ES-41. Analyzing and Interpreting Foreign Currency Translation Effects and Non-GAAP Disclosures Kellogg Co. reports the following table and discussion in its 2018 10-K for its reportable segments.

I The following table provides an analysis of operating profit for the year ended December 29, 2018.

U.S. North Morning U.S. U.S. America Latin Asia Kellogg Smllllons Foods Snacks Specialty Other Europe America Pacific Corporate Consolidated 2018 Reported operating profit .. . .. .. $446 $478 $251 $222 $297 $102 $128 $(218) 51,706 Mark-to-market. .. . .... .. .. .. ...... . 7 7 Project K and cost-reduction activ~ies .. . (28) (50) (4) (25) (33) (15) (11) (7) (173)

Brexit impacts . . .. .. .... . .. .. ...... . (3) (3)

Business and portlolio realignment .... . (3) (2) (5)

Adjusted operating profit. .. 477 528 255 247 333 117 139 (216) 1,880 Foreign currency impact. ... .. .. .. .. (2) 6 (3) ___0 3 (3)

2018 Currency-neutral adjusted operating profit . S4n 5528 5255 5249 $327 5120 5146 $(219) 51,883 2017 Reported operating profit ....... $138 $567 $312 $229 $276 $108 $84 $(327) $1,387 2017 Currency-neutral adjusted operating profit . $447 $585 $314 $245 $316 $116 $95 $(239) $1,879 Operating Profit 2018 vs. 2017 Reported growth .............. .. .. .. 224.4% (15.7)% (19.8)% (3.0)% 7.8% (5.2)% 50.7% 33.1% 22.9%

Mark-to-market. .. . .... 25.2% 7.3%

Project K and cost-reduction activ~ies .. . 218.3% (6.0)% (0.7)% (3.9)% 3.1 % (5.6)% 6.1% (0.5)% 16.1%

Brexit impacts .. . . ....... . .. .. (0.9)% (0.2)%

Business and portfolio realignment . .... (0.8)% (0.8)% (0.3)%

Adjusted growth .. . ....... . ... .. .. .. 6.9% (9.7)% (19.1)% 0.9% 5.6% 0.4% 44.6% 9.2%

Foreign currency impact ........ .. .. .. (0.4)% 1.9% (2.8)% ~)% 0.6% ~)%

Currency-neutral adjusted growth . . . 6.9% E l% ~)% 1.3% 3.7% 3.2% 51 .8% 8.6% 0.1%

Brexit: We recognize that there are still significant uncertainties surrounding the ultimate resolution of Brexit negotiations, and we will continue to monitor any changes that may arise and assess their potential impact on our business.

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

Foreign currency 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, Mexican peso, Brazilian real, Nigerian naira, Russian ruble and Egyptian pound.

a. Complete the fo llowing table that summarizes the information that Kellogg reports in the excerpt above. Confirm the% change that Kellogg reports.

Kellogg Consolidated 2018 2017 % change (2017 to 2018)

Reported operating profit ................. .

Currency-neutral adjusted operating profit .... .

b. Kellogg reports "Adjusted growth" that shows various adjustments to reported growth numbers. Explain why Kellogg provides this information in its financial statements. Briefly explain how Project K and Brexit impacted operating profits in 2018.

c. How did foreign currency exchange rates affect operating profit at each of the geographic segments?

What can we infer about the strength of the $US vis-a-vis the currencies in Kellogg's segments?

d. Describe how the accounting for foreign exchange translation affects reported operating profit.

e. What are the three sources of Kellogg's foreign exchange exposure?