E5-38. Analyzing and Interpreting Foreign Currency Translation Effects and Non-GAAP Disclosures Kellogg Co. reports the following table and discussion in its 2015 10-K for is reportable segments L04,7 KELLOGG CO The following table provides an analysis of net sales and operating profit performance for 2015 versus 2014 North U.S Morning U.S. U.S America Foods Snacks Specialty Other Europe America Pacific Corporate Latin Asia S millions 2015 net sales 2014 net sales $2,992 $3,234 $1,181 $1,687 $2,497 $1,015 $919 -$13,525 $3,108 $3.329 $1,198 $1,864 $2,869 S1,205 S1,007 S- $14,580 As Reported Project K and cost reduction activities. .. (3.7)56 0.0% 0.0% 0.0% (2.9)% 0.0% 0.0% 0.0% (1.4)96 0.0% 0.0% 81% (9.5% 0.0% 0.0% 0.0% (13Oj% (0.1)% 0.0% 2.0% (15.8 0.0% 0.0% 0.0% (88)96 0.0% (0.1)% 0.0% 0.0% 0.0% 0.0% 0.0% (7.2)% 0.0 0.0 0.4% and transaction costs. Diffierence in shipping days Comparable growth Foreign currency impact Currency-Neutral Comparable growth. . . 1.3% (1.6)96 0.0% (1.6)% 13% 0.7% 0.0% 0.7% -5% (8.09% 14.8% (3.2)96 0.096 (15.8)96 140.4% 24.6% 09% (7.9)% (11.9% 40% 0096 0.0% 0096 0.0% % (2.1)% (1.6)% 0.0% (165% % (13.81% 13.296 (0516 5% 12% Foreign exchange risk Our Company is exposed to fluctuations in foreign currency cash flows related 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 cur- rency investments in subsidiaries and cash flows related to repatriation of these investments. Addition- ally, our Company is exposed to volatility in the translation of foreign Primary exposures include the U.S. Dollar versus the British Pound, Euro, 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 enter into forward contracts, options, and currency swaps to reduce fluctuations in net 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 issuances. currency eamings to U.S. Dollars. a. Kellogg reported consolidated sales decreased by 7.2% during 2015. What geographic segment ac- counted for this overall decrease? h. Kellogg reports "Comparable growth" that shows various adjustments to reported growth numbers. Explain why Kellogg provides this information in its financial statements. Explain the item labeled Differencein shipping days." c. How did foreign currency exchange rates affect sales at cach of the geographic segments? What can we infer about the strength of the $US vis--vis the currencies in Kellogg's segments? d. Describe how the accounting for foreign exchange translation affects reported sales and profits. the risk related to its foreign exchang e. How does Kellogg manage e exposure? Describe the financial statement effects of this risk management activity