SEC Info - Kellogg Co. - ‘10-K’ for 1/2/21

i 4,611

i 346

i 218

i 875

i 6,050

Divestiture

( i 191)

i —

( i 191)

Currency translation adjustment

i 2

i 1

( i 5)

i 4

i 2

i 4,422

i 347

i 213

i 879

i 5,861

Currency translation adjustment

i 1

i 20

( i 33)

( i 50)

( i 62)

i 4,423

i 367

i 180

i 829

i 5,799

/ /

Intangible assets subject to amortization

Gross carrying amount

(millions)

North America

Europe

Latin
America

AMEA

Consoli-
dated

i 74

i 43

i 63

i 428

i 608

Additions

i 2

i —

i 2

Divestiture

( i 12)

i —

( i 12)

Currency translation adjustment

i —

( i 2)

( i 3)

i 1

( i 4)

i 64

i 41

i 60

i 429

i 594

Additions

i 1

i —

i 1

Currency translation adjustment

i —

i 1

( i 13)

( i 39)

( i 51)

i 65

i 42

i 47

i 390

i 544

Accumulated Amortization

i 39

i 20

i 12

i 16

i 87

Amortization

i 4

i 2

i 3

i 18

i 27

Divestiture

( i 12)

i —

( i 12)

Currency translation adjustment

i —

( i 1)

i —

( i 1)

i 31

i 21

i 15

i 34

i 101

Amortization (a)

i 4

i 3

i 17

i 27

Currency translation adjustment

i —

( i 3)

( i 4)

( i 7)

i 35

i 24

i 15

i 47

i 121

Intangible assets subject to amortization, net

i 35

i 23

i 51

i 412

i 521

Additions

i 2

i —

i 2

Amortization

( i 4)

( i 2)

( i 3)

( i 18)

( i 27)

Currency translation adjustment

i —

( i 1)

( i 3)

i 1

( i 3)

i 33

i 20

i 45

i 395

i 493

Additions

i 1

i —

i 1

Amortization

( i 4)

( i 3)

( i 17)

( i 27)

Currency translation adjustment

i —

i 1

( i 10)

( i 35)

( i 44)

i 30

i 18

i 32

i 343

i 423

(a) The currently estimated aggregate amortization expense for each of the next five succeeding fiscal periods is approximately $ i i i i i 28 / / / / million per year through 2025.

Intangible assets not subject to amortization

(millions)

North America

Europe

Latin
America

AMEA

Consoli-
dated

i 1,985

i 401

i 73

i 381

i 2,840

Additions

i 18

i —

i 18

Divestiture

( i 765)

i —

( i 765)

Currency translation adjustment

i —

( i 9)

( i 3)

i 2

( i 10)

i 1,238

i 392

i 70

i 383

i 2,083

Divestiture

i —

( i 3)

i —

( i 3)

Currency translation adjustment

i —

i 37

( i 15)

( i 34)

( i 12)

i 1,238

i 426

i 55

i 349

i 2,068

Annual Impairment Testing

At January 2, 2021, goodwill and other intangible assets amounted to $ i 8.3 billion, consisting primarily of goodwill and brands. Within this total, approximately $ i 2.1 billion of non-goodwill intangible assets were classified as indefinite-lived, including $ i 1.7 billion related to trademarks, comprised principally of Pringles and cracker-related trademarks. The majority of all goodwill and other intangible assets are recorded in our North America reporting unit. The Company currently believes the fair value of goodwill and other intangible assets exceeds their carrying value and that those intangibles so classified will contribute indefinitely to cash flows. Through impairment testing performed during the fourth quarter of 2020, no heightened risk of impairment of individual intangible assets or reporting units was identified.

Additionally, the Company has goodwill of $ i 373 million at January 2, 2021 related to the RX reporting unit. In performing the quantitative test of goodwill for RX, fair value was determined based on a calculation which gave consideration to an income approach utilizing the discounted cash flow method and the market approach using the guideline public company and guideline transaction methods. The significant assumptions utilized within the RX discounted cash flow method are forecasted net sales and profitability growth and the discount rate. The Company determined the fair value of RX exceeds the carrying value and no heightened risk of impairment exists for the reporting unit.

NOTE 5

RESTRUCTURING PROGRAMS

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

During 2019, the Company announced a reorganization plan for its European reportable segment designed to simplify the organization, increase organizational efficiency, and enhance key processes. The Company recorded total net charges of $( i 1) million related to this initiative during 2020, with $ i 7 million recorded in SG&A expense and $( i 8) million recorded in OIE. Since inception, the project resulted in cumulative pretax net charges of approximately $ i 37 million, including certain non-cash credits. Total cash costs were approximately $ i 50 million. The total charges include severance and other termination benefits and charges related to relocation, pension curtailment gains, third party legal and consulting fees, and contract termination costs. This project is substantially complete as of the end of fiscal year 2020. Total charges and cash costs were in line with expectations.

Also during 2019, the Company announced a reorganization plan which primarily impacted the North America reportable segment. The reorganization plan is designed to simplify the organization that supports the remaining North America reportable segment after the divestiture and related transition. The Company recorded total charges of $ i 2 million related to this initiative during 2020. These charges were recorded in SG&A expense. Since inception, the project has resulted in cumulative pretax charges of approximately $ i 23 million. Total charges include severance and other termination benefits and charges related to third party consulting fees. The project is substantially complete as of the end of fiscal year 2020. Total charges and cash costs were in line with expectations.

In addition to the projects discussed above, during 2020 the Company incurred restructuring costs in each of its reportable segments related to various reorganization and simplification initiatives and supply chain optimization projects. The Company recorded total charges of $ i 28 million related to these initiatives, including $ i 6 million in COGS and $ i 22 million in SG&A expense. These costs primarily relate to severance and other termination benefits.

Project K

The total program resulted in pre-tax charges, of approximately $ i 1.6 billion, with after-tax cash costs, including incremental capital expenditures, of approximately $ i 1.2 billion. Total project charges consist of asset-related costs of approximately $ i 500 million which consists primarily of asset impairments, accelerated depreciation and other exit-related costs; employee-related costs of approximately $ i 400 million which includes severance, pension and other termination benefits; and other costs of approximately $ i 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.

Total pre-tax charges related to Project K impacted reportable segments as follows: North America (approximately i 65%), Europe (approximately i 21%), Latin America (approximately i 4%), AMEA (approximately i 6%), and Corporate (approximately i 4%).

The Company recognized charges of $ i 1,574 million attributed to the Project K, with the charges comprised of $ i 6 million recorded as a reduction of revenue, $ i 928 million recorded in COGS, $ i 807 million recorded in SGA and $( i 167) million recorded in OIE.

Total programs

The tables below provide the details for the charges incurred during 2020, 2019 and 2018 and program costs to date for all programs currently active as of January 2, 2021.

Program costs to date

(millions)

2020

2019

2018

Employee related costs

i 29

i 49

i 63

i 79

Pension curtailment (gain) loss, net

( i 8)

( i 5)

( i 30)

( i 13)

Asset related costs

i 2

i 21

i 16

i 2

Asset impairment

i —

i 14

i —

Other costs

i 6

i 48

i 80

i 20

Total

i 29

i 113

i 143

i 88

Program costs to date

(millions)

2020

2019

2018

North America

i 8

i 50

i 107

i 29

Europe

i 3

i 47

i 3

i 41

Latin America

i 5

i 15

i 5

AMEA

i 12

i 3

i 11

i 12

Corporate

i 1

( i 2)

i 7

i 1

Total

i 29

i 113

i 143

i 88

During 2020, the Company recorded total charges of $ i 29 million across all restructuring programs. The charges were comprised of $ i 6 million recorded in COGS, $ i 31 million recorded in SG&A expense and $( i 8) million recorded in OIE.

The Company recorded $ i 113 million of charges in 2019 associated with all restructuring programs. The charges were comprised of $ i 35 million expense being recorded in COGS, a $ i 83 million expense recorded in SG&A, and $( i 5) million recorded in OIE.

The Company recorded $ i 143 million of costs in 2018 associated with all restructuring programs. The charges were comprised of $ i 99 million being recorded in COGS, $ i 74 million recorded SG&A and $( i 30) million recorded in OIE.

Employee related costs consisted of severance and pension charges. Pension curtailment (gain) loss consists of curtailment gains or losses that resulted from project initiatives. Asset impairments were recorded for fixed assets that were determined to be impaired and were written down to their estimated fair value. See Note 14 for more information. Asset related costs consist primarily of accelerated depreciation. Other costs incurred consist primarily of lease termination costs as well as third-party incremental costs related to the development and implementation of global business capabilities and a more efficient go-to-market model.

At January 2, 2021 total project reserves were $ i 28 million, related to severance payments and other costs of which a substantial portion will be paid in 2021. The following table provides details for exit cost reserves.

(millions)

Employee
Related
Costs

Curtailment Gain Loss, net

Asset
Impairment

Asset Related
Costs

Other
Costs

Total

Liability as of December 29, 2018

i 62

i —

i 1

i 10

i 73

2019 restructuring charges

i 49

( i 5)

i —

i 21

i 48

i 113

Cash payments

( i 74)

i —

( i 10)

( i 57)

( i 141)

Non-cash charges and other

i —

i 5

i —

( i 12)

i —

( i 7)

Liability as of December 28, 2019

i 37

i —

i 1

i 38

2020 restructuring charges

i 29

( i 8)

i —

i 2

i 6

i 29

Cash payments

( i 38)

i —

( i 7)

( i 45)

Non-cash charges and other

i —

i 8

i —

( i 2)

i —

i 6

Liability as of January 2, 2021

i 28

i —

i 28

NOTE 6

EQUITY

Earnings per share

Basic earnings per share is determined by dividing net income attributable to Kellogg Company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Dilutive potential common shares consist principally of employee stock options issued by the Company, restricted stock units, and to a lesser extent, certain contingently issuable performance shares. The total number of anti-dilutive potential common shares excluded from the reconciliation for each period was (shares in millions): 2020- i 7.3; 2019- i 14.0; 2018- i 6.5.

Stock transactions

The Company issues shares to employees and directors under various equity-based compensation and stock purchase programs, as further discussed in Note 9. The number of shares issued and outstanding during the periods presented was (shares in millions): 2020– i 9; 2019– i 15; 2018– i 8.

In February 2020, the board of directors approved a new authorization to repurchase up to $ i 1.5 billion of the Company's common stock through December 2022.

During 2020, the Company didn't repurchase any shares of common stock. During 2019, the Company repurchased i 4 million shares of common stock for a total of $ i 220 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 for all years presented consists of foreign currency translation adjustments, fair value adjustments associated with cash flow hedges and adjustments for net experience gains (losses) and prior service credit (cost) related to employee benefit plans. During the year ended December 28, 2019, the Company modified assumptions for a U.S. postemployment benefit plan. As a result, a net experience gain (loss) was recognized in other comprehensive income with an offsetting reduction in the accumulated postemployment benefit obligation. See Note 10 and Note 11 for further details.

Reclassifications from Accumulated Other Comprehensive Income (AOCI) for the year ended January 2, 2021, December 28, 2019, and December 29, 2018, consisted of the following:

Details about AOCI
Components

Amount
reclassified
from AOCI

Line item impacted
within Income
Statement

(millions)

2020

2019

2018

(Gains) and losses on cash flow hedges:

Interest rate contracts

i 14

i 4

i 8

Interest expense

i 14

i 4

i 8

Total before tax

( i 4)

( i 1)

( i 2)

Tax expense (benefit)

i 10

i 3

i 6

Net of tax

Amortization of postretirement and postemployment benefits:

Net experience (gains)

( i 3)

( i 5)

OIE

Prior service (credit) cost

( i 1)

i —

OIE

( i 4)

( i 6)

( i 5)

Total before tax

i 1

Tax expense (benefit)

( i 3)

( i 5)

( i 4)

Net of tax

(Gains) losses on available-for-sale securities

Corporate bonds

i —

( i 4)

i —

OIE

i —

( i 4)

i —

Total before tax

i —

Tax expense (benefit)

i —

( i 4)

i —

Net of tax

Total reclassifications

i 7

( i 6)

i 2

Net of tax

Accumulated other comprehensive income (loss) as of January 2, 2021 and December 28, 2019 consisted of the following:

(millions)

December 28,
2019

Foreign currency translation adjustments

( i 1,668)

( i 1,399)

Cash flow hedges — unrealized net gain (loss)

( i 57)

( i 60)

Postretirement and postemployment benefits:

Net experience gain (loss)

i 2

i 7

Prior service credit (cost)

( i 12)

i 4

Available-for-sale securities unrealized net gain (loss)

i 3

i —

Total accumulated other comprehensive income (loss)

( i 1,732)

( i 1,448)

NOTE 7

LEASES AND OTHER COMMITMENTS

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 i 1 year to i 20 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 assets controlled indirectly through third party 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 $ i 135 million and $ i 133 million for the years ended January 2, 2021 and December 28, 2019, respectively. Lease related costs associated with variable rent, short-term leases, and sale-leaseback arrangements, as well as sublease income, are each immaterial. Under the previous lease standard (Topic 840), rent expense on operating leases for the year ended December 29, 2018 was $ i 133 million.

(millions)

Year ended January 2, 2021

Year ended December 28, 2019

Other information

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

i 141

i 134

Right-of-use assets obtained in exchange for operating lease liabilities

New leases

i 144

i 164

Modified leases

i 84

i 44

Weighted-average remaining lease term - operating leases

i 8 years

i 7 years

Weighted-average discount rate - operating leases

i 2.6%

i 2.9%

At January 2, 2021, future maturities of operating leases were as follows:

(millions)

Operating
leases

2021

i 134

2022

i 107

2023

i 94

2024

i 81

2025

i 78

2026 and beyond

i 219

Total minimum payments

i 713

Less interest

( i 76)

Present value of lease liabilities

i 637

Operating lease payments presented in the table above exclude $ i 24 million of minimum lease payments for real-estate leases signed but not yet commenced as of January 2, 2021. The leases are expected to commence in 2021.

At January 2, 2021, future minimum annual lease commitments under non-cancelable finance leases were immaterial.

The Company has provided various standard indemnifications in agreements to sell and purchase business assets and lease facilities over the past several years, related primarily to pre-existing tax, environmental, and employee benefit obligations. Certain of these indemnifications are limited by agreement in either amount and/or term and others are unlimited. The Company has also provided various “hold harmless” provisions within certain service type agreements. Because the Company is not currently aware of any actual exposures associated with these indemnifications, management is unable to estimate the maximum potential future payments to be made. At January 2, 2021, the Company had not recorded any liability related to these indemnifications.

NOTE 8

DEBT

The following table presents the components of notes payable at year end January 2, 2021 and December 28, 2019:

(millions)

2020

2019

Principal
amount

Effective
interest rate

Principal
amount

Effective
interest rate

U.S. commercial paper

i 25

i 0.20

i 3

i 1.78

Bank borrowings

i 77

i 104

Total

i 102

i 107

The following table presents the components of long-term debt at year end January 2, 2021 and December 28, 2019:

(millions)

2020

2019

(a) 4.50% U.S. Dollar Notes due 2046

i 638

(b) 7.45% U.S. Dollar Debentures due 2031

i 621

i 496

i —

(d) 4.30% U.S. Dollar Notes due 2028

i 596

i 595

(e) 3.40% U.S. Dollar Notes due 2027

i 596

(f) 3.25% U.S. Dollar Notes due 2026

i 742

i 741

(g) 1.25% Euro Notes due 2025

i 748

i 689

(h) 1.00% Euro Notes due 2024

i 756

i 692

(i) 2.65% U.S. Dollar Notes due 2023

i 542

i 539

(j) 2.75% U.S. Dollar Notes due 2023

i 204

i 201

(k) 3.125% U.S. Dollar Notes due 2022

i —

i 353

(l) 0.80% Euro Notes due 2022

i 731

i 669

(m) 1.75% Euro Notes due 2021

i 610

i 558

(n) 3.25% U.S. Dollar Notes due 2021

i —

i 198

(o) 4.0% U.S. Dollar Notes due 2020

i —

i 601

Other

i 93

i 124

i 7,373

i 7,815

Less current maturities

( i 627)

( i 620)

Balance at year end

i 6,746

i 7,195

(a)In March 2016, the Company issued $ i 650 million of thirty-year i 4.50% U.S. Dollar Notes, using the net proceeds for general corporate purposes, which included repayment of a portion of the Company's i 7.45% U.S. Dollar Debentures due 2031 and a portion of its commercial paper borrowings. The effective interest rate on the Notes, reflecting issuance discount and hedge settlement, was i 4.60% at January 2, 2021.

(b)In March 2001, the Company issued long-term debt instruments, primarily to finance the acquisition of Keebler Foods Company, of which $ i 625 million of thirty-year i 7.45% Debentures remain outstanding. The effective interest rate on the Debentures, reflecting issuance discount and hedge settlement, was i 7.56% at January 2, 2021. The Debentures contain standard events of default and covenants, and can be redeemed in whole or in part by the Company at any time at prices determined under a formula (but not less than i 100% of the principal amount plus unpaid interest to the redemption date).

(c)In May of 2020, the Company issued $ i 500 million of ten-year i 2.10% Notes, using the net proceeds for general corporate purposes, which included repayment of a portion of the $ i 600 million i 4.00% Notes due 2020 at maturity. The effective interest rate on the Notes reflecting issuance discount and hedge settlement, was i 3.05% at January 2, 2021.

(d)In May 2018, the Company issued $ i 600 million of ten-year i 4.30% Senior Notes, using the net proceeds for general corporate purposes, which included repayment of the Company's $ i 400 million, seven-year i 3.25% U.S. Dollar Notes due 2018 at maturity, and the repayment of a portion of the Company's commercial paper borrowings used to finance the acquisition of ownership interests in TAF and Multipro. The effective interest rate on the Notes, reflecting issuance discount and hedge settlement, was i 4.34% at January 2, 2021.

(e)In November 2017, the Company issued $ i 600 million of ten-year i 3.40% U.S. Dollar Notes, using the net proceeds for general corporate purposes, which included repayment of a portion of the Company's commercial paper borrowings used to finance the acquisition of Chicago Bar Company LLC, the maker of RXBAR. The effective interest rate on the Notes, reflecting issuance discount and hedge settlement, was i 3.49% at January 2, 2021.

(f)In March 2016, the Company issued $ i 750 million of ten-year i 3.25% U.S. Dollar Notes, using the net proceeds for general corporate purposes, which included repayment of a portion of the Company's i 7.45% U.S. Dollar Debentures due 2031 and a portion of its commercial paper borrowings. The effective interest rate on these Notes, reflecting issuance discount, hedge settlement and interest rate swaps was i 4.23% at January 2, 2021. In September 2016, the Company entered into interest rate swaps with notional amounts totaling $ i 300 million, which effectively converted a portion of these Notes from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. This interest rate swap was subsequently terminated and undesignated. In October 2018, the Company entered into interest rate swaps with notional amounts totaling $ i 450 million, which effectively converted a portion of these Notes from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. The Company subsequently terminated this interest rate swap. The resulting unamortized loss from swap activity of $ i 5 million at January 2, 2021 will be amortized to interest expense over the remaining term of the Notes.

(g)In March 2015, the Company issued € i 600 million (approximately $ i 733 million at January 2, 2021, which reflects the discount, fees and translation adjustments) of ten-year i 1.25% Euro Notes, using the proceeds from these Notes for general corporate purposes, which included repayment of a portion of the Company’s commercial paper borrowings. The effective interest rate on the Notes, reflecting issuance discount, hedge settlement and interest rate swaps, was i 1.62% at January 2, 2021. The Notes were designated as a net investment hedge of the Company’s investment in its Europe subsidiary when issued. In May 2017, the Company entered into interest rate swaps with notional amounts totaling € i 600 million, which effectively converted these Notes from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. The Company subsequently terminated the interest rate swaps, and the resulting unamortized gain of $ i 17 million at January 2, 2021 will be amortized to interest expense over the remaining term of the Notes.

(h)In May 2016, the Company issued € i 600 million (approximately $ i 733 million USD at January 2, 2021, which reflects the discount, fees and translation adjustments) of eight-year i 1.00% Euro Notes. The proceeds from these Notes were used for general corporate purposes, including, together with cash on hand and additional commercial paper borrowings, repayment of the Company's $ i 750 million, seven-year i 4.45% U.S. Dollar Notes due 2016 at maturity. The Notes were designated as a net investment hedge of the Company’s investment in its Europe subsidiary when issued. The effective interest rate on these Notes, reflecting issuance discount, hedge settlement and interest

rate swaps was i 0.17% at January 2, 2021. In November 2016, the Company entered into interest rate swaps with notional amounts totaling € i 300 million, which effectively converted a portion of these Notes from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. In October 2018, the Company entered into interest rate swaps with notional amounts totaling € i 300 million, which effectively converted a portion of these Notes from a fixed rate to a floating rate obligation. The Company subsequently terminated these swaps, and the resulting unamortized gain of $ i 17 million at January 2, 2021 will be amortized to interest expense over the remaining term of the Notes. In May of 2019, the Company entered into interest rate swaps with notional amounts totaling € i 600 million, which effectively converted a portion of these Notes from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. The fair value adjustment for the interest rate swaps was $ i 9 million at January 2, 2021, recorded as an increase in the hedged debt balance.

(i)In November 2016, the Company issued $ i 600 million of seven-year i 2.65% U.S. Dollar Notes, using the net proceeds for general corporate purposes, which included repayment of the Company's i 1.875% U.S. Dollar Notes due 2016 at maturity and a portion of its commercial paper borrowings. The effective interest rate on these Notes, reflecting issuance discount, hedge settlement and interest rate swaps was i 3.08% at January 2, 2021. In 2016, the Company entered into interest rate swaps with notional amounts totaling $ i 300 million, which effectively converted a portion of these Notes from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. The Company subsequently terminated the interest rate swaps, and the resulting unamortized loss of $ i 7 million at January 2, 2021 will be amortized to interest expense over the remaining term of the Notes. In 2019, the Company redeemed $ i 50 million of the Notes. In connection with the debt redemption, the Company incurred $ i 2 million of interest expense, consisting primarily of a premium on the tender offer.

(j)In February 2013, the Company issued $ i 400 million ($ i 189 million previously redeemed) of ten-year i 2.75% U.S. Dollar Notes, using net proceeds from these Notes for general corporate purposes, including, together with cash on hand, to repay a portion of the Company’s $ i 750 million i 4.25% U.S. Dollar Notes that matured in March 2013. The effective interest rate on these Notes, reflecting issuance discount hedge settlement and interest rate swaps, was i 4.17%. In September 2016, the Company entered into interest rate swaps with notional amounts totaling $ i 211 million, which effectively converted these Notes from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. The Company subsequently terminated the interest rate swaps, and the resulting unamortized loss of $ i 6 million at January 2, 2021 will be amortized to interest expense over the remaining term of the Notes.

(k)In May 2012, the Company issued $ i 700 million ($ i 342 million previously redeemed) of ten-year i 3.125% U.S. Dollar Notes, using the net proceeds from these Notes for general corporate purposes, including financing a portion of the acquisition of Pringles. During 2020, the Company redeemed the remaining $ i 358 million of the Notes. In conjunction with the debt redemption, the Company incurred $ i 17 million of interest expense, consisting primarily of a premium on the tender offer.

(l)In May 2017, the Company issued € i 600 million (approximately $ i 733 million USD at January 2, 2021, which reflects the discount and translation adjustments) of five-year i 0.80% Euro Notes, using the proceeds from these Notes for general corporate purposes, including, repayment of the Company's $ i 400 million, five-year i 1.75% U.S. Dollar Notes due 2017 at maturity. The effective interest rate on the Notes, reflecting issuance discount and hedge settlement, was i 0.87%. The Notes were designated as a net investment hedge of the Company's investment in its Europe subsidiary when issued.

(m)In May 2014, the Company issued € i 500 million (approximately $ i 611 million at January 2, 2021, which reflects the discount and translation adjustments) of seven-year i 1.75% Euro Notes, using the proceeds from these Notes for general corporate purposes, which included repayment of a portion of the Company’s commercial paper borrowings. The effective interest rate on the Notes, reflecting issuance discount and hedge settlement, was i 2.36% at January 2, 2021. The Notes were designated as a net investment hedge of the Company’s investment in its Europe subsidiary when issued.

(n)In May 2018, the Company issued $ i 400 million of three-year i 3.25% Senior Notes, using the net proceeds for general corporate purposes, which included repayment of the Company's $ i 400 million, seven-year i 3.25% U.S. Dollar Notes due 2018 at maturity, and the repayment of a portion of the Company's commercial paper borrowings used to finance the acquisition of ownership interests in TAF and Multipro. In 2019, the Company redeemed $ i 202 million of the Notes. In connection with the dept redemption, the Company incurred $ i 6 million of interest expense, consisting primarily of a premium on the tender offer. In 2020, the Company redeemed the remaining $ i 198 million of the Notes. In conjunction with the debt redemption, the Company incurred $ i 3 million of interest expense, consisting primarily of a premium on the tender offer.

(o)In December 2010, the Company issued $ i 1.0 billion ($ i 150 million previously redeemed) of ten-year i 4.0% fixed rate U.S. Dollar Notes, using the net proceeds from these Notes for incremental pension and postretirement benefit plan contributions and to retire a portion of its commercial paper. In 2019, the Company redeemed $ i 248 million of the Notes. In connection with the debt redemption, the Company incurred $ i 6 million of interest expense, consisting primarily of a premium on the tender offer, which was partially offset by accelerated gains on pre-issuance interest rate hedges. The remaining balance was redeemed at maturity in December of 2020.

In December of 2020, the Company redeemed $ i 198 million of its i 3.25% U.S. Dollar Notes due May 2021, and $ i 358 million of its i 3.125% U.S. Dollar Notes due 2022. In connection with the debt redemption, the Company incurred $ i 20 million of interest expense, primarily consisting of premium on the tender offer, acceleration of unamortized debt discount on the redeemed debt, fees related to the tender offer, and also included accelerated losses on pre-issuance interest rate hedges.

In the third quarter of 2019, the Company redeemed $ i 500 million of its i 4.15% U.S. Dollar Notes due 2019, $ i 248 million of its i 4.00% U.S. Dollar Notes due 2020, $ i 202 million of its i 3.25% U.S. Dollar Notes due 2021, and $ i 50 million of its i 2.65% U.S. Dollar Notes due 2023. In connection with the debt redemption, the Company incurred $ i 16 million of interest expense, consisting primarily of a premium on the tender offer, acceleration of unamortized debt discount on the redeemed debt, fees related to the tender offer, and also included accelerated gains and losses on pre-issuance interest rate hedges.

All of the Company’s Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions and also contain

a change of control provision. There are no significant restrictions on the payment of dividends by the Company. The Company was in compliance with all these covenants as of January 2, 2021.

The Company and two of its subsidiaries (the Issuers) maintain a program under which the Issuers may issue euro-commercial paper notes up to a maximum aggregate amount outstanding at any time of $ i 750 million or its equivalent in alternative currencies. The notes may have maturities ranging up to i 364 days and will be senior unsecured obligations of the applicable Issuer. Notes issued by subsidiary Issuers will be guaranteed by the Company. The notes may be issued at a discount or may bear fixed or floating rate interest or a coupon calculated by reference to an index or formula. There were i no commercial paper notes outstanding under this program as of January 2, 2021 and December 28, 2019.

At January 2, 2021, the Company had $ i 3.0 billion of short-term lines of credit and letters of credit, of which $ i 2.9 billion were unused and available for borrowing primarily on an unsecured basis. These lines were comprised principally of the January 2018 unsecured $ i 1.5 billion Five-Year Credit Agreement, which expires in 2023, and an unsecured $ i 1.0 billion 364-Day Credit Agreement.

The Five-Year Credit Agreement allows the Company to borrow, on a revolving credit basis, up to $ i 1.5 billion, which includes the ability to obtain letters of credit in an aggregate stated amount up to $ i 75 million and to obtain European swingline loans in an aggregate principal amount up to the equivalent of $ i 300 million.

In January 2021, the Company entered into an unsecured 364-Day Credit Agreement to borrow, on a revolving credit basis, up to $ i 1.0 billion at any time outstanding, to replace the $ i 1.0 billion 364-day facility that expired in January 2021.

Scheduled principal repayments on long-term debt are (in millions): 2021–$ i 627; 2022–$ i 755; 2023–$ i 782; 2024–$ i 750; 2025–$ i 739; 2026 and beyond–$ i 3,733.

Financial institutions have issued standby letters of credit conditionally guaranteeing obligations on behalf of the Company totaling $ i 82 million, including $ i 49 million secured and $ i 33 million unsecured, as of January 2, 2021. These obligations are related primarily to insurance programs. There were no amounts drawn down on the letters of credit as of January 2, 2021.

The Company has issued guarantees for a certain portion of debt of unconsolidated affiliates. These arrangements include cross guarantees back from the other shareholder in proportion to their ownership of the unconsolidated affiliates. These guarantees are not material to the Company.

Interest expense capitalized as part of the construction cost of fixed assets was immaterial for all periods presented.

NOTE 9

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 executive performance 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. These awards are administered through several plans, as described within this Note.

The 2017 Long-Term Incentive Plan (2017 Plan), approved by shareholders in 2017, permits awards to employees and officers in the form of incentive and non-qualified stock options, performance units, restricted stock or restricted stock units, and stock appreciation rights. The 2017 Plan, which replaced the 2013 Long-Term Incentive Plan (2013 Plan), authorizes the issuance of a total of (a) i 16 million shares; plus (b) the total number of shares remaining

available for future grants under the 2013 Plan. The total number of shares remaining available for issuance under the 2017 Plan will be reduced by i two shares for each share issued pursuant to an award under the 2017 Plan other than a stock option or stock appreciation right, or potentially issuable pursuant to an outstanding award other than a stock option or stock appreciation right, which will in each case reduce the total number of shares remaining by i one share for each share issued. At January 2, 2021, there were i 16 million remaining authorized, but unissued, shares under the 2017 Plan.

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.

Compensation expense for all types of equity-based programs and the related income tax benefit recognized were as follows:


(millions)	2020		2019		2018
Pre-tax compensation expense	$	i 81	$	i 61	$	i 64
Related income tax benefit	$	i 21	$	i 16	$	i 16

As of January 2, 2021, total stock-based compensation cost related to non-vested awards not yet recognized was $ i 95 million and the weighted-average period over which this amount is expected to be recognized was i 2 years.

Cash flows realized upon exercise or vesting of stock-based awards in the periods presented are included in the following table. Tax windfall (shortfall) realized upon exercise or vesting of stock-based awards generally represent the difference between the grant date fair value of an award and the taxable compensation of an award.

Cash used by the Company to settle equity instruments granted under stock-based awards was not material.


(millions)	2020		2019		2018
Total cash received from option exercises and similar instruments	$	i 112	$	i 64	$	i 167
Tax windfall (shortfall) classified as cash flow from operating activities	$	i 2	$	( i 2)	$	i 11

Shares used to satisfy stock-based awards are normally issued out of treasury stock, although management is authorized to issue new shares to the extent permitted by respective plan provisions. Refer to Note 6 for information on shares issued during the periods presented to employees and directors under various long-term incentive plans and share repurchases under the Company’s stock repurchase authorizations. The Company does not currently have a policy of repurchasing a specified number of shares issued under employee benefit programs during any particular time period.

Stock options

During the periods presented, non-qualified stock options were granted to eligible employees under the 2017 and 2013 Plans with exercise prices equal to the fair market value of the Company’s stock on the grant date, a contractual term of i ten years, and a three-year graded vesting period.

Management estimates the fair value of each annual stock option award on the date of grant using a lattice-based option valuation model. Composite assumptions are presented in the following table. Weighted-average values are disclosed for certain inputs which incorporate a range of assumptions. Expected volatilities are based principally on historical volatility of the Company’s stock, and to a lesser extent, on implied volatilities from traded options on the Company’s stock. Historical volatility corresponds to the contractual term of the options granted. The Company uses historical data to estimate option exercise and employee termination within the valuation models; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted represents the period of time that options granted are expected to be outstanding; the weighted-average expected term for all employee groups is presented in the following table. The risk-free rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.


Stock option valuation model assumptions for grants within the year ended:	2020			2019			2018
Weighted-average expected volatility	i 18.00		%	i 18.00		%	i 18.00		%
Weighted-average expected term (years)	i 6.70			i 6.60			i 6.60
Weighted-average risk-free interest rate	i 1.35		%	i 2.59		%	i 2.82		%
Dividend yield	i 3.40		%	i 3.90		%	i 3.00		%
Weighted-average fair value of options granted	$	i 7.34		$	i 6.78		$	i 10.00

A summary of option activity for the year ended January 2, 2021 is presented in the following table:

Employee and
director stock
options

Shares
(millions)

Weighted-
average
exercise
price

Weighted-
average
remaining
contractual
term (yrs.)

Aggregate
intrinsic
value
(millions)

Outstanding, beginning of year

i 14

i 65

Granted

i 3

i 65

Exercised

( i 2)

i 59

Forfeitures and expirations

( i 1)

i 68

Outstanding, end of year

i 14

i 65

i 4.7

i 15

Exercisable, end of year

i 10

i 66

i 5.9

i 22

Additionally, option activity for the comparable prior year periods is presented in the following table:

(millions, except per share data)

2019

2018

Outstanding, beginning of year

i 14

Granted

i 3

Exercised

( i 1)

( i 2)

Forfeitures and expirations

( i 2)

( i 1)

Outstanding, end of year

i 14

Exercisable, end of year

i 10

Weighted-average exercise price:

Outstanding, beginning of year

i 66

i 64

Granted

i 57

i 70

Exercised

i 56

i 58

Forfeitures and expirations

i 67

i 71

Outstanding, end of year

i 65

i 66

Exercisable, end of year

i 65

i 63

The total intrinsic value of options exercised during the periods presented was (in millions): 2020–$ i 17; 2019–$ i 7; 2018–$ i 33.

Other stock-based awards

During the periods presented, other stock-based awards consisted principally of executive performance shares and restricted stock granted under the 2017 and 2013 Plans.

In the first quarter of 2020, the Company granted performance shares to a limited number of senior level employees, which entitle these employees to receive a specified number of shares of the Company's common stock upon vesting, as well as dividend equivalent shares. The number of shares earned could range between i 0 and i 200% of the target amount depending upon performance achieved over the three year vesting period. The performance conditions of the award include three year net sales growth and cash flow related targets. Dividend equivalents accrue and vest in accordance with the underlying award. The 2020 target grant currently corresponds to approximately i 327,000 shares, with a grant-date fair value of $ i 66 per share.

In 2019, the Company granted performance shares to a limited number of senior executive-level employees, which entitle these employees to receive a specified number of shares of the Company's common stock upon vesting. The number of shares earned could range between i 0 and i 200% of the target amount depending upon performance achieved over the three year vesting period. The performance conditions of the award include three-year net sales growth and total shareholder return (TSR) of the Company's common stock relative to a select group of peer companies. Dividend equivalents accrue and vest in accordance with the underlying award. The 2019 target grant currently corresponds to approximately i 213,000 shares, with a grant-date fair value of $ i 73 per share.

In 2018, the Company granted performance shares to a limited number of senior executive-level employees, which entitle these employees to receive a specified number of shares of the Company's common stock upon vesting. The number of shares earned could range between i 0 and i 200% of the target amount depending upon performance achieved over the three year vesting period. The performance conditions of the award includes nets sales growth and TSR of the Company's common stock relative to a select group of peer companies. The 2018 target grant currently corresponds to approximately i 143,000 shares, with a grant-date fair value of $ i 88 per share.

A Monte Carlo valuation model was used to determine the fair value of awards with a TSR performance metric. 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 the performance metric. Compensation cost related to performance metric is revised for changes in the expected outcome.

Based on the market price of the Company’s common stock at year-end 2020, the maximum future value that could be awarded on the vesting date was (in millions): 2020 award–$ i 41; 2019 award– $ i 26; and 2018 award–$ i 18. The 2017 performance share award, payable in stock, was settled at i 90% of target in February 2020 for a total dollar equivalent of $ i 6 million.

The Company also grants restricted stock units to eligible employees under the 2017 Plan, typically with three year cliff vesting earning dividend equivalent units for awards granted beginning in 2019. Dividend equivalents accrue and vest in accordance with the underlying award. Management estimates the fair value of restricted stock grants based on the market price of the underlying stock on the date of grant. A summary of restricted stock unit activity for the year ended January 2, 2021, is presented in the following table:

Employee restricted stock units

Shares (thousands)

Weighted-average grant-date fair value

Non-vested, beginning of year

i 1,901

i 61

Granted

i 596

i 65

Vested

( i 504)

i 65

Forfeited

( i 257)

i 58

Non-vested, end of year

i 1,736

i 61

Additionally, restricted stock unit activity for 2019 and 2018 is presented in the following table:

Employee restricted stock units

2019

2018

Shares (in thousands):

Non-vested, beginning of year

i 1,708

i 1,673

Granted

i 888

i 772

Vested

( i 469)

( i 507)

Forfeited

( i 226)

( i 230)

Non-vested, end of year

i 1,901

i 1,708

Weighted-average exercise price:

Non-vested, beginning of year

i 65

Granted

i 55

i 63

Vested

i 68

i 59

Forfeited

i 62

i 64

Non-vested, end of year

i 61

i 65

The total fair value of restricted stock units vesting in the periods presented was (in millions): 2020–$ i 34; 2019–$ i 27; 2018–$ i 35.

NOTE 10

PENSION BENEFITS

The Company sponsors a number of U.S. and foreign pension plans to provide retirement benefits for its employees. The majority of these plans are funded or unfunded defined benefit plans, although the Company does participate in a limited number of multiemployer or other defined contribution plans for certain employee groups. See Note 12 for more information regarding the Company’s participation in multiemployer plans. Defined benefits for salaried employees are generally based on salary and years of service, while union employee benefits are generally a negotiated amount for each year of service. The Company uses a December 31 measurement date for these plans and, when necessary, adjusts for plan contributions and significant events between December 31 and its fiscal year-end.

In recent years, the Company has taken actions to reduce global pension benefit obligations and moderate the impact of market-related volatility. Those actions include the following:

–In December 2020, the Company purchased a group annuity contract to cover pension benefit obligations of certain participants of the United Kingdom defined benefit pension plan for $ i 268 million. This transaction represents an annuity buy-in, under which the Company retains both the fair value of the annuity contract (within plan assets) and the pension benefit obligations related to these participants. The fair value of the annuity buy-in contract at year-end is based on the calculated pension benefit obligations covered.

–In October 2020, the Company settled pension benefit obligations associated with approximately i 8,000 retired participants within our U.S. defined benefit pension plan to reduce pension benefit obligations and administrative expenses. A group annuity contract was purchased on behalf of these participants with a third-party insurance provider, resulting in a reduction of the Company's pension benefit obligations and plan assets of approximately $ i 453 million.

–In June of 2020, the Company recognized a curtailment gain of $ i 7 million, as certain U.S. pension plan benefits were frozen for a portion of the participant population.

–In September 2019, the Company provided a voluntary one-time lump-sum cash settlement offer to certain eligible terminated vested participants in our U.S. pension plans in order to reduce pension benefit obligations and administrative costs. In December 2019, approximately $ i 174 million was distributed from pension plan assets in connection with this offer.

–In conjunction with the completion of the sale of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses on July 28, 2019, the Company recognized a curtailment gain in its U.S. pension plans of $ i 11 million, as certain U.S. pension plans benefits were frozen for the portion of the participant population that was impacted by the divestiture.

–In September 2018, the Company recognized a curtailment gain of $ i 30 million as certain European pension plans were frozen as of December 29, 2018 in conjunction with Project K restructuring.

–In December 2018, as a result of the September 2017 amendment of certain U.S. and Canada defined benefit pension plans, compensation and service periods used to calculate pension benefits for active salaried employees who participate in the affected pension plans were frozen.

Obligations and funded status

The aggregate change in projected benefit obligation, plan assets, and funded status is presented in the following tables.

(millions)

2020

2019

Change in projected benefit obligation

Beginning of year

i 5,654

i 5,117

Service cost

i 37

i 36

Interest cost

i 130

i 172

Plan participants’ contributions

i 1

Amendments

i 22

i 3

Actuarial (gain)loss

i 499

i 766

Benefits paid

( i 292)

( i 458)

Curtailment and special termination benefits

( i 15)

( i 13)

Settlements

( i 453)

i —

Foreign currency adjustments

i 92

i 30

End of year

i 5,675

i 5,654

Change in plan assets

Fair value beginning of year

i 5,170

i 4,677

Actual return on plan assets

i 656

i 874

Employer contributions

i 8

i 10

Plan participants’ contributions

i 1

Benefits paid

( i 269)

( i 426)

Settlements

( i 453)

i —

Other

( i 8)

i —

Foreign currency adjustments

i 106

i 34

Fair value end of year

i 5,211

i 5,170

Funded status

( i 464)

( i 484)

Amounts recognized in the Consolidated Balance Sheet consist of

Other assets

i 324

i 241

Other current liabilities

( i 19)

( i 20)

Other liabilities

( i 769)

( i 705)

Net amount recognized

( i 464)

( i 484)

Amounts recognized in accumulated other comprehensive income consist of

Prior service cost

i 51

i 37

Net amount recognized

i 51

i 37

The accumulated benefit obligation for all defined benefit pension plans was $ i i 5.6 / billion at January 2, 2021 and December 28, 2019. Information for pension plans with accumulated benefit obligations in excess of plan assets were:


(millions)	2020		2019
Projected benefit obligation	$	i 3,937	$	i 4,061
Accumulated benefit obligation	$	i 3,921	$	i 4,033
Fair value of plan assets	$	i 3,177	$	i 3,362

Information for pension plans with projected benefit obligations in excess of plan assets were:


(millions)	2020		2019
Projected benefit obligation	$	i 4,035	$	i 4,180
Accumulated benefit obligation	$	i 3,988	$	i 4,114
Fair value of plan assets	$	i 3,246	$	i 3,455

Expense

The components of pension expense are presented in the following table. Service cost is recorded in COGS and SGA expense. All other components of net periodic benefit cost are included in OIE. Pension expense for defined contribution plans relates to certain foreign-based defined contribution plans and multiemployer plans in the United States in which the Company participates on behalf of certain unionized workforces.

(millions)

2020

2019

2018

Service cost

i 37

i 36

i 87

Interest cost

i 130

i 172

i 165

Expected return on plan assets

( i 340)

( i 361)

Amortization of unrecognized prior service cost

i 7

i 8

Other expense

i 8

i —

Recognized net (gain) loss

i 184

i 235

i 269

Net periodic benefit cost

i 26

i 110

i 168

Curtailment and special termination benefits

( i 15)

( i 13)

( i 30)

Pension (income) expense:

Defined benefit plans

i 11

i 97

i 138

Defined contribution plans

i 20

i 27

Total

i 31

i 117

i 165

The Company and certain of its subsidiaries sponsor 401(k) or similar savings plans for active employees. Expense related to these plans was (in millions): 2020 – $ i 42 million; 2019 – $ i 39 million; 2018 – $ i 38 million. These amounts are not included in the preceding expense table. Company contributions to these savings plans approximate annual expense. Company contributions to multiemployer and other defined contribution pension plans approximate the amount of annual expense presented in the preceding table.

Assumptions

The worldwide weighted-average actuarial assumptions used to determine benefit obligations were:


	2020		2019		2018
Discount rate	i 2.2	%	i 2.9	%	i 3.9	%
Long-term rate of compensation increase	i 3.4	%	i 3.4	%	i 3.8	%

The worldwide weighted-average actuarial assumptions used to determine annual net periodic benefit cost were:


	2020		2019		2018
Discount rate	i 2.8	%	i 3.7	%	i 3.3	%
Long-term rate of compensation increase	i 3.4	%	i 4.0	%	i 3.9	%
Long-term rate of return on plan assets	i 6.8	%	i 7.3	%	i 7.4	%

To determine the overall expected long-term rate of return on plan assets, the Company models expected returns over a 20-year investment horizon with respect to the specific investment mix of its major plans. The return assumptions used reflect a combination of rigorous historical performance analysis and forward-looking views of the financial markets including consideration of current yields on long-term bonds, price-earnings ratios of the major stock market indices, and long-term inflation. The U.S. model, which corresponds to approximately i 70% of consolidated pension and other postretirement benefit plan assets, incorporates a long-term inflation assumption of i 2.5% and an active management premium of i 0.8% (net of fees) validated by historical analysis. Similar methods are used for various foreign plans with invested assets, reflecting local economic conditions. The expected rate of return for 2020 of i 7.0% for the U.S. plans equated to approximately the i 64th percentile expectation. Refer to Note 1.

In 2019, the Society of Actuaries (SOA) published updated mortality tables and an updated improvement scale. In 2020, the SOA released an updated improvement scale that incorporates an additional year of data. In determining the appropriate mortality assumptions as of 2020 fiscal year-end, the Company used the 2019 SOA tables with collar adjustments based on Kellogg’s current population, consistent with the prior year. In addition, based on

mortality information available from the Social Security Administration and other sources, the Company developed assumptions for future mortality improvement in line with our expectations for future experience. The change to the mortality assumption decreased the year-end pension obligations by approximately $ i 1 million.

To conduct the annual review of discount rates, the Company selected the discount rate based on a cash-flow matching analysis using Towers Watson’s proprietary RATE:Link tool and projections of the future benefit payments that constitute the projected benefit obligation for the plans. RATE:Link establishes the uniform discount rate that produces the same present value of the estimated future benefit payments, as is generated by discounting each year’s benefit payments by a spot rate applicable to that year. The measurement dates for the defined benefit plans are consistent with the Company’s fiscal year end. Accordingly, the Company selects yield curves to measure benefit obligations consistent with market indices during December of each year.

The Company may experience material actuarial gains or losses due to differences between assumed and actual experience and due to changing economic conditions. During 2020, the Company recognized a net actuarial loss of approximately $ i 184 million driven by a loss related to plan experience and assumption changes, including a loss due to decreases in the discount rate, partially offset by a gain from better than expected asset returns.

Plan assets

The Company categorized Plan assets within a three level fair value hierarchy described as follows:

Investments stated at fair value as determined by quoted market prices (Level 1) include:

Cash and cash equivalents: Value based on cost, which approximates fair value.

Corporate stock, common: Value based on the last sales price on the primary exchange.

Investments stated at estimated fair value using significant observable inputs (Level 2) include:

Cash and cash equivalents: Institutional short-term investment vehicles valued daily.

Mutual funds: Valued at exit prices quoted in active or non-active markets or based on observable inputs.

Collective trusts: Valued at exit prices quoted in active or non-active markets or based on observable inputs.

Bonds: Value based on matrices or models from pricing vendors.

Limited partnerships: Value based on the ending net capital account balance at year end.

Investments stated at estimated fair value using significant unobservable inputs (Level 3) include:

Buy-in annuity contract: Value based on the calculated pension benefit obligation covered by the non-participating annuity contracts at year-end.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The Company’s practice regarding the timing of transfers between levels is to measure transfers in at the beginning of the month and transfers out at the end of the month. For the year ended January 2, 2021, the Company had no transfers between Levels 1 and 2.

The fair value of Plan assets as of January 2, 2021 summarized by level within the fair value hierarchy are as follows:

(millions)

Total
Level 1

Total
Level 2

Total
Level 3

Total
NAV (practical expedient)(a)

Total

Cash and cash equivalents

i 35

i 4

i —

i 3

i 42

Corporate stock, common

i 325

i —

i 325

Mutual funds:

Equity

i —

i 2

Debt

i —

i 5

i —

i 5

Collective trusts:

Equity

i —

i 1,508

Debt

i —

i 548

i —

i 415

i 963

Limited partnerships

i —

i 292

Bonds, corporate

i —

i 220

i —

i 141

i 361

Bonds, government

i —

i 861

i —

i 861

Bonds, other

i —

i 64

i —

i 64

Real estate

i —

i 421

Buy-in annuity contract

i —

i 280

i —

i 280

Other

i —

i 78

i —

i 9

i 87

Total

i 360

i 1,780

i 280

i 2,791

i 5,211

(a) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The fair value of Plan assets at December 28, 2019 are summarized as follows:

(millions)

Total
Level 1

Total
Level 2

Total
Level 3

Total
NAV (practical expedient)(a)

Total

Cash and cash equivalents

i 14

i —

i 14

Corporate stock, common

i 354

i —

i 354

Mutual funds:

Equity

i —

i 36

Debt

i —

i 4

i —

i 4

Collective trusts:

Equity

i —

i 117

i —

i 1,314

i 1,431

Debt

i —

i 718

i —

i 378

i 1,096

Limited partnerships

i —

i 228

Bonds, corporate

i —

i 443

i —

i 211

i 654

Bonds, government

i —

i 774

i —

i 774

Bonds, other

i —

i 70

i —

i 70

Real estate

i —

i 412

Other

i —

i 61

i —

i 36

i 97

Total

i 368

i 2,187

i —

i 2,615

i 5,170

(a) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

There were no unfunded commitments to purchase investments at January 2, 2021 or December 28, 2019.

The Company’s investment strategy for its major defined benefit plans is to maintain a diversified portfolio of asset classes with the primary goal of meeting long-term cash requirements as they become due. Assets are invested in a prudent manner to maintain the security of funds while maximizing returns within the Plan’s investment policy. The investment policy specifies the type of investment vehicles appropriate for the Plan, asset allocation guidelines, criteria for the selection of investment managers, procedures to monitor overall investment performance as well as investment manager performance. Derivatives, including swaps, forward and futures contracts, may be used as asset class substitutes or for hedging or other risk management purposes. It also provides guidelines enabling Plan fiduciaries to fulfill their responsibilities.

The current weighted-average target asset allocation reflected by this strategy is: equity securities– i 34%; debt securities– i 29%; real estate and other– i 37%. Investment in Company common stock represented i 1.1% and i 1.2% of consolidated plan assets at January 2, 2021 and December 28, 2019, respectively. Plan funding strategies are influenced by tax regulations and funding requirements. The Company currently expects to contribute, before

consideration of incremental discretionary contributions, approximately $ i 6 million to its defined benefit pension plans during 2021.

Level 3 gains and losses

Changes in fair value of the Plan's Level 3 assets are summarized as follows:


(millions)	Annuity Contract
December 28, 2019	$	i —
Purchases	i 268
Realized and unrealized gain	i 4
Currency translation	i 8
January 2, 2021	$	i 280

Benefit payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in millions): 2021–$ i 315; 2022–$ i 322; 2023–$ i 322; 2024–$ i 326; 2025–$ i 321; 2026 to 2030–$ i 1,575.

NOTE 11

NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

Postretirement

The Company sponsors a number of plans to provide health care and other welfare benefits to retired employees in the United States and Canada, who have met certain age and service requirements. The majority of these plans are funded or unfunded defined benefit plans, although the Company does participate in a limited number of multiemployer or other defined contribution plans for certain employee groups. The Company contributes to voluntary employee benefit association (VEBA) trusts to fund certain U.S. retiree health and welfare benefit obligations. The Company uses a December 31 measurement date for these plans and, when necessary, adjusts for plan contributions and significant events between December 31 and its fiscal year-end.

Obligations and funded status

The aggregate change in accumulated postretirement benefit obligation, plan assets, and funded status is presented in the following tables.

(millions)

2020

2019

Change in accumulated benefit obligation

Beginning of year

i 1,116

i 1,069

Service cost

i 13

i 15

Interest cost

i 31

i 37

Actuarial (gain) loss

i 55

i 59

Benefits paid

( i 58)

( i 60)

Curtailments

i —

( i 6)

Foreign currency adjustments

i —

i 2

End of year

i 1,157

i 1,116

Change in plan assets

Fair value beginning of year

i 1,364

i 1,140

Actual return on plan assets

i 178

i 282

Employer contributions

i 24

i 18

Benefits paid

( i 75)

( i 76)

Fair value end of year

i 1,491

i 1,364

Funded status

i 334

i 248

Amounts recognized in the Consolidated Balance Sheet consist of

Other non-current assets

i 369

i 283

Other current liabilities

( i 1)

( i 2)

Other liabilities

( i 34)

( i 33)

Net amount recognized

i 334

i 248

Amounts recognized in accumulated other comprehensive income consist of

Prior service credit

( i 50)

( i 59)

Net amount recognized

( i 50)

( i 59)

Information for postretirement benefit plans with accumulated benefit obligations in excess of plan assets were:


(millions)	2020		2019
Accumulated benefit obligation	$	i 35	$	i 34
Fair value of plan assets	$	i —	$	i —

Expense

Components of postretirement benefit expense (income) were:

(millions)

2020

2019

2018

Service cost

i 13

i 15

i 18

Interest cost

i 31

i 37

i 36

Expected return on plan assets

( i 94)

( i 86)

( i 94)

Amortization of unrecognized prior service credit

( i 9)

Recognized net (gain) loss

( i 29)

( i 137)

i 81

Net periodic benefit cost

( i 88)

( i 180)

i 32

Curtailment

i —

( i 6)

i —

Postretirement benefit expense:

Defined benefit plans

( i 88)

( i 186)

i 32

Defined contribution plans

i 13

i 11

Total

( i 75)

( i 175)

i 43

Assumptions

The weighted-average actuarial assumptions used to determine benefit obligations were:


	2020		2019		2018
Discount rate	i 2.5	%	i 3.3	%	i 4.3	%

The weighted-average actuarial assumptions used to determine annual net periodic benefit cost were:


	2020		2019		2018
Discount rate	i 3.3	%	i 4.0	%	i 3.6	%
Long-term rate of return on plan assets	i 7.0	%	i 7.3	%	i 7.5	%

The Company determines the overall discount rate and expected long-term rate of return on VEBA trust obligations and assets in the same manner as that described for pension trusts in Note 10.

The assumed U.S. health care cost trend rate is i 5.00% for 2021, decreasing i 0.25% annually to i 4.5% by the year 2023 and remaining at that level thereafter. These trend rates reflect the Company’s historical experience and management’s expectations regarding future trends.

The Company may experience material actuarial gains or losses due to differences between assumed and actual experience and due to changing economic conditions. During 2020, the Company recognized a net actuarial gain of approximately $ i 29 million driven by a gain related to plan experience and assumption changes, including gain due to better than expected asset returns, partially offset by a loss resulting from decreases in the discount rate.

Plan assets

The fair value of Plan assets as of January 2, 2021 summarized by level within fair value hierarchy described in Note 10, are as follows:

(millions)

Total
Level 1

Total
Level 2

Total
Level 3

Total
NAV (practical expedient)(a)

Total

Cash and cash equivalents

i 3

i —

i 6

Corporate stock, common

i 261

i —

i 261

Mutual funds:

Equity

i —

i 30

i —

i 30

Debt

i —

i 54

i —

i 54

Collective trusts:

Equity

i —

i 669

Limited partnerships

i —

i 135

Bonds, corporate

i —

i 143

i —

i 143

Bonds, government

i —

i 96

i —

i 96

Bonds, other

i —

i 8

i —

i 8

Real estate

i —

i 89

Total

i 264

i 334

i —

i 893

i 1,491

(a) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The fair value of Plan assets at December 28, 2019 are summarized as follows:

(millions)

Total
Level 1

Total
Level 2

Total
Level 3

Total
NAV (practical expedient)(a)

Total

Cash and cash equivalents

i 8

i 1

i —

i 9

Corporate stock, common

i 253

i —

i 253

Mutual funds:

Equity

i —

i 35

i —

i 35

Debt

i —

i 53

i —

i 53

Collective trusts:

Equity

i —

i 579

Limited partnerships

i —

i 124

Bonds, corporate

i —

i 136

i —

i 136

Bonds, government

i —

i 77

i —

i 77

Bonds, other

i —

i 9

i —

i 9

Real estate

i —

i 88

Other

i —

i 1

i —

i 1

Total

i 261

i 312

i —

i 791

i 1,364

(a) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The Company’s asset investment strategy for its VEBA trusts is consistent with that described for its pension trusts in Note 10. The current target asset allocation is i 70% equity securities, i 23% debt securities, and i 7% real estate. The Company currently expects to contribute approximately $ i 19 million to its VEBA trusts during 2021.

There were no Level 3 assets during 2020 and 2019.

Postemployment

Under certain conditions, the Company provides benefits to former or inactive employees, including salary continuance, severance, and long-term disability, in the United States and several foreign locations. The Company’s postemployment benefit plans are unfunded. Actuarial assumptions used are generally consistent with those presented for pension benefits in Note 10.

The aggregate change in accumulated postemployment benefit obligation and the net amount recognized were:

(millions)

2020

2019

Change in accumulated benefit obligation

Beginning of year

i 48

i 42

Service cost

i 3

Interest cost

i 1

i 2

Actuarial (gain)loss

i —

i 8

Benefits paid

( i 4)

( i 7)

End of year

i 48

Funded status

( i 48)

Amounts recognized in the Consolidated Balance Sheet consist of

Other current liabilities

( i 6)

( i 7)

Other liabilities

( i 42)

( i 41)

Net amount recognized

( i 48)

Amounts recognized in accumulated other comprehensive income consist of

Net prior service cost

i 2

i 3

Net experience gain

( i 18)

( i 22)

Net amount recognized

( i 16)

( i 19)

Components of postemployment benefit expense were:

(millions)

2020

2019

2017

Service cost

i 2

i 3

Interest cost

i 1

i 2

i 1

Amortization of unrecognized prior service cost

i 1

Recognized net loss

( i 3)

( i 5)

Net periodic benefit cost

i 1

i —

Settlement cost

( i 1)

( i 3)

i —

Postemployment benefit expense

i —

( i 2)

i —

Benefit payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

(millions)

Postretirement

Postemployment

2021

i 64

i 6

2022

i 65

i 6

2023

i 65

i 5

2024

i 65

i 5

2025

i 65

i 5

2026-2029

i 321

i 20

NOTE 12

MULTIEMPLOYER PENSION AND POSTRETIREMENT PLANS

The Company contributes to multiemployer defined contribution pension and postretirement benefit plans under the terms of collective-bargaining agreements that cover certain unionized employee groups in the United States. Contributions to these plans are included in total pension and postretirement benefit expense as reported in Note 10 and Note 11, respectively.

Pension benefits

The risks of participating in multiemployer pension plans are different from single-employer plans. Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations of the plan are borne by the remaining participating employers.

The Company’s participation in multiemployer pension plans for the year ended January 2, 2021, is outlined in the table below. The “EIN/PN” column provides the Employer Identification Number (EIN) and the three-digit plan number (PN). The most recent Pension Protection Act (PPA) zone status available for 2020 and 2019 is for the plan year-ends as indicated below. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than i 65 percent funded, plans in the yellow zone are between i 65 percent and i 80 percent funded, and plans in the green zone are at least i 80 percent funded. The “FIP/RP Status” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. In addition to regular plan contributions, the Company may be subject to a surcharge if the plan is in the red zone. The “Surcharge Imposed” column indicates whether a surcharge has been imposed on contributions to the plan. The last column lists the expiration date(s) of the collective-bargaining agreement(s) (CBA) to which the plans are subject. The Company was not listed in the available Forms 5500 of the three plans listed below as providing more than i 5 percent of total contributions. At the date the Company’s financial statements were issued, certain Forms 5500 were not available for the plan years ending in 2020.

PPA Zone Status

Contributions
(millions)

Pension trust fund

EIN/PN

2020

2019

FIP/RP Status

2020

2019

2018

Surcharge
Imposed

Expiration
Date of
CBA

Bakery and Confectionery Union and Industry International Pension Fund (a)

52-6118572 /
001

Red - 12/31/2020

Red - 12/31/2019

i Implemented

i 5.9

i 6.5

i Yes

2/20/2021 to 4 /16/2021 (b)

Central States, Southeast and Southwest Areas Pension Fund

36-6044243 /
001

Red - 12/31/2020

Red - 12/31/2019

i Implemented

i —

i 1.3

i 1.9

i Yes

(c)

Western Conference of Teamsters Pension Trust

91-6145047 /
001

Green - 12/31/2020

Green - 12/31/2019

i NA

i 0.9

i 0.8

i 1.0

i No

3/26/2022 (d)

Other Plans

i 0.2

i 0.7

i 1.0

(e)

Total contributions:

i 7.0

i 8.7

i 10.4

(a)The Company is party to multiple CBAs requiring contributions to this fund, each with its own expiration date. Over i 80 percent of the Company’s participants in this fund are covered by a single CBA that expires on 4/16/2021.

(b)The Company does not expect 2021 contributions to be materially different than 2020.

(c)During 2019, the Company terminated CBAs covered by this fund. As a result, the Company has withdrawn from the fund and recognized expense for its estimated withdrawal liability. The Company does not expect to make 2021 contributions.

(d)The Company does not expect 2021 contributions to be materially different than 2020.

(e)During 2019, the Company terminated the CBAs covered by certain of these funds. As a result, for the impacted funds, the Company recognized expense for the estimated withdrawal liability in each year and no longer made contributions following the termination. The Company does not expect 2021 contributions to the remaining funds to be materially different from 2020.

As discussed in Note 5, the Company engages in restructuring and cost reduction projects to help achieve its long-term growth targets. Current and future restructuring and cost reduction activities and other strategic initiatives could impact the Company's participation in certain multiemployer plans. In addition to regular contributions, the Company could be obligated to pay additional amounts, known as a withdrawal liability, if a multiemployer pension plan has unfunded vested benefits and the Company decreases or ceases participation in that plan. During 2019, the Company withdrew from two multi-employer pension plans. Additionally, the Company previously exited several multiemployer plans associated with Project K restructuring. 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 $ i 5 million during the second quarter and resulted from a July 2020 agreement with the plan, under which the Company paid $ i 7 million in full settlement of the withdrawal liability. In addition, the Company paid $ i 5 million to settle a plan liability during the fourth quarter of 2020, resulting in no gain or loss as a result of settlement. The Company recognized expense related to the withdrawals as follows (millions): 2020 - $( i 5); 2019 - $ i 132; 2018 - $ i 7. While this is our best estimate of the ultimate cost of withdrawing from the plans at this time, we have not yet reached agreement on the ultimate amount of the withdrawal liability. As a result, the actual cost could differ from our estimate based on final funding assessments. The net present value of the liabilities were determined using a risk free interest rate. The charge was recorded within Cost of goods sold on the Consolidated

Statement of Income and Other current liabilities and Other liabilities on the Consolidated Balance Sheet. The cash obligation associated with the 2019 withdrawal activity is approximately $ i 8 million annually and is payable over a maximum 20-year period; management has not determined the actual period over which the payments will be made. Withdrawal liability payments made to multiemployer plans were as follows (millions): 2020 - $ i 21; 2019 - $ i 8; 2018 - $ i 3. The Company had withdrawal liabilities of $ i 130 million and $ i 156 million at January 2, 2021 and December 28, 2019, respectively.

Postretirement benefits

Multiemployer postretirement benefit plans provide health care and other welfare benefits to active and retired employees who have met certain age and service requirements. Contributions to multiemployer postretirement benefit plans were (in millions): 2020 – $ i 13; 2019 – $ i 11; 2018 – $ i 11.

NOTE 13

INCOME TAXES

The components of income before income taxes and the provision for income taxes were as follows:

(millions)

2020

2019

2018

Income before income taxes

United States

i 1,018

i 938

i 851

Foreign

i 583

i 367

i 478

i 1,601

i 1,305

i 1,329

Income taxes

Currently payable

Federal

i 129

i 345

i 7

State

i 26

i 52

i 28

Foreign

i 100

i 77

i 99

i 255

i 474

i 134

Deferred

Federal

i 56

( i 124)

i 109

State

i 9

( i 29)

( i 59)

Foreign

i 3

i —

( i 3)

i 68

( i 153)

i 47

Total income taxes

i 323

i 321

i 181

The difference between the U.S. federal statutory tax rate and the Company’s effective income tax rate was:

2020

2019

2018

U.S. statutory income tax rate

i 21.0

Foreign rates varying from U.S. statutory rate

( i 2.4)

( i 2.5)

( i 3.0)

Excess tax benefits on share-based compensation

i —

( i 0.3)

State income taxes, net of federal benefit

i 1.8

i 1.3

i 1.5

Cost (benefit) of remitted and unremitted foreign earnings

i 1.0

i 0.8

i 0.7

Legal entity restructuring, deferred tax impact

i —

( i 3.3)

Discretionary pension contributions

i —

( i 2.3)

Revaluation of investment in foreign subsidiary

i —

i 2.5

i —

Net change in valuation allowance

i 1.4

( i 1.6)

i 2.0

Statutory rate changes, deferred tax impact

i 0.2

i 0.3

i —

U.S. deemed repatriation tax

( i 2.0)

i —

( i 1.2)

Divestiture

i —

i 2.9

i —

Out-of-period adjustment

i —

i 3.0

i —

Other

( i 0.8)

( i 3.1)

( i 1.5)

Effective income tax rate

i 20.2

i 24.6

i 13.6

As presented in the preceding table, the Company’s 2020 consolidated effective tax rate was i 20.2%, as compared to i 24.6% in 2019 and i 13.6% in 2018.

The 2020 effective income tax rate was favorably impacted by the reversal of a liability for uncertain tax positions of $ i 32 million, resulting from the finalization of a tax examination during the third quarter. The reserves were related to

the Company's estimate of the transition tax liability in conjunction with the finalization of accounting under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.

The 2019 effective income tax rate was unfavorably impacted by a permanent basis difference in the assets sold to Ferrero as well as an out-of-period correction. During the fourth quarter of 2019, the Company recorded an out-of-period adjustment to correct an error in the tax rate applied to a deferred tax asset arising from an intangible property transfer in a prior year. The adjustment increased income tax expense and decreased deferred tax assets by $ i 39 million, respectively. We determined the adjustment to be immaterial to our Consolidated Financial Statements for the year ended December 28, 2019 and related prior annual and quarterly periods.

The 2018 effective income tax rate benefited from the reduction of the U.S. corporate tax rate as well as a $ i 11 million reduction of income tax expense due to changes in estimates related to the Tax Cuts and Jobs Act, the impact of discretionary pension contributions totaling $ i 250 million in 2018, which were designated as 2017 tax year contributions, and a $ i 44 million discrete tax benefit as a result of the remeasurement of deferred taxes following a legal entity restructuring.

Transition tax on foreign earnings: The transition tax is a tax on the previously untaxed accumulated and current earnings and profits of certain of our foreign subsidiaries. In order to determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 earnings and profits (E&P) of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. E&P is similar to retained earnings of the subsidiary, but requires other adjustments to conform to U.S. tax rules. As of December 30, 2017, based on accumulated foreign earnings and profits of approximately $ i 2.6 billion, which are primarily in Europe, the Company was able to make a reasonable estimate of the transition tax and recorded a transition tax obligation of $ i 157 million. In the third quarter of 2018, the Company recorded a $ i 16 million reduction to the transition tax liability and tax expense based on updated estimates of E&P. During the fourth quarter of 2018, the Company, as part of completing its accounting under SAB 118, revised its estimate of the transition tax liability to $ i 94 million, and recorded $ i 47 million of tax reserves related to uncertainty in our interpretation of the statute and associated regulations. During the third quarter of 2020, the Company reversed $ i 32 million of the liability previously recorded as a result of the finalization of an IRS tax examination.

Indefinite reinvestment assertion: Prior to the Tax Act, the Company treated a significant portion of its undistributed foreign earnings as indefinitely reinvested. In light of the Tax Act, which included a new territorial tax regime, as of the year ended December 30, 2017, Management determined that the Company would analyze its global capital structure and working capital strategy and considered the indefinite reinvestment assertion to be provisional under SAB 118. In the fourth quarter of 2018, we finished analyzing our global capital structure and working capital strategy and determined that $ i 2.4 billion of foreign earnings as of December 30, 2017 were no longer considered to be indefinitely invested. Accordingly, income tax expense of approximately $ i 5 million was recorded in the fourth quarter of 2018. The Company completed its assessment and accounting under SAB 118 for its indefinite investment assertion.

As of January 2, 2021, approximately $ i 900 million of unremitted earnings were considered indefinitely reinvested. The unrecognized deferred tax liability for these earnings is estimated at approximately $ i 23 million. However, this estimate could change based on the manner in which the outside basis difference associated with these earnings reverses.

Management monitors the Company’s ability to utilize certain future tax deductions, operating losses and tax credit carryforwards, prior to expiration. Changes resulting from management’s assessment will result in impacts to deferred tax assets and the corresponding impacts on the effective income tax rate. Valuation allowances were recorded to reduce deferred tax assets to an amount that will, more likely than not, be realized in the future. The total tax benefit of carryforwards at year-end 2020 and 2019 were $ i 329 million and $ i 279 million, respectively, with related valuation allowances at year-end 2020 and 2019 of $ i 192 million and $ i 146 million, respectively. Of the total carryforwards at year-end 2020, substantially all will expire after 2024.

The following table provides an analysis of the Company’s deferred tax assets and liabilities as of year-end 2020 and 2019.

Deferred tax
assets

Deferred tax
liabilities

(millions)

2020

2019

2020

2019

U.S. state income taxes

i 7

i —

i 6

Advertising and promotion-related

i 13

i 11

—

Wages and payroll taxes

i 26

i 15

—

Inventory valuation

i 17

—

Employee benefits

i 118

i 143

—

Operating loss, credit and other carryforwards

i 329

i 279

—

Hedging transactions

i 49

i —

i 18

Depreciation and asset disposals

—

i 234

i 217

Operating lease right-of-use assets

—

i 141

i 111

Operating lease liabilities

i 136

i 111

—

Trademarks and other intangibles

—

i 527

i 526

Deferred compensation

i 18

i 19

—

Stock options

i 32

i 29

—

Other

i 41

i 36

—

i 786

i 660

i 902

i 878

Less valuation allowance

( i 192)

( i 146)

—

Total deferred taxes

i 594

i 514

i 902

i 878

Net deferred tax asset (liability)

( i 308)

( i 364)

Classified in balance sheet as:

Other assets

i 254

i 231

Other liabilities

( i 562)

( i 595)

Net deferred tax asset (liability)

( i 308)

( i 364)

The change in valuation allowance reducing deferred tax assets was:

(millions)

2020

2019

2018

Balance at beginning of year

i 146

i 166

i 153

Additions charged to income tax expense (b)

i 62

i 25

i 29

Reductions credited to income tax expense (a)

( i 24)

( i 47)

( i 1)

Currency translation adjustments

i 8

i 2

( i 15)

Balance at end of year

i 192

i 146

i 166

(a) During 2019, the Company decreased the valuation allowance by $ i 32 million related to the revaluation of its investment in a foreign subsidiary.

(b) During 2020, the Company increased the valuation allowance by $ i 41 million related to the revaluation of its investment in a foreign subsidiary.

Uncertain tax positions

The Company is subject to federal income taxes in the U.S. as well as various state, local, and foreign jurisdictions. The Company’s 2020 provision for U.S. federal income taxes represents approximately i 60% of the Company’s consolidated income tax provision. The Company was chosen to participate in the Internal Revenue Service (IRS) Compliance Assurance Program (CAP) beginning with the 2008 tax year. As a result, with limited exceptions, the Company is no longer subject to U.S. federal examinations by the IRS for years prior to 2019. The Company is under examination for income and non-income tax filings in various state and foreign jurisdictions.

As of January 2, 2021, the Company has classified $ i 19 million of unrecognized tax benefits as a current tax liability. Managements estimate of reasonably possible changes in unrecognized tax benefits during the next twelve months consists of the current liability expected to be settled within one year, offset by approximately $ i 4 million of projected additions during the next twelve months related primarily to ongoing intercompany transfer pricing activity. Management is currently unaware of any issues under review that could result in significant additional payments, accruals, or other material deviation in this estimate.

Following is a reconciliation of the Company’s total gross unrecognized tax benefits as of the years ended January 2, 2021, December 28, 2019 and December 29, 2018. For the 2020 year, approximately $ i 56 million represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.

(millions)

2020

2019

2018

Balance at beginning of year

i 90

i 97

i 60

Tax positions related to current year:

Additions (a)

i 5

i 51

Tax positions related to prior years:

Additions

i 8

i 4

Reductions (b)

( i 35)

( i 14)

( i 13)

Settlements

( i 2)

( i 1)

( i 4)

Lapses in statutes of limitation

( i 1)

Balance at end of year

i 65

i 90

i 97

(a) During the fourth quarter of 2018, the Company recorded, as part of its final estimate under SAB 118, $ i 47 million of tax reserves related to uncertainty in our interpretation of the statute and associated regulations.

(b) During the third quarter of 2020, the Company released $ i 32 million of tax reserves as a result of finalization of an IRS tax examination.

During the year ended January 2, 2021, the Company paid tax-related interest totaling $ i 1 million and recognized $ i 3 million of tax related interest, increasing the balance to $ i 13 million at year-end. During the year ended December 28, 2019, the Company settled certain tax matters resulting in an $ i 11 million net reduction of the tax interest accrual, decreasing the balance to $ i 11 million at year-end. For the year ended December 29, 2018, the Company paid tax-related interest totaling $ i 2 million and recognized $ i 3 million of tax-related interest increasing the accrual balance to $ i 22 million at year-end.

NOTE 14

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 and commodity instruments, including futures, options, and swaps, where appropriate, to manage these risks. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged.

The Company designates derivatives and nonderivative hedging instruments as cash flow hedges, fair value hedges, net investment hedges, and uses other contracts to reduce volatility in interest rates, foreign currency and commodities. As a matter of policy, the Company does not engage in trading or speculative hedging transactions.

Total notional amounts of the Company’s derivative instruments as of January 2, 2021 and December 28, 2019 were as follows:

(millions)

2020

2019

Foreign currency exchange contracts

i 2,856

i 2,628

Cross-currency contracts

i 1,411

i 1,540

Interest rate contracts

i 2,632

i 1,871

Commodity contracts

i 314

i 524

Total

i 7,213

i 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 January 2, 2021 and December 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 and over-the-counter commodity and currency contracts.

The Company’s calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve. Over-the-counter commodity derivatives are valued using an income approach based on the commodity index prices less the contract rate multiplied by the notional amount. Foreign currency contracts are valued using an income approach based on forward rates less the contract rate multiplied by the notional amount. Cross-currency contracts are valued based on changes in the spot rate at the time of valuation compared to the spot rate at the time of execution, as well as the change in the interest differential between the two currencies. The Company’s calculation of the fair value of level 2 financial assets and liabilities takes into consideration the risk of nonperformance, including counterparty credit risk.

Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. The Company did not have any level 3 financial assets or liabilities as of January 2, 2021 or December 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 January 2, 2021 and December 28, 2019:

Derivatives designated as hedging instruments

2020

2019

(millions)

Level 1

Level 2

Total

Level 1

Level 2

Total

Assets:

Cross currency contracts:

Other current assets

i —

i 14

i —

i 45

Other Assets

i —

i 16

i —

i 40

Interest rate contracts (a):

Other current assets

i —

i 7

Other assets

i —

i 60

i —

i 4

Total assets

i —

i 90

i —

i 96

Liabilities:

Cross currency contracts:

Other current liabilities

i —

( i 13)

i —

Other liabilities

i —

( i 21)

i —

Interest rate contracts (a):

Other current liabilities

i —

( i 3)

i —

( i 4)

Other liabilities

i —

Total liabilities

i —

( i 37)

i —

( i 4)

(a)The fair value of the related hedged portion of the Company’s long-term debt, a level 2 liability, was $ i 0.8 billion and $ i 0.7 billion as of January 2, 2021 and December 28, 2019, respectively.

Derivatives not designated as hedging instruments

2020

2019

(millions)

Level 1

Level 2

Total

Level 1

Level 2

Total

Assets:

Foreign currency exchange contracts:

Other current assets

i —

i 48

i —

i 12

Interest rate contracts:

Other current assets

i —

i 4

i —

Other assets

i —

i 13

i —

Commodity contracts:

Other current assets

i 9

i —

i 9

i —

i 9

Total assets

i 9

i 65

i 74

i 9

i 12

i 21

Liabilities:

Foreign currency exchange contracts:

Other current liabilities

i —

( i 73)

i —

( i 18)

Other liabilities

i —

( i 4)

i —

Interest rate contracts:

Other current liabilities

i —

( i 6)

i —

Other liabilities

i —

( i 22)

i —

( i 13)

Commodity contracts:

Other current liabilities

( i 1)

i —

( i 1)

i —

( i 1)

Total liabilities

( i 1)

( i 105)

( i 106)

( i 1)

( i 31)

( i 32)

The Company has designated a portion of its outstanding foreign currency denominated long-term debt as a net investment hedge of a portion of the Company’s investment in its subsidiaries foreign currency denominated net assets. The carrying value of this debt was $ i 2.8 billion and $ i 2.6 billion as of January 2, 2021 and December 28, 2019, respectively.

The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for existing fair value hedges as of January 2, 2021 and December 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)

Interest rate contracts

Current maturities of long-term debt

i —

i 493

i —

Interest rate contracts

Long-term debt

i 2,568

i 2,643

i 25

i 19

(a)The hedged long-term debt includes $ i 16 million and $ i 15 million of hedging adjustment on discontinued hedging relationships as of January 2, 2021 and December 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 January 2, 2021 and December 28, 2019 would be adjusted as detailed in the following table:

i i

As of January 2, 2021

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

i 164

( i 116)

i —

i 48

Total liability derivatives

( i 143)

i 116

i 5

( i 22)

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

i 117

( i 27)

( i 7)

i 83

Total liability derivatives

( i 36)

i 27

i —

( i 9)

The effect of derivative instruments on the Consolidated Statement of Income for the years ended January 2, 2021 and December 28, 2019 were 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

2020

2019

2020

2019

Foreign currency denominated long-term debt

( i 236)

i 60

i —

Cross-currency contracts

( i 93)

i 6

i 34

Interest expense

Total

( i 329)

i 66

i 34

Derivatives not designated as hedging instruments

(millions)

Location of gain
(loss)
recognized in
income

Gain (loss)
recognized in
income

2020

2019

Foreign currency exchange contracts

COGS

i 11

( i 16)

Foreign currency exchange contracts

SGA

( i 1)

( i 2)

Foreign currency exchange contracts

OIE

( i 6)

( i 4)

Interest rate contracts

Interest expense

i 2

i —

Commodity contracts

COGS

i 6

i 4

Total

i 12

( i 18)

The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the years ended January 2, 2021 and December 28, 2019:

(millions)

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

i 281

i 284

Gain (loss) on fair value hedging relationships:

Interest contracts:

Hedged items

( i 7)

( i 33)

Derivatives designated as hedging instruments

i 7

i 37

Gain (loss) on cash flow hedging relationships:

Interest contracts:

Amount of gain (loss) reclassified from AOCI into income

( i 14)

( i 4)

During the next 12 months, the Company expects $ i 17 million of net deferred losses reported in accumulated other comprehensive income (AOCI) at January 2, 2021 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 falls below BB+ (S&P), or Baa1 (Moody’s). The fair value of all derivative instruments with credit-risk-related contingent features in a liability position on January 2, 2021 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 no collateral posting requirements as of January 2, 2021 triggered by credit-risk-related contingent features.

Other fair value measurements

Fair Value Measurements on a Nonrecurring Basis

During the year ended December 29, 2018, long-lived assets of $ i 19 million related to a manufacturing facility in the Company's North America reportable segment, were written down to an estimated fair value of $ i 5 million due to Project K activities. The Company's calculation of the fair value of these long-lived assets is based on level 3 inputs, including market comparables, market trends and the condition of the assets. See Note 5 for more information regarding Project K.

During the year ended January 2, 2021, the Company invested and sold $ i i 250 / million in a mutual fund holding short term debt securities. The investment was measured at fair value using the net asset value (NAV) per share as a practical expedient and as a result, this investment has not been classified in the fair value hierarchy. The gain associated with the sale of the investment was less than $ i 1 million and was recorded in other income and expense.

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

2020

2019

(millions)

Cost

Unrealized Gain (Loss)

Market Value

Cost

Unrealized Gain/(Loss)

Market Value

Corporate Bonds

i 62

i 3

i 65

i —

During the year ended December 28, 2019, the Company's investments in level 2 corporate bonds were sold for $ i 63 million resulting in a gain of $ i 4 million, recorded in Other income and (expense).

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

Income. Additionally, these investments were recorded within Other current assets and Other assets on the Consolidated Balance Sheet, based on the maturity of the individual security.

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 $ i 7.7 billion and $ i 6.7 billion, respectively, as of January 2, 2021.

Counterparty credit risk concentration

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 could result in a loss to the Company of approximately $ i 12 million, net of collateral already received from those counterparties as of January 2, 2021.

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 January 2, 2021, collateral related to reciprocal collateralization agreements and margin deposits for exchange-traded commodity derivative instruments, were immaterial.

Management believes concentrations of credit risk with respect to accounts receivable is limited due to

the generally high credit quality of the Company’s major customers, as well as the large number and geographic dispersion of smaller customers. However, the Company conducts a disproportionate amount of business with a small number of large multinational grocery retailers, with the five largest accounts encompassing approximately i 29% of consolidated trade receivables at January 2, 2021.

Refer to Note 1 for disclosures regarding the Company’s accounting policies for derivative instruments.

NOTE 15

CONTINGENCIES

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

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

The Company has established accruals for certain matters where losses are deemed probable and reasonably estimable. There are other claims and legal proceedings pending against the Company for which accruals have not been established. It is reasonably possible that some of these matters could result in an unfavorable judgment against the Company and could require payment of claims in amounts that cannot be estimated at January 2, 2021. Based upon current information, management does not expect any of the claims or legal proceedings pending against the Company to have a material impact on the Company’s consolidated financial statements.

100

NOTE 16

QUARTERLY FINANCIAL DATA (unaudited)

Net sales

Gross profit

(millions)

2020

2019

2020

2019

First

i 3,412

i 3,522

i 1,144

i 1,107

Second

i 3,465

i 3,461

i 1,197

i 1,186

Third

i 3,429

i 3,372

i 1,201

i 1,000

Fourth

i 3,464

i 3,223

i 1,185

i 1,088

i 13,770

i 13,578

i 4,727

i 4,381

Net income (loss) attributable to Kellogg Company

Per share amounts

(millions)

2020

2019

2020

2019

Basic

Diluted

Basic

Diluted

First

i 347

i 282

i 1.01

i 0.82

Second

i 351

i 286

i 1.02

i 0.84

Third

i 348

i 247

i 1.02

i 1.01

i 0.73

i 0.72

Fourth

i 205

i 145

i 0.60

i 0.59

i 0.43

i 0.42

i 1,251

i 960

The principal market for trading Kellogg shares (Ticker symbol: K) is the New York Stock Exchange (NYSE). At January 2, 2021 there were i 30,305 shareholders of record.

Dividends paid per share during the last two years were:


Quarter	2020		2019
First	$	i 0.57	$	i 0.56
Second	i 0.57		i 0.56
Third	i 0.57		i 0.57
Fourth	i 0.57		i 0.57
	$	i 2.28	$	i 2.26

101

During 2020, the Company recorded the following in operating profit and other income (expense):

2020

(millions)

First

Second

Third

Fourth

Full Year

Operating profit

Restructuring and cost reduction charges

( i 1)

( i 14)

i —

( i 22)

( i 37)

Gains / (losses) on mark-to-market adjustments

i 26

( i 43)

i 10

( i 1)

( i 8)

Other income (expense)

Restructuring and cost reduction charges

i —

i 8

Gains / (losses) on mark-to-market adjustments

( i 14)

( i 43)

( i 7)

( i 90)

( i 154)

During 2019, the Company recorded the following in operating profit and other income (expense):

2019

(millions)

First

Second

Third

Fourth

Full Year

Operating profit

Restructuring and cost reduction charges

( i 8)

( i 65)

( i 18)

( i 27)

( i 118)

Gains / (losses) on mark-to-market adjustments

( i 42)

i 46

( i 11)

i —

( i 7)

Other income (expense)

Restructuring and cost reduction charges

i —

i 5

Gains / (losses) on mark-to-market adjustments

i 1

( i 11)

i 32

( i 120)

( i 98)

NOTE 17

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

The Company manages its operations through i four 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 cone businesses to Ferrero for approximately $ i 1.3 billion in cash. Both the total assets and the net assets, consisting primarily of goodwill and intangibles, property, plant and equipment, and inventory, of the businesses were approximately $ i 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 $ i 562 million and $ i 893 million for the years ended December 28, 2019 and December 29, 2018, respectively.

102

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:

(millions)

2020

2019

2018

Net sales

North America

i 8,361

i 8,390

i 8,688

Europe

i 2,232

i 2,092

i 2,122

Latin America

i 914

i 940

i 947

AMEA

i 2,263

i 2,156

i 1,790

Consolidated

i 13,770

i 13,578

i 13,547

Operating profit

North America (a)(b)

i 1,473

i 1,215

i 1,397

Europe

i 301

i 222

i 251

Latin America

i 97

i 85

i 102

AMEA

i 202

i 195

i 174

Total Reportable Segments

i 2,073

i 1,717

i 1,924

Corporate (b)

( i 312)

( i 316)

( i 218)

Consolidated

i 1,761

i 1,401

i 1,706

Depreciation and amortization (c)

North America

i 282

i 291

i 341

Europe

i 84

i 80

i 78

Latin America

i 30

i 37

AMEA

i 79

i 76

i 57

Total Reportable Segments

i 475

i 477

i 513

Corporate

i 4

i 7

i 3

Consolidated

i 479

i 484

i 516

(a)During 2019, North America operating profit includes the recognition of multi-employer pension plan exit liabilities totaling $ i 132 million.

(b)Corporate operating profit in 2020 and 2019 includes the cost of certain global research and development activities that were previously included in the North America reportable segment in 2018 totaling approximately $ i 48 million.

(c)Includes asset impairment charges as discussed in Note 14.

Certain items such as interest expense and income taxes, while not included in the measure of reportable segment operating results, are regularly reviewed by the CODM for the Company’s internationally-based reportable segments as shown below.

(millions)

2020

2019

2018

Interest expense

North America

i —

i 1

Europe

i 4

i 6

Latin America

i 6

i 9

i 3

AMEA

i 8

i 14

i 9

Corporate

i 263

i 255

i 268

Consolidated

i 281

i 284

i 287

Income taxes

Europe

i 29

i 48

i 23

Latin America

i 20

i 16

i 30

AMEA

i 33

i 23

Corporate & North America

i 241

i 234

i 105

Consolidated

i 323

i 321

i 181

Assets are reviewed by the CODM on a consolidated basis and therefore are not presented by operating segment. The CODM does review additions to long-lived assets based on operating segment.

103

(millions)

2020

2019

2018

Additions to long-lived assets

North America

i 270

i 356

i 336

Europe

i 120

i 83

i 84

Latin America

i 31

i 41

i 76

AMEA

i 77

i 101

i 79

Corporate

i 7

i 5

i 3

Consolidated

i 505

i 586

i 578

The Company’s largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately i i i 19 / / % of consolidated net sales during 2020, 2019, and 2018, comprised principally of sales within the United States.

Supplemental geographic information is provided below for net sales to external customers and long-lived assets:

(millions)

2020

2019

2018

Net sales

United States

i 7,821

i 7,885

i 8,176

All other countries

i 5,949

i 5,693

i 5,371

Consolidated

i 13,770

i 13,578

i 13,547

Long-lived assets

United States

i 2,048

i 1,996

i 2,197

All other countries

i 1,665

i 1,616

i 1,534

Consolidated

i 3,713

i 3,612

i 3,731

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

(millions)

2020

2019

2018

Snacks

i 6,281

i 6,663

i 6,797

Cereal

i 5,433

i 5,029

i 5,203

Frozen

i 1,139

i 1,037

i 1,020

Noodles and other

i 917

i 849

i 527

Consolidated

i 13,770

i 13,578

i 13,547

104

NOTE 18

SUPPLEMENTAL FINANCIAL STATEMENT DATA


Consolidated Statement of Income (millions)	2020		2019		2018
Research and development expense	$	i 135	$	i 144	$	i 154
Advertising expense	$	i 781	$	i 676	$	i 752

Consolidated Balance Sheet

(millions)

2020

2019

Trade receivables

i 1,272

i 1,315

Allowance for doubtful accounts

( i 19)

( i 10)

Refundable income taxes

i 66

i 56

Other receivables

i 218

i 215

Accounts receivable, net

i 1,537

i 1,576

Raw materials, spare parts, and supplies

i 338

i 303

Finished goods and materials in process

i 946

i 923

Inventories

i 1,284

i 1,226

Land

i 120

i 116

Buildings

i 2,135

i 2,021

Machinery and equipment

i 6,080

i 5,852

Capitalized software

i 543

i 496

Construction in progress

i 641

i 566

Accumulated depreciation

( i 5,806)

( i 5,439)

Property, net

i 3,713

i 3,612

Other intangibles

i 2,612

i 2,677

Accumulated amortization

( i 121)

( i 101)

Other intangibles, net

i 2,491

i 2,576

Pension

i 324

i 241

Deferred income taxes

i 254

i 231

Nonpension post retirement benefits

i 369

i 283

Other

i 515

i 384

Other assets

i 1,462

i 1,139

Accrued income taxes

i 58

i 42

Accrued salaries and wages

i 378

i 290

Other

i 709

i 577

Other current liabilities

i 1,145

i 909

Income taxes payable

i 56

i 81

Nonpension postretirement benefits

i 34

i 33

Other

i 435

i 429

Other liabilities

i 525

i 543

Allowance for doubtful accounts

(millions)

2020

2019

2018

Balance at beginning of year

i 10

Additions charged to expense

i 13

i 9

i 4

Doubtful accounts charged to reserve

( i 4)

( i 9)

( i 4)

Balance at end of year

i 19

i 10

105

Management’s Responsibility for Financial Statements

Management is responsible for the preparation of the Company’s consolidated financial statements and related notes. We believe that the consolidated financial statements present the Company’s financial position and results of operations in conformity with accounting principles that are generally accepted in the United States, using our best estimates and judgments as required.

The Board of Directors of the Company has an Audit Committee composed of six non-management Directors. The Committee meets regularly with management, internal auditors, and the independent registered public accounting firm to review accounting, internal control, auditing and financial reporting matters.

Formal policies and procedures, including an active Ethics and Business Conduct program, support the internal controls and are designed to ensure employees adhere to the highest standards of personal and professional integrity. We have a rigorous internal audit program that independently evaluates the adequacy and effectiveness of these internal controls.

106

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles.

We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Based on our evaluation under the framework in Internal Control — Integrated Framework (2013), management concluded that our internal control over financial reporting was effective as of January 2, 2021. The effectiveness of our internal control over financial reporting as of January 2, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which follows.

/s/ Steven A. Cahillane

Steven A. Cahillane

President and Chief Executive Officer

/s/ Amit Banati

Amit Banati

Senior Vice President and Chief Financial Officer

107

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Kellogg Company

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the consolidated financial statements, including the related notes, of Kellogg Company and its subsidiaries (the “Company”) as listed in the index appearing under Item 15(a)(1) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable

108

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment –RX Reporting Unit

As described in Notes 1 and 4 to the consolidated financial statements, management evaluates goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of the goodwill may be impaired. As disclosed in the consolidated financial statements, the carrying amount of RX goodwill as of January 2, 2021 was $373 million. The fair value for the RX reporting unit was determined based on a calculation which gave consideration to an income approach utilizing the discounted cash flow method and the market approach using the guideline public company and guideline transaction methods. The significant assumptions utilized within the RX discounted cash flow method are forecasted net sales and profitability growth and the discount rate.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the RX reporting unit is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the RX reporting unit due to the significant judgment by management when determining the fair value of the RX reporting unit using the discounted cash flow model, (ii) the significant audit effort in performing procedures and evaluating significant assumptions related to forecasted net sales and profitability growth, and the discount rate and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the annual goodwill impairment test, including controls over the valuation of the RX reporting unit. These procedures also included, among others, testing management’s process for developing the fair value estimate of the RX reporting unit, evaluating the appropriateness of the discounted cash flow model, testing the completeness, accuracy, and relevance of underlying data used in the model and evaluating the reasonableness of the significant assumptions used by management, related to the forecasted net sales and profitability growth and the discount rate. Evaluating the reasonableness of management’s assumptions related to the forecasted net sales and profitability growth involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the Company’s discounted cash flow model and the discount rate assumption.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

We have served as the Company’s auditor since at least 1937. We have not been able to determine the specific year we began serving as auditor of the Company.

109

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports that we file or submit under the Exchange Act 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. 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 January 2, 2021, management 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 evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Internal Control over Financial Reporting.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report of management’s assessment of the design and effectiveness of our internal control over financial reporting as part of this Annual Report on Form 10-K. The independent registered public accounting firm of PricewaterhouseCoopers LLP also audited, and reported on, the effectiveness of our internal control over financial reporting. Management’s report and the independent registered public accounting firm’s audit report are included in our 2020 financial statements in Item 8 of this Report under the captions entitled “Management’s Report on Internal Control over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” and are incorporated herein by reference.

There were no changes during the quarter ended January 2, 2021, that materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors — Refer to the information in our Proxy Statement to be filed with the Securities and Exchange Commission for the Annual Meeting of Shareowners to be held on April 30, 2021 (the “Proxy Statement”), under the caption “Proposal 1 — Election of Directors,” which information is incorporated herein by reference.

Identification and Members of Audit Committee; Audit Committee Financial Expert — Refer to the information in the Proxy Statement under the caption “Board and Committee Membership,” which information is incorporated herein by reference.

Executive Officers of the Registrant — Refer to “Executive Officers” under Item 1 of this Report.

Code of Ethics for Chief Executive Officer, Chief Financial Officer and Controller —We have adopted a Global Code of Ethics which applies to our chief executive officer, chief financial officer, corporate controller and all our other employees, and which can be found at www.kelloggcompany.com. Any amendments or waivers to the Global Code of Ethics applicable to our chief executive officer, chief financial officer or corporate controller may also be found at www.kelloggcompany.com.

110

ITEM 11. EXECUTIVE COMPENSATION

Refer to the information under the captions “2020 Director Compensation and Benefits,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Retirement and Non-Qualified Defined Contribution and Deferred Compensation Plans,” “Potential Post-Employment Payments,” and "CEO Pay Ratio" of the Proxy Statement, which is incorporated herein by reference. See also the information under the caption “Compensation and Talent Management Committee Report” of the Proxy Statement, which information is incorporated herein by reference; however, such information is only “furnished” hereunder and not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Refer to the information under the captions “Security Ownership — Five Percent Holders”, “Security Ownership — Officer and Director Stock Ownership” of the Proxy Statement, which information is incorporated herein by reference.


EQUITY COMPENSATION PLAN INFORMATION
(millions, except per share data)

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights as of January 2, 2021 (a)		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights as of January 2, 2021 ($)(b)	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding Securities Reflected in Column (a)) as of January 2, 2021 (c)(1)
Equity compensation plans approved by security holders	15.5	(2)	65	17.2	(3)
Equity compensation plans not approved by security holders	0		NA	0.3
Total	15.5		65	17.5

(1)The total number of shares remaining available for issuance under the 2017 Long-Term Incentive Plan will be reduced by two shares for each share issued pursuant to an award other than a stock option or stock appreciation right, or potentially issuable pursuant to an outstanding award other than a stock option or stock appreciation right, which will in each case reduce the total number of shares remaining by one share for each share issued.

(2)Includes 13.6 million stock options and 1.7 million restricted share units.

(3)The total number of shares available remaining for issuance as of January 2, 2021 for each Equity Compensation Plan approved by shareowners are as follows:

–The 2017 Long-Term Incentive Plan - 15.7 million;

–The 2002 Employee Stock Purchase Plan - 1.5 million.

Three plans are considered “Equity compensation plans not approved by security holders.” The Kellogg Share Incentive Plan, which was adopted in 2002 and is available to most U.K. employees of specified Kellogg Company subsidiaries; a similar plan, which is available to employees in the Republic of Ireland; and the Deferred Compensation Plan for Non-Employee Directors, which was adopted in 1986 and amended in 1993 and 2002.

Under the Kellogg Share Incentive Plan, eligible U.K. employees may contribute up to 1,500 Pounds Sterling annually to the plan through payroll deductions. The trustees of the plan use those contributions to buy shares of our common stock at fair market value on the open market, with Kellogg matching those contributions on a 1:1 basis. Shares must be withdrawn from the plan when employees cease employment. Under current law, eligible employees generally receive certain income and other tax benefits if those shares are held in the plan for a specified number of years. A similar plan is also available to employees in the Republic of Ireland. As these plans are open market plans with no set overall maximum, no amounts for these plans are included in the above table. However, approximately 70,000 shares were purchased by eligible employees under the Kellogg Share Incentive Plan, the plan for the Republic of Ireland and other similar predecessor plans during 2020, with approximately an additional 70,000 shares being provided as matched shares.

111

The Deferred Compensation Plan for Non-Employee Directors was amended and restated during 2013. Under the Deferred Compensation Plan for Non-Employee Directors, non-employee Directors may elect to defer all or part of their compensation (other than expense reimbursement) into units which are credited to their accounts. The units have a value equal to the fair market value of a share of our common stock on the appropriate date, with dividend equivalents being earned on the whole units in non-employee Directors’ accounts. Units must be paid in shares of our common stock, either in a lump sum or in up to ten annual installments, with the installments to begin as soon as practicable after the non-employee Director’s service as a Director terminates. No more than 300,000 shares are authorized for use under this plan, of which approximately 44,000 had been issued as of January 2, 2021.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Refer to the information under the captions “Corporate Governance — Director Independence” and “Corporate Governance — Related Person Transactions” of the Proxy Statement, which information is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Refer to the information under the captions “Proposal 3 — Ratification of PricewaterhouseCoopers LLP — Fees Paid to Independent Registered Public Accounting Firm” and “Proposal 3 — Ratification of PricewaterhouseCoopers LLP — Preapproval Policies and Procedures” of the Proxy Statement, which information is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The Consolidated Financial Statements and related Notes, together with Management’s Report on Internal Control over Financial Reporting, and the Report thereon of PricewaterhouseCoopers LLP dated February 22, 2021, are included herein in Part II, Item 8.

(a) 1. Consolidated Financial Statements

Consolidated Statement of Income for the years ended January 2, 2021, December 28, 2019 and December 29, 2018.

Consolidated Statement of Comprehensive Income for the years ended January 2, 2021, December 28, 2019 and December 29, 2018.

Consolidated Balance Sheet at January 2, 2021 and December 28, 2019.

Consolidated Statement of Equity for the years ended January 2, 2021, December 28, 2019 and December 29, 2018.

Consolidated Statement of Cash Flows for the years ended January 2, 2021, December 28, 2019 and December 29, 2018.

Notes to Consolidated Financial Statements.

Management’s Report on Internal Control over Financial Reporting.

Report of Independent Registered Public Accounting Firm.

(a) 2. Consolidated Financial Statement Schedule

All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.

(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K

The information called for by this Item is incorporated herein by reference from the Exhibit Index included in this Report.

112

ITEM 16. FORM 10-K SUMMARY

Not applicable.

113

EXHIBIT INDEX

Exhibit
No.

Description

Electronic(E),
Paper(P) or
Incorp. By
Ref.(IBRF)

3.01

Amended Restated Certificate of Incorporation of Kellogg Company, incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-8, file number 333-56536.

IBRF

3.02

Bylaws of Kellogg Company, as amended, incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated December 15, 2017, Commission file number 1-4171.

IBRF

4.01

Indenture, dated March 15, 2001, between Kellogg Company and BNY Midwest Trust Company, including the form of 7.45% Debentures due 2031, incorporated by reference to Exhibit 4.01 to our Quarterly Report on Form 10-Q for the quarter ending March 31, 2001, Commission file number 1-4171.

IBRF

4.02

Supplemental Indenture, dated March 29, 2001, between Kellogg Company and BNY Midwest Trust Company, including the form of 7.45% Debentures due 2031, incorporated by reference to Exhibit 4.02 to our Quarterly Report on Form 10-Q for the quarter ending March 31, 2001, Commission file number 1-4171.

IBRF

4.03

Indenture, dated as of May 21, 2009, between Kellogg Company and The Bank of New York Mellon Trust Company, N.A., incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-3, Commission file number 333-209699.

IBRF

4.04

Officers’ Certificate of Kellogg Company (with form of Kellogg Company 4.000% Senior Note Due 2020), incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated December 8, 2010, Commission file number 1-4171.

IBRF

4.05

Officers’ Certificate of Kellogg Company (with form of 1.125% Senior Note due 2015, 1.750% Senior Note due 2017 and 3.125% Senior Note due 2022), incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated May 17, 2012, Commission file number 1-4171.

IBRF

4.06

Officer’s Certificate of Kellogg Company (with form of Floating Rate Senior Notes due 2015 and 2.750% Senior Notes due 2023), incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated February 14, 2013, Commission file number 1-4171.

IBRF

4.07

Officer’s Certificate of Kellogg Company (with form of 1.250% Senior Notes due 2025), incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated March 9, 2015, Commission file number 1-4171.

IBRF

114

Exhibit
No.

Description

Electronic(E),
Paper(P) or
Incorp. By
Ref.(IBRF)

4.08

Officers’ Certificate of Kellogg Company (with form of 3.250% Senior Notes due 2026 and 4.500% Senior Debentures due 2046), incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated March 7, 2016, Commission file number 1-4171.

IBRF

4.09

Officers’ Certificate of Kellogg Company (with form of 1.000% Senior Notes due 2024), incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated May 19, 2016, Commission file number 1-4171.

IBRF

4.10

Officers’ Certificate of Kellogg Company (with form of 2.650% Senior Notes due 2023), incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated November 15, 2016, Commission file number 1-4171.

IBRF

4.11

Officers’ Certificate of Kellogg Company (with form of 0.800% Senior Notes due 2022), incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated May 17, 2017, Commission file number 1-4171.

IBRF

4.12

Officers’ Certificate of Kellogg Company (with form of 3.400% Senior Notes due 2027), incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated November 13, 2017, Commission file number 1-4171.

IBRF

4.13

Officers’ Certificate of Kellogg Company (with form of 3.250% Senior Notes due 2021 and form of 4.300% Senior Notes due 2028), incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K dated May 15, 2018, Commission file number 1-4171.

IBRF

4.14

Officers’ Certificate of Kellogg Company (with form of 1.750% Senior Note due 2021), incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated May 23, 2014, Commission file number 1-4171.

IBRF

4.15

Description of Equity Securities

4.16

Description of Debt Securities

4.17

364-Day Credit Agreement dated as of January 28, 2020 with JPMorgan Chase Bank, N.A., as Administrative Agent, Barclays Bank PLC, as Syndication Agent, and JPMorgan Chase Bank, N.A., Barclays Bank PLC, BofA Securities, Inc., Citibank, N.A., Coöperatieve Rabobank U.A., New York Branch, Morgan Stanley MUFG Loan Partners, LLC and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners and the lenders named therein, incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K dated January 30, 2020, Commission file number 1-4171.

IBRF

115

Exhibit
No.

Description

Electronic(E),
Paper(P) or
Incorp. By
Ref.(IBRF)

4.18

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

10.01

Kellogg Company Supplemental Savings and Investment Plan, as amended and restated as of January 1, 2003, incorporated by reference to Exhibit 10.03 to our Annual Report on Form 10-K for the fiscal year ended December 28, 2002, Commission file number 1-4171.*

IBRF

10.02

Kellogg Company Key Employee Long Term Incentive Plan, incorporated by reference to Exhibit 10.07 to our Annual Report on Form 10-K for the fiscal year ended December 29, 2007, Commission file number 1-4171.*

IBRF

10.03

Kellogg Company 2000 Non-Employee Director Stock Plan, incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K for the fiscal year ended December 29, 2007, Commission file number 1-4171.*

IBRF

10.04

Agreement between us and other executives, incorporated by reference to Exhibit 10.05 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission file number 1-4171.*

IBRF

10.05

Kellogg Company 2002 Employee Stock Purchase Plan, as amended and restated as of July 1, 2020, incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-8, file number 333-239564.*

IBRF

10.06

Kellogg Company 1993 Employee Stock Ownership Plan, incorporated by reference to Exhibit 10.23 to our Annual Report on Form 10-K for the fiscal year ended December 29, 2007, Commission file number 1-4171.*

IBRF

10.07

Kellogg Company 2003 Long-Term Incentive Plan, as amended and restated as of December 8, 2006, incorporated by reference to Exhibit 10 to our Annual Report on Form 10-K for the fiscal year ended December 30, 2006, Commission file number 1-4171.*

IBRF

10.08

Kellogg Company Severance Plan, incorporated by reference to Exhibit 10.25 of our Annual Report on Form 10-K for the fiscal year ended December 28, 2002, Commission file number 1-4171.*

IBRF

10.09

First Amendment to the Key Executive Benefits Plan, incorporated by reference to Exhibit 10.39 of our Annual Report in Form 10-K for our fiscal year ended January 1, 2005, Commission file number 1-4171.*

IBRF

116

Exhibit
No.

Description

Electronic(E),
Paper(P) or
Incorp. By
Ref.(IBRF)

10.10

Executive Survivor Income Plan, incorporated by reference to Exhibit 10.42 of our Annual Report in Form 10-K for our fiscal year ended December 31, 2005, Commission file number 1-4171.*

IBRF

10.11

Form of Amendment to Form of Agreement between us and certain executives, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated December 18, 2008, Commission file number 1-4171.*

IBRF

10.12

Kellogg Company 2009 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-8 dated April 27, 2009, Commission file number 333-158824.*

IBRF

10.13

Kellogg Company 2009 Non-Employee Director Stock Plan, incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-8 dated April 27, 2009, Commission file number 333-158826.*

IBRF

10.14

Form of Option Terms and Conditions under 2009 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated February 25, 2011, Commission file number 1-4171.

IBRF

10.15

Letter Agreement between us and Gary Pilnick, dated May 20, 2008, incorporated by reference to Exhibit 10.54 to our Annual Report on Form 10-K for the fiscal year ended January 1, 2011, commission file number 1-4171.*

IBRF

10.16

Form of Option Terms and Conditions, incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated February 23, 2012, Commission file number 1-4171.*

IBRF

10.17

Kellogg Company 2013 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-8, file number 333-188222.*

IBRF

10.18

Kellogg Company Pringles Savings and Investment Plan, incorporated by reference to Exhibit 4.3 to our Registration Statement on Form S-8, file number 333-189638.*

IBRF

10.19

Amendment Number 1 to the Kellogg Company Pringles Savings and Investment Plan, incorporated by reference to Exhibit 4.4 to our Registration Statement on Form S-8, file number 333-189638.*

IBRF

10.20

Kellogg Company Deferred Compensation Plan for Non-Employee Directors, incorporated by reference to Exhibit 10.49 to our Annual Report on Form 10-K dated February 24, 2014, Commission file number 1-4171.*

IBRF

10.21

Kellogg Company Executive Compensation Deferral Plan, incorporated by reference to Exhibit 10.50 to our Annual Report on Form 10-K dated February 24, 2014, Commission file number 1-4171.*

IBRF

117

Exhibit
No.

Description

Electronic(E),
Paper(P) or
Incorp. By
Ref.(IBRF)

10.22

Kellogg Company Change of Control Severance Policy for Key Executives, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated December 11, 2014.*

IBRF

10.23

Form of Option Terms and Conditions, incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K dated February 24, 2015, Commission file number 1-4171.*

IBRF

10.24

Form of Option Terms and Conditions, incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K dated February 23, 2016, Commission file number 1-4171.*

IBRF

10.25

2017-2019 Executive Performance Plan, incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K dated February 24, 2017, Commission file number 1-4171.*

IBRF

10.26

Form of Restricted Stock Unit Terms and Conditions, incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K dated February 24, 2017, Commission file number 1-4171.*

IBRF

10.27

Kellogg Company 2017 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-8, file number 333-217769.*

IBRF

10.28

Letter agreement with Steve Cahillane, dated September 22, 2017, incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K dated September 28, 2017, Commission file number 1-4171.*

IBRF

10.29

Letter agreement with John Bryant, dated September 22, 2017, incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K dated September 28, 2017, Commission file number 1-4171.*

IBRF

10.30

Five-Year Credit Agreement dated as of January 30, 2018 with JPMorgan Chase Bank, N.A., as Administrative Agent, Barclays Bank PLC, as Syndication Agent, Bank of America, N.A., Citibank, N.A., Cooperatieve Rabobank U.A., New York Branch, Morgan Stanley MUFG Loan Partners, LLC and Wells Fargo Bank, National Association, as Documentation Agents, JPMorgan Chase Bank, N.A., Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Cooperatieve Rabobank U.A., New York Branch, Morgan Stanley MUFG Loan Partners, LLC and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners and the lenders named therein, incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K dated February 1, 2018, Commission file number 1-4171.

IBRF

10.31

Letter Agreement with Paul Norman, dated February 16, 2018, incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K dated February 16, 2018, Commission file number 1-4171.*

IBRF

118

Exhibit
No.

Description

Electronic(E),
Paper(P) or
Incorp. By
Ref.(IBRF)

10.32

2018-2020 Executive Performance Plan, incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K dated February 22, 2018, Commission file number 1-4171.*

IBRF

10.33

Form of Restricted Stock Unit Terms and Conditions, incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K dated February 22, 2018, Commission File number 1-4171.*

IBRF

10.34

Form of Option Terms and Conditions, incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K dated February 22, 2018, Commission file number 4-4171.*

IBRF

10.35

Amendment to the Kellogg Company 2017 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K dated June 11, 2018, Commission file number 1-4171.*

IBRF

10.36

364-Day Credit Agreement dated as of January 29, 2019 with JPMorgan Chase Bank, N.A., as Administrative Agent, Barclays Bank PLC, as Syndication Agent, and JPMorgan Chase Bank, N.A. Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Coöperatieve Rabobank U.A., New York Branch, Morgan Stanley MUFG Loan Partners, LLC and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners and the lenders named therein, incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K dated February 4, 2019, Commission file number 1-4171.

IBRF

10.37

2019-2021 Executive Performance Plan, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated February 26, 2019, Commission file number 1-4171.

IBRF

10.38

Form of Restricted Stock Unit Terms and Conditions, incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated February 26, 2019, Commission file number 1-4171.

IBRF

10.39

Form of Option Terms and Conditions, incorporated by reference to our Current Report on Form 8-K dated February 26, 2019, Commission file number 1-4171.

IBRF

10.40

Agreement with Fareed Khan, dated May 2, 2019, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, Commission file number 1-4171.

IBRF

10.41

2020-2022 Executive Performance Plan, incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K dated February 25, 2020, Commission file number 1-4171.

IBRF

10.42

Form of Restricted Stock Unit Terms and Conditions, incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K dated February 25, 2020, Commission file number 1-4171.

IBRF

10.43

Form of Option Terms and Conditions, incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K dated February 25, 2020, Commission file number 1-4171.

IBRF

119

21.01

Domestic and Foreign Subsidiaries of Kellogg.

23.01

Consent of Independent Registered Public Accounting Firm.

24.01

Powers of Attorney authorizing Gary H. Pilnick to execute our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, on behalf of the Board of Directors, and each of them.

31.1

Rule 13a-14(a)/15d-14(a) Certification by Steven A. Cahillane.

31.2

Rule 13a-14(a)/15d-14(a) Certification by Amit Banati.

32.1

Section 1350 Certification by Steven A. Cahillane.

32.2

Section 1350 Certification by 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


*			A management contract or compensatory plan required to be filed with this Report.

We agree to furnish to the Securities and Exchange Commission, upon its request, a copy of any instrument defining the rights of holders of long-term debt of Kellogg and our subsidiaries and any of our unconsolidated subsidiaries for which Financial Statements are required to be filed.

We will furnish any of our shareowners a copy of any of the above Exhibits not included herein upon the written request of such shareowner and the payment to Kellogg of the reasonable expenses incurred in furnishing such copy or copies.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, this 22nd day of February, 2021.



KELLOGG COMPANY

By:						/s/ *Steven A. Cahillane*
						Steven A. Cahillane
						Chairman and Chief Executive Officer

120

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name

Capacity

Date

/s/ Steven A. Cahillane
Steven A. Cahillane

Chairman and Chief Executive Officer and Director (Principal Executive Officer)

/s/ Amit Banati
Amit Banati

Senior Vice President and Chief Financial Officer (Principal Financial Officer)

/s/ Kurt Forche
Kurt Forche

Vice President and Corporate Controller (Principal Accounting Officer)

*
Stephanie A. Burns

Director

*
Carter A. Cast

Director

*
Richard W. Dreiling

Director

*
Roderick D. Gillum

Director

*
Zachary Gund

Director

*
James M. Jenness

Director

*
Donald R. Knauss

Director

*
Mary A. Laschinger

Director

*
Erica L. Mann

Director

*
La June Montgomery Tabron

Director

*
J. Michael Schlotman

Director

*
Carolyn M. Tastad

Director

* By:

/s/ Gary H. Pilnick
Gary H. Pilnick

Attorney-in-fact