KELLANOVA - Quarter Report: 2021 October (Form 10-Q)

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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 October 02, 2021


☐			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
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
0.500% Senior Notes due 2029	K 29	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 October 2, 2021 — 341,122,803 shares

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KELLOGG COMPANY

INDEX


						Page
			PART I — Financial Information
			Item 1:
			Financial Statements
			Consolidated Balance Sheet — October 2, 2021 and January 2, 2021			3
			Consolidated Statement of Income — quarter and year-to-date periods ended October 2, 2021 and September 26, 2020			4
			Consolidated Statement of Comprehensive Income – quarter and year-to-date periods ended October 2, 2021 and September 26, 2020			5
			Consolidated Statement of Equity — quarter and year-to-date periods ended October 2, 2021			6
			Consolidated Statement of Equity — quarter and year-to-date periods ended September 26, 2020			7
			Consolidated Statement of Cash Flows — year-to-date periods ended October 2, 2021 and September 26, 2020			8
			Notes to Consolidated Financial Statements			9
			Item 2:
			Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
			Item 3:
			Quantitative and Qualitative Disclosures about Market Risk			41
			Item 4:
			Controls and Procedures			42
			PART II — Other Information
			Item 1A:
			Risk Factors			43
			Item 2:
			Unregistered Sales of Equity Securities and Use of Proceeds			43
			Item 6:
			Exhibits			44
			Signatures			45
			Exhibit Index			46

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Part I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Kellogg Company and Subsidiaries

CONSOLIDATED BALANCE SHEET

(millions, except per share data)


	October 2, 2021 (unaudited)		January 2, 2021
Current assets
Cash and cash equivalents	$	440	$	435
Accounts receivable, net	1,680		1,537
Inventories	1,378		1,284
Other current assets	301		226
Total current assets	3,799		3,482
Property, net	3,753		3,713
Operating lease right-of-use assets	651		658
Goodwill	5,794		5,799
Other intangibles, net	2,441		2,491
Investments in unconsolidated entities	423		391
Other assets	1,546		1,462
Total assets	$	18,407	$	17,996
Current liabilities
Current maturities of long-term debt	$	16	$	627
Notes payable	497		102
Accounts payable	2,526		2,471
Current operating lease liabilities	128		117
Accrued advertising and promotion	834		776
Accrued salaries and wages	283		378
Other current liabilities	745		767
Total current liabilities	5,029		5,238
Long-term debt	7,020		6,746
Operating lease liabilities	503		520
Deferred income taxes	613		562
Pension liability	738		769
Other liabilities	495		525
Commitments and contingencies
Equity
Common stock, $.25 par value	105		105
Capital in excess of par value	1,005		972
Retained earnings	8,796		8,326
Treasury stock, at cost	(4,729)		(4,559)
Accumulated other comprehensive income (loss)	(1,693)		(1,732)
Total Kellogg Company equity	3,484		3,112
Noncontrolling interests	525		524
Total equity	4,009		3,636
Total liabilities and equity	$	18,407	$	17,996

See accompanying Notes to Consolidated Financial Statements.

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Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME

(millions, except per share data)


	Quarter ended				Year-to-date period ended
(unaudited)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net sales	$	3,622	$	3,429	$	10,761	$	10,306
Cost of goods sold	2,457		2,228		7,206		6,764
Selling, general and administrative expense	718		790		2,132		2,166
Operating profit	447		411		1,423		1,376
Interest expense	55		63		172		196
Other income (expense), net	—		70		155		151
Income before income taxes	392		418		1,406		1,331
Income taxes	92		65		345		268
Earnings (loss) from unconsolidated entities	5		(1)		—		(7)
Net income	305		352		1,061		1,056
Net income (loss) attributable to noncontrolling interests	(2)		4		6		10
Net income attributable to Kellogg Company	$	307	$	348	$	1,055	$	1,046
Per share amounts:
Basic earnings	$	0.90	$	1.02	$	3.09	$	3.05
Diluted earnings	$	0.89	$	1.01	$	3.07	$	3.03

Average shares outstanding:
Basic	341		343		341		343
Diluted	343		346		343		345
Actual shares outstanding at period end					341		344

See accompanying Notes to Consolidated Financial Statements.

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Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(millions)


	Quarter ended						Year-to-date period ended
	October 2, 2021						October 2, 2021
(unaudited)	Pre-tax amount		Tax (expense) benefit		After-tax amount		Pre-tax amount		Tax (expense) benefit		After-tax amount
Net income					$	305					$	1,061
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during period	$	(16)	$	(21)	(37)		$	25	$	(44)	(19)
Cash flow hedges:
Unrealized gain (loss)	3		(1)		2		42		(11)		31
Reclassification to net income	4		(1)		3		19		(5)		14
Postretirement and postemployment benefits:


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

Available-for-sale securities:
Unrealized gain (loss)	—		—		—		(1)		—		(1)
Reclassification to net income	(2)		—		(2)		(2)		—		(2)
Other comprehensive income (loss)	$	(11)	$	(23)	$	(34)	$	81	$	(59)	$	22
Comprehensive income					$	271					$	1,083
Net Income attributable to noncontrolling interests					(2)						6
Other comprehensive income (loss) attributable to noncontrolling interests					(4)						(17)
Comprehensive income attributable to Kellogg Company					$	277					$	1,094

	Quarter ended						Year-to-date period ended
	September 26, 2020						September 26, 2020
(unaudited)	Pre-tax amount		Tax (expense) benefit		After-tax amount		Pre-tax amount		Tax (expense) benefit		After-tax amount
Net income					$	352					$	1,056
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during period	$	(91)	$	39	(52)		$	(352)	$	29	(323)
Cash flow hedges:
Unrealized gain (loss) on cash flow hedges	15		(4)		11		(38)		10		(28)
Reclassification to net income	4		(1)		3		11		(3)		8
Postretirement and postemployment benefits:


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

Other comprehensive income (loss)	$	(72)	$	34	$	(38)	$	(380)	$	37	$	(343)
Comprehensive income					$	314					$	713
Net Income attributable to noncontrolling interests					4						10
Other comprehensive income (loss) attributable to noncontrolling interests					2						(34)
Comprehensive income attributable to Kellogg Company					$	308					$	737

See accompanying Notes to Consolidated Financial Statements.

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Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF EQUITY

(millions)


	Quarter ended October 2, 2021
	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, July 3, 2021	421	$	105	$	973	$	8,688	80	$	(4,741)	$	(1,663)	$	3,362	$	518	$	3,880

Net income						307							307		(2)		305
Acquisition of noncontrolling interest and other				22									22		30		52

Dividends declared ($0.58 per share)						(198)							(198)				(198)
Distributions to noncontrolling interest													—		(17)		(17)
Other comprehensive income											(30)		(30)		(4)		(34)

Stock compensation				11									11				11
Stock options exercised and other				(1)		(1)		—	12				10				10
Balance, October 2, 2021	421	$	105	$	1,005	$	8,796	80	$	(4,729)	$	(1,693)	$	3,484	$	525	$	4,009


	Year-to-date period ended October 2, 2021
	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, January 2, 2021	421	$	105	$	972	$	8,326	77	$	(4,559)	$	(1,732)	$	3,112	$	524	$	3,636
Common stock repurchases								4	(240)				(240)				(240)
Net income						1,055							1,055		6		1,061
Acquisition of noncontrolling interest and other				22									22		30		52

Dividends declared ($1.73 per share)						(590)							(590)				(590)
Distributions to noncontrolling interest													—		(18)		(18)
Other comprehensive income											39		39		(17)		22

Stock compensation				50									50				50
Stock options exercised and other				(39)		5		(1)	70				36				36
Balance, October 2, 2021	421	$	105	$	1,005	$	8,796	80	$	(4,729)	$	(1,693)	$	3,484	$	525	$	4,009

See accompanying Notes to Consolidated Financial Statements.

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Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF EQUITY (cont.)

(millions)


	Quarter ended September 26, 2020
	Common stock			Capital in excess of par value		Retained earnings		Treasury stock			Accumulated other comprehensive income (loss)		Total Kellogg Company equity		Non-controlling interests		Total equity
(unaudited)	shares	amount						shares	amount
Balance, June 27, 2020	421	$	105	$	929	$	8,166	78	$	(4,613)	$	(1,717)	$	2,870	$	536	$	3,406

Net income						348							348		4		352

Dividends declared ($0.57 per share)						(196)							(196)				(196)

Other comprehensive income											(40)		(40)		2		(38)

Stock compensation				18									18				18
Stock options exercised and other				1		—		(1)	43				44				44
Balance, September 26, 2020	421	$	105	$	948	$	8,318	77	$	(4,570)	$	(1,757)	$	3,044	$	542	$	3,586


	Year-to-date period ended September 26, 2020
	Common stock			Capital in excess of par value		Retained earnings		Treasury stock			Accumulated other comprehensive income (loss)		Total Kellogg Company equity		Non-controlling interests		Total equity
(unaudited)	shares	amount						shares	amount
Balance, December 28, 2019	421	$	105	$	921	$	7,859	79	$	(4,690)	$	(1,448)	$	2,747	$	567	$	3,314

Net income						1,046							1,046		10		1,056

Dividends declared ($1.71 per share)						(586)							(586)				(586)
Distributions to noncontrolling interest													—		(1)		(1)
Other comprehensive income											(309)		(309)		(34)		(343)

Stock compensation				55									55				55
Stock options exercised and other				(28)		(1)		(2)	120				91				91
Balance, September 26, 2020	421	$	105	$	948	$	8,318	77	$	(4,570)	$	(1,757)	$	3,044	$	542	$	3,586

See accompanying Notes to Consolidated Financial Statements.

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Kellogg Company and Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWS

(millions)


	Year-to-date period ended
(unaudited)	October 2, 2021		September 26, 2020
Operating activities
Net income	$	1,061	$	1,056
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization	346		355
Postretirement benefit plan expense (benefit)	(112)		(113)
Deferred income taxes	4		57
Stock compensation	50		55
Multi-employer pension plan exit liability	—		(5)

Other	(29)		(34)
Postretirement benefit plan contributions	(15)		(19)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables	(196)		(113)
Inventories	(103)		(57)
Accounts payable	198		108
All other current assets and liabilities	(59)		303
Net cash provided by (used in) operating activities	1,145		1,593
Investing activities
Additions to properties	(408)		(326)
Issuance of notes receivable	(29)		(19)
Repayments from notes receivable	28		6
Purchase of marketable securities	—		(250)

Investments in unconsolidated entities	(10)		—


Purchases of available for sale securities	(56)		(75)
Sales of available for sale securities	69		13
Other	21		2
Net cash provided by (used in) investing activities	(385)		(649)
Financing activities
Net issuances (reductions) of notes payable	343		9
Issuances of long-term debt	361		554
Reductions of long-term debt	(646)		(45)

Net issuances of common stock	50		105
Common stock repurchases	(240)		—
Cash dividends	(590)		(586)

Other	(18)		(16)
Net cash provided by (used in) financing activities	(740)		21
Effect of exchange rate changes on cash and cash equivalents	(15)		(33)
Increase (decrease) in cash and cash equivalents	5		932
Cash and cash equivalents at beginning of period	435		397
Cash and cash equivalents at end of period	$	440	$	1,329

Supplemental cash flow disclosures of non-cash investing activities:
Additions to properties included in accounts payable	$	91	$	108

See accompanying Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

for the quarter ended October 2, 2021 (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 2020 Annual Report on Form 10-K.

The condensed balance sheet information at January 2, 2021 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 quarter ended October 2, 2021 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 third parties to provide accounts payable tracking systems which facilitate 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 is to capture overall supplier savings, in the form of payment terms or vendor funding, and the agreements facilitate the suppliers’ ability to sell payment obligations, while providing them with greater working capital flexibility. The Company has 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 the arrangements. However, the Company’s right to offset balances due from suppliers against payment obligations is restricted by the agreements for those payment obligations that have been sold by suppliers. The payment of these obligations by the Company is included in cash used in operating activities in the Consolidated Statement of Cash Flows. As of October 2, 2021, $914 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold $650 million of those payment obligations to participating financial institutions. As of January 2, 2021, $909 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold $670 million of those payment obligations to participating financial institutions.

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 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 approximately $1.1 billion.

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 October 2, 2021 and January 2, 2021 for these agreements as the fair value of these servicing arrangements as well as the fees earned were not material to the financial statements.

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Accounts receivable sold of $611 million and $783 million remained outstanding under these arrangements as of October 2, 2021 and January 2, 2021, 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 $2 million and $6 million for the quarter and year-to-date periods ended October 2, 2021, respectively and was $3 million and $11 million for the quarter and year-to-date periods ended September 26, 2020, respectively. The recorded loss is included in Other income and expense, net (OIE).

Other programs

Additionally, from time to time certain of the Company's foreign subsidiaries will transfer, without recourse, accounts receivable invoices of certain customers to financial institutions. These transactions are accounted for as sales of the receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. Accounts receivable sold of $18 million and $55 million remained outstanding under these programs as of October 2, 2021 and January 2, 2021, 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 OIE and is not material.

Note 3 Restructuring programs

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

During the third quarter of 2021, the Company announced a reconfiguration of the North America reportable segment supply chain network, designed to drive increased productivity. The project is expected to be substantially completed by early 2024, with related productivity improvements commencing in 2023. The overall project is expected to result in cumulative pretax charges of approximately $45 million, which include employee-related costs of $4 million, other cash costs of $21 million and non-cash costs, primarily consisting of accelerated depreciation and asset write-off's, of $20 million. Charges incurred related to this restructuring program were $4 million during the quarter and year-to-date periods ended October 2, 2021. These charges primarily related to severance costs, and were recorded in COGS expense.

All other restructuring projects were immaterial during the periods presented.

Note 4 Equity

Earnings per share

Basic earnings per share is determined by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Dilutive potential common shares consist principally of employee stock options issued by the Company, restricted stock units, and certain contingently issuable performance shares. There were 8 million and 11 million anti-dilutive potential common shares excluded from the calculation for the quarter and year-to-date periods ended October 2, 2021. There were 7 million anti-dilutive potential common shares excluded from the calculation for the quarter and year-to-date periods ended September 26, 2020. Please refer to the Consolidated Statement of Income for basic and diluted earnings per share for the quarter and year-to-date periods ended October 2, 2021 and September 26, 2020.

Share repurchases

In February 2020, the board of directors approved a new authorization to repurchase up to $1.5 billion of our common stock through December 2022. During the quarter ended October 2, 2021, the Company did not repurchase any shares of common stock. During the year-to-date period ended October 2, 2021, the Company repurchased approximately 4 million shares of common stock for a total of $240 million. During the quarter and year-to-date periods ended September 26, 2020, the Company did not repurchase any shares of common stock.

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Comprehensive income

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

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Reclassifications out of Accumulated other comprehensive income (AOCI) for the quarter and year-to-date periods ended October 2, 2021 and September 26, 2020, consisted of the following:


(millions)
Details about AOCI components	Amount reclassified from AOCI				Line item impacted within Income Statement
	Quarter ended October 2, 2021		Year-to-date period ended October 2, 2021
(Gains) losses on cash flow hedges:


Interest rate contracts (a)	$	4	$	19	Interest expense

	$	4	$	19	Total before tax
	(1)		(5)		Tax expense (benefit)
	$	3	$	14	Net of tax
Amortization of postretirement and postemployment benefits:
Net experience (gain) loss (b)	$	—	$	(2)	OIE

	$	—	$	(2)	Total before tax
	—		1		Tax expense (benefit)
	$	—	$	(1)	Net of tax
(Gains) losses on available-for-sale securities:
Corporate bonds (a)	$	(2)	$	(2)	OIE
	$	(2)	$	(2)	Total before tax
	—		—		Tax expense (benefit)
	$	(2)	$	(2)	Net of tax
Total reclassifications	$	1	$	11	Net of tax



(millions)
Details about AOCI components	Amount reclassified from AOCI				Line item impacted within Income Statement
	Quarter ended September 26, 2020		Year-to-date period ended September 26, 2020
(Gains) losses on cash flow hedges:


Interest rate contracts (a)	$	4	$	11	Interest expense

	$	4	$	11	Total before tax
	(1)		(3)		Tax expense (benefit)
	$	3	$	8	Net of tax
Amortization of postretirement and postemployment benefits:
Net experience loss (b)	$	—	$	(2)	OIE
Prior service cost (b)	—		(1)		OIE
	$	—	$	(3)	Total before tax
	—		1		Tax expense (benefit)
	$	—	$	(2)	Net of tax





Total reclassifications	$	3	$	6	Net of tax

(a) See Derivative instruments and fair value measurements note

(b) See Employee benefits note

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Accumulated other comprehensive income (loss), net of tax, as of October 2, 2021 and January 2, 2021 consisted of the following:


(millions)	October 2, 2021		January 2, 2021
Foreign currency translation adjustments	$	(1,670)	$	(1,668)
Cash flow hedges — unrealized net gain (loss)	(12)		(57)
Postretirement and postemployment benefits:
Net experience gain (loss)	1		2
Prior service credit (cost)	(12)		(12)
Available-for-sale securities unrealized net gain (loss)	—		3
Total accumulated other comprehensive income (loss)	$	(1,693)	$	(1,732)

Note 5 Notes payable and long-term debt

The following table presents the components of notes payable at October 2, 2021 and January 2, 2021:


	October 2, 2021				January 2, 2021
(millions)	Principal amount		Effective interest rate		Principal amount		Effective interest rate
U.S. commercial paper	$	302	0.15	%	$	25	0.20	%
Bank borrowings	195				77
Total	$	497			$	102

In May of 2021, the Company issued €300 million of eight-year 0.50% Euro Notes due 2029, resulting in net proceeds of €298 million after discount and underwriting commissions. The 2029 Euro Notes were issued as a sustainability bond, and thus an amount equal to the net proceeds will be used to finance or refinance, in whole or in part, one or more eligible environmental or social projects described in the Company's Sustainability Bond Framework. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions, as well as a change of control provision.

Additionally, in May of 2021, the Company repaid the €500 million, seven-year 1.75% Euro Notes due 2021, upon maturity.

In May of 2020, the Company issued $500 million of ten-year 2.10% Notes due 2030, resulting in net proceeds after discount and underwriting commissions of $496 million. The proceeds from these notes were used for general corporate purposes, including the payment of offering related fees and expenses, repayment of a portion of the $600 million 4.00% Notes when they matured on December 15, 2020, and repayment of a portion of commercial paper borrowings. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions, as well as a change of control provision.

Note 6 Employee benefits

The Company sponsors a number of U.S. and foreign pension plans as well as other nonpension postretirement and postemployment plans to provide various benefits for its employees. These plans are described within the footnotes to the Consolidated Financial Statements included in the Company’s 2020 Annual Report on Form 10-K. Components of Company benefit plan (income) expense for the periods presented are included in the tables below. Excluding the service cost component, these amounts are included within Other income (expense) in the Consolidated Statement of Income.

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Pension


	Quarter ended				Year-to-date period ended
(millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Service cost	$	9	$	9	$	27	$	27
Interest cost	25		31		75		99
Expected return on plan assets	(76)		(87)		(231)		(257)
Amortization of unrecognized prior service cost	2		1		6		5
Recognized net (gain) loss	83		7		63		64
Net periodic benefit cost	$	43	$	(39)	$	(60)	$	(62)
Curtailment (gain) loss	(1)		—		(1)		(7)
Total pension (income) expense	$	42	$	(39)	$	(61)	$	(69)

Other nonpension postretirement


	Quarter ended				Year-to-date period ended
(millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Service cost	$	3	$	2	$	9	$	9
Interest cost	5		7		15		23
Expected return on plan assets	(23)		(24)		(69)		(70)
Amortization of unrecognized prior service cost	(2)		(1)		(6)		(6)



Total postretirement benefit (income) expense	$	(17)	$	(16)	$	(51)	$	(44)

Postemployment


	Quarter ended				Year-to-date period ended
(millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Service cost	$	1	$	1	$	3	$	3
Interest cost	1		1		1		1
Recognized net (gain) loss	—		—		(2)		(2)
Total postemployment benefit expense	$	2	$	2	$	2	$	2

For the quarter and year-to-date periods ended October 2, 2021, the Company recognized a loss of $83 million and $63 million, respectively, related to the remeasurement of certain U.S. pension plans. For the quarter and year-to-date periods ended September 26, 2020, the Company recognized a loss of $7 million and $15 million, respectively, related to the remeasurement of a U.S. pension plan. These remeasurements were each the result of distributions that exceeded service and interest costs resulting in settlement accounting for that particular plan. For the quarter and year-to-date periods ended October 2, 2021, the remeasurement loss was driven primarily by lower than expected asset returns. For the quarter and year-to-date periods ended September 26, 2020, the remeasurements recognized were due primarily to changes in the discount rate relative to the previous measurements.

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

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Company contributions to employee benefit plans are summarized as follows:


(millions)	Pension		Nonpension postretirement		Total
Quarter ended:
October 2, 2021	$	—	$	5	$	5
September 26, 2020	$	1	$	6	$	7
Year-to-date period ended:
October 2, 2021	$	2	$	13	$	15
September 26, 2020	$	4	$	15	$	19
Full year:
Fiscal year 2021 (projected)	$	6	$	19	$	25
Fiscal year 2020 (actual)	$	8	$	24	$	32

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

Multi-employer pension plan exit liability

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

Note 7 Income taxes

The consolidated effective tax rate for the quarters ended October 2, 2021 and September 26, 2020 was 24% and 16%, respectively. The consolidated effective tax rate for the year-to-date periods ended October 2, 2021 and September 26, 2020 was 25% and 20%, respectively.

The effective tax rate for the quarter ended October 2, 2021, was unfavorably impacted by the establishment of a full valuation allowance of $20 million related to certain foreign deferred tax assets. During the current quarter, the Company determined that certain foreign deferred tax assets were no longer more likely than not to be realized in the future and a full valuation allowance was recorded on a discrete period basis. For the year-to-date period ended October 2, 2021, the effective tax rate was unfavorably impacted by the aforementioned valuation allowance as well as tax legislation in the United Kingdom (UK). During the second quarter of 2021, the Company recorded tax expense of $23 million as a result of tax legislation enacted in the UK in June 2021, which increased the statutory UK tax rate from 19 percent to 25 percent for tax periods after April 1, 2023. The Company revalued its net deferred tax balances related to the UK business to reflect the increased tax rate.

The effective tax rate for the quarter and year-to-date periods ended September 26, 2020, were favorably impacted by the reversal of a liability for uncertain tax positions of $32 million, resulting from the finalization of a tax examination. The reserves were related to the Company's estimate of the transition tax liability in conjunction with the finalization of accounting under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.

As of October 2, 2021, the Company classified $13 million of unrecognized tax benefits as a net current tax liability. Management's 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 $3 million of projected additions related primarily to ongoing intercompany transfer pricing activity. Management is currently unaware of any issues under review that could result in significant additional payments, accruals or other material deviation in this estimate.

The Company’s total gross unrecognized tax benefits as of October 2, 2021 was $60 million. Of this balance, $51 million represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.

The accrual balance for tax-related interest was approximately $14 million at October 2, 2021.

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Note 8 Derivative instruments and fair value measurements

The Company is exposed to certain market risks such as changes in interest rates, foreign currency exchange rates, and commodity prices, which exist as a part of its ongoing business operations. Management uses derivative and nonderivative financial instruments and commodity instruments, including futures, options, and swaps, where appropriate, to manage these risks. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged.

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

Derivative instruments are classified on the Consolidated Balance Sheet based on the contractual maturity of the instrument or the timing of the underlying cash flows of the instrument for derivatives with contractual maturities beyond one year. Any collateral associated with derivative instruments is classified as other assets or other current liabilities on the Consolidated Balance Sheet depending on whether the counterparty collateral is in an asset or liability position. Margin deposits related to exchange-traded commodities are recorded in accounts receivable, net on the Consolidated Balance Sheet. On the Consolidated Statement of Cash Flows, cash flows associated with derivative instruments are classified according to the nature of the underlying hedged item. Cash flows associated with collateral and margin deposits on exchange-traded commodities are classified as investing cash flows when the collateral account is in an asset position and as financing cash flows when the collateral account is in a liability position.

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


(millions)	October 2, 2021		January 2, 2021
Foreign currency exchange contracts	$	3,104	$	2,856
Cross-currency contracts	1,360		1,411
Interest rate contracts	2,836		2,632
Commodity contracts	393		314
Total	$	7,693	$	7,213

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 October 2, 2021 and January 2, 2021, measured on a recurring basis.

Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market. For the Company, level 1 financial assets and liabilities consist primarily of commodity derivative contracts.

Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. For the Company, level 2 financial assets and liabilities consist of interest rate swaps, cross-currency swaps and over-the-counter commodity and currency contracts.

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

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

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The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet on a recurring basis as of October 2, 2021 and January 2, 2021:

Derivatives designated as hedging instruments


	October 2, 2021						January 2, 2021
(millions)	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:
Cross-currency contracts:
Other current assets	$	—	$	27	$	27	$	—	$	14	$	14
Other assets	—		15		15		—		16		16
Interest rate contracts(a):
Other current assets	—		46		46		—		—		—
Other assets	—		51		51		—		60		60
Total assets	$	—	$	139	$	139	$	—	$	90	$	90
Liabilities:


Cross-currency contracts:
Other current liabilities	$	—	$	—	$	—	$	—	$	(13)	$	(13)
Other Liabilities	—		(7)		(7)		—		(21)		(21)
Interest rate contracts:
Other current liabilities	—		—		—		—		(3)		(3)




Total liabilities	$	—	$	(7)	$	(7)	$	—	$	(37)	$	(37)

(a) The fair value of the related hedged portion of the Company's long-term debt, a level 2 liability, was $1.2 billion as of October 2, 2021 and $0.8 billion as of January 2, 2021.

Derivatives not designated as hedging instruments


	October 2, 2021						January 2, 2021
(millions)	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:
Foreign currency exchange contracts:
Other current assets	$	—	$	30	$	30	$	—	$	48	$	48
Other assets	—		3		3		—		—		—
Interest rate contracts:
Other current assets	—		4		4		—		4		4
Other assets	—		4		4		—		13		13
Commodity contracts:
Other current assets	17		—		17		9		—		9
Total assets	$	17	$	41	$	58	$	9	$	65	$	74
Liabilities:
Foreign currency exchange contracts:
Other current liabilities	$	—	$	(41)	$	(41)	$	—	$	(73)	$	(73)
Other liabilities	—		(5)		(5)		—		(4)		(4)
Interest rate contracts:
Other current liabilities	—		(7)		(7)		—		(6)		(6)
Other liabilities	—		(11)		(11)		—		(22)		(22)
Commodity contracts:
Other current liabilities	(1)		—		(1)		(1)		—		(1)

Total liabilities	$	(1)	$	(64)	$	(65)	$	(1)	$	(105)	$	(106)

The Company has designated its outstanding foreign currency denominated debt as a net investment hedge of a portion of the Company’s investment in its subsidiaries’ foreign currency denominated net assets. The carrying value of this debt, including current and long-term, was approximately $2.4 billion as of October 2, 2021 and $2.8 billion as of January 2, 2021.

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


(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)
		October 2, 2021		January 2, 2021		October 2, 2021		January 2, 2021

Interest rate contracts	Long-term debt	$	2,940	$	2,568	$	22	$	25

(a) The hedged long-term debt includes $14 million and $16 million of hedging adjustment on discontinued hedging relationships as of October 2, 2021 and January 2, 2021, 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 October 2, 2021 and January 2, 2021 would be adjusted as detailed in the following table:



As of October 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	$	197	$	(59)	$	—	$	138
Total liability derivatives	$	(72)	$	59	$	7	$	(6)



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	$	164	$	(116)	$	—	$	48
Total liability derivatives	$	(143)	$	116	$	5	$	(22)

The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the quarters ended October 2, 2021 and September 26, 2020 was as follows:

Derivatives and non-derivatives in net investment hedging relationships


(millions)	Gain (loss) recognized in AOCI				Gain (loss) excluded from assessment of hedge effectiveness				Location of gain (loss) in income of excluded component
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Foreign currency denominated long-term debt	$	57	$	(94)	$	—	$	—
Cross-currency contracts	30		(61)		5		8		Interest expense
Total	$	87	$	(155)	$	5	$	8

Derivatives not designated as hedging instruments


(millions)	Location of gain (loss) recognized in income	Gain (loss) recognized in income
		October 2, 2021		September 26, 2020
Foreign currency exchange contracts	COGS	$	13	$	(3)
Foreign currency exchange contracts	Other income (expense), net	(1)		(1)
Foreign currency exchange contracts	SG&A	1		(1)

Commodity contracts	COGS	29		17

Total		$	42	$	12

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The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the year-to-date periods ended October 2, 2021 and September 26, 2020 was as follows:

Derivatives and non-derivatives in net investment hedging relationships


(millions)	Gain (loss) recognized in AOCI				Gain (loss) excluded from assessment of hedge effectiveness				Location of gain (loss) in income of excluded component
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Foreign currency denominated long-term debt	$	128	$	(103)	$	—	$	—
Cross-currency contracts	47		1		15		26		Interest expense
Total	$	175	$	(102)	$	15	$	26

Derivatives not designated as hedging instruments


(millions)	Location of gain (loss) recognized in income	Gain (loss) recognized in income
		October 2, 2021		September 26, 2020
Foreign currency exchange contracts	COGS	$	(13)	$	43
Foreign currency exchange contracts	Other income (expense), net	(2)		5
Foreign currency exchange contracts	SGA	6		3
Interest rate contracts	Interest expense	1		1
Commodity contracts	COGS	96		(33)

Total		$	88	$	19

The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the quarters ended October 2, 2021 and September 26, 2020:


		October 2, 2021		September 26, 2020
(millions)		Interest Expense		Interest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded		$	55	$	63
	Gain (loss) on fair value hedging relationships:
	Interest contracts:
	Hedged items	3		(2)
	Derivatives designated as hedging instruments	(2)		2

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

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The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the year-to-date periods ended October 2, 2021 and September 26, 2020:



		October 2, 2021		September 26, 2020
(millions)		Interest Expense		Interest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded		$	172	$	196
	Gain (loss) on fair value hedging relationships:
	Interest contracts:
	Hedged items	3		(5)
	Derivatives designated as hedging instruments	(2)		6

	Gain (loss) on cash flow hedging relationships:
	Interest contracts:
	Amount of gain (loss) reclassified from AOCI into income	(19)		(11)

During the next 12 months, the Company expects $17 million of net deferred losses reported in AOCI at October 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 is at or below BB+ (S&P), or Baa1 (Moody’s). The fair value of all derivative instruments with credit-risk-related contingent features in a liability position on October 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 as of October 2, 2021 triggered by credit-risk-related contingent features.

Other fair value measurements

Marketable Securities

During the quarter and year-to-date periods ended September 26, 2020, the Company invested $50 million and $250 million, respectively, in a mutual fund holding short term debt securities. The investment 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. As of September 26, 2020, fair value using NAV was $250 million.

Available for sale securities


	October 2, 2021						January 2, 2021
			Unrealized						Unrealized
(millions)	Cost		Gain (Loss)		Market Value		Cost		Gain (Loss)		Market Value
Corporate bonds	$	51	$	—	$	51	$	62	$	3	$	65

During the year-to-date period ended October 2, 2021, the Company's investments in level 2 corporate bonds were sold for approximately $69 million resulting in a gain of $2 million, recorded in Other income and (expense). Also during the year-to-date period ended October 2, 2021, the Company invested approximately $56 million in level 2 corporate bonds.

The market values of the Company's investments in level 2 corporate bonds are based on matrices or models from pricing vendors. Unrealized gains and losses are included in the Consolidated Statement of Comprehensive Income. Additionally, these investments are recorded within Other current assets and Other assets on the Consolidated Balance Sheet, based on the maturity of the individual security. The maturity dates of the securities range from 2022 to 2036.

The Company reviews its investment portfolio for any unrealized losses that would be deemed other-than-temporary and requires the recognition of an impairment loss in earnings. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than its cost, the Company's intent to hold the investment, and whether it is more likely than not that the Company will be required to sell the investment before recovery of the cost basis. The Company also considers

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the type of security, related industry and sector performance, and published investment ratings. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. If conditions within individual markets, industry segments, or macro-economic environments deteriorate, the Company could incur future impairments.

Financial instruments

The carrying values of the Company’s short-term items, including cash, cash equivalents, accounts receivable, accounts payable, notes payable and current maturities of long-term debt approximate fair value. The fair value of the Company’s long-term debt, which are level 2 liabilities, is calculated based on broker quotes. The fair value and carrying value of the Company's long-term debt was $7.8 billion and $7.0 billion, respectively, as of October 2, 2021. The fair value and carrying value of the Company's long-term debt was $7.7 billion and $6.7 billion, respectively, as of January 2, 2021.

Counterparty credit risk concentration and collateral requirements

The Company is exposed to credit loss in the event of nonperformance by counterparties on derivative financial and commodity contracts. Management believes a concentration of credit risk with respect to derivative counterparties is limited due to the credit ratings and use of master netting and reciprocal collateralization agreements with the counterparties and the use of exchange-traded commodity contracts.

Master netting agreements apply in situations where the Company executes multiple contracts with the same counterparty. Certain counterparties represent a concentration of credit risk to the Company. If those counterparties fail to perform according to the terms of derivative contracts, this would result in a loss to the Company of approximately $101 million, net of collateral already received from those counterparties, as of October 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 October 2, 2021, the Company posted $7 million in margin deposits for exchange-traded commodity derivative instruments, which was reflected as an increase in accounts receivable, net on the Consolidated Balance Sheet.

Management believes concentrations of credit risk with respect to accounts receivable is limited due to the generally high credit quality of the Company’s major customers, as well as the large number and geographic dispersion of smaller customers. However, the Company conducts a disproportionate amount of business with a small number of large multinational grocery retailers, with the five largest accounts encompassing approximately 22% of consolidated trade receivables at October 2, 2021.

Note 9 Reportable segments

Kellogg Company is a leading producer of snacks, cereal, and frozen foods. It is the second largest producer of crackers, and a leading producer of savory snacks, and the world's leading producer of cereal. 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, Nigeria, Canada, Mexico, and Australia.

The Company manages its operations through four operating segments that are based on geographic location – North America which includes U.S. businesses and Canada; Europe which consists of European countries; Latin America which consists of Central and South America and includes Mexico; and AMEA (Asia Middle East Africa) which consists of Africa, Middle East, Australia and other Asian and Pacific markets. These operating segments also represent our reportable segments.

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The measurement of reportable segment results is based on segment operating profit which is generally consistent with the presentation of operating profit in the Consolidated Statement of Income. Reportable segment results were as follows:


	Quarter ended				Year-to-date period ended
(millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net sales
North America	$	2,056	$	2,059	$	6,199	$	6,323
Europe	631		552		1,827		1,624
Latin America	252		236		754		686
AMEA	683		582		1,981		1,673
Consolidated	$	3,622	$	3,429	$	10,761	$	10,306
Operating profit
North America	$	328	$	321	$	1,070	$	1,151
Europe	96		63		277		224
Latin America	29		31		88		84
AMEA	60		58		186		142
Total Reportable Segments	513		473		1,621		1,601
Corporate	(66)		(62)		(198)		(225)
Consolidated	$	447	$	411	$	1,423	$	1,376

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


	Quarter ended				Year-to-date period ended
(millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Snacks	$	1,712	$	1,593	$	5,015	$	4,669
Cereal	1,313		1,324		4,023		4,093
Frozen	277		279		841		857
Noodles and other	320		233		882		687
Consolidated	$	3,622	$	3,429	$	10,761	$	10,306

Note 10 Supplemental Financial Statement Data


Consolidated Balance Sheet
(millions)	October 2, 2021 (unaudited)		January 2, 2021
Trade receivables	$	1,441	$	1,272
Allowance for credit losses	(17)		(19)
Refundable income taxes	20		66
Other receivables	236		218
Accounts receivable, net	$	1,680	$	1,537
Raw materials and supplies	$	374	$	338
Finished goods and materials in process	1,004		946
Inventories	$	1,378	$	1,284
Intangible assets not subject to amortization	$	2,048	$	2,068
Intangible assets subject to amortization, net	393		423
Other intangibles, net	$	2,441	$	2,491

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Note 11 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 January 2021, the parties reached a new settlement that was within the amount of the contingency the Company recorded in December 2019. In June 2021, the court entered an order granting preliminary approval of the settlement.

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 October 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.

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KELLOGG COMPANY

PART I—FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand Kellogg Company, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes thereto contained in Item 1 of this report. Our MD&A references consumption and net sales in discussing our sales trends for certain categories and brands. We record net sales upon delivery of shipments to our customers. Consumption and share data noted within is based on Nielsen x-AOC or other comparable source, for the applicable period. Consumption refers to consumer purchases of our products from our customers. Unless otherwise noted, consumption and shipment trends are materially consistent.

For more than 115 years, consumers have counted on Kellogg for great-tasting, high-quality and nutritious foods. Currently, these foods include snacks, such as crackers, savory snacks, toaster pastries, cereal bars and bites; and convenience foods, such as, ready-to-eat cereals, frozen waffles, veggie foods and noodles. Kellogg products are manufactured and marketed globally.

COVID-19 Response

Since the World Health Organization categorized the novel coronavirus (COVID-19) as a pandemic in March 2020, our key objectives continue to be 1) protecting the health and safety of our employees, 2) safely producing and delivering our foods to customers and consumers, and 3) supporting the communities in which we operate. Our efforts have been led by the Company’s Executive Committee, a committee composed of senior leaders, and our global Crisis Management Process. As part of that process, we have worked closely with medical, regulatory and other experts as we deliver on our objectives.

Protect employee health and safety

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

Maintain our ability to produce and deliver essential food supply

In addition to our efforts to keep our people safe, the Company has taken several actions to ensure that we maintain our ability to operate effectively during this pandemic, providing our foods to our customers and consumers. In certain parts of the world, the reacceleration of COVID cases has brought new governmental restrictions, in some instances causing temporary reductions in production. Additionally, as a result of global supply imbalances, we have managed through bottlenecks and shortages of materials, labor, and freight that have required us to pursue alternative sources, incremental capacity, and temporary labor. We continue to take the appropriate actions to ensure the continuity of our business.

We have partnered with our strategic technology providers in order to maintain support for our critical business and finance systems as well as additional network bandwidth and support for the transition to a work-from-home environment. We have worked to mitigate system-related risks in this environment through heightened monitoring of cybersecurity and network capacity as well as reevaluation of contingency plans.

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Support communities

Kellogg is a company with a heart and soul, and we are working together across our company to help our food bank partners and neighbors in need. Kellogg and our charitable funds have donated cash and food to global COVID-19 hunger relief efforts. As always, through our global Kellogg’s® Better Days purpose platform, we help deliver critical nourishment to people when they need it most. Local governments have identified food security as a top priority in their fight against COVID-19. Kellogg is providing support to our food bank partners on the front-lines, helping those who may not know where their next meal is coming from.

Monitoring future impacts

The severity, magnitude and duration of the current COVID-19 pandemic is uncertain and rapidly changing. The Company continues to actively monitor the pandemic including, infection and hospitalization rates, vaccination efforts, and related governmental actions such as expanded or reduced stay-at home orders and social distancing guidelines. We will adjust our mitigation strategies as necessary to address any changing health, operational or financial risks that may arise. Since the onset of the pandemic, the Company has experienced a significant increase in demand for our retail products as consumers stocked up on food for at-home consumption in those markets. While this demand has moderated for certain products, we will continue to manage our production capacity during this period of volatility. We continue to monitor the business for adverse impacts of the pandemic, including volatility in the foreign exchange markets, reduced demand in our away from home businesses, supply-chain disruptions in certain markets, increased costs of employee safety and maintaining food supply, and potential disruptions for certain emerging market countries. In the event the Company experiences adverse impacts from the above or other factors, the Company would also evaluate the need to perform interim impairment tests for the Company’s goodwill, indefinite lived intangible assets, investments in unconsolidated affiliates and property, plant and equipment. There can be no assurance that volatility and/or disruption in the global capital and credit markets will not impair our ability to access these markets on terms acceptable to us, or at all. See further discussion within Future Outlook.

Segments

We manage our operations through four operating segments that are based primarily on geographic location – North America which includes the U.S. businesses and Canada; Europe which consists principally of European countries; Latin America which consists of Central and South America and includes Mexico; and AMEA (Asia Middle East Africa) which consists of Africa, Middle East, Australia and other Asian and Pacific markets. These operating segments also represent our reportable segments.

Non-GAAP financial measures

This filing includes non-GAAP financial measures that we provide to management and investors that exclude certain items that we do not consider part of on-going operations. Items excluded from our non-GAAP financial measures are discussed in the "Significant items impacting comparability" section of this filing. Our management team consistently utilizes a combination of GAAP and non-GAAP financial measures to evaluate business results, to make decisions regarding the future direction of our business, and for resource allocation decisions, including incentive compensation. As a result, we believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team and improves investors’ understanding of our underlying operating performance and in their analysis of ongoing operating trends. All historic non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures.

Non-GAAP financial measures used for evaluation of performance include currency-neutral and organic net sales, adjusted and currency-neutral adjusted operating profit, adjusted and currency-neutral adjusted diluted earnings per share (EPS), currency-neutral adjusted gross profit, currency neutral adjusted gross margin, adjusted effective tax rate, net debt, and cash flow. We determine currency-neutral results by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. These non-GAAP financial measures may not be comparable to similar measures used by other companies.

•Currency-neutral net sales and organic net sales: We adjust the GAAP financial measure to exclude the impact of foreign currency, resulting in currency-neutral net sales. In addition, we exclude the impact of acquisitions, divestitures, foreign currency, and differences in shipping days including the 53rd week, resulting in organic net sales. We excluded the items which we believe may obscure trends in our underlying net sales performance. By providing these non-GAAP net sales measures, management intends to provide investors with a meaningful, consistent comparison of net sales performance for the Company

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and each of our reportable segments for the periods presented. Management uses these non-GAAP measures to evaluate the effectiveness of initiatives behind net sales growth, pricing realization, and the impact of mix on our business results. These non-GAAP measures are also used to make decisions regarding the future direction of our business, and for resource allocation decisions.

•Adjusted: operating profit and diluted EPS: We adjust the GAAP financial measures to exclude the effect of restructuring programs, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments and certain foreign currency contracts, multi-employer pension plan withdrawal liabilities, gain/loss on the divestiture, and other costs impacting comparability resulting in adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.

•Currency-neutral adjusted: gross profit, gross margin, operating profit, and diluted EPS: We adjust the GAAP financial measures to exclude the effect of restructuring programs, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments and certain foreign currency contracts, multi-employer pension plan withdrawal liabilities, gain/loss on the divestiture, other costs impacting comparability, and foreign currency, resulting in currency-neutral adjusted. We excluded the items which we believe may obscure trends in our underlying profitability. By providing these non-GAAP profitability measures, management intends to provide investors with a meaningful, consistent comparison of the Company's profitability measures for the periods presented. Management uses these non-GAAP financial measures to evaluate the effectiveness of initiatives intended to improve profitability, as well as to evaluate the impacts of inflationary pressures and decisions to invest in new initiatives within each of our segments.

•Adjusted effective income tax rate: We adjust the GAAP financial measures to exclude the effect of restructuring programs, mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments and certain foreign currency contracts, multi-employer pension plan withdrawal liabilities, gain/loss on the divestiture, and other costs impacting comparability. We excluded the items which we believe may obscure trends in our pre-tax income and the related tax effect of those items on our adjusted effective income tax rate, and other impacts to tax expense, including tax reform in the UK and U.S. and certain foreign valuation allowances. By providing this non-GAAP measure, management intends to provide investors with a meaningful, consistent comparison of the Company's effective tax rate, excluding the pre-tax income and tax effect of the items noted above, for the periods presented. Management uses this non-GAAP measure to monitor the effectiveness of initiatives in place to optimize our global tax rate.

•Net debt: Defined as the sum of long-term debt, current maturities of long-term debt and notes payable,

less cash and cash equivalents and marketable securities. With respect to net debt, cash and cash equivalents and marketable securities are subtracted from the GAAP measure, total debt liabilities, because they could be used to reduce the Company’s debt obligations. Company management and investors use this non-GAAP measure to evaluate changes to the Company's capital structure and credit quality assessment.

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

These measures have not been calculated in accordance with GAAP and should not be viewed as a substitute for GAAP reporting measures.

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Significant items impacting comparability

Mark-to-market accounting for pension plans, commodity contracts, certain equity investments, and certain foreign currency contracts

We recognize mark-to-market adjustments for pension plans, commodity contracts, and certain foreign currency contracts as incurred. Actuarial gains/losses for pension plans are recognized in the year they occur. Mark-to-market gains/losses for certain equity investments are recorded based on observable price changes. Changes between contract and market prices for commodity contracts and certain foreign currency contracts result in gains/losses that are recognized in the quarter they occur. We recorded a pre-tax mark-to-market expense of $59 million and $45 million for the quarter and year-to-date periods ended October 2, 2021, respectively. Included within the aforementioned was a pre-tax mark-to-market expense for pension plans of $83 million and $63 million for the quarter and year-to-date periods ended October 2, 2021, respectively and a pre-tax mark-to-market gain on equity investments of $20 million for the quarter and year-to-date periods ended October 2, 2021. Additionally, we recorded a pre-tax mark-to-market expense of $3 million and $71 million for the quarter and year-to-date periods ended September 26, 2020, respectively. Included within the aforementioned was a pre-tax mark-to-market expense for pension plans of $7 million and $64 million for the quarter and year-to-date periods ended September 26, 2020, respectively.

Business and portfolio realignment

One-time costs related to reorganizations in support of our Deploy for Growth priorities and a reshaped portfolio; investments in enhancing capabilities prioritized by our Deploy for Growth strategy; and completed and prospective divestitures and acquisitions, including the divestiture of our cookies, fruit snacks, pie crusts, and ice-cream cone businesses. As a result, we incurred pre-tax charges, primarily related to reorganizations, of $6 million and $19 million for the quarter and year-to-date periods ended October 2, 2021, respectively. We also recorded pre-tax charges of $23 million for the year-to-date period ended September 26, 2020.

Multi-employer pension plan withdrawal

During the second quarter of 2020, the Company recorded a pre-tax gain of approximately $5 million related to the settlement of a multi-employer pension plan withdrawal liability.

Foreign valuation allowance

During the third quarter of 2021, the Company determined that certain foreign deferred tax assets were no longer more likely than not to be realized in the future and a full valuation allowance of $20 million was recorded.

UK tax rate change

During the second quarter of 2021, the Company recorded tax expense of $23 million as a result of tax legislation enacted in the UK in June 2021, which increased the statutory UK tax rate from 19 percent to 25 percent and required us to re-value our net deferred tax liability related to our UK business to reflect this higher rate.

U.S. Tax Reform

During the third quarter of 2020, the Company reversed a liability for uncertain tax positions of $32 million, related to the finalization of a tax examination. The liability was related to the Company's estimate of the transition tax liability in conjunction with the finalization of accounting under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.

Foreign currency translation

We evaluate the operating results of our business on a currency-neutral basis. We determine currency-neutral operating results by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate our financial statements in the comparable prior-year period to determine what the current period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.

Financial results

For the quarter ended October 2, 2021, our reported net sales increased 5.6% versus the prior year on positive price/mix across all regions and volume growth in Europe and AMEA. Organic net sales increased 5.1% from the prior year excluding foreign currency.

Third quarter reported operating profit increased 9.1% versus the year-ago quarter due to higher net sales and lapping incremental prior year brand building investment that shifted from the first half of 2020. Currency-neutral

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adjusted operating profit increased 11.2%, after excluding the impact of mark-to-market, business and portfolio realignment, and foreign currency translation.

Reported diluted EPS of $0.89 for the quarter decreased 12% compared to the prior year quarter of $1.01 due primarily to higher mark-to-market expense and a higher effective tax rate compared to the prior year. Currency-neutral adjusted diluted EPS of $1.07 for the quarter increased 18% from the prior year quarter on strong operating profit growth, after excluding mark-to-market, business and portfolio realignment, certain Foreign valuation allowances, and foreign currency translation.

Reconciliation of certain non-GAAP Financial Measures


	Quarter ended					Year-to-date period ended
Consolidated results (dollars in millions, except per share data)	October 2, 2021			September 26, 2020		October 2, 2021			September 26, 2020
Reported net income	$	307		$	348	$	1,055		$	1,046
Mark-to-market (pre-tax)	(59)			3		(45)			(71)


Business and portfolio realignment (pre-tax)	(6)			—		(19)			(23)
Multi-employer pension plan withdrawal (pre-tax)	—			—		—			5

Income tax impact applicable to adjustments, net*	17			(1)		16			22
Foreign valuation allowance	(20)			—		(20)			—
UK tax rate change	—			—		(23)			—
U.S. Tax Reform	—			32		—			32
Adjusted net income	$	375		$	313	$	1,145		$	1,080
Foreign currency impact	8			—		40			—
Currency-neutral adjusted net income	$	367		$	313	$	1,105		$	1,080
Reported diluted EPS	$	0.89		$	1.01	$	3.07		$	3.03
Mark-to-market (pre-tax)	(0.17)			0.01		(0.13)			(0.21)


Business and portfolio realignment (pre-tax)	(0.02)			—		(0.05)			(0.06)
Multi-employer pension plan withdrawal (pre-tax)	—			—		—			0.01

Income tax impact applicable to adjustments, net*	0.05			—		0.05			0.07
Foreign valuation allowance	(0.06)			—		(0.06)			—
UK tax rate change	—			—		(0.07)			—
U.S. Tax Reform	—			0.09		—			0.09
Adjusted diluted EPS	$	1.09		$	0.91	$	3.33		$	3.13
Foreign currency impact	0.02			—		0.11			—
Currency-neutral adjusted diluted EPS	$	1.07		$	0.91	$	3.22		$	3.13
Currency-neutral adjusted diluted EPS growth	17.6		%			2.9		%

Note: Tables may not foot due to rounding.

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

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

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Net sales and operating profit

The following tables provide an analysis of net sales and operating profit performance for the third quarter of 2021 versus 2020:


Quarter ended October 2, 2021
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported net sales	$	2,055		$	631		$	252		$	683		$	—		$	3,622




Foreign currency impact on total business (inc)/dec	7			14			11			(15)			—			17






Organic net sales	$	2,048		$	617		$	241		$	698		$	—		$	3,604

Quarter ended September 26, 2020
(millions)
Reported net sales	$	2,059		$	552		$	236		$	582		$	—		$	3,429













% change - 2021 vs. 2020:
Reported growth	(0.2)		%	14.3		%	6.7		%	17.4		%	—		%	5.6		%




Foreign currency impact on total business (inc)/dec	0.3		%	2.6		%	4.5		%	(2.6)		%	—		%	0.5		%







Organic growth	(0.5)		%	11.7		%	2.2		%	20.0		%	—		%	5.1		%
Volume (tonnage)	(4.5)		%	10.3		%	(2.7)		%	8.6		%	—		%	1.4		%
Pricing/mix	4.0		%	1.4		%	4.9		%	11.4		%	—		%	3.7		%

Note: Tables may not foot due to rounding.

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


Quarter ended October 2, 2021
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported operating profit	$	328		$	96		$	29		$	60		$	(66)		$	447
Mark-to-market	—			—			1			—			3			4


Business and portfolio realignment	(6)			2			—			—			(1)			(6)

Adjusted operating profit	$	334		$	94		$	28		$	60		$	(67)		$	449
Foreign currency impact	1			3			1			(1)			1			4
Currency-neutral adjusted operating profit	$	333		$	92		$	27		$	62		$	(68)		$	445







Quarter ended September 26, 2020
(millions)
Reported operating profit	$	321		$	62		$	31		$	59		$	(62)		$	411
Mark-to-market	—			—			—			—			10			10




Adjusted operating profit	$	321		$	62		$	31		$	59		$	(72)		$	400









% change - 2021 vs. 2020:
Reported growth	2.1		%	55.1		%	(7.2)		%	3.7		%	(6.0)		%	9.1		%
Mark-to-market	—		%	—		%	3.8		%	—		%	(10.4)		%	(1.6)		%


Business and portfolio realignment	(2.2)		%	3.9		%	(1.0)		%	0.2		%	(1.8)		%	(1.5)		%

Adjusted growth	4.3		%	51.2		%	(10.0)		%	3.5		%	6.2		%	12.2		%
Foreign currency impact	0.4		%	4.3		%	3.4		%	(2.3)		%	1.0		%	1.0		%
Currency-neutral adjusted growth	3.9		%	46.9		%	(13.4)		%	5.8		%	5.2		%	11.2		%

Note: Tables may not foot due to rounding.

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

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North America

Reported net sales for the third quarter decreased 0.2% versus the prior year as volume declined as a result of supply disruptions and lapping year-ago growth. Organic net sales decreased 0.5% after excluding the impact of foreign currency.


Net sales % change - third quarter 2021 vs. 2020:
North America	Reported net sales		Foreign currency		Organic net sales
Snacks	3.6	%	0.2	%	3.4	%
Cereal	(6.6)	%	0.5	%	(7.1)	%
Frozen	(0.7)	%	0.3	%	(1.0)	%

North America snacks net sales increased 3.6% led by the performance of its largest brands, Cheez-it and Pringles, which grew consumption and share during the quarter.

North America cereal net sales decreased 6.6% and North America frozen foods net sales decreased 0.7% during the quarter as they lapped strong prior year pandemic-related growth and current quarter supply constraints.

North America operating profit increased 2.1% primarily due to lapping incremental prior year brand investment that shifted from the first half of 2020 partially offset by inflation as a result of shortages in materials, freight, and labor. Currency-neutral adjusted operating profit increased 3.9%, after excluding the impact of business and portfolio realignment.

Europe

Reported net sales increased 14% benefiting from higher volume and price/mix due to growth in both cereal and snacks, led by the UK and Russia. Organic net sales increased 12% after excluding the impact of foreign currency.

Cereal net sales growth for the quarter was led by the UK and supported by overall regional share gains.

Snacks net sales growth was broad-based across the region led by Pringles continued outpacing of category growth.

Reported operating profit increased 55% due to higher net sales and lapping incremental brand investment that shifted from the first half of 2020. Currency-neutral adjusted operating profit increased 47% after excluding the impact of foreign currency.

Latin America

Reported net sales increased 6.7% due primarily to broad-based growth across the region, led by snacks, and favorable foreign currency translation. Organic net sales increased 2.2%, after excluding the impact of foreign currency.

Reported operating profit decreased 7.2% due to primarily to input cost inflation and supply chain challenges and lapping strong prior year growth aided by the pandemic, partially offset by favorable foreign currency translation. Currency-neutral adjusted operating profit decreased 13% after excluding the impact of mark-to-market and foreign currency.

AMEA

Reported net sales increased 17% and organic net sales increased 20% after excluding the impact of foreign currency. This growth was due to both volume and price-mix, led by Africa, as well as growth in cereal in Australia and Asia, partially offset by the impact of COVID-related production restrictions on Pringles during the quarter.

Reported operating profit increased 4% due primarily to higher net sales, lower business and portfolio realignment charges, and favorable foreign currency partially offset by cost inflation. Currency-neutral adjusted operating profit increased 6%, after excluding the impact of foreign currency and business and portfolio realignment.

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Corporate

Reported operating profit decreased $4 million versus the comparable prior year quarter due primarily to unfavorable mark-to-market impacts. Currency-neutral adjusted operating profit increased $4 million from the prior year after excluding mark-to-market.

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The following tables provide an analysis of net sales and operating profit performance for the year-to-date periods ended October 2, 2021 versus September 26, 2020:


Year-to-date period ended October 2, 2021
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported net sales	$	6,199		$	1,827		$	753		$	1,981		$	—		$	10,761




Foreign currency impact on total business (inc)/dec	33			105			21			(10)			—			149






Organic net sales	$	6,166		$	1,722		$	733		$	1,992		$	—		$	10,612

Year-to-date period ended September 26, 2020
(millions)
Reported net sales	$	6,323		$	1,624		$	686		$	1,673		$	—		$	10,306













% change - 2021 vs. 2020:
Reported growth	(2.0)		%	12.5		%	9.9		%	18.4		%	—		%	4.4		%




Foreign currency impact on total business (inc)/dec	0.5		%	6.5		%	3.0		%	(0.6)		%	—		%	1.4		%







Organic growth	(2.5)		%	6.0		%	6.9		%	19.0		%	—		%	3.0		%
Volume (tonnage)	(6.1)		%	2.0		%	0.3		%	5.3		%	—		%	(1.3)		%
Pricing/mix	3.6		%	4.0		%	6.6		%	13.7		%	—		%	4.3		%

Note: Tables may not foot due to rounding.

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


Year-to-date period ended October 2, 2021
(millions)	North America			Europe			Latin America			AMEA			Corporate			Kellogg Consolidated
Reported operating profit	$	1,070		$	277		$	87		$	186		$	(198)		$	1,423
Mark-to-market	—			—			1			—			(2)			(2)


Business and portfolio realignment	(12)			2			(4)			—			(4)			(19)

Adjusted operating profit	$	1,082		$	275		$	91		$	186		$	(191)		$	1,443
Foreign currency impact	5			17			3			4			2			31
Currency-neutral adjusted operating profit	$	1,078		$	258		$	87		$	182		$	(193)		$	1,413







Year-to-date period ended September 26, 2020
(millions)
Reported operating profit	$	1,151		$	224		$	84		$	142		$	(225)		$	1,376
Mark-to-market	—			—			—			—			(7)			(7)


Business and portfolio realignment	1			(3)			(4)			(12)			(4)			(23)
Multi-employer pension plan exit liability	5			—			—			—			—			5
Adjusted operating profit	$	1,145		$	227		$	88		$	155		$	(214)		$	1,401









% change - 2021 vs. 2020:
Reported growth	(7.0)		%	23.9		%	4.0		%	30.7		%	12.3		%	3.4		%
Mark-to-market	—		%	—		%	0.8		%	—		%	1.9		%	0.4		%


Business and portfolio realignment	(1.1)		%	2.4		%	0.3		%	10.4		%	(0.2)		%	0.3		%
Multi-employer pension plan withdrawal	(0.4)		%	—		%	—		%	—		%	—		%	(0.3)		%
Adjusted growth	(5.5)		%	21.5		%	2.9		%	20.3		%	10.6		%	3.0		%
Foreign currency impact	0.4		%	7.5		%	3.7		%	2.6		%	0.9		%	2.2		%
Currency-neutral adjusted growth	(5.9)		%	14.0		%	(0.8)		%	17.7		%	9.7		%	0.8		%

Note: Tables may not foot due to rounding.

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

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North America

Reported net sales for the year-to-date period decreased 2.0% versus the prior year lapping elevated demand for packaged foods consumed at home during the early stages of the pandemic last year. Organic net sales decreased 2.5% after excluding the impact of foreign currency.



Net sales % change - third quarter year-to-date 2021 vs. 2020:
North America	Reported net sales		Foreign currency		Organic net sales
Snacks	3.0	%	0.4	%	2.6	%
Cereal	(10.0)	%	0.8	%	(10.8)	%
Frozen	(2.0)	%	0.4	%	(2.4)	%

North America snacks net sales increased 3.0% led by the performance of its largest brands, Cheez-it and Pringles, which grew consumption and share during the year-to-date period.

North America cereal net sales decreased 10% and North America frozen foods net sales decreased 2.0% during the year-to-date period, as they lapped strong prior year pandemic-related growth and current period supply constraints.

North America operating profit decreased 7.0% compared to the prior year due to lower net sales and input cost inflation and incremental costs and inefficiencies related to broader shortages. Currency-neutral adjusted operating profit decreased 5.9%, after excluding the impact of business and portfolio realignment.

Europe

Reported net sales increased 12.5% due to growth in snacks, as well as favorable foreign currency translation. Organic net sales increased 6.0% after excluding the impact of foreign currency.

Cereal net sales growth for the year-to-date period was driven by favorable foreign currency translation offset by lapping a pandemic-related surge in consumption growth during the prior year.

Snacks net sales growth was led by sustained momentum in Pringles, driven by innovation, effective advertising, and successful consumer promotions.

Reported operating profit increased 24% due primarily to higher net sales and favorable foreign currency translation partially offset by lapping unusually high operating leverage and postponement of brand investment during the onset of the pandemic. Currency-neutral adjusted operating profit increased 14% after excluding the impact of foreign currency, and business and portfolio realignment.

Latin America

Reported net sales increased 10% due primarily to broad-based growth across the region, led by snacks, and favorable foreign currency translation. Organic net sales increased 6.9%, after excluding the impact of foreign currency.

Reported operating profit increased 4.0% due to favorable foreign currency translation partially offset by input cost inflation. Currency-neutral adjusted operating profit decreased 0.8% after excluding the impact of mark-to-market and foreign currency.

AMEA

Reported net sales increased 18% due to broad-based growth across the region and categories resulting from favorable price/mix and higher volume. Organic net sales also increased 19%.

Noodles and other net sales increased lead by strong growth from Multipro as well as our Kellogg's branded noodles business.

Snacks net sales increased due primarily to strong growth in Pringles across the region.

Cereal net sales growth was driven by broad-based growth across Asia and Australia.

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Reported operating profit increased 31% due primarily to operating leverage from higher net sales and the lapping of prior year business and portfolio realignment charges. Currency-neutral adjusted operating profit increased 18%, after excluding the impact of business and portfolio realignment, and foreign currency.

Corporate

Reported operating profit increased $27 million versus the comparable prior year period due primarily to favorable mark-to-market impact and lower incentive compensation expense. Currency-neutral adjusted operating profit increased $21 million from the prior year after excluding the impact of mark-to-market.

Margin performance

Our currency-neutral adjusted gross profit and gross profit margin performance for the quarter ended October 2, 2021 and September 26, 2020 are reconciled to the directly comparable GAAP measures as follows:


Quarter ended	October 2, 2021				September 26, 2020				GM change vs. prior year (pts.)
(dollars in millions)	Gross Profit (a)		Gross Margin (b)		Gross Profit (a)		Gross Margin (b)
Reported	$	1,165	32.1	%	$	1,200	35.0	%	(2.9)
Mark-to-market	4		0.1	%	11		0.3	%	(0.2)


Business and portfolio realignment	(6)		(0.2)	%	—		—	%	(0.2)
Multi-employer pension plan withdrawal	—		—	%	—		—	%	—
Adjusted	1,167		32.2	%	1,189		34.7	%	(2.5)
Foreign currency impact	9		0.1	%	—		—	%	0.1
Currency-neutral adjusted	$	1,157	32.1	%	$	1,189	34.7	%	(2.6)

Note: Tables may not foot due to rounding.

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

(a) Gross profit is equal to net sales less cost of goods sold.

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

Reported gross margin for the quarter decreased 290 basis points versus the prior year as cost inflation and a mix shift towards emerging markets and lapping substantial operating leverage in the prior year quarter, more than offset productivity improvements and price realization. Currency-neutral adjusted gross margin decreased 260 basis points compared to the third quarter of 2020 after eliminating the impact of mark-to-market, business and portfolio realignment, and foreign currency.

Our currency-neutral adjusted gross profit and gross profit margin performance for the year-to-date periods ended October 2, 2021 and September 26, 2020 are reconciled to the directly comparable GAAP measures as follows:



Year-to-date period ended	October 2, 2021				September 26, 2020				GM change vs. prior year (pts.)
(dollars in millions)	Gross Profit (a)		Gross Margin (b)		Gross Profit (a)		Gross Margin (b)
Reported	$	3,554	33.0	%	$	3,542	34.4	%	(1.4)
Mark-to-market	(9)		(0.1)	%	(10)		(0.1)	%	—


Business and portfolio realignment	(8)		(0.1)	%	(4)		—	%	(0.1)
Multi-employer pension plan withdrawal	—		—	%	$	5	—	%	—
Adjusted	3,571		33.2	%	3,551		34.5	%	(1.3)
Foreign currency impact	65		0.2	%	—		—	%	0.2
Currency-neutral adjusted	$	3,506	33.0	%	$	3,551	34.5	%	(1.5)

Note: Tables may not foot due to rounding.

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

(a) Gross profit is equal to net sales less cost of goods sold.

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

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Reported gross margin for the year-to-date period decreased 140 basis points versus the prior year as the impact of productivity improvements and price realization was more than offset by cost inflation, a mix shift towards emerging markets, and lapping substantial operating leverage in the prior year-to-date period when our plants were running limited SKUs at maximum capacity due to the acceleration of demand as a result of the pandemic. Currency-neutral adjusted gross margin decreased 150 basis points compared to 2020.

Restructuring Programs

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

All other restructuring projects were immaterial during the periods presented.

Foreign currency translation

The reporting currency for our financial statements is the U.S. dollar. Certain of our assets, liabilities, expenses and revenues are denominated in currencies other than the U.S. dollar, primarily in the euro, British pound, Mexican peso, Australian dollar, Canadian dollar, Brazilian Real, Nigerian Naira, and Russian ruble. To prepare our consolidated financial statements, we must translate those assets, liabilities, expenses and revenues into U.S. dollars at the applicable exchange rates. As a result, increases and decreases in the value of the U.S. dollar against these other currencies will affect the amount of these items in our consolidated financial statements, even if their value has not changed in their original currency. This could have significant impact on our results if such increase or decrease in the value of the U.S. dollar is substantial.

Interest expense

For the quarters ended October 2, 2021 and September 26, 2020, interest expense was $55 million and $63 million, respectively. For the year-to-date periods ended October 2, 2021 and September 26, 2020, interest expense was $172 million and $196 million, respectively. The decrease from the prior year is due primarily to lower average outstanding debt compared to the prior year as a result of the debt redemptions in December 2020 and May 2021.

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Income Taxes

Our reported effective tax rate for the quarters ended October 2, 2021 and September 26, 2020 was 24% and 16%, respectively. Our reported effective tax rate for the year-to-date periods ended October 2, 2021 and September 26, 2020 was 25% and 20%, respectively. The effective tax rate for the quarter ended October 2, 2021, was unfavorably impacted by the establishment of a full valuation allowance of $20 million related to certain foreign deferred tax assets. During the quarter, the Company determined that certain foreign deferred tax assets were no longer more likely than not to be realized in the future and a full valuation allowance was recorded on a discrete period basis. The effective tax rate for the year-to-date period ended October 2, 2021, was unfavorably impacted by the aforementioned valuation allowance as well as tax legislation in the UK. During the second quarter of 2021, the Company recorded tax expense of $23 million as a result of tax legislation enacted in the UK in June 2021, which increased the statutory UK tax rate from 19 percent to 25 percent for tax periods after April 1, 2023. The Company revalued its net deferred tax balances related to the UK business to reflect the increased tax rate.

The adjusted effective tax rate for the quarters ended October 2, 2021 and September 26, 2020 was 20% and 23%, respectively. The adjusted effective tax rate for the year-to-date periods ended October 2, 2021 and September 26, 2020 was 22% and 23%, respectively.

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



	Quarter ended						Year-to-date period ended
Consolidated results (dollars in millions)	October 2, 2021			September 26, 2020			October 2, 2021			September 26, 2020
Reported income taxes	$	92		$	65		$	345		$	268
Mark-to-market	(16)			1			(12)			(19)


Business and portfolio realignment	(1)			—			(5)			(4)
Multi-employer pension plan withdrawal	—			—			—			1


Foreign valuation allowance	20			—			20			—
UK tax rate change	—			—			23			—
U.S. Tax Reform	—			(32)			—			(32)
Adjusted income taxes	$	89		$	97		$	318		$	323




Reported effective income tax rate	23.5		%	15.6		%	24.5		%	20.1		%
Mark-to-market	(0.4)		%	—		%	(0.1)		%	(0.3)		%


Business and portfolio realignment	(0.1)		%	—		%	—		%	—		%
Multi-employer pension plan withdrawal	—		%	—		%	—		%	—		%


Foreign valuation allowance	4.4		%	—		%	1.4		%	—		%
UK tax rate change	—		%	—		%	1.6		%	—		%
U.S. Tax Reform	—		%	(7.8)		%	—		%	(2.3)		%
Adjusted effective income tax rate	19.5		%	23.3		%	21.6		%	22.7		%

Note: Tables may not foot due to rounding.

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

Liquidity and capital resources

At this time, the COVID-19 pandemic has not materially impacted our liquidity and we anticipate current cash and marketable security balances, operating cash flows, together with our credit facilities and other financing sources including commercial paper, credit and bond markets, will be adequate to meet our operating, investing and financing needs. We expect cash provided by operating activities of $1.6-$1.7 billion and capital expenditures of approximately $500 million in 2021. We currently have $2.5 billion of unused revolving credit agreements, including $1.5 billion effective through 2023 and $1.0 billion effective through January 2022, as well as continued access to the commercial paper markets. We are currently in compliance with all debt covenants and do not have material uncertainty about our ability to maintain compliance in future periods. We continue to utilize available capacity within the Monetization Programs to maintain financial flexibility without negatively impacting working capital.

As the impact of COVID-19 on the economy and our operations evolves, we will continue to assess our liquidity needs. There can be no assurance that volatility and/or disruption in the global capital and credit markets will not impair our ability to access these markets on terms acceptable to us, or at all.

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Our principal source of liquidity is operating cash flows supplemented by borrowings for major acquisitions and other significant transactions. Our cash-generating capability is one of our fundamental strengths and provides us with substantial financial flexibility in meeting operating and investing needs.

We have historically reported negative working capital primarily as the result of our focus to improve core working capital by reducing our levels of trade receivables and inventory while extending the timing of payment of our trade payables. The impacts of the extended customer terms program and the monetization programs on core working capital are largely offsetting. These programs are all part of our ongoing working capital management.

We periodically monitor our supplier payment terms to assess whether our terms are competitive and in line with local market terms. To the extent that such assessment indicates that our supplier payment terms are not aligned with local market terms, we may seek to adjust our terms, including extending or shortening our payment due dates as appropriate. Supplier payment term modifications did not have a material impact on our cash flows during 2020, and are not expected to have a material impact in 2021.

We have a substantial amount of indebtedness which results in current maturities of long-term debt and notes payable which can have a significant impact on working capital as a result of the timing of these required payments. These factors, coupled with the use of our ongoing cash flows from operations to service our debt obligations, pay dividends, fund acquisition opportunities, and repurchase our common stock, reduce our working capital amounts. We had negative working capital of $1.2 billion and $1.3 billion as of October 2, 2021 and September 26, 2020, respectively.

The following table reflects net debt amounts:



(millions, unaudited)	October 2, 2021		January 2, 2021
Notes payable	$	497	$	102
Current maturities of long-term debt	16		627
Long-term debt	7,020		6,746
Total debt liabilities	$	7,533	$	7,475
Less:
Cash and cash equivalents	(440)		(435)

Net debt	$	7,093	$	7,040

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


	Year-to-date period ended
(millions)	October 2, 2021		September 26, 2020
Net cash provided by (used in):
Operating activities	$	1,145	$	1,593
Investing activities	(385)		(649)
Financing activities	(740)		21
Effect of exchange rates on cash and cash equivalents	(15)		(33)
Net increase (decrease) in cash and cash equivalents	$	5	$	932

Operating activities

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

Net cash provided by our operating activities for the year-to-date period ended October 2, 2021, totaled $1,145 million compared to $1,593 million in the prior year period. The decrease is due primarily to higher year-over-year income tax payments and changes in incentive compensation and other accruals during the period.

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Our cash conversion cycle (defined as days of inventory and trade receivables outstanding less days of trade payables outstanding, based on a trailing 12 month average), was approximately negative 9 days and negative 10 days for the 12 month periods ended October 2, 2021 and September 26, 2020, respectively.

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


	Year-to-date period ended
(millions)	October 2, 2021		September 26, 2020
Net cash provided by operating activities	$	1,145	$	1,593
Additions to properties	(408)		(326)
Cash flow	$	737	$	1,267

Our non-GAAP measure for cash flow declined to $737 million in the year-to-date period ended October 2, 2021, from $1,267 million in the prior year period due primarily to higher capital expenditures as projects were delayed in the prior year due to the pandemic, and higher year-over-year income tax payments and changes in incentive compensation and other accruals from the prior period.

Investing activities

Our net cash used in investing activities totaled $385 million for the year-to-date period ended October 2, 2021 compared to $649 million in the comparable prior year period. The impact of cash outflow from the purchase of securities in the prior year period was partially offset by higher capital expenditures during the current period.

Financing activities

Our net cash used in financing activities for the quarter ended October 2, 2021 totaled $740 million compared to cash provided of $21 million during the comparable prior year period. The year-over-year variance was driven by the repayment of €500 million, seven-year 1.75% Euro Notes upon maturity in May 2021 and the repurchase of $240 million of our common stock during the current year, partially offset by the May 2021 issuance of €300 million eight-year 0.50% Euro Notes due 2029.

In February 2020, the board of directors approved an authorization to repurchase up to $1.5 billion of the Company's common stock through December 2022. The authorization is intended to allow us to repurchase shares for general corporate purposes and to offset issuances for employee benefit programs. Total purchases for the year-to-date period ended October 2, 2021, were 4 million shares for $240 million. The Company did not purchase shares in the year-to-date period ended September 26, 2020.

We paid cash dividends of $590 million in the year-to-date period ended October 2, 2021, compared to $586 million during the comparable prior year period. In October 2021, the board of directors declared a dividend of $.58 per common share, payable on December 15, 2021 to shareholders of record at the close of business on December 1, 2021.

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

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

The Five-Year and 364 Day Credit Agreements, which had no outstanding borrowings as October 2, 2021, contain customary covenants and warranties, including specified restrictions on indebtedness, liens and a specified interest expense coverage ratio. If an event of default occurs, then, to the extent permitted, the administrative agents may terminate the commitments under the credit facilities, accelerate any outstanding loans under the agreements, and demand the deposit of cash collateral equal to the lender's letter of credit exposure plus interest.

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

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control provision. There are no significant restrictions on the payment of dividends. We were in compliance with all covenants as of October 2, 2021.

The Notes do not contain acceleration of maturity clauses that are dependent on credit ratings. A change in our credit ratings could limit our access to the U.S. short-term debt market and/or increase the cost of refinancing long-term debt in the future. However, even under these circumstances, we would continue to have access to our 364-Day Credit Facility, which expires in January 2022, as well as our Five-Year Credit Agreement, which expires in January 2023. This source of liquidity is unused and available on an unsecured basis, although we do not currently plan to use it.

Monetization and Accounts Payable programs

We have a program in which customers could extend their payment terms in exchange for the elimination of early payment discounts (Extended Terms Program). In order to mitigate the net working capital impact of the Extended Terms Program for discrete customers, we entered into agreements to sell, on a revolving basis, certain trade accounts receivable balances to third party financial institutions (Monetization Programs). Transfers under the Monetization Programs are accounted for as sales of receivables resulting in the receivables being de-recognized from our Consolidated Balance Sheet. The Monetization Programs provide for the continuing sale of certain receivables on a revolving basis until terminated by either party; however the maximum funding from receivables that may be sold at any time is currently approximately $1.1 billion, but may be increased or decreased as customers move in or out of the Extended Terms Program and as additional financial institutions move in or out of the Monetization Programs. Accounts receivable sold of $611 million and $783 million remained outstanding under this arrangement as of October 2, 2021 and January 2, 2021, respectively.

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

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

We periodically monitor our supplier payment terms to assess whether our terms are competitive and in line with local market terms. To the extent that such assessment indicates that our supplier payment terms are not aligned with local market terms, we may seek to adjust our terms, including extending or shortening our payment due dates as appropriate, however, we do not expect supplier payment term modifications to have a material impact on our cash flows during 2021.

We have agreements with third parties (Accounts Payable Program) to provide accounts payable tracking systems which facilitate participating suppliers’ ability to monitor and, if elected, sell our payment obligations to designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to sell one or more of our payment obligations prior to their scheduled due dates at a discounted price to participating financial institutions. Our goal is to capture overall supplier savings, in the form of payment terms or vendor funding, and the agreements facilitate the suppliers’ ability to sell payment obligations, while providing them with greater working capital flexibility. We have no economic interest in the sale of these suppliers’ receivables and no direct financial relationship with the financial institutions concerning these services. Our obligations to our suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to sell amounts under the arrangements. However, our right to offset balances due from suppliers against payment obligations is restricted by the agreements for those payment obligations that have been sold by suppliers.

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

If financial institutions were to terminate their participation in the Monetization Programs and we are not able to modify related customer payment terms, working capital could be negatively impacted. Additionally, working capital could be negatively impacted if we shorten our supplier payment terms as a result of supplier negotiations. For suppliers participating in the Accounts Payable Programs, financial institutions may terminate their participation or we could experience a downgrade in our credit rating that could result in higher costs to suppliers. If working capital is negatively impacted as a result of these events and we were unable to secure alternative programs, we may have to utilize our various financing arrangements for short-term liquidity or increase our long-term borrowings.

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Future outlook

Kellogg Company affirmed its full-year financial guidance on operating profit, earnings per share and cash flow, as an improved outlook for net sales is offset by the impact of industry-wide supply chain challenges and high cost inflation expected to persist for the remainder of the year. Specifically, the Company's updated its guidance as follows:

•Organic net sales growth is now expected to be 2-3% in 2021, an increase from previous guidance of 0-1%, despite lapping last year's exceptional growth.

•Currency-neutral adjusted operating profit growth is unchanged from prior quarter, calling for a decline of approximately (1)-(2)% year on year as it laps last year's exceptional growth.

•Currency-neutral adjusted earnings per share for the full year is unchanged from the prior quarter, estimated to increase by approximately +1-2% year on year.

•Net cash provided by operating activities is unchanged from prior quarter, expected to finish 2021 at approximately $1.6 - $1.7 billion, with capital expenditure of approximately $0.5 billion. As a result, our non-GAAP measure for cash flow is estimated at $1.1 - $1.2 billion.

Due to the current supply and labor challenges, operating profit, earnings per share, and cash flow could finish at the lower end of these guidance ranges. Excluded from this guidance are any significant disruptions related to the pandemic, the global economy, a prolonged U.S. labor strike, or unexpected events that may be realized in the remainder of the year.

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

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

See the table below that outlines the projected impact of certain other items that are excluded from non-GAAP guidance for 2021:


Impact of certain items excluded from Non-GAAP guidance:	Net Sales	Operating Profit	Earnings Per Share
Business and portfolio realignment (pre-tax)		$30-$40M	$0.09-$0.12
Income tax impact applicable to adjustments, net**			~$0.03
UK tax rate change			$0.07
Foreign valuation allowance			$0.06




Currency-neutral adjusted guidance*		~(1)-(2)%	~1-2%


Organic guidance*	~2-3%

* 2021 full year guidance for net sales, operating profit, and earnings per share are provided on a non-GAAP basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company. These items for 2021 include impacts of mark-to-market adjustments for pension plans (service cost, interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), commodity contracts, certain equity investments, and certain foreign currency contracts. The Company is providing quantification of known adjustment items where available.

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

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Reconciliation of Non-GAAP amounts - Cash Flow Guidance
(billions)			Full Year 2021
Net cash provided by (used in) operating activities			$1.6-$1.7
Additions to properties			~($0.5)
Cash Flow			$1.1-$1.2

Forward-looking statements

This Report contains “forward-looking statements” with projections concerning, among other things, the Company’s restructuring programs, the integration of acquired businesses, our strategy, financial principles, and plans, initiatives, improvements and growth; sales, margins, advertising, promotion, merchandising, brand building, operating profit, and earnings per share; innovation; investments; capital expenditures, asset write-offs and expenditures and costs related to productivity or efficiency initiatives; the impact of accounting changes and significant accounting estimates; our ability to meet interest and debt principal repayment obligations; minimum contractual obligations; future common stock repurchases or debt reduction, effective income tax rate; cash flow and core working capital improvements; interest expense; commodity and energy prices; and employee benefit plan costs and funding. Forward-looking statements include predictions of future results or activities and may contain the words “expect,” “believe,” “will,” “can,” “anticipate,” “estimate,” “project,” “should,” or words or phrases of similar meaning. For example, forward-looking statements are found in this Item 1 and in several sections of Management’s Discussion and Analysis. Our actual results or activities may differ materially from these predictions.

Our future results could be affected by a variety of other factors, including uncertainty of the magnitude, duration, geographic reach, impact on the global economy and current and potential travel restrictions of the COVID-19 outbreak, the current, and uncertain future, impact of the COVID-19 outbreak on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results), and cash flows and liquidity, the length and severity of the Company's current work stoppage at U.S. cereal manufacturing plants, the ability to implement restructuring as planned, whether the expected amount of costs associated with restructuring will differ from forecasts, whether we will be able to realize the anticipated benefits from restructuring in the amounts and times expected, the ability to realize the anticipated benefits and synergies from business acquisitions in the amounts and at the times expected, the impact of competitive conditions, the effectiveness of pricing, advertising, and promotional programs; the success of innovation, renovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles, the success of productivity improvements and business transitions, commodity and energy prices, transportation costs, labor costs, disruptions or inefficiencies in supply chain, the availability of and interest rates on short-term and long-term financing, actual market performance of benefit plan trust investments, the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs, changes in consumer behavior and preferences, the effect of U.S. and foreign economic conditions on items such as interest rates, statutory tax rates, currency conversion and availability, legal and regulatory factors including changes in food safety, advertising and labeling laws and regulations, the ultimate impact of product recalls; business disruption or other losses from war, terrorist acts or political unrest; and the risks and uncertainties described in Item 1A below. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update them.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our Company is exposed to certain market risks, which exist as a part of our ongoing business operations. We use derivative financial and commodity instruments, where appropriate, to manage these risks. Refer to Note 8 within Notes to Consolidated Financial Statements for further information on our derivative financial and commodity instruments.

Refer to disclosures contained within Item 7A of our 2020 Annual Report on Form 10-K. Other than changes noted here, there have been no material changes in the Company’s market risk as of October 2, 2021.

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

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is significant uncertainty surrounding the impact of COVID-19 on financial markets and we will continue to monitor the business for adverse impacts related to the pandemic.

In May of 2021, the Company issued €300 million of eight-year 0.50% Euro Notes due 2029, resulting in net proceeds of €298 million after discount and underwriting commissions. In connection with this debt issuance, the Company terminated forward starting interest rate swaps with notional amounts totaling €250 million, resulting in a $6 million gain. These forward starting interest rate swaps were accounted for as cash flow hedges and the related gain was recorded in accumulated other comprehensive income and will be amortized to interest expense over the term of the Notes.

During the year-to-date period ended October 2, 2021, we entered into interest rate contracts with notional amounts totaling $450 million. The interest rate contracts are designated as fair value hedges of certain U.S. Dollar debt. We have interest rate contracts with notional amounts totaling $2.8 billion representing a net settlement receivable of $87 million as of October 2, 2021. We had interest rate contracts with notional amounts totaling $2.6 billion representing a net settlement receivable of $46 million as of January 2, 2021.

During the quarter ended October 2, 2021, we settled cross currency swaps with notional amounts totaling approximately €600 million, resulting in a gain of $18 million. These cross currency swaps were accounted for as net investment hedges and the related loss was recorded in accumulated other comprehensive income. During the quarter ended October 2, 2021, we also entered into cross currency swaps with notional amounts totaling approximately €600 million, as hedges against foreign currency volatility associated with our net investment in our wholly-owned foreign subsidiaries. These swaps were designated as net investment hedges. We have cross currency swaps with notional amounts totaling $1.4 billion outstanding as of October 2, 2021 representing a net settlement receivable of $35 million. The total notional amount of cross currency swaps outstanding as of January 2, 2021 was $1.4 billion representing a net settlement obligation of $4 million.

Item 4. Controls and Procedures

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

As of October 2, 2021, we carried out an evaluation under the supervision and with the participation of our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

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KELLOGG COMPANY

PART II — OTHER INFORMATION

Item 1A. Risk Factors

Except as set forth below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended January 2, 2021. The risk factors disclosed under those Reports in addition to the other information set forth in this Report, could materially affect our business, financial condition, or results. Additional risks and uncertainties not currently known to us or that we deem to be immaterial could also materially adversely affect our business, financial condition, or results.

Risks Related to Our Operations

A shortage in the labor pool, failure to successfully negotiate collectively bargained agreements, or other general inflationary pressures or changes in applicable laws and regulations could increase labor cost, which could have a material adverse effect on our consolidated operating results or financial condition. Our labor costs include the cost of providing benefits for employees. We sponsor a number of benefit plans for employees in the United States and various foreign locations, including pension, retiree health and welfare, active health care, severance and other postemployment benefits. We also participate in multiemployer pension plans for certain of our manufacturing locations. Our major pension plans and U.S. collectively bargained retiree health and welfare plans are funded with trust assets invested in a globally diversified portfolio of equity securities with smaller holdings of bonds, real estate and other investments. The annual cost of benefits can vary significantly from year to year and is materially affected by such factors as changes in the assumed or actual rate of return on major plan assets, a change in the weighted-average discount rate used to measure obligations, the rate or trend of health care cost inflation, and the outcome of collectively-bargained wage and benefit agreements. Many of our employees are covered by collectively-bargained agreements and other employees may seek to be covered by collectively-bargained agreements. Strikes or work stoppages and interruptions have occurred and are occurring, including an ongoing work stoppage and related negotiations of a collectively bargained agreement at our U.S. ready-to-eat cereal manufacturing locations, and could occur if we are unable to renew these agreements on satisfactory terms or enter into new agreements on satisfactory terms, which could adversely impact our operating results. The terms and conditions of existing, renegotiated or new agreements could also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In February 2020, the board of directors approved an authorization to repurchase up to $1.5 billion of the Company's common stock through December 2022. These authorizations are intended to allow the Company to repurchase shares for general corporate purposes and to offset issuances for employee benefit programs.

The following table provides information with respect to purchases of common shares under programs authorized by our board of directors during the quarter ended October 2, 2021.

(millions, except per share data)


Period	(a) Total Number of Shares Purchased	(b) Average Price Paid Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1:
7/4/2021 - 7/31/2021	—	$	—	—	$	1,260
Month #2:
8/1/2021 - 8/28/2021	—	$	—	—	$	1,260
Month #3:
8/29/2021 - 10/2/2021	—	$	—	—	$	1,260
Total	—	$	—	—

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Item 6. Exhibits

(a)Exhibits:


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

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KELLOGG COMPANY

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


KELLOGG COMPANY

/s/ Amit Banati
Amit Banati
Principal Financial Officer; Senior Vice President and Chief Financial Officer

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

Date: November 5, 2021

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KELLOGG COMPANY

EXHIBIT INDEX


Exhibit No.	Description	Electronic (E) Paper (P) Incorp. By Ref. (IBRF)
31.1	Rule 13a-14(e)/15d-14(a) Certification from Steven A. Cahillane	E
31.2	Rule 13a-14(e)/15d-14(a) Certification from Amit Banati	E
32.1	Section 1350 Certification from Steven A. Cahillane	E
32.2	Section 1350 Certification from Amit Banati	E
101.INS	XBRL Instance Document	E
101.SCH	XBRL Taxonomy Extension Schema Document	E
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	E
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	E
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	E
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	E