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 the quarter ended September 29, 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 September 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.

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



(millions)	May 2, 2018
Current assets	$	118
Property	41
Goodwill	612
Intangible assets subject to amortization, primarily customer relationships	425
Intangible assets not subject to amortization, primarily distribution rights	373
Deferred tax liability	(252		)
Other liabilities	(148		)
Noncontrolling interest	(552		)
	$	617

The amounts in the above table represent the preliminary allocation of purchase price and are subject to revision when valuations are finalized for intangible assets, which are expected in 2018. The goodwill from the acquisition is not expected to be deductible for income tax purposes. During the quarter ended September 29, 2018, goodwill and deferred tax liabilities were decreased by $4 million in conjunction with an updated allocation of the purchase price.

Multipro contributed net sales of $328 million and net earnings of $6 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:



	Quarter ended				Year-to-date period ended
(millions)	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Net sales	$	3,469	$	3,412	$	10,511	$	10,151
Net Income attributable to Kellogg Company	$	380	$	289	$	1,420	$	837

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 adjustments based on the actual working capital on the acquisition date compared to targeted amounts. These adjustments were finalized during the quarter ended March 31, 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 year-to-date period ended September 29, 2018, the acquisition added $167 million of net sales and an immaterial profitability impact to the Company's North America Other reporting segment.

The assets and liabilities are included in the Consolidated Balance Sheet as of September 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 September 29, 2018, which resulted in a $2 million increase in amortizable intangible assets with a corresponding reduction of goodwill during the first quarter of 2018.

Goodwill and Intangible Assets

Changes in the carrying amount of goodwill, intangible assets subject to amortization, consisting primarily of customer lists, and indefinite-lived intangible assets, consisting of brands and distribution agreements, 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 30, 2017	$	3,568	$	131	$	82	$	836		$	414		$	244		$	229		$	5,504
Additions	—		—		—		—			—			—			616			616
Purchase price allocation adjustment	—		—		—		(1		)	—			—			(4		)	(5		)
Purchase price adjustment	—		—		—		(1		)	—			—			—			(1		)
Currency translation adjustment	—		—		—		(1		)	(15		)	(30		)	(13		)	(59		)
September 29, 2018	$	3,568	$	131	$	82	$	833		$	399		$	214		$	828		$	6,055

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 30, 2017	$	42		$	8	$	—	$	22		$	45		$	74		$	10		$	201
Additions	—			—		—		—			—			—			425			425
Purchase price allocation adjustment	—			—		—		2			—			—			—			2
Currency translation adjustment	—			—		—		—			(1		)	(13		)	(5		)	(19		)
September 29, 2018	$	42		$	8	$	—	$	24		$	44		$	61		$	430		$	609

Accumulated Amortization
December 30, 2017	$	22		$	8	$	—	$	5		$	18		$	10		$	4		$	67
Amortization	2			—		—		1			2			3			8			16
Currency translation adjustment	—			—		—		—			—			(2		)	—			(2		)
September 29, 2018	$	24		$	8	$	—	$	6		$	20		$	11		$	12		$	81

Intangible assets subject to amortization, net
December 30, 2017	$	20		$	—	$	—	$	17		$	27		$	64		$	6		$	134
Additions	—			—		—		—			—			—			425			425
Purchase price allocation adjustment	—			—		—		2			—			—			—			2
Amortization	(2		)	—		—		(1		)	(2		)	(3		)	(8		)	(16		)
Currency translation adjustment	—			—		—		—			(1		)	(11		)	(5		)	(17		)
September 29, 2018	$	18		$	—	$	—	$	18		$	24		$	50		$	418		$	528

For intangible assets in the preceding table, amortization was $16 million and $8 million for the year-to-date periods ended September 29, 2018 and September 30, 2017, respectively. The currently estimated aggregate annual amortization expense for full-year 2018 is approximately $23 million.

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 30, 2017	$	1,625	$	—	$	—	$	360	$	434		$	86		$	—		$	2,505
Additions	—		—		—		—		—			—			373			373
Currency translation adjustment	—		—		—		—		(13		)	(16		)	(5		)	(34		)
September 29, 2018	$	1,625	$	—	$	—	$	360	$	421		$	70		$	368		$	2,844