1,150 million have been incurred through the end of fiscal year 2018.

We expect annual cost savings generated from Project K will be approximately $700 million in 2019. The savings will be realized primarily in selling, general and administrative expense with additional benefit realized in gross profit as cost of goods sold savings are partially offset by negative volume and price impacts resulting from go-to-market business model changes. The overall savings profile of the project reflects our go-to-market initiatives that will impact both selling, general and administrative expense and gross profit. We have realized approximately $650 million of annual savings through the end of 2018. Cost savings have been utilized to offset inflation and fund investments in areas such as in-store execution, sales capabilities, including adding sales representatives, re-establishing the Kashi business, 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 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 adjusted income tax rate that will be disclosed on a quarterly basis.

~~Project charges, after-tax cash costs and annual savings remain in line with expectations.~~

~~Other Programs~~

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

The program is expected to result in cumulative pretax charges of approximately ~~$50~~$40 million, including certain non-cash credits. Cash costs are expected to be approximately ~~$57~~$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.

~~During the quarter ended June 29, 2019,~~ Since inception, the Company ~~recorded~~has recognized total ~~net~~ charges, including non-cash credits, of ~~$32~~$41 million ~~related~~attributed to this initiative. ~~The charges were recorded in SG&A expense.~~

Additionally during the second quarter of 2019, the Company announced a reorganization plan which primarily ~~impacts~~impacted the North America segment. The reorganization plan iswas designed to simplify the organization that supports the remaining North America business after the divestiture and related transition. This program is expected to be substantially completed by ~~December 31,~~the end of fiscal year 2020.

The overall program is expected to result in cumulative pretax charges of approximately ~~$35~~$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 from the project are expected to be approximately $50 million, with the majority of the savings realized by the end of 2020. Since inception, the Company has recognized total charges of $21 million attributed to this initiative.

Project K

During the quarter and year-to-date period ended June 29, 2019, the Company recorded total net charges of ~~$18~~$15 million and $23 million, respectively related to ~~this initiative. The charges were recorded in SG&A expense.~~Project K.

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, primarily in the euro, British pound, Mexican peso, Australian dollar, Canadian dollar, Brazilian Real, Nigerian Naira, and Russian ruble. To prepare our consolidated financial statements, we must translate those assets, liabilities, expenses and revenues into U.S. dollars at the applicable exchange rates. As a result, increases and decreases in the value of the U.S. dollar against these other currencies will affect the amount of these items in our consolidated financial statements, even if their value has not changed in their original currency. This could have 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 June 27, 2020 and June 29, 2019, interest expense was $69 million and $75 million, respectively. For the year-to-date periods ended June ~~29, 2019~~27, 2020 and June ~~30, 2018,~~29, 2019, interest expense was ~~$149~~$133 million and ~~$141~~$149 million, respectively. The ~~increase~~decrease from the ~~comparable~~ prior year ~~period~~ is due primarily to ~~a higher average commercial paper balance during~~ the ~~period as well as the issuance~~redemption of ~~$400 million~~approximately $1.0 billion of ~~three-year 3.25% Senior Notes due 2021~~debt in conjunction with ~~our purchase~~the July 2019 divestiture.

Table of ~~additional equity interests in Tolaram Africa Foods, PTE LTD and Multipro in the second quarter of 2018.~~Contents

Income Taxes

Our reported effective tax rate for the quarters ended June 27, 2020 and June 29, 2019 was 23% and ~~June 30, 2018 was~~ 20% ~~and 15%~~, respectively. The effective tax rate for the second quarter of 2018 benefited from a $31 million tax benefit attributable to discretionary pension contributions made in the second quarter of 2018 totaling $250 million, which were designated as 2017 tax year contributions.

The reported effective tax rate for the year-to-date periods ended June 27, 2020 and June 29, 2019 was 22% and ~~June 30, 2018 was~~ 20% ~~and 14%~~, respectively. ~~For the year-to-date period ended June 30, 2018, the~~The effective tax rate ~~benefited from a discretionary pension contribution~~for the quarter and ~~a $44 million discrete tax benefit as a result of~~year-to-date periods ended June 27, 2020, were unfavorably impacted by the remeasurement of deferred taxes ~~following~~primarily due to a ~~legal entity restructuring.~~change in our indefinite reinvestment assertion on foreign earnings of a subsidiary during the second quarter.

The adjusted effective ~~income~~ tax rate for the quarters ended June 27, 2020 and June 29, 2019 was 23% and ~~June 30, 2018 was~~ 21% ~~and 15%~~, respectively. The adjusted effective ~~income~~ tax rate for the year-to-date periods ended June 27, 2020 and June 29, 2019 was 23% and ~~June 30, 2018 was~~ 21% ~~and 14%~~, respectively.

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


	Quarter ended						Year-to-date period ended							Quarter ended									Year-to-date period ended
Consolidated results (dollars in millions)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			Consolidated results (dollars in millions)	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Reported income taxes	$	74		$	70		$	146		$	137		Reported income taxes	$	109		$	74		$	203		$	146
Mark-to-market	10			1			(2		)	8			Mark-to-market	(23)			10			(20)			(2)
Project K	(4		)	(1		)	(4		)	(5		)	Project K	—			(4)			—			(4)
Brexit impacts	(1		)	—			(1		)	—			Brexit impacts	—			(1)			—			(1)
Business and portfolio realignment	(20		)	—			(27		)	—			Business and portfolio realignment	(1)			(20)			(4)			(27)
Multi-employer pension plan withdrawal													Multi-employer pension plan withdrawal	1			—			1			—

Adjusted income taxes	$	89		$	70		$	180		$	134		Adjusted income taxes	$	132		$	89		$	226		$	180

Reported effective income tax rate	20.1		%	15.0		%	20.1		%	14.0		%	Reported effective income tax rate	23.3		%	20.1		%	22.2		%	20.1		%
Mark-to-market	0.7		%	—		%	(0.1		)%	0.2		%	Mark-to-market	(0.5)		%	0.7		%	(0.3)		%	(0.1)		%
Project K	(0.3		)%	(0.1		)%	0.1		%	(0.2		)%	Project K	—		%	(0.3)		%	—		%	0.1		%
Brexit impacts	—		%	—		%	0.1		%	—		%	Brexit impacts	—		%	—		%	—		%	0.1		%
Business and portfolio realignment	(0.8		)%	—		%	(0.5		)%	—		%	Business and portfolio realignment	0.4		%	(0.8)		%	0.1		%	(0.5)		%
Multi-employer pension plan withdrawal													Multi-employer pension plan withdrawal	—		%	—		%	—		%	—		%

Adjusted effective income tax rate	20.5		%	15.1		%	20.5		%	14.0		%	Adjusted effective income tax rate	23.4		%	20.5		%	22.5		%	20.5		%

Note: Tables may not foot due to rounding.

~~Brexit~~

~~In June 2016, a majority of voters~~For more information on the reconciling items in the ~~United Kingdom elected~~table above, please refer to ~~withdraw from~~ the ~~European Union~~Significant items impacting comparability section.

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 reduced by capital expenditures of approximately $1.0 billion in ~~a national referendum.~~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 ~~February 2017,~~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 ~~British Parliament voted in favor of allowing the British government~~Monetization and Accounts Payable Programs to ~~begin negotiating the terms~~maintain financial flexibility without negatively impacting working capital. Additionally, we utilized certain aspects of the ~~United Kingdom’s withdrawal from~~Coronavirus Aid, Relief and Economic Security Act, to delay the ~~European Union,~~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 ~~March 2017,~~any restrictions on the ~~British government invoked Article 50~~Company’s decisions on executive compensation, payment of dividends, or share buy-back programs.

As the ~~Treaty~~impact of COVID-19 on ~~European Union, which, per~~ the ~~terms of the treaty, formally triggered a two-year negotiation process~~economy and put the United Kingdom on a course to withdraw from the European Union by the end of March 2019. The European Union recently granted an extension of the withdrawal date to October 31, 2019. With no agreement concluded as yet, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal.

~~The impact to the financial trends of~~ our European and Consolidated businesses resulting from Brexit is currently being evaluated. During 2018 we generated approximately 5% of our net sales and hold approximately 4% of consolidated assets in the United Kingdom as of June 29, 2019. As details of the United Kingdom’s withdrawal from the European Union are finalized,operations evolves, we will continue to ~~evaluate~~assess our liquidity needs. There can be no assurance that volatility and/or disruption in the ~~impacts~~global capital and credit markets will not impair our ability to ~~our business.~~access these markets on terms acceptable to us, or at all.

~~Liquidity and capital resources~~

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

We have a substantial amount of indebtedness which results in current maturities of long-term debt and notes payable which can have a significant impact on working capital as a result of the timing of these required payments. These factors, coupled with the use of our ongoing cash flows from operations to service our debt obligations, pay dividends, fund acquisition opportunities, and repurchase our common stock, reduce our working capital amounts. We had negative working capital of ~~$1.5~~$1.4 billion and ~~$0.7~~$1.5 billion as of June 27, 2020 and June 29, 2019, ~~and June 30, 2018,~~ respectively.

~~With~~The following table reflects net debt amounts:



(millions, unaudited)	June 27, 2020		December 28, 2019
Notes payable	$	121	$	107
Current maturities of long-term debt	1,396		620
Long-term debt	6,929		7,195
Total debt liabilities	$	8,446	$	7,922
Less:
Cash and cash equivalents	(1,047)		(397)
Marketable securities	(200)		—
Net debt	$	7,199	$	7,525

The decrease in net debt from the ~~July 28, 2019 closing of~~prior year-end is primarily due to increased operating cash flow as the ~~sale of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses to Ferrero for approximately $1.3 billion~~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 investment in a mutual fund holding short-term debt instruments, which we ~~reduced~~expect to hold until our non-GAAP cash flow guidance for the estimated cash tax on proceeds from the sale, the absence of the divested businesses cash flow, working capital impacts of assets and liabilities not sold with the businesses, and transaction-related costs. After-tax proceeds of approximately $1.0 billion will be used to repay outstandingDecember 2020 debt ~~in order to reduce our leverage and provide additional financial flexibility for future operating and investing needs.~~maturity.

We believe that our operating cash flows, together with our credit facilities and other available financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. However, there can be no assurance that volatility and/or disruption in the global capital and credit markets will not impair our ability to access these markets on terms acceptable to us, or at all.

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

Year-to-date period ended
(millions) June 29, 2019 June 30, 2018
Net cash provided by (used in):
Operating activities $ 520
$ 447
Investing activities (327 ) (661 )
Financing activities (177 ) 162
Effect of exchange rates on cash and cash equivalents 3
28
Net increase (decrease) in cash and cash equivalents $ 19
$ (24 )


	Year-to-date period ended
(millions)	June 27, 2020		June 29, 2019
Net cash provided by (used in):
Operating activities	$	971	$	520
Investing activities	(515)		(327)
Financing activities	234		(177)
Effect of exchange rates on cash and cash equivalents	(40)		3
Net increase (decrease) in cash and cash equivalents	$	650	$	19

Operating activities

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

Net cash provided by our operating activities for the year-to-date period ended June ~~29, 2019,~~27, 2020, totaled $971 million compared to $520 million ~~an increase of $73 million over the same period in 2018, due to lower pension contributions~~ in the ~~current~~prior year ~~partially offset by~~period. The increase is due primarily to increased profitability, lower ~~net income primarily as a result~~cash outflows related to restructuring and business realignment, improved management of ~~higher input costs.~~core working capital, and lower tax payments.

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 approximately negative 67 days and negative 6

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days for ~~both of~~ the 12 month periods ended June 27, 2020 and June 29, 2019, ~~and June 30, 2018.~~respectively. The improvement from the prior year is due primarily to lower inventory balances.

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

flow metric is reconciled to the most comparable GAAP measure, as follows:

Year-to-date period ended
(millions) June 29, 2019 June 30, 2018
Net cash provided by operating activities $ 520
$ 447
Additions to properties (294 ) (270 )
Cash flow $ 226
$ 177


	Year-to-date period ended
(millions)	June 27, 2020		June 29, 2019
Net cash provided by operating activities	$	971	$	520
Additions to properties	(218)		(294)
Cash flow	$	753	$	226

Our non-GAAP measure for cash flow increased to ~~$226~~$753 million in the year-to-date period ended June ~~29, 2019,~~27, 2020, from ~~$177~~$226 million in the ~~comparable~~ prior year period due primarily to increased profitability, lower ~~pension contributions partially offset by~~cash outflows related to restructuring and business realignment, improved management of core working capital, lower ~~net income, the timing of~~ tax payments, and ~~higher~~lower capital expenditures.

Investing activities

Our net cash used in investing activities totaled ~~$327~~$515 million for the year-to-date period ended June ~~29, 2019~~27, 2020 compared to ~~$661~~cash used of $327 million in the ~~same period of 2018~~comparable prior year period. The increase is due primarily ~~our acquisition~~to the purchase of ~~an ownership interest in TAF for $381 million~~marketable securities during the ~~second quarter of 2018 and higher capital expenditures.~~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 in~~provided by financing activities for the year-to-date period ended June ~~29, 2019~~27, 2020 totaled ~~$177~~$234 million compared to cash ~~provided~~used of ~~$162~~$177 million during the comparable prior year period, ~~of 2018~~ due primarily to ~~higher share repurchases and lower~~ proceeds from the issuance of ~~common stock. Commercial paper outstanding as~~$500 million of ~~June 29, 2019 totaled $355 million compared to $197 million at June 30, 2018.~~ten-year 2.10% Notes due 2030 in May 2020.

In December 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 2018~~of the Company's common stock through December ~~2019.~~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 June 29, 2019, were 4 million shares for $220 million. ~~Total purchases for~~The Company did not purchase shares in the year-to-date period ended June ~~30, 2018, were 1 million~~27, 2020 and does not expect to purchase shares ~~for $50 million.~~during the remainder of 2020.

We paid cash dividends of ~~$380~~$390 million in the year-to-date period ended June ~~29, 2019,~~27, 2020, compared to ~~$374~~$380 million during the ~~same period in 2018.~~comparable prior year period. The increase in dividends paid reflects our third quarter ~~2018~~of 2019 increase in the quarterly dividend to ~~$.56~~$.57 per common share from the previous ~~$.54~~$.56 per common ~~share.~~share. In July ~~2019,~~2020, the board of directors declared a dividend of $.57 per common share, payable on September ~~13, 2019~~15, 2020 to shareholders of record at the close of business on September ~~3, 2019. The dividend is broadly in line with our current plan to maintain our long-term dividend pay-out of approximately 50% of adjusted net income.~~1, 2020.

~~In January 2018, we~~We entered into an unsecured Five-Year Credit Agreement ~~to replace the existing agreement~~in January 2018, allowing us to borrow, on a revolving credit basis, up to $1.5 billion ~~on a revolving basis.~~and expiring in January 2023.

In January ~~2019,~~2020, we entered into an unsecured 364-Day Credit Agreement to borrow, on a revolving credit basis, up to $1.0 billion at any time outstanding, to replace the $1.0 billion 364-day facility that expired in January ~~2019.~~ 2020.

The ~~new credit facilities contains~~Five-Year and 364 Day Credit Agreements, which had no outstanding borrowings as June 27, 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 ~~agent~~agents 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

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control provision. There are no ~~borrowings outstanding under~~significant restrictions on the ~~credit facilities.~~

payment of dividends. We ~~are~~were in compliance with all ~~debt covenants. We continue to believe~~covenants as of June 27, 2020.

The Notes do not contain acceleration of maturity clauses that ~~we will be able to meet~~are dependent on credit ratings. A change in our ~~interest and principal repayment obligations and maintain our debt covenants for the foreseeable future. We expect~~credit ratings could limit our access to ~~financing sources, along with operating cash flows, will be adequate~~the 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 ~~meet future operating, investing~~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 ~~financing needs, including the pursuit of selected acquisitions.~~available on an unsecured basis, although we do not currently plan to use it.

Monetization and Accounts Payable programs

We have a program in which customers could extend their payment terms in exchange for the elimination of early payment discounts (Extended Terms Program). In order to mitigate the net working capital impact of the Extended Terms Program for discrete customers, we entered into agreements to sell, on a revolving basis, certain trade accounts receivable balances to third party financial institutions (Monetization Programs). Transfers under the Monetization Programs are accounted for as sales of receivables resulting in the receivables being de-recognized from our Consolidated Balance Sheet. The Monetization Programs provide for the continuing sale of certain receivables on a revolving basis until terminated by either party; however the maximum funding from receivables that may be sold at any time is currently $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 move in or out of the Monetization Programs. Accounts receivable sold of ~~$947~~$964 million and ~~$900~~$774 million remained outstanding under this arrangement as of June ~~29, 2019~~27, 2020 and December ~~29, 2018,~~28, 2019, respectively.

The Monetization Programs are designed to directly offset the impact the Extended Terms Program would have on the days-sales-outstanding (DSO) metric that is critical to the effective management of the Company's accounts receivable balance and overall working capital. Current DSO levels within North America are consistent with DSO levels prior to the execution of the Extended Term Program and Monetization Programs.

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

We periodically monitor our supplier payment terms to assess whether our terms are competitive and in line 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 adjust our terms, including extending our payment due dates as appropriate, however, we do not expect supplier payment term extensions 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 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 form 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 suppliers against payment obligations is restricted by the agreements for those payment obligations that have been sold by suppliers.

Refer to Note 1 within Notes to Consolidated Financial Statements for further information related to accounts payable.

If financial institutions were to terminate their participation in the Monetization Programs, ~~and we were unable secure alternative arrangements, our ability to offer our Extended Terms Program and effectively manage our accounts receivable balance and overall~~ working capital could be negatively impacted. Additionally for the Accounts 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 participating suppliers and our extended payment terms being reversed, both of which could negatively impact working capital. If working capital is negatively impacted as a result of these events and we were unable to secure alternative programs, we may have to utilize our various financing arrangements for short-term liquidity or increase our long-term borrowings.

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Future outlook

The Company ~~reaffirmed~~raised full-year guidance, reflecting net sales and profit over-delivery during the first half of the year. The Company has made certain assumptions about the second half amidst an uncertain environment. Notably, the Company assumes at-home consumption growth will moderate to normalized levels by the fourth quarter, with away-from-home demand taking longer to recover, and emerging markets feeling the impact of slowing economies. In addition, the Company expects to sustain direct costs around safety, sanitation, and labor, and has shifted substantial brand building into the second half.

Specifically, based on ~~first-half results and enhanced visibility after completion of its divestiture of selected cookies, fruit snacks, pie crusts, and ice-cream cones businesses on July 28, 2019.~~these assumption, the revised guidance ranges are:

~~Net~~Organic net sales growth for the full year is ~~still expected~~projected to be approximately 5%, versus previous guidance of 1-2% ~~year on year on both a currency-neutral and organic basis.~~growth.

Currency-neutral adjusted operating profit is expected to decline inapproximately 1%, versus previous guidance of a 4% decline, and still weighed down by the ~~range~~absence of ~~4-5%, reflecting the loss of operating profit for~~results from the divested businesses.

Currency-neutral adjusted EPS for the full year is expected to ~~decrease in~~decline by approximately 1%, versus previous guidance of a 3-4% decline, and still weighed down by the absence of results from the divested businesses.

Cash provided by operating activities is projected to be $1.6 billion, the high end of our previous guidance range of ~~10 to 11% year on year, as previously guided.~~

With the closing of its recent divestiture, the Company updated non-GAAP cash flow guidance for impacts of the divestiture. Operating cash flow is expected to be approximately $1.0 billion, down from $1.6-1.5 billion, and capital$1.5-$1.6 billion. Capital expenditures are expected to be ~~closer to~~ approximately ~~$500 million, down slightly from our previous estimate. Non-GAAP cash~~$0.6 billion. Cash flow, defined as cash provided by operating ~~cash flow less~~activities reduced by capital expenditures, ~~for property additions,~~ is ~~expected~~projected to be ~~approximately $500 million. The update from~~$1.0 billion, the high end of our previous guidance ~~reflects estimated cash tax on proceeds~~range of $0.9-$1.0 billion.

Excluded from this guidance are significant supply chain or other market disruptions related to the ~~sale, the absence of the divested businesses cash flow, working capital impacts of assets and liabilities not sold with the businesses, and transaction-related costs.~~pandemic or global economy.

We are unable to reasonably estimate the potential full-year financial impact of mark-to-market adjustments ~~and costs associated with Brexit~~ because these impacts are dependent on future changes in market ~~and regulatory~~ conditions. Similarly, because of volatility in foreign exchange rates and shifts in country mix of our international earnings, we are unable to reasonably estimate the potential full-year financial impact of foreign currency translation.

As a result, these impacts are not included in the guidance provided. Therefore, we are unable to provide a full reconciliation of these non-GAAP measures used in our guidance without unreasonable effort as certain information necessary to calculate such measure on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company.

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See the table below that outlines the projected impact of certain other items that are excluded from non-GAAP guidance for ~~2019:~~

2020:


Impact of certain items excluded from Non-GAAP guidance:			Net Sales			Operating Profit		Earnings Per Share
Business and portfolio realignment (pre-tax)						~$60-$70M		~$0.17-$0.20
Income tax impact applicable to adjustments, net**								~$0.04-$0.05


~~Impact of certain items excluded from Non-GAAP guidance:~~			~~Net Sales~~			~~Operating Profit~~		~~Earnings Per Share~~
~~Project K (pre-tax)~~				~~$45-55M~~	~~$0.13-0.16~~
~~Business and portfolio realignment (pre-tax)~~		~~$170-190M~~	~~$0.50-0.56~~
~~Multi-employer pension plan withdrawal liability~~		~~~$110M~~	~~~$0.29~~
Income tax impact applicable to adjustments, net**			~~$0.22-0.24~~
Currency-neutral adjusted guidance*	~~1-2%~~2%-3%			~~(4)-(5)~~~(1)%			~~(10)-(11)~~~(1)%
~~Subtract: Acquisitions~~Absence of results from divested business			2%~4%
~~Add Back: Divestiture~~53rd Week			~(1)-(2)~~-(3)~~%
Organic ~~guidance~~guidance*			~~1-2%~~~5%

* ~~2019~~2020 full year guidance for net sales, operating profit, and earnings per share are provided on a non-GAAP basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. These items for ~~2019~~2020 include impacts of ~~Brexit and~~ mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodities and certain foreign currency contracts. The Company is providing quantification of known adjustment items where available.

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



Reconciliation of Non-GAAP amounts - Cash Flow Guidance
(billions)			Full Year ~~2019~~2020
Net cash provided by (used in) operating activities			~$~~1.0~~1.6
Additions to properties			~~~(0.5)~~($0.6)
Cash Flow			~$~~0.5~~1.0

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, 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 ~~the Company’s~~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 ~~the Company’s~~our provision of transition services to the divested businesses ~~post-closing;~~

post-closing, the ability to implement restructuring ~~and reorganization plans,~~ as planned, whether the expected amount of costs associated with ~~these plans~~restructuring will ~~exceed~~differ from forecasts, whether ~~the Company~~we will be able to realize the anticipated benefits from ~~these plans~~restructuring in the amounts and 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 businesses~~business 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 ~~and transportation costs;~~

costs, disruptions or inefficiencies in supply ~~chain;~~

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

financing, actual market performance of benefit plan trust ~~investments;~~

investments, the levels of spending on systems initiatives,

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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 1211 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 ~~2018~~2019 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 June ~~29, 2019.~~27, 2020.

~~There have also been periods of increased~~Volatile market ~~volatility and currency exchange rate fluctuations specifically within the United Kingdom and Europe, as a result of the UK referendum held on June 23, 2016, in which voters approved an exit~~conditions arising from the ~~European Union, commonly referred~~COVID-19 pandemic may result in significant changes in foreign exchange rates, and in particular a weakening of foreign currencies relative to ~~as Brexit. As a result~~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 ~~the referendum,~~inter-subsidiary transactions, the British ~~government formally initiated~~pound versus the process for withdrawal in March 2017. In January 2019, the draft of the withdrawal agreement, that was previously published in November 2018, was rejected by the UK parliament. The terms of withdrawal have not been established. The European Union granted an extension from the original March 29, 2019 deadline to October 31, 2019. If no agreementeuro. There is ~~concluded by that date, the United Kingdom will leave the European Union at such time. Accordingly, the referendum has created~~ significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the eventsurrounding impact of ~~a withdrawal. We recognize that there are still significant uncertainties surrounding the ultimate resolution of Brexit negotiations,~~COVID-19 on financial markets and we will continue to monitor ~~any changes that may arise and assess their potential impact on our business.~~the business for adverse impacts related to the pandemic.

During ~~the quarter ended June 29, 2019, we~~2020, we've entered into forward starting interest swaps with notional amounts totaling ~~$225~~€150 million and $525 million, as hedges against interest rate volatility associated with a forecasted issuance of fixed rate Euro and U.S. Dollar denominated debt. These swaps were designated as cash flow hedges.

~~During~~ In May of 2020, the ~~quarter ended June 29, 2019, we settled~~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 ~~€1.8 billion that~~$500 million, resulting in a $51 million loss. These forward starting interest rate swaps were ~~previously designated~~accounted for as ~~fair value~~cash flow hedges ~~for certain Euro debt for an aggregate gain of $40 million. This gain~~and the related loss was recorded in accumulated other comprehensive income and will be amortized to interest expense over the ~~life~~term of the related debt. Additionally during the quarter ended June 29, 2019, we entered into new interest rate swaps with notional amounts totaling €1.2 billion that were designated as fair value hedges for certain Euro debt.Notes.

We have interest rate contracts with notional amounts totaling ~~$1.5~~$2.2 billion representing a net settlement obligation of $8$3 million as of June ~~29, 2019.~~27, 2020. We had interest rate contracts with notional amounts totaling ~~$1.6~~$1.9 billion representing a net settlement obligation of $5$6 million as of December ~~29, 2018.~~28, 2019.

During 2019, we entered into cross currency swaps with notional amounts totaling approximately €150 million, as hedges against foreign currency volatility associated with our net investment in our wholly-owned foreign subsidiaries. These swaps were designated as net investment hedges. We have cross currency swaps with notional amounts totaling ~~$1.4~~$1.5 billion outstanding as of June ~~29, 2019~~27, 2020 representing a net settlement receivable of ~~$95~~$145 million. The total notional amount of cross currency swaps outstanding as of December ~~29, 2018~~28, 2019 was ~~$1.2~~$1.5 billion representing a net settlement receivable of ~~$79~~$85 million.

Item 4. Controls and Procedures

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

As of June ~~29, 2019,~~27, 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.

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KELLOGG COMPANY

PART II — OTHER INFORMATION

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 ~~29, 2018.~~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 recently 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 fuel surcharges). We expect the COVID-19 pandemic to 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;

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•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

In ~~December 2017,~~February 2020, the board of directors approved an authorization to repurchase of up to $1.5 billion of ~~our~~the Company's common stock ~~beginning in January 2018~~ through December ~~2019. This authorization is~~2022. These authorizations are intended to allow usthe Company to repurchase shares for general corporate purposes and to offset issuances for employee benefit programs.

The following table provides information with respect to purchases of common shares under programs authorized by our board of directors during the quarter ended June ~~29, 2019.~~27, 2020.

(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:
3/29/2019 - 4/25/2020	—	$	—	—	$	1,500
Month #2:
4/26/2020 - 5/23/2020	—	$	—	—	$	1,500
Month #3:
5/24/2020 - 6/27/2020	—	$	—	—	$	1,500
Total	—	$	—	—

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:
3/31/2019 - 4/27/2019 —
$ —
—
$ 960
Month #2:
4/28/2019 - 5/25/2019 —
$ —
—
$ 960
Month #3:
5/26/2019 - 6/29/2019 —
$ —
—
$ 960
Total —
$ —
—

Item 6. Exhibits

(a)Exhibits:


~~(a)~~4.1			~~Exhibits:~~

Officers’ Certificate of Kellogg Company (with form of 2.100% Senior Notes due 2030), incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K dated June 1, 2020, Commission file number 1-4171.
31.1

~~31.1~~	Rule 13a-14(e)/15d-14(a) Certification from Steven A. Cahillane
31.2		Rule 13a-14(e)/15d-14(a) Certification from Amit Banati
32.1		Section 1350 Certification from Steven A. Cahillane
32.2		Section 1350 Certification from Amit Banati
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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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
Principal Financial Officer; Senior Vice President and Chief Financial Officer

/s/ Kurt Forche
Kurt Forche
Principal Accounting Officer; Vice President and Corporate Controller

Date: July 31, 2020

~~Date: August 2, 2019~~

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KELLOGG COMPANY

EXHIBIT INDEX



Exhibit No.	Description	Electronic (E) Paper (P) Incorp. By Ref. (IBRF)
~~31.1~~4.1	Officers’ Certificate of Kellogg Company (with form of 2.100% Senior Notes due 2030), incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K dated June 1, 2020, Commission file number 1-4171.	IBRF
31.1	Rule 13a-14(e)/15d-14(a) Certification from Steven A. Cahillane	E
31.2	Rule 13a-14(e)/15d-14(a) Certification from Amit Banati	E
32.1	Section 1350 Certification from Steven A. Cahillane	E
32.2	Section 1350 Certification from Amit Banati	E
101.INS	XBRL Instance Document	E
101.SCH	XBRL Taxonomy Extension Schema Document	E
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	E
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	E
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	E
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	E

5351



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



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



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



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

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



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



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



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



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




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




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



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