ACQUISITIONS, WEST AFRICA INVESTMENTS, GOODWILL AND OTHER INTANGIBLE ASSETS

Multipro acquisition

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

As a result of the Company’s incremental ownership interest in Multipro and concurrent changes to the shareholders' agreement, the Company now has a 51% controlling interest in and began consolidating Multipro. Accordingly, the acquisition was accounted for as a business combination and the assets and liabilities of Multipro were included in the December 29, 2018 Consolidated Balance Sheet and the results of its operations have been included in the Consolidated Statement of Income subsequent to the acquisition date. The aggregate of the consideration paid and the fair value of previously held equity interest totaled $626 million, or $617 million net of cash acquired. The Multipro investment was previously accounted for under the equity method of accounting and the Company recorded our share of equity income or loss from Multipro within Earnings (loss) from unconsolidated entities. In connection with the business combination, the Company recognized a one-time, non-cash gain on the disposition of our previously held equity interest in Multipro of $245 million, which is included within Earnings (loss) from unconsolidated entities.

We utilized estimated fair values at the acquisition date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed.

The acquisition resulted in $616 million of non-tax deductible goodwill relating principally to planned growth in new markets, deferred taxes associated with intangible assets, and any intangible assets that did not qualify for separate recognition. We used the excess earnings method, a variation of the income approach, to value a perpetual distribution agreement indefinite lived intangible asset. We also valued customer relationships, using either the excess earnings method or with-and-without method, which is also a variation of the income approach. Some of the more significant assumptions inherent in developing the valuations included the estimated annual net cash flows for each indefinite-lived or definite-lived intangible asset (including net sales, cost of products sold, selling and marketing costs, and working capital/contributory asset charges), the discount rate that appropriately reflects the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends, as well as other factors. We determined the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management plans, and market comparables.

We used carrying values as of the acquisition date to value certain current and non-current assets and liabilities, as we determined that they represented the fair value of those items at the acquisition date. Deferred income tax assets and liabilities as of the acquisition date represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. We estimated the fair value of non-controlling interests assumed consistent with the manner in which we valued all of the underlying assets and liabilities.

The assets and liabilities are included in the Consolidated Balance Sheet as of December 29, 2018 within the Asia-Pacific reporting segment. The fair value of the acquired assets, assumed liabilities, and noncontrolling interest include the following:



(millions)	May 2, 2018
Current assets	$	118
Property	41
Goodwill	616
Intangible assets subject to amortization, primarily customer relationships	425
Intangible assets not subject to amortization, primarily distribution rights	373
Deferred tax liability	(254		)
Other liabilities	(150		)
Noncontrolling interest	(552		)
	$	617

The amounts in the above table represent the final allocation of purchase price as of December 29, 2018. During 2018, deferred tax liabilities were decreased by $2 million and other liabilities were increased by $2 million in conjunction with an updated allocation of the purchase price.

Multipro contributed net sales of $536 million and net earnings of $8 million since the acquisition, including transaction fees and integration costs. The Company's consolidated unaudited pro forma historical net sales and net income, as if Multipro had been acquired at the beginning of 2017, exclusive of the non-cash $245 million gain on the disposition of the equity interest recognized in the second quarter of 2018, are estimated as follows:



	Year-to-date period ended
(millions)	December 29, 2018		December 30, 2017
Net sales	$	13,829	$	13,511
Net Income attributable to Kellogg Company	$	1,336	$	1,255

Investment in TAF

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

RX acquisition

In October 2017, the Company completed its acquisition of Chicago Bar Co., LLC, the manufacturer of RXBAR, for $600 million, or $596 million net of cash and cash equivalents. The purchase price was subject to certain working capital and net debt adjustments based on the actual working capital and net debt existing on the acquisition date compared to targeted amounts. These adjustments were finalized during 2018 and resulted in a purchase price reduction of $1 million. The acquisition was accounted for under the purchase price method and was financed with short-term borrowings.

For the post-acquisition period ended December 30, 2017, the acquisition added $27 million in net sales and less than $1 million of operating profit in the Company's North America Other reporting segment. The pro forma effects of this acquisition were not material.

The assets and liabilities are included in the Consolidated Balance Sheet as of December 29, 2018 within the North America Other reporting segment. The acquired assets and assumed liabilities include the following:



(millions)	October 27, 2017
Current assets	$	42
Goodwill	373
Intangible assets, primarily indefinite-lived brands	203
Current liabilities	(23		)
	$	595

The amounts in the above table represent the final allocation of purchase price as of December 29, 2018, which resulted in a $2 million increase in amortizable intangible assets with a corresponding reduction of goodwill during 2018.

Parati acquisition

In December 2016, the Company acquired Ritmo Investimentos, controlling shareholder of Parati S/A, Afical Ltda and Padua Ltda ("Parati Group"), a leading Brazilian food group for approximately BRL1.38 billion ($381 million) or $379 million, net of cash and cash equivalents. The purchase price was subject to certain working capital and net debt adjustments based on the actual working capital and net debt existing on the acquisition date compared to targeted amounts. These adjustments were finalized during 2017 and resulted in a purchase price reduction of BRL14 million ($4 million). The acquisition was accounted for under the purchase price method and was financed with cash on hand and short-term borrowings.

For the post-acquisition period ended December 31, 2016, the impacts to net sales and operating profit were not material. The pro forma effects of this acquisition were not material.

The assets and liabilities of the Parati Group are included in the Consolidated Balance Sheet as of December 30, 2017 within the Latin America segment. The acquired assets and assumed liabilities include the following:



(millions)	December 1, 2016
Current assets	$	44
Property	72
Goodwill	165
Intangible assets	148
Current liabilities	(48		)
Non-current deferred tax liability and other	(6		)
	$	375

During the year ended December 30, 2017, the value of intangible assets subject to amortization increased $39 million, resulting in an immaterial change to amortization expense, and intangible assets not subject to amortization decreased $11 million with an offsetting $28 million adjustment to goodwill in conjunction with an updated allocation of the purchase price. The Company also recognized $7 million for certain pre-acquisition contingencies which increased goodwill during 2017 and are considered to be probable of being incurred as of December 29, 2018 and December 30, 2017.

A portion of the acquisition price aggregating $67 million was placed in escrow in favor of the seller for general representations and warranties, as well as pending resolution of specified contingencies arising from the business prior to the acquisition. As of December 29, 2018, approximately $17 million remained in escrow related to specified contingencies, of which approximately $4 million and $1 million is scheduled to be released in 2019 and 2020, respectively. The remaining balance will be released only upon resolution of the related contingency.

During 2017, the Company finalized plans to merge the acquired and pre-existing Brazilian legal entities, which resulted in tax basis of the acquired intangible assets. Accordingly, deferred tax liabilities and goodwill were both reduced by $58 million.

The amounts in the above table represent the allocation of purchase price as of December 30, 2017 and represent the finalization of the valuations for intangible assets and the Company's evaluation of pre-acquisition contingencies and finalization of the merger.

Other acquisitions

In September 2016, the Company acquired a majority ownership interest in a natural, bio-organic certified breakfast company for €3 million, which was accounted for under the purchase method and financed with cash on hand. The assets, which primarily consist of indefinite lived intangible assets and goodwill, and liabilities, including non-controlling interests, are included in the Consolidated Balance Sheet as of December 30, 2017 and December 29, 2018 within the Europe segment.

In March 2016, the Company completed the acquisition of an organic and natural snack company for $18 million, which was accounted for under the purchase method and financed with cash on hand. The assets, which primarily consist of indefinite lived brands, and liabilities are included in the Consolidated Balance Sheet as of December 30, 2017 and December 29, 2018 within the North America Other segment.

Goodwill and Intangible Assets

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

Carrying amount of goodwill



(millions)	U.S. Snacks		U.S. Morning Foods		U.S. Specialty Channels		North America Other			Europe			Latin America			Asia Pacific			Consoli- dated
December 31, 2016	$	3,568	$	131	$	82	$	457		$	376		$	328		$	224		$	5,166
Additions	—		—		—		375			—			—			—			375
Purchase price allocation adjustment	—		—		—		—			—			(79		)	—			(79		)
Purchase price adjustment	—		—		—		—			—			(4		)	—			(4		)
Currency translation adjustment	—		—		—		4			38			(1		)	5			46
December 30, 2017	$	3,568	$	131	$	82	$	836		$	414		$	244		$	229		$	5,504
Additions	—		—		—		—			—			—			616			616
Purchase price allocation adjustment	—		—		—		(2		)	—			—			—			(2		)
Purchase price adjustment	—		—		—		—			—			—			—			—
Currency translation adjustment	—		—		—		(4		)	(22		)	(26		)	(16		)	(68		)
December 29, 2018	$	3,568	$	131	$	82	$	830		$	392		$	218		$	829		$	6,050

Intangible assets subject to amortization



Gross carrying amount
(millions)	U.S. Snacks			U.S. Morning Foods		U.S. Specialty Channels		North America Other			Europe			Latin America			Asia Pacific			Consoli- dated
December 31, 2016	$	42		$	8	$	—	$	5		$	40		$	36		$	10		$	141
Additions	—			—		—		17			—			—			—			17
Purchase price allocation adjustment	—			—		—		—			—			39			—			39
Currency translation adjustment	—			—		—		—			5			(1		)	—			4
December 30, 2017	$	42		$	8	$	—	$	22		$	45		$	74		$	10		$	201
Additions	—			—		—		—			—			—			425			425
Purchase price allocation adjustment	—			—		—		2			—			—			—			2
Currency translation adjustment	—			—		—		—			(2		)	(11		)	(7		)	(20		)
December 29, 2018	$	42		$	8	$	—	$	24		$	43		$	63		$	428		$	608

Accumulated Amortization
December 31, 2016	$	19		$	8	$	—	$	4		$	14		$	6		$	3		$	54
Amortization	3			—		—		1			3			4			1			12
Currency translation adjustment	—			—		—		—			1			—			—			1
December 30, 2017	$	22		$	8	$	—	$	5		$	18		$	10		$	4		$	67
Amortization (a)	3			—		—		1			3			4			12			23
Currency translation adjustment	—			—		—		—			(1		)	(2		)	—			(3		)
December 29, 2018	$	25		$	8	$	—	$	6		$	20		$	12		$	16		$	87

Intangible assets subject to amortization, net
December 31, 2016	$	23		$	—	$	—	$	1		$	26		$	30		$	7		$	87
Additions	—			—		—		17			—			—			—			17
Amortization	(3		)	—		—		(1		)	(3		)	(4		)	(1		)	(12		)
Purchase price allocation adjustment	—			—		—		—			—			39			—			39
Currency translation adjustment	—			—		—		—			4			(1		)	—			3
December 30, 2017	$	20		$	—	$	—	$	17		$	27		$	64		$	6		$	134
Additions	—			—		—		—			—			—			425			425
Amortization	(3		)	—		—		(1		)	(3		)	(4		)	(12		)	(23		)
Purchase price allocation adjustment	—			—		—		2			—			—			—			2
Currency translation adjustment	—			—		—		—			(1		)	(9		)	(7		)	(17		)
December 29, 2018	$	17		$	—	$	—	$	18		$	23		$	51		$	412		$	521

(a) The currently estimated aggregate amortization expense for each of the next five succeeding fiscal periods is approximately $27 million per year through 2023.

Intangible assets not subject to amortization



(millions)	U.S. Snacks		U.S. Morning Foods		U.S. Specialty Channels		North America Other		Europe			Latin America			Asia Pacific			Consoli- dated
December 31, 2016	$	1,625	$	—	$	—	$	176	$	383		$	98		$	—		$	2,282
Additions	—		—		—		184		—			—			—			184
Purchase price allocation adjustment	—		—		—		—		—			(11		)	—			(11		)
Currency translation adjustment	—		—		—		—		51			(1		)	—			50
December 30, 2017	$	1,625	$	—	$	—	$	360	$	434		$	86		$	—		$	2,505
Additions	—		—		—		—		—			—			373			373
Purchase price allocation adjustment	—		—		—		—		—			—			—			—
Currency translation adjustment	—		—		—		—		(19		)	(13		)	(6		)	(38		)
December 29, 2018	$	1,625	$	—	$	—	$	360	$	415		$	73		$	367		$	2,840

Annual Impairment Testing

At December 29, 2018, goodwill and other intangible assets amounted to $9.4 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 $2.8 billion of non-goodwill intangible assets were classified as indefinite-lived, comprised principally of Keebler and Pringles trademarks. The majority of these intangible assets are recorded in our U.S. Snacks reporting unit. The Company currently believes the fair value of goodwill and other intangible assets exceeds their carrying value and that those intangibles so classified will contribute indefinitely to cash flows. The percentage of excess fair value over carrying value of the U.S. Snacks reporting unit was approximately 62% and 57% in 2018 and 2017, respectively.

Additionally, the Company has $207 million of goodwill related to the Kashi reporting unit, which was primarily a result of establishing Kashi as a separate operating segment in 2015, which required an allocation of goodwill from our U.S. Snacks operating segment. The 2018 fair value of the Kashi reporting unit was estimated primarily based on a multiple of net sales and discounted cash flows. The percentage of excess over fair value was approximately 12% and 9%, in 2018 and 2017, respectively, using the same methodology on a year-on-year basis.

The Company also has $616 million and $798 million of goodwill and other intangible assets, respectively, related to our Multipro operating segment as a result of the acquisition of this business in May 2018. Consistent with expectations given the recent acquisition, the 2018 fair value approximates carrying value for both goodwill and the indefinitely lived assets.