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Section 1: 10-Q (10-Q)

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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2019
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number 1-4171
KELLOGG COMPANY
State of Incorporation—
Delaware
  
IRS Employer Identification No.
38-0710690
One Kellogg Square, P.O. Box 3599, Battle Creek, MI 49016-3599
Registrant’s telephone number: 269-961-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, $.25 par value per share
K
New York Stock Exchange
1.750% Senior Notes due 2021
K 21
New York Stock Exchange
0.800% Senior Notes due 2022
K 22A
New York Stock Exchange
1.000% Senior Notes due 2024
K 24
New York Stock Exchange
1.250% Senior Notes due 2025
K 25
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes      No  
Common Stock outstanding as of September 28, 2019341,094,178 shares
 


Table of Contents

KELLOGG COMPANY
INDEX
 
 
 
Page
 
 
 
 
 
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
Controls and Procedures
 
 
 
 
 
Risk Factors
 
 
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Exhibits
 
 



Table of Contents

Part I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
 
September 28,
2019 (unaudited)
December 29,
2018
Current assets
 
 
Cash and cash equivalents
$
453

$
321

Accounts receivable, net
1,643

1,375

Inventories
1,200

1,330

Other current assets
196

131

Total current assets
3,492

3,157

Property, net
3,493

3,731

Operating lease right-of-use assets
464


Goodwill
5,842

6,050

Other intangibles, net
2,572

3,361

Investments in unconsolidated entities
405

413

Other assets
1,231

1,068

Total assets
$
17,499

$
17,780

Current liabilities
 
 
Current maturities of long-term debt
$
6

$
510

Notes payable
185

176

Accounts payable
2,338

2,427

Current operating lease liabilities
105


Other current liabilities
1,755

1,416

Total current liabilities
4,389

4,529

Long-term debt
7,683

8,207

Operating lease liabilities
366


Deferred income taxes
589

730

Pension liability
605

651

Other liabilities
579

504

Commitments and contingencies


Equity
 
 
Common stock, $.25 par value
105

105

Capital in excess of par value
909

895

Retained earnings
7,910

7,652

Treasury stock, at cost
(4,714
)
(4,551
)
Accumulated other comprehensive income (loss)
(1,483
)
(1,500
)
Total Kellogg Company equity
2,727

2,601

Noncontrolling interests
561

558

Total equity
3,288

3,159

Total liabilities and equity
$
17,499

$
17,780


See accompanying Notes to Consolidated Financial Statements.


3

Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share data)
 
Quarter ended
 
Year-to-date period ended
(Results are unaudited)
September 28,
2019
September 29,
2018
 
September 28,
2019
September 29,
2018
Net sales
$
3,372

$
3,469

 
$
10,355

$
10,230

Cost of goods sold
2,372

2,293

 
7,062

6,593

Selling, general and administrative expense
737

780

 
2,252

2,257

Operating profit
263

396

 
1,041

1,380

Interest expense
72

72

 
221

213

Other income (expense), net
150

130

 
247

269

Income before income taxes
341

454

 
1,067

1,436

Income taxes
91

69

 
237

206

Earnings (loss) from unconsolidated entities
(2
)
(2
)
 
(5
)
196

Net income
248

383

 
825

1,426

Net income attributable to noncontrolling interests
1

3

 
10

6

Net income attributable to Kellogg Company
$
247

$
380

 
$
815

$
1,420

Per share amounts:
 
 
 
 
 
Basic earnings
$
0.73

$
1.10

 
$
2.39

$
4.10

Diluted earnings
$
0.72

$
1.09

 
$
2.38

$
4.07

Average shares outstanding:
 
 
 
 
 
Basic
341

347

 
341

346

Diluted
342

349

 
342

349

Actual shares outstanding at period end




 
341

347


See accompanying Notes to Consolidated Financial Statements.


4

Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(millions)

Quarter ended
September 28, 2019

Year-to-date period ended
September 28, 2019
(Results are unaudited)
Pre-tax
amount
Tax (expense)
benefit
After-tax
amount

Pre-tax
amount
Tax (expense)
benefit
After-tax
amount
Net income
 
 
$
248

 
 
 
$
825

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Foreign currency translation adjustments during period
$
35

$
(38
)
(3
)
 
$
96

$
(47
)
49

Cash flow hedges:
 
 
 
 
 
 
 
Unrealized gain (loss)
(12
)
4

(8
)
 
(12
)
4

(8
)
Reclassification to net income
(1
)

(1
)
 
2

(1
)
1

Postretirement and postemployment benefits:
 
 
 
 
 
 
 
Net experience (gain) loss
(1
)

(1
)
 
(3
)
1

(2
)
Available-for-sale securities:
 
 
 
 
 
 
 
Unrealized gain (loss)
1


1

 
4


4

Reclassification to net income
(4
)

(4
)
 
(4
)

(4
)
Other comprehensive income (loss)
$
18

$
(34
)
$
(16
)
 
$
83

$
(43
)
$
40

Comprehensive income
 
 
$
232

 
 
 
$
865

Net Income attributable to noncontrolling interests

 
 
1

 
 
 
10

Other comprehensive income (loss) attributable to noncontrolling interests
 
 
(2
)
 
 
 
1

Comprehensive income attributable to Kellogg Company
 
 
$
233

 
 
 
$
854















 
Quarter ended
September 29, 2018

Year-to-date period ended
September 29, 2018
(Results are unaudited)
Pre-tax
amount
Tax (expense)
benefit
After-tax
amount

Pre-tax
amount
Tax (expense)
benefit
After-tax
amount
Net income
 
 
$
383

 
 
 
$
1,426

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(5
)
$
(7
)
(12
)
 
$
(29
)
$
(34
)
(63
)
Cash flow hedges:
 
 
 
 
 
 
 
Unrealized gain (loss) on cash flow hedges



 
3

(1
)
2

Reclassification to net income
2

(1
)
1

 
6

(2
)
4

Postretirement and postemployment benefits:
 
 
 
 
 
 
 
Reclassification to net income:
 
 
 
 
 
 
 
Net experience (gain) loss
(1
)

(1
)
 
(3
)

(3
)
Prior service cost
(1
)

(1
)
 
(1
)

(1
)
Other comprehensive income (loss)
$
(5
)
$
(8
)
$
(13
)
 
$
(24
)
$
(37
)
$
(61
)
Comprehensive income
 
 
$
370

 
 
 
$
1,365

Net Income attributable to noncontrolling interests
 
 
3

 
 
 
6

Other comprehensive income (loss) attributable to noncontrolling interests
 
 
(2
)
 
 
 
(6
)
Comprehensive income attributable to Kellogg Company
 
 
$
369

 
 
 
$
1,365


See accompanying Notes to Consolidated Financial Statements.


5

Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EQUITY
(millions)
 
 
Quarter ended September 28, 2019
 
 
Common
stock
Capital in
excess of
par value
Retained
earnings
 
Treasury
stock
Accumulated
other
comprehensive
income (loss)
Total Kellogg
Company
equity
Non-controlling
interests
Total
equity
(unaudited)
shares
amount
shares
amount
Balance, June 29, 2019
421

$
105

$
895

$
7,858

80

$
(4,739
)
$
(1,469
)
$
2,650

$
562

$
3,212

Net income
 
 
 
247

 
 
 
247

1

248

Sale of subsidiary shares to noncontrolling interest
 
 
 
 
 
 
 



Dividends declared ($0.57 per share)
 
 
 
(194
)
 
 
 
(194
)
 
(194
)
Distributions to noncontrolling interest
 
 
 
 
 
 
 



Other comprehensive income
 
 
 
 
 
 
(14
)
(14
)
(2
)
(16
)
Stock compensation
 
 
13

 
 
 
 
13

 
13

Stock options exercised and other
 
 
1

(1
)

25

 
25

 
25

Balance, September 28, 2019
421

$
105

$
909

$
7,910

80

$
(4,714
)
$
(1,483
)
$
2,727

$
561

$
3,288

 
 
 
 
 
 
 
 
 
 
 
 
Year-to-date period ended September 28, 2019
 
 
Common
stock
Capital in
excess of
par value
Retained
earnings
 
Treasury
stock
Accumulated
other
comprehensive
income (loss)
Total Kellogg
Company
equity
Non-controlling
interests
Total
equity
(unaudited)
shares
amount
shares
amount
Balance, December 29, 2018
421

$
105

$
895

$
7,652

77

$
(4,551
)
$
(1,500
)
$
2,601

$
558

$
3,159

Common stock repurchases
 
 
 
 
4

(220
)
 
(220
)
 
(220
)
Net income
 
 
 
815

 
 
 
815

10

825

Sale of subsidiary shares to noncontrolling interest
 
 
 
 
 
 
 

1

1

Dividends declared ($1.69 per share)
 
 
 
(574
)
 
 
 
(574
)
 
(574
)
Distributions to noncontrolling interest
 
 
 
 
 
 
 

(9
)
(9
)
Other comprehensive income
 
 
 
 
 
 
39

39

1

40

Reclassification of tax effects relating to U.S. tax reform
 
 
 
22

 
 
(22
)

 

Stock compensation
 
 
42

 
 
 
 
42

 
42

Stock options exercised and other
 
 
(28
)
(5
)
(1
)
57

 
24

 
24

Balance, September 28, 2019
421

$
105

$
909

$
7,910

80

$
(4,714
)
$
(1,483
)
$
2,727

$
561

$
3,288

 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Consolidated Financial Statements.


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Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EQUITY (cont.)
(millions)

 
Quarter ended September 29, 2018
 
 
Common
stock
Capital in
excess of
par value
Retained
earnings
 
Treasury
stock
Accumulated
other
comprehensive
income (loss)
Total Kellogg
Company
equity
Non-controlling
interests
Total
equity
(unaudited)
shares
amount
shares
amount
Balance, June 30, 2018
421

$
105

$
866

$
7,743

74

$
(4,375
)
$
(1,501
)
$
2,838

$
566

$
3,404

Common stock repurchases
 
 
 
 
1

(70
)
 
(70
)
 
(70
)
Net income
 
 
 
380

 
 
 
380

3

383

Acquisition of noncontrolling interest - Multipro
 
 
 
 
 
 
 



Dividends declared ($0.56 per share)
 
 
 
(194
)
 
 
 
(194
)
 
(194
)
Distributions to noncontrolling interest
 
 
 
 
 
 
 



Other comprehensive income
 
 
 
 
 
 
(11
)
(11
)
(2
)
(13
)
Stock compensation
 
 
12

 
 
 
 
12

 
12

Stock options exercised and other
 
 
5


(1
)
88

 
93

 
93

Balance, September 29, 2018
421

$
105

$
883

$
7,929

74

$
(4,357
)
$
(1,512
)
$
3,048

$
567

$
3,615


 
Year-to-date period ended September 29, 2018
 
 
Common
stock
Capital in
excess of
par value
Retained
earnings
 
Treasury
stock
Accumulated
other
comprehensive
income (loss)
Total Kellogg
Company
equity
Non-controlling
interests
Total
equity
(unaudited)
shares
amount
shares
amount
Balance, December 30, 2017
421

$
105

$
878

$
7,069

75

$
(4,417
)
$
(1,457
)
$
2,178

$
16

$
2,194

Common stock repurchases
 
 
 
 
2

(120
)
 
(120
)
 
(120
)
Net income
 
 
 
1,420

 
 
 
1,420

6

1,426

Acquisition of noncontrolling interest - Multipro
 
 
 
 
 
 
 

552

552

Dividends declared ($1.64 per share)
 
 
 
(568
)
 
 
 
(568
)
 
(568
)
Distributions to noncontrolling interest
 
 
 
 
 
 
 

(1
)
(1
)
Other comprehensive income
 
 
 
 
 
 
(55
)
(55
)
(6
)
(61
)
Stock compensation
 
 
42


 
 
 
42

 
42

Stock options exercised and other
 
 
(37
)
8

(3
)
180

 
151

 
151

Balance, September 29, 2018
421

$
105

$
883

$
7,929

74

$
(4,357
)
$
(1,512
)
$
3,048

$
567

$
3,615

See accompanying Notes to Consolidated Financial Statements.

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Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
 
Year-to-date period ended
(unaudited)
September 28,
2019
September 29,
2018
Operating activities
 
 
Net income
$
825

$
1,426

Adjustments to reconcile net income to operating cash flows:
 
 
Depreciation and amortization
360

374

Postretirement benefit plan expense (benefit)
(158
)
(188
)
Deferred income taxes
(206
)
99

Stock compensation
42

42

Multi-employer pension plan exit liability
132


Gain on unconsolidated entities, net

(200
)
Other
(70
)
(91
)
Postretirement benefit plan contributions
(19
)
(279
)
Changes in operating assets and liabilities, net of acquisitions:
 
 
Trade receivables
(253
)
(139
)
Inventories
16

(67
)
Accounts payable

103

All other current assets and liabilities
256

(154
)
Net cash provided by (used in) operating activities
925

926

Investing activities
 
 
Additions to properties
(436
)
(389
)
Acquisitions, net of cash acquired
(8
)
(28
)
Divestiture
1,332


Investments in unconsolidated entities


(389
)
Acquisition of cost method investments

(6
)
Purchases of available for sale securities
(18
)

Sales of available for sale securities
83


Other
(22
)
27

Net cash provided by (used in) investing activities
931

(785
)
Financing activities
 
 
Net issuances (reductions) of notes payable
9

(198
)
Issuances of long-term debt
40

993

Reductions of long-term debt
(1,000
)
(401
)
Debt redemption costs
(17
)

Net issuances of common stock
40

160

Common stock repurchases
(220
)
(120
)
Cash dividends
(574
)
(568
)
Other
(9
)
(2
)
Net cash provided by (used in) financing activities
(1,731
)
(136
)
Effect of exchange rate changes on cash and cash equivalents
7

23

Increase (decrease) in cash and cash equivalents
132

28

Cash and cash equivalents at beginning of period
321

281

Cash and cash equivalents at end of period
$
453

$
309

 
 
 
Supplemental cash flow disclosures
 
 
Interest paid
$
180

$
153

Income taxes paid
$
211

$
163

 
 
 
Supplemental cash flow disclosures of non-cash investing activities:
 
 
   Additions to properties included in accounts payable
$
93

$
98

See accompanying Notes to Consolidated Financial Statements.

8

Table of Contents

Notes to Consolidated Financial Statements
for the quarter ended September 28, 2019 (unaudited)
Note 1 Accounting policies

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

The condensed balance sheet information at December 29, 2018 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the quarterly period ended September 28, 2019 are not necessarily indicative of the results to be expected for other interim periods or the full year.

Accounts payable
The Company has agreements with certain third parties to provide accounts payable tracking systems which facilitates participating suppliers’ ability to monitor and, if elected, sell payment obligations from the Company to designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to sell one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company’s goal in entering into these agreements is to capture overall supplier savings, in the form of payment terms or vendor funding, created by facilitating suppliers’ ability to sell payment obligations, while providing them with greater working capital flexibility. We have no economic interest in the sale of these suppliers’ receivables and no direct financial relationship with the financial institutions concerning these services. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to sell amounts under these arrangements. However, the Company’s right to offset balances due from suppliers against payment obligations is restricted by this agreement for those payment obligations that have been sold by suppliers. As of September 28, 2019, $809 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold $572 million of those payment obligations to participating financial institutions. As of December 29, 2018, $893 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold $701 million of those payment obligations to participating financial institutions.

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

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

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

9

Table of Contents

Company did not elect the practical expedient for the use of hindsight in evaluating the expected lease term of existing leases.

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

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

Note 2 Sale of accounts receivable
The Company has a program in which a discrete group of customers are allowed to extend their payment terms in exchange for the elimination of early payment discounts (Extended Terms Program).

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

The Company has no retained interest in the receivables sold, however the Company does have collection and administrative responsibilities for the sold receivables. The Company has not recorded any servicing assets or liabilities as of September 28, 2019 and December 29, 2018 for these agreements as the fair value of these servicing arrangements as well as the fees earned were not material to the financial statements.
Accounts receivable sold of $918 million and $900 million remained outstanding under these arrangements as of September 28, 2019 and December 29, 2018, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows in the period of sale. The recorded net loss on sale of receivables was $6 million and $21 million for the quarter and year-to-date periods ended September 28, 2019, respectively and was $7 million and $20 million for the quarter and year-to-date periods ended September 29, 2018, respectively. The recorded loss is included in Other income and expense.

Other programs
Additionally, from time to time certain of the Company's foreign subsidiaries will transfer, without recourse, accounts receivable invoices of certain customers to financial institutions. These transactions are accounted for as sales of the receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. Accounts receivable sold of $23 million and $93 million remained outstanding under these programs as of September 28, 2019 and December 29, 2018, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows in the period of sale. The recorded net loss on the sale of these receivables is included in Other income and expense (OIE) and is not material.


10

Table of Contents

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

Proceeds from the divestiture were used primarily to redeem $1.0 billion of debt during the third quarter. The Company expects to pay approximately $260 million of cash taxes on the divestiture in the fourth quarter of 2019.

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

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

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

As a result of the Company’s incremental ownership interest in Multipro and concurrent changes to the shareholders' agreement, the Company has a 51% controlling interest in and is consolidating Multipro. The acquisition was accounted for as a business combination and the assets and liabilities of Multipro were included in the September 28, 2019 and December 29, 2018 Consolidated Balance Sheet and the results of its operations have been included in the Consolidated Statement of Income subsequent to the acquisition date within the AMEA reporting segment. The Multipro investment was previously accounted for under the equity method of accounting and the Company recorded our share of equity income or loss from Multipro within Earnings (loss) from unconsolidated entities. In connection with the business combination, the Company recognized a one-time, non-cash gain in the second quarter of 2018 on the disposition of our previously held equity interest in Multipro of $245 million, which is included within Earnings (loss) from unconsolidated entities.

The Company's September 29, 2018 quarter and year-to-date consolidated unaudited pro forma historical net sales and net income, as if Multipro had been acquired at the beginning of 2018, exclusive of the non-cash $245 million gain on the disposition of the equity interest recognized in the second quarter of 2018, are estimated as follows:
 
Quarter ended
 
Year-to-date period ended
(millions)
September 29, 2018
 
September 29, 2018
Net sales
$
3,469


$
10,512

Net Income attributable to Kellogg Company
$
380


$
1,420



11

Table of Contents

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

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

Carrying amount of goodwill
(millions)
North
America
Europe
Latin
America
AMEA
Consoli-
dated
December 29, 2018
$
4,611

$
346

$
218

$
875

$
6,050

Divestiture
(191
)



(191
)
Currency translation adjustment

(10
)
(10
)
3

(17
)
September 28, 2019
$
4,420

$
336

$
208

$
878

$
5,842



Intangible assets subject to amortization
Gross carrying amount
 
 
 
 
 
(millions)
North
America
Europe
Latin
America
AMEA
Consoli-
dated
December 29, 2018
$
74

$
39

$
63

$
432

$
608

Additions
2