# UNITED	STATES	SECURITIES	AND	EXCHANGE	COMMISSION

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

# For	the	Fiscal	Year	Ended	December	28,	2013

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

Commission	file	number	1-4171

# Kellogg	Company

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of	Incorporation or	organization)

(I.R.S.	Employer	Identification	No.)

One	Kellogg	Square

(Address	of	Principal	Executive	Offices)

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

Title	of	each	class:

# Common	Stock,	$.25	par	value	per	share

Name	of	each	exchange	on	which	registered:

# New	York	Stock	Exchange

# Securities	registered	pursuant	to	Section	12(g)	of	the	Securities	Act:	None

Indicate	by	a	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.				Yes þ				No		¨

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15	(d)	of	the	Act.				Yes		 ¨				No		þ

Note	—	Checking	the	box	above	will	not	relieve	any	registrant	required	to	file	reports	pursuant	to	Section	13	or	15(d)	of	the	Exchange	Act	from	their	obligations	under	those	Sections.

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		þ				No		¨

Indicate	by	check	mark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	website,	if	any,	every	Interactive	Data	File	required	to	be	submitted	and	posted	pursuant	to	Rule	405	of Regulation	S-T	during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	submit	and	post	such	files).				Yes		þ				No		¨

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of	the	registrant's	knowledge	in definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.				þ

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

Large	accelerated	filer				þ Accelerated	filer				¨ Non-accelerated	filer				¨ Smaller	reporting	company				¨

Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Act).				Yes ¨				No		þ

The	aggregate	market	value	of	the	common	stock	held	by	non-affiliates	of	the	registrant	(assuming	for	purposes	of	this	computation	only	that	the	W.	K.	Kellogg	Foundation	Trust,	directors	and executive	officers	may	be	affiliates)	as	of	the	close	of	business	on	June	29,	2013	was	approximately	$18.4	billion	based	on	the	closing	price	of	$64.23	for	one	share	of	common	stock,	as	reported	for the	New	York	Stock	Exchange	on	that	date.

As	of	January	25,	2014,	361,686,112	shares	of	the	common	stock	of	the	registrant	were	issued	and	outstanding.

Parts	of	the	registrant's	Proxy	Statement	for	the	Annual	Meeting	of	Shareowners	to	be	held	on	April	25,	2014	are	incorporated	by	reference	into	Part	III	of	this	Report.

# PART	I

# ITEM	1.	BUSINESS

The	Company.	Kellogg	Company,	founded	in	1906	and	incorporated	in	Delaware	in	1922,	and	its	subsidiaries	are	engaged	in	the	manufacture	and marketing	of	ready-to-eat	cereal	and	convenience	foods.

The	address	of	the	principal	business	office	of	Kellogg	Company	is	One	Kellogg	Square,	P.O.	Box	3599,	Battle	Creek,	Michigan	49016-3599.	Unless otherwise	specified	or	indicated	by	the	context,	"Kellogg,"	"we,"	"us"	and	"our"	refer	to	Kellogg	Company,	its	divisions	and	subsidiaries.

Financial	Information	About	Segments.	Information	on	segments	is	located	in	Note	16	within	Notes	to	the	Consolidated	Financial	Statements.

Principal	Products.	Our	principal	products	are	ready-to-eat	cereals	and	convenience	foods,	such	as	cookies,	crackers,	savory	snacks,	toaster	pastries, cereal	bars,	fruit-flavored	snacks,	frozen	waffles	and	veggie	foods.	These	products	were,	as	of	February	24,	2014,	manufactured	by	us	in	18	countries and	marketed	in	more	than	180	countries.	Our	cereal	products	are	generally	marketed	under	the	Kellogg's	name	and	are	sold	to	the	grocery	trade through	direct	sales	forces	for	resale	to	consumers.	We	use	broker	and	distributor	arrangements	for	certain	products.	We	also	generally	use	these,	or similar	arrangements,	in	less-developed	market	areas	or	in	those	market	areas	outside	of	our	focus.

We	also	market	cookies,	crackers,	crisps,	and	other	convenience	foods,	under	brands	such	as Kellogg's,	Keebler,	Cheez-It,	Murray,	Austin	and Famous	Amos,	to	supermarkets	in	the	United	States	through	a	direct	store-door	(DSD)	delivery	system,	although	other	distribution	methods	are	also used.

Additional	information	pertaining	to	the	relative	sales	of	our	products	for	the	years	2011	through	2013	is	located	in	Note	16	within	Notes	to	the Consolidated	Financial	Statements,	which	are	included	herein	under	Part	II,	Item	8.

Raw	Materials.	Agricultural	commodities,	including	corn,	wheat,	potato	flakes,	soy	bean	oil,	sugar	and	cocoa,	are	the	principal	raw	materials	used	in	our products.	Cartonboard,	corrugated,	and	plastic	are	the	principal	packaging	materials	used	by	us.	We	continually	monitor	world	supplies	and	prices	of	such commodities	(which	include	such	packaging	materials),	as	well	as	government	trade	policies.	The	cost	of	such	commodities	may	fluctuate	widely	due	to government	policy	and	regulation,	weather	conditions,	climate	change	or	other	unforeseen	circumstances.	Continuous	efforts	are	made	to	maintain	and improve	the	quality	and	supply	of	such	commodities	for	purposes	of	our	short-term	and	long-term	requirements.

The	principal	ingredients	in	the	products	produced	by	us	in	the	United	States	include	corn	grits,	wheat	and	wheat	derivatives,	potato	flakes,	oats,	rice, cocoa	and	chocolate,	soybeans	and	soybean	derivatives,	various	fruits,	sweeteners,	flour,	vegetable	oils,	dairy	products,	eggs,	and	other	filling ingredients,	which	are	obtained	from	various	sources.	Most	of	these	commodities	are	purchased	principally	from	sources	in	the	United	States.

We	enter	into	long-term	contracts	for	the	commodities	described	in	this	section	and	purchase	these	items	on	the	open	market,	depending	on	our	view	of possible	price	fluctuations,	supply	levels,	and	our	relative	negotiating	power.	While	the	cost	of	some	of	these	commodities	has,	and	may	continue	to, increase	over	time,	we	believe	that	we	will	be	able	to	purchase	an	adequate	supply	of	these	items	as	needed.	As	further	discussed	herein	under	Part	II, Item	7A,	we	also	use	commodity	futures	and	options	to	hedge	some	of	our	costs.

Raw	materials	and	packaging	needed	for	internationally	based	operations	are	available	in	adequate	supply	and	are	sometimes	imported	from	countries other	than	those	where	used	in	manufacturing.

Natural	gas	and	propane	are	the	primary	sources	of	energy	used	to	power	processing	ovens	at	major	domestic	and	international	facilities,	although certain	locations	may	use	oil	or	propane	on	a	back-up	or	alternative	basis.	In	addition,	considerable	amounts	of	diesel	fuel	are	used	in	connection	with the	distribution	of	our	products.	As	further	discussed	herein	under	Part	II,	Item	7A,	we	use	over-the-counter	commodity	price	swaps	to	hedge	some	of	our natural	gas	costs.

Trademarks	and	Technology.	Generally,	our	products	are	marketed	under	trademarks	we	own.	Our	principal	trademarks	are	our	housemarks,	brand names,	slogans,	and	designs	related	to	cereals	and	convenience	foods	manufactured	and	marketed	by	us,	and	we	also	grant	licenses	to	third	parties	to use	these	marks	on	various	goods.	These	trademarks	include	Kellogg's	for	cereals,	convenience	foods	and	our	other	products,	and	the	brand	names	of certain	ready-to-eat	cereals,	including	All-Bran,	Apple	Jacks,	Bran	Buds,	Cinnamon	Crunch	Crispix,	Choco	Zucaritas,	Cocoa	Krispies,	Complete, Kellogg's	Corn	Flakes,	Corn	Pops,	Cracklin'	Oat	Bran,	Crispix,	Cruncheroos,	Crunchmania,	Crunchy	Nut,	Eggo,	Kellogg's	FiberPlus,	Froot Loops,	Kellogg's	Frosted	Flakes,	Krave,	Frosted	Krispies,	Frosted	Mini-Wheats,	Fruit	Harvest,	Just	Right,	Kellogg's	Low	Fat	Granola,	Mueslix, Pops,	Product	19,	Kellogg's	Raisin	Bran,	Raisin	Bran	Crunch,	Rice	Krispies,	Rice	Krispies

# Treats,	Smacks/Honey	Smacks,	Smart	Start,	Kellogg's	Smorz,	Special	K,	Special	K	Red	Berries	and	Zucaritas	in	the	United	States	and

# elsewhere;	Crusli,	Sucrilhos,	Vector,	Musli,	NutriDia,	and	Choco	Krispis	for	cereals	in	Latin	America;	Vive	and	Vector	in	Canada;	Coco	Pops,

Chocos,	Frosties,	Fruit'N	Fibre,	Kellogg's	Crunchy	Nut	Corn	Flakes,	Krave,	Honey	Loops,	Kellogg's	Extra,	Sustain,	Muslix,	Country	Store,

Ricicles,	Smacks,	Start,	Pops,	Optima	and	Tresor	for	cereals	in	Europe;	and	Cerola,	Sultana	Bran,	Chex,	Frosties,	Goldies,	Rice	Bubbles,	Nutri-

Grain,	Kellogg's	Iron	Man	Food,	and	BeBig	for	cereals	in	Asia	and	Australia.	Additional	trademarks	are	the	names	of	certain	combinations	of	ready-to-

# eat	Kellogg's	cereals,	including	Fun	Pak,	Jumbo,	and	Variety.

Other	brand	names	include	Kellogg's	Corn	Flake	Crumbs;	All-Bran,	Choco	Krispis,	Froot	Loops,	Special	K,	NutriDia,	Kuadri-Krispis,	Zucaritas and	Crusli	for	cereal	bars,	Komplete	for	biscuits;	and	Kaos	for	snacks	in	Mexico	and	elsewhere	in	Latin	America;	 Pop-Tarts	and	Pop-Tarts	Ice	Cream Shoppe	for	toaster	pastries;	Pop-Tarts	Mini	Crisps	for	crackers;	Eggo,	Eggo	FiberPlus	and	Nutri-Grain	for	frozen	waffles	and	pancakes;	Rice Krispies	Treats	for	convenience	foods;	Special	K	and	Special	K2O	for	flavored	protein	water	mixes	and	protein	shakes;	 Nutri-Grain	cereal	bars,	Nutri- Grain	yogurt	bars,	for	convenience	foods	in	the	United	States	and	elsewhere;	 K-Time,	Rice	Bubbles,	Day	Dawn,	Be	Natural,	Sunibrite 	and	LCMs	for convenience	foods	in	Asia	and	Australia;	Nutri-Grain	Squares,	Nutri-Grain	Elevenses,	and	Rice	Krispies	Squares	for	convenience	foods	in	Europe; Kashi	and	GoLean	for	certain	cereals,	nutrition	bars,	and	mixes;	 TLC	for	granola	and	cereal	bars,	crackers	and	cookies;	 Special	K	and	Vector	for	meal replacement	products;	Bear	Naked	for	granola	cereal,	bars	and	trail	mix,	 Pringles	for	potato	crisps	and	sticks,	and	 Morningstar	Farms,	Loma	Linda, Natural	Touch,	Gardenburger	and	Worthington	for	certain	meat	and	egg	alternatives.

We	also	market	convenience	foods	under	trademarks	and	tradenames	which	include	 Keebler,	Austin,	Keebler	Baker's	Treasures,	Cheez-It,	Chips

Deluxe,	Club,	E.	L.	Fudge,	Famous	Amos,	Fudge	Shoppe,	Kellogg's	FiberPlus,	Gripz,	Jack's,	Jackson's,	Krispy,	Mother's,	Murray,	Murray

# Sugar	Free,	Ready	Crust,	Right	Bites,	Sandies,	Special	K,	Soft	Batch,	Stretch	Island,	Sunshine,	Toasteds,	Town	House,	Vienna	Creams,

Vienna	Fingers,	Wheatables	and	Zesta.	One	of	our	subsidiaries	is	also	the	exclusive	licensee	of	the	 Carr's	cracker	line	in	the	United	States.

Our	trademarks	also	include	logos	and	depictions	of	certain	animated	characters	in	conjunction	with	our	products,	including Snap!Crackle!Pop!	for

Cocoa	Krispies	and	Rice	Krispies	cereals	and	Rice	Krispies	Treats	convenience	foods;	Tony	the	Tiger	for	Kellogg's	Frosted	Flakes,	Zucaritas,

Sucrilhos	and	Frosties	cereals	and	convenience	foods;	Ernie	Keebler	for	cookies,	convenience	foods	and	other	products;	the	 Hollow	Tree	logo	for certain	convenience	foods;	Toucan	Sam	for	Froot	Loops	cereal;	Dig	'Em	for	Smacks/Honey	Smacks	cereal;	Sunny	for	Kellogg's	Raisin	Bran	and Raisin	Bran	Crunch	cereals,	Coco	the	Monkey	for	Coco	Pops	cereal;	Cornelius	for	Kellogg's	Corn	Flakes;	Melvin	the	Elephant	for	certain	cereal and	convenience	foods;	Chocos	the	Bear,	Sammy	the	Seal	(aka	Smaxey	the	Seal)	for	certain	cereal	products	and	 Mr.	P	or	Julius	Pringles	for Pringles	potato	crisps	and	sticks.

The	slogans	The	Best	To	You	Each	Morning,	The	Original	&	Best,	They're	Gr-r-reat! ,	The	Difference	is	K,	Supercharged,	Earn	Your	Stripes	 and Gotta	Have	My	Pops,	are	used	in	connection	with	our	ready-to-eat	cereals,	along	with	 L'	Eggo	my	Eggo,	used	in	connection	with	our	frozen	waffles and	pancakes,	Elfin	Magic,	Childhood	Is	Calling,	The	Cookies	in	the	Passionate	Purple	Package .	Uncommonly	Good	and	Baked	with	Care	used in	connection	with	convenience	food	products,	Seven	Whole	Grains	on	a	Mission	used	in	connection	with	Kashi	natural	foods	and	See	Veggies Differently	used	in	connection	with	meat	and	egg	alternatives	and	 Everything	Pops	With	Pringles	used	in	connection	with	potato	crisps	are	also important	Kellogg	trademarks.

The	trademarks	listed	above,	among	others,	when	taken	as	a	whole,	are	important	to	our	business.	Certain	individual	trademarks	are	also	important	to our	business.	Depending	on	the	jurisdiction,	trademarks	are	generally	valid	as	long	as	they	are	in	use	and/or	their	registrations	are	properly	maintained and	they	have	not	been	found	to	have	become	generic.	Registrations	of	trademarks	can	also	generally	be	renewed	indefinitely	as	long	as	the	trademarks are	in	use.

We	consider	that,	taken	as	a	whole,	the	rights	under	our	various	patents,	which	expire	from	time	to	time,	are	a	valuable	asset,	but	we	do	not	believe	that our	businesses	are	materially	dependent	on	any	single	patent	or	group	of	related	patents.	Our	activities	under	licenses	or	other	franchises	or concessions	which	we	hold	are	similarly	a	valuable	asset,	but	are	not	believed	to	be	material.

Seasonality.	Demand	for	our	products	has	generally	been	approximately	level	throughout	the	year,	although	some	of	our	convenience	foods	have	a	bias for	stronger	demand	in	the	second	half	of	the	year	due	to	events	and	holidays.	We	also	custom-bake	cookies	for	the	Girl	Scouts	of	the	U.S.A.,	which	are principally	sold	in	the	first	quarter	of	the	year.

Working	Capital.	Although	terms	vary	around	the	world	and	by	business	types,	in	the	United	States	we

generally	have	required	payment	for	goods	sold	eleven	or	sixteen	days	subsequent	to	the	date	of	invoice	as	2%	10/net	11	or	1%	15/net	16.	Receipts from	goods	sold,	supplemented	as	required	by	borrowings,	provide	for	our	payment	of	dividends,	repurchases	of	our	common	stock,	capital	expansion, and	for	other	operating	expenses	and	working	capital	needs.

Customers.	Our	largest	customer,	Wal-Mart	Stores,	Inc.	and	its	affiliates,	accounted	for	approximately	21%	of	consolidated	net	sales	during	2013, comprised	principally	of	sales	within	the	United	States.	At	December	28,	2013,	approximately	18%	of	our	consolidated	receivables	balance	and	30%	of our	U.S.	receivables	balance	was	comprised	of	amounts	owed	by	Wal-Mart	Stores,	Inc.	and	its	affiliates.	No	other	customer	accounted	for	greater	than 10%	of	net	sales	in	2013.	During	2013,	our	top	five	customers,	collectively,	including	Wal-Mart,	accounted	for	approximately	32%	of	our	consolidated	net sales	and	approximately	45%	of	U.S.	net	sales.	There	has	been	significant	worldwide	consolidation	in	the	grocery	industry	in	recent	years	and	we	believe that	this	trend	is	likely	to	continue.	Although	the	loss	of	any	large	customer	for	an	extended	length	of	time	could	negatively	impact	our	sales	and	profits, we	do	not	anticipate	that	this	will	occur	to	a	significant	extent	due	to	the	consumer	demand	for	our	products	and	our	relationships	with	our	customers.	Our products	have	been	generally	sold	through	our	own	sales	forces	and	through	broker	and	distributor	arrangements,	and	have	been	generally	resold	to consumers	in	retail	stores,	restaurants,	and	other	food	service	establishments.

Backlog.	For	the	most	part,	orders	are	filled	within	a	few	days	of	receipt	and	are	subject	to	cancellation	at	any	time	prior	to	shipment.	The	backlog	of	any unfilled	orders	at	December	28,	2013	and	December	29,	2012	was	not	material	to	us.

Competition.	We	have	experienced,	and	expect	to	continue	to	experience,	intense	competition	for	sales	of	all	of	our	principal	products	in	our	major product	categories,	both	domestically	and	internationally.	Our	products	compete	with	advertised	and	branded	products	of	a	similar	nature	as	well	as unadvertised	and	private	label	products,	which	are	typically	distributed	at	lower	prices,	and	generally	with	other	food	products.	Principal	methods	and factors	of	competition	include	new	product	introductions,	product	quality,	taste,	convenience,	nutritional	value,	price,	advertising	and	promotion.

Research	and	Development.	Research	to	support	and	expand	the	use	of	our	existing	products	and	to	develop	new	food	products	is	carried	on	at	the	W. K.	Kellogg	Institute	for	Food	and	Nutrition	Research	in	Battle	Creek,	Michigan,	and	at	other	locations	around	the	world.	Our	expenditures	for	research	and development	were	approximately	(in	millions):	2013-$199;	2012-$206;	2011-$192.

Regulation.	Our	activities	in	the	United	States	are	subject	to	regulation	by	various	government	agencies,	including	the	Food	and	Drug	Administration, Federal	Trade	Commission	and	the	Departments	of	Agriculture,	Commerce	and	Labor,	as	well	as	voluntary	regulation	by	other	bodies.	Various	state	and local	agencies	also	regulate	our	activities.	Other	agencies	and	bodies	outside	of	the	United	States,	including	those	of	the	European	Union	and	various countries,	states	and	municipalities,	also	regulate	our	activities.

Environmental	Matters.	Our	facilities	are	subject	to	various	U.S.	and	foreign,	federal,	state,	and	local	laws	and	regulations	regarding	the	release	of material	into	the	environment	and	the	protection	of	the	environment	in	other	ways.	We	are	not	a	party	to	any	material	proceedings	arising	under	these regulations.	We	believe	that	compliance	with	existing	environmental	laws	and	regulations	will	not	materially	affect	our	consolidated	financial	condition	or our	competitive	position.

Financial	Information	About	Geographic	Areas.	Information	on	geographic	areas	is	located	in	Note	16	within	Notes	to	the	Consolidated	Financial Statements,	which	are	included	herein	under	Part	II,	Item	8.

Executive	Officers.	The	names,	ages,	and	positions	of	our	executive	officers	(as	of	February	24,	2014)	are	listed	below,	together	with	their	business experience.	Executive	officers	are	elected	annually	by	the	Board	of	Directors.

Mr.	Jenness	has	been	our	Chairman	since	February	2005	and	has	served	as	a	Kellogg	director	since	2000.	From	February	2005	until	December	2006, he	also	served	as	our	Chief	Executive	Officer.	He	was	Chief	Executive	Officer	of	Integrated	Merchandising	Systems,	LLC,	a	leader	in	outsource management	of	retail	promotion	and	branded	merchandising	from	1997	to	December	2004.	He	is	also	Lead	Director	of	Kimberly-Clark	Corporation.

President	and	Chief	Executive	Officer

Mr.	Bryant	has	served	as	a	Kellogg	director	since	July	2010.	In	January	2011,	he	was	appointed	President	and	Chief	Executive	Officer	after	having served	as	our	Executive	Vice	President	and	Chief	Operating	Officer

since	August	2008.	Mr.	Bryant	joined	Kellogg	in	March	1998,	and	was	promoted	during	the	next	eight	years	to	a	number	of	key	financial	and	executive leadership	roles.	He	was	appointed	Executive	Vice	President	and	Chief	Financial	Officer,	Kellogg	Company,	President,	Kellogg	International	in December	2006.	In	July	2007,	Mr.	Bryant	was	appointed	Executive	Vice	President	and	Chief	Financial	Officer,	Kellogg	Company,	President,	Kellogg North	America	and	in	August	2008,	he	was	appointed	Executive	Vice	President,	Chief	Operating	Officer	and	Chief	Financial	Officer.	Mr.	Bryant	served	as Chief	Financial	Officer	through	December	2009.

Ron	Dissinger	was	appointed	Senior	Vice	President	and	Chief	Financial	Officer	effective	January	2010.	Mr.	Dissinger	joined	Kellogg	in	1987	as	an accounting	supervisor,	and	during	the	next	14	years	served	in	a	number	of	key	financial	leadership	roles,	both	in	the	United	States	and	Australia.	In 2001,	he	was	promoted	to	Vice	President	and	Chief	Financial	Officer,	U.S.	Morning	Foods.	In	2004,	Mr.	Dissinger	became	Vice	President,	Corporate Financial	Planning,	and	CFO,	Kellogg	International.	In	2005,	he	became	Vice	President	and	CFO,	Kellogg	Europe	and	CFO,	Kellogg	International.	In 2007,	Mr.	Dissinger	was	appointed	Senior	Vice	President	and	Chief	Financial	Officer,	Kellogg	North	America.

Senior	Vice	President,	Global	Supply	Chain

Mr.	Hirst	assumed	his	current	position	in	April	2012.	He	joined	the	company	in	1984	as	a	Food	Technologist	at	the	Springs,	South	Africa,	plant.	While	at the	facility,	he	was	promoted	to	Quality	Assurance	Manager	and	Production	Manager.	From	1993-2001,	Mr.	Hirst	held	numerous	positions	in	South	Africa and	Australia,	including	Production	Manager,	Plant	Manager,	and	Director,	Supply	Chain.	In	2001,	Mr.	Hirst	was	promoted	to	Director,	Procurement	at the	Manchester,	England,	facility	and	was	later	named	European	Logistics	Director.	In	2005,	he	transferred	to	the	U.S.	when	promoted	to	Vice	President, Global	Procurement.	In	2008,	he	was	promoted	to	Senior	Vice	President,	Snacks	Supply	Chain	and	to	Senior	Vice	President,	North	America	Supply Chain,	in	October	2011.

Ms.	Long	assumed	her	current	position	January	1,	2013.	She	joined	the	company	in	2003	as	Director,	Human	Resources	for	the	United	Kingdom, Republic	of	Ireland	and	Middle	East/Mediterranean	businesses	as	well	as	the	European	finance,	sales,	human	resources,	research	and	development, information	technology,	communications	and	innovations	functions.	In	2006,	Ms.	Long	transferred	to	the	United	States	when	she	was	promoted	to	Vice President,	Human	Resources,	U.S.	Morning	Foods	&	Kashi.	She	also	served	as	human	resources	business	partner	to	the	senior	vice	president	of	global human	resources.	From	2008	to	2013,	she	held	the	position	of	Vice	President,	Human	Resources,	Kellogg	North	America.	Before	joining	the	company, she	was	head	of	human	resources	for	Sharp	Electronics	based	in	the	United	Kingdom.	Prior	to	that	role,	she	held	a	number	of	positions	in	her	15-year tenure	with	International	Computers	Limited,	part	of	the	Fujitsu	family	of	companies.

Senior	Vice	President,	Kellogg	Company

# Chief	Growth	Officer

Paul	Norman	was	appointed	Senior	Vice	President,	Kellogg	Company	in	December	2005	and	Chief	Growth	Officer	in	October	2013.	Mr.	Norman	joined Kellogg's	U.K.	sales	organization	in	1987.	From	1989	to	1996,	Mr.	Norman	was	promoted	to	several	marketing	roles	in	France	and	Canada.	He	was promoted	to	director,	marketing,	Kellogg	de	Mexico	in	January	1997;	to	Vice	President,	Marketing,	Kellogg	USA	in	February	1999;	to	President,	Kellogg Canada	Inc.	in	December	2000;	and	to	Managing	Director,	United	Kingdom/Republic	of	Ireland	in	February	2002.	In	September	2004,	Mr.	Norman	was appointed	to	Vice	President,	Kellogg	Company,	and	President,	U.S.	Morning	Foods.	In	August	2008,	Mr.	Norman	was	promoted	to	President,	Kellogg International.

Senior	Vice	President,	General	Counsel,

# Corporate	Development	and	Secretary

Mr.	Pilnick	was	appointed	Senior	Vice	President,	General	Counsel	and	Secretary	in	August	2003	and	assumed	responsibility	for	Corporate	Development in	June	2004.	He	joined	Kellogg	as	Vice	President	—	Deputy	General	Counsel	and	Assistant	Secretary	in	September	2000	and	served	in	that	position until	August	2003.	Before	joining	Kellogg,	he	served	as	Vice	President	and	Chief	Counsel	of	Sara	Lee	Branded	Apparel	and	as	Vice	President	and	Chief Counsel,	Corporate	Development	and	Finance	at	Sara	Lee	Corporation.

Ms.	Dangel	assumed	her	current	position	in	April	2012.	She	joined	Kellogg	Company	in	1997	as	a	manager	in	the	tax	department.	In	2006,	Ms.	Dangel became	a	manager	for	accounting	research,	was	promoted	to	director,	corporate	financial	reporting	in	2007,	and	was	promoted	to	vice	president, financial

reporting	in	May	2010.	Before	joining	the	company,	she	was	a	tax	manager	for	Price	Waterhouse	in	Indianapolis,	Indiana.	Prior	to	that	role,	she	worked as	a	tax	specialist	for	Dow	Corning	Corporation	in	Midland,	Michigan.

Availability	of	Reports;	Website	Access;	Other	Information.	Our	internet	address	is	http://www.kelloggcompany.com.	Through	"Investor	Relations"	— "Financials"	—	"SEC	Filings"	on	our	home	page,	we	make	available	free	of	charge	our	proxy	statements,	our	annual	report	on	Form	10-K,	our	quarterly reports	on	Form	10-Q,	our	current	reports	on	Form	8-K,	SEC	Forms	3,	4	and	5	and	any	amendments	to	those	reports	filed	or	furnished	pursuant	to Section	13(a)	or	15(d)	of	the	Securities	Exchange	Act	of	1934	as	soon	as	reasonably	practicable	after	we	electronically	file	such	material	with,	or	furnish	it to,	the	Securities	and	Exchange	Commission.	Our	reports	filed	with	the	Securities	and	Exchange	Commission	are	also	made	available	to	read	and	copy at	the	SEC's	Public	Reference	Room	at	100	F	Street,	N.E.,	Washington,	D.C.	20549.	You	may	obtain	information	about	the	Public	Reference	Room	by contacting	the	SEC	at	1-800-SEC-0330.	Reports	filed	with	the	SEC	are	also	made	available	on	its	website	at	www.sec.gov.

Copies	of	the	Corporate	Governance	Guidelines,	the	Charters	of	the	Audit,	Compensation	and	Nominating	and	Governance	Committees	of	the	Board	of Directors,	the	Code	of	Conduct	for	Kellogg	Company	directors	and	Global	Code	of	Ethics	for	Kellogg	Company	employees	(including	the	chief	executive officer,	chief	financial	officer	and	corporate	controller)	can	also	be	found	on	the	Kellogg	Company	website.	Any	amendments	or	waivers	to	the	Global Code	of	Ethics	applicable	to	the	chief	executive	officer,	chief	financial	officer	and	corporate	controller	can	also	be	found	in	the	"Investor	Relations"	section of	the	Kellogg	Company	website.	Shareowners	may	also	request	a	free	copy	of	these	documents	from:	Kellogg	Company,	P.O.	Box	CAMB,	Battle	Creek, Michigan	49016-9935	(phone:	(800)	961-1413),	Investor	Relations	Department	at	that	same	address	(phone:	(269)	961-2800)	or investor.relations@kellogg.com.

Forward-Looking	Statements.	This	Report	contains	"forward-looking	statements"	with	projections	concerning,	among	other	things,	the	Company's	global growth	and	efficiency	program	(Project	K),	the	integration	of	the	Pringles ®	business,	our	strategy,	financial	principles,	and	plans;	initiatives,	improvements and	growth;	sales,	gross	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	factors,	including	the	ability	to	implement	Project K	as	planned,	whether	the	expected	amount	of	costs	associated	with	Project	K	will	exceed	forecasts,	whether	the	Company	will	be	able	to	realize	the anticipated	benefits	from	Project	K	in	the	amounts	and	times	expected,	the	ability	to	realize	the	anticipated	benefits	and	synergies	from	the	Pringles^® acquisition	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;	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;	other	items;	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	1A.	RISK	FACTORS

In	addition	to	the	factors	discussed	elsewhere	in	this	Report,	the	following	risks	and	uncertainties	could	materially	adversely	affect	our	business,	financial condition	and	results	of	operations.	Additional	risks	and	uncertainties	not	presently	known	to	us	or	that	we	currently	deem	immaterial	also	may	impair	our business	operations	and	financial	condition.

# We	may	not	realize	the	benefits	that	we	expect	from	our	global	four-year	efficiency	and	effectiveness	program	(Project	K).

In	November	2013,	the	Company	announced	a	global	four-year	efficiency	and	effectiveness	program	(Project	K).	The	successful	implementation	of Project	K	presents	significant	organizational	design	and	infrastructure	challenges	and	in	many	cases	will	require	successful	negotiations	with	third	parties, including	labor	organizations,	suppliers,	business	partners,	and	other	stakeholders.	In	addition,	the	project	may	not	advance	our	business	strategy	as expected.	As	a	result,	we	may	not	be	able	to	implement	Project	K	as	planned,	including	realizing,	in	full	or	in	part,	the	anticipated	benefits	from	our program.	Events	and	circumstances,	such	as	financial	or	strategic	difficulties,	delays	and	unexpected	costs	may	occur	that	could	result	in	our	not	realizing all	or	any	of	the	anticipated	benefits	or	our	not	realizing	the	anticipated	benefits	on	our	expected	timetable.	If	we	are	unable	to	realize	the	anticipated savings	of	the	program,	our	ability	to	fund	other	initiatives	may	be	adversely	affected.	Any	failure	to	implement	Project	K	in	accordance	with	our expectations	could	adversely	affect	our	financial	condition,	results	of	operations	and	cash	flows.

In	addition,	the	complexity	of	Project	K	will	require	a	substantial	amount	of	management	and	operational	resources.	Our	management	team	must successfully	implement	administrative	and	operational	changes	necessary	to	achieve	the	anticipated	benefits	of	Project	K.	These	and	related	demands on	our	resources	may	divert	the	organization's	attention	from	existing	core	businesses,	integrating	or	separating	personnel	and	financial	or	other systems,	have	adverse	effects	on	existing	business	relationships	with	suppliers	and	customers,	and	impact	employee	morale.	As	a	result	our	financial condition,	results	of	operations	or	cash	flows	may	be	adversely	affected.

Our	results	may	be	materially	and	adversely	impacted	as	a	result	of	increases	in	the	price	of	raw	materials,	including	agricultural	commodities,	fuel	and labor.

Agricultural	commodities,	including	corn,	wheat,	soybean	oil,	sugar	and	cocoa,	are	the	principal	raw	materials	used	in	our	products.	Cartonboard, corrugated,	and	plastic	are	the	principal	packaging	materials	used	by	us.	The	cost	of	such	commodities	may	fluctuate	widely	due	to	government	policy and	regulation,	weather	conditions,	climate	change	or	other	unforeseen	circumstances.	To	the	extent	that	any	of	the	foregoing	factors	affect	the	prices	of such	commodities	and	we	are	unable	to	increase	our	prices	or	adequately	hedge	against	such	changes	in	prices	in	a	manner	that	offsets	such	changes, the	results	of	our	operations	could	be	materially	and	adversely	affected.	In	addition,	we	use	derivatives	to	hedge	price	risk	associated	with	forecasted purchases	of	raw	materials.	Our	hedged	price	could	exceed	the	spot	price	on	the	date	of	purchase,	resulting	in	an	unfavorable	impact	on	both	gross margin	and	net	earnings.

Cereal	processing	ovens	at	major	domestic	and	international	facilities	are	regularly	fueled	by	natural	gas	or	propane,	which	are	obtained	from	local utilities	or	other	local	suppliers.	Short-term	stand-by	propane	storage	exists	at	several	plants	for	use	in	case	of	interruption	in	natural	gas	supplies.	Oil may	also	be	used	to	fuel	certain	operations	at	various	plants.	In	addition,	considerable	amounts	of	diesel	fuel	are	used	in	connection	with	the	distribution of	our	products.	The	cost	of	fuel	may	fluctuate	widely	due	to	economic	and	political	conditions,	government	policy	and	regulation,	war,	or	other unforeseen	circumstances	which	could	have	a	material	adverse	effect	on	our	consolidated	operating	results	or	financial	condition.

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.

Additionally,	our	labor	costs	include	the	cost	of	providing	benefits	for	employees.	We	sponsor	a	number	of	defined	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	a	number	of	multiemployer	pension	plans	for	certain	of	our	manufacturing	locations.	Our	major	pension	plans	and U.S.	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	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.

# Multiemployer	Pension	Plans	could	adversely	affect	our	business.

We	participate	in	various	"multiemployer"	pension	plans	administered	by	labor	unions	representing	some	of	our	employees.	We	make	periodic contributions	to	these	plans	to	allow	them	to	meet	their	pension	benefit	obligations	to	their	participants.	Our	required	contributions	to	these	funds	could increase	because	of	a	shrinking	contribution	base	as	a	result	of	the	insolvency	or	withdrawal	of	other	companies	that	currently	contribute	to	these	funds, inability	or	failure	of	withdrawing	companies	to	pay	their	withdrawal	liability,	lower	than	expected	returns	on	pension	fund	assets	or	other	funding deficiencies.	In	the	event	that	we	withdraw	from	participation	in	one	of	these	plans,	then	applicable	law	could	require	us	to	make	an	additional	lump-sum contribution	to	the	plan,	and	we	would	have	to	reflect	that	as	an	expense	in	our	consolidated	statement	of	operations	and	as	a	liability	on	our consolidated	balance	sheet.	Our	withdrawal	liability	for	any	multiemployer	plan	would	depend	on	the	extent	of	the	plan's	funding	of	vested	benefits.	In	the ordinary	course	of	our	renegotiation	of	collective	bargaining	agreements	with	labor	unions	that	maintain	these	plans,	we	may	decide	to	discontinue participation	in	a	plan,	and	in	that	event,	we	could	face	a	withdrawal	liability.	Some	multiemployer	plans	in	which	we	participate	are	reported	to	have significant	underfunded	liabilities.	Such	underfunding	could	increase	the	size	of	our	potential	withdrawal	liability.

# We	operate	in	the	highly	competitive	food	industry.

We	face	competition	across	our	product	lines,	including	ready-to-eat	cereals	and	convenience	foods,	from	other	companies	which	have	varying	abilities	to withstand	changes	in	market	conditions.	Most	of	our	competitors	have	substantial	financial,	marketing	and	other	resources,	and	competition	with	them	in our	various	markets	and	product	lines	could	cause	us	to	reduce	prices,	increase	capital,	marketing	or	other	expenditures,	or	lose	category	share,	any	of which	could	have	a	material	adverse	effect	on	our	business	and	financial	results.	Category	share	and	growth	could	also	be	adversely	impacted	if	we	are not	successful	in	introducing	new	products.

We	may	be	unable	to	maintain	our	profit	margins	in	the	face	of	a	consolidating	retail	environment.	In	addition,	the	loss	of	one	of	our	largest	customers could	negatively	impact	our	sales	and	profits.

Our	largest	customer,	Wal-Mart	Stores,	Inc.	and	its	affiliates,	accounted	for	approximately	21%	of	consolidated	net	sales	during	2013,	comprised principally	of	sales	within	the	United	States.	At	December	28,	2013,	approximately	18%	of	our	consolidated	receivables	balance	and	30%	of	our U.S.	receivables	balance	was	comprised	of	amounts	owed	by	Wal-Mart	Stores,	Inc.	and	its	affiliates.	No	other	customer	accounted	for	greater	than	10% of	net	sales	in	2013.	During	2013,	our	top	five	customers,	collectively,	including	Wal-Mart,	accounted	for	approximately	32%	of	our	consolidated	net sales	and	approximately	45%	of	U.S.	net	sales.	As	the	retail	grocery	trade	continues	to	consolidate	and	mass	marketers	become	larger,	our	large	retail customers	may	seek	to	use	their	position	to	improve	their	profitability	through	improved	efficiency,	lower	pricing	and	increased	promotional	programs.	If we	are	unable	to	use	our	scale,	marketing	expertise,	product	innovation	and	category	leadership	positions	to	respond,	our	profitability	or	volume	growth could	be	negatively	affected.	The	loss	of	any	large	customer	for	an	extended	length	of	time	could	negatively	impact	our	sales	and	profits.

Our	results	may	be	negatively	impacted	if	consumers	do	not	maintain	their	favorable	perception	of	our	brands.

We	have	a	number	of	iconic	brands	with	significant	value.	Maintaining	and	continually	enhancing	the	value	of	these	brands	is	critical	to	the	success	of	our business.	Brand	value	is	based	in	large	part	on	consumer	perceptions.	Success	in	promoting	and	enhancing	brand	value	depends	in	large	part	on	our ability	to	provide	high-quality	products.	Brand	value	could	diminish	significantly	due	to	a	number	of	factors,	including	consumer	perception	that	we	have acted	in	an	irresponsible	manner,	adverse	publicity	about	our	products	(whether	or	not	valid),	our	failure	to	maintain	the	quality	of	our	products,	the	failure of	our	products	to	deliver	consistently	positive	consumer	experiences,	or	the	products	becoming	unavailable	to	consumers.	The	growing	use	of	social	and digital	media	by	consumers,	Kellogg	and	third	parties	increases	the	speed	and	extent	that	information	or	misinformation	and	opinions	can	be	shared. Negative	posts	or	comments	about	Kellogg,	our	brands	or	our	products	on	social	or	digital	media	could	seriously	damage	our	brands	and	reputation.	If we	do	not	maintain	the	favorable	perception	of	our	brands,	our	results	could	be	negatively	impacted.

Tax	matters,	including	changes	in	tax	rates,	disagreements	with	taxing	authorities	and	imposition	of	new	taxes	could	impact	our	results	of	operations	and financial	condition.

Our	profits	earned	outside	the	U.S.	are	generally	taxed	at	lower	rates	than	the	U.S.	statutory	rates.	The	cash	we	generate	outside	the	U.S.	is	principally	to be	used	to	fund	our	international	development.	If	the	funds	generated	by	our	U.S.	business	are	not	sufficient	to	meet	our	need	for	cash	in	the	U.S.,	we may	need	to	repatriate	a	portion	of	our	future	international	earnings	to	the	U.S.	Such	international	earnings	would	be	subject	to	U.S.	tax	which	could cause	our	worldwide	effective	tax	rate	to	increase.

We	are	subject	to	income	taxes	as	well	as	non-income	based	taxes,	such	as	payroll,	sales,	use,	value-added,	net	worth,	property,	withholding	and franchise	taxes	in	both	the	U.S.	and	various	foreign	jurisdictions.	We	are	also	subject	to	regular	reviews,	examinations	and	audits	by	the	Internal Revenue	Service	and	other	taxing	authorities	with	respect	to	such	income	and	non-income	based	taxes	inside	and	outside	of	the	U.S.	Although	we believe	our	tax	estimates	are	reasonable,	if	a	taxing	authority	disagrees	with	the	positions	we	have	taken,	we	could	face	additional	tax	liability,	including interest	and	penalties.	There	can	be	no	assurance	that	payment	of	such	additional	amounts	upon	final	adjudication	of	any	disputes	will	not	have	a material	impact	on	our	results	of	operations	and	financial	position.

The	enactment	of	or	increases	in	tariffs,	including	value	added	tax,	or	other	changes	in	the	application	of	existing	taxes,	in	markets	in	which	we	are currently	active,	for	example,	in	Mexico,	or	may	be	active	in	the	future,	or	on	specific	products	that	we	sell	or	with	which	our	products	compete,	may	have an	adverse	effect	on	our	business	or	on	our	results	of	operations.

If	our	food	products	become	adulterated,	misbranded	or	mislabeled,	we	might	need	to	recall	those	items	and	may	experience	product	liability	if consumers	are	injured	as	a	result.

Selling	food	products	involves	a	number	of	legal	and	other	risks,	including	product	contamination,	spoilage,	product	tampering,	allergens,	or	other adulteration.	We	may	need	to	recall	some	of	our	products	if	they	become	adulterated	or	misbranded.	We	may	also	be	liable	if	the	consumption	of	any	of our	products	causes	injury,	illness	or	death.	A	widespread	product	recall	or	market	withdrawal	could	result	in	significant	losses	due	to	their	costs,	the destruction	of	product	inventory,	and	lost	sales	due	to	the	unavailability	of	product	for	a	period	of	time.	For	example,	in	October	2012,	we	initiated	a	recall of	certain	packages	of	Mini-Wheats	cereal	due	to	the	possible	presence	of	fragments	of	flexible	metal	mesh	from	a	faulty	manufacturing	part.	We	could also	suffer	losses	from	a	significant	product	liability	judgment	against	us.	A	significant	product	recall	or	product	liability	case	could	also	result	in	adverse publicity,	damage	to	our	reputation,	and	a	loss	of	consumer	confidence	in	our	food	products,	which	could	have	a	material	adverse	effect	on	our	business results	and	the	value	of	our	brands.	Moreover,	even	if	a	product	liability	or	consumer	fraud	claim	is	meritless,	does	not	prevail	or	is	not	pursued,	the negative	publicity	surrounding	assertions	against	our	company	and	our	products	or	processes	could	adversely	affect	our	reputation	or	brands.

We	could	also	be	adversely	affected	if	consumers	lose	confidence	in	the	safety	and	quality	of	certain	food	products	or	ingredients,	or	the	food	safety system	generally.	Adverse	publicity	about	these	types	of	concerns,	whether	or	not	valid,	may	discourage	consumers	from	buying	our	products	or	cause production	and	delivery	disruptions.

Disruption	of	our	supply	chain	could	have	an	adverse	effect	on	our	business,	financial	condition	and	results	of	operations.

Our	ability,	including	manufacturing	or	distribution	capabilities,	and	that	of	our	suppliers,	business	partners	and	contract	manufacturers,	to	make,	move and	sell	products	is	critical	to	our	success.	Damage	or	disruption	to	our	or	their	manufacturing	or	distribution	capabilities	due	to	weather,	including	any potential	effects	of	climate	change,	natural	disaster,	fire	or	explosion,	terrorism,	pandemics,	strikes,	repairs	or	enhancements	at	our	facilities,	or	other reasons,	could	impair	our	ability	to	manufacture	or	sell	our	products.	Failure	to	take	adequate	steps	to	mitigate	the	likelihood	or	potential	impact	of	such events,	or	to	effectively	manage	such	events	if	they	occur,	could	adversely	affect	our	business,	financial	condition	and	results	of	operations,	as	well	as require	additional	resources	to	restore	our	supply	chain.

Evolving	tax,	environmental,	food	quality	and	safety	or	other	regulations	or	failure	to	comply	with	existing	licensing,	labeling,	trade,	food	quality	and	safety and	other	regulations	and	laws	could	have	a	material	adverse	effect	on	our	consolidated	financial	condition.

Our	activities,	both	in	and	outside	of	the	United	States,	are	subject	to	regulation	by	various	federal,	state,	provincial	and	local	laws,	regulations	and government	agencies,	including	the	U.S.	Food	and	Drug	Administration,	U.S.	Federal	Trade	Commission,	the	U.S.	Departments	of	Agriculture, Commerce	and	Labor,	as	well	as	similar	and	other	authorities	outside	the	United	States,	International	Accords	and	Treaties	and	others,	including voluntary	regulation	by	other	bodies.	In	addition,	legal	and	regulatory	systems	in	emerging	and	developing	markets	may	be	less	developed,	and	less certain.	These	laws	and	regulations	and	interpretations	thereof	may	change,	sometimes	dramatically,	as	a	result	of	a	variety	of	factors,	including	political, economic	or	social	events.	The	manufacturing,	marketing	and	distribution	of	food	products	are	subject	to	governmental	regulation	that	impose	additional regulatory	requirements.	Those	regulations	control	such	matters	as	food	quality	and	safety,	ingredients,	advertising,	product	or	production	requirements, labeling,	import	or	export	of	our	products	or	ingredients,	relations	with	distributors	and	retailers,	health	and	safety,	the	environment,	and	restrictions	on the	use	of	government	programs,	such	as	Supplemental	Nutrition	Assistance	Program,	to	purchase	certain	of	our	products.	We	are	also	regulated	with respect	to	matters	such	as	licensing	requirements,	trade	and	pricing	practices,	tax,

anticorruption	standards,	and	environmental	matters.	The	need	to	comply	with	new,	evolving	or	revised	tax,	environmental,	food	quality	and	safety	or other	laws	or	regulations,	or	new,	evolving	or	changed	interpretations	or	enforcement	of	existing	laws	or	regulations,	may	have	a	material	adverse	effect on	our	business	and	results	of	operations.	Further,	if	we	are	found	to	be	out	of	compliance	with	applicable	laws	and	regulations	in	these	areas,	we	could be	subject	to	civil	remedies,	including	fines,	injunctions,	termination	of	necessary	licenses	or	permits,	or	recalls,	as	well	as	potential	criminal	sanctions, any	of	which	could	have	a	material	adverse	effect	on	our	business.	Even	if	regulatory	review	does	not	result	in	these	types	of	determinations,	it	could potentially	create	negative	publicity	or	perceptions	which	could	harm	our	business	or	reputation.

Our	operations	face	significant	foreign	currency	exchange	rate	exposure	and	currency	restrictions	which	could	negatively	impact	our	operating	results.

We	hold	assets	and	incur	liabilities,	earn	revenue	and	pay	expenses	in	a	variety	of	currencies	other	than	the	U.S.	dollar,	including	the	euro,	British pound,	Australian	dollar,	Canadian	dollar,	Mexican	peso,	Venezuelan	bolivar	fuerte	and	Russian	ruble.	Because	our	consolidated	financial	statements are	presented	in	U.S.	dollars,	we	must	translate	our	assets,	liabilities,	revenue	and	expenses	into	U.S.	dollars	at	then-applicable	exchange	rates. Consequently,	changes	in	the	value	of	the	U.S.	dollar	may	unpredictably	and	negatively	affect	the	value	of	these	items	in	our	consolidated	financial statements,	even	if	their	value	has	not	changed	in	their	original	currency.

If	we	pursue	strategic	acquisitions,	alliances,	divestitures	or	joint	ventures,	we	may	not	be	able	to	successfully	consummate	favorable	transactions	or successfully	integrate	acquired	businesses.

From	time	to	time,	we	may	evaluate	potential	acquisitions,	alliances,	divestitures	or	joint	ventures	that	would	further	our	strategic	objectives.	With	respect to	acquisitions,	we	may	not	be	able	to	identify	suitable	candidates,	consummate	a	transaction	on	terms	that	are	favorable	to	us,	or	achieve	expected returns	and	other	benefits	as	a	result	of	integration	challenges.	With	respect	to	proposed	divestitures	of	assets	or	businesses,	we	may	encounter	difficulty in	finding	acquirers	or	alternative	exit	strategies	on	terms	that	are	favorable	to	us,	which	could	delay	the	accomplishment	of	our	strategic	objectives,	or our	divestiture	activities	may	require	us	to	recognize	impairment	charges.	Companies	or	operations	acquired	or	joint	ventures	created	may	not	be profitable	or	may	not	achieve	sales	levels	and	profitability	that	justify	the	investments	made.	Our	corporate	development	activities	may	present	financial and	operational	risks,	including	diversion	of	management	attention	from	existing	core	businesses,	integrating	or	separating	personnel	and	financial	and other	systems,	and	adverse	effects	on	existing	business	relationships	with	suppliers	and	customers.	Future	acquisitions	could	also	result	in	potentially dilutive	issuances	of	equity	securities,	the	incurrence	of	debt,	contingent	liabilities	and/or	amortization	expenses	related	to	certain	intangible	assets	and increased	operating	expenses,	which	could	adversely	affect	our	results	of	operations	and	financial	condition.

We	may	not	be	able	to	fully	realize	the	anticipated	benefits	and	synergies	of	the	Pringles	acquisition	or	in	the	expected	time	frame.

The	overall	success	of	the	Pringles	acquisition	will	depend,	in	part,	on	our	ability	to	realize	the	anticipated	benefits	and	synergies	from	combining	and integrating	the	Pringles	business	into	our	existing	business.	We	may	not	be	able	to	fully	achieve	these	objectives,	or	may	not	be	able	to	achieve	these objectives	on	a	timely	basis,	and	the	anticipated	future	benefits	and	synergies	therefore	may	not	be	realized	fully	or	at	all.	We	may	also	incur unanticipated	costs.	The	acquisition	involves	challenges	and	risks,	including	risks	that	the	transaction	does	not	advance	our	business	strategy	or	that	we will	not	realize	a	satisfactory	return.	Any	integration	difficulties	could	decrease	or	eliminate	the	anticipated	benefits	and	synergies	of	the	Pringles acquisition	and	could	negatively	affect	the	trading	prices	of	our	stock	and	our	future	business	and	financial	results.

# Potential	liabilities	and	costs	from	litigation	could	adversely	affect	our	business.

There	is	no	guarantee	that	we	will	be	successful	in	defending	our	self	in	civil,	criminal	or	regulatory	actions,	including	under	general,	commercial, employment,	environmental,	food	quality	and	safety,	anti-trust	and	trade,	and	environmental	laws	and	regulations,	or	in	asserting	its	rights	under	various laws.	In	addition,	we	could	incur	substantial	costs	and	fees	in	defending	our	self	or	in	asserting	our	rights	in	these	actions	or	meeting	new	legal requirements.	The	costs	and	other	effects	of	potential	and	pending	litigation	and	administrative	actions	against	us,	and	new	legal	requirements,	cannot	be determined	with	certainty	and	may	differ	from	expectations.

Our	consolidated	financial	results	and	demand	for	our	products	are	dependent	on	the	successful	development	of	new	products	and	processes.

There	are	a	number	of	trends	in	consumer	preferences	which	may	impact	us	and	the	industry	as	a	whole.	These	include	changing	consumer	dietary trends	and	the	availability	of	substitute	products.

Our	success	is	dependent	on	anticipating	changes	in	consumer	preferences	and	on	successful	new	product	and	process	development	and	product relaunches	in

response	to	such	changes.	We	aim	to	introduce	products	or	new	or	improved	production	processes	on	a	timely	basis	in	order	to	counteract	obsolescence and	decreases	in	sales	of	existing	products.	While	we	devote	significant	focus	to	the	development	of	new	products	and	to	the	research,	development	and technology	process	functions	of	our	business,	we	may	not	be	successful	in	developing	new	products	or	our	new	products	may	not	be	commercially successful.	Our	future	results	and	our	ability	to	maintain	or	improve	our	competitive	position	will	depend	on	our	capacity	to	gauge	the	direction	of	our	key markets	and	upon	our	ability	to	successfully	identify,	develop,	manufacture,	market	and	sell	new	or	improved	products	in	these	changing	markets.

Our	postretirement	benefit-related	costs	and	funding	requirements	could	increase	as	a	result	of	volatility	in	the	financial	markets,	changes	in	interest	rates and	actuarial	assumptions.

Increases	in	the	costs	of	postretirement	medical	and	pension	benefits	may	continue	and	negatively	affect	our	business	as	a	result	of	increased	usage	of medical	benefits	by	retired	employees	and	medical	cost	inflation,	the	effect	of	potential	declines	in	the	stock	and	bond	markets	on	the	performance	of	our pension	and	post-retirement	plan	assets,	potential	reductions	in	the	discount	rate	used	to	determine	the	present	value	of	our	benefit	obligations,	and changes	to	our	investment	strategy	that	may	impact	our	expected	return	on	pension	and	post-retirement	plan	assets	assumptions.	U.S.	generally accepted	accounting	principles	require	that	we	calculate	income	or	expense	for	the	plans	using	actuarial	valuations.	These	valuations	reflect assumptions	about	financial	markets	and	interest	rates,	which	may	change	based	on	economic	conditions.	The	Company's	accounting	policy	for	defined benefit	plans	may	subject	earnings	to	volatility	due	to	the	recognition	of	actuarial	gains	and	losses,	particularly	those	due	to	the	change	in	the	fair	value	of pension	and	post-retirement	plan	assets	and	interest	rates.	In	addition,	funding	requirements	for	our	plans	may	become	more	significant.	However,	the ultimate	amounts	to	be	contributed	are	dependent	upon,	among	other	things,	interest	rates,	underlying	asset	returns,	and	the	impact	of	legislative	or regulatory	changes	related	to	pension	and	post-retirement	funding	obligations.

# We	have	a	substantial	amount	of	indebtedness.

We	have	indebtedness	that	is	substantial	in	relation	to	our	shareholders'	equity.	As	of	December	28,	2013,	we	had	total	debt	of	approximately	$7.4	billion and	total	Kellogg	Company	equity	of	$3.5	billion.

Our	substantial	indebtedness	could	have	important	consequences,	including:

•impairing	the	ability	to	access	global	capital	markets	to	obtain	additional	financing	for	working	capital,	capital	expenditures	or	general	corporate purposes,	particularly	if	the	ratings	assigned	to	our	debt	securities	by	rating	organizations	were	revised	downward	or	if	a	rating	organization announces	that	our	ratings	are	under	review	for	a	potential	downgrade;

•a	downgrade	in	our	credit	ratings,	particularly	our	short-term	credit	rating,	would	likely	reduce	the	amount	of	commercial	paper	we	could	issue, increase	our	commercial	paper	borrowing	costs,	or	both;

•restricting	our	flexibility	in	responding	to	changing	market	conditions	or	making	us	more	vulnerable	in	the	event	of	a	general	downturn	in	economic conditions	or	our	business;

•requiring	a	substantial	portion	of	the	cash	flow	from	operations	to	be	dedicated	to	the	payment	of	principal	and	interest	on	our	debt,	reducing	the funds	available	to	us	for	other	purposes	such	as	expansion	through	acquisitions,	paying	dividends,	repurchasing	shares,	marketing	spending	and expansion	of	our	product	offerings;	and

•causing	us	to	be	more	leveraged	than	some	of	our	competitors,	which	may	place	us	at	a	competitive	disadvantage.

Our	ability	to	make	scheduled	payments	or	to	refinance	our	obligations	with	respect	to	indebtedness	will	depend	on	our	financial	and	operating performance,	which	in	turn,	is	subject	to	prevailing	economic	conditions,	the	availability	of,	and	interest	rates	on,	short-term	financing,	and	financial, business	and	other	factors	beyond	our	control.

# Our	performance	is	affected	by	general	economic	and	political	conditions	and	taxation	policies.

Customer	and	consumer	demand	for	our	products	may	be	impacted	by	recession,	financial	and	credit	market	disruptions,	or	other	economic	downturns	in the	United	States	or	other	nations.	Our	results	in	the	past	have	been,	and	in	the	future	may	continue	to	be,	materially	affected	by	changes	in	general economic	and	political	conditions	in	the	United	States	and	other	countries,	including	the	interest	rate	environment	in	which	we	conduct	business,	the financial	markets	through	which	we	access	capital	and	currency,	political	unrest	and	terrorist	acts	in	the	United	States	or	other	countries	in	which	we carry	on	business.

Current	economic	conditions	globally	may	delay	or	reduce	purchases	by	our	customers	and	consumers.	This	could	result	in	reductions	in	sales	of	our products,	reduced	acceptance	of	innovations,	and	increased	price	competition.	Deterioration	in	economic	conditions	in	any	of	the	countries	in	which	we do	business	could	also	cause	slower	collections	on	accounts	receivable	which	may	adversely	impact	our	liquidity	and	financial	condition.	Financial institutions

may	be	negatively	impacted	by	economic	conditions	and	may	consolidate	or	cease	to	do	business	which	could	result	in	a	tightening	in	the	credit	markets, a	low	level	of	liquidity	in	many	financial	markets,	and	increased	volatility	in	fixed	income,	credit,	currency	and	equity	markets.	There	could	be	a	number	of effects	from	a	financial	institution	credit	crisis	on	our	business,	which	could	include	impaired	credit	availability	and	financial	stability	of	our	customers, including	our	suppliers,	co-manufacturers	and	distributors.	A	disruption	in	financial	markets	may	also	have	an	effect	on	our	derivative	counterparties	and could	also	impair	our	banking	partners	on	which	we	rely	for	operating	cash	management.	Any	of	these	events	would	likely	harm	our	business,	results	of operations	and	financial	condition.

An	impairment	of	the	carrying	value	of	goodwill	or	other	acquired	intangibles	could	negatively	affect	our	consolidated	operating	results	and	net	worth.

The	carrying	value	of	goodwill	represents	the	fair	value	of	acquired	businesses	in	excess	of	identifiable	assets	and	liabilities	as	of	the	acquisition	date. The	carrying	value	of	other	intangibles	represents	the	fair	value	of	trademarks,	trade	names,	and	other	acquired	intangibles	as	of	the	acquisition	date. Goodwill	and	other	acquired	intangibles	expected	to	contribute	indefinitely	to	our	cash	flows	are	not	amortized,	but	must	be	evaluated	by	management	at least	annually	for	impairment.	If	carrying	value	exceeds	current	fair	value,	the	intangible	is	considered	impaired	and	is	reduced	to	fair	value	via	a	charge to	earnings.	Events	and	conditions	which	could	result	in	an	impairment	include	changes	in	the	industries	in	which	we	operate,	including	competition	and advances	in	technology;	a	significant	product	liability	or	intellectual	property	claim;	or	other	factors	leading	to	reduction	in	expected	sales	or	profitability. Should	the	value	of	one	or	more	of	the	acquired	intangibles	become	impaired,	our	consolidated	earnings	and	net	worth	may	be	materially	adversely affected.

As	of	December	28,	2013,	the	carrying	value	of	intangible	assets	totaled	approximately	$7.4	billion,	of	which	$5.0	billion	was	goodwill	and	$2.4	billion represented	trademarks,	tradenames,	and	other	acquired	intangibles	compared	to	total	assets	of	$15.5	billion	and	total	Kellogg	Company	equity	of $3.5	billion.

# Economic	downturns	could	limit	consumer	demand	for	our	products.

Retailers	are	increasingly	offering	private	label	products	that	compete	with	our	products.	Consumers'	willingness	to	purchase	our	products	will	depend upon	our	ability	to	offer	products	that	appeal	to	consumers	at	the	right	price.	It	is	also	important	that	our	products	are	perceived	to	be	of	a	higher	quality than	less	expensive	alternatives.	If	the	difference	in	quality	between	our	products	and	those	of	store	brands	narrows,	or	if	such	difference	in	quality	is perceived	to	have	narrowed,	then	consumers	may	not	buy	our	products.	Furthermore,	during	periods	of	economic	uncertainty,	consumers	tend	to purchase	more	private	label	or	other	economy	brands,	which	could	reduce	sales	volumes	of	our	higher	margin	products	or	there	could	be	a	shift	in	our product	mix	to	our	lower	margin	offerings.	If	we	are	not	able	to	maintain	or	improve	our	brand	image,	it	could	have	a	material	effect	on	our	market	share and	our	profitability.

# We	may	not	achieve	our	targeted	cost	savings	and	efficiencies	from	cost	reduction	initiatives.

Our	success	depends	in	part	on	our	ability	to	be	an	efficient	producer	in	a	highly	competitive	industry.	We	have	invested	a	significant	amount	in	capital expenditures	to	improve	our	operational	facilities.	Ongoing	operational	issues	are	likely	to	occur	when	carrying	out	major	production,	procurement,	or logistical	changes	and	these,	as	well	as	any	failure	by	us	to	achieve	our	planned	cost	savings	and	efficiencies,	could	have	a	material	adverse	effect	on our	business	and	consolidated	financial	position	and	on	the	consolidated	results	of	our	operations	and	profitability.

# Technology	failures	could	disrupt	our	operations	and	negatively	impact	our	business.

We	increasingly	rely	on	information	technology	systems	to	process,	transmit,	and	store	electronic	information.	For	example,	our	production	and distribution	facilities	and	inventory	management	utilize	information	technology	to	increase	efficiencies	and	limit	costs.	Information	technology	systems	are also	integral	to	the	reporting	of	our	results	of	operations.	Furthermore,	a	significant	portion	of	the	communications	between,	and	storage	of	personal	data of,	our	personnel,	customers,	consumers	and	suppliers	depends	on	information	technology.	Our	information	technology	systems	may	be	vulnerable	to	a variety	of	interruptions,	as	a	result	of	updating	our	SAP	platform	or	due	to	events	beyond	our	control,	including,	but	not	limited	to,	natural	disasters, terrorist	attacks,	telecommunications	failures,	computer	viruses,	hackers,	and	other	security	issues.	Moreover,	our	computer	systems	have	been,	and	will likely	continue	to	be	subjected	to	computer	viruses	or	other	malicious	codes,	unauthorized	access	attempts,	and	cyber-	or	phishing-attacks.	These	events could	compromise	our	confidential	information,	impede	or	interrupt	our	business	operations,	and	may	result	in	other	negative	consequences,	including remediation	costs,	loss	of	revenue,	litigation	and	reputational	damage.	Furthermore,	if	a	breach	or	other	breakdown	results	in	disclosure	of	confidential	or personal	information,	we	may	suffer	reputational,	competitive	and/or	business	harm.	To	date,	we	have	not	experienced	a	material	breach	of cybersecurity.	While

we	have	implemented	administrative	and	technical	controls	and	taken	other	preventive	actions	to	reduce	the	risk	of	cyber	incidents	and	protect	our information	technology,	they	may	be	insufficient	to	prevent	physical	and	electronic	break-ins,	cyber-attacks	or	other	security	breaches	to	our	computer systems.

# Our	intellectual	property	rights	are	valuable,	and	any	inability	to	protect	them	could	reduce	the	value	of	our	products	and	brands.

We	consider	our	intellectual	property	rights,	particularly	and	most	notably	our	trademarks,	but	also	including	patents,	trade	secrets,	copyrights	and licensing	agreements,	to	be	a	significant	and	valuable	aspect	of	our	business.	We	attempt	to	protect	our	intellectual	property	rights	through	a	combination of	patent,	trademark,	copyright	and	trade	secret	laws,	as	well	as	licensing	agreements,	third	party	nondisclosure	and	assignment	agreements	and policing	of	third	party	misuses	of	our	intellectual	property.	Our	failure	to	obtain	or	adequately	protect	our	trademarks,	products,	new	features	of	our products,	or	our	technology,	or	any	change	in	law	or	other	changes	that	serve	to	lessen	or	remove	the	current	legal	protections	of	our	intellectual property,	may	diminish	our	competitiveness	and	could	materially	harm	our	business.

We	may	be	unaware	of	intellectual	property	rights	of	others	that	may	cover	some	of	our	technology,	brands	or	products.	Any	litigation	regarding	patents	or other	intellectual	property	could	be	costly	and	time-consuming	and	could	divert	the	attention	of	our	management	and	key	personnel	from	our	business operations.	Third	party	claims	of	intellectual	property	infringement	might	also	require	us	to	enter	into	costly	license	agreements.	We	also	may	be	subject to	significant	damages	or	injunctions	against	development	and	sale	of	certain	products.

# ITEM	1B.	UNRESOLVED	STAFF	COMMENTS

None.

# ITEM	2.	PROPERTIES

Our	corporate	headquarters	and	principal	research	and	development	facilities	are	located	in	Battle	Creek,	Michigan.

We	operated,	as	of	February	24,	2014,	manufacturing	plants	and	distribution	and	warehousing	facilities	totaling	more	than	35	million	square	feet	of building	area	in	the	United	States	and	other	countries.	Our	plants	have	been	designed	and	constructed	to	meet	our	specific	production	requirements,	and we	periodically	invest	money	for	capital	and	technological	improvements.	At	the	time	of	its	selection,	each	location	was	considered	to	be	favorable, based	on	the	location	of	markets,	sources	of	raw	materials,	availability	of	suitable	labor,	transportation	facilities,	location	of	our	other	plants	producing similar	products,	and	other	factors.	Our	manufacturing	facilities	in	the	United	States	include	four	cereal	plants	and	warehouses	located	in	Battle	Creek, Michigan;	Lancaster,	Pennsylvania;	Memphis,	Tennessee;	and	Omaha,	Nebraska	and	other	plants	or	facilities	in	San	Jose,	California;	Atlanta,	Augusta, Columbus,	and	Rome,	Georgia;	Chicago,	Illinois;	Seelyville,	Indiana;	Kansas	City,	Kansas;	Florence,	Louisville,	and	Pikeville,	Kentucky;	Grand	Rapids and	Wyoming,	Michigan;	Blue	Anchor,	New	Jersey;	Cary	and	Charlotte,	North	Carolina;	Cincinnati	and	Zanesville,	Ohio;	Muncy,	Pennsylvania;	Jackson and	Rossville,	Tennessee;	Clearfield,	Utah;	and	Allyn,	Washington.

Outside	the	United	States,	we	had,	as	of	February	24,	2014,	additional	manufacturing	locations,	some	with	warehousing	facilities,	in	Australia,	Belgium, Brazil,	Canada,	Colombia,	Ecuador,	Germany,	Great	Britain,	India,	Japan,	Mexico,	Poland,	Russia,	South	Africa,	South	Korea,	Spain,	Thailand,	and Venezuela.

We	generally	own	our	principal	properties,	including	our	major	office	facilities,	although	some	manufacturing	facilities	are	leased,	and	no	owned	property is	subject	to	any	major	lien	or	other	encumbrance.	Distribution	facilities	(including	related	warehousing	facilities)	and	offices	of	non-plant	locations typically	are	leased.	In	general,	we	consider	our	facilities,	taken	as	a	whole,	to	be	suitable,	adequate,	and	of	sufficient	capacity	for	our	current	operations.

# ITEM	3.	LEGAL	PROCEEDINGS

We	are	subject	to	various	legal	proceedings,	claims,	and	governmental	inspections,	audits	or	investigations	arising	out	of	our	business	which	cover matters	such	as	general	commercial,	governmental	regulations,	antitrust	and	trade	regulations,	product	liability,	environmental,	intellectual	property, employment	and	other	actions.	In	the	opinion	of	management,	the	ultimate	resolution	of	these	matters	will	not	have	a	material	adverse	effect	on	our financial	position	or	results	of	operations.

# ITEM	4.	MINE	SAFETY	DISCLOSURE

Not	applicable.

# PART	II

# ITEM	5.	MARKET	FOR	THE	REGISTRANT'S	COMMON	EQUITY,	RELATED	STOCKHOLDER	MATTERS	AND	ISSUER	PURCHASES	OF	EQUITY SECURITIES

Information	on	the	market	for	our	common	stock,	number	of	shareowners	and	dividends	is	located	in	Note	15	within	Notes	to	Consolidated	Financial Statements.

In	December	2012,	our	board	of	directors	approved	a	share	repurchase	program	authorizing	us	to	repurchase	shares	of	our	common	stock	amounting	to $300	million	during	2013.	On	April	26,	2013,	the	board	of	directors	approved	an	authorization	to	repurchase	up	to	$1	billion	in	shares	through	April	2014. In	February	2014,	the	board	of	directors	approved	a	new	authorization	to	repurchase	up	to	$1.5	billion	in	shares	through	December	2015.	This authorization	supersedes	the	April	2013	authorization	and	is	intended	to	allow	us	to	repurchase	shares	for	general	corporate	purposes	and	to	offset issuances	for	employee	benefit	programs.	During	2013,	the	Company	repurchased	approximately	9	million	shares	for	a	total	of	$544	million.

The	following	table	provides	information	with	respect	to	purchases	of	common	shares	under	programs	authorized	by	our	board	of	directors	during	the quarter	ended	December	28,	2013.

(millions,	except	per	share	data)

| Period | (a)<br>Total<br>Number<br>of<br>Shares<br>Purchased | (b)<br>Average<br>Price<br>Paid	Per<br>Share | (c)<br>Total<br>Number<br>of	Shares<br>Purchased<br>as	Part	of<br>Publicly<br>Announced<br>Plans	or<br>Programs | (d)<br>Approximate<br>Dollar<br>Value	of<br>Shares<br>that	May<br>Yet	Be<br>Purchased<br>Under	the<br>Plans	or<br>Programs |
| :--- | :--- | :--- | :--- | :--- |
| Month\t#1: |  |  |  |  |
| 9/29/13-10/26/13 | — | — | — | $456 |
| Month\t#2:\n10/27/13-11/23/13 | — | — | — | $456 |
| Month\t#3: |  |  |  |  |
| 11/24/13-12/28/13 | — | — | — | $456 |

ITEM	6.	SELECTED	FINANCIAL	DATA

# Kellogg	Company	and	Subsidiaries

# Selected	Financial	Data

| (millions,	except	per	share	data	and	number	of	employees) | 2013 | 2012 | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Operating\ttrends |  |  |  |  |  |
| Net\tsales | $14,792 | $14,197 | $13,198 | $12,397 | $12,575 |
| Gross\tprofit\tas\ta\t%\tof\tnet\tsales | 41.3% | 38.3% | 39.0% | 43.1% | 43.0% |
| Underlying\tgross\tprofit\tas\ta\t%\tof\tnet\tsales\t(a) | 39.0% | 40.1% | 41.9% | 43.0% | 42.7% |
| Depreciation | 523 | 444 | 367 | 370 | 381 |
| Amortization | 9 | 4 | 2 | 22 | 3 |
| Advertising\texpense | 1,131 | 1,120 | 1,138 | 1,130 | 1,091 |
| Research\tand\tdevelopment\texpense | 199 | 206 | 192 | 187 | 181 |
| Operating\tprofit | 2,837 | 1,562 | 1,427 | 2,037 | 2,132 |
| Underlying\toperating\tprofit\t(a) | 2,098 | 2,014 | 2,109 | 2,046 | 1,959 |
| Operating\tprofit\tas\ta\t%\tof\tnet\tsales | 19.2% | 11.0% | 10.8% | 16.4% | 17.0% |
| Underlying\toperating\tprofit\tas\ta\t%\tof\tnet\tsales\t(a) | 14.2% | 14.2% | 16.0% | 16.5% | 15.6% |
| Interest\texpense | 235 | 261 | 233 | 248 | 295 |
| Net\tincome\tattributable\tto\tKellogg\tCompany | 1,807 | 961 | 866 | 1,287 | 1,289 |
| Underlying\tnet\tincome\tattributable\tto\tKellogg\tCompany\t(a) | 1,332 | 1,265 | 1,321 | 1,286 | 1,184 |
| Average\tshares\toutstanding: |  |  |  |  |  |
| Basic | 363 | 358 | 362 | 376 | 382 |
| Diluted | 365 | 360 | 364 | 378 | 384 |
| Per\tshare\tamounts: |  |  |  |  |  |
| Basic | 4.98 | 2.68 | 2.39 | 3.43 | 3.38 |
| Comparable\tbasic\t(b) | 3.80 | 3.62 | 3.64 | 3.42 | 3.10 |
| Diluted | 4.94 | 2.67 | 2.38 | 3.40 | 3.36 |
| Comparable\tdiluted\t(b) | 3.77 | 3.61 | 3.62 | 3.40 | 3.09 |
| Cash\tflow\ttrends |  |  |  |  |  |
| Net\tcash\tprovided\tby\toperating\tactivities | $1,807 | $1,758 | $1,595 | $1,008 | $1,643 |
| Capital\texpenditures | 637 | 533 | 594 | 474 | 377 |
| Net\tcash\tprovided\tby\toperating\tactivities\treduced\tby\tcapital\texpenditures\t(c) | 1,170 | 1,225 | 1,001 | 534 | 1,266 |
| Net\tcash\tused\tin\tinvesting\tactivities | (641) | (3,245) | (587) | (465) | (370) |
| Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | (1,141) | 1,317 | (957) | (439) | (1,182) |
| Interest\tcoverage\tratio\t(d) | 10.9 | 9.5 | 10.6 | 9.9 | 7.9 |
| Capital\tstructure\ttrends |  |  |  |  |  |
| Total\tassets\t(e) | $15,474 | $15,169 | $11,943 | $11,840 | $11,180 |
| Property,\tnet | 3,856 | 3,782 | 3,281 | 3,128 | 3,010 |
| Short-term\tdebt\tand\tcurrent\tmaturities\tof\tlong-term\tdebt | 1,028 | 1,820 | 995 | 996 | 45 |
| Long-term\tdebt | 6,330 | 6,082 | 5,037 | 4,908 | 4,835 |
| Total\tKellogg\tCompany\tequity\t(e) | 3,545 | 2,404 | 1,796 | 2,151 | 2,255 |
| Share\tprice\ttrends |  |  |  |  |  |
| Stock\tprice\trange | $55-68 | $46-57 | $48-58 | $47-56 | $36-54 |
| Cash\tdividends\tper\tcommon\tshare | 1.80 | 1.74 | 1.67 | 1.56 | 1.43 |
| Number\tof\temployees | \t 30,277 | \t 31,006 | \t 30,671 | \t 30,645 | \t 30,949 |

(a) Underlying	gross	profit	as	a	percentage	of	net	sales,	underlying	operating	profit,	underlying	operating	profit	as	a	percentage	of	net	sales,	and	underlying	net	income	attributable	to	Kellogg Company,	are	non-GAAP	measures	that	exclude	the	impact	of	pension	and	commodity	mark-to-market	adjustments	and	cost	related	to	Project	K.	We	believe	the	use	of	such	non-GAAP measures	provides	increased	transparency	and	assists	in	understanding	our	underlying	operating	performance.	These	non-GAAP	measures	are	reconciled	to	the	directly	comparable	measures in	accordance	with	U.S.	GAAP	within	our	Management's	Discussion	and	Analysis.

(b) Comparable	basic	earnings	per	share	and	comparable	diluted	earnings	per	share	are	non-GAAP	measures	that	exclude	the	impact	of	pension	and	commodity	mark-to-market	adjustments,	the impact	of	Project	K	costs,	and	the	impact	of	integration	costs,	net	of	one-time	benefits,	related	to	the	acquisition	of	the	Pringles	business.

(c) We	use	this	non-GAAP	financial	measure,	which	is	reconciled	above,	to	focus	management	and	investors	on	the	amount	of	cash	available	for	debt	repayment,	dividend	distribution,	acquisition opportunities,	and	share	repurchase.

(d) Interest	coverage	ratio	is	calculated	based	on	underlying	net	income	attributable	to	Kellogg	Company	before	interest	expense,	underlying	income	taxes,	depreciation	and	amortization,	divided	by interest	expense.

(e) 2012	Balances	have	been	revised	as	discussed	in	Note	2	to	the	financial	statements.

# ITEM	7.	MANAGEMENT'S	DISCUSSION	AND	ANALYSIS	OF	FINANCIAL	CONDITION	AND	RESULTS	OF	OPERATIONS

# 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	8	of	this	report.

For	more	than	100	years,	consumers	have	counted	on	Kellogg	for	great-tasting,	high-quality	and	nutritious	foods.	Kellogg	is	the	world's	leading	producer of	cereal,	second	largest	producer	of	cookies	and	crackers,	and	a	leading	producer	of	savory	snacks	and	frozen	foods.	Additional	product	offerings include	toaster	pastries,	cereal	bars,	fruit-flavored	snacks	and	veggie	foods.	Kellogg	products	are	manufactured	and	marketed	globally.

We	manage	our	operations	through	eight	operating	segments	that	are	based	on	product	category	or	geographic	location.	These	operating	segments	are evaluated	for	similarity	with	regards	to	economic	characteristics,	products,	production	processes,	types	or	classes	of	customers,	distribution	methods	and regulatory	environments	to	determine	if	they	can	be	aggregated	into	reportable	segments.	We	report	results	of	operations	in	the	following	reportable segments:	U.S.	Morning	Foods;	U.S.	Snacks;	U.S.	Specialty;	North	America	Other;	Europe;	Latin	America;	and	Asia	Pacific.	The	reportable	segments are	discussed	in	greater	detail	in	Note	16	within	Notes	to	Consolidated	Financial	Statements.

We	manage	our	Company	for	sustainable	performance	defined	by	our	long-term	annual	growth	targets.	These	targets	are	3	to	4%	for	internal	net	sales, mid-single-digit	(4	to	6%)	for	underlying	internal	operating	profit,	and	high-single-digit	(7	to	9%)	for	currency-neutral	comparable	diluted	net	earnings	per share.

During	2013	we	announced	Project	K,	a	four-year	efficiency	and	effectiveness	program.	The	program	is	expected	to	generate	a	significant	amount	of savings,	once	all	phases	are	approved	and	implemented,	that	will	be	invested	in	key	strategic	areas	of	focus	for	the	business.	We	expect	that	this investment	will	drive	future	growth	in	revenues,	gross	margin,	operating	profit,	and	cash	flow.	See	the	Exit	or	disposal	activities	section	for	more information.

# Comparability

Internal	net	sales	growth	excludes	the	impact	of	foreign	currency	translation	and,	if	applicable,	acquisitions,	dispositions	and	integration	costs	associated with	the	acquisition	of	the	Pringles ®	business	(Pringles).

Comparability	of	certain	financial	measures	is	impacted	significantly	by	two	types	of	charges:	1)	Mark-to-market	adjustments	that	are	recorded	for pensions	and	commodity	derivative	contracts;	and	2)	Charges	related	to	Project	K.	To	provide	increased	transparency	and	assist	in	understanding	our underlying	operating	performance	we	use	non-GAAP	financial	measures	within	the	MD&A	that	exclude	the	impact	of	these	charges.	These	non-GAAP financial	measures	include	underlying	gross	margin,	underlying	gross	profit,	underlying	SGA%,	underlying	operating	margin,	underlying	operating	profit, underlying	operating	profit	growth,	underlying	income	taxes,	underlying	effective	tax	rate,	and	underlying	net	income	attributable	to	Kellogg	Company. Underlying	internal	operating	profit	growth	excludes	the	following	impacts,	if	applicable:	foreign	currency	translation,	mark-to-market	adjustments, acquisitions,	dispositions,	transaction	and	integration	costs	associated	with	the	acquisition	of	the	Pringles	business,	and	charges	related	to	Project	K.

Additionally,	integration	costs	associated	with	the	acquisition	of	the	Pringles	business	are	excluded	from	comparable	basic	earnings	per	share	(EPS), comparable	diluted	EPS,	and	comparable	diluted	EPS	growth.

# Financial	results

For	the	full	year	2013,	our	reported	net	sales	increased	by	4.2%	and	internal	net	sales	increased	by	0.3%.	We	experienced	solid	internal	net	sales	growth in	U.S.	Specialty,	North	America	Other,	Europe,	Latin	America,	and	Asia	Pacific	while	internal	net	sales	in	U.S.	Morning	Foods	and	U.S.	Snacks declined.	Reported	operating	profit	increased	by	81.6%,	and	underlying	internal	operating	profit	increased	by	1.3%.	The	increased	profit	was	driven	by the	slight	increase	in	sales	and	cost	management	across	selling,	general	and	administrative	expense	partially	offset	by	cost	of	goods	sold	inflation	and business	mix	driven	by	softness	in	several	developed	markets.

Diluted	EPS	of	$4.94	was	up	85.0%	compared	to	the	prior	year	of	$2.67.	Comparable	diluted	EPS	of	$3.77	increased	by	4.4%	compared	to	prior	year	of $3.61	and	was	in	line	with	our	expectations.

# Reconciliation	of	certain	non-GAAP	Financial	Measures

| per	share	data) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Reported\toperating\tprofit | $2,837 | $1,562 | $1,427 |
| Mark-to-market\t(a) | 947 | (452) | (682) |
| Project\tK\t(b) | (208) | — | — |
| Underlying\toperating\tprofit\t(c)(d) | $2,098 | $2,014 | $2,109 |
| Reported\tincome\ttaxes | $792 | $363 | $320 |
| Mark-to-market\t(a) | 319 | (148) | (227) |
| Project\tK\t(b) | (55) | — | — |
| Underlying\tincome\ttaxes\t(c) | $528 | $511 | $547 |
| Reported\teffective\tincome\ttax\trate | 30.4% | 27.4% | 27.0% |
| Mark-to-market\t(a) | 1.9 | (1.4) | (2.3) |
| Project\tK\t(b) | 0.2 | — | — |
| Underlying\teffective\tincome\ttax\trate\t(c)(e) | 28.3% | 28.8% | 29.3% |
| Reported\tnet\tincome\tattributable\tto\tKellogg\tCompany | $1,807 | $961 | $866 |
| Mark-to-market\t(a) | 628 | (304) | (455) |
| Project\tK\t(b) | (153) | — | — |
| Underlying\tnet\tincome\tattributable\tto\tKellogg\tCompany\t(c)(d) | $1,332 | $1,265 | $1,321 |
| Reported\tbasic\tEPS | $4.98 | $2.68 | $2.39 |
| Mark-to-market\t(a) | 1.73 | (0.85) | (1.25) |
| Pringles\tintegration\tcosts | (0.13) | (0.09) | — |
| Project\tK\t(b) | (0.42) | — | — |
| Comparable\tbasic\tEPS\t(f) | $3.80 | $3.62 | $3.64 |
| Comparable\tbasic\tEPS\tgrowth\t(f) | 5.0% | (0.5)% | 6.4% |
| Reported\tdiluted\tEPS | $4.94 | $2.67 | $2.38 |
| Mark-to-market\t(a) | 1.72 | (0.85) | (1.24) |
| Pringles\tintegration\tcosts | (0.13) | (0.09) | — |
| Project\tK\t(b) | (0.42) | — | — |
| Comparable\tdiluted\tEPS\t(f) | $3.77 | $3.61 | $3.62 |
| Comparable\tdiluted\tEPS\tgrowth\t(f) | 4.4% | (0.3)% | 6.5% |

(a) Includes	mark-to-market	adjustments	for	pension	plans	and	commodity	contracts	as	reflected	in	selling,	general	and	administrative	expense	as	well	as	cost	of	goods	sold.	Actuarial	gains/losses for	pension	plans	are	recognized	in	the	year	they	occur.	In	2013	,	asset	returns	exceeded	expectations	by	$545	million	and	discount	rates	exceeded	expectations	by	65	basis	points	resulting	in a	favorable	mark-to-market	adjustment	recorded	in	earnings	in	the	fourth	quarter	of	2013.	A	portion	of	this	mark-to-market	adjustment	was	capitalized	as	inventoriable	cost	at	the	end	of	2013.	In 2012,	asset	returns	exceeded	expectations	by	$211	million	but	discount	rates	fell	almost	100	basis	points	resulting	in	an	unfavorable	mark-to-market	adjustment	recorded	in	earnings	in	the fourth	quarter	of	2012.	A	portion	of	the	2012	pension	mark-to-market	adjustment	was	capitalized	as	an	inventoriable	cost	at	the	end	of	2012.	This	amount	has	been	recorded	in	earnings	in	the first	quarter	of	2013.	In	2011,	asset	returns	were	lower	than	expected	by	$471	million	and	discount	rates	declined	resulting	in	an	unfavorable	mark-to-market	adjustment	recorded	in	earnings	in the	fourth	quarter	of	2011.	A	portion	of	the	2011	pension	mark-to-market	adjustment	was	capitalized	as	an	inventoriable	cost	at	the	end	of	2011.	This	amount	was	recorded	in	earnings	in	the first	quarter	of	2012.	Mark-to-market	adjustments	for	commodities	reflect	the	changes	in	the	fair	value	of	contracts	for	the	difference	between	contract	and	market	prices	for	the	underlying commodities.	The	resulting	gains/losses	are	recognized	in	the	quarter	they	occur.

(b) Costs	incurred	related	to	execution	of	Project	K,	a	four-year	efficiency	and	effectiveness	program.	The	focus	of	the	program	will	be	to	strengthen	existing	businesses	in	core	markets,	increase growth	in	developing	and	emerging	markets,	and	drive	an	increased	level	of	value	added	innovation.	The	program	is	expected	to	provide	a	number	of	benefits,	including	an	optimized	supply chain	infrastructure,	the	implementation	of	global	business	services	and	a	new	global	focus	on	categories.

(c) Underlying	operating	profit,	underlying	operating	profit	growth,	underlying	income	taxes,	underlying	effective	income	tax	rate,	and	underlying	net	income	attributable	to	Kellogg	Company,	are non-GAAP	measures	that	exclude	the	impact	of	pension	and	commodity	mark-to-market	adjustments	and	Project	K	costs.	Underlying	operating	profit	growth	excludes	the	impact	of	foreign currency	translation,	mark-to-market	adjustments,	and,	if	applicable,	acquisitions,	dispositions,	and	transaction	and	integration	costs	associated	with	the	acquisition	of	Pringles.	We	believe	the use	of	such	non-GAAP	measures	provides	increased	transparency	and	assists	in	understanding	our	underlying	operating	performance.	These	non-GAAP	measures	are	reconciled	to	the	directly comparable	measures	in	accordance	with	U.S.	GAAP	within	this	table.

(d) Underlying	operating	profit	for	the	years	ended	December	28,	2013	and	December	29,	2012	includes	postretirement	benefit	plan	income	of	$12	million	and	$20	million,	respectively.	Underlying net	income	attributable	to	Kellogg	Company	for	the	years	ended	December	28,	2013	and	December	29,	2012	includes	postretirement	benefit	plan	income	of	$9	million	and	$14	million, respectively.

(e) In	2013,	net	income	from	mark-to-market	adjustments,	in	general,	were	incurred	in	jurisdictions	with	tax	rates	higher	than	our	reported	effective	tax	rate.	Costs	incurred	related	to	the	execution of	Project	K,	in	general,	were	incurred	in	jurisdictions	with	tax	rates	lower	than	our	reported	effective	tax	rate.	In	2012	and	2011,	net	losses	from	mark-to-market	adjustments,	in	general,	were incurred	in	jurisdictions	with	tax	rates	higher	than	our	reported	effective	tax	rate.

(f) Comparable	EPS	is	a	non-GAAP	measure	that	excludes	the	impact	of	pension	and	commodity	mark-to-market	adjustments,	the	impact	of	Project	K	costs,	and	the	impact	of	integration	costs,	net of	one-time	benefits,	related	to	the	acquisition	of	the	Pringles	business.

# Net	sales	and	operating	profit

The	following	table	provides	an	analysis	of	net	sales	and	operating	profit	performance	for	2013	versus	2012:

|  | U.S. |  |  |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Morning | U.S. | U.S. | North |  | Latin | Asia | Corp- | Consol- |
| (dollars\tin\tmillions) | Foods | Snacks | Specialty | America\tOther | \t Europe | America | Pacific | orate | idated |
| 2013\tnet\tsales | \t\t $3,465 | \t $ 3,534 | \t $1,202 | \t $1,515 | \t $2,860 | \t $1,195 | \t $1,021 | \t $— | \t $14,792 |
| 2012\tnet\tsales | \t\t $3,533 | \t $ 3,400 | \t $1,121 | \t $1,485 | \t $2,527 | \t $1,121 | \t $1,010 | \t $— | \t $14,197 |
| %\tchange\t–\t2013\tvs.\t2012: |  |  |  |  |  |  |  |  |  |
| As\tReported | (1.9)% | 4.0\t% | 7.2\t% | 2.0\t% | 13.2\t% | 6.6\t% | 1.1\t% | —\t% | 4.2\t% |
| Acquisitions\t/Divestitures\t(a) | —\t% | 6.9\t% | 3.1\t% | 1.3\t% | 10.3\t% | 3.6\t% | 6.4\t% | —\t% | 4.6\t% |
| Integration\timpact\t(b) | —\t% | —\t% | —\t% | (.1)% | —\t% | —\t% | (.4)% | —\t% | —\t% |
| Foreign\tcurrency\timpact | —\t% | —\t% | —\t% | (1.4)% | 1.2\t% | (2.5)% | (7.9)% | —\t% | (.7)% |
| Internal\tbusiness\t(c) | (1.9)% | (2.9)% | 4.1\t% | 2.2\t% | 1.7\t% | 5.5\t% | 3.0\t% | —\t% | .3\t% |

|  | U.S. |  |  |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Morning | U.S. | U.S. | North |  | Latin | Asia | Corp- | Consol- |
| (dollars\tin\tmillions) | Foods | Snacks | Specialty | America\tOther | \t Europe | America | Pacific | orate | idated |
| 2013\toperating\tprofit | \t\t $485 | \t $447 | \t $265 | \t $275 | \t $256 | \t $157 | \t $60 | \t $892 | \t $2,837 |
| 2012\toperating\tprofit | \t\t $588 | \t $476 | \t $241 | \t $265 | \t $261 | \t $167 | \t $85 | \t $(521) | \t $1,562 |
| %\tchange\t–\t2013\tvs.\t2012: |  |  |  |  |  |  |  |  |  |
| As\tReported | (17.4)% | (6.1)% | 9.9\t% | 3.6\t% | (2.0)% | (5.8)% | (29.9)% | \t 271.1\t% | 81.6\t% |
| Acquisitions/Divestitures\t(a) | —\t% | 7.2\t% | 3.2\t% | 1.1\t% | 6.3\t% | 4.1\t% | 7.9\t% | (6.3)% | 3.6\t% |
| Integration\timpact\t(b) | —\t% | 1.4\t% | —\t% | (.5)% | (3.1)% | (.1)% | (7.2)% | 9.5\t% | .7\t% |
| Foreign\tcurrency\timpact | —\t% | —\t% | —\t% | (1.7)% | (.7)% | (7.2)% | (11.1)% | (.7)% | (1.4)% |
| Mark-to-market\t(d) | —\t% | —\t% | —\t% | —\t% | —\t% | —\t% | —\t% | \t 250.2\t% | 87.7\t% |
| Project\tK\t(e) | (17.1)% | (4.1)% | (1.0)% | (3.3)% | (7.1)% | (2.7)% | (27.9)% | (43.2)% | (10.3)% |
| Underlying\tinternal\t(f) | (.3)% | (10.6)% | 7.7\t% | 8.0\t% | 2.6\t% | .1\t% | 8.4\t% | 61.6\t% | 1.3\t% |

(a) Impact	of	results	for	the	year	ended	December	28,	2013	and	December	29,	2012	from	the	acquisition	of	Pringles	and	the	divestiture	of	Navigable	Foods.

(b) Includes	impact	of	integration	costs	associated	with	the	Pringles	acquisition.

(c) Internal	net	sales	growth	for	2013	excludes	the	impact	of	acquisitions,	divestitures,	integration	costs	and	impact	of	foreign	currency	translation.	Internal	net	sales	growth	is	a	non-GAAP	financial measure	which	is	reconciled	to	the	directly	comparable	measure	in	accordance	with	U.S.	GAAP	within	these	tables.

(d) Includes	mark-to-market	adjustments	for	pension	plans	and	commodity	contracts	as	reflected	in	selling,	general	and	administrative	expense	as	well	as	cost	of	goods	sold.	Actuarial	gains/losses for	pension	plans	are	recognized	in	the	year	they	occur.	In	2013	,	asset	returns	exceeded	expectations	by	$545	million	and	discount	rates	exceeded	expectations	by	65	basis	points	resulting	in a	favorable	mark-to-market	adjustment	recorded	in	earnings	in	the	fourth	quarter	of	2013.	A	portion	of	this	mark-to-market	adjustment	was	capitalized	as	inventoriable	cost	at	the	end	of	2013.	In 2012,	asset	returns	exceeded	expectations	by	$211	million	but	discount	rates	fell	almost	100	basis	points	resulting	in	an	unfavorable	mark-to-market	adjustment	recorded	in	earnings	in	the fourth	quarter	of	2012.	A	portion	of	the	2012	pension	mark-to-market	adjustment	was	capitalized	as	an	inventoriable	cost	at	the	end	of	2012.	This	amount	has	been	recorded	in	earnings	in	the first	quarter	of	2013.	In	2011,	asset	returns	were	lower	than	expected	by	$471	million	and	discount	rates	declined	resulting	in	an	unfavorable	mark-to-market	adjustment	recorded	in	earnings	in the	fourth	quarter	of	2011.	A	portion	of	the	2011	pension	mark-to-market	adjustment	was	capitalized	as	an	inventoriable	cost	at	the	end	of	2011.	This	amount	was	recorded	in	earnings	in	the first	quarter	of	2012.	Mark-to-market	adjustments	for	commodities	reflect	the	changes	in	the	fair	value	of	contracts	for	the	difference	between	contract	and	market	prices	for	the	underlying commodities.	The	resulting	gains/losses	are	recognized	in	the	quarter	they	occur.

(e) Costs	incurred	related	to	execution	of	Project	K,	a	four-year	efficiency	and	effectiveness	program.	The	focus	of	the	program	will	be	to	strengthen	existing	businesses	in	core	markets,	increase growth	in	developing	and	emerging	markets,	and	drive	an	increased	level	of	value-added	innovation.	The	program	is	expected	to	provide	a	number	of	benefits,	including	an	optimized	supply chain	infrastructure,	the	implementation	of	global	business	services,	and	a	new	global	focus	on	categories.

(f) Underlying	internal	operating	profit	growth	excludes	the	impact	of	foreign	currency	translation,	pension	and	commodity	mark-to-market	adjustments,	Project	K	costs	and,	if	applicable, acquisitions,	dispositions,	and	integration	costs	associated	with	the	acquisition	of	Pringles.	The	Company	believes	the	use	of	this	non-GAAP	measure	provides	increased	transparency	and assists	in	understanding	underlying	operating	performance.	This	non-GAAP	measure	is	reconciled	to	the	directly	comparable	measure	in	accordance	with	U.S.	GAAP	within	this	table.

Internal	net	sales	for	U.S.	Morning	Foods	declined	1.9%	as	a	result	of	unfavorable	volume	and	flat	pricing/mix.	This	segment	consists	of	cereal,	toaster pastries,	health	and	wellness	bars,	and	beverages.	Cereal	category	growth	has	been	challenging	throughout	the	year	due	to	the	timing	of	innovation, weakness	in	the	adult	segment	of	the	portfolio	and	reduced	retailer	inventories.	Despite	this	category	performance,	Raisin	Bran ®	posted	a	solid

result	of	innovation	launched	during	the	year.	Toaster	pastries	reported	solid	growth	behind	innovations	which	resulted	in	consumption	and	share	gains for	the	year.	Beverages	continued	to	report	increased	consumption	resulting	from	expanded	distribution. consumption	increase	behind	good	innovation	and	advertising	that	has	resonated	with	consumers,	and	Froot	Loops ®	posted	consumption	growth	as	a

Internal	net	sales	in	U.S.	Snacks	declined	by	2.9%	as	a	result	of	unfavorable	volume	which	was	partially	offset	by	favorable	pricing/mix.	This	business consists	of	crackers,	cereal	bars,	cookies,	savory	snacks	and	fruit-flavored	snacks.	The	sales	decline	was	the	result	of	lower	shipments	in	crackers, decline	was	partially	offset	with	innovations	by	the	Cheez-it ®	and	Town	House ®	brands.	Sales	declined	in	cereal	bars	across	most	brands.	Cereal	bars reported	gains	in	Nutri-Grain ®	and	Rice	KrispiesTreats ®	where	we	invested	behind	innovations.	Cookies	sales	declined	for	the	year.	This	was	partially driven	by	reductions	in	retailer	inventories	and	strong	competitor	actions	resulting	in	weakness	across	many	of	our	brands.	Savory	snacks	reported	a cereal	bars,	cookies,	and	fruit-flavored	snacks.	Crackers	decline	was	the	result	of	Special	K	Cracker	Chips ®	lapping	a	strong	year-ago	launch.	This solid	sales	increase	for	the	year	as	Pringles ®	consumption	gains	continued	throughout	the	year.

Internal	net	sales	in	U.S.	Specialty	increased	by	4.1%	as	a	result	of	favorable	pricing/mix	and	volume.	Sales	growth	was	due	to	strong	results	from innovation	launches,	expanded	points	of	distribution,	and	pricing.

Internal	net	sales	in	North	America	Other	(U.S.	Frozen	and	Canada)	increased	by	2.2%	due	to	favorable	pricing/mix	and	volume.	Sales	growth	was	the result	of	our	U.S.	Frozen	business	posting	solid	growth	for	the	year	while	gaining	share	as	a	result	of	increased	brand-building	support	behind	innovation activity.

Europe's	internal	net	sales	increased	1.7%	for	the	year	driven	by	increased	volume	and	favorable	pricing/mix.	Competitive	conditions	in	Europe	remained ®,	Rice Krispies ®,	and	Corn	Flakes ®	all	gained	share.	We	also	posted	sales	growth	in	the	Mediterranean/Middle	East	businesses	and	in	Russia	and	are	pleased with	results	in	these	developing	growth	regions.	Latin	America's	internal	net	sales	growth	was	5.5%	due	to	a	strong	increase	in	pricing/mix	partially	offset by	a	decline	in	volume.	Latin	America	experienced	growth	in	both	cereal	and	snacks.	Cereal	performed	very	well	in	Venezuela	and	Brazil.	The	Snacks volume	partially	offset	by	unfavorable	pricing/mix.	Asia	Pacific's	growth	was	driven	by	solid	cereal	performance	in	India,	Southeast	Asia,	and	Japan.	In business	and	gains	in	the	snacks	business. challenging.	The	cereal	category	in	the	UK	continued	to	be	difficult,	although	new	Crunchy	Nut ®	granola	contributed	to	sales	and	Crunchy	Nut business	growth	was	primarily	the	result	of	strong	results	from	our	Pringles ®	brand.	Internal	net	sales	in	Asia	Pacific	grew	3.0%	as	a	result	of	favorable addition,	the	snacks	business	reported	strong	performance	behind	the	Pringles ®	brand.	The	Australia	business	experienced	declines	in	the	cereal

Underlying	internal	operating	profit	in	U.S.	Morning	Foods	declined	by	0.3%,	U.S.	Snacks	declined	by	10.6%,	U.S.	Specialty	increased	by	7.7%,	North America	Other	grew	by	8.0%,	Europe	increased	by	2.6%,	Latin	America	increased	by	0.1%	and	Asia	Pacific	increased	by	8.4%.	U.S.	Morning	Foods' decline	was	attributable	to	increased	commodity	costs	being	partially	offset	by	overhead	cost	containment,	reduced	consumer	promotion	investment,	and the	favorable	impact	of	lapping	a	2012	product	recall.	U.S.	Snacks'	decline	was	attributable	to	significantly	increased	commodity	costs,	being	partially offset	by	reduced	advertising	investment,	reduced	consumer	promotion	investment,	and	overhead	cost	containment.	U.S.	Specialty's	increase	was attributable	to	favorable	pricing,	flat	commodity	costs,	and	reduced	advertising	investment.	North	America	Other's	increase	was	attributable	to	favorable pricing	and	overhead	cost	containment	which	was	partially	offset	by	slight	increases	in	commodity	costs	and	increased	brand-building	investment. Europe's	operating	profit	improved	due	to	reduced	investment	in	consumer	promotions	and	advertising	along	with	overhead	cost	containment.	These benefits	were	partially	offset	by	increased	commodity	costs.	The	slight	increase	in	Latin	America's	operating	profit	was	due	to	favorable	pricing	and reduced	investment	in	advertising	being	offset	by	the	impact	of	a	supply	disruption	in	our	Venezuela	business	due	to	the	difficult	operating	environment. Asia	Pacific's	operating	profit	improvement	was	primarily	the	result	of	solid	sales	growth	and	2012	charges	related	to	the	closure	of	a	plant	in	Australia. Refer	to	Note	3	within	Notes	to	Consolidated	Financial	Statements	for	further	information	on	the	Australian	plant	closure.

Underlying	internal	operating	profit	for	Corporate	improved	as	a	result	of	reduced	pension	costs	incurred	resulting	from	the	combination	of	lower	interest cost	and	higher	expected	return	on	assets	for	the	plans.

|  | U.S. |  |  |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Morning | U.S. | U.S. | North |  | Latin | Asia | Corp- | Consol- |
| (dollars\tin\tmillions) | Foods | Snacks | Specialty | America\tOther | Europe | America | Pacific | orate | idated |
| 2012\tnet\tsales | $3,533 | $ 3,400 | $1,121 | $1,485 | $2,527 | $1,121 | $1,010 | $— | $14,197 |
| 2011\tnet\tsales | $3,450 | $ 3,044 | $1,008 | $1,371 | $2,334 | $1,049 | $942 | $— | $13,198 |
| %\tchange\t–\t2012\tvs.\t2011: |  |  |  |  |  |  |  |  |  |
| As\tReported | 2.4% | 11.7% | 11.2% | 8.3\t% | 8.3\t% | 6.8\t% | 7.3\t% | —% | 7.6\t% |
| Acquisitions/Divestitures\t(a) | —% | 9.5% | 3.8% | 1.8\t% | 16.6\t% | 4.2\t% | 7.5\t% | —% | 6.5\t% |
| Integration\timpact\t(b) | —% | —% | —% | —\t% | —\t% | —\t% | (.1)% | —% | —\t% |
| Foreign\tcurrency\timpact | —% | —% | —% | (.5)% | (4.5)% | (4.1)% | (2.8)% | —% | (1.4)% |
| Internal\tbusiness\t(c) | 2.4% | 2.2% | 7.4% | 7.0\t% | (3.8)% | 6.7\t% | 2.7\t% | —% | 2.5\t% |

|  | U.S. |  |  |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Morning | U.S. | U.S. | North |  | Latin | Asia | Corp- | Consol- |
| (dollars\tin\tmillions) | Foods | Snacks | Specialty | America\tOther | Europe | America | Pacific | orate | idated |
| 2012\toperating\tprofit | $588 | $476 | $241 | $265 | $261 | $167 | $85 | $(521) | $1,562 |
| 2011\toperating\tprofit | $609 | $439 | $231 | $250 | $302 | $176 | $104 | $(684) | $1,427 |
| %\tchange\t–\t2012\tvs.\t2011: |  |  |  |  |  |  |  |  |  |
| As\tReported | (3.4)% | 8.3\t% | 4.3% | 6.2\t% | (13.5)% | (5.0)% | (18.4)% | 23.8\t% | 9.5\t% |
| Acquisitions/Divestitures\t(a) | —\t% | 12.5\t% | 3.1% | 1.7\t% | 12.6\t% | 2.6\t% | 17.3\t% | (196.6)% | 5.7\t% |
| Integration\timpact\t(b) | —\t% | (4.3)% | —% | —\t% | (8.0)% | (.4)% | (4.5)% | (1,039.8)% | (3.6)% |
| Foreign\tcurrency\timpact | —\t% | —\t% | —% | (.7)% | (2.3)% | (3.5)% | (2.5)% | (141.9)% | (.9)% |
| Mark-to-market\t(d) | —\t% | —\t% | —% | —\t% | —\t% | —\t% | —\t% | 2,509.1\t% | 14.0\t% |
| Underlying\tinternal\t(e) | (3.4)% | .1\t% | 1.2% | 5.2\t% | (15.8)% | (3.7)% | (28.7)% | (1,107.0)% | (5.7)% |

(d) Includes	mark-to-market	adjustments	for	pension	plans	and	commodity	contracts	as	reflected	in	selling,	general	and	administrative	expense	as	well	as	cost	of	goods	sold.	Actuarial	gains/losses for	pension	plans	are	recognized	in	the	year	they	occur.	In	2012,	asset	returns	exceeded	expectations	by	$211	million	but	discount	rates	fell	almost	100	basis	points	resulting	in	an	unfavorable mark-to-market	adjustment	recorded	in	earnings	in	the	fourth	quarter	of	2012.	A	portion	of	the	2012	pension	mark-to-market	adjustment	was	capitalized	as	an	inventoriable	cost	at	the	end	of 2012.	In	2011,	asset	returns	were	lower	than	expected	by	$471	million	and	discount	rates	declined	resulting	in	an	unfavorable	mark-to-market	adjustment	recorded	in	earnings	in	the	fourth quarter	of	2011.	A	portion	of	the	2011	pension	mark-to-market	adjustment	was	capitalized	as	an	inventoriable	cost	at	the	end	of	2011.	This	amount	was	recorded	in	earnings	in	the	first	quarter of	2012.	Mark-to-market	adjustments	for	commodities	reflect	the	changes	in	the	fair	value	of	contracts	for	the	difference	between	contract	and	market	prices	for	the	underlying	commodities.	The resulting	gains/losses	are	recognized	in	the	quarter	they	occur.

(e) Underlying	internal	operating	profit	growth	excludes	the	impact	of	foreign	currency	translation,	pension	and	commodity	mark-to-market	adjustments,	Project	K	costs	and,	if	applicable, acquisitions,	dispositions,	and	integration	costs	associated	with	the	acquisition	of	Pringles.	The	Company	believes	the	use	of	this	non-GAAP	measure	provides	increased	transparency	and assists	in	understanding	underlying	operating	performance.	This	non-GAAP	measure	is	reconciled	to	the	directly	comparable	measure	in	accordance	with	U.S.	GAAP	within	this	table.

Internal	net	sales	for	U.S.	Morning	Foods	increased	2.4%	as	a	result	of	favorable	pricing/mix	and	approximately	flat	volume.	This	segment	consists	of cereal,	toaster	pastries,	health	and	wellness	bars,	and	beverages.	Cereal's	internal	net	sales	increased	by	2.4%	resulting	from	strong	innovation share	gains.	Beverages	reported	increased	consumption	resulting	from	expanded	distribution	and	strong	innovation	launches. launches	and	increased	investment	in	brand-building	supporting	brands	such	as	Frosted	Flakes ®.	Toaster	pastries	reported	consumption	growth	and

Internal	net	sales	in	U.S.	Snacks	increased	by	2.2%	as	a	result	of	favorable	pricing/mix	and	a	slight	decline	in	volume.	This	business	consists	of	crackers, cereal	bars,	cookies,	savory	snacks	and	fruit-flavored	snacks.	The	sales	growth	was	the	result	of	strong	crackers	consumption	behind	the	launch	of Special	K	Cracker	Chips ®	and	Cheez-it ®	innovation.	Sales	declined	in	cereal	bars	versus	a	difficult	year-ago	comparison	while	 Special	K ®	bars continued	strong	growth	behind	innovations.	Cookies	sales	were	flat	versus	a	difficult	year-ago	comparison.

Internal	net	sales	in	U.S.	Specialty	increased	by	7.4%	as	a	result	of	favorable	pricing/mix	and	volume.	Sales	growth	was	due	to	strong	results	from innovation	launches	and	expanded	points	of	distribution.

Internal	net	sales	in	North	America	Other	(U.S.	Frozen	and	Canada)	increased	by	7.0%	due	to	favorable	pricing/mix	and	volume.	Sales	growth	was	the result	of	our	U.S.	Frozen	business	posting	double-digit	growth	for	the	year	while	gaining	share	as	a	result	of	increased	brand-building	support	behind innovation	activity.

Europe's	internal	net	sales	declined	3.8%	for	the	year	driven	by	a	decline	in	volume,	partially	offset	by	favorable	pricing/mix.	The	operating	environment in	Europe	continued	to	be	difficult	as	a	result	of	economic	conditions	and	competitive	activity	although	we	are	experiencing	continued	improvement	in sales	trends.	Latin	America's	internal	net	sales	growth	was	6.7%	due	to	a	strong	increase	in	pricing/mix	partially	offset	by	a	decline	in	volume.	Latin America	experienced	growth	in	both	cereal	and	snacks	behind	an	increase	in	brand-building	investment	to	support	innovations.	Growth	was	broad-based across	nearly	every	market	in	the	segment.	Internal	net	sales	in	Asia	Pacific	grew	2.7%	as	a	result	of	favorable	volume	partially	offset	by	unfavorable pricing/mix.	Asia	Pacific's	growth	was	driven	by	solid	performance	across	most	of	Asia,	as	well	as	South	Africa.	Australia	posted	a	slight	decline	in	sales, but	experienced	continued	improvement	throughout	the	year,	while	gaining	share	in	both	the	cereal	and	snacks	categories.

Underlying	internal	operating	profit	in	U.S.	Morning	Foods	declined	by	3.4%,	U.S.	Snacks	increased	by	0.1%,	U.S.	Specialty	increased	by	1.2%,	North America	Other	grew	by	5.2%,	Europe	declined	by	15.8%,	Latin	America	declined	by	3.7%	and	Asia	Pacific	declined	by	28.7%.	U.S.	Morning	Foods' decline	was	attributable	to	the	impact	of	the	third-quarter	recall	and	increased	commodity	costs,	partially	offset	by	sales	growth	in	cereal	and	toaster pastries.	U.S.	Snacks'	increase	was	attributable	to	sales	growth	which	was	partially	offset	by	cost	inflation	and	a	double-digit	increase	in	brand-building investments.	U.S.	Specialty's	increase	was	attributable	to	strong	sales	growth	being	partially	offset	by	increased	commodity	costs	and	a	double-digit increase	in	brand-building	investment.	North	America	Other's	increase	was	attributable	to	strong	sales	growth	being	partially	offset	by	increased commodity	costs	and	a	double-digit	increase	in	brand-building	investment.	Europe's	operating	profit	declined	due	to	lower	sales	resulting	from	the continued	difficult	operating	environment	and	increased	commodity	costs,	partially	offset	by	reduced	brand-building	investment.	The	decline	in	Latin America's	operating	profit	was	due	to	cost	inflation	and	increased	brand-building	investment	more	than	offsetting	the	impact	of	higher	sales.	Asia	Pacific's operating	profit	decline	was	due	to	cost	inflation,	charges	related	to	the	closure	of	a	plant	in	Australia,	and	increased	brand-building	investment	more	than offsetting	the	impact	of	higher	sales.	Refer	to	Note	3	within	Notes	to	Consolidated	Financial	Statements	for	further	information	on	the	Australian	plant closure.

Underlying	internal	operating	profit	for	Corporate	declined	as	a	result	of	increased	pension	costs	incurred	resulting	from	the	combination	of	lower	interest cost	and	higher	expected	return	on	assets	for	the	plans.

# Margin	performance

Margin	performance	was	as	follows:

|  | 2013 | 2012 | 2011 | 2013 | 2012 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Reported\tgross\tmargin\t(a) | 41.3% | 38.3% | 39.0% | 3.0 | (.7) |
| Mark-to-market\t(COGS)\t(b) | 3.4% | (1.8)% | (2.9)% | 5.2 | 1.1 |
| Project\tK\t(COGS)\t(c) | (1.1)% | —% | —% | (1.1) | — |
| Underlying\tgross\tmargin\t(d) | 39.0% | 40.1% | 41.9% | (1.1) | (1.8) |
| Reported\tSGA% | \t\t(22.1)% | \t(27.3)% | \t(28.2)% | 5.2 | .9 |
| Mark-to-market\t(SGA)\t(b) | 3.0% | (1.4)% | (2.3)% | 4.4 | .9 |
| Project\tK\t(SGA)\t(c) | (.3)% | —% | —% | (.3) | — |
| Underlying\tSGA%\t(d) | \t\t(24.8)% | \t(25.9)% | \t(25.9)% | 1.1 | — |
| Reported\toperating\tmargin | 19.2% | 11.0% | 10.8% | 8.2 | .2 |
| Mark-to-market\t(b) | 6.4% | (3.2)% | (5.2)% | 9.6 | 2.0 |
| Project\tK\t(c) | (1.4)% | —% | —% | (1.4) | — |
| Underlying\toperating\tmargin\t(d) | 14.2% | 14.2% | 16.0% | — | (1.8) |

(a) Reported	gross	margin	as	a	percentage	of	net	sales.	Gross	margin	is	equal	to	net	sales	less	cost	of	goods	sold.

(b) Includes	mark-to-market	adjustments	for	pension	plans	and	commodity	contracts	as	reflected	in	selling,	general	and	administrative	expense	as	well	as	cost	of	goods	sold.	Actuarial	gains/losses for	pension	plans	are	recognized	in	the	year	they	occur.	In	2013	,	asset	returns	exceeds	expectations	by	$545	million	and	discount	rates	exceeded	expectations	by	65	basis	points	resulting	in	a favorable	mark-to-market	adjustment	recorded	in	earnings	in	the	fourth	quarter	of	2013.	A	portion	of	this	mark-to-market	adjustment	was	capitalized	as	inventoriable	cost	at	the	end	of	2013.	In 2012,	asset	returns	exceeded	expectations	by	$211	million	but	discount	rates	fell	almost	100	basis	points	resulting	in	an	unfavorable	mark-to-market	adjustment	recorded	in	earnings	in	the fourth	quarter	of	2012.	A	portion	of	the	2012	pension	mark-to-market	adjustment	was	capitalized	as	an	inventoriable	cost	at	the	end	of	2012.	This	amount	has	been	recorded	in	earnings	in	the first	quarter	of

2013.	In	2011,	asset	returns	were	lower	than	expected	by	$471	million	and	discount	rates	declined	resulting	in	an	unfavorable	mark-to-market	adjustment	recorded	in	earnings	in	the	fourth quarter	of	2011.	A	portion	of	the	2011	pension	mark-to-market	adjustment	was	capitalized	as	an	inventoriable	cost	at	the	end	of	2011.	This	amount	was	recorded	in	earnings	in	the	first	quarter of	2012.	Mark-to-market	adjustments	for	commodities	reflect	the	changes	in	the	fair	value	of	contracts	for	the	difference	between	contract	and	market	prices	for	the	underlying	commodities.	The resulting	gains/losses	are	recognized	in	the	quarter	they	occur.

(c) Costs	incurred	related	to	execution	of	Project	K,	a	four-year	efficiency	and	effectiveness	program.	The	focus	of	the	program	will	be	to	strengthen	existing	businesses	in	core	markets,	increase growth	in	developing	and	emerging	markets,	and	drive	an	increased	level	of	value-added	innovation.	The	program	is	expected	to	provide	a	number	of	benefits,	including	an	optimized	supply chain	infrastructure,	the	implementation	of	global	business	services,	and	a	new	global	focus	on	categories.

(d) Underlying	gross	margin,	underlying	SGA%,	and	underlying	operating	margin	are	non-GAAP	measures	that	exclude	the	impact	of	pension	plans	and	commodity	contracts	mark-to-market adjustments	and	Project	K	costs.	We	believe	the	use	of	such	non-GAAP	measures	provides	increased	transparency	and	assists	in	understanding	our	underlying	operating	performance.

Underlying	gross	margin	declined	by	110	basis	points	in	2013	due	to	the	impact	of	inflation,	net	of	productivity	savings,	lower	operating	leverage	due	to lower	sales	volume,	and	the	impact	of	the	lower	margin	structure	of	the	Pringles	business.	Underlying	SG&A%	improved	by	110	basis	points	as	a	result of	favorable	overhead	leverage	and	synergies	resulting	from	the	Pringles	acquisition,	as	well	as	reduced	investment	in	consumer	promotions.

Underlying	gross	margin	declined	by	180	basis	points	in	2012	as	a	result	of	cost	inflation,	net	of	cost	savings,	and	the	lower	margin	structure	of	the Pringles	business.	Underlying	SGA%	was	consistent	with	2011.

Our	underlying	gross	profit,	underlying	SGA,	and	underlying	operating	profit	measures	are	reconciled	to	the	most	comparable	GAAP	measure	as	follows:

| (dollars	in	millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Reported\tgross\tprofit\t(a) | $6,103 | $5,434 | $5,152 |
| Mark-to-market\t(COGS)\t(b) | 510 | (259) | (377) |
| Project\tK\t(COGS)\t(c) | (174) | — | — |
| Underlying\tgross\tprofit\t(d) | $5,767 | $5,693 | $5,529 |
| Reported\tSGA | $3,266 | $3,872 | $3,725 |
| Mark-to-market\t(SGA)\t(b) | 437 | (193) | (305) |
| Project\tK\t(SGA)\t(c) | (34) | — | — |
| Underlying\tSGA\t(d) | $3,669 | $3,679 | $3,420 |
| Reported\toperating\tprofit | $2,837 | $1,562 | $1,427 |
| Mark-to-market\t(b) | 947 | (452) | (682) |
| Project\tK\t(c) | (208) | — | — |
| Underlying\toperating\tprofit\t(d) | $2,098 | $2,014 | $2,109 |

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

(b) Includes	mark-to-market	adjustments	for	pension	plans	and	commodity	contracts	as	reflected	in	selling,	general	and	administrative	expense	as	well	as	cost	of	goods	sold.	Actuarial	gains/losses for	pension	plans	are	recognized	in	the	year	they	occur.	In	2013	,	asset	returns	exceeds	expectations	by	$545	million	and	discount	rates	exceeded	expectations	by	65	basis	points	resulting	in	a favorable	mark-to-market	adjustment	recorded	in	earnings	in	the	fourth	quarter	of	2013.	A	portion	of	this	mark-to-market	adjustment	was	capitalized	as	inventoriable	cost	at	the	end	of	2013.	In 2012,	asset	returns	exceeded	expectations	by	$211	million	but	discount	rates	fell	almost	100	basis	points	resulting	in	an	unfavorable	mark-to-market	adjustment	recorded	in	earnings	in	the fourth	quarter	of	2012.	A	portion	of	the	2012	pension	mark-to-market	adjustment	was	capitalized	as	an	inventoriable	cost	at	the	end	of	2012.	This	amount	has	been	recorded	in	earnings	in	the first	quarter	of	2013.	In	2011,	asset	returns	were	lower	than	expected	by	$471	million	and	discount	rates	declined	resulting	in	an	unfavorable	mark-to-market	adjustment	recorded	in	earnings	in the	fourth	quarter	of	2011.	A	portion	of	the	2011	pension	mark-to-market	adjustment	was	capitalized	as	an	inventoriable	cost	at	the	end	of	2011.	This	amount	was	recorded	in	earnings	in	the first	quarter	of	2012.	Mark-to-market	adjustments	for	commodities	reflect	the	changes	in	the	fair	value	of	contracts	for	the	difference	between	contract	and	market	prices	for	the	underlying commodities.	The	resulting	gains/losses	are	recognized	in	the	quarter	they	occur.

(d) Underlying	gross	profit,	underlying	SGA,	and	underlying	operating	profit	are	non-GAAP	measures	that	exclude	the	impact	of	pension	plans	and	commodity	contracts	mark-to-market	adjustments and	Project	K	costs.	We	believe	the	use	of	such	non-GAAP	measures	provides	increased	transparency	and	assists	in	understanding	our	underlying	operating	performance.

# Restructuring	and	cost	reduction	activities

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

# Cost	reduction	initiatives

Prior	to	the	announcement	of	Project	K	in	2013,	we	commenced	various	COGS	and	SGA	cost	reduction	initiatives.	The	COGS	initiatives	are	intended	to optimize	our	global	manufacturing	network,	reduce	waste,	and	develop	best	practices	on	a	global	basis.	The	SGA	initiatives	focus	on	improvements	in the	efficiency	and	effectiveness	of	various	global	support	functions.

# During	2013,	we	recorded	$42	million	of	charges	associated	with	cost	reduction	initiatives.	The	charges

were	comprised	of	$21	million	being	recorded	in	COGS	and	$21	million	recorded	in	SGA	expense.	At	December	28,	2013,	exit	cost	reserves	were	$1 million,	related	to	severance	payments	which	will	be	made	in	2014.

We	recorded	$56	million	of	costs	in	2012	associated	with	cost	reduction	initiatives.	The	charges	were	comprised	of	$43	million	being	recorded	in	COGS and	$13	million	recorded	in	SGA	expense.	At	December	29,	2012,	exit	cost	reserves	were	$1	million,	related	to	severance	payments.

During	2011,	we	recorded	$61	million	of	costs	associated	with	cost	reduction	initiatives.	The	charges	were	comprised	of	$36	million	being	recorded	in COGS	and	$25	million	recorded	in	SGA	expense.	Exit	cost	reserves	at	December	31,	2011	were	$1	million	related	to	severance	payments.

The	tables	below	provide	the	details	for	the	charges	incurred	during	the	years	ended	2013,	2012	and	2011	and	program	costs	to	date	for	programs currently	active	as	of	December	28,	2013.

| (millions) | 2013 | 2012 | 2011 | Program	costs	to	date<br>December	28,	2013 |
| :--- | :--- | :--- | :--- | :--- |
| Employee\trelated\tcosts | $7 | $— | $18 | $38 |
| Asset\trelated\tcosts | 4 | 4 | 4 | 8 |
| Asset\timpairment | 4 | 17 | — | 21 |
| Other\tcosts | 27 | 35 | 39 | 76 |
| Total | $42 | $56 | $61 | $143 |

| (millions) | 2013 | 2012 | 2011 | Program	costs	to	date<br>December	28,	2013 |
| :--- | :--- | :--- | :--- | :--- |
| U.S.\tMorning\tFoods | $9 | $16 | $11 | $21 |
| U.S.\tSnacks | 11 | 10 | 24 | 47 |
| U.S.\tSpecialty | 2 | 1 | 1 | 6 |
| North\tAmerica\tOther | 2 | 6 | 6 | 4 |
| Europe | 8 | 3 | 16 | 37 |
| Latin\tAmerica | 1 | 2 | 1 | 2 |
| Asia\tPacific | 8 | 18 | 2 | 26 |
| Corporate | 1 | — | — | — |
| Total | $42 | $56 | $61 | $143 |

Other	costs	incurred	in	2013,	2012	and	2011	consist	primarily	of	third-party	incremental	costs	related	to	the	development	and	implementation	of	new business	capabilities	primarily	in	North	America.

# Project	K

In	2013,	we	announced	Project	K,	a	four-year	efficiency	and	effectiveness	program.	The	program	is	expected	to	generate	a	significant	amount	of	savings, once	all	phases	are	approved	and	implemented,	that	will	be	invested	in	key	strategic	areas	of	focus	for	the	business.	We	expect	that	this	investment	will drive	future	growth	in	revenues,	gross	margin,	operating	profit,	and	cash	flow.

The	focus	of	the	program	will	be	to	strengthen	existing	businesses	in	core	markets,	increase	growth	in	developing	and	emerging	markets,	and	drive	an increased	level	of	value-added	innovation.	The	program	is	expected	to	provide	a	number	of	benefits,	including	an	optimized	supply	chain	infrastructure, the	implementation	of	global	business	services,	and	a	new	global	focus	on	categories.

We	currently	anticipate	that	the	program	will	result	in	total	pre-tax	charges,	once	all	phases	are	approved	and	implemented,	of	$1.2	to	$1.4	billion,	with after-tax	cash	costs,	including	incremental	capital	investments,	estimated	to	be	$900	million	to	$1.1	billion.	Cash	expenditures	of	approximately	$30 million	were	incurred	in	2013.	Future	cash	expenditures	are	expected	to	be	approximately	$300	to	$400	million	in	2014	and	the	balance	of	$570	to	$670 million	thereafter.	We	currently	expect	the	charges	will	consist	of	asset-related	costs	totaling	$450	to	$500	million	which	will	consist	primarily	of	asset impairments	accelerated	depreciation	and	other	exit-related	costs;	employee-related	costs	totaling	$425	to	$475	million	which	will	include	severance, pension	and	other	termination	benefits;	and	other	costs	totaling	$325	to	$425	million	which	will	consist	primarily	of	charges	related	to	the	design	and implementation	of	global	business	capabilities.	A	significant	portion	of	other	costs	are	the	result	of	the	implementation	of	global	business	service	centers which	are	intended	to	simplify	and	standardize	business	support	processes.

We	currently	expect	that	total	pre-tax	charges	will	impact	reportable	segments	as	follows:	U.S.	Morning	Foods	(approximately	17%),	U.S.	Snacks (approximately	7%),	U.S.	Specialty	(approximately	1%),	North	America	Other	(approximately	3%),	Europe	(approximately	7%),	Latin	America (approximately	2%),	Asia-Pacific	(approximately	6%),	and	Corporate	(approximately	57%).	A	majority	of	the	costs	impacting	Corporate	relate	to	additional initiatives	to	be	executed	after	2014	that	are	currently	not	fully	defined.	As	the	development	of	these	initiatives	is	completed,	we	will	update	our	estimated costs	by	reportable	segment	as	needed.

We	expect	annual	cost	savings	generated	from	Project	K	will	be	approximately	$425	to	$475	million	by	2018,	with	approximately	two-thirds	the	cost savings	to	be	realized	in	cost	of	goods	sold.	We	realized	$15	million	of	savings	in	2013	and	expect	$50	to	$60	million	of	savings	in	2014,	approximately 40%	of	which	will	come	from	cost	of	goods	sold.	Cost	savings	will	be	reinvested	into	the	business	through	additional	investments	in	advertising,	in-store execution,	and	in	the	design	and	quality	of	our	products.	We	will	also	invest	in	production	capacity	in	developing	and	emerging	markets,	and	in	global category	teams.

As	a	result	of	Project	K,	we	anticipate	that	capital	spending	will	be	impacted	for	at	least	the	next	two

years.	Our	current	business	model	assumes	capital	spending	to	be	approximately	3-4%	of	net	sales	annually.	For	the	next	two	years,	capital	spending	is expected	to	be	approximately	4-5%	as	a	result	of	Project	K	activities.

Due	to	the	difference	in	timing	between	expected	cash	costs	for	the	project	and	expected	future	cash	savings,	we	anticipate	funding	the	project	through	a combination	of	cash	on	hand	and	short-term	debt.

We	also	expect	that	the	project	will	have	an	impact	on	our	consolidated	effective	income	tax	rate	during	the	execution	of	the	project	due	to	the	timing	of charges	being	taken	in	different	tax	jurisdictions.	The	impact	of	this	project	on	our	consolidated	effective	income	tax	rate	will	be	excluded	from	the underlying	income	tax	rate	that	will	be	disclosed	on	a	quarterly	basis.

In	2013,	we	recognized	charges	of	$208	million	that	have	been	attributed	to	the	program.	The	charges	comprised	of	$174	million	being	recorded	in COGS	and	$34	million	recorded	in	SGA.	The	tables	below	outline	the	details	of	these	charges:

Employee	related	costs	consisted	of	severance	and	pension	charges.	Asset	impairments	were	recorded	for	fixed	assets	that	were	determined	to	be impaired	and	were	written	down	to	their	estimated	fair	value.	Asset	related	costs	relate	primarily	to	accelerated	depreciation.	Other	costs	incurred	during the	year	ended	December	28,	2013	consist	primarily	of	third-party	incremental	costs	related	to	the	development	and	implementation	of	global	business capabilities.

At	December	28,	2013	exit	cost	reserves	for	Project	K	were	$77	million,	related	to	severance	payments	and	other	costs	of	which	a	substantial	portion	will be	paid	in	2014	and	2015.	The	following	table	provides	details	for	Project	K	exit	cost	reserves.

|  | Employee |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Related | Asset | Other\tAsset | Other |  |
|  | Costs | Impairment | Related\tCosts | Costs | Total |
| Liability\tas\tof\tDecember\t29,\t2012 | $— | $— | $— | $— | $— |
| 2013\trestructuring\tcharges | 107 | 66 | 6 | 29 | 208 |
| Cash\tpayments | (7) | — | (1) | (17) | (25) |
| Non-cash\tcharges\tand\tother\t(a) | (35) | (66) | (5) | — | (106) |
| Liability\tas\tof\tDecember\t28,\t2013 | $65 | $— | $— | 12 | $77 |

(a) Employee	related	non-cash	charges	consist	of	pension	curtailment	expense.

# 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	and	Canadian	dollar.	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

Annual	interest	expense	is	illustrated	in	the	following	table.	The	decline	in	2013	was	primarily	due	to	refinancing	of	maturing	long-term	debt	at	lower interest	rates	and	lower	interest	rates	on	long-term	debt	which	has	effectively	been	converted	to	floating	rate	obligations	through	the	use	of	interest	rate swaps.	The	increase	in	2012	was	primarily	due	to	increased	debt	levels	associated	with	the	acquisition	of	Pringles,	partially	offset	by	lower	interest	rates on	our	long-term	debt.	Interest	income	(recorded	in	other	income	(expense),	net)	was	(in	millions),	2013-$7;	2012-$9;	2011-$11.	We	currently	expect	that our	2014	gross	interest	expense	will	be	approximately	$225	to	$235	million.

| (dollars	in	millions) | 2013 | 2012 | 2011 | 2013 | 2012 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Reported\tinterest\texpense | $235 | $261 | $233 |  |  |
| Amounts\tcapitalized | 2 | 2 | 5 |  |  |
| Gross\tinterest\texpense | $237 | $263 | $238 | -9.9% | 10.5% |

# Income	taxes

Our	reported	effective	tax	rates	for	2013,	2012	and	2011	were	30.4%,	27.4%	and	27.0%	respectively.	Underlying	effective	tax	rates	for	2013,	2012	and 2011	were	28.3%,	28.8%,	and	29.3%,	respectively.	The	impact	of	discrete	adjustments	reduced	our	reported	effective	income	tax	rate	by	less	than	1 percentage	point	for	2013.	For	2012	and	2011	the	impact	of	discrete	adjustments	on	the	reported	effective	income	tax	rate	was	a	reduction	of	3	and	5 percentage	points,	respectively.	The	2012	effective	income	tax	rate	benefited	from	the	elimination	of	a	tax	liability	related	to	certain	international	earnings now	considered	indefinitely	reinvested.	Refer	to	Note	11	within	Notes	to	Consolidated	Financial	Statements	for	further	information.	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	tax	rates.	Additionally,	the	rate	could	be	impacted	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.

# Product	withdrawal

Refer	to	Note	13	within	Notes	to	Consolidated	Financial	Statements.

# LIQUIDITY	AND	CAPITAL	RESOURCES

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

As	of	December	28,	2013,	we	had	$255	million	of	cash	and	cash	equivalents	held	in	international	jurisdictions	which	will	be	used	to	fund	capital	and	other cash	requirements	of	international	operations.	These	amounts	include	$42	million	at	December	28,	2013,	subject	to	currency	exchange	controls	in Venezuela,	limiting	the	total	amount	of	cash	and	cash	equivalents	held	by	our	foreign	subsidiaries	that	can	be	repatriated	at	any	particular	point	in	time.

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

| (dollars	in	millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Net\tcash\tprovided\tby\t(used\tin): |  |  |  |
| Operating\tactivities | $1,807 | $1,758 | $1,595 |
| Investing\tactivities | (641) | (3,245) | (587) |
| Financing\tactivities | (1,141) | 1,317 | (957) |
| Effect\tof\texchange\trates\ton\tcash\tand\tcash\tequivalents | (33) | (9) | (35) |
| Net\tincrease\t(decrease)\tin\tcash\tand\tcash\tequivalents | $(8) | $(179) | $16 |

# Operating	activities

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

Our	net	cash	provided	by	operating	activities	for	2013	amounted	to	$1,807	million,	an	increase	of	$49	million	compared	with	2012.	The	increase compared	to	the	prior	year	is	primarily	due	to	improved	performance	in	core	and	other	working	capital.	Our	net	cash	provided	by	operating	activities	for 2012	amounted	to	$1,758	million,	an	increase	of	$163	million	compared	with	2011,	reflecting	improved	performance	in	working	capital	including	the	one- time	benefit	of	approximately	$150	million	derived	from	the	Pringles	acquisition.

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)	is	relatively	short,	equating	to	approximately	30	days	for	2013	and	2012.	Core	working	capital	in	2013	and	2012	averaged	7.8%	of	net sales,	compared	to	6.9%	in	2011.	For	2013	compared	to	2012	and	2012	compared	to	2011,	core	working	capital	was	negatively	impacted	by	higher	trade receivables,	offset	by	lower	days	of	inventory.	For	2011,	higher	days	of	inventory	was	necessary	to	support	our	new	product	introductions	and	to	maintain appropriate	levels	of	service	while	investing	in	our	supply	chain	infrastructure.	In	2011,	higher	days	of	trade	receivables	resulted	from	strong	sales	at year-end	due	to	our	innovation	launches	and	Special	K ®	New	Year's	resolution	programs.

Our	total	pension	and	postretirement	benefit	plan	funding	amounted	to	$48	million,	$51	million	and	$192	million,	in	2013,	2012	and	2011,	respectively.

The	Pension	Protection	Act	(PPA),	and	subsequent	regulations,	determines	defined	benefit	plan	minimum	funding	requirements	in	the	United	States.	We believe	that	we	will	not	be	required	to	make	any	contributions	under	PPA	requirements	until	2015	or	beyond.	Our	projections	concerning	timing	of	PPA funding	requirements	are	subject	to	change	primarily	based	on

general	market	conditions	affecting	trust	asset	performance,	future	discount	rates	based	on	average	yields	of	high	quality	corporate	bonds	and	our decisions	regarding	certain	elective	provisions	of	the	PPA.

We	currently	project	that	we	will	make	total	U.S.	and	foreign	benefit	plan	contributions	in	2014	of	approximately	$57	million.	Actual	2014	contributions could	be	different	from	our	current	projections,	as	influenced	by	our	decision	to	undertake	discretionary	funding	of	our	benefit	trusts	versus	other competing	investment	priorities,	future	changes	in	government	requirements,	trust	asset	performance,	renewals	of	union	contracts,	or	higher-than- expected	health	care	claims	cost	experience.

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:

| (dollars	in	millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Net\tcash\tprovided\tby\toperating\tactivities | $1,807 | $1,758 | $1,595 |
| Additions\tto\tproperties | (637) | (533) | (594) |
| Cash\tflow | $1,170 | $1,225 | $1,001 |
| \t\t\t\tyear-over-year\tchange | (4.5)% | 22.4% |  |

The	decrease	in	cash	flow	(as	defined)	in	2013	compared	to	2012	was	due	primarily	to	higher	capital	expenditures.	The	increase	in	cash	flow	in	2012 compared	to	2011	was	driven	by	improved	performance	in	working	capital	resulting	from	the	one-time	benefit	derived	from	the	Pringles	acquisition,	as well	as	changes	in	the	level	of	capital	expenditures	during	the	three-year	period.

# Investing	activities

Our	net	cash	used	in	investing	activities	for	2013	amounted	to	$641	million,	a	decrease	of	$2,604	million	compared	with	2012	primarily	attributable	to	the $2,668	million	acquisition	of	Pringles	in	2012.

Capital	spending	in	2013	included	investments	in	our	supply	chain	infrastructure,	and	to	support	capacity	requirements	in	certain	markets,	including Pringles.	In	addition,	we	continued	the	investment	in	our	information	technology	infrastructure	related	to	the	reimplementation	and	upgrade	of	our	SAP platform.

Net	cash	used	in	investing	activities	of	$3,245	million	in	2012	increased	by	$2,658	million	compared	with	2011,	due	to	the	acquisition	of	Pringles	in	2012.

# Financing	activities

Our	net	cash	used	by	financing	activities	was	$1,141	million	for	2013,	compared	to	net	cash	provided	by	financing	activities	of	$1,317	million	for	2012	and net	cash	used	in	financing	activities	of	$957	million	for	2011.	The	increase	in	cash	provided	from	financing	activities	in	2012	compared	to	2013	and	2011, was	primarily	due	to	the	issuance	of	debt	related	to	the	acquisition	of	Pringles.

In	February	2013,	we	issued	$250	million	of	two-year	floating-rate	U.S.	Dollar	Notes,	and	$400	million	of	ten-year	2.75%	U.S.	Dollar	Notes,	resulting	in aggregate	net	proceeds	after	debt	discount	of	$645	million.	The	proceeds	from	these	Notes	were	used	for	general	corporate	purposes,	including, together	with	cash	on	hand,	repayment	of	the	$750	million	aggregate	principal	amount	of	our	4.25%	U.S.	Dollar	Notes	due	March	2013.

In	May	2012,	we	issued	$350	million	of	three-year	1.125%	U.S.	Dollar	Notes,	$400	million	of	five-year	1.75%	U.S.	Dollar	Notes	and	$700	million	of	ten- year	3.125%	U.S.	Dollar	Notes,	resulting	in	aggregate	net	proceeds	after	debt	discount	of	$1.442	billion.	The	proceeds	of	these	Notes	were	used	for general	corporate	purposes,	including	financing	a	portion	of	the	acquisition	of	Pringles.

In	May	2012,	we	issued	Cdn.	$300	million	of	two-year	2.10%	fixed	rate	Canadian	Dollar	Notes,	using	the	proceeds	from	these	Notes	for	general corporate	purposes,	which	included	repayment	of	intercompany	debt.	This	repayment	resulted	in	cash	available	to	be	used	for	a	portion	of	the	acquisition of	Pringles.

In	December	2012,	we	repaid	$750	million	five-year	5.125%	U.S.	Dollar	Notes	at	maturity	with	commercial	paper.

In	April	2011,	we	repaid	$945	million	ten-year	6.60%	U.S.	Dollar	Notes	at	maturity	with	commercial	paper.

In	May	2011,	we	issued	$400	million	of	seven-year	3.25%	fixed	rate	U.S.	Dollar	Notes,	using	the	proceeds	of	$397	million	for	general	corporate	purposes and	repayment	of	commercial	paper.

In	November	2011,	we	issued	$500	million	of	five-year	1.875%	fixed	rate	U.	S.	Dollar	Notes,	using	the	proceeds	of	$498	million	for	general	corporate purposes	and	repayment	of	commercial	paper.

In	April	2010,	our	board	of	directors	approved	a	share	repurchase	program	authorizing	us	to	repurchase	shares	of	our	common	stock	amounting	to	$2.5 billion	during	2010	through	2012.

Under	this	program,	we	repurchased	approximately	1	million	and	15	million	shares	of	common	stock	for	$63	million	and	$793	million	during	2012	and 2011,	respectively.

In	December	2012,	our	board	of	directors	approved	a	share	repurchase	program	authorizing	us	to	repurchase	shares	of	our	common	stock	amounting	to $300	million	during	2013.	In	April	2013,	the	board	of	directors	approved	a	$1	billion	share	repurchase	program	expiring	in	April	2014.	In	February	2014, the	board	of	directors	approved	a	new	authorization	to	repurchase	up	to	$1.5	billion	in	shares	through	December	2015.	This	authorization	supersedes the	April	2013	authorization	and	is	intended	to	allow	us	to	repurchase	shares	for	general	corporate	purposes	and	to	offset	issuances	for	employee	benefit programs.	In	May	2013,	we	entered	into	an	Accelerated	Share	Repurchase	(ASR)	Agreement	with	a	financial	institution	counterparty	and	paid	$355 million	for	the	purchase	of	shares	during	the	term	of	the	agreement	which	extended	through	August	2013.	The	total	number	of	shares	delivered	upon settlement	of	the	ASR	was	based	upon	the	volume	weighted	average	price	of	the	Company's	stock	over	the	term	of	the	agreement.	Total	purchased	in 2013,	including	shares	delivered	under	the	ASR,	amounted	to	approximately	9	million	shares	totaling	$544	million.

In	March	2011,	we	entered	into	an	unsecured	Four-Year	Credit	Agreement	which	allows	us	to	borrow,	on	a	revolving	credit	basis,	up	to	$2.0	billion.

Our	long-term	debt	agreements	contain	customary	covenants	that	limit	Kellogg	Company	and	some	of	its	subsidiaries	from	incurring	certain	liens	or	from entering	into	certain	sale	and	lease-back	transactions.	Some	agreements	also	contain	change	in	control	provisions.	However,	they	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	Four-Year	Credit	Agreement,	which	expires	in	March	2015.	This	source	of	liquidity	is	unused	and	available	on	an	unsecured	basis,	although	we	do not	currently	plan	to	use	it.

We	monitor	the	financial	strength	of	our	third-party	financial	institutions,	including	those	that	hold	our	cash	and	cash	equivalents	as	well	as	those	who serve	as	counterparties	to	our	credit	facilities,	our	derivative	financial	instruments,	and	other	arrangements.

We	are	in	compliance	with	all	covenants	as	of	December	28,	2013.	We	continue	to	believe	that	we	will	be	able	to	meet	our	interest	and	principal repayment	obligations	and	maintain	our	debt	covenants	for	the	foreseeable	future,	while	still	meeting	our	operational	needs,	including	the	pursuit	of selected	bolt-on	acquisitions.	This	will	be	accomplished	through	our	strong	cash	flow,	our	short-term	borrowings,	and	our	maintenance	of	credit	facilities on	a	global	basis

# OFF-BALANCE	SHEET	ARRANGEMENTS	AND	CONTRACTUAL	OBLIGATIONS

# Off-balance	sheet	arrangements

As	of	December	28,	2013	and	December	29,	2012	we	did	not	have	any	material	off-balance	sheet	arrangements.

# Contractual	obligations

The	following	table	summarizes	our	contractual	obligations	at	December	28,	2013:

| (millions) | Total | 2014 | 2015 | 2016 | 2017 | 2018 | beyond |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Long-term\tdebt: |  |  |  |  |  |  |  |
| Principal | $6,660 | $289 | 610 | $1,253 | $403 | $403 | $3,702 |
| Interest\t(a) | 2,521 | 221 | 224 | 214 | \t 193 | \t 187 | 1,482 |
| Capital\tleases\t(b) | 7 | 1 | 1 | 1 | 1 | 1 | 2 |
| Operating\tleases\t(c) | 673 | 172 | 145 | 119 | 85 | 71 | 81 |
| Purchase\tobligations\t(d) | 1,483 | \t 1,116 | 215 | 151 | 1 | — | — |
| Uncertain\ttax\tpositions\t(e) | 10 | 10 | — | — | — | — | — |
| Other\tlong-term\tobligations\t(f) | 599 | 140 | 66 | 72 | 55 | 56 | 210 |
| Total | $11,953 | $1,949 | $1,261 | $1,810 | $738 | $718 | $5,477 |

(a) Includes	interest	payments	on	our	long-term	debt	and	payments	on	our	interest	rate	swaps.	Interest	calculated	on	our	variable	rate	debt	was	forecasted	using	the	LIBOR	forward	rate	curve	as	of December	28,	2013.

(b) The	total	expected	cash	payments	on	our	capital	leases	include	interest	expense	totaling	approximately	$1	million	over	the	periods	presented	above.

(c) Operating	leases	represent	the	minimum	rental	commitments	under	non-cancelable	operating	leases.

(d) Purchase	obligations	consist	primarily	of	fixed	commitments	for	raw	materials	to	be	utilized	in	the	normal	course	of	business	and	for	marketing,	advertising	and	other	services.	The	amounts presented	in	the	table	do	not	include	items	already	recorded	in	accounts	payable	or	other	current	liabilities	at	year-end	2013,	nor	does	the	table	reflect	cash	flows	we	are	likely	to	incur	based	on our	plans,	but	are	not	obligated	to	incur.	Therefore,	it	should	be	noted	that	the	exclusion	of	these	items	from	the	table	could	be	a	limitation	in	assessing	our	total	future	cash	flows	under contracts.

(e) As	of	December	28,	2013,	our	total	liability	for	uncertain	tax	positions	was	$79	million,	of	which	$10	million	is	expected	to	be	paid	in	the	next	twelve	months.	We	are	not	able	to	reasonably estimate	the	timing	of	future	cash	flows	related	to	the	remaining	$69	million.

(f) Other	long-term	obligations	are	those	associated	with	noncurrent	liabilities	recorded	within	the	Consolidated	Balance	Sheet	at	year-end	2013	and	consist	principally	of	projected	commitments under	deferred	compensation	arrangements,	multiemployer	plans,	and	supplemental	employee	retirement	benefits.	The	table	also	includes	our	current	estimate	of	minimum	contributions	to defined	benefit	pension	and	postretirement	benefit	plans	through	2019	as	follows:	2014-$57;	2015-$40;	2016-$40;	2017-$41;	2018-$41;	2019-$42.

# CRITICAL	ACCOUNTING	ESTIMATES

# Promotional	expenditures

Our	promotional	activities	are	conducted	either	through	the	retail	trade	or	directly	with	consumers	and	include	activities	such	as	in-store	displays	and events,	feature	price	discounts,	consumer	coupons,	contests	and	loyalty	programs.	The	costs	of	these	activities	are	generally	recognized	at	the	time	the related	revenue	is	recorded,	which	normally	precedes	the	actual	cash	expenditure.	The	recognition	of	these	costs	therefore	requires	management judgment	regarding	the	volume	of	promotional	offers	that	will	be	redeemed	by	either	the	retail	trade	or	consumer.	These	estimates	are	made	using various	techniques	including	historical	data	on	performance	of	similar	promotional	programs.	Differences	between	estimated	expense	and	actual redemptions	are	normally	insignificant	and	recognized	as	a	change	in	management	estimate	in	a	subsequent	period.	On	a	full-year	basis,	these subsequent	period	adjustments	represent	approximately	0.4%	of	our	company's	net	sales.	However,	our	company's	total	promotional	expenditures (including	amounts	classified	as	a	revenue	reduction)	are	significant,	so	it	is	likely	our	results	would	be	materially	different	if	different	assumptions	or conditions	were	to	prevail.

# Property

Long-lived	assets	such	as	property,	plant	and	equipment	are	tested	for	impairment	when	conditions	indicate	that	the	carrying	value	may	not	be recoverable.	Management	evaluates	several	conditions,	including,	but	not	limited	to,	the	following:	a	significant	decrease	in	the	market	price	of	an	asset or	an	asset	group;	a	significant	adverse	change	in	the	extent	or	manner	in	which	a	long-lived	asset	is	being	used,	including	an	extended	period	of idleness;	and	a	current	expectation	that,	more	likely	than	not,	a	long-lived	asset	or	asset	group	will	be	sold	or	otherwise	disposed	of	significantly	before the	end	of	its	previously	estimated	useful	life.	For	assets	to	be	held	and	used,	we	project	the	expected	future	undiscounted	cash	flows	generated	by	the long-lived	asset	or	asset	group	over	the	remaining	useful	life	of	the	primary	asset.	If	the	cash	flow	analysis	yields	an	amount	less	than	the	carrying amount	we	determine	the	fair	value	of	the	asset	or	asset	group	by	using	comparable	market	data.	There	are	inherent	uncertainties	associated	with	the judgments	and	estimates	we	use	in	these	analyses.

At	December	28,	2013,	we	have	property,	plant	and	equipment	of	$3.9	billion,	net	of	accumulated	depreciation,	on	our	balance	sheet.	Included	in	this amount	are	approximately	$54	million	of	idle	assets.

# Goodwill	and	other	intangible	assets

We	perform	an	impairment	evaluation	of	goodwill	and	intangible	assets	with	indefinite	useful	lives	at	least	annually	during	the	fourth	quarter	of	each	year in	conjunction	with	our	annual	budgeting	process.	Our	2012	analysis	excluded	goodwill	and	other	intangible	assets	related	to	the	Pringles	acquisition	on May	31,	2012.	To	comply	with	the	requirement	that	all	goodwill	and	indefinite-lived	intangible	assets	are	tested	for	impairment	within	one	year	of acquisition,	intangible	assets	recognized	as	part	of	the	Pringles	acquisition	were	tested	for	impairment	during	the	second	quarter	of	2013	in	addition	to the	evaluation	during	the	fourth	quarter	of	2013.

Goodwill	impairment	testing	first	requires	a	comparison	between	the	carrying	value	and	fair	value	of	a	reporting	unit	with	associated	goodwill.	Carrying value	is	based	on	the	assets	and	liabilities	associated	with	the	operations	of	that	reporting	unit,	which	often	requires	allocation	of	shared	or	corporate items	among	reporting	units.	For	the	2013	goodwill	impairment	test,	the	fair	value	of	the	reporting	units	was	estimated	based	on	market	multiples. Our	approach	employs	market	multiples	based	on	earnings	before	interest,	taxes,	depreciation	and	amortization	(EBITDA),	earnings	for	companies comparable	to	our	reporting	units	and	discounted	cash	flows.	Management	believes	the	assumptions	used	for	the	impairment	test	are	consistent	with those	utilized	by	a	market	participant	performing	similar	valuations	for	our	reporting	units.

Similarly,	impairment	testing	of	indefinite-lived	intangible	assets	requires	a	comparison	of	carrying	value	to	fair	value	of	that	particular	asset.	Fair	values of	non-goodwill	intangible	assets	are	based	primarily	on	projections	of	future	cash	flows	to	be	generated	from	that	asset.	For	instance,	cash	flows	related to	a	particular	trademark	would	be	based	on	a	projected	royalty	stream	attributable	to	branded	product	sales	discounted	at	rates	consistent	with	rates used	by	market	participants.	These	estimates	are	made	using	various	inputs	including	historical	data,	current	and	anticipated	market	conditions, management	plans,	and	market	comparables.

We	also	evaluate	the	useful	life	over	which	a	non-goodwill	intangible	asset	with	a	finite	life	is	expected	to	contribute	directly	or	indirectly	to	our	cash	flows. Reaching	a	determination	on	useful	life	requires	significant	judgments	and	assumptions	regarding	the	future	effects	of	obsolescence,	demand, competition,	other	economic	factors	(such	as	the	stability	of	the	industry,	known	technological	advances,	legislative	action	that	results	in	an	uncertain	or changing	regulatory	environment,	and	expected	changes	in	distribution	channels),	the	level	of	required	maintenance	expenditures,	and	the	expected lives	of	other	related	groups	of	assets.

At	December	28,	2013,	goodwill	and	other	intangible	assets	amounted	to	$7.4	billion,	consisting	primarily	of	goodwill	and	brands	associated	with	the	2001 acquisition	of	Keebler	Foods	Company	and	the	2012	acquisition	of	Pringles.	Within	this	total,	approximately	$2.3	billion	of	non-goodwill	intangible	assets were	classified	as	indefinite-lived,	comprised	principally	of	Keebler	and	Pringles	trademarks.	We	currently	believe	that	the	fair	value	of	our	goodwill	and other	intangible	assets	exceeds	their	carrying	value	and	that	those	intangibles	so	classified	will	contribute	indefinitely	to	our	cash	flows.	The	percentage of	excess	fair	value	over	carrying	value	of	the	U.S.	Snacks	reporting	unit	was	approximately	57%	and	43%	in	2013	and	2012,	respectively.	However,	if we	had	used	materially	different	assumptions,	which	we	do	not	believe	are	reasonably	possible,	regarding	the	future	performance	of	our	business	or	a different	market	multiple	in	the	valuation,	this	could	have	resulted	in	significant	impairment	losses.	Additionally,	we	have	$57	million	of	goodwill	related	to our	2008	acquisition	of	United	Bakers	in	Russia.	The	percentage	of	excess	fair	value	over	carrying	value	of	the	Russian	reporting	unit	was	approximately 30%	in	2013	and	2012.	If	we	used	modestly	different	assumptions	regarding	sales	multiples	and	EBITDA	in	the	valuation,	this	could	have	resulted	in	an impairment	loss.	For	example,	if	our	projection	of	EBITDA	margins	had	been	lower	by	200	basis	points,	this	change	in	assumption	may	have	resulted	in impairment	of	some	or	all	of	the	goodwill	in	the	Russian	reporting	unit.	Management	will	continue	to	monitor	the	situation	closely.

# Retirement	benefits

Our	company	sponsors	a	number	of	U.S.	and	foreign	defined	benefit	employee	pension	plans	and	also	provides	retiree	health	care	and	other	welfare benefits	in	the	United	States	and	Canada.	Plan	funding	strategies	are	influenced	by	tax	regulations	and	asset	return	performance.	A	substantial	majority of	plan	assets	are	invested	in	a	globally	diversified	portfolio	of	equity	securities	with	smaller	holdings	of	debt	securities	and	other	investments.	We recognize	the	cost	of	benefits	provided	during	retirement	over	the	employees'	active	working	life	to	determine	the	obligations	and	expense	related	to	our retiree	benefit	plans.	Inherent	in	this	concept	is	the	requirement	to	use	various	actuarial	assumptions	to	predict	and	measure	costs	and	obligations	many years	prior	to	the	settlement	date.	Major	actuarial	assumptions	that	require	significant	management	judgment	and	have	a	material	impact	on	the measurement	of	our	consolidated	benefits	expense	and	accumulated	obligation	include	the	long-term	rates	of	return	on	plan	assets,	the	health	care	cost trend	rates,	and	the	interest	rates	used	to	discount	the	obligations	for	our	major	plans,	which	cover	employees	in	the	United	States,	United	Kingdom	and Canada.

Our	expense	recognition	policy	for	pension	and	nonpension	postretirement	benefits	is	to	immediately	recognize	actuarial	gains	and	losses	in	our operating	results	in	the	year	in	which	they	occur.	Actuarial	gains	and	losses	are	recognized	annually	as	of	our	measurement	date,	which	is	our	fiscal	year- end,	or	when	remeasurement	is	otherwise	required	under	generally	accepted	accounting	principles.

Additionally,	for	purposes	of	calculating	the	expected	return	on	plan	assets	related	to	pension	and	nonpension	postretirement	benefits	we	use	the	fair value	of	plan	assets.

To	conduct	our	annual	review	of	the	long-term	rate	of	return	on	plan	assets,	we	model	expected	returns	over	a	20-year	investment	horizon	with	respect	to the	specific	investment	mix	of	each	of	our	major	plans.	The	return	assumptions	used	reflect	a	combination	of	rigorous	historical	performance	analysis and	forward-looking	views	of	the	financial	markets	including	consideration	of	current	yields	on	long-term	bonds,	price-earnings	ratios	of	the	major	stock market	indices,	and	long-term	inflation.	Our	U.S.	plan	model,	corresponding	to	approximately	68%	of	our	trust	assets	globally,	currently	incorporates	a long-term	inflation	assumption	of	2.5%	and	an	active	management	premium	of	1%	(net	of	fees)	validated	by	historical	analysis	and	future	return expectations.	Although	we	review	our	expected	long-term	rates	of	return	annually,	our	benefit	trust	investment	performance	for	one	particular	year	does not,	by	itself,	significantly	influence	our	evaluation.	Our	expected	rates	of	return	have	generally	not	been	revised,	provided	these	rates	continue	to	fall within	a	"more

likely	than	not"	corridor	of	between	the	25th	and	75th	percentile	of	expected	long-term	returns,	as	determined	by	our	modeling	process.	Our	assumed rate	of	return	for	U.S.	plans	in	2014	of	8.5%	equates	to	approximately	the	60th	percentile	expectation	of	our	model.	Similar	methods	are	used	for	various foreign	plans	with	invested	assets,	reflecting	local	economic	conditions.	Foreign	trust	investments	represent	approximately	32%	of	our	global	benefit	plan assets.

Based	on	consolidated	benefit	plan	assets	at	December	28,	2013,	a	100	basis	point	increase	or	decrease	in	the	assumed	rate	of	return	would correspondingly	increase	or	decrease	2014	benefits	expense	by	approximately	$61	million.	For	each	of	the	three	fiscal	years,	our	actual	return	on	plan assets	exceeded	(was	less	than)	the	recognized	assumed	return	by	the	following	amounts	(in	millions):	2013-$545;	2012-$211;	2011–$(471).

To	conduct	our	annual	review	of	health	care	cost	trend	rates,	we	model	our	actual	claims	cost	data	over	a	five-year	historical	period,	including	an	analysis of	pre-65	versus	post-65	age	groups	and	other	important	demographic	components	in	our	covered	retiree	population.	This	data	is	adjusted	to	eliminate the	impact	of	plan	changes	and	other	factors	that	would	tend	to	distort	the	underlying	cost	inflation	trends.	Our	initial	health	care	cost	trend	rate	is reviewed	annually	and	adjusted	as	necessary	to	remain	consistent	with	recent	historical	experience	and	our	expectations	regarding	short-term	future trends.	In	comparison	to	our	actual	five-year	compound	annual	claims	cost	growth	rate	of	approximately	5.64%,	our	initial	trend	rate	for	2014	of	5.25% reflects	the	expected	future	impact	of	faster-growing	claims	experience	for	certain	demographic	groups	within	our	total	employee	population.	Our	initial rate	is	trended	downward	by	0.5%	per	year,	until	the	ultimate	trend	rate	of	4.5%	is	reached.	The	ultimate	trend	rate	is	adjusted	annually,	as	necessary,	to approximate	the	current	economic	view	on	the	rate	of	long-term	inflation	plus	an	appropriate	health	care	cost	premium.	Based	on	consolidated	obligations at	December	28,	2013,	a	100	basis	point	increase	in	the	assumed	health	care	cost	trend	rates	would	increase	2014	benefits	expense	by	approximately $11	million	and	generate	an	immediate	loss	recognition	of	$132	million.	A	100	basis	point	excess	of	2014	actual	health	care	claims	cost	over	that calculated	from	the	assumed	trend	rate	would	result	in	an	experience	loss	of	approximately	$8	million	and	would	increase	2014	expense	by	$0.4	million. Any	arising	health	care	claims	cost-related	experience	gain	or	loss	is	recognized	in	the	year	in	which	they	occur.	The	experience	gain	arising	from recognition	of	2013	claims	experience	was	approximately	$13	million.

To	conduct	our	annual	review	of	discount	rates,	we	selected	the	discount	rate	based	on	a	cash-flow	matching	analysis	using	Towers	Watson's proprietary	RATE:Link	tool	and	projections	of	the	future	benefit	payments	constituting	the	projected	benefit	obligation	for	the	plans.	RATE:Link establishes	the	uniform	discount	rate	that	produces	the	same	present	value	of	the	estimated	future	benefit	payments,	as	is	generated	by	discounting each	year's	benefit	payments	by	a	spot	rate	applicable	to	that	year.	The	spot	rates	used	in	this	process	are	derived	from	a	yield	curve	created	from	yields on	the	40th	to	90th	percentile	of	U.S.	high	quality	bonds.	A	similar	methodology	is	applied	in	Canada	and	Europe,	except	the	smaller	bond	markets	imply that	yields	between	the	10th	and	90th	percentiles	are	preferable.	The	measurement	dates	for	our	defined	benefit	plans	are	consistent	with	our	fiscal	year end.	Accordingly,	we	select	discount	rates	to	measure	our	benefit	obligations	that	are	consistent	with	market	indices	during	December	of	each	year.

Based	on	consolidated	obligations	at	December	28,	2013,	a	25	basis	point	decline	in	the	weighted-average	discount	rate	used	for	benefit	plan measurement	purposes	would	increase	2014	benefits	expense	by	approximately	$1	million	and	would	result	in	an	immediate	loss	recognition	of	$212 million.	All	obligation-related	actuarial	gains	and	losses	are	recognized	immediately	in	the	year	in	which	they	occur.

Despite	the	previously-described	rigorous	policies	for	selecting	major	actuarial	assumptions,	we	periodically	experience	material	differences	between assumed	and	actual	experience.	During	2013,	we	recognized	a	net	actuarial	gain	of	approximately	$1,097	million	compared	to	a	net	actuarial	loss	of approximately	$445	million	in	2012.	Of	the	total	net	gain	recognized	in	2013,	approximately	$552	million	was	related	primarily	to	favorable	changes	in	the discount	rate	and	$545	million	in	asset	gains.	Of	the	$445	million	net	loss	recognized	in	2012,	approximately	$656	million	was	related	to	unfavorable changes	in	the	discount	rate,	offset	by	approximately	$211	million	of	asset	gains	in	2012.

During	2013,	we	made	contributions	in	the	amount	of	$34	million	to	Kellogg's	global	tax-qualified	pension	programs.	This	amount	was	mostly	non- discretionary.	Additionally	we	contributed	$14	million	to	our	retiree	medical	programs.

Our	consolidated	effective	income	tax	rate	is	influenced	by	tax	planning	opportunities	available	to	us	in	the	various	jurisdictions	in	which	we	operate.	The calculation	of	our	income	tax	provision	and	deferred	income	tax	assets	and	liabilities	is	complex	and	requires	the	use	of	estimates	and	judgment.	Income taxes	are	provided	on	the	portion	of	foreign	earnings	that	is	expected	to	be	remitted	to	and	taxable	in	the	United	States.

We	recognize	tax	benefits	associated	with	uncertain	tax	positions	when,	in	our	judgment,	it	is	more	likely	than	not	that	the	positions	will	be	sustained upon	examination	by	a	taxing	authority.	For	tax	positions	that	meet	the	more	likely	than	not	recognition	threshold,	we	initially	and	subsequently	measure the	tax	benefits	as	the	largest	amount	that	we	judge	to	have	a	greater	than	50%	likelihood	of	being	realized	upon	ultimate	settlement.	Our	liability associated	with	unrecognized	tax	benefits	is	adjusted	periodically	due	to	changing	circumstances,	such	as	the	progress	of	tax	audits,	new	or	emerging legislation	and	tax	planning.	The	tax	position	will	be	derecognized	when	it	is	no	longer	more	likely	than	not	of	being	sustained.	Significant	adjustments	to our	liability	for	unrecognized	tax	benefits	impacting	our	effective	tax	rate	are	separately	presented	in	the	rate	reconciliation	table	of	Note	11	within	Notes to	Consolidated	Financial	Statements.

# ACCOUNTING	STANDARDS	TO	BE	ADOPTED	IN	FUTURE	PERIODS

In	July	2013,	the	Financial	Accounting	Standards	Board	(FASB)	issued	an	Accounting	Standards	Update	(ASU)	which	provides	guidance	on	financial statement	presentation	of	unrecognized	tax	benefits	when	a	net	operating	loss	carryforward,	a	similar	tax	loss,	or	a	tax	credit	carryforward	exists.	This ASU	is	expected	to	eliminate	diversity	in	practice	resulting	from	lack	of	existing	guidance.	It	applies	to	all	entities	with	unrecognized	tax	benefits	that	also have	tax	loss	or	tax	credit	carryforwards	in	the	same	tax	jurisdiction	as	of	the	reporting	date.	The	ASU	is	effective	for	fiscal	years,	and	interim	periods within	those	years,	beginning	after	December	15,	2013,	with	early	adoption	permitted.	The	amendments	should	be	applied	prospectively	to	all unrecognized	tax	benefits	that	exist	at	the	effective	date.	Retrospective	application	is	permitted.	We	will	adopt	the	updated	standard	in	the	first	quarter	of 2014.	We	do	not	expect	the	adoption	of	this	guidance	to	have	a	significant	impact	on	our	financial	statements.

# FUTURE	OUTLOOK

We	expect	during	2014	that	Project	K	will	enable	us	to	begin	to	increase	investment	in	certain	businesses	and	the	categories	in	which	we	compete.	We expect	internal	net	sales	will	increase	by	approximately	1	percent,	underlying	gross	margin	to	improve	approximately	40-50	basis	points	due	to	a moderate	amount	of	deflation,	net	of	cost	savings	initiatives,	underlying	internal	operating	profit	to	be	flat	to	up	2	percent,	and	currency-neutral comparable	EPS	to	grow	by	1	to	3	percent.	This	outlook	excludes	the	impact	of	mark-to-market	adjustments,	Project	K	costs,	Pringles	integration	costs, and	the	53 	week	which	will	occur	in	2014. rd

# ITEM	7A.	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.	As	a	matter	of	policy,	we	do	not	engage	in	trading	or	speculative	transactions.	Refer	to	Note	12 within	Notes	to	Consolidated	Financial	Statements	for	further	information	on	our	derivative	financial	and	commodity	instruments.

# Foreign	exchange	risk

Our	company	is	exposed	to	fluctuations	in	foreign	currency	cash	flows	related	primarily	to	third-party	purchases,	intercompany	transactions,	and	when applicable,	nonfunctional	currency	denominated	third-party	debt.	Our	company	is	also	exposed	to	fluctuations	in	the	value	of	foreign	currency	investments in	subsidiaries	and	cash	flows	related	to	repatriation	of	these	investments.	Additionally,	our	company	is	exposed	to	volatility	in	the	translation	of	foreign currency	denominated	earnings	to	U.S.	dollars.	Primary	exposures	include	the	U.S.	dollar	versus	the	euro,	British	pound,	Australian	dollar,	Canadian dollar,	and	Mexican	peso,	and	in	the	case	of	inter-subsidiary	transactions,	the	British	pound	versus	the	euro.	We	assess	foreign	currency	risk	based	on transactional	cash	flows	and	translational	volatility	and	may	enter	into	forward	contracts,	options,	and	currency	swaps	to	reduce	fluctuations	in	long	or short	currency	positions.	Forward	contracts	and	options	are	generally	less	than	18	months	duration.	Currency	swap	agreements	may	be	established	in conjunction	with	the	term	of	underlying	debt	issuances.

The	total	notional	amount	of	foreign	currency	derivative	instruments	at	year-end	2013	was	$517	million,	representing	a	settlement	obligation	of	$1	million. The	total	notional	amount	of	foreign	currency	derivative	instruments	at	year-end	2012	was	$570	million,	representing	a	settlement	receivable	of	$1	million. All	of	these	derivatives	were	hedges	of	anticipated	transactions,	translational	exposure,	or	existing	assets	or	liabilities,	and	mature	within	18	months.

Assuming	an	unfavorable	10%	change	in	year-end	exchange	rates,	the	settlement	obligation	would	have	increased	by	approximately	$52	million	at	year- end	2013	and	the	settlement	receivable	would	have	decreased	by	approximately	$57	million	at	year-end	2012.	These	unfavorable	changes	would generally	have	been	offset	by	favorable	changes	in	the	values	of	the	underlying	exposures.

Venezuela	was	designated	as	a	highly	inflationary	economy	as	of	the	beginning	of	our	2010	fiscal	year.	Gains	and	losses	resulting	from	the	translation	of the	financial	statements	of	subsidiaries	operating	in	highly	inflationary	economies	are	recorded	in	earnings.	For	2012	and	2011,	the	impact	of	the translation	of	our

Venezuelan	subsidiary's	financial	statements	to	U.S.	dollars	was	not	significant.	In	February	2013,	the	Venezuelan	government	announced	a	46.5% devaluation	of	the	official	exchange	rate.	Additionally,	the	Transaction	System	for	Foreign	Currency	Denominated	Securities	(SITME),	used	between	May 2010	and	January	2013	to	translate	our	Venezuelan	subsidiary's	financial	statements	to	U.S.	dollars,	was	eliminated.	Accordingly,	in	February	2013	we began	using	the	official	exchange	rate	to	translate	our	Venezuelan	subsidiary's	financial	statements	to	U.S.	dollars.	During	2013	we	recognized	a	$15 million	charge	as	a	result	of	the	devaluation	of	the	official	Venezuelan	exchange	rate.	At	year-end	2013,	our	Venezuela	subsidiary's	Bolivar	Fuerte- denominated	net	monetary	asset	position,	which	would	be	subject	to	remeasurement	in	the	event	of	a	further	devaluation,	was	approximately	$63	million.

# Interest	rate	risk

Our	company	is	exposed	to	interest	rate	volatility	with	regard	to	future	issuances	of	fixed	rate	debt	and	existing	and	future	issuances	of	variable	rate	debt. Primary	exposures	include	movements	in	U.S.	Treasury	rates,	London	Interbank	Offered	Rates	(LIBOR),	and	commercial	paper	rates.	We	periodically use	interest	rate	swaps	and	forward	interest	rate	contracts	to	reduce	interest	rate	volatility	and	funding	costs	associated	with	certain	debt	issues,	and	to achieve	a	desired	proportion	of	variable	versus	fixed	rate	debt,	based	on	current	and	projected	market	conditions.

During	2013	and	2012,	we	entered	into	interest	rate	swaps	in	connection	with	certain	U.S.	Dollar	Notes.	Refer	to	disclosures	contained	in	Note	6	within Notes	to	Consolidated	Financial	Statements.	The	total	notional	amount	of	interest	rate	swaps	at	year-end	2013	was	$2.4	billion,	representing	a	settlement obligation	of	$59	million.	The	total	notional	amount	of	interest	rate	swaps	at	year-end	2012	was	$2.2	billion,	representing	a	settlement	receivable	of	$64 million.	Assuming	average	variable	rate	debt	levels	during	the	year,	a	one	percentage	point	increase	in	interest	rates	would	have	increased	interest expense	by	approximately	$35	million	at	year-end	2013	and	$24	million	at	year-end	2012.

# Price	risk

Our	company	is	exposed	to	price	fluctuations	primarily	as	a	result	of	anticipated	purchases	of	raw	and	packaging	materials,	fuel,	and	energy.	Primary exposures	include	corn,	wheat,	soybean	oil,	sugar,	cocoa,	cartonboard,	natural	gas,	and	diesel	fuel.	We	have	historically	used	the	combination	of	long- term	contracts	with	suppliers,	and	exchange-traded	futures	and	option	contracts	to	reduce	price	fluctuations	in	a	desired	percentage	of	forecasted	raw material	purchases	over	a	duration	of	generally	less	than	18	months.	During	2006,	we	entered	into	two	separate	10-year	over-the-counter	commodity swap	transactions	to	reduce	fluctuations	in	the	price	of	natural	gas	used	principally	in	our	manufacturing	processes.	The	notional	amount	of	the	swaps totaled	$63	million	as	of	December	28,	2013	and	equates	to	approximately	50%	of	our	North	America	manufacturing	needs	over	the	remaining	hedge period.	At	year-end	December	29,	2012	the	notional	amount	was	$84	million.

The	total	notional	amount	of	commodity	derivative	instruments	at	year-end	2013,	including	the	North	America	natural	gas	swaps,	was	$361	million, representing	a	settlement	obligation	of	approximately	$32	million.	The	total	notional	amount	of	commodity	derivative	instruments	at	year-end	2012, including	the	natural	gas	swaps,	was	$320	million,	representing	a	settlement	obligation	of	approximately	$36	million.	Assuming	a	10%	decrease	in	year- end	commodity	prices,	the	settlement	obligation	would	have	increased	by	approximately	$18	million	at	year-end	2013,	and	$9	million	at	year-end	2012, generally	offset	by	a	reduction	in	the	cost	of	the	underlying	commodity	purchases.

In	addition	to	the	commodity	derivative	instruments	discussed	above,	we	use	long-term	contracts	with	suppliers	to	manage	a	portion	of	the	price exposure	associated	with	future	purchases	of	certain	raw	materials,	including	rice,	sugar,	cartonboard,	and	corrugated	boxes.	It	should	be	noted	the exclusion	of	these	contracts	from	the	analysis	above	could	be	a	limitation	in	assessing	the	net	market	risk	of	our	company.

# Reciprocal	collateralization	agreements

In	some	instances	we	have	reciprocal	collateralization	agreements	with	counterparties	regarding	fair	value	positions	in	excess	of	certain	thresholds. These	agreements	call	for	the	posting	of	collateral	in	the	form	of	cash,	treasury	securities	or	letters	of	credit	if	a	net	liability	position	to	us	or	our counterparties	exceeds	a	certain	amount.	As	of	December	28,	2013,	we	had	posted	collateral	of	$9	million	in	the	form	of	cash,	which	was	reflected	as	an increase	in	accounts	receivable,	net	on	the	Consolidated	Balance	Sheet.	As	of	December	29,	2012,	we	had	received	$8	million	cash	collateral	from	a counterparty,	which	was	reflected	as	a	decrease	in	other	assets	on	the	Consolidated	Balance	Sheet.

# ITEM	8.	FINANCIAL	STATEMENTS	AND	SUPPLEMENTARY	DATA

# CONSOLIDATED	STATEMENT	OF	INCOME

| (millions,	except	per	share	data) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Net\tsales | $ 14,792 | $ 14,197 | $13,198 |
| Cost\tof\tgoods\tsold | 8,689 | 8,763 | 8,046 |
| Selling,\tgeneral\tand\tadministrative\texpense | 3,266 | 3,872 | 3,725 |
| Operating\tprofit | $2,837 | $1,562 | $1,427 |
| Interest\texpense | 235 | 261 | 233 |
| Other\tincome\t(expense),\tnet | 4 | 24 | (10) |
| Income\tbefore\tincome\ttaxes | 2,606 | 1,325 | 1,184 |
| Income\ttaxes | 792 | 363 | 320 |
| Earnings\t(loss)\tfrom\tjoint\tventures | (6) | (1) | — |
| Net\tincome | $1,808 | $961 | $864 |
| Net\tincome\t(loss)\tattributable\tto\tnoncontrolling\tinterests | 1 | — | (2) |
| Net\tincome\tattributable\tto\tKellogg\tCompany | $1,807 | $961 | $866 |
| Per\tshare\tamounts: |  |  |  |
| Basic | $4.98 | $2.68 | $2.39 |
| Diluted | $4.94 | $2.67 | $2.38 |
| Dividends\tper\tshare | $1.80 | $1.74 | $1.67 |

Refer	to	Notes	to	Consolidated	Financial	Statements.

# CONSOLIDATED	STATEMENT	OF	COMPREHENSIVE	INCOME

| (millions) | Pre-tax<br>amount | 2013<br>Tax<br>(expense)<br>benefit | After-tax<br>amount | Pre-tax<br>amount | 2012*<br>Tax<br>(expense)<br>benefit | After-tax<br>amount | Pre-tax<br>amount | 2011<br>Tax<br>(expense)<br>benefit | After-tax<br>amount |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tincome |  |  | $1,808 |  |  | $961 |  |  | \t$864 |
| Other\tcomprehensive\tincome: |  |  |  |  |  |  |  |  |  |
| Foreign\tcurrency\ttranslation\tadjustments | $(24) | $— | (24) | $64 | $— | 64 | $(105) | $(2) | (107) |
| Cash\tflow\thedges: |  |  |  |  |  |  |  |  |  |
| Unrealized\tgain\t(loss)\ton\tcash\tflow\thedges | 11 | (1) | 10 | (5) | 2 | (3) | (51) | 18 | (33) |
| Reclassification\tto\tnet\tincome | (6) | — | (6) | 14 | (5) | 9 | (2) | 1 | (1) |
| Postretirement\tand\tpostemployment\tbenefits: |  |  |  |  |  |  |  |  |  |
| Amounts\tarising\tduring\tthe\tperiod: |  |  |  |  |  |  |  |  |  |
| Net\texperience\tgain\t(loss) | 17 | (6) | 11 | (7) | 3 | (4) | (6) | 2 | (4) |
| Prior\tservice\tcredit\t(cost) | 9 | (2) | 7 | (26) | 9 | (17) | (3) | 1 | (2) |
| Reclassification\tto\tnet\tincome: |  |  |  |  |  |  |  |  |  |
| Net\texperience\tloss | 5 | (2) | 3 | 5 | (2) | 3 | 5 | (1) | 4 |
| Prior\tservice\tcost | 13 | (4) | 9 | 12 | (4) | 8 | 11 | (4) | 7 |
| Other\tcomprehensive\tincome\t(loss) | $25 | $(15) | $10 | $57 | $3 | $60 | $(151) | $15 | \t$(136) |
| Comprehensive\tincome |  |  | $1,818 |  |  | $1,021 |  |  | \t$728 |

* December	29,	2012	balances	have	been	revised	as	discussed	in	Note	2	to	the	financial	statements.

# CONSOLIDATED	BALANCE	SHEET

| (millions,	except	share	data) | 2013 | 2012 |
| :--- | :--- | :--- |
| Current\tassets |  |  |
| Cash\tand\tcash\tequivalents | $273 | $281 |
| Accounts\treceivable,\tnet | 1,424 | 1,454 |
| Inventories | 1,248 | 1,365 |
| Other\tcurrent\tassets | 322 | 280 |
| Total\tcurrent\tassets | 3,267 | 3,380 |
| Property,\tnet | 3,856 | 3,782 |
| Goodwill* | 5,051 | 5,038 |
| Other\tintangibles,\tnet | 2,367 | 2,359 |
| Other\tassets | 933 | 610 |
| Total\tassets | $15,474 | $15,169 |
| Current\tliabilities |  |  |
| Current\tmaturities\tof\tlong-term\tdebt | $289 | $755 |
| Notes\tpayable | 739 | 1,065 |
| Accounts\tpayable | 1,432 | 1,402 |
| Other\tcurrent\tliabilities | 1,375 | 1,301 |
| Total\tcurrent\tliabilities | 3,835 | 4,523 |
| Long-term\tdebt | 6,330 | 6,082 |
| Deferred\tincome\ttaxes | 928 | 523 |
| Pension\tliability | 277 | 886 |
| Other\tliabilities | 497 | 690 |
| Commitments\tand\tcontingencies |  |  |
| Equity |  |  |
| Common\tstock,\t$.25\tpar\tvalue,\t1,000,000,000\tshares\tauthorized |  |  |
| Issued:\t419,923,540\tshares\tin\t2013\tand\t419,718,217\tshares\tin\t2012 | 105 | 105 |
| Capital\tin\texcess\tof\tpar\tvalue | 626 | 573 |
| Retained\tearnings | 6,749 | 5,615 |
| Treasury\tstock,\tat\tcost |  |  |
| 57,121,760\tshares\tin\t2013\tand\t58,452,083\tshares\tin\t2012 | (2,999) | (2,943) |
| Accumulated\tother\tcomprehensive\tincome\t(loss)* | (936) | (946) |
| Total\tKellogg\tCompany\tequity | 3,545 | 2,404 |
| Noncontrolling\tinterests | 62 | 61 |
| Total\tequity | 3,607 | 2,465 |
| Total\tliabilities\tand\tequity | $15,474 | $15,169 |

# CONSOLIDATED	STATEMENT	OF	EQUITY

|  | Common | Common |  |  |  |  | Accumulated | Total |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | stock |  | \t\t Capital\tin |  | Treasury\tstock | Treasury\tstock | other | Kellogg | Non- |  | Total |
|  |  |  | excess\tof | Retained |  |  | comprehensive | Company | controlling | Total | comprehensive |
| (millions) | shares | amount | par\tvalue | earnings | shares | amount | income\t(loss) | equity | interests | equity | income\t(loss) |
| Balance,\tJanuary\t1,\t2011 | 419 | $105 | $495 | $5,071 | 54 | $(2,650) | $(870) | $2,151 | $(4) | $2,147 |  |
| Common\tstock\trepurchases |  |  |  |  | 15 | (793) |  | (793) |  | (793) |  |
| Acquisition\tof\tnoncontrolling\tinterest |  |  | (8) |  |  |  |  | (8) | 8 | — |  |
| Net\tincome\t(loss) |  |  |  | 866 |  |  |  | 866 | (2) | 864 | 864 |
| Dividends |  |  |  | (604) |  |  |  | (604) |  | (604) |  |
| Other\tcomprehensive\tincome |  |  |  |  |  |  | (136) | (136) |  | (136) | (136) |
| Stock\tcompensation |  |  | 26 |  |  |  |  | 26 |  | 26 |  |
| Stock\toptions\texercised\tand\tother |  |  | 9 | (28) | (7) | 313 |  | 294 |  | 294 |  |
| Balance,\tDecember\t31,\t2011 | 419 | $105 | $522 | $5,305 | 62 | $(3,130) | $(1,006) | $1,796 | $2 | $1,798 | $728 |
| Common\tstock\trepurchases |  |  |  |  | 1 | (63) |  | (63) |  | (63) |  |
| Acquisition\tof\tnoncontrolling\tinterest |  |  | — |  |  |  |  | — | 59 | 59 |  |
| Net\tincome\t(loss) |  |  |  | 961 |  |  |  | 961 | — | 961 | 961 |
| Dividends |  |  |  | (622) |  |  |  | (622) |  | (622) |  |
| Other\tcomprehensive\tincome |  |  |  |  |  |  | 60 | 60 |  | 60 | 60 |
| Stock\tcompensation |  |  | 36 |  |  |  |  | 36 |  | 36 |  |
| Stock\toptions\texercised\tand\tother | 1 |  | 15 | (29) | (5) | 250 |  | 236 |  | 236 |  |
| Balance,\tDecember\t29,\t2012* | 420 | $105 | $573 | $5,615 | 58 | $(2,943) | $(946) | $2,404 | $61 | $2,465 | $1,021 |
| Common\tstock\trepurchases |  |  |  |  | 9 | (544) |  | (544) |  | (544) |  |
| Net\tincome\t(loss) |  |  |  | 1,807 |  |  |  | 1,807 | 1 | \t 1,808 | 1,808 |
| Dividends |  |  |  | (653) |  |  |  | (653) |  | (653) |  |
| Other\tcomprehensive\tloss |  |  |  |  |  |  | 10 | 10 |  | 10 | 10 |
| Stock\tcompensation |  |  | 28 |  |  |  |  | 28 |  | 28 |  |
| Stock\toptions\texercised\tand\tother | — |  | 25 | (20) | (10) | 488 |  | 493 |  | 493 |  |
| Balance,\tDecember\t28,\t2013 | 420 | $105 | $626 | $6,749 | 57 | $(2,999) | $(936) | $3,545 | $62 | $3,607 | $1,818 |

# CONSOLIDATED	STATEMENT	OF	CASH	FLOWS

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Operating\tactivities |  |  |  |
| Net\tincome | $ 1,808 | $961 | $864 |
| Adjustments\tto\treconcile\tnet\tincome\tto\toperating\tcash\tflows: |  |  |  |
| Depreciation\tand\tamortization | 532 | 448 | 369 |
| Postretirement\tbenefit\tplan\t(income)\texpense | (1,078) | 419 | 684 |
| Deferred\tincome\ttaxes | 317 | (159) | (93) |
| Other | 25 | (21) | (115) |
| Postretirement\tbenefit\tplan\tcontributions | (48) | (51) | (192) |
| Changes\tin\toperating\tassets\tand\tliabilities,\tnet\tof\tacquisitions: |  |  |  |
| Trade\treceivables | (46) | (65) | (100) |
| Inventories | 116 | (80) | (125) |
| Accounts\tpayable | 30 | 208 | 40 |
| Accrued\tincome\ttaxes | 4 | 25 | 132 |
| Accrued\tinterest\texpense | (9) | (1) | (7) |
| Accrued\tand\tprepaid\tadvertising,\tpromotion\tand\ttrade\tallowances | (30) | 97 | 4 |
| Accrued\tsalaries\tand\twages | 61 | 15 | 89 |
| All\tother\tcurrent\tassets\tand\tliabilities | 125 | (38) | 45 |
| Net\tcash\tprovided\tby\t(used\tin)\toperating\tactivities | $ 1,807 | $ 1,758 | $1,595 |
| Investing\tactivities |  |  |  |
| Additions\tto\tproperties | $(637) | $(533) | $(594) |
| Acquisitions,\tnet\tof\tcash\tacquired | — | (2,668) | — |
| Other | (4) | (44) | 7 |
| Net\tcash\tprovided\tby\t(used\tin)\tinvesting\tactivities | $(641) | $(3,245) | $(587) |
| Financing\tactivities |  |  |  |
| Net\tincrease\t(reduction)\tof\tnotes\tpayable,\twith\tmaturities\tless\tthan\tor\tequal\tto\t90\tdays | $(524) | $779 | $189 |
| Issuances\tof\tnotes\tpayable,\twith\tmaturities\tgreater\tthan\t90\tdays | 640 | 724 | — |
| Reductions\tof\tnotes\tpayable,\twith\tmaturities\tgreater\tthan\t90\tdays | (442) | (707) | — |
| Issuances\tof\tlong-term\tdebt | 645 | 1,727 | 895 |
| Reductions\tof\tlong-term\tdebt | (762) | (750) | (945) |
| Net\tissuances\tof\tcommon\tstock | 475 | 229 | 291 |
| Common\tstock\trepurchases | (544) | (63) | (798) |
| Cash\tdividends | (653) | (622) | (604) |
| Other | 24 | — | 15 |
| Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | $(1,141) | $ 1,317 | $(957) |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tcash\tequivalents | (33) | (9) | (35) |
| Increase\t(decrease)\tin\tcash\tand\tcash\tequivalents | $(8) | $(179) | $16 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tperiod | 281 | 460 | 444 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tperiod | $273 | $281 | $460 |

# Notes	to	Consolidated	Financial	Statements

# NOTE	1

# ACCOUNTING	POLICIES

# Basis	of	presentation

The	consolidated	financial	statements	include	the	accounts	of	the	Kellogg	Company,	those	of	the	subsidiaries	that	it	controls	due	to	ownership	of	a majority	voting	interest	and	the	accounts	of	the	variable	interest	entities	(VIEs)	of	which	Kellogg	Company	is	the	primary	beneficiary	(Kellogg	or	the Company).	The	Company	continually	evaluates	its	involvement	with	VIEs	to	determine	whether	it	has	variable	interests	and	is	the	primary	beneficiary	of the	VIE.	When	these	criteria	are	met,	the	Company	is	required	to	consolidate	the	VIE.	The	Company's	share	of	earnings	or	losses	of	nonconsolidated affiliates	is	included	in	its	consolidated	operating	results	using	the	equity	method	of	accounting	when	it	is	able	to	exercise	significant	influence	over	the operating	and	financial	decisions	of	the	affiliate.	The	Company	uses	the	cost	method	of	accounting	if	it	is	not	able	to	exercise	significant	influence	over the	operating	and	financial	decisions	of	the	affiliate.	Intercompany	balances	and	transactions	are	eliminated.

The	Company's	fiscal	year	normally	ends	on	the	Saturday	closest	to	December	31	and	as	a	result,	a	53rd	week	is	added	approximately	every	sixth	year. The	Company's	2013,	2012	and	2011	fiscal	years	each	contained	52	weeks	and	ended	on	December	28,	2013,	December	29,	2012	and	December	31, 2011,	respectively.	The	next	fiscal	year	which	will	contain	a	53 	week	for	the	Company	will	be	2014,	ending	on	January	3,	2015. rd

# Use	of	estimates

The	preparation	of	financial	statements	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	of	America	requires	management to	make	estimates	and	assumptions	that	affect	the	reported	amounts	of	assets	and	liabilities,	the	disclosure	of	contingent	liabilities	at	the	date	of	the financial	statements	and	the	reported	amounts	of	revenues	and	expenses	during	the	periods	reported.	Actual	results	could	differ	from	those	estimates.

# Cash	and	cash	equivalents

Highly	liquid	investments	with	remaining	stated	maturities	of	three	months	or	less	when	purchased	are	considered	cash	equivalents	and	recorded	at	cost.

# Accounts	receivable

Accounts	receivable	consists	principally	of	trade	receivables,	which	are	recorded	at	the	invoiced	amount,	net	of	allowances	for	doubtful	accounts	and prompt	payment	discounts.	Trade	receivables	do	not	bear	interest.	The	allowance	for	doubtful	accounts	represents	management's	estimate	of	the amount	of	probable	credit	losses	in	existing	accounts	receivable,	as	determined	from	a	review	of	past	due	balances	and	other	specific	account	data. Account	balances	are	written	off	against	the	allowance	when	management	determines	the	receivable	is	uncollectible.	The	Company	does	not	have	off- balance	sheet	credit	exposure	related	to	its	customers.

# Inventories

Inventories	are	valued	at	the	lower	of	cost	or	market.	Cost	is	determined	on	an	average	cost	basis.

The	Company's	property	consists	mainly	of	plants	and	equipment	used	for	manufacturing	activities.	These	assets	are	recorded	at	cost	and	depreciated over	estimated	useful	lives	using	straight-line	methods	for	financial	reporting	and	accelerated	methods,	where	permitted,	for	tax	reporting.	Major	property categories	are	depreciated	over	various	periods	as	follows	(in	years):	manufacturing	machinery	and	equipment	5-30;	office	equipment	4-5;	computer equipment	and	capitalized	software	3-7;	building	components	15-25;	building	structures	50.	Cost	includes	interest	associated	with	significant	capital projects.	Plant	and	equipment	are	reviewed	for	impairment	when	conditions	indicate	that	the	carrying	value	may	not	be	recoverable.	Such	conditions include	an	extended	period	of	idleness	or	a	plan	of	disposal.	Assets	to	be	disposed	of	at	a	future	date	are	depreciated	over	the	remaining	period	of	use. Assets	to	be	sold	are	written	down	to	realizable	value	at	the	time	the	assets	are	being	actively	marketed	for	sale	and	a	sale	is	expected	to	occur	within one	year.	As	of	year-end	2013	and	2012,	the	carrying	value	of	assets	held	for	sale	was	insignificant.

Goodwill	and	indefinite-lived	intangibles	are	not	amortized,	but	are	tested	at	least	annually	for	impairment	of	value	and	whenever	events	or	changes	in circumstances	indicate	the	carrying	amount	of	the	asset	may	be	impaired.	An	intangible	asset	with	a	finite	life	is	amortized	on	a	straight-line	basis	over the	estimated	useful	life.

For	the	goodwill	impairment	test,	the	fair	value	of	the	reporting	units	are	estimated	based	on	market	multiples.	This	approach	employs	market	multiples based	on	earnings	before	interest,	taxes,	depreciation	and	amortization,	earnings	for	companies	that	are	comparable	to	the	Company's	reporting	units and	discounted	cash	flow.	The	assumptions	used	for	the	impairment	test	are	consistent	with	those	utilized	by	a	market	participant	performing	similar valuations	for	the	Company's	reporting	units.

Similarly,	impairment	testing	of	other	intangible	assets	requires	a	comparison	of	carrying	value	to	fair	value	of	that	particular	asset.	Fair	values	of	non- goodwill	intangible	assets	are	based	primarily	on	projections	of	future	cash	flows	to	be	generated	from	that	asset.	For	instance,	cash	flows	related	to	a particular	trademark	would	be	based	on	a	projected	royalty	stream	attributable	to	branded	product	sales,	discounted	at	rates	consistent	with	rates	used by	market	participants.

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

# Revenue	recognition

The	Company	recognizes	sales	upon	delivery	of	its	products	to	customers.	Revenue,	which	includes	shipping	and	handling	charges	billed	to	the customer,	is	reported	net	of	applicable	provisions	for	discounts,	returns,	allowances,	and	various	government	withholding	taxes.	Methodologies	for determining	these	provisions	are	dependent	on	local	customer	pricing	and	promotional	practices,	which	range	from	contractually	fixed	percentage	price reductions	to	reimbursement	based	on	actual	occurrence	or	performance.	Where	applicable,	future	reimbursements	are	estimated	based	on	a combination	of	historical	patterns	and	future	expectations	regarding	specific	in-market	product	performance.

# Advertising	and	promotion

The	Company	expenses	production	costs	of	advertising	the	first	time	the	advertising	takes	place.	Advertising	expense	is	classified	in	selling,	general	and administrative	(SGA)	expense.

The	Company	classifies	promotional	payments	to	its	customers,	the	cost	of	consumer	coupons,	and	other	cash	redemption	offers	in	net	sales.	The	cost of	promotional	package	inserts	is	recorded	in	cost	of	goods	sold	(COGS).	Other	types	of	consumer	promotional	expenditures	are	recorded	in	SGA expense.

# Research	and	development

The	costs	of	research	and	development	(R&D)	are	expensed	as	incurred	and	are	classified	in	SGA	expense.	R&D	includes	expenditures	for	new	product and	process	innovation,	as	well	as	significant	technological	improvements	to	existing	products	and	processes.	The	Company's	R&D	expenditures primarily	consist	of	internal	salaries,	wages,	consulting,	and	supplies	attributable	to	time	spent	on	R&D	activities.	Other	costs	include	depreciation	and maintenance	of	research	facilities	and	equipment,	including	assets	at	manufacturing	locations	that	are	temporarily	engaged	in	pilot	plant	activities.

# Stock-based	compensation

The	Company	uses	stock-based	compensation,	including	stock	options,	restricted	stock,	restricted	stock	units,	and	executive	performance	shares,	to provide	long-term	performance	incentives	for	its	global	workforce.

The	Company	classifies	pre-tax	stock	compensation	expense	principally	in	SGA	expense	within	its	corporate	operations.	Expense	attributable	to	awards of	equity	instruments	is	recorded	in	capital	in	excess	of	par	value	in	the	Consolidated	Balance	Sheet.

Certain	of	the	Company's	stock-based	compensation	plans	contain	provisions	that	accelerate	vesting	of	awards	upon	retirement,	disability,	or	death	of eligible	employees	and	directors.	A	stock-based	award	is	considered	vested	for	expense	attribution	purposes	when	the	employee's	retention	of	the	award is	no	longer	contingent	on	providing	subsequent	service.	Accordingly,	the	Company	recognizes	compensation	cost	immediately	for	awards	granted	to retirement-eligible	individuals	or	over	the	period	from	the	grant	date	to	the	date	retirement	eligibility	is	achieved,	if	less	than	the	stated	vesting	period.

The	Company	recognizes	compensation	cost	for	stock	option	awards	that	have	a	graded	vesting	schedule	on	a	straight-line	basis	over	the	requisite service	period	for	the	entire	award.

Corporate	income	tax	benefits	realized	upon	exercise	or	vesting	of	an	award	in	excess	of	that	previously	recognized	in	earnings	("windfall	tax	benefit")	is recorded	in	other	financing	activities	in	the	Consolidated	Statement	of	Cash	Flows.	Realized	windfall	tax	benefits	are	credited	to	capital	in	excess	of	par value	in	the	Consolidated	Balance	Sheet.	Realized	shortfall	tax	benefits	(amounts	which	are	less	than	that	previously	recognized	in	earnings)	are	first offset	against	the	cumulative	balance	of	windfall	tax	benefits,	if	any,	and	then	charged	directly	to	income	tax	expense.	The	Company	currently	has sufficient	cumulative	windfall	tax	benefits	to	absorb	arising	shortfalls,	such	that	earnings	were	not	affected	during	the	periods	presented.	Correspondingly, the	Company	includes	the	impact	of	pro	forma	deferred	tax	assets	(i.e.,	the	"as	if"	windfall	or	shortfall)	for	purposes	of	determining	assumed	proceeds	in the	treasury	stock	calculation	of	diluted	earnings	per	share.

The	Company	recognizes	uncertain	tax	positions	based	on	a	benefit	recognition	model.	Provided	that	the	tax	position	is	deemed	more	likely	than	not	of being	sustained,	the	Company	recognizes	the	largest	amount	of	tax	benefit	that	is	greater	than	50	percent	likely	of	being	ultimately	realized	upon settlement.	The	tax	position	is	derecognized	when	it	is	no	longer	more	likely	than	not	of	being	sustained.	The	Company	classifies	income	tax-related interest	and	penalties	as

interest	expense	and	SGA	expense,	respectively,	on	the	Consolidated	Statement	of	Income.	The	current	portion	of	the	Company's	unrecognized	tax benefits	is	presented	in	the	Consolidated	Balance	Sheet	in	other	current	assets	and	other	current	liabilities,	and	the	amounts	expected	to	be	settled	after one	year	are	recorded	in	other	assets	and	other	liabilities.

Income	taxes	are	provided	on	the	portion	of	foreign	earnings	that	is	expected	to	be	remitted	to	and	taxable	in	the	United	States.

# Derivative	Instruments

The	fair	value	of	derivative	instruments	is	recorded	in	other	current	assets,	other	assets,	other	current	liabilities	or	other	liabilities.	Gains	and	losses representing	either	hedge	ineffectiveness,	hedge	components	excluded	from	the	assessment	of	effectiveness,	or	hedges	of	translational	exposure	are recorded	in	the	Consolidated	Statement	of	Income	in	other	income	(expense),	net	(OIE).	In	the	Consolidated	Statement	of	Cash	Flows,	settlements	of cash	flow	and	fair	value	hedges	are	classified	as	an	operating	activity;	settlements	of	all	other	derivative	instruments,	including	instruments	for	which hedge	accounting	has	been	discontinued,	are	classified	consistent	with	the	nature	of	the	instrument.

Cash	flow	hedges.		Qualifying	derivatives	are	accounted	for	as	cash	flow	hedges	when	the	hedged	item	is	a	forecasted	transaction.	Gains	and	losses	on these	instruments	are	recorded	in	other	comprehensive	income	until	the	underlying	transaction	is	recorded	in	earnings.	When	the	hedged	item	is realized,	gains	or	losses	are	reclassified	from	accumulated	other	comprehensive	income	(loss)	(AOCI)	to	the	Consolidated	Statement	of	Income	on	the same	line	item	as	the	underlying	transaction.

Fair	value	hedges.		Qualifying	derivatives	are	accounted	for	as	fair	value	hedges	when	the	hedged	item	is	a	recognized	asset,	liability,	or	firm commitment.	Gains	and	losses	on	these	instruments	are	recorded	in	earnings,	offsetting	gains	and	losses	on	the	hedged	item.

Net	investment	hedges.		Qualifying	derivative	and	nonderivative	financial	instruments	are	accounted	for	as	net	investment	hedges	when	the	hedged	item is	a	nonfunctional	currency	investment	in	a	subsidiary.	Gains	and	losses	on	these	instruments	are	included	in	foreign	currency	translation	adjustments	in AOCI.

Derivatives	not	designated	for	hedge	accounting.		Gains	and	losses	on	these	instruments	are	recorded	in	the	Consolidated	Statement	of	Income,	on	the same	line	item	as	the	underlying	hedged	item.

Other	contracts.		The	Company	periodically	enters	into	foreign	currency	forward	contracts	and	options	to	reduce	volatility	in	the	translation	of	foreign currency	earnings	to	U.S.	dollars.	Gains	and	losses	on	these	instruments	are	recorded	in	OIE,	generally	reducing	the	exposure	to	translation	volatility during	a	full-year	period.

Foreign	currency	exchange	risk.		The	Company	is	exposed	to	fluctuations	in	foreign	currency	cash	flows	related	primarily	to	third-party	purchases, intercompany	transactions	and	when	applicable,	nonfunctional	currency	denominated	third-party	debt.	The	Company	is	also	exposed	to	fluctuations	in the	value	of	foreign	currency	investments	in	subsidiaries	and	cash	flows	related	to	repatriation	of	these	investments.	Additionally,	the	Company	is exposed	to	volatility	in	the	translation	of	foreign	currency	denominated	earnings	to	U.S.	dollars.	Management	assesses	foreign	currency	risk	based	on transactional	cash	flows	and	translational	volatility	and	may	enter	into	forward	contracts,	options,	and	currency	swaps	to	reduce	fluctuations	in	long	or short	currency	positions.	Forward	contracts	and	options	are	generally	less	than	18	months	duration.	Currency	swap	agreements	are	established	in conjunction	with	the	term	of	underlying	debt	issues.

For	foreign	currency	cash	flow	and	fair	value	hedges,	the	assessment	of	effectiveness	is	generally	based	on	changes	in	spot	rates.	Changes	in	time value	are	reported	in	OIE.

Interest	rate	risk.		The	Company	is	exposed	to	interest	rate	volatility	with	regard	to	future	issuances	of	fixed	rate	debt	and	existing	and	future	issuances	of variable	rate	debt.	The	Company	periodically	uses	interest	rate	swaps,	including	forward-starting	swaps,	to	reduce	interest	rate	volatility	and	funding costs	associated	with	certain	debt	issues,	and	to	achieve	a	desired	proportion	of	variable	versus	fixed	rate	debt,	based	on	current	and	projected	market conditions.

Fixed-to-variable	interest	rate	swaps	are	accounted	for	as	fair	value	hedges	and	the	assessment	of	effectiveness	is	based	on	changes	in	the	fair	value	of the	underlying	debt,	using	incremental	borrowing	rates	currently	available	on	loans	with	similar	terms	and	maturities.

Price	risk.		The	Company	is	exposed	to	price	fluctuations	primarily	as	a	result	of	anticipated	purchases	of	raw	and	packaging	materials,	fuel,	and	energy. The	Company	has	historically	used	the	combination	of	long-term	contracts	with	suppliers,	and	exchange-traded	futures	and	option	contracts	to	reduce price	fluctuations	in	a	desired	percentage	of	forecasted	raw	material	purchases	over	a	duration	of	generally	less	than	18	months.

Certain	commodity	contracts	are	accounted	for	as	cash	flow	hedges,	while	others	are	marked	to	market	through	earnings.	The	assessment	of effectiveness	for

exchange-traded	instruments	is	based	on	changes	in	futures	prices.	The	assessment	of	effectiveness	for	over-the-counter	transactions	is	based	on changes	in	designated	indices.

# Pension	benefits,	nonpension	postretirement	and	postemployment	benefits

The	Company	sponsors	a	number	of	U.S.	and	foreign	plans	to	provide	pension,	health	care,	and	other	welfare	benefits	to	retired	employees,	as	well	as salary	continuance,	severance,	and	long-term	disability	to	former	or	inactive	employees.

The	recognition	of	benefit	expense	is	based	on	actuarial	assumptions,	such	as	discount	rate,	long-term	rate	of	compensation	increase,	long-term	rate	of return	on	plan	assets	and	health	care	cost	trend	rate,	and	is	reported	in	COGS	and	SGA	expense	on	the	Consolidated	Statement	of	Income.

Postemployment	benefits.		The	Company	recognizes	an	obligation	for	postemployment	benefit	plans	that	vest	or	accumulate	with	service.	Obligations associated	with	the	Company's	postemployment	benefit	plans,	which	are	unfunded,	are	included	in	other	current	liabilities	and	other	liabilities	on	the Consolidated	Balance	Sheet.	All	gains	and	losses	are	recognized	over	the	average	remaining	service	period	of	active	plan	participants.

Postemployment	benefits	that	do	not	vest	or	accumulate	with	service	or	benefits	to	employees	in	excess	of	those	specified	in	the	respective	plans	are expensed	as	incurred.

Pension	and	nonpension	postretirement	benefits.		The	Company	recognizes	actuarial	gains	and	losses	in	operating	results	in	the	year	in	which	they occur.	Experience	gains	and	losses	are	recognized	annually	as	of	the	measurement	date,	which	is	the	Company's	fiscal	year-end,	or	when remeasurement	is	otherwise	required	under	generally	accepted	accounting	principles.	The	Company	uses	the	fair	value	of	plan	assets	to	calculate	the expected	return	on	plan	assets.

Reportable	segments	are	allocated	service	cost	and	amortization	of	prior	service	cost.	All	other	components	of	pension	and	postretirement	benefit expense,	including	interest	cost,	expected	return	on	assets,	and	experience	gains	and	losses	are	considered	unallocated	corporate	costs	and	are	not included	in	the	measure	of	reportable	segment	operating	results.	See	Note	16	for	more	information	on	reportable	segments.

Management	reviews	the	Company's	expected	long-term	rates	of	return	annually;	however,	the	benefit	trust	investment	performance	for	one	particular year	does	not,	by	itself,	significantly	influence	this	evaluation.	The	expected	rates	of	return	are	generally	not	revised	provided	these	rates	fall	between	the 25th	and	75th	percentile	of	expected	long-term	returns,	as	determined	by	the	Company's	modeling	process.

For	defined	benefit	pension	and	postretirement	plans,	the	Company	records	the	net	overfunded	or	underfunded	position	as	a	pension	asset	or	pension liability	on	the	Consolidated	Balance	Sheet.

# New	accounting	standards

Reporting	of	amounts	reclassified	out	of	Accumulated	Other	Comprehensive	Income. 		In	February	2013,	the	Financial	Accounting	Standards	Board (FASB)	issued	an	updated	accounting	standard	requiring	entities	to	present	information	about	reclassifications	out	of	accumulated	other	comprehensive income	in	a	single	note	or	on	the	face	of	the	financial	statements.	The	Company	adopted	the	updated	standard	in	2013.

Indefinite-lived	intangible	asset	impairment	testing.		In	July	2012,	the	FASB	issued	an	updated	accounting	standard	to	allow	entities	the	option	to	first assess	qualitative	factors	to	determine	whether	it	is	necessary	to	perform	the	quantitative	indefinite-lived	intangible	asset	impairment	test.	Under	the updated	standard	an	entity	would	not	be	required	to	perform	the	quantitative	impairment	test	unless	the	entity	determines,	based	on	a	qualitative assessment,	that	it	is	more	likely	than	not	that	an	indefinite-lived	intangible	asset	is	impaired.	The	Company	adopted	the	revised	guidance	in	2013,	with no	impact	to	the	Consolidated	Financial	Statements.

Presentation	of	Comprehensive	Income.		In	June	2011,	the	Financial	Accounting	Standards	Board	(FASB)	issued	a	new	accounting	standard	requiring most	entities	to	present	items	of	net	income	and	other	comprehensive	income	either	in	one	continuous	statement	—	referred	to	as	the	statement	of comprehensive	income	—	or	in	two	separate,	but	consecutive,	statements	of	net	income	and	comprehensive	income.	The	update	does	not	change	the items	that	must	be	reported	in	other	comprehensive	income	or	when	an	item	of	other	comprehensive	income	must	be	reclassified	to	net	income.	The Company	adopted	this	new	standard	in	2012.

Goodwill	impairment	testing.		In	September	2011,	the	FASB	issued	an	updated	accounting	standard	to	allow	entities	the	option	to	first	assess	qualitative factors	to	determine	whether	it	is	necessary	to	perform	the	two-step	quantitative	goodwill	impairment	test.	Under	the	updated	standard	an	entity	would not	be	required	to	calculate	the	fair	value	of	a	reporting	unit	unless	the	entity	determines,	based	on	a	qualitative	assessment,	that	it	is	more	likely	than	not that	its	fair	value	is	less	than	its	carrying	amount.	The	Company	adopted	the	revised	guidance	in	2012,	with	no	impact	to	the	Consolidated	Financial Statements.

Multiemployer	pension	and	postretirement	benefit	plans.		In	September	2011,	the	FASB	issued	an	updated	accounting	standard	to	provide	more information	about	an	employer's	financial	obligations	to	multiemployer	pension	and	postretirement	benefit	plans.	Previously,	employers	were	only required	to	disclose	their	total	contributions	to	all	multiemployer	plans	in	which	they	participate	and	certain	year-to-year	changes	in	circumstances.	The enhanced	disclosures	required	under	the	revised	guidance	provide	additional	information	regarding	the	overall	financial	health	of	the	plan	and	the	level	of the	employer's	participation	in	the	plan.	The	Company	adopted	the	revised	guidance	in	2012.	Refer	to	Note	10	for	disclosures	regarding	multiemployer plans	in	which	the	Company	participates.

# Pringles ®	acquisition

billion,	or	$2,683	billion	net	of	cash	and	cash	equivalents,	subject	to	certain	purchase	price	adjustments,	which	resulted	in	a	reduction	of	the	purchase price	by	approximately	$15	million	to	$2.668	billion	net	of	cash	and	cash	equivalents.	The	acquisition	was	accounted	for	under	the	purchase	method	and was	financed	through	a	combination	of	cash	on	hand,	and	short-term	and	long-term	debt.	The	assets	and	liabilities	of	Pringles	are	included	in	the Consolidated	Balance	Sheet	as	of	December	28,	2013	and	December	29,	2012	and	the	results	of	the	Pringles	operations	subsequent	to	the	acquisition date	are	included	in	the	Consolidated	Statement	of	Income. On	May	31,	2012,	the	Company	completed	its	acquisition	of	the	 Pringles ®	business	(Pringles)	from	The	Procter	&	Gamble	Company	(P&G)	for	$2.695

The	purchase	price	allocation,	including	the	allocation	to	reportable	segments,	was	completed	during	the	quarter	ended	June	29,	2013	when	the valuations	of	fixed	assets	and	intangible	assets	were	finalized	resulting	in	a	reallocation	from	that	reported	as	of	December	29,	2012	of	goodwill	between the	Company's	reportable	segments.	Prior	year	amounts	were	revised	to	reflect	these	changes	as	of	the	date	of	the	acquisition,	resulting	in	reductions	to goodwill	and	the	foreign	currency	translation	component	of	other	comprehensive	income	(OCI)	of	$15	million	as	of	December	29,	2012.

During	the	quarter	ended	September	28,	2013,	the	Company	recorded	an	immaterial	correction	of	an	error	to	the	purchase	price	allocation	for	Pringles that	was	outside	of	the	measurement	period,	which	resulted	in	an	increase	to	other	non-current	liabilities,	goodwill	and	non-current	deferred	tax	assets	of $15	million,	$13	million	and	$2	million,	respectively.	The	goodwill	of	$13	million	was	allocated	to	our	operating	segments	as	follows:	Europe,	$10	million and	Asia	Pacific,	$3	million.

The	final	acquired	assets	and	assumed	liabilities	include	the	following:

|  | May	31, |
| :--- | :--- |
| (millions) | 2012 |
| Accounts\treceivable,\tnet | $128 |
| Inventories | 103 |
| Other\tprepaid\tassets | 18 |
| Property | 317 |
| Goodwill | 1,319 |
| Other\tintangibles: |  |
| Definite-lived\tintangible\tassets | 79 |
| Brand | 776 |
| Other\tassets: |  |
| Deferred\tincome\ttaxes | 23 |
| Other | 16 |
| Notes\tpayable | (3) |
| Accounts\tpayable | (9) |
| Other\tcurrent\tliabilities | (24) |
| Other\tliabilities | (75) |

Goodwill	of	$645	million	is	expected	to	be	deductible	for	statutory	tax	purposes.

Goodwill	is	calculated	as	the	excess	of	the	purchase	price	over	the	fair	value	of	the	net	assets	recognized.	The	goodwill	recorded	as	part	of	the acquisition	primarily	reflects	the	value	of	providing	an	established	platform	to	leverage	the	Company's	existing	brands	in	the	international	snacks category,	synergies	expected	to	arise	from	the	combined	brand	portfolios,	as	well	as	any	intangible	assets	that	do	not	qualify	for	separate	recognition.

For	the	year	ended	December	28,	2013,	the	Company	incurred	integration-related	costs	as	part	of	the	Pringles	acquisition	as	follows:	$46	million recorded	in	SGA,	$15	million	recorded	in	COGS	and	$5	million	in	net	sales.	Transaction	fees	and	other	integration-related	costs	incurred	through December	29,	2012	were	as	follows:	$73	million	recorded	in	SGA,	$3	million	recorded	in	COGS	and	$5	million	in	fees	for	a	bridge	financing	facility	which are	recorded	in	OIE.

For	the	year	ended	December	28,	2013,	Pringles	contributed	net	revenues	of	$1,658	million	and	net	earnings	of	$132	million,	including	the	integration- related	costs	discussed	above.	Through	December	29,	2012,	Pringles	contributed	net	revenues	of	$887	million	and	net	earnings	of	$31	million,	including the	transaction	fees	and	other	integration-related	costs	discussed	above.	The	unaudited	pro	forma	combined	historical	results,	as	if	Pringles	had	been acquired	at	the	beginning	of	fiscal	2011	are	estimated	to	be:

| (millions,	except	per	share	data) | 2012 | 2011 |
| :--- | :--- | :--- |
| Net\tsales | $14,862 | $14,722 |
| Net\tincome | $1,001 | $954 |
| Net\tincome\t(loss)\tattributable\tto\tnoncontrolling\tinterests | — | (2) |
| Net\tincome\tattributable\tto\tKellogg\tCompany | $1,001 | $956 |
| Net\tearnings\tper\tshare | $2.78 | $2.63 |

The	pro	forma	results	include	transaction	and	bridge	financing	costs,	interest	expense	on	the	debt	issued	to	finance	the	acquisition,	amortization	of	the definite	lived	intangible	assets,	and	depreciation	based	on	estimated	fair	value	and	useful	lives.	The	pro	forma	results	are	not	necessarily	indicative	of what	actually	would	have	occurred	if	the	acquisition	had	been	completed	as	of	the	beginning	of	2011,	nor	are	they	necessarily	indicative	of	future consolidated	results.

In	December	2012,	the	Company	also	entered	into	a	series	of	agreements	with	a	third	party	including	a	loan	of	$44	million	which	is	convertible	into approximately	85%	of	the	equity	of	the	entity.	Due	to	this	convertible	loan	and	other	agreements,	the	Company	determined	that	the	entity	is	a	VIE	and	the Company	is	the	primary	beneficiary.	Accordingly,	the	Company	has	consolidated	the	financial	statements	of	the	VIE	in	2012	and	treated	the consolidation	as	a	business	acquisition	within	the	U.S.	Snacks	reportable	segment,	which	resulted	in	the	following	as	of	December	29,	2012:	current assets,	$14	million;	property,	$36	million;	amortizable	intangibles	and	other	non-current	assets,	$26	million;	goodwill,	$76	million;	current	liabilities,	$2 million;	notes	payable	and	long-term	debt,	$39	million;	non-current	deferred	tax	liabilities,	$8	million;	and	noncontrolling	interests,	$59	million.	During 2013,	the	allocation	was	completed	resulting	in	increases	to	goodwill	and	non-current	deferred	tax	liabilities	of	$12	million.

This	entity	had	property	and	equipment	with	a	carrying	value	of	$35	million	and	notes	payable	and	current	and	long-term	debt	of	$30	million	as	of December	28,	2013.	The	liabilities	recognized	as	a	result	of	consolidating	this	entity	do	not	represent	additional	claims	on	the	Company's	general	assets. Conversely,	general	creditors	would	not	have	claims	against	the	assets	of	the	VIE.

Changes	in	the	carrying	amount	of	goodwill	are	presented	in	the	following	table.

# Changes	in	the	carrying	amount	of	goodwill

|  | U.S. |  |  | North |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Morning | U.S. | U.S. | America |  | Latin | Asia | Consoli- |
| (millions) | Foods | Snacks | Specialty | Other | Europe | America | Pacific | dated |
| December\t31,\t2011 | $80 | $ 3,257 | $— | $202 | $57 | $— | $27 | $3,623 |
| Pringles\tgoodwill | 53 | 434 | 82 | 77 | 356 | 88 | 216 | 1,306 |
| Other\tgoodwill | — | 76 | — | — | — | — | — | 76 |
| Currency\ttranslation\tadjustment | — | — | — | 1 | 25 | 4 | 3 | 33 |
| December\t29,\t2012 | $133 | $ 3,767 | $82 | $280 | $438 | $92 | $246 | $5,038 |
| Pringles\tgoodwill | — | — | — | — | 10 | — | 3 | 13 |
| Other\tgoodwill | — | 12 | — | — | — | — | — | 12 |
| Currency\ttranslation\tadjustment | — | — | — | (2) | 4 | (3) | (11) | (12) |
| December\t28,\t2013 | $133 | $ 3,779 | $82 | $278 | $452 | $89 | $238 | $5,051 |

# Intangible	assets	subject	to	amortization

|  | U.S. |  |  | North |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (millions) | Morning | U.S. | U.S. | America |  | Latin | Asia | Consoli- |
| Gross\tcarrying\tamount | Foods | Snacks | Specialty | Other | Europe | America | Pacific | dated |
| December\t31,\t2011 | $28 | $18 | $— | $5 | $2 | $7 | $— | $60 |
| Pringles\tcustomer\trelationships | — | 30 | — | — | 39 | — | 10 | 79 |
| Other\tintangible\tassets | — | 22 | — | — | — | — | — | 22 |
| Currency\ttranslation\tadjustment | — | — | — | — | 2 | — | — | 2 |
| December\t29,\t2012 | $28 | $70 | $— | $5 | $43 | $7 | $10 | $163 |
| Currency\ttranslation\tadjustment | — | — | — | — | 1 | — | — | 1 |
| December\t28,\t2013 | $28 | $70 | $— | $5 | $44 | $7 | $10 | $164 |
| Accumulated\tAmortization |  |  |  |  |  |  |  |  |
| December\t31,\t2011 | $28 | $9 | $— | $3 | $2 | $7 | $— | $49 |
| Amortization | — | 3 | — | — | 1 | — | — | 4 |
| December\t29,\t2012 | $28 | $12 | $— | $3 | $3 | $7 | $— | $53 |
| Amortization | — | 4 | — | 1 | 3 | — | 1 | 9 |
| December\t28,\t2013 | $28 | $16 | $— | $4 | $6 | $7 | $1 | $62 |
| Intangible\tassets\tsubject\tto\tamortization,\tnet |  |  |  |  |  |  |  |  |
| December\t31,\t2011 | $— | $9 | $— | $2 | $— | $— | $— | $11 |
| Pringles\tcustomer\trelationships | — | 30 | — | — | 39 | — | 10 | 79 |
| Other\tintangible\tassets | — | 22 | — | — | — | — | — | 22 |
| Amortization | — | (3) | — | — | (1) | — | — | (4) |
| Currency\ttranslation\tadjustment | — | — | — | — | 2 | — | — | 2 |
| December\t29,\t2012 | $— | $58 | $— | $2 | $40 | $— | $10 | $110 |
| Amortization\t(a) | — | (4) | — | (1) | (3) | — | (1) | (9) |
| Currency\ttranslation\tadjustment | — | — | — | — | 1 | — | — | 1 |
| December\t28,\t2013 | $— | $54 | $— | $1 | $38 | $— | $9 | $102 |

(a) The	currently	estimated	aggregate	amortization	expense	for	each	of	the	next	five	succeeding	fiscal	periods	is	approximately	$9	million	per	year.

# Intangible	assets	not	subject	to	amortization

|  | U.S. |  |  | North |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Morning | U.S. | U.S. | America |  | Latin | Asia | Consoli- |
| (millions) | Foods | Snacks | Specialty | Other | Europe | America | Pacific | dated |
| December\t31,\t2011 | $63 | $ 1,285 | $— | $95 | $— | $— | $— | $1,443 |
| Pringles\tbrand | — | 340 | — | — | 436 | — | — | 776 |
| Currency\ttranslation\tadjustment | — | — | — | — | 30 | — | — | 30 |
| December\t29,\t2012 | $63 | $ 1,625 | $— | $95 | $466 | $— | $— | $2,249 |
| Currency\ttranslation\tadjustment | — | — | — | — | 16 | — | — | 16 |
| December\t28,\t2013 | $63 | $ 1,625 | $— | $95 | $482 | $— | $— | $2,265 |

The	Company	views	its	continued	spending	on	restructuring	and	cost	reduction	activities	as	part	of	its	ongoing	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	five- year	period	of	completion.	Upon	completion	(or	as	each	major	stage	is	completed	in	the	case	of	multi-year	programs),	the	project	begins	to	deliver	cash savings	and/or	reduced	depreciation.

Prior	to	the	announcement	of	Project	K	in	2013,	the	Company	commenced	various	COGS	and	SGA	cost	reduction	initiatives.	The	COGS	initiatives	are intended	to	optimize	the	Company's	global	manufacturing	network,	reduce	waste,	and	develop	best	practices	on	a	global	basis.	The	SGA	initiatives	focus on	improvements	in	the	efficiency	and	effectiveness	of	various	global	support	functions.

During	2013,	the	Company	recorded	$42	million	of	charges	associated	with	cost	reduction	initiatives.	The	charges	were	comprised	of	$21	million	being recorded	in	COGS	and	$21	million	recorded	in	SGA	expense.	At	December	28,	2013,	exit	cost	reserves	were	$1	million,	related	to	severance	payments which	will	be	made	in	2014.

The	Company	recorded	$56	million	of	costs	in	2012	associated	with	cost	reduction	initiatives.	The	charges	were	comprised	of	$43	million	being	recorded in	COGS	and	$13	million	recorded	in	SGA	expense.	At	December	29,	2012,	exit	cost	reserves	were	$1	million,	related	to	severance	payments.

During	2011,	the	Company	recorded	$61	million	of	costs	associated	with	cost	reduction	initiatives.	The	charges	were	comprised	of	$36	million	being recorded	in	COGS	and	$25	million	recorded	in	SGA	expense.	Exit	cost	reserves	at	December	31,	2011	were	$1	million	related	to	severance	payments.

In	2013,	the	Company	announced	Project	K,	a	four-year	efficiency	and	effectiveness	program.	The	program	is	expected	to	generate	a	significant	amount of	savings,	once	all	phases	are	approved	and	implemented,	that	will	be	invested	in	key	strategic	areas	of	focus	for	the	business.	The	Company	expects that	this	investment	will	drive	future	growth	in	revenues,	gross	margin,	operating	profit,	and	cash	flow.

The	focus	of	the	program	will	be	to	strengthen	existing	businesses	in	core	markets,	increase	growth	in	developing	and	emerging	markets,	and	drive	an increased	level	of	value-added	innovation.	The	program	is	expected	to	provide	a	number	of	benefits,	including

an	optimized	supply	chain	infrastructure,	the	implementation	of	global	business	services,	and	a	new	global	focus	on	categories.

The	Company	currently	anticipates	that	the	program	will	result	in	total	pre-tax	charges,	once	all	phases	are	approved	and	implemented,	of	$1.2	to	$1.4 billion,	with	after-tax	cash	costs,	including	incremental	capital	expenditures,	estimated	to	be	$900	million	to	$1.1	billion.	The	Company	currently	expects the	charges	will	consist	of	asset-related	costs	totaling	$450	to	$500	million	which	will	consist	primarily	of	asset	impairments,	accelerated	depreciation	and other	exit-related	costs;	employee-related	costs	totaling	$425	to	$475	million	which	will	include	severance,	pension	and	other	termination	benefits;	and other	costs	totaling	$325	to	$425	million	which	will	consist	primarily	of	charges	related	to	the	design	and	implementation	of	global	business	capabilities.	A significant	portion	of	other	costs	are	the	result	of	the	implementation	of	global	business	service	centers	which	are	intended	to	simplify	and	standardize business	support	processes.

The	Company	currently	expects	that	total	pre-tax	charges	will	impact	reportable	segments	as	follows:	U.S.	Morning	Foods	(approximately	17%),	U.S. Snacks	(approximately	7%),	U.S.	Specialty	(approximately	1%),	North	America	Other	(approximately	3%),	Europe	(approximately	7%),	Latin	America (approximately	2%),	Asia-Pacific	(approximately	6%),	and	Corporate	(approximately	57%).	A	majority	of	the	costs	impacting	Corporate	relate	to	additional initiatives	to	be	executed	after	2014	that	are	currently	not	fully	defined.	As	the	development	of	these	initiatives	is	completed,	the	Company	will	update	its estimated	costs	by	reportable	segment	as	needed.

In	2013,	the	Company	recognized	charges	of	$208	million	that	have	been	attributed	to	the	program.	The	charges	comprised	of	$174	million	being recorded	in	COGS	and	$34	million	recorded	in	SGA.	The	tables	below	outline	the	details	of	these	charges:

Employee	related	costs	consisted	of	severance	and	pension	charges.	Asset	impairments	were	recorded	for	fixed	assets	that	were	determined	to	be impaired	and	were	written	down	to	their	estimated	fair	value.	Asset	related	costs	relate	primarily	to	accelerated	depreciation.	See	Note	12	for	more information.	Other	costs	incurred	consist	primarily	of	third-party	incremental	costs	related	to	the	development	and	implementation	of	global	business capabilities.

|  | Employee |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Related | Asset | Asset\tRelated | Other |  |
|  | Costs | Impairment | Costs | Costs | Total |
| Liability\tas\tof\tDecember\t29,\t2012 | $— | $— | $— | $— | $— |
| 2013\trestructuring\tcharges | 107 | 66 | 6 | 29 | 208 |
| Cash\tpayments | (7) | — | (1) | (17) | (25) |
| Non-cash\tcharges\tand\tother\t(a) | (35) | (66) | (5) | — | (106) |
| Liability\tas\tof\tDecember\t28,\t2013 | $65 | $— | $— | 12 | $77 |

NOTE	4 EQUITY

# Earnings	per	share

Basic	earnings	per	share	is	determined	by	dividing	net	income	attributable	to	Kellogg	Company	by	the	weighted	average	number	of	common	shares outstanding	during	the	period.	Diluted	earnings	per	share	is	similarly	determined,	except	that	the	denominator	is	increased	to	include	the	number	of additional	common	shares	that	would	have	been	outstanding	if	all	dilutive	potential	common	shares	had	been	issued.	Dilutive	potential	common	shares consist	principally	of	employee	stock	options	issued	by	the	Company,	and	to	a	lesser	extent,	certain	contingently	issuable	performance	shares.	Basic earnings	per	share	is	reconciled	to	diluted	earnings	per	share	in	the	following	table:

|  | attributable | Average | Earnings |
| :--- | :--- | :--- | :--- |
|  | to\tKellogg | shares | per |
| (millions,\texcept\tper\tshare\tdata) | Company | outstanding | share |
| 2013 |  |  |  |
| Basic | $1,807 | 363 | $4.98 |
| Dilutive\tpotential\tcommon\tshares |  | 2 | (0.04) |
| Diluted | $1,807 | 365 | $4.94 |
| 2012 |  |  |  |
| Basic | $961 | 358 | $2.68 |
| Dilutive\tpotential\tcommon\tshares |  | 2 | (0.01) |
| Diluted | $961 | 360 | $2.67 |
| 2011 |  |  |  |
| Basic | $866 | 362 | $2.39 |
| Dilutive\tpotential\tcommon\tshares |  | 2 | (0.01) |
| Diluted | $866 | 364 | $2.38 |

The	total	number	of	anti-dilutive	potential	common	shares	excluded	from	the	reconciliation	for	each	period	was	(in	millions):	2013-5.0;	2012-9.9; 2011-4.2.

# Stock	transactions

The	Company	issues	shares	to	employees	and	directors	under	various	equity-based	compensation	and	stock	purchase	programs,	as	further	discussed	in Note	7.	The	number	of	shares	issued	during	the	periods	presented	was	(in	millions):	2013–10;	2012–5;	2011–7.	The	Company	issued	shares	totaling less	than	one	million	in	each	of	the	years	presented	under	Kellogg	Direct 	,	a	direct	stock	purchase	and	dividend	reinvestment	plan	for U.S.	shareholders. TM

In	December	2012,	the	Company's	board	of	directors	approved	a	share	repurchase	program	authorizing	the	repurchase	of	up	to	$300	million	during 2013.	In	April	2013,	the	Company's	board	of	directors	approved	an	authorization	to	repurchase	up	to	$1	billion	in	shares	through	April	2014.	In	February 2014,	the	Company's	board	of	directors	approved	a	new	authorization	to	repurchase	up	to	$1.5	billion	in	shares	through	December	2015.	This authorization	supersedes	the	April	2013	authorization	and	is	intended	to	allow	the	Company	to	repurchase	shares	for	general	corporate	purposes	and	to offset	issuances	for	employee	benefit	programs.	In	May	2013,	the	Company	entered	into	an	Accelerated	Share	Repurchase	(ASR)	Agreement	with	a financial	institution	counterparty	and	paid	$355	million	for	the	repurchase	of	shares	during	the	term	of	the	Agreement	which	extended	through	August 2013.	During	the	second	quarter	of	2013,	4.9	million	shares	were	initially	delivered	to	the	Company	and	accounted	for	as	a	reduction	to	Kellogg	Company equity.	The	transaction	was	completed	during	the	third	quarter,	at	which	time	the	Company	received	0.6	million	additional	shares.	The	total	number	of shares	delivered	upon	settlement	of	the	ASR	was	based	upon	the	volume	weighted	average	price	of	the	Company's	stock	over	the	term	of	the agreement.

During	2013,	the	Company	repurchased	9	million	shares	of	common	stock	for	a	total	of	$544	million.	During	2012,	the	Company	repurchased	1	million shares	of	common	stock	for	a	total	of	$63	million.	During	2011,	the	Company	repurchased	15	million	shares	of	common	stock	at	a	total	cost	of	$793 million.

# Comprehensive	income

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

# Reclassifications	out	of	Accumulated	Other	Comprehensive	Income	(AOCI)	for	the	year	ended	December	28,	2013	consisted	of	the	following:

Accumulated	other	comprehensive	income	(loss)	as	of	December	28,	2013	and	December	29,	2012	consisted	of	the	following:

| (millions) | December	28,<br>2013 | December	29,<br>2012 |
| :--- | :--- | :--- |
| Foreign\tcurrency\ttranslation\tadjustments | $(856) | $(832) |
| Cash\tflow\thedges\t—\tunrealized\tnet\tgain\t(loss) | 1 | (3) |
| Postretirement\tand\tpostemployment\tbenefits: |  |  |
| Net\texperience\tloss | (15) | (29) |
| Prior\tservice\tcost | (66) | (82) |
| Total\taccumulated\tother\tcomprehensive\tincome\t(loss) | $(936) | $(946) |

# LEASES	AND	OTHER	COMMITMENTS

The	Company's	leases	are	generally	for	equipment	and	warehouse	space.	Rent	expense	on	all	operating	leases	was	(in	millions):	2013-$174;	2012- $174;	2011-$166.	During	2013,	the	Company	entered	into	less	than	$1	million	in	capital	lease	agreements.	In	2012,	the	Company	entered	into approximately	$4	million	in	capital	lease	agreements	to	finance	the	purchase	of	equipment.	The	Company	did	not	enter	into	any	material	capital	lease agreements	during	2011.

At	December	28,	2013,	future	minimum	annual	lease	commitments	under	non-cancelable	operating	and	capital	leases	were	as	follows:

|  | Operating | Capital |
| :--- | :--- | :--- |
| (millions) | leases | leases |
| 2014 | $172 | $1 |
| 2015 | 145 | 1 |
| 2016 | 119 | 1 |
| 2017 | 85 | 1 |
| 2018 | 71 | 1 |
| 2019\tand\tbeyond | 81 | 2 |
| Total\tminimum\tpayments | $673 | $7 |
| Amount\trepresenting\tinterest |  | (1) |
| Obligations\tunder\tcapital\tleases |  | 6 |
| Obligations\tdue\twithin\tone\tyear |  | (1) |
| Long-term\tobligations\tunder\tcapital\tleases |  | $5 |

The	Company	has	provided	various	standard	indemnifications	in	agreements	to	sell	and	purchase	business	assets	and	lease	facilities	over	the	past several	years,	related	primarily	to	pre-existing	tax,	environmental,	and	employee	benefit	obligations.	Certain	of	these	indemnifications	are	limited	by agreement	in	either	amount	and/or	term	and	others	are	unlimited.	The	Company	has	also	provided	various	"hold	harmless"	provisions	within	certain service	type	agreements.	Because	the	Company	is	not	currently	aware	of	any	actual	exposures	associated	with	these	indemnifications,	management	is unable	to	estimate	the	maximum	potential	future	payments	to	be	made.	At	December	28,	2013,	the	Company	had	not	recorded	any	liability	related	to these	indemnifications.

The	following	table	presents	the	components	of	notes	payable	at	year	end	December	28,	2013	and	December	29,	2012:

|  | Principal | Effective | Principal | Effective |
| :--- | :--- | :--- | :--- | :--- |
|  | amount | interest\trate | amount | interest\trate |
| U.S.\tcommercial\tpaper | $249 | 0.22% | $853 | 0.26% |
| Europe\tcommercial\tpaper | 437 | 0.23 | 159 | 0.18 |
| Bank\tborrowings | 53 |  | 53 |  |
| Total | $739 |  | $1,065 |  |

The	following	table	presents	the	components	of	long-term	debt	at	year	end	December	28,	2013	and	December	29,	2012:

| (millions) | 2013 | 2012 |
| :--- | :--- | :--- |
| (a)\t7.45%\tU.S.\tDollar\tDebentures\tdue\t2031 | $1,089 | $1,091 |
| (b)\t4.0%\tU.S.\tDollar\tNotes\tdue\t2020 | 974 | 993 |
| (c)\t4.45%\tU.S.\tDollar\tNotes\tdue\t2016 | 767 | 772 |
| (d)\t3.125%\tU.S.\tDollar\tDebentures\tdue\t2022 | 682 | 694 |
| (e)\t1.875%\tU.S.\tDollar\tNotes\tdue\t2016 | 505 | 509 |
| (f)\t4.15%\tU.S.\tDollar\tNotes\tdue\t2019 | 488 | 513 |
| (g)\t3.25%\tU.S.\tDollar\tNotes\tdue\t2018 | 411 | 420 |
| (h)\t2.75%\tU.S.\tDollar\tNotes\tdue\t2023 | 398 | — |
| (i)\t1.75%\tU.S.\tDollar\tNotes\tdue\t2017 | 395 | 398 |
| (j)\t1.125%\tU.S.\tDollar\tNotes\tdue\t2015 | 350 | 350 |
| (k)\t2.10%\tCanadian\tDollar\tNotes\t2014 | 282 | 302 |
| (l)\tFloating-rate\tU.S.\tDollar\tNotes\tdue\t2015 | 250 | — |
| (m)\t4.25%\tU.S.\tDollar\tNotes\tdue\t2013 | — | 754 |
| \t\t\t\tOther | 28 | 41 |
|  | 6,619 | 6,837 |
| Less\tcurrent\tmaturities | (289) | (755) |
| Balance\tat\tyear\tend | $6,330 | $6,082 |

(a) In	March	2001,	the	Company	issued	long-term	debt	instruments,	primarily	to	finance	the	acquisition	of	Keebler	Foods	Company,	of	which	$1.1	billion	of	thirty-year	7.45%	Debentures	remain outstanding.	The	effective	interest	rate	on	the	Debentures,	reflecting	issuance	discount	and	hedge	settlement,	was	7.54%.	The	Debentures	contain	standard	events	of	default	and	covenants, and	can	be	redeemed	in	whole	or	in	part	by	the	Company	at	any	time	at	prices	determined	under	a	formula	(but	not	less	than	100%	of	the	principal	amount	plus	unpaid	interest	to	the redemption	date).

(b) In	December	2010,	the	Company	issued	$1.0	billion	of	ten-year	4.0%	fixed	rate	U.S.	Dollar	Notes,	using	net	proceeds	from	these	Notes	for	incremental	pension	and	postretirement	benefit	plan contributions	and	to	retire	a	portion	of	its	commercial	paper.	The	effective	interest	rate	on	these	Notes,	reflecting	issuance	discount	and	hedge	settlement,	was	2.90%.	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.	The	customary covenants	also	contain	a	change	of	control	provision.	In	March	2013,	the	Company	entered	into	interest	rate	swaps	with	notional	amounts	totaling	$400	million,	which	effectively	converted	a portion	of	these	Notes	from	a	fixed	rate	to	a	floating	rate	obligation	for	the	remainder	of	the	ten-year	term.	These	derivative	instruments	were	designated	as	fair	value	hedges	of	the	debt obligation.	The	fair	value	adjustment	for	the	interest	rate	swaps	was	$20	million,	and	was	recorded	as	a	decrease	in	the	hedged	debt	balance	at	December	28,	2013.

(c) In	May	2009,	the	Company	issued	$750	million	of	seven-year	4.45%	fixed	rate	U.S.	Dollar	Notes,	using	net	proceeds	from	these	Notes	to	retire	a	portion	of	its	commercial	paper.	The	effective interest	rate	on	these	Notes,	reflecting	issuance	discount,	hedge	settlement	and	interest	rate	swaps	was	3.45%	at	December	28,	2013.	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.	The	customary	covenants	also	contain	a	change	of control	provision.	The	Company	entered	into	interest	rate	swaps	in	February	2011	and	March	2012	with	notional	amounts	totaling	$200	million	and	$550	million,	respectively,	which	effectively converted	these	Notes	from	a	fixed	rate	to	a	floating	rate	obligation.	These	derivative	instruments	were	designated	as	fair	value	hedges	of	the	debt	obligation.	In	April	2013,	the	Company terminated	all	of	the	interest	rate	swaps.	The	resulting	unamortized	gain	of	$18	million	at	December	28,	2013	will	be	amortized	to	interest	expense	over	the	remaining	term	of	the	Notes.

(d) In	May	2012,	the	Company	issued	$700	million	of	ten-year	3.125%	U.S.	Dollar	Notes,	using	net	proceeds	from	these	Notes	for	general	corporate	purposes,	including	financing	a	portion	of	the acquisition	of	Pringles.	The	effective	interest	rate	on	these	Notes,	reflecting	issuance	discount	and	interest	rate	swaps,	was	2.74%	at	December	28,	2013.	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.	The	customary	covenants also	contain	a	change	of	control	provision.	In	May	2013,	the	Company	entered	into	interest	rate	swaps	with	notional	amounts	totaling	$200	million,	which	effectively	converted	a	portion	of	these Notes	from	a	fixed	rate	to	a	floating	rate	obligation	for	the	remainder	of	the	ten-year	term.	These	derivative	instruments	were	designated	as	fair	value	hedges	of	the	debt	obligation.	The	fair	value adjustment	for	the	interest	rate	swaps	was	$13	million,	and	was	recorded	as	a	decrease	in	the	hedged	debt	balance	at	December	28,	2013.

(e) In	November	2011,	the	Company	issued	$500	million	of	five-year	1.875%	fixed	rate	U.S.	Dollar	Notes,	using	net	proceeds	from	these	Notes	for	general	corporate	purposes	including	repayment of	a	portion	of	its	commercial	paper.	The	effective	interest	rate	on	these	Notes,	reflecting	issuance	discount,	hedge	settlement	and	interest	rate	swaps	was	0.98%	at	December	28,	2013.	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. The	customary	covenants	also	contain	a	change	of	control	provision.	In	March	2012,	the	Company	entered	into	interest	rate	swaps	which	effectively	converted	these	Notes	from	a	fixed	rate	to	a floating	rate	obligation.	These	derivative	instruments	were	designated	as	fair	value	hedges	of	the	debt	obligation.	In	April	2013,	the	Company	terminated	all	of	the	interest	rate	swaps,	and	the resulting	unamortized	gain	of	$8	million	at	December	28,	2013	will	be	amortized	to	interest	expense	over	the	remaining	term	of	the	Notes.	In	May	2013,	the	Company	entered	into	interest	rate swaps	with	notional	amounts	totaling	$500	million,	which	effectively	converted	this	debt	from	a	fixed	rate	to	a	floating	rate	obligation	for	the	remainder	of	the	five-year	term.	These	derivative instruments	were	designated	as	fair	value	hedges	of	the	debt	obligation.	The	fair	value	adjustment	for	the	interest	rate	swaps	was	$3	million,	and	was	recorded	as	a	decrease	in	the	hedged	debt balance	at	December	28,	2013.

(f) In	November	2009,	the	Company	issued	$500	million	of	ten-year	4.15%	fixed	rate	U.S.	Dollar	Notes,	using	net	proceeds	from	these	Notes	to	retire	a	portion	of	its	6.6%	U.S.	Dollar	Notes	due 2011.	The	effective	interest	rate	on	these	Notes,	reflecting	issuance	discount,	hedge	settlement	and	interest	rate	swaps	was	2.72%	at	December	28,	2013.	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.	The	customary	covenants also	contain	a	change	of	control	provision.	In	March	2012,	the	Company	entered	into	interest	rate	swaps	which	effectively	converted	these	Notes	from	a	fixed	rate	to	a	floating	rate	obligation	for the	remainder	of	the	ten-year	term.	These	derivative	instruments	were	designated	as	fair

value	hedges	of	the	debt	obligation.	The	fair	value	adjustment	for	the	interest	rate	swaps	was	$11	million,	and	was	recorded	as	a	decrease	in	the	hedged	debt	balance	at	December	28,	2013.

(g) In	May	2011,	the	Company	issued	$400	million	of	seven-year	3.25%	fixed	rate	U.S.	Dollar	Notes,	using	net	proceeds	from	these	Notes	for	general	corporate	purposes	including	repayment	of	a portion	of	its	commercial	paper.	The	effective	interest	rate	on	these	Notes,	reflecting	issuance	discount,	hedge	settlement	and	interest	rate	swaps,	was	1.86%	at	December	28,	2013.	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.	The customary	covenants	also	contain	a	change	of	control	provision.	In	October	2011,	the	Company	entered	into	interest	rate	swaps	with	notional	amounts	totaling	$400	million,	which	effectively converted	these	Notes	from	a	fixed	rate	to	a	floating	rate	obligation.	These	derivative	instruments	were	designated	as	fair	value	hedges	of	the	debt	obligation.	During	February	and	April	2013, the	Company	terminated	all	of	the	interest	rate	swaps,	and	the	resulting	unamortized	gain	of	$17	million	at	December	28,	2013	will	be	amortized	to	interest	expense	over	the	remaining	term	of the	Notes.	In	May	2013,	the	Company	entered	into	interest	rate	swaps	with	notional	amounts	totaling	$400	million,	which	effectively	converted	these	Notes	from	a	fixed	rate	to	a	floating	rate obligation	for	the	remainder	of	the	seven-year	term.	These	derivative	instruments	were	designated	as	fair	value	hedges	of	the	debt	obligation.	The	fair	value	adjustment	for	the	interest	rate swaps	was	$6	million,	and	was	recorded	as	a	decrease	in	the	hedged	debt	balance	at	December	28,	2013	and	December	29,	2012,	respectively.

(h) In	February	2013,	the	Company	issued	$400	million	of	ten-year	2.75%	U.S.	Dollar	Notes,	using	net	proceeds	from	these	Notes	for	general	corporate	purposes,	including,	together	with	cash	on hand,	a	portion	of	the	repayment	of	$750	million	aggregate	principal	amount	of	the	Company's	4.25%	U.S.	Dollar	Notes	that	matured	in	March	2013.	The	effective	interest	rate	on	these	Notes, reflecting	issuance	discount	and	hedge	settlement,	was	2.74%.	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.	The	customary	covenants	also	contain	a	change	of	control	provision.

(i) In	May	2012,	the	Company	issued	$400	million	of	five-year	1.75%	U.S.	Dollar	Notes,	using	net	proceeds	from	these	Notes	for	general	corporate	purposes,	including	financing	a	portion	of	the acquisition	of	Pringles.	The	effective	interest	rate	on	these	Notes,	reflecting	issuance	discount	and	interest	rate	swaps,	was	1.32%.	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.	The	customary	covenants	also	contain	a	change	of	control provision.	In	March	and	May	2013,	the	Company	entered	into	interest	rate	swaps	with	notional	amounts	totaling	$400	million,	which	effectively	converted	the	Notes	from	a	fixed	rate	to	a	floating rate	obligation	for	the	remainder	of	the	ten-year	term.	These	derivative	instruments	were	designated	as	fair	value	hedges	of	the	debt	obligation.	The	fair	value	adjustment	for	the	interest	rate swaps	was	$4	million,	and	was	recorded	as	a	decrease	in	the	hedged	debt	balance	at	December	28,	2013.

(j) In	May	2012,	the	Company	issued	$350	million	of	three-year	1.125%	U.S.	Dollar	Notes,	using	net	proceeds	from	these	Notes	for	general	corporate	purposes,	including	financing	a	portion	of	the acquisition	of	Pringles.	The	effective	interest	rate	on	these	Notes,	reflecting	issuance	discount,	was	1.16%.	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.	The	customary	covenants	also	contain	a	change	of	control	provision.

(k) In	May	2012,	the	Company	issued	Cdn.$300	million	of	two-year	2.10%	fixed	rate	Canadian	Dollar	Notes,	using	net	proceeds	from	these	Notes	for	general	corporate	purposes,	which	included repayment	of	intercompany	debt.	This	repayment	resulted	in	cash	available	to	be	used	for	a	portion	of	the	acquisition	of	Pringles.	The	effective	interest	rate	on	these	Notes,	reflecting	issuance discount,	was	2.11%.	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.	The	customary	covenants	also	contain	a	change	of	control	provision.

(l) In	February	2013,	the	Company	issued	$250	million	of	floating-rate	U.S.	Dollar	Notes	bearing	interest	at	LIBOR	plus	0.23%	due	February	2015.	The	proceeds	from	these	Notes	were	used	for general	corporate	purposes,	including,	together	with	cash	on	hand,	a	portion	of	the	repayment	of	$750	million	aggregate	principal	amount	of	the	Company's	4.25%	U.S.	Dollar	Notes	that matured	in	March	2013.	The	effective	interest	rate	on	these	Notes	was	0.47%	at	December	28,	2013.	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.	The	customary	covenants	also	contain	a	change	of	control	provision.

(m) In	March	2008,	the	Company	issued	$750	million	of	five-year	4.25%	fixed	rate	U.S.	Dollar	Notes,	using	net	proceeds	from	these	Notes	to	retire	a	portion	of	its	U.S.	commercial	paper.	The	Notes contained	customary	covenants	that	limited	the	ability	of	the	Company	and	its	restricted	subsidiaries	(as	defined)	to	incur	certain	liens	or	enter	into	certain	sale	and	lease-back	transactions.	The customary	covenants	also	contained	a	change	of	control	provision.	In	conjunction	with	this	debt	issuance,	the	Company	entered	into	interest	rate	swaps	with	notional	amounts	totaling $750	million,	which	effectively	converted	this	debt	from	a	fixed	rate	to	a	floating	rate	obligation.	These	derivative	instruments	were	designated	as	fair	value	hedges	of	the	debt	obligation.	During 2011,	the	Company	transferred	a	portion	of	the	interest	rate	swaps	to	another	counterparty	and	subsequently	terminated	all	the	interest	rate	swaps.	The	Company	redeemed	the	Notes	in	March 2013.

In	March	2012,	the	Company	entered	into	an	unsecured	364-Day	Term	Loan	Agreement	(the	"New	Credit	Agreement")	to	fund,	in	part,	the	acquisition	of Pringles	from	P&G.	The	New	Credit	Agreement	allowed	the	Company	to	borrow	up	to	$1	billion	to	fund,	in	part,	the	acquisition	and	pay	related	fees	and expenses.	The	loans	under	the	New	Credit	Agreement	were	to	mature	and	be	payable	in	full	364	days	after	the	date	on	which	the	loans	were	made.	The New	Credit	Agreement	contained	customary	representations,	warranties	and	covenants,	including	restrictions	on	indebtedness,	liens,	sale	and	leaseback transactions,	and	a	specified	interest	expense	coverage	ratio.	If	an	event	of	default	occurred,	then,	to	the	extent	permitted	under	the	New	Credit Agreement,

the	administrative	agent	could	(i)	not	earlier	than	the	date	on	which	the	acquisition	is	or	is	to	be	consummated,	terminate	the	commitments	under	the New	Credit	Agreement	and	(ii)	accelerate	any	outstanding	loans	under	the	New	Credit	Agreement.	The	Company	had	no	borrowings	against	the	New Credit	Agreement	and,	in	May	2012,	upon	issuance	of	the	U.S.	Dollar	Notes	described	above,	the	available	commitments	under	the	New	Credit Agreement	were	automatically	and	permanently	reduced	to	$0.

The	Company	and	two	of	its	subsidiaries	(the	Issuers)	maintain	a	program	under	which	the	Issuers	may	issue	euro-commercial	paper	notes	up	to	a maximum	aggregate	amount	outstanding	at	any	time	of	$750	million	or	its	equivalent	in	alternative	currencies.	The	notes	may	have	maturities	ranging	up to	364	days	and	will	be	senior	unsecured	obligations	of	the	applicable	Issuer.	Notes	issued	by	subsidiary	Issuers	will	be	guaranteed	by	the	Company. The	notes	may	be	issued	at	a	discount	or	may	bear	fixed	or	floating	rate	interest	or	a	coupon	calculated	by	reference	to	an	index	or	formula.	There	was $437	million	and	$159	million	outstanding	under	this	program	as	of	December	28,	2013	and	December	29,	2012,	respectively.

At	December	28,	2013,	the	Company	had	$2.2	billion	of	short-term	lines	of	credit,	virtually	all	of	which	were	unused	and	available	for	borrowing	on	an unsecured	basis.	These	lines	were	comprised	principally	of	an	unsecured	Four-Year	Credit	Agreement,	which	the	Company	entered	into	in	March	2011 and	expires	in	2015.	The	Four-Year	Credit	Agreement	allows	the	Company	to	borrow,	on	a	revolving	credit	basis,	up	to	$2.0	billion,	to	obtain	letters	of credit	in	an	aggregate	amount	up	to	$75	million,	U.S.	swingline	loans	in	an	aggregate	amount	up	to	$200	million	and	European	swingline	loans	in	an aggregate	amount	up	to	$400	million	and	to	provide	a	procedure	for	lenders	to	bid	on	short-term	debt	of	the	Company.	The	agreement	contains customary	covenants	and	warranties,	including	specified	restrictions	on	indebtedness,	liens,	sale	and	leaseback	transactions,	and	a	specified	interest coverage	ratio.	If	an	event	of	default	occurs,	then,	to	the	extent	permitted,	the	administrative	agent	may	terminate	the	commitments	under	the	credit facility,	accelerate	any	outstanding	loans	under	the	agreement,	and	demand	the	deposit	of	cash	collateral	equal	to	the	lender's	letter	of	credit	exposure plus	interest.

The	Company	was	in	compliance	with	all	covenants	as	of	December	28,	2013.

# STOCK	COMPENSATION

The	Company	uses	various	equity-based	compensation	programs	to	provide	long-term	performance	incentives	for	its	global	workforce.	Currently,	these incentives	consist	principally	of	stock	options,	and	to	a	lesser	extent,	executive	performance	shares,	restricted	stock	units	and	restricted	stock	grants.	The Company	also	sponsors	a	discounted	stock	purchase	plan	in	the	United	States	and	matching-grant	programs	in	several	international	locations. Additionally,	the	Company	awards	restricted	stock	to	its	outside	directors.	These	awards	are	administered	through	several	plans,	as	described	within	this Note.

The	2013	Long-Term	Incentive	Plan	(2013	Plan),	approved	by	shareholders	in	2013,	permits	awards	to	employees	and	officers	in	the	form	of	incentive and	non-qualified	stock	options,	performance	units,	restricted	stock	or	restricted	stock	units,	and	stock	appreciation	rights.	The	2013	Plan,	which	replaced the	2009	Long-Term	Incentive	Plan	(2009	Plan),	authorizes	the	issuance	of	a	total	of	(a)	22	million	shares;	plus	(b)	the	total	number	of	shares	remaining available	for	future	grants	under	the	2009	Plan.	The	total	number	of	shares	remaining	available	for	issuance	under	the	2013	Plan	will	be	reduced	by	two shares	for	each	share	issued	pursuant	to	an	award	under	the	2013	Plan	other	than	a	stock	option	or	stock	appreciation	right,	or	potentially	issuable pursuant	to	an	outstanding	award	other	than	a	stock	option	or	stock	appreciation	right,	which	will	in	each	case	reduce	the	total	number	of	shares remaining	by	one	share	for	each	share	issued.	The	2013	Plan	includes	several	limitations	on	awards	or	payments	to	individual	participants.	Options granted	under	the	2013	and	2009	Plans	generally	vest	over	three	years.	At	December	28,	2013,	there	were	27	million	remaining	authorized,	but unissued,	shares	under	the	2013	Plan.	This	amount	includes	5	million	shares	remaining	available	under	the	2009	Plan.

The	Non-Employee	Director	Stock	Plan	(2009	Director	Plan)	was	approved	by	shareholders	in	2009	and	allows	each	eligible	non-employee	director	to receive	shares	of	the	Company's	common	stock	annually.	The	number	of	shares	granted	pursuant	to	each	annual	award	will	be	determined	by	the Nominating	and	Governance	Committee	of	the	Board	of	Directors.	The	2009	Director	Plan,	which	replaced	the	2000	Non-Employee	Director	Stock	Plan (2000	Director	Plan),	reserves	500,000	shares	for	issuance,	plus	the	total	number	of	shares	as	to	which	awards	granted	under	the	2009	Director	Plan	or the	2000	Director	Plans	expire	or	are	forfeited,	terminated	or	settled	in	cash.	Under	both	the	2009	and	2000	Director	Plans,	shares	(other	than	stock options)	are	placed	in	the	Kellogg	Company	Grantor	Trust	for	Non-Employee	Directors	(the	Grantor	Trust).	Under	the	terms	of	the	Grantor	Trust,	shares are	available	to	a	director	only	upon

The	2002	Employee	Stock	Purchase	Plan	was	approved	by	shareholders	in	2002	and	permits	eligible	employees	to	purchase	Company	stock	at	a discounted	price.	This	plan	allows	for	a	maximum	of	2.5	million	shares	of	Company	stock	to	be	issued	at	a	purchase	price	equal	to	95%	of	the	fair	market value	of	the	stock	on	the	last	day	of	the	quarterly	purchase	period.	Total	purchases	through	this	plan	for	any	employee	are	limited	to	a	fair	market	value of	$25,000	during	any	calendar	year.	At	December	28,	2013,	there	were	approximately	0.5	million	remaining	authorized,	but	unissued,	shares	under	this plan.	Shares	were	purchased	by	employees	under	this	plan	as	follows	(approximate	number	of	shares):	2013–85,000;	2012–107,000;	2011–110,000. Options	granted	to	employees	to	purchase	discounted	stock	under	this	plan	are	included	in	the	option	activity	tables	within	this	note.

Additionally,	an	international	subsidiary	of	the	Company	maintains	a	stock	purchase	plan	for	its	employees.	Subject	to	limitations,	employee	contributions to	this	plan	are	matched	1:1	by	the	Company.	Under	this	plan,	shares	were	granted	by	the	Company	to	match	an	equal	number	of	shares	purchased	by employees	as	follows	(approximate	number	of	shares):	2013–58,000;	2012–71,000;	2011–68,000.

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

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Pre-tax\tcompensation\texpense | $38 | $46 | $37 |
| Related\tincome\ttax\tbenefit | $14 | $17 | $13 |

As	of	December	28,	2013,	total	stock-based	compensation	cost	related	to	non-vested	awards	not	yet	recognized	was	$43	million	and	the	weighted- average	period	over	which	this	amount	is	expected	to	be	recognized	was	2	years.

Cash	flows	realized	upon	exercise	or	vesting	of	stock-based	awards	in	the	periods	presented	are	included	in	the	following	table.	Tax	benefits	realized upon	exercise	or	vesting	of	stock-based	awards	generally	represent	the	tax	benefit	of	the	difference	between	the	exercise	price	and	the	strike	price	of	the option.

Cash	used	by	the	Company	to	settle	equity	instruments	granted	under	stock-based	awards	was	insignificant.

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Total\tcash\treceived\tfrom\toption\texercises\tand\tsimilar\tinstruments | $475 | $229 | $291 |
| Tax\tbenefits\trealized\tupon\texercise\tor\tvesting\tof\tstock-based\tawards:\nWindfall\tbenefits\tclassified\tas\tfinancing\tcash\tflow | $24 | $6 | $11 |

Shares	used	to	satisfy	stock-based	awards	are	normally	issued	out	of	treasury	stock,	although	management	is	authorized	to	issue	new	shares	to	the extent	permitted	by	respective	plan	provisions.	Refer	to	Note	4	for	information	on	shares	issued	during	the	periods	presented	to	employees	and	directors under	various	long-term	incentive	plans	and	share	repurchases	under	the	Company's	stock	repurchase	authorizations.	The	Company	does	not	currently have	a	policy	of	repurchasing	a	specified	number	of	shares	issued	under	employee	benefit	programs	during	any	particular	time	period.

# Stock	options

During	the	periods	presented,	non-qualified	stock	options	were	granted	to	eligible	employees	under	the	2013	and	2009	Plans	with	exercise	prices	equal to	the	fair	market	value	of	the	Company's	stock	on	the	grant	date,	a	contractual	term	of	ten	years,	and	a	three-year	graded	vesting	period.

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

| year	ended: | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Weighted-average\texpected\tvolatility | \t 15.00% | \t 16.00% | \t 17.00% |
| Weighted-average\texpected\tterm\t(years) | 7.44 | 7.53 | 6.99 |
| Weighted-average\trisk-free\tinterest\trate | 1.49% | 1.60% | 3.06% |
| Dividend\tyield | 2.90% | 3.30% | 3.10% |
| Weighted-average\tfair\tvalue\tof\toptions\tgranted | $5.92 | $5.23 | $7.59 |

A	summary	of	option	activity	for	the	year	ended	December	28,	2013	is	presented	in	the	following	table:

# Other	stock-based	awards

During	the	periods	presented,	other	stock-based	awards	consisted	principally	of	executive	performance	shares	and	restricted	stock	granted	under	the 2013	and	2009	Plans.

In	2013,	2012	and	2011,	the	Company	made	performance	share	awards	to	a	limited	number	of	senior	executive-level	employees,	which	entitles	these employees	to	receive	a	specified	number	of	shares	of	the	Company's	common	stock	on	the	vesting	date,	provided	cumulative	three-year	targets	are achieved.	The	cumulative	three-year	targets	involved	operating	profit	and	internal	net	sales	growth.	Management	estimates	the	fair	value	of	performance share	awards	based	on	the	market	price	of	the	underlying	stock	on	the	date	of	grant,	reduced	by	the	present	value	of	estimated	dividends	foregone during	the	performance	period.	The	2013,	2012	and	2011	target	grants	(as	revised	for	non-vested	forfeitures	and	other	adjustments)	currently	correspond to	approximately	208,000,	183,000	and	117,000	shares,	respectively,	with	a	grant-date	fair	value	of	$54,	$47,	and	$48	per	share.	The	actual	number	of shares	issued	on	the	vesting	date	could	range	from	zero	to	200%	of	target,	depending	on	actual	performance	achieved.	Based	on	the	market	price	of	the Company's	common	stock	at	year-end	2013,	the	maximum	future	value	that	could	be	awarded	on	the	vesting	date	was	(in	millions):	2013	award–$23; 2012	award–$17;	and	2011	award–$11.	The	2010	performance	share	award,	payable	in	stock,	was	settled	at	40%	of	target	in	February	2013	for	a	total dollar	equivalent	of	$4	million.

The	Company	also	periodically	grants	restricted	stock	and	restricted	stock	units	to	eligible	employees	under	the	2013	Plan.	Restrictions	with	respect	to sale	or	transferability	generally	lapse	after	three	years	and,	in	the	case	of	restricted	stock,	the	grantee	is	normally	entitled	to	receive	shareholder dividends	during	the	vesting	period.	Management	estimates	the	fair	value	of	restricted	stock	grants	based	on	the	market	price	of	the	underlying	stock	on the	date	of	grant.	A	summary	of	restricted	stock	activity	for	the	year	ended	December	28,	2013,	is	presented	in	the	following	table:

| Employee	restricted	stock	and	restricted | Shares | grant-date |
| :--- | :--- | :--- |
| stock\tunits | (thousands) | fair\tvalue |
| Non-vested,\tbeginning\tof\tyear | 316 | $50 |
| Granted | 139 | 52 |
| Vested | (117) | 51 |
| Forfeited | (20) | 47 |
| Non-vested,\tend\tof\tyear | 318 | $52 |

The	total	fair	value	of	restricted	stock	and	restricted	stock	units	vesting	in	the	periods	presented	was	(in	millions):	2013–$6;	2012–$4;	2011–$7.

# PENSION	BENEFITS

The	Company	sponsors	a	number	of	U.S.	and	foreign	pension	plans	to	provide	retirement	benefits	for	its	employees.	The	majority	of	these	plans	are funded	or	unfunded	defined	benefit	plans,	although	the	Company	does	participate	in	a	limited	number	of	multiemployer	or	other	defined	contribution plans	for	certain	employee	groups.	See	Note	10	for	more	information	regarding	the	Company's	participation	in	multiemployer	plans.	Defined	benefits	for salaried	employees	are	generally	based	on	salary	and	years	of	service,	while	union	employee	benefits	are	generally	a	negotiated	amount	for	each	year	of service.

# Obligations	and	funded	status

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

| (millions) | 2013 | 2012 |
| :--- | :--- | :--- |
| Change\tin\tprojected\tbenefit\tobligation |  |  |
| Beginning\tof\tyear | $5,135 | $4,367 |
| Service\tcost | 133 | 110 |
| Interest\tcost | 203 | 207 |
| Plan\tparticipants'\tcontributions | 2 | 2 |
| Amendments | 4 | 23 |
| Actuarial\t(gain)loss | (407) | 535 |
| Benefits\tpaid | (218) | (213) |
| Acquisitions | 17 | 47 |
| Curtailment\tand\tspecial\ttermination\tbenefits | 26 | — |
| Foreign\tcurrency\tadjustments | (7) | 57 |
| End\tof\tyear | $4,888 | $5,135 |
| Change\tin\tplan\tassets |  |  |
| Fair\tvalue\tbeginning\tof\tyear | $4,374 | $3,931 |
| Actual\treturn\ton\tplan\tassets | 802 | 508 |
| Employer\tcontributions | 34 | 38 |
| Plan\tparticipants'\tcontributions | 2 | 2 |
| Benefits\tpaid | (200) | (187) |
| Acquisitions | — | 23 |
| Foreign\tcurrency\tadjustments | 2 | 59 |
| Fair\tvalue\tend\tof\tyear | $5,014 | $4,374 |
| Funded\tstatus | $126 | $(761) |
| Amounts\trecognized\tin\tthe\tConsolidated\tBalance\tSheet\tconsist\tof |  |  |
| Other\tassets | $419 | $145 |
| Other\tcurrent\tliabilities | (16) | (20) |
| Other\tliabilities | (277) | (886) |
| Net\tamount\trecognized | $126 | $(761) |
| Amounts\trecognized\tin\taccumulated\tother\tcomprehensive\tincome\tconsist\tof |  |  |
| Prior\tservice\tcost | $73 | $94 |
| Net\tamount\trecognized | $73 | $94 |

The	accumulated	benefit	obligation	for	all	defined	benefit	pension	plans	was	$4.5	billion	and	$4.7	billion	at	December	28,	2013	and	December	29,	2012, respectively.	Information	for	pension	plans	with	accumulated	benefit	obligations	in	excess	of	plan	assets	were:

| (millions) | 2013 | 2012 |
| :--- | :--- | :--- |
| Projected\tbenefit\tobligation | $327 | $3,707 |
| Accumulated\tbenefit\tobligation | $251 | $3,442 |
| Fair\tvalue\tof\tplan\tassets | $58 | $2,823 |

# Expense

The	components	of	pension	expense	are	presented	in	the	following	table.	Pension	expense	for	defined	contribution	plans	relates	to	certain	foreign-based defined	contribution	plans	and	multiemployer	plans	in	the	United	States	in	which	the	Company	participates	on	behalf	of	certain	unionized	workforces.

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Service\tcost | $ 133 | $ 110 | $96 |
| Interest\tcost | 203 | 207 | 209 |
| Expected\treturn\ton\tplan\tassets | (359) | (344) | (361) |
| Amortization\tof\tunrecognized\tprior\tservice\tcost | 16 | 14 | 14 |
| Recognized\tnet\t(gain)loss | (854) | 372 | 747 |
| Curtailment\tand\tspecial\ttermination\tbenefits | 34 | — | — |
| Pension\t(income)expense: |  |  |  |
| Defined\tbenefit\tplans | (827) | 359 | 705 |
| Defined\tcontribution\tplans | 35 | 29 | 35 |
| Total | $(792) | $ 388 | $ 740 |

The	estimated	prior	service	cost	for	defined	benefit	pension	plans	that	will	be	amortized	from	accumulated	other	comprehensive	income	into	pension expense	over	the	next	fiscal	year	is	approximately	$14	million.

The	Company	and	certain	of	its	subsidiaries	sponsor	401(k)	or	similar	savings	plans	for	active	employees.	Expense	related	to	these	plans	was	(in millions):	2013	–	$41;	2012	–	$39;	2011-	$36.	These	amounts	are	not	included	in	the	preceding	expense	table.	Company	contributions	to	these	savings plans	approximate	annual	expense.	Company	contributions	to	multiemployer	and	other	defined	contribution	pension	plans	approximate	the	amount	of annual	expense	presented	in	the	preceding	table.

See	discussion	in	Note	3	related	to	curtailment	and	special	termination	benefit	costs	recognized	in	2013.

# Assumptions

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

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Discount\trate | 4.7% | 4.0% | 4.8% |
| Long-term\trate\tof\tcompensation\tincrease | 4.1% | 4.1% | 4.2% |

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

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Discount\trate | 4.1% | 4.8% | 5.4% |
| Long-term\trate\tof\tcompensation\tincrease | 4.1% | 4.2% | 4.2% |
| Long-term\trate\tof\treturn\ton\tplan\tassets | 8.5% | 8.9% | 8.9% |

To	determine	the	overall	expected	long-term	rate	of	return	on	plan	assets,	the	Company	models	expected	returns	over	a	20-year	investment	horizon	with respect	to	the	specific	investment	mix	of	its	major	plans.	The	return	assumptions	used	reflect	a	combination	of	rigorous	historical	performance	analysis and	forward-looking	views	of	the	financial	markets	including	consideration	of	current	yields	on	long-term	bonds,	price-earnings	ratios	of	the	major	stock market	indices,	and	long-term	inflation.	The	U.S.	model,	which	corresponds	to	approximately	68%	of	consolidated	pension	and	other	postretirement benefit	plan	assets,	incorporates	a	long-term	inflation	assumption	of	2.5%	and	an	active	management	premium	of	1%	(net	of	fees)	validated	by	historical analysis.	Similar	methods	are	used	for	various	foreign	plans	with	invested	assets,	reflecting	local	economic	conditions.	The	expected	rate	of	return	for 2013	of	8.5%	equated	to	approximately	the	60th	percentile	expectation.	Refer	to	Note	1.

To	conduct	the	annual	review	of	discount	rates,	the	Company	selected	the	discount	rate	based	on	a	cash-flow	matching	analysis	using	Towers	Watson's proprietary	RATE:Link	tool	and	projections	of	the	future	benefit	payments	that	constitute	the	projected	benefit	obligation	for	the	plans.	RATE:Link establishes	the	uniform	discount	rate	that	produces	the	same	present	value	of	the	estimated	future	benefit	payments,	as	is	generated	by	discounting each	year's	benefit	payments	by	a	spot	rate	applicable	to	that	year.	The	spot	rates	used	in	this	process	are	derived	from	a	yield	curve	created	from	yields on	the	40th	to	90th	percentile	of	U.S.	high	quality	bonds.	A	similar	methodology	is	applied	in	Canada	and	Europe,	except	the	smaller	bond	markets	imply that	yields	between	the	10th	and	90th	percentiles	are	preferable.	The	measurement	dates	for	the	defined	benefit	plans	are	consistent	with	the Company's	fiscal	year	end.	Accordingly,	the	Company	selected	discount	rates	to	measure	the	benefit	obligations	consistent	with	market	indices	during December	of	each	year.

# Plan	assets

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

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

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

Corporate	stock,	common:		Value	based	on	the	last	sales	price	on	the	primary	exchange. Investments	stated	at	estimated	fair	value	using	significant	observable	inputs	(Level	2)	include: Cash	and	cash	equivalents:		Institutional	short-term	investment	vehicles	valued	daily. Mutual	funds:		Valued	at	the	net	asset	value	of	shares	held	by	the	Plan	at	year	end. Collective	trusts:		Value	based	on	the	net	asset	value	of	units	held	at	year	end.

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

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

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

Real	Estate:		Value	based	on	the	net	asset	value	of	units	held	at	year	end.	The	fair	value	of	real	estate	holdings	is	based	on	market	data	including earnings	capitalization,	discounted	cash	flow	analysis,	comparable	sales	transactions	or	a	combination	of	these	methods.

Bonds:		Value	based	on	matrices	or	models	from	brokerage	firms.	A	limited	number	of	the	investments	are	in	default.

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

The	Company's	practice	regarding	the	timing	of	transfers	between	levels	is	to	measure	transfers	in	at	the	beginning	of	the	month	and	transfers	out	at	the end	of	the	month.	For	the	year	ended	December	28,	2013,	the	Company	had	no	transfers	between	Levels	1	and	2.

The	fair	value	of	Plan	assets	as	of	December	28,	2013	summarized	by	level	within	the	fair	value	hierarchy	are	as	follows:

| (millions) | Total<br>Level	1 | Total<br>Level	2 | Total<br>Level	3 | Total |
| :--- | :--- | :--- | :--- | :--- |
| Cash\tand\tcash\tequivalents | $28 | $83 | $— | $111 |
| Corporate\tstock,\tcommon: |  |  |  |  |
| Domestic | 576 | — | — | 576 |
| International | 297 | — | — | 297 |
| Mutual\tfunds: |  |  |  |  |
| International\tequity | — | 726 | — | 726 |
| International\tdebt | — | 54 | — | 54 |
| Collective\ttrusts: |  |  |  |  |
| Domestic\tequity | — | 737 | — | 737 |
| International\tequity | — | 982 | — | 982 |
| Eurozone\tsovereign\tdebt | — | 14 | — | 14 |
| Other\tinternational\tdebt | — | 288 | — | 288 |
| Limited\tpartnerships | — | 468 | — | 468 |
| Bonds,\tcorporate | — | 370 | 1 | 371 |
| Bonds,\tgovernment | — | 123 | — | 123 |
| Bonds,\tother | — | 52 | — | 52 |
| Real\testate | — | — | 125 | 125 |
| Other | — | 82 | 8 | 90 |
| Total | $901 | $3,979 | $134 | $5,014 |

The	fair	value	of	Plan	assets	at	December	29,	2012	are	summarized	as	follows:

| (millions) | Total<br>Level	1 | Total<br>Level	2 | Total<br>Level	3 | Total |
| :--- | :--- | :--- | :--- | :--- |
| Cash\tand\tcash\tequivalents | $29 | $32 | $— | $61 |
| Corporate\tstock,\tcommon: |  |  |  |  |
| Domestic | 466 | — | — | 466 |
| International | 259 | — | — | 259 |
| Mutual\tfunds: |  |  |  |  |
| International\tequity | — | 717 | — | 717 |
| International\tdebt | — | 58 | — | 58 |
| Collective\ttrusts: |  |  |  |  |
| Domestic\tequity | — | 535 | — | 535 |
| International\tequity | — | 920 | — | 920 |
| Eurozone\tsovereign\tdebt | — | 17 | — | 17 |
| Other\tinternational\tdebt | — | 274 | — | 274 |
| Limited\tpartnerships | — | 275 | — | 275 |
| Bonds,\tcorporate | — | 441 | — | 441 |
| Bonds,\tgovernment | — | 150 | — | 150 |
| Bonds,\tother | — | 66 | — | 66 |
| Real\testate | — | — | 115 | 115 |
| Other | 4 | 7 | 9 | 20 |
| Total | $758 | $3,492 | $124 | $4,374 |

There	were	no	unfunded	commitments	to	purchase	investments	at	December	28,	2013	or	December	29,	2012.

The	Company's	investment	strategy	for	its	major	defined	benefit	plans	is	to	maintain	a	diversified	portfolio	of	asset	classes	with	the	primary	goal	of meeting	long-term	cash	requirements	as	they	become	due.	Assets	are	invested	in	a	prudent	manner	to	maintain	the	security	of	funds	while	maximizing returns	within	the	Plan's	investment	policy.	The	investment	policy	specifies	the	type	of	investment	vehicles	appropriate	for	the	Plan,	asset	allocation guidelines,	criteria	for	the	selection	of	investment	managers,	procedures	to	monitor	overall	investment	performance	as	well	as	investment	manager performance.	It	also	provides	guidelines	enabling	Plan	fiduciaries	to	fulfill	their	responsibilities.

The	current	weighted-average	target	asset	allocation	reflected	by	this	strategy	is:	equity	securities–72%;	debt	securities–22%;	other–6%.	Investment	in Company	common	stock	represented	1.2%	and	1.3%	of	consolidated	plan	assets	at	December	28,	2013	and	December	29,	2012,	respectively.	Plan funding	strategies	are	influenced	by	tax	regulations	and	funding	requirements.	The	Company	currently	expects	to	contribute	approximately	$43	million	to its	defined	benefit	pension	plans	during	2014.

# Level	3	gains	and	losses

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

|  | Bonds, | Real |  |  |
| :--- | :--- | :--- | :--- | :--- |
| (millions) | corporate | estate | Other | Total |
| December\t31,\t2011 | $1 | $105 | $6 | $112 |
| Purchases | — | — | 1 | 1 |
| Sales | (1) | — | — | (1) |
| Realized\tand\tunrealized\tgain | — | 6 | 2 | 8 |
| Transfer\tout | — | 4 | — | 4 |
| December\t29,\t2012 | $— | $115 | $9 | $124 |
| Purchases | 1 | 1 | 1 | 3 |
| Sales | — | — | (1) | (1) |
| Realized\tand\tunrealized\tgain | — | 8 | — | 8 |
| Currency\ttranslation | — | 1 | (1) | — |
| December\t28,\t2013 | $1 | $125 | $8 | $134 |

The	net	change	in	Level	3	assets	includes	a	gain	attributable	to	the	change	in	unrealized	holding	gains	or	losses	related	to	Level	3	assets	held	at December	28,	2013	and	December	29,	2012	totaling	$8	million	for	both	years.

# Benefit	payments

# NONPENSION	POSTRETIREMENT	AND	POSTEMPLOYMENT	BENEFITS

# Postretirement

The	Company	sponsors	a	number	of	plans	to	provide	health	care	and	other	welfare	benefits	to	retired	employees	in	the	United	States	and	Canada,	who have	met	certain	age	and	service	requirements.	The	majority	of	these	plans	are	funded	or	unfunded	defined	benefit	plans,	although	the	Company	does participate	in	a	limited	number	of	multiemployer	or

other	defined	contribution	plans	for	certain	employee	groups.	The	Company	contributes	to	voluntary	employee	benefit	association	(VEBA)	trusts	to	fund certain	U.S.	retiree	health	and	welfare	benefit	obligations.

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

| (millions) | 2013 | 2012 |
| :--- | :--- | :--- |
| Change\tin\taccumulated\tbenefit\tobligation |  |  |
| Beginning\tof\tyear | $1,323 | $1,155 |
| Service\tcost | 34 | 27 |
| Interest\tcost | 50 | 53 |
| Actuarial\t(gain)\tloss | (145) | 115 |
| Benefits\tpaid | (56) | (62) |
| Curtailments | 1 | — |
| Acquisitions | — | 34 |
| Foreign\tcurrency\tadjustments | (5) | 1 |
| End\tof\tyear | $1,202 | $1,323 |
| Change\tin\tplan\tassets |  |  |
| Fair\tvalue\tbeginning\tof\tyear | $1,040 | $965 |
| Actual\treturn\ton\tplan\tassets | 188 | 132 |
| Employer\tcontributions | 14 | 13 |
| Benefits\tpaid | (64) | (70) |
| Fair\tvalue\tend\tof\tyear | $1,178 | $1,040 |
| Funded\tstatus | $(24) | $(283) |
| Amounts\trecognized\tin\tthe\tConsolidated\tBalance\tSheet\tconsist\tof |  |  |
| Other\tnon-current\tassets | $47 | $— |
| Other\tcurrent\tliabilities | (3) | (2) |
| Other\tliabilities | (68) | (281) |
| Net\tamount\trecognized | $(24) | $(283) |
| Amounts\trecognized\tin\taccumulated\tother\tcomprehensive\tincome\tconsist\tof |  |  |
| Prior\tservice\tcredit | (1) | (3) |
| Net\tamount\trecognized | $(1) | $(3) |

Components	of	postretirement	benefit	expense	(income)	were:

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Service\tcost | $34 | $27 | $23 |
| Interest\tcost | 50 | 53 | 62 |
| Expected\treturn\ton\tplan\tassets | (86) | (84) | (87) |
| Amortization\tof\tunrecognized\tprior\tservice\tcredit | (3) | (2) | (3) |
| Recognized\tnet\t(gain)\tloss | (247) | 66 | (16) |
| Curtailment | 1 | — | — |
| Postretirement\tbenefit\texpense: |  |  |  |
| Defined\tbenefit\tplans | (251) | 60 | (21) |
| Defined\tcontribution\tplans | 13 | 13 | 14 |
| Total | $(238) | $73 | $(7) |

The	estimated	prior	service	cost	credit	that	will	be	amortized	from	accumulated	other	comprehensive	income	into	nonpension	postretirement	benefit expense	over	the	next	fiscal	year	is	expected	to	be	approximately	$3	million.

See	discussion	in	Note	3	regarding	curtailment	expense	recognized	in	2013.

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

The	Company	determines	the	overall	discount	rate	and	expected	long-term	rate	of	return	on	VEBA	trust	obligations	and	assets	in	the	same	manner	as that	described	for	pension	trusts	in	Note	8.

The	assumed	health	care	cost	trend	rate	is	5.3%	for	2014,	decreasing	gradually	to	4.5%	by	the	year	2017	and	remaining	at	that	level	thereafter.	These trend	rates	reflect	the	Company's	historical	experience	and	management's	expectations	regarding	future	trends.	A	one	percentage	point	change	in assumed	health	care	cost	trend	rates	would	have	the	following	effects:

The	fair	value	of	Plan	assets	as	of	December	28,	2013	summarized	by	level	within	fair	value	hierarchy	described	in	Note	8,	are	as	follows:

|  | Total | Total | Total |  |
| :--- | :--- | :--- | :--- | :--- |
| (millions) | Level\t1 | Level\t2 | Level\t3 | Total |
| Cash\tand\tcash\tequivalents | $7 | $39 | $— | $46 |
| Corporate\tstock,\tcommon: |  |  |  |  |
| Domestic | 231 | — | — | 231 |
| International | 15 | — | — | 15 |
| Mutual\tfunds: |  |  |  |  |
| Domestic\tequity | — | 167 | — | 167 |
| International\tequity | — | 124 | — | 124 |
| Domestic\tdebt | — | 57 | — | 57 |
| Collective\ttrusts: |  |  |  |  |
| Domestic\tequity | — | 14 | — | 14 |
| International\tequity | — | 169 | — | 169 |
| Limited\tpartnerships | — | 169 | — | 169 |
| Bonds,\tcorporate | — | 130 | — | 130 |
| Bonds,\tgovernment | — | 39 | — | 39 |
| Bonds,\tother | — | 16 | — | 16 |
| Other | — | 1 | — | 1 |
| Total | $253 | $925 | $— | $1,178 |

|  | Total | Total | Total |  |
| :--- | :--- | :--- | :--- | :--- |
| (millions) | Level\t1 | Level\t2 | Level\t3 | Total |
| Cash\tand\tcash\tequivalents | $5 | $12 | $— | $17 |
| Corporate\tstock,\tcommon: |  |  |  |  |
| Domestic | 174 | — | — | 174 |
| International | 18 | — | — | 18 |
| Mutual\tfunds: |  |  |  |  |
| Domestic\tequity | — | 63 | — | 63 |
| International\tequity | — | 161 | — | 161 |
| Domestic\tdebt | — | 60 | — | 60 |
| Collective\ttrusts: |  |  |  |  |
| Domestic\tequity | — | 126 | — | 126 |
| International\tequity | — | 110 | — | 110 |
| Limited\tpartnerships | — | 101 | — | 101 |
| Bonds,\tcorporate | — | 142 | — | 142 |
| Bonds,\tgovernment | — | 49 | — | 49 |
| Bonds,\tother | — | 17 | — | 17 |
| Other | 2 | — | — | 2 |
| Total | $199 | $841 | $— | $1,040 |

The	Company's	asset	investment	strategy	for	its	VEBA	trusts	is	consistent	with	that	described	for	its	pension	trusts	in	Note	8.	The	current	target	asset allocation	is	75%	equity	securities	and	25%	debt	securities.	The	Company	currently	expects	to	contribute	approximately	$14	million	to	its	VEBA	trusts during	2014.

# Postemployment

Under	certain	conditions,	the	Company	provides	benefits	to	former	or	inactive	employees,	including	salary	continuance,	severance,	and	long-term disability,	in	the	United	States	and	several	foreign	locations.	The	Company's	postemployment	benefit	plans	are	unfunded.	Actuarial	assumptions	used are	generally	consistent	with	those	presented	for	pension	benefits	in	Note	8.	The	aggregate	change	in	accumulated	postemployment	benefit	obligation and	the	net	amount	recognized	were:

| (millions) | 2013 | 2012 |
| :--- | :--- | :--- |
| Change\tin\taccumulated\tbenefit\tobligation |  |  |
| Beginning\tof\tyear | $103 | $93 |
| Service\tcost | 7 | 7 |
| Interest\tcost | 3 | 4 |
| Actuarial\t(gain)\tloss | (17) | 7 |
| Benefits\tpaid | (9) | (8) |
| End\tof\tyear | $87 | $103 |
| Funded\tstatus | $ (87) | $(103) |
| Amounts\trecognized\tin\tthe\tConsolidated\tBalance\tSheet\tconsist\tof |  |  |
| Other\tcurrent\tliabilities | $(8) | $(10) |
| Other\tliabilities | (79) | (93) |
| Net\tamount\trecognized | $ (87) | $(103) |
| Amounts\trecognized\tin\taccumulated\tother\tcomprehensive\tincome\tconsist\tof |  |  |
| Net\texperience\tloss | $25 | $46 |
| Net\tamount\trecognized | $25 | $46 |

# Components	of	postemployment	benefit	expense	were:

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Service\tcost | $7 | $7 | $6 |
| Interest\tcost | 3 | 4 | 4 |
| Recognized\tnet\tloss | 5 | 5 | 5 |
| Postemployment\tbenefit\texpense | $15 | $16 | $15 |

The	estimated	net	experience	loss	that	will	be	amortized	from	accumulated	other	comprehensive	income	into	postemployment	benefit	expense	over	the next	fiscal	year	is	approximately	$3	million.

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

| (millions) | Postretirement | Postemployment |
| :--- | :--- | :--- |
| 2014 | $68 | $8 |
| 2015 | 69 | 8 |
| 2016 | 70 | 7 |
| 2017 | 71 | 8 |
| 2018 | 72 | 8 |
| 2019-2023 | 385 | 41 |

# MULTIEMPLOYER	PENSION	AND	POSTRETIREMENT	PLANS

The	Company	contributes	to	multiemployer	defined	contribution	pension	and	postretirement	benefit	plans	under	the	terms	of	collective-bargaining agreements	that	cover	certain	unionized	employee	groups	in	the	United	States.	Contributions	to	these	plans	are	included	in	total	pension	and postretirement	benefit	expense	as	reported	in	Notes	8	and	9,	respectively.

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

The	Company's	participation	in	multiemployer	pension	plans	for	the	year	ended	December	28,	2013,	is	outlined	in	the	table	below.	The	"EIN/PN"	column provides	the	Employer	Identification	Number	(EIN)	and	the	three-digit	plan	number	(PN).	The	most	recent	Pension	Protection	Act	(PPA)	zone	status available	for	2013	and	2012	is	for	the	plan	year-ends	as	indicated	below.	The	zone	status	is	based	on	information	that	the	Company	received	from	the plan	and	is	certified	by	the	plan's	actuary.	Among	other	factors,	plans	in	the	red	zone	are	generally	less	than	65	percent	funded,	plans	in	the	yellow	zone are	between	65	percent	and	80	percent	funded,	and	plans	in	the	green	zone	are	at	least	80	percent	funded.	The	"FIP/RP	Status	Pending/Implemented" column	indicates	plans	for	which	a	financial	improvement	plan	(FIP)	or	a	rehabilitation	plan	(RP)	is	either	pending	or	has	been	implemented.	In	addition	to regular	plan	contributions,	the	Company	may	be	subject	to	a	surcharge	if	the	plan	is	in	the	red	zone.	The	"Surcharge	Imposed"	column	indicates	whether a	surcharge	has	been	imposed	on	contributions	to	the	plan.	The	last	column	lists	the	expiration	date(s)	of	the	collective-bargaining	agreement(s)	(CBA)	to which	the	plans	are	subject.

| Pension	trust	fund | EIN/PN | 2013 | 2012 | Implemented | 2013 | 2012 | 2011 | Imposed | CBA |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Bakery\tand\tConfectionary\tUnion\tand\tIndustry\tInternational\tPension\tFund\t(a) | 52-6118572\t/ | Red\t- | Red\t- | Implemented | $5.2 | $4.8 | $4.3 | Yes | 10/31/2015\tto |
|  | 001 | 12/31/2013 | 12/31/2012 |  |  |  |  |  | 4/30/2017 |
| Central\tStates,\tSoutheast\tand\tSouthwest\tAreas\tPension\tFund\t(b) | 36-6044243\t/ | Red\t- | Red\t- | Implemented | 4.5 | 4.3 | 4.1 | Yes | 3/31/2014\tto |
|  | 001 | 12/31/2013\t 12/31/2012 | 12/31/2013\t 12/31/2012 |  |  |  |  |  | 12/31/2016 |
| Western\tConference\tof\tTeamsters\tPension\tTrust\t(\tc\t) | 91-6145047\t/ | Green\t- | Green\t- | N/A | 1.5 | 1.3 | 1.2 | No | 1/31/2015\tto |
|  | 001 | 12/31/2013 | 12/31/2012 |  |  |  |  |  | 3/29/2018 |
| Hagerstown\tMotor\tCarriers\tand\tTeamsters\tPension\tFund | 52-6045424\t/ | Red\t- | Red\t- | Implemented | 0.5 | 0.4 | 0.4 | No | 10/3/2015 |
|  | 001 | 6/30/2014 | 6/30/2013 |  |  |  |  |  |  |
| Local\t734\tPension\tPlan | 51-6040136\t/ | Red\t- | Red\t- | Implemented | 0.3 | 0.3 |  |  |  |
|  | 001 | 4/30/2014 | 4/30/2013 |  |  |  |  |  |  |
| Twin\tCities\tBakery\tDrivers\tPension\tPlan | 41-6172265\t/ | Red\t- | Red\t- | Implemented | 0.2 | 0.2 |  |  |  |
|  | 001 | 12/31/2013\t 12/31/2012 | 12/31/2013\t 12/31/2012 |  |  |  |  |  |  |
| Upstate\tNew\tYork\tBakery\tDrivers\tand\tIndustry\tPension\tFund | 15-0612437\t/ | Green\t- | Green\t- | NA | 0.1 | 0.1 |  |  |  |
|  | 001 | 6/30/2013 | 6/30/2012 |  |  |  |  |  |  |
| Other\tPlans |  |  |  |  | 2.2 | 2.1 |  |  |  |
| Total\tcontributions: |  |  |  |  | \t $14.5\t\t $ | 13.5\t\t $ | 12.6 |  |  |

(a) The	Company	is	party	to	multiple	CBAs	requiring	contributions	to	this	fund,	each	with	its	own	expiration	date.	Over	70	percent	of	the	Company's	participants	in	this	fund	are	covered	by	a	single CBA	that	expires	on	4/30/2017.	Another	CBA,	covering	15%	of	the	Company's	participants	in	this	fund,	expired	in	2013	and	is	currently	under	negotiation.

(b) The	Company	is	party	to	multiple	CBAs	requiring	contributions	to	this	fund,	each	with	its	own	expiration	date.	Over	40	percent	of	the	Company's	participants	in	this	fund	are	covered	by	a	single CBA	that	expires	on	7/27/2014.

(c) The	Company	is	party	to	multiple	CBAs	requiring	contributions	to	this	fund,	each	with	its	own	expiration	date.	Over	40	percent	of	the	Company's	participants	in	this	fund	are	covered	by	a	single CBA	that	expires	on	3/24/2018.

The	Company	was	listed	in	the	Forms	5500	of	the	following	plans	as	of	the	following	plan	year	ends	as	providing	more	than	5	percent	of	total contributions:

At	the	date	the	Company's	financial	statements	were	issued,	Forms	5500	were	not	available	for	the	plan	years	ending	after	June	30,	2013.

In	addition	to	regular	contributions,	the	Company	could	be	obligated	to	pay	additional	amounts,	known	as	a	withdrawal	liability,	if	a	multiemployer	pension plan	has	unfunded	vested	benefits	and	the	Company	decreases	or	ceases	participation	in	that	plan.	The	Company	has	recognized	net	estimated withdrawal	expense	related	to	curtailment	and	special	termination	benefits	associated	with	the	Company's	withdrawal	from	certain	multiemployer	plans aggregating	(in	millions):	2013	–	$0;	2012	–	$(5);	2011	–	$5.

The	final	calculation	of	the	withdrawal	liability	initially	recognized	in	2012	is	pending	the	finalization	of	certain	plan	year-related	data	and	is	therefore subject	to	adjustment.	The	associated	cash	obligation	is	payable	over	a	maximum	20	year	period;	management	has	not	determined	the	actual	period over	which	the	payments	will	be	made.

# Postretirement	benefits

Multiemployer	postretirement	benefit	plans	provide	health	care	and	other	welfare	benefits	to	active	and	retired	employees	who	have	met	certain	age	and service	requirements.	Contributions	to	multiemployer	postretirement	benefit	plans	were	(in	millions):	2013	–	$13;	2012	–	$13;	2011	–	$14.

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

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Income\tbefore\tincome\ttaxes |  |  |  |
| United\tStates | $2,102 | $1,008 | $935 |
| Foreign | 504 | 317 | 249 |
|  | 2,606 | 1,325 | 1,184 |
| Income\ttaxes |  |  |  |
| Currently\tpayable |  |  |  |
| Federal | 302 | 383 | 285 |
| State | 68 | 34 | 26 |
| Foreign | 105 | 105 | 108 |
|  | 475 | 522 | 419 |
| Deferred |  |  |  |
| Federal | 331 | (129) | (57) |
| State | (2) | 8 | 3 |
| Foreign | (12) | (38) | (45) |
|  | 317 | (159) | (99) |
| Total\tincome\ttaxes | $792 | $363 | $320 |

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

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| U.S.\tstatutory\tincome\ttax\trate | 35.0% | 35.0% | 35.0% |
| Foreign\trates\tvarying\tfrom\t35% | (3.5) | (4.4) | (4.9) |
| State\tincome\ttaxes,\tnet\tof\tfederal\tbenefit | 1.7 | 2.1 | 1.6 |
| Cost\t(benefit)\tof\tremitted\tand\tunremitted\tforeign\tearnings | (0.4) | (1.8) | (1.8) |
| Tax\taudit\tactivity | (0.1) | — | (0.5) |
| Net\tchange\tin\tvaluation\tallowances | 0.4 | 0.8 | 0.9 |
| Statutory\trate\tchanges,\tdeferred\ttax\timpact | (0.5) | (0.3) | (0.5) |
| U.S.\tdeduction\tfor\tqualified\tproduction\tactivities | (0.9) | (2.1) | (1.8) |
| Other | (1.3) | (1.9) | (1.0) |
| Effective\tincome\ttax\trate | 30.4% | 27.4% | 27.0% |

The	2013	effective	income	tax	rate	was	negatively	impacted	by	income	generated	from	mark-to-market	adjustments	for	the	Company's	pension	plans that	was	generally	incurred	in	jurisdictions	with	tax	rates	higher	than	the	effective	income	tax	rate.	As	of	December	28,	2013,	the	Company	recorded	a deferred	tax	liability	of	$2	million	related	to	$24	million	of	foreign	earnings	not	considered	indefinitely	reinvested.	Accumulated	foreign	earnings	of approximately	$2.2	billion,	primarily	in	Europe	and	Mexico,	were	considered	indefinitely	reinvested.	Accordingly,	deferred	income	taxes	have	not	been provided	on	these	earnings	and	it	is	not	practical	to	estimate	the	deferred	tax	impact	of	those	earnings.

The	2012	effective	income	tax	rate	benefited	from	the	elimination	of	a	tax	liability	related	to	certain	international	earnings	now	considered	indefinitely reinvested.	As	of	December	29,	2012,	the	Company	recorded	a	deferred	tax	liability	of	$5	million	related	to	$258	million	of	earnings.	Accumulated	foreign earnings	of	approximately	$1.7	billion,	primarily	in	Europe,	were	considered	indefinitely	reinvested.	Accordingly,	deferred	income	taxes	have	not	been provided	on	these	earnings	and	it	is	not	practical	to	estimate	the	deferred	tax	impact	of	those	earnings.

The	2011	effective	income	tax	rate	benefited	from	an	international	legal	restructuring	reflected	in	the	cost	(benefit)	of	remitted	and	unremitted	foreign earnings.	During	the	third	quarter	of	2011,	the	Company	recorded	a	benefit	of	$7	million	from	the	decrease	in	the	statutory	rate	in	the	United	Kingdom.

Management	monitors	the	Company's	ability	to	utilize	certain	future	tax	deductions,	operating	losses	and	tax	credit	carryforwards,	prior	to	expiration. Changes	resulting	from	management's	assessment	will	result	in	impacts	to	deferred	tax	assets	and	the	corresponding	impacts	on	the	effective	income tax	rate.	Valuation	allowances	were	recorded	to	reduce	deferred	tax	assets	to	an	amount	that	will,	more	likely	than	not,	be	realized	in	the	future.	The	total tax	benefit	of	carryforwards	at	year-end	2013	and	2012	were	$55	million	and	$61	million,	respectively,	with	related	valuation	allowances	at	year-end	2013 and	2012	of	$49	million	and	$50	million,	respectively.	Of	the	total	carryforwards	at	year-end	2013,	substantially	all	will	expire	after	2018.

The	following	table	provides	an	analysis	of	the	Company's	deferred	tax	assets	and	liabilities	as	of	year-end	2013	and	2012.	Deferred	tax	assets	on employee	benefits	decreased	in	2013	due	to	increased	asset	returns	and	discount	rate	increases	associated	with	the	Company's	pension	and postretirement	plans.

| (millions) | 2013 | 2012 | 2013 | 2012 |
| :--- | :--- | :--- | :--- | :--- |
| U.S.\tstate\tincome\ttaxes | $13 | $7 | $61 | $63 |
| Advertising\tand\tpromotion-related | 23 | 23 | — | — |
| Wages\tand\tpayroll\ttaxes | 36 | 26 | — | — |
| Inventory\tvaluation | 37 | 22 | — | — |
| Employee\tbenefits | 65 | 426 | — | — |
| Operating\tloss\tand\tcredit\tcarryforwards | 55 | 61 | — | — |
| Hedging\ttransactions | 10 | 2 | — | — |
| Depreciation\tand\tasset\tdisposals | — | — | 366 | 386 |
| Trademarks\tand\tother\tintangibles | — | — | 529 | 496 |
| Deferred\tcompensation | 36 | 39 | — | — |
| Stock\toptions | 36 | 51 | — | — |
| Unremitted\tforeign\tearnings | — | — | 2 | 5 |
| Other | 109 | 90 | — | — |
|  | 420 | 747 | 958 | 950 |
| Less\tvaluation\tallowance | (61) | (59) | — | — |
| Total\tdeferred\ttaxes | $359 | $688 | $958 | $950 |
| Net\tdeferred\ttax\tasset\t(liability) | $(599) | $(262) |  |  |
| Classified\tin\tbalance\tsheet\tas: |  |  |  |  |
| Other\tcurrent\tassets | $195 | $159 |  |  |
| Other\tcurrent\tliabilities | (13) | (8) |  |  |
| Other\tassets | 147 | 110 |  |  |
| Other\tliabilities | (928) | (523) |  |  |
| Net\tdeferred\ttax\tasset\t(liability) | $(599) | $(262) |  |  |

# The	change	in	valuation	allowance	reducing	deferred	tax	assets	was:

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tbeginning\tof\tyear | $59 | $46 | $36 |
| Additions\tcharged\tto\tincome\ttax\texpense | 17 | 12 | 12 |
| Reductions\tcredited\tto\tincome\ttax\texpense | (3) | — | (1) |
| Other\t(a) | (10) | — | — |
| Currency\ttranslation\tadjustments | (2) | 1 | (1) |
| Balance\tat\tend\tof\tyear | $61 | $59 | $46 |

(a) Reduction	due	to	the	disposition	of	a	business	resulting	in	deferred	tax	asset	and	valuation	allowance	being	eliminated.

Cash	paid	for	income	taxes	was	(in	millions):	2013	–	$426;	2012	–	$508;	2011	–	$271.	Income	tax	benefits	realized	from	stock	option	exercises	and deductibility	of	other	equity-based	awards	are	presented	in	Note	7.

# Uncertain	tax	positions

The	Company	is	subject	to	federal	income	taxes	in	the	U.S.	as	well	as	various	state,	local,	and	foreign	jurisdictions.	The	Company's	annual	provision	for U.S.	federal	income	taxes	represents	approximately	80%	of	the	Company's	consolidated	income	tax	provision.	The	Company	was	chosen	to	participate in	the	Internal	Revenue	Service	(IRS)	Compliance	Assurance	Program	(CAP)	beginning	with	the	2008	tax	year.	As	a	result,	with	limited	exceptions,	the Company	is	no	longer	subject	to	U.S.	federal	examinations	by	the	IRS	for	years	prior	to	2012.	The	Company	is	under	examination	for	income	and	non- income	tax	filings	in	various	state	and	foreign	jurisdictions.	The	assessments	previously	issued	by	the	Spanish	tax	authorities	for	the	2005	and	2006	tax years	related	to	intercompany	activity	have	been	resolved	in	the	current	year	with	no	material	impact	to	the	financial	results.

As	of	December	28,	2013,	the	Company	has	classified	$10	million	of	unrecognized	tax	benefits	as	a	current	liability.	Management's	estimate	of reasonably	possible	changes	in	unrecognized	tax	benefits	during	the	next	twelve	months	is	comprised	of	the	current	liability	balance	expected	to	be settled	within	one	year,	offset	by	approximately	$9	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.

Following	is	a	reconciliation	of	the	Company's	total	gross	unrecognized	tax	benefits	as	of	the	years	ended	December	28,	2013,	December	29,	2012	and December	31,	2011.	For	the	2013	year,	approximately	$56	million	represents	the	amount	that,	if	recognized,	would	affect	the	Company's	effective income	tax	rate	in	future	periods.

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tbeginning\tof\tyear | $80 | $66 | $104 |
| Tax\tpositions\trelated\tto\tcurrent\tyear: |  |  |  |
| Additions | 9 | 8 | 7 |
| Tax\tpositions\trelated\tto\tprior\tyears: |  |  |  |
| Additions | 17 | 14 | 8 |
| Reductions | (13) | (4) | (19) |
| Settlements | (14) | (1) | (27) |
| Lapses\tin\tstatutes\tof\tlimitation | — | (3) | (7) |
| Balance\tat\tend\tof\tyear | $79 | $80 | $66 |

For	the	year	ended	December	28,	2013,	the	Company	recognized	an	increase	of	$4	million	of	tax-related	interest	and	penalties	and	cash	settlements	of $6	million,	resulting	in	an	accrual	balance	of	$17	million	at	year	end.	For	the	year	ended	December	29,	2012,	the	Company	recognized	an	increase	of $4	million	of	tax-related	interest	and	penalties	and	had	$19	million	accrued	at	December	29,	2012.	For	the	year	ended

December	31,	2011,	the	Company	recognized	a	decrease	of	$3	million	of	tax-related	interest	and	penalties	and	had	approximately	$16	million	accrued	at December	31,	2011.

# 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	financial	and	commodity	instruments,	including	futures,	options,	and	swaps, where	appropriate,	to	manage	these	risks.	Instruments	used	as	hedges	must	be	effective	at	reducing	the	risk	associated	with	the	exposure	being	hedged and	must	be	designated	as	a	hedge	at	the	inception	of	the	contract.

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

Total	notional	amounts	of	the	Company's	derivative	instruments	as	of	December	28,	2013	and	December	29,	2012	were	as	follows:

| (millions) | 2013 | 2012 |
| :--- | :--- | :--- |
| Foreign\tcurrency\texchange\tcontracts | $517 | $570 |
| Interest\trate\tcontracts | 2,400 | 2,150 |
| Commodity\tcontracts | 361 | 320 |
| Total | $3,278 | $3,040 |

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	December	28,	2013	and	December	29,	2012,	measured	on	a	recurring	basis.

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

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

The	Company's	calculation	of	the	fair	value	of	interest	rate	swaps	is	derived	from	a	discounted	cash	flow	analysis	based	on	the	terms	of	the	contract	and the	interest	rate	curve.	Over-the-counter	commodity	derivatives	are	valued	using	an	income	approach	based	on	the	commodity	index	prices	less	the contract	rate	multiplied	by	the	notional	amount.	Foreign	currency	contracts	are	valued	using	an	income	approach	based	on	forward	rates	less	the contract	rate	multiplied	by	the	notional	amount.	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	December	28,	2013	or	December	29, 2012.

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

# Derivatives	designated	as	hedging	instruments:

|  |  | 2013 |  |  | 2012 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (millions) | Level\t1 | Level\t2 | Total | Level\t1 | Level\t2 | Total |
| Assets: |  |  |  |  |  |  |
| Foreign\tcurrency\texchange\tcontracts: |  |  |  |  |  |  |
| Other\tcurrent\tassets | $— | $7 | $7 | $— | $4 | $4 |
| Interest\trate |  |  |  |  |  |  |
| contracts\t(a): |  |  |  |  |  |  |
| Other\tassets | — | — | — | — | 64 | 64 |
| Total\tassets | $— | $7 | $7 | $— | $68 | $68 |
| Liabilities: |  |  |  |  |  |  |
| Foreign\tcurrency\texchange\tcontracts: |  |  |  |  |  |  |
| Other\tcurrent\tliabilities | $— | $(8) | $(8) | $— | $(3) | $(3) |
| Interest\trate\tcontracts: |  |  |  |  |  |  |
| Other\tliabilities | — | (59) | (59) | — | — | — |
| Commodity\tcontracts: |  |  |  |  |  |  |
| Other\tcurrent\tliabilities | — | (9) | (9) | — | (11) | (11) |
| Other\tliabilities | — | (19) | (19) | — | (27) | (27) |
| Total\tliabilities | $— | $(95) | $(95) | $— | $(41) | $ (41) |

(a) The	fair	value	of	the	related	hedged	portion	of	the	Company's	long-term	debt,	a	level	2	liability,	was	$2.5	billion	as	of	December	28,	2013	and	$2.3	billion	as	of	December	29,	2012:

# Derivatives	not	designated	as	hedging	instruments:

|  |  | 2013 |  |  | 2012 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (millions) | Level\t1 | Level\t2 | Total | Level\t1 | Level\t2 | Total |
| Assets: |  |  |  |  |  |  |
| Commodity\tcontracts: |  |  |  |  |  |  |
| Other\tcurrent\tassets | $3 | $— | $3 | $5 | $— | $5 |
| Total\tassets | $3 | $— | $3 | $5 | $— | $5 |
| Liabilities: |  |  |  |  |  |  |
| Commodity\tcontracts: |  |  |  |  |  |  |
| Other\tcurrent\tliabilities | $(7) | $— | $(7) | $(3) | $— | $(3) |
| Total\tliabilities | $(7) | $— | $(7) | $(3) | $— | $(3) |

The	effect	of	derivative	instruments	on	the	Consolidated	Statement	of	Income	for	the	years	ended	December	28,	2013	and	December	29,	2012	were	as follows:

# Derivatives	in	fair	value	hedging	relationships

| (millions) | Location	of<br>gain	(loss)<br>recognized	in<br>income | Gain	(loss)<br>recognized	in<br>income	(a) | Gain	(loss)<br>recognized	in<br>income	(a) |
| :--- | :--- | :--- | :--- |
|  |  | \t\t 2013 | 2012 |
| Foreign\tcurrency\texchange\tcontracts | \t\t OIE | \t\t $2 | $(1) |
| Interest\trate\tcontracts | Interest |  |  |
|  | expense | (5) | 5 |
| Total |  | \t\t $(3) | $4 |

(a) Includes	the	ineffective	portion	and	amount	excluded	from	effectiveness	testing.

# Derivatives	in	cash	flow	hedging	relationships

| (millions) | Gain	(loss)<br>												recognized	in<br>												AOCI | Gain	(loss)<br>												recognized	in<br>												AOCI | Location	of<br>gain	(loss)<br>reclassified<br>from	AOCI | Gain	(loss)<br>												reclassified	from	AOCI<br>												into	income |  | Location	of<br>gain	(loss)<br>recognized	in<br>income	(a) | Gain	(loss)<br>recognized	in<br>income	(a) | Gain	(loss)<br>recognized	in<br>income	(a) |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2013 | 2012 |  | 2013 | 2012 |  | 2013 | 2012 |
| Foreign\tcurrency\texchange | $13 | $— | COGS | $\t10 | $(1) | OIE | $— | $— |
| contracts |  |  |  |  |  |  |  |  |
| Foreign\tcurrency\texchange | (2) | 1 | SGA\texpense | 2 | 2 | OIE | — | — |
| contracts |  |  |  |  |  |  |  |  |
| Interest\trate\tcontracts | — | — | Interest\texpense | 4 | 4\t\t\t\t\tN/A | 4\t\t\t\t\tN/A | — | — |
| Commodity\tcontracts | — | (6) | COGS | (10) | (19)\t\t\t\tOIE | (19)\t\t\t\tOIE | — | — |
| Total | $11 | $(5) |  | $\t\t\t6 | $(14) |  | $— | $— |

# Derivatives	in	net	investment	hedging	relationships

| (millions) | 2013 | 2012 |
| :--- | :--- | :--- |
| Foreign\tcurrency\texchange\tcontracts | $— | $5 |
| Total | $— | $5 |

|  | Location	of<br>gain	(loss)<br>recognized	in<br>income | Gain	(loss)<br>recognized	in<br>income |  |
| :--- | :--- | :--- | :--- |
| (millions) |  | 2013 | 2012 |
| Foreign\tcurrency\texchange\tcontracts | \tOIE | $\t\t\t3 | $\t\t— |
| Interest\trate\tcontracts | Interest | — | (1) |
|  | expense |  |  |
| Commodity\tcontracts | \tCOGS | (37) | \t(10) |
| Total |  | $(34) | $(11) |

During	the	next	12	months,	the	Company	expects	$5	million	of	net	deferred	losses	reported	in	accumulated	other	comprehensive	income	(AOCI)	at December	28,	2013	to	be	reclassified	to	income,	assuming	market	rates	remain	constant	through	contract	maturities.

Certain	of	the	Company's	derivative	instruments	contain	provisions	requiring	the	Company	to	post	collateral	on	those	derivative	instruments	that	are	in	a liability	position	if	the	Company's	credit	rating	falls	below	BB+	(S&P),	or	Baa1	(Moody's).	The	fair	value	of

all	derivative	instruments	with	credit-risk-related	contingent	features	in	a	liability	position	on	December	28,	2013	was	$87	million.	If	the	credit-risk-related contingent	features	were	triggered	as	of	December	28,	2013,	the	Company	would	be	required	to	post	additional	collateral	of	$78	million.	In	addition, certain	derivative	instruments	contain	provisions	that	would	be	triggered	in	the	event	the	Company	defaults	on	its	debt	agreements.	There	were	no collateral	posting	requirements	as	of	December	28,	2013	triggered	by	credit-risk-related	contingent	features,	however	there	was	$9	million	of	collateral posted	under	the	reciprocal	agreements	as	discussed	under	the	counterparty	credit	risk	concentration	below.

# Other	fair	value	measurements

# 2013	Fair	Value	Measurements	on	a	Nonrecurring	Basis

On	November	4,	2013,	the	Company	announced	Project	K,	a	four-year	efficiency	and	effectiveness	program.	As	part	of	Project	K	the	Company	will	be consolidating	the	usage	of	and	disposing	certain	long-lived	assets,	including	manufacturing	facilities	and	Corporate	owned	assets	over	the	term	of	the program.	In	the	fourth	quarter	of	2013,	long-lived	assets	of	$97	million,	including	manufacturing	facilities	in	our	U.S.	Morning	Foods	and	Asia	Pacific reporting	units	and	certain	Corporate	owned	assets,	were	written	down	to	an	estimated	fair	value	of	$31	million	due	to	Project	K.	The	Company's calculation	of	the	fair	value	of	long-lived	assets	is	based	on	Level	3	inputs,	including	market	comparables,	market	trends	and	the	condition	of	the	assets. See	Note	3	for	more	information.

During	2013,	the	Company	recognized	asset	impairment	charges	totaling	$4	million	on	the	manufacturing	facility	in	Australia	closed	during	2012	and currently	held	for	sale.

In	the	fourth	quarter	of	2012,	a	$17	million	asset	impairment	was	recognized	related	the	closure	of	a	manufacturing	facility	in	Australia.	The	long-lived assets	and	supplies	associated	with	this	facility	were	written	down	to	fair	value	of	$11	million.	The	Company's	calculation	of	the	fair	value	of	long-lived assets	was	based	on	Level	3	inputs,	including	market	comparables,	market	trends	and	the	condition	of	the	assets.	See	Note	3	for	more	information.

The	following	table	presents	level	3	assets	that	were	measured	at	fair	value	on	the	Consolidated	Balance	Sheet	on	a	nonrecurring	basis	as	of December	28,	2013:

| (millions) | Fair	Value | Total	Loss |
| :--- | :--- | :--- |
| Description: |  |  |
| Long-lived\tassets | $38 | $(70) |
| Total | $38 | $(70) |

| (millions) | Fair	Value | Total	Loss |
| :--- | :--- | :--- |
| Description: |  |  |
| Long-lived\tassets | $11 | $(17) |
| Total | $11 | $(17) |

# Financial	instruments

The	carrying	values	of	the	Company's	short-term	items,	including	cash,	cash	equivalents,	accounts	receivable,	accounts	payable	and	notes	payable approximate	fair	value.	The	fair	value	of	the	Company's	long-term	debt,	which	are	level	2	liabilities,	is	calculated	based	on	broker	quotes	and	was	as follows	at	December	28,	2013:

# Counterparty	credit	risk	concentration

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

Master	netting	agreements	apply	in	situations	where	the	Company	executes	multiple	contracts	with	the	same	counterparty.	If	these	counterparties	fail	to perform	according	to	the	terms	of	derivative	contracts,	this	could	result	in	a	loss	to	the	Company.	As	of	December	28,	2013,	there	were	no	counterparties that	represented	a	significant	concentration	of	credit	risk	to	the	Company.

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.	As	of	December	28,	2013,	the Company	had	posted	collateral	of	$9	million	in	the	form	of	cash,	which	was	reflected	as	an	increase	in	accounts	receivable	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	29%	of	consolidated	trade	receivables	at	December	28,	2013.

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

# PRODUCT	RECALL

During	2012	the	Company	recorded	charges	in	connection	with	a	recall	of	certain	packages	of	 Mini-Wheats	cereal	in	the	U.S.	and	Canada	due	to	the possible	presence	of	fragments	of	flexible	metal	mesh	from	a	faulty	manufacturing	part.	The	Company	recorded	estimated	customer	returns	and consumer	rebates	as	a	reduction	of	net	sales	and	costs	associated	with	returned	product	and	the	disposal	and	write-off	of	inventory	as	COGS.

The	following	table	presents	a	summary	of	charges	related	to	the	above	recall	for	the	year	ended	December	29,	2012:

| (millions,	except	per	share	amount) | 2012 |
| :--- | :--- |
| Reduction\tof\tnet\tsales | $14 |
| COGS | 12 |
| Total | $26 |
| Impact\ton\tearnings\tper\tdiluted\tshare | $(0.05) |

# 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.

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	December	28,	2013. 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.

# QUARTERLY	FINANCIAL	DATA	(unaudited)

The	principal	market	for	trading	Kellogg	shares	is	the	New	York	Stock	Exchange	(NYSE).	At	December	28,	2013,	the	closing	price	(on	the	NYSE)	was $60.98	and	there	were	38,271	shareholders	of	record.

Dividends	paid	per	share	and	the	quarterly	price	ranges	on	the	NYSE	during	the	last	two	years	were:

| 2013	—	Quarter | per	share | High | Low |
| :--- | :--- | :--- | :--- |
| First | $0.44 | $64.75 | $55.02 |
| Second | 0.44 | 66.84 | 61.03 |
| Third | 0.46 | 67.98 | 58.59 |
| Fourth | 0.46 | 64.92 | 58.01 |
|  | $1.80 |  |  |
| 2012\t—\tQuarter |  |  |  |
| First | $0.43 | $53.86 | $49.07 |
| Second | 0.43 | 54.20 | 47.88 |
| Third | 0.44 | 52.15 | 46.33 |
| Fourth | 0.44 | 57.21 | 51.27 |

During	2013,	the	Company	recorded	the	following	charges	/	(gains)	in	operating	profit:

|  |  |  | 2013 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (millions) | First | Second | Third | Fourth | Full\tYear |
| Asset\timpairment\tand\texit\tcosts | $ 13 | $7 | $27 | $203 | $250 |
| (Gains)\t/\tlosses\ton\tmark-to-market\tadjustments | 54 | 7 | (2) | (1,006) | (947) |
|  | $ 67 | $14 | $25 | $(803) | $(697) |

| (millions) | First | Second | Third | Fourth | Full	Year |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Asset\timpairment\tand\texit\tcosts | $9 | $9 | $11 | $27 | $56 |
| (Gains)\t/\tlosses\ton\tmark-to-market\tadjustments | 50 | — | — | 402 | 452 |
|  | $ 59 | $9 | $11 | $429 | $508 |

# REPORTABLE	SEGMENTS

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

The	Company	has	the	following	reportable	segments:	U.S.	Morning	Foods;	U.S.	Snacks;	U.S.	Specialty;	North	America	Other;	Europe;	Latin	America; and	Asia	Pacific.	The	Company	manages	its	operations	through	eight	operating	segments	that	are	based	on	product	category	or	geographic	location. These	operating	segments	are	evaluated	for	similarity	with	regards	to	economic	characteristics,	products,	production	processes,	types	or	classes	of customers,	distribution	methods	and	regulatory	environments	to	determine	if	they	can	be	aggregated	into	reportable	segments.	Beginning	in	the	first quarter	of	2013,	the	Kashi	operating	segment,	which	was	formerly	aggregated	with	the	U.S.	Morning	Foods	operating	segment	and	reported	as	U.S. Morning	Foods	and	Kashi,	was	revised	due	to	a	reorganization	of	the	business.	Kashi	operating	segment	results	of	prior	years	were	recast	between	U.S. Morning	Foods	and	U.S.	Snacks	to	conform	with	current	presentation.	The	reportable	segments	are	discussed	in	greater	detail	below.

The	U.S.	Morning	Foods	operating	segment	includes	cereal,	toaster	pastries,	and	health	and	wellness	business	bars,	and	beverages.

U.S.	Snacks	includes	cookies,	crackers,	cereal	bars,	savory	snacks	and	fruit-flavored	snacks.

U.S.	Specialty	includes	the	food	service	and	Girl	Scouts	business.	The	food	service	business	is	mostly	non-commercial,	serving	institutions	such	as schools	and	hospitals.

North	America	Other	includes	the	U.S.	Frozen	and	Canada	operating	segments.	As	these	operating	segments	are	not	considered	economically	similar enough	to	aggregate	with	other	operating	segments	and	are	immaterial	for	separate	disclosure,	they	have	been	grouped	together	as	a	single	reportable segment.

The	three	remaining	reportable	segments	are	based	on	geographic	location	—	Europe	which	consists	principally	of	European	countries;	Latin	America which	is	comprised	of	Central	and	South	America	and	includes	Mexico;	and	Asia	Pacific	which	is	comprised	of	South	Africa,	Australia	and	other	Asian and	Pacific	markets.

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.	Intercompany	transactions	between	operating	segments	were	insignificant	in	all	periods	presented.

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Net\tsales |  |  |  |
| U.S.\tMorning\tFoods | $3,465 | $3,533 | $3,450 |
| U.S.\tSnacks | 3,534 | 3,400 | 3,044 |
| U.S.\tSpecialty | 1,202 | 1,121 | 1,008 |
| North\tAmerica\tOther | 1,515 | 1,485 | 1,371 |
| Europe | 2,860 | 2,527 | 2,334 |
| Latin\tAmerica | 1,195 | 1,121 | 1,049 |
| Asia\tPacific | 1,021 | 1,010 | 942 |
| Consolidated | $14,792 | $14,197 | $13,198 |
| Operating\tprofit |  |  |  |
| U.S.\tMorning\tFoods | $485 | $588 | $609 |
| U.S.\tSnacks | 447 | 476 | 439 |
| U.S.\tSpecialty | 265 | 241 | 231 |
| North\tAmerica\tOther | 275 | 265 | 250 |
| Europe | 256 | 261 | 302 |
| Latin\tAmerica | 157 | 167 | 176 |
| Asia\tPacific | 60 | 85 | 104 |
| Total\tReportable\tSegments | 1,945 | 2,083 | 2,111 |
| Corporate | 892 | (521) | (684) |
| Consolidated | $2,837 | $1,562 | $1,427 |
| Depreciation\tand\tamortization\t(a) |  |  |  |
| U.S.\tMorning\tFoods | $181 | $132 | $130 |
| U.S.\tSnacks | 144 | 123 | 92 |
| U.S.\tSpecialty | 8 | 5 | 5 |
| North\tAmerica\tOther | 30 | 34 | 30 |
| Europe | 84 | 66 | 57 |
| Latin\tAmerica | 29 | 26 | 20 |
| Asia\tPacific | 40 | 55 | 27 |
| Total\tReportable\tSegments | 516 | 441 | 361 |
| Corporate | 16 | 7 | 8 |
| Consolidated | $532 | $448 | $369 |

(a) Includes	asset	impairment	charges	as	discussed	in	Note	12.

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

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Interest\texpense |  |  |  |
| North\tAmerica\tOther | $6 | $4 | $— |
| Europe | 6 | 4 | 4 |
| Latin\tAmerica | 1 | 4 | 6 |
| Asia\tPacific | 3 | 4 | 2 |
| Corporate | 219 | 245 | 221 |
| Consolidated | $235 | $261 | $233 |
| Income\ttaxes |  |  |  |
| Europe | $4 | $(21) | $31 |
| Latin\tAmerica | 35 | 36 | 49 |
| Asia\tPacific | 6 | 9 | 21 |
| Corporate\t&amp;\tNorth\tAmerica | 747 | 339 | 219 |
| Consolidated | $792 | $363 | $320 |

Management	reviews	balance	sheet	information,	including	total	assets,	based	on	geography.	For	all	North	American-based	operating	segments,	balance sheet	information	is	reviewed	by	Management	in	total	and	not	on	an	individual	operating	segment	basis.

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Total\tassets |  |  |  |
| North\tAmerica | $10,643 | $10,602 | $9,128 |
| Europe | 3,007 | 3,014 | 1,584 |
| Latin\tAmerica | 1,052 | 861 | 798 |
| Asia\tPacific | 1,049 | 1,107 | 529 |
| Corporate | 2,583 | 3,384 | 2,317 |
| Elimination\tentries | (2,860) | (3,799) | (2,413) |
| Consolidated | $15,474 | $15,169 | $11,943 |
| Additions\tto\tlong-lived\tassets |  |  |  |
| North\tAmerica | $296 | $549 | $421 |
| Europe | 182 | 209 | 61 |
| Latin\tAmerica | 70 | 40 | 53 |
| Asia\tPacific | 85 | 79 | 54 |
| Corporate | 4 | 14 | 5 |
| Consolidated | $637 | $891 | $594 |

The	Company's	largest	customer,	Wal-Mart	Stores,	Inc.	and	its	affiliates,	accounted	for	approximately	21%	of	consolidated	net	sales	during	2013,	20% in	2012,	and	20%	in	2011,	comprised	principally	of	sales	within	the	United	States.

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

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Net\tsales |  |  |  |
| United\tStates | $9,060 | $8,875 | $8,239 |
| All\tother\tcountries | 5,732 | 5,322 | 4,959 |
| Consolidated | $14,792 | $14,197 | $13,198 |
| Long-lived\tassets |  |  |  |
| United\tStates | $2,343 | $2,427 | $2,151 |
| All\tother\tcountries | 1,513 | 1,355 | 1,130 |
| Consolidated | $3,856 | $3,782 | $3,281 |

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

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Retail\tchannel\tcereal | $6,451 | $6,652 | $6,730 |
| Retail\tchannel\tsnacks | 6,625 | 5,891 | 4,949 |
| Frozen\tand\tspecialty\tchannels | 1,716 | 1,654 | 1,519 |
| Consolidated | $14,792 | $14,197 | $13,198 |

# SUPPLEMENTAL	FINANCIAL	STATEMENT	DATA

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Research\tand\tdevelopment\texpense | $199 | $206 | $192 |
| Advertising\texpense | $1,131 | $1,120 | $1,138 |

| (millions) | 2013 | 2012 |
| :--- | :--- | :--- |
| Trade\treceivables | $1,231 | $1,185 |
| Allowance\tfor\tdoubtful\taccounts | (5) | (6) |
| Refundable\tincome\ttaxes | 52 | 68 |
| Other\treceivables | 146 | 207 |
| Accounts\treceivable,\tnet | $1,424 | $1,454 |
| Raw\tmaterials\tand\tsupplies | $319 | $300 |
| Finished\tgoods\tand\tmaterials\tin\tprocess | 929 | 1,065 |
| Inventories | $1,248 | $1,365 |
| Deferred\tincome\ttaxes | $195 | $152 |
| Other\tprepaid\tassets | 127 | 128 |
| Other\tcurrent\tassets | $322 | $280 |
| Land | $125 | $117 |
| Buildings | 2,155 | 2,084 |
| Machinery\tand\tequipment | 6,059 | 5,978 |
| Capitalized\tsoftware | 325 | 279 |
| Construction\tin\tprogress | 693 | 533 |
| Accumulated\tdepreciation | (5,501) | (5,209) |
| Property,\tnet | $3,856 | $3,782 |
| Other\tintangibles | $2,429 | $2,412 |
| Accumulated\tamortization | (62) | (53) |
| Other\tintangibles,\tnet | $2,367 | $2,359 |
| Pension | $419 | $145 |
| Other | 514 | 465 |
| Other\tassets | $933 | $610 |
| Accrued\tincome\ttaxes | $69 | $46 |
| Accrued\tsalaries\tand\twages | 327 | 266 |
| Accrued\tadvertising\tand\tpromotion | 476 | 517 |
| Other | 503 | 472 |
| Other\tcurrent\tliabilities | $1,375 | $1,301 |
| Nonpension\tpostretirement\tbenefits | $68 | $281 |
| Other | 429 | 409 |
| Other\tliabilities | $497 | $690 |

| (millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tbeginning\tof\tyear | $6 | $8 | $10 |
| Additions\tcharged\tto\texpense | 2 | 1 | — |
| Doubtful\taccounts\tcharged\tto\treserve | (3) | (3) | (2) |
| Balance\tat\tend\tof\tyear | $5 | $6 | $8 |

# SUBSEQUENT	EVENTS

On	February	24,	2014,	the	Company	announced	an	offer	to	purchase	up	to	$700	million	aggregate	principal	of	its	3.125%	U.S.	Dollar	Debentures	due 2022,	2.75%	U.S.	Dollar	Notes	due	2023	and	4.0%	U.S.	Dollar	Notes	due	2020.	The	offer	to	purchase	expires	March	21,	2014,	subject	to	early termination	or	extension	at	the	Company's	discretion.	The	Company	intends	to	fund	the	purchase	with	the	issuance	of	commercial	paper.

# Management's	Responsibility	for	Financial	Statements

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

The	independent	registered	public	accounting	firm	audits	the	Company's	consolidated	financial	statements	in	accordance	with	the	standards	of	the Public	Company	Accounting	Oversight	Board	and	provides	an	objective,	independent	review	of	the	fairness	of	reported	operating	results	and	financial position.

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

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

# Management's	Report	on	Internal	Control	over	Financial	Reporting

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

We	conducted	an	evaluation	of	the	effectiveness	of	our	internal	control	over	financial	reporting	based	on	the	framework	in	Internal	Control	—	Integrated Framework	(1992)	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.

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

Based	on	our	evaluation	under	the	framework	in	Internal	Control	—	Integrated	Framework	(1992),	management	concluded	that	our	internal	control	over financial	reporting	was	effective	as	of	December	28,	2013.	The	effectiveness	of	our	internal	control	over	financial	reporting	as	of	December	28,	2013	has been	audited	by	PricewaterhouseCoopers	LLP,	an	independent	registered	public	accounting	firm,	as	stated	in	their	report	which	follows.

# John	A.	Bryant

Ronald	L.	Dissinger

Senior	Vice	President	and	Chief	Financial	Officer

# Report	of	Independent	Registered	Public	Accounting	Firm

# To	the	Shareholders	and	Board	of	Directors	of	Kellogg	Company

In	our	opinion,	the	consolidated	financial	statements	listed	in	the	index	appearing	under	Item	15(a)(1)	present	fairly,	in	all	material	respects,	the	financial position	of	Kellogg	Company	and	its	subsidiaries	at	December	28,	2013	and	December	29,	2012,	and	the	results	of	their	operations	and	their	cash	flows for	each	of	the	three	years	in	the	period	ended	December	28,	2013	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	of America.	Also	in	our	opinion,	the	Company	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	December	28, 2013,	based	on	criteria	established	in	Internal	Control	—	Integrated	Framework	(1992)	issued	by	the	Committee	of	Sponsoring	Organizations	of	the Treadway	Commission	(COSO).	The	Company's	management	is	responsible	for	these	financial	statements,	for	maintaining	effective	internal	control	over financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting,	included	in	the	accompanying	Management's Report	on	Internal	Control	over	Financial	Reporting.	Our	responsibility	is	to	express	opinions	on	these	financial	statements	and	on	the	Company's internal	control	over	financial	reporting	based	on	our	integrated	audits.	We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and	perform	the	audits	to	obtain	reasonable	assurance	about	whether the	financial	statements	are	free	of	material	misstatement	and	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material respects.	Our	audits	of	the	financial	statements	included	examining,	on	a	test	basis,	evidence	supporting	the	amounts	and	disclosures	in	the	financial statements,	assessing	the	accounting	principles	used	and	significant	estimates	made	by	management,	and	evaluating	the	overall	financial	statement presentation.	Our	audit	of	internal	control	over	financial	reporting	included	obtaining	an	understanding	of	internal	control	over	financial	reporting, assessing	the	risk	that	a	material	weakness	exists,	and	testing	and	evaluating	the	design	and	operating	effectiveness	of	internal	control	based	on	the assessed	risk.	Our	audits	also	included	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audits provide	a	reasonable	basis	for	our	opinions.

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

Detroit,	Michigan

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

# ITEM	9A.	CONTROLS	AND	PROCEDURES

(a)	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	December	28,	2013,	management	carried	out	an	evaluation	under	the	supervision	and	with	the	participation	of	our	Chief	Executive	Officer	and	our Chief	Financial	Officer,	of	the	effectiveness	of	the	design	and	operation	of	our	disclosure	controls	and	procedures.	Based	on	the	foregoing,	our	Chief Executive	Officer	and	Chief	Financial	Officer	concluded	that	our	disclosure	controls	and	procedures	were	effective	at	the	reasonable	assurance	level.

(b)	Pursuant	to	Section	404	of	the	Sarbanes-Oxley	Act	of	2002,	we	have	included	a	report	of	management's	assessment	of	the	design	and	effectiveness of	our	internal	control	over	financial	reporting	as	part	of	this	Annual	Report	on	Form	10-K.	The	independent	registered	public	accounting	firm	of PricewaterhouseCoopers	LLP	also	attested	to,	and	reported	on,	the	effectiveness	of	our	internal	control	over	financial	reporting.	Management's	report and	the	independent	registered	public	accounting	firm's	attestation	report	are	included	in	our	2013	financial	statements	in	Item	8	of	this	Report	under	the captions	entitled	"Management's	Report	on	Internal	Control	over	Financial	Reporting"	and	"Report	of	Independent	Registered	Public	Accounting	Firm" and	are	incorporated	herein	by	reference.

(c)	During	the	first	quarter	of	2012,	we	initiated	the	implementation	of	an	upgrade	to	our	existing	enterprise	resource	planning	(ERP)	system	within	North America.	This	implementation	has	resulted	in	the	modification	of	certain	business	processes	and	internal	controls	impacting	financial	reporting.	During the	implementation,	which	is	expected	to	continue	into	2014,	we	have	taken	the	necessary	steps	to	monitor	and	maintain	appropriate	internal	controls impacting	financial	reporting.	It	is	anticipated	that,	upon	completion,	implementation	of	this	new	ERP	will	enhance	internal	controls	due	to	increased automation	and	further	integration	of	related	processes.

There	have	been	no	other	changes	in	our	internal	control	over	financial	reporting	that	have	materially	affected,	or	are	reasonably	likely	to	materially	affect, our	internal	control	over	financial	reporting.

# ITEM	9B.	OTHER	INFORMATION

# PART	III

# ITEM	10.	DIRECTORS,	EXECUTIVE	OFFICERS	AND	CORPORATE	GOVERNANCE

Directors	—	Refer	to	the	information	in	our	Proxy	Statement	to	be	filed	with	the	Securities	and	Exchange	Commission	for	the	Annual	Meeting	of Shareowners	to	be	held	on	April	25,	2014	(the	"Proxy	Statement"),	under	the	caption	"Proposal	1	—	Election	of	Directors,"	which	information	is incorporated	herein	by	reference.

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

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

For	information	concerning	Section	16(a)	of	the	Securities	Exchange	Act	of	1934	— 	Refer	to	the	information	under	the	caption	"Security Ownership	—	Section	16(a)	Beneficial	Ownership	Reporting	Compliance"	of	the	Proxy	Statement,	which	information	is	incorporated	herein	by	reference.

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

# ITEM	11.	EXECUTIVE	COMPENSATION

Refer	to	the	information	under	the	captions	"2013	Director	Compensation	and	Benefits,"	"Compensation	Discussion	and	Analysis,"	"Executive Compensation,"	"Retirement	and	Non-Qualified	Defined	Contribution	and	Deferred	Compensation	Plans,"	and	"Potential	Post-Employment	Payments"	of the	Proxy	Statement,	which	is	incorporated	herein	by	reference.	See	also	the	information	under	the	caption	"Compensation	Committee	Report"	of	the Proxy	Statement,	which	information	is	incorporated	herein	by	reference;	however,	such	information	is	only	"furnished"	hereunder	and	not	deemed	"filed" for	purposes	of	Section	18	of	the	Securities	Exchange	Act	of	1934.

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

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

# Securities	Authorized	for	Issuance	Under	Equity	Compensation	Plans

|  |  | Weighted-average | remaining	available	for |
| :--- | :--- | :--- | :--- |
|  | Number\tof\tsecurities\tto | exercise\tprice\tof | future\tissuance\tunder |
| (millions,\texcept\tper\tshare\tdata) | be\tissued\tupon\texercise | outstanding\toptions, | equity\tcompensation |
|  | of\toutstanding\toptions, | warrants\tand | plans\t(excluding\tsecurities |
|  | warrants\tand\trights\tas | rights\tas\tof | reflected\tin\tcolumn\t(a)\tas |
| Plan\tcategory | of\tDecember\t28,\t2012\t(a) | December\t28,\t2013\t(b) | of\tDecember\t28,\t2013\t(c)* |
| Equity\tcompensation\tplans\tapproved\tby\tsecurity\tholders | 19.2 | $54 | 27.5 |
| Equity\tcompensation\tplans\tnot\tapproved\tby\tsecurity |  |  |  |
| holders | — | NA | 0.3 |
| Total | 19.2 | $54 | 27.8 |

* The	total	number	of	shares	remaining	available	for	issuance	under	the	2013	Long-term	Incentive	Plan	will	be	reduced	by	two	shares	for	each	share	issued	pursuant	to	an	award	other	than	a stock	option	or	stock	appreciation	right,	or	potentially	issuable	pursuant	to	an	outstanding	award	other	than	a	stock	option	or	stock	appreciation	right,	which	will	in	each	case	reduce	the	total number	of	shares	remaining	by	one	share	for	each	share	issued.

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

Under	the	Kellogg	Share	Incentive	Plan,	eligible	U.K.	employees	may	contribute	up	to	1,500	Pounds	Sterling	annually	to	the	plan	through	payroll deductions.	The	trustees	of	the	plan	use	those	contributions	to	buy	shares	of	our	common	stock	at	fair	market	value	on	the	open	market,	with	Kellogg matching	those	contributions	on	a	1:1	basis.	Shares	must	be	withdrawn	from	the	plan	when	employees	cease	employment.	Under	current	law,	eligible employees	generally	receive	certain	income	and	other	tax	benefits	if	those	shares	are	held	in	the	plan	for	a	specified	number	of	years.	A	similar	plan	is also	available	to	employees	in	the	Republic	of	Ireland.	As	these	plans	are	open	market	plans	with	no	set	overall	maximum,	no	amounts	for	these	plans are	included	in	the	above	table.	However,	approximately	58,000	shares	were	purchased	by	eligible	employees	under	the	Kellogg	Share	Incentive	Plan, the	plan	for	the	Republic	of	Ireland	and	other	similar	predecessor	plans	during	2013,	with	approximately	an	additional	58,000	shares	being	provided	as matched	shares.

The	Deferred	Compensation	Plan	for	Non-Employee	Directors	was	amended	and	restated	during	2013.	Under	the	Deferred	Compensation	Plan	for	Non- Employee	Directors,	non-employee	Directors	may	elect	to	defer	all	or	part	of	their	compensation	(other	than	expense	reimbursement)	into	units	which	are credited	to	their	accounts.	The	units	have	a	value	equal	to	the	fair	market	value	of	a	share	of	our	common	stock	on	the	appropriate	date,	with	dividend equivalents	being	earned	on	the	whole	units	in	non-employee	Directors'	accounts.	Units	must	be	paid	in	shares	of	our	common	stock,	either	in	a	lump sum	or	in	up	to	ten	annual	installments,	with	the	installments	to	begin	as	soon	as	practicable	after	the	non-employee	Director's	service	as	a	Director terminates.	No	more	than	300,000	shares	are	authorized	for	use	under	this	plan,	of	which	approximately	1,000	had	been	issued	as	of	December	28, 2013.

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

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

# ITEM	14.	PRINCIPAL	ACCOUNTANT	FEES	AND	SERVICES

Refer	to	the	information	under	the	captions	"Proposal	4	—	Ratification	of	PricewaterhouseCoopers	LLP	—	Fees	Paid	to	Independent	Registered	Public Accounting	Firm"	and	"Proposal	4	—	Ratification	of	PricewaterhouseCoopers	LLP	—	Preapproval	Policies	and	Procedures"	of	the	Proxy	Statement, which	information	is	incorporated	herein	by	reference.

# PART	IV

# ITEM	15.	EXHIBITS,	FINANCIAL	STATEMENT	SCHEDULES

The	Consolidated	Financial	Statements	and	related	Notes,	together	with	Management's	Report	on	Internal	Control	over	Financial	Reporting,	and	the Report	thereon	of	PricewaterhouseCoopers	LLP	dated	February	24,	2014,	are	included	herein	in	Part	II,	Item	8.

# (a)	1.	Consolidated	Financial	Statements

Consolidated	Statement	of	Comprehensive	Income	for	the	years	ended	December	28,	2013,	December	29,	2012	and	December	31,	2011.

# (a)	2.	Consolidated	Financial	Statement	Schedule

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

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

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

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	Registrant	has	duly	caused	this	Report	to	be	signed	on its	behalf	by	the	undersigned,	thereunto	duly	authorized,	this	24th	day	of	February,	2014.

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

# EXHIBIT	INDEX

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

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

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


if 2014 underlying operating profit increases at the same pace as 2013 , what would it be , in millions?