SEC Info - Kellogg Co - ‘10-K’ for 12/28/19

i 4,617

i 368

i 244

i 275

i 5,504

Additions

i —

i 616

Purchase price allocation adjustment

( i 2

)

i —

( i 2

)

Purchase price adjustment

i —

Currency translation adjustment

( i 4

)

( i 22

)

( i 26

)

( i 16

)

( i 68

)

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

/ /

Intangible assets subject to amortization

Gross carrying amount

(millions)

North America

Europe

Latin

America

AMEA

Consoli-

dated

i 72

i 45

i 74

i 10

i 201

Additions

i —

i 425

Purchase price allocation adjustment

i 2

i —

i 2

Currency translation adjustment

i —

( i 2

)

( i 11

)

( i 7

)

( i 20

)

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

Accumulated Amortization

i 35

i 18

i 10

i 4

i 67

Amortization

i 4

i 3

i 4

i 12

i 23

Currency translation adjustment

i —

( i 1

)

( i 2

)

i —

( i 3

)

i 39

i 20

i 12

i 16

i 87

Amortization (a)

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

Intangible assets subject to amortization, net

i 37

i 27

i 64

i 6

i 134

Additions

i —

i 425

Amortization

( i 4

)

( i 3

)

( i 4

)

( i 12

)

( i 23

)

Purchase price allocation adjustment

i 2

i —

i 2

Currency translation adjustment

i —

( i 1

)

( i 9

)

( i 7

)

( i 17

)

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

)

Divestiture

i —

Currency translation adjustment

i —

( i 1

)

( i 3

)

i 1

( i 3

)

i 33

i 20

i 45

i 395

i 493

(a) The currently estimated aggregate amortization expense for each of the next five succeeding fiscal periods is approximately $ i 28 million per year through 2024.

Intangible assets not subject to amortization

(millions)

North America

Europe

Latin

America

AMEA

Consoli-

dated

i 1,985

i 420

i 86

i 14

i 2,505

Additions

i —

i 373

Purchase price allocation adjustment

i —

Currency translation adjustment

i —

( i 19

)

( i 13

)

( i 6

)

( i 38

)

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

Annual Impairment Testing

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

Refer to Note 17 Reportable Segments for further details on these changes. As a result of these changes in operating segments and related reporting units, the Company re-allocated goodwill between reporting units where necessary and compared the carrying value to the fair value of each impacted reporting unit on a before and after basis. This evaluation was only required to be performed on reporting units impacted by the changes noted above.

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

Additionally, during the first quarter of 2019, the Company determined that it was more likely than not that the Company would be selling selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses within the North America reporting unit. As a result, the Company performed a goodwill impairment evaluation on the North America reporting unit in the first quarter of 2019 and concluded that the fair value exceeded the carrying value of the reporting unit. During the second quarter of 2019, the Company entered into a definitive agreement to sell the businesses to Ferrero. The sale was completed during the third quarter of 2019 and resulted in the divestiture of the net assets and liabilities of these businesses, included in the North America reporting unit, including $ i 191 million of Goodwill and $ i 765 million of Net Intangibles. In addition to the cash consideration received, the Company entered into a perpetual royalty-free licensing agreement with Ferrero, allowing Kellogg the use of certain brand names for cracker products. The license agreement was fair valued at $ i 18 million and recorded as an indefinite-lived intangible asset.

At December 28, 2019, goodwill and other intangible assets amounted to $ i 8.4 billion, consisting primarily of goodwill and brands originally associated with the 2001 acquisition of Keebler Foods Company and the 2012 acquisition of Pringles. 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 these 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 2019, no heightened risk of impairment of individual intangible assets or reporting units was identified.

Additionally, the Company has goodwill of $ i 606 million and $ i 373 million at December 28, 2019 related to the Multipro and RX reporting units, respectively. The Company performed goodwill impairment testing for Multipro using both an EBITDA market multiple and discounted cash flow (DCF) method. The Company performed goodwill impairment testing for RX using both a sales market multiple and discounted cash flow method. Significant assumptions utilized within the Multipro DCF model include forecasted net sales growth and gross margin. The significant assumption utilized within the RX DCF model is forecasted net sales growth. The Company determined the fair value of Multipro and RX exceed the carrying value and no heightened risk of impairment exists for the reporting units.

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.

Project K

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

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%).

Since the inception of Project K, the Company recognized charges of $ i 1,574 million that have been attributed to the program. The charges were comprised of $ i 6 million being recorded as a reduction of revenue, $ i 928 million being recorded in COGS, $ i 807 million recorded in SGA and $( i 167) million recorded in OIE.

Other programs

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

severance and other termination benefits and charges related to relocation, third party legal and consulting fees, and contract termination costs.

The Company recorded total net charges of $ i 38 million related to this initiative during 2019, with $ i 43 million recorded in SG&A expense and $( i 5) million recorded in OIE.

The overall project is expected to result in cumulative pretax charges of approximately $ i 30 million. Cash costs are expected to approximate the pretax charges. Total expected charges will include severance and other termination benefits and charges related to third party consulting fees.

The Company recorded total charges of $ i 21 million related to this initiative during 2019. These charges were recorded in SG&A expense.

Total programs

During 2019, the Company recorded $ i 113 million of charges associated with all restructuring programs. The charges were comprised of $ i 35 million expense being recorded in Cost of Goods Sold (COGS), a $ i 83 million expense recorded in Selling, General, Administrative (SG&A), and $( i 5) million recorded in Other (Income) Expense, net (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.

The Company recorded $ i 263 million of costs in 2017 associated with all restructuring programs. The charges were comprised of $ i 115 million expense being recorded in COGS, a $ i 296 million expense recorded in SGA expense, and a $( i 148) million gain recorded in OIE.

The tables below provide the details for the charges incurred during 2019, 2018 and 2017 and program costs to date for all programs currently active as of December 28, 2019.

Program costs to date

(millions)

2019

2018

2017

Employee related costs

i 49

i 63

i 177

i 646

Pension curtailment (gain) loss, net

( i 5

)

( i 30

)

( i 148

)

( i 172

)

Asset related costs

i 21

i 16

i 77

i 306

Asset impairment

i —

i 14

i —

i 169

Other costs

i 48

i 80

i 157

i 684

Total

i 113

i 143

i 263

i 1,633

Program costs to date

(millions)

2019

2018

2017