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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 03, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number 1-4171
KELLOGG COMPANY
State of Incorporation—Delaware  IRS Employer Identification No.38-0710690
One Kellogg Square, P.O. Box 3599, Battle Creek, MI 49016-3599
Registrant’s telephone number: 269-961-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $.25 par value per shareKNew York Stock Exchange
1.750% Senior Notes due 2021K 21New York Stock Exchange
0.800% Senior Notes due 2022K 22ANew York Stock Exchange
1.000% Senior Notes due 2024K 24New York Stock Exchange
1.250% Senior Notes due 2025K 25New York Stock Exchange
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      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes      No  
Common Stock outstanding as of April 3, 2021 — 340,496,336 shares


Table of Contents

KELLOGG COMPANY
INDEX
 
 Page
Financial Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Controls and Procedures
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Exhibits


Table of Contents

Part I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
April 3,
2021 (unaudited)
January 2,
2021
Current assets
Cash and cash equivalents$391 $435 
Accounts receivable, net1,660 1,537 
Inventories1,319 1,284 
Other current assets269 226 
Total current assets3,639 3,482 
Property, net3,636 3,713 
Operating lease right-of-use assets641 658 
Goodwill5,768 5,799 
Other intangibles, net2,449 2,491 
Investments in unconsolidated entities397 391 
Other assets1,534 1,462 
Total assets$18,064 $17,996 
Current liabilities
Current maturities of long-term debt$605 $627 
Notes payable428 102 
Accounts payable2,476 2,471 
Current operating lease liabilities120 117 
Accrued advertising and promotion775 776 
Other current liabilities981 1,145 
Total current liabilities5,385 5,238 
Long-term debt6,655 6,746 
Operating lease liabilities502 520 
Deferred income taxes634 562 
Pension liability726 769 
Other liabilities507 525 
Commitments and contingencies
Equity
Common stock, $.25 par value
105 105 
Capital in excess of par value954 972 
Retained earnings8,506 8,326 
Treasury stock, at cost(4,762)(4,559)
Accumulated other comprehensive income (loss)(1,665)(1,732)
Total Kellogg Company equity3,138 3,112 
Noncontrolling interests517 524 
Total equity3,655 3,636 
Total liabilities and equity$18,064 $17,996 
See accompanying Notes to Consolidated Financial Statements.

3

Table of Contents

Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share data)
 Quarter ended
(unaudited)April 3,
2021
March 28,
2020
Net sales$3,584 $3,412 
Cost of goods sold2,418 2,268 
Selling, general and administrative expense694 685 
Operating profit472 459 
Interest expense59 64 
Other income (expense), net69 51 
Income before income taxes482 446 
Income taxes109 94 
Earnings (loss) from unconsolidated entities(2)(2)
Net income371 350 
Net income attributable to noncontrolling interests3 3 
Net income attributable to Kellogg Company$368 $347 
Per share amounts:
Basic earnings$1.07 $1.01 
Diluted earnings$1.07 $1.01 
Average shares outstanding:
Basic342 342 
Diluted344 344 
Actual shares outstanding at period end340 343 
See accompanying Notes to Consolidated Financial Statements.

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Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(millions)
Quarter ended
April 3, 2021
(unaudited)Pre-tax
amount
Tax (expense)
benefit
After-tax
amount
Net income$371 
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during period$33 $(34)(1)
Cash flow hedges:
Unrealized gain (loss) 78 (21)57 
Reclassification to net income5 (1)4 
Postretirement and postemployment benefits:
Reclassification to net income:
   Net experience (gain) loss(1) (1)
Available-for-sale securities:
Unrealized gain (loss) (2) (2)
Other comprehensive income (loss)
$113 $(56)$57 
Comprehensive income$428 
Net Income attributable to noncontrolling interests3 
Other comprehensive income (loss) attributable to noncontrolling interests(10)
Comprehensive income attributable to Kellogg Company$435 
Quarter ended
 March 28, 2020
(unaudited)Pre-tax
amount
Tax (expense)
benefit
After-tax
amount
Net income$350 
Other comprehensive income (loss):
Foreign currency translation adjustments:
Foreign currency translation adjustments during period$(241)$(20)(261)
Cash flow hedges:
Unrealized gain (loss) on cash flow hedges(65)17 (48)
Reclassification to net income2  2 
Postretirement and postemployment benefits:
Reclassification to net income:
Net experience (gain) loss(1) (1)
Available-for-sale securities:
Unrealized gain (loss)
(3) (3)
Other comprehensive income (loss)$(308)$(3)$(311)
Comprehensive income$39 
Net Income attributable to noncontrolling interests3 
Other comprehensive income (loss) attributable to noncontrolling interests(32)
Comprehensive income attributable to Kellogg Company$68 
See accompanying Notes to Consolidated Financial Statements.
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Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EQUITY
(millions)
 
Quarter ended April 3, 2021
 
 
Common
stock
Capital in
excess of
par value
Retained
earnings
 
Treasury
stock
Accumulated
other
comprehensive
income (loss)
Total Kellogg
Company
equity
Non-controlling
interests
Total
equity
(unaudited)sharesamountsharesamount
Balance, January 2, 2021421 $105 $972 $8,326 77 $(4,559)$(1,732)$3,112 $524 $3,636 
Common stock repurchases4 (240)(240)(240)
Net income368 368 3 371 
Dividends declared ($0.57 per share)
(195)(195)(195)
Other comprehensive income67 67 (10)57 
Stock compensation20 20 20 
Stock options exercised and other(38)7  37 6 6 
Balance, April 3, 2021421 $105 $954 $8,506 81 $(4,762)$(1,665)$3,138 $517 $3,655 
Quarter ended March 28, 2020
 
 
Common
stock
Capital in
excess of
par value
Retained
earnings
 
Treasury
stock
Accumulated
other
comprehensive
income (loss)
Total Kellogg
Company
equity
Non-controlling
interests
Total
equity
(unaudited)sharesamountsharesamount
Balance, December 28, 2019421 $105 $921 $7,859 79 $(4,690)$(1,448)$2,747 $567 $3,314 
Net income347 347 3 350 
Dividends declared ($0.57 per share)
(195)(195)(195)
Other comprehensive income(279)(279)(32)(311)
Stock compensation19 19 19 
Stock options exercised and other(29)(1)(1)65 35 35 
Balance, March 28, 2020421 $105 $911 $8,010 78 $(4,625)$(1,727)$2,674 $538 $3,212 
See accompanying Notes to Consolidated Financial Statements.


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Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
 Quarter ended
(unaudited)April 3,
2021
March 28,
2020
Operating activities
Net income$371 $350 
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization112 117 
Postretirement benefit plan expense (benefit)(68)(39)
Deferred income taxes17 8 
Stock compensation20 19 
Other13 (11)
Postretirement benefit plan contributions(2)(6)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables(155)(194)
Inventories(50)1 
Accounts payable118 44 
All other current assets and liabilities(141)102 
Net cash provided by (used in) operating activities235 391 
Investing activities
Additions to properties(173)(112)
Issuance of notes receivable(20)(18)
Repayments from notes receivable28  
Investments in unconsolidated entities(10) 
Acquisition of cost method investments (3)
Purchases of available for sale securities(2)(65)
Sales of available for sale securities5 5 
Other(17)(9)
Net cash provided by (used in) investing activities(189)(202)
Financing activities
Net issuances (reductions) of notes payable326 549 
Reductions of long-term debt(4)(3)
Net issuances of common stock18 46 
Common stock repurchases(240) 
Cash dividends(195)(195)
Collateral received on derivative instruments 80 
Net cash provided by (used in) financing activities(95)477 
Effect of exchange rate changes on cash and cash equivalents5 (47)
Increase (decrease) in cash and cash equivalents(44)619 
Cash and cash equivalents at beginning of period435 397 
Cash and cash equivalents at end of period$391 $1,016 
Supplemental cash flow disclosures of non-cash investing activities:
   Additions to properties included in accounts payable$97 $87 
See accompanying Notes to Consolidated Financial Statements.
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Notes to Consolidated Financial Statements
for the quarter ended April 3, 2021 (unaudited)
Note 1 Accounting policies

Basis of presentation
The unaudited interim financial information of Kellogg Company (the Company) included in this report reflects all adjustments, all of which are of a normal and recurring nature, that management believes are necessary for a fair statement of the results of operations, comprehensive income, financial position, equity and cash flows for the periods presented. This interim information should be read in conjunction with the financial statements and accompanying footnotes within the Company’s 2020 Annual Report on Form 10-K.

The condensed balance sheet information at January 2, 2021 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the quarter ended April 3, 2021 are not necessarily indicative of the results to be expected for other interim periods or the full year.

Accounts payable
The Company has agreements with third parties to provide accounts payable tracking systems which facilitate participating suppliers’ ability to monitor and, if elected, sell payment obligations from the Company to designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to sell one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company’s goal is to capture overall supplier savings, in the form of payment terms or vendor funding, and the agreements facilitate the suppliers’ ability to sell payment obligations, while providing them with greater working capital flexibility. The Company has no economic interest in the sale of these suppliers’ receivables and no direct financial relationship with the financial institutions concerning these services. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to sell amounts under the arrangements. However, the Company’s right to offset balances due from suppliers against payment obligations is restricted by the agreements for those payment obligations that have been sold by suppliers. The payment of these obligations by the Company is included in cash used in operating activities in the Consolidated Statement of Cash Flows. As of April 3, 2021, $913 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold $665 million of those payment obligations to participating financial institutions. As of January 2, 2021, $909 million of the Company’s outstanding payment obligations had been placed in the accounts payable tracking system, and participating suppliers had sold $670 million of those payment obligations to participating financial institutions.

Note 2 Sale of accounts receivable
The Company has a program in which a discrete group of customers are allowed to extend their payment terms in exchange for the elimination of early payment discounts (Extended Terms Program).

The Company has two Receivable Sales Agreements (Monetization Programs) described below, which are intended to directly offset the impact the Extended Terms Program would have on the days-sales-outstanding (DSO) metric that is critical to the effective management of the Company's accounts receivable balance and overall working capital. The Monetization Programs sell, on a revolving basis, certain trade accounts receivable invoices to third party financial institutions. Transfers under these agreements are accounted for as sales of receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. The Monetization Programs provide for the continuing sale of certain receivables on a revolving basis until terminated by either party; however the maximum receivables that may be sold at any time is $1,033 million. 

The Company has no retained interest in the receivables sold, however the Company does have collection and administrative responsibilities for the sold receivables. The Company has not recorded any servicing assets or liabilities as of April 3, 2021 and January 2, 2021 for these agreements as the fair value of these servicing arrangements as well as the fees earned were not material to the financial statements.
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Accounts receivable sold of $785 million and $783 million remained outstanding under these arrangements as of April 3, 2021 and January 2, 2021, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows in the period of sale. The recorded net loss on sale of receivables was $2 million for the quarter ended April 3, 2021 and was $6 million for the quarter ended March 28, 2020. The recorded loss is included in Other income and expense, net (OIE).

Other programs
Additionally, from time to time certain of the Company's foreign subsidiaries will transfer, without recourse, accounts receivable invoices of certain customers to financial institutions. These transactions are accounted for as sales of the receivables resulting in the receivables being de-recognized from the Consolidated Balance Sheet. Accounts receivable sold of $16 million and $55 million remained outstanding under these programs as of April 3, 2021 and January 2, 2021, respectively. The proceeds from these sales of receivables are included in cash from operating activities in the Consolidated Statement of Cash Flows in the period of sale. The recorded net loss on the sale of these receivables is included in OIE and is not material.
Note 3 Equity

Earnings per share
Basic earnings per share is determined by dividing net income 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, restricted stock units, and to a lesser extent, certain contingently issuable performance shares. There were 12 million and 7 million anti-dilutive potential common shares excluded from the calculation for the quarters ended April 3, 2021 and March 28, 2020, respectively. Please refer to the Consolidated Statement of Income for basic and diluted earnings per share for the quarters ended April 3, 2021 and March 28, 2020.

Share repurchases
In February 2020, the board of directors approved a new authorization to repurchase up to $1.5 billion of our common stock through December 2022. During the quarter ended April 3, 2021, the Company repurchased approximately 4 million shares of common stock for a total of $240 million. During the quarter ended March 28, 2020, the Company did not repurchase any shares of common stock.

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 consists of foreign currency translation adjustments, fair value adjustments associated with cash flow hedges, adjustments for net experience losses and prior service cost related to employee benefit plans, and adjustments for unrealized gains and losses on available-for-sale securities, net of related tax effects.
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Reclassifications out of Accumulated other comprehensive income (AOCI) for the quarters ended April 3, 2021 and March 28, 2020, consisted of the following:
(millions)
  
  
  
Details about AOCI
components
Amount reclassified
from AOCI
Line item impacted
within Income Statement
 Quarter ended
April 3, 2021
Quarter ended
March 28, 2020
  
(Gains) losses on cash flow hedges:
Interest rate contracts (a)$5 $2 Interest expense
$5 $2 Total before tax
(1) Tax expense (benefit)
$4 $2 Net of tax
Amortization of postretirement and postemployment benefits:
Net experience (gain) loss (b)$(1)$(1)OIE
$(1)$(1)Total before tax
  Tax expense (benefit)
$(1)$(1)Net of tax
Total reclassifications$3 $1 Net of tax
(a) See Derivative instruments and fair value measurements note
(b) See Employee benefits note
Accumulated other comprehensive income (loss), net of tax, as of April 3, 2021 and January 2, 2021 consisted of the following:
(millions)April 3,
2021
January 2,
2021
Foreign currency translation adjustments$(1,659)$(1,668)
Cash flow hedges — unrealized net gain (loss)4 (57)
Postretirement and postemployment benefits:
Net experience gain (loss)1 2 
Prior service credit (cost)(12)(12)
Available-for-sale securities unrealized net gain (loss)1 3 
Total accumulated other comprehensive income (loss)$(1,665)$(1,732)
Note 4 Employee benefits
The Company sponsors a number of U.S. and foreign pension plans as well as other nonpension postretirement and postemployment plans to provide various benefits for its employees. These plans are described within the footnotes to the Consolidated Financial Statements included in the Company’s 2020 Annual Report on Form 10-K. Components of Company benefit plan (income) expense for the periods presented are included in the tables below. Excluding the service cost component, these amounts are included within Other income (expense) in the Consolidated Statement of Income.


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Pension
 Quarter ended
(millions)April 3, 2021March 28, 2020
Service cost$9 $9 
Interest cost25 35 
Expected return on plan assets(78)(85)
Amortization of unrecognized prior service cost2 2 
Recognized net (gain) loss(9)14 
Total pension (income) expense$(51)$(25)
Other nonpension postretirement
 Quarter ended
(millions)April 3, 2021March 28, 2020
Service cost$3 $3 
Interest cost5 8 
Expected return on plan assets(23)(23)
Amortization of unrecognized prior service cost(2)(2)
Total postretirement benefit (income) expense$(17)$(14)
Postemployment
 Quarter ended
(millions)April 3, 2021March 28, 2020
Service cost$1 $1 
Recognized net (gain) loss(1)(1)
Total postemployment benefit expense$ $ 

For the quarter ended April 3, 2021, the Company recognized a gain of $9 million, related to the remeasurement of a U.S. pension plan. For the quarter ended March 28, 2020, the Company recognized a loss of $14 million, related to the remeasurement of a U.S. pension plan. The remeasurements were the result of distributions that exceeded or are expected to exceed service and interest costs resulting in settlement accounting for that particular plan. The amount of the remeasurements recognized were due primarily to changes in the discount rate relative to the previous measurements.

Company contributions to employee benefit plans are summarized as follows:
(millions)PensionNonpension postretirementTotal
Quarter ended:
April 3, 2021$1 $1 $2 
March 28, 2020$3 $3 $6 
Full year:
Fiscal year 2021 (projected)$6 $19 $25 
Fiscal year 2020 (actual)$8 $24 $32 

Plan funding strategies may be modified in response to management's evaluation of tax deductibility, market conditions, and competing investment alternatives.
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Note 5 Income taxes
The consolidated effective tax rate for the quarters ended April 3, 2021 and March 28, 2020 was 23% and 21%, respectively.

As of April 3, 2021, the Company classified $19 million of unrecognized tax benefits as a net current tax liability. Management's estimate of reasonably possible changes in unrecognized tax benefits during the next twelve months consists of the current liability expected to be settled within one year, offset by approximately $3 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.
The Company’s total gross unrecognized tax benefits as of April 3, 2021 was $65 million. Of this balance, $56 million represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.
The accrual balance for tax-related interest was approximately $14 million at April 3, 2021.
Note 6 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 and nonderivative financial instruments 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.
The Company designates derivatives and nonderivative hedging instruments 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.

Derivative instruments are classified on the Consolidated Balance Sheet based on the contractual maturity of the instrument or the timing of the underlying cash flows of the instrument for derivatives with contractual maturities beyond one year.  Any collateral associated with derivative instruments is classified as other assets or other current liabilities on the Consolidated Balance Sheet depending on whether the counterparty collateral is in an asset or liability position.  Margin deposits related to exchange-traded commodities are recorded in accounts receivable, net on the Consolidated Balance Sheet.  On the Consolidated Statement of Cash Flows, cash flows associated with derivative instruments are classified according to the nature of the underlying hedged item.  Cash flows associated with collateral and margin deposits on exchange-traded commodities are classified as investing cash flows when the collateral account is in an asset position and as financing cash flows when the collateral account is in a liability position.
Total notional amounts of the Company’s derivative instruments as of April 3, 2021 and January 2, 2021 were as follows:
(millions)April 3,
2021
January 2,
2021
Foreign currency exchange contracts$3,278 $2,856 
Cross-currency contracts1,383 1,411 
Interest rate contracts3,035 2,632 
Commodity contracts640 314 
Total$8,336 $7,213 
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 April 3, 2021 and January 2, 2021, 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
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the Company, level 2 financial assets and liabilities consist of interest rate swaps, cross-currency 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. Cross-currency contracts are valued based on changes in the spot rate at the time of valuation compared to the spot rate at the time of execution, as well as the change in the interest differential between the two currencies. 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 April 3, 2021 or January 2, 2021.
The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet on a recurring basis as of April 3, 2021 and January 2, 2021:
Derivatives designated as hedging instruments
 April 3, 2021January 2, 2021
(millions)Level 1Level 2TotalLevel 1Level 2Total
Assets:
Cross-currency contracts:
Other current assets$ $31 $31 $ $14 $14 
Other assets 11 11  16 16 
Interest rate contracts:
Other current assets 3 3    
Other assets (a) 130 130  60 60 
Total assets$ $175 $175 $ $90 $90 
Liabilities:
Cross-currency contracts:
Other current liabilities$ $(2)$(2)$ $(13)$(13)
   Other Liabilities (16)(16) (21)(21)
Interest rate contracts:
Other current liabilities (1)(1) (3)(3)
Other liabilities (a) (4)(4)   
Total liabilities$ $(23)$(23)$ $(37)$(37)
(a) The fair value of the related hedged portion of the Company's long-term debt, a level 2 liability, was $1.2 billion as of April 3, 2021 and $0.8 billion as of January 2, 2021.
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Derivatives not designated as hedging instruments
 April 3, 2021January 2, 2021
(millions)Level 1Level 2TotalLevel 1Level 2Total
Assets:
Foreign currency exchange contracts:
Other current assets$ $41 $41 $ $48 $48 
  Other assets 3 3    
Interest rate contracts:
Other current assets 4 4  4 4 
Other assets 3 3  13 13 
Commodity contracts:
Other current assets7  7 9  9 
Total assets$7 $51 $58 $9 $65 $74 
Liabilities:
Foreign currency exchange contracts:
Other current liabilities$ $(71)$(71)$ $(73)$(73)
Other liabilities (6)(6) (4)(4)
Interest rate contracts:
Other current liabilities (6)(6) (6)(6)
Other liabilities (11)(11) (22)(22)
Commodity contracts:
Other current liabilities(8) (8)(1) (1)
Total liabilities$(8)$(94)$(102)$(1)$(105)$(106)
The Company has designated its outstanding foreign currency denominated debt as a net investment hedge of a portion of the Company’s investment in its subsidiaries’ foreign currency denominated net assets. The carrying value of this debt, including current and long-term, was approximately $2.7 billion as of April 3, 2021 and $2.8 billion as of January 2, 2021.
The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for existing fair value hedges as of April 3, 2021 and January 2, 2021.
(millions)Line Item in the Consolidated Balance Sheet in which the hedged item is includedCarrying amount of the hedged liabilitiesCumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)
April 3,
2021
January 2,
2021
April 3,
2021
January 2,
2021
Interest rate contractsLong-term debt$2,956 $2,568 $20 $25 
(a) The hedged long-term debt includes $15 million and $16 million of hedging adjustment on discontinued hedging relationships as of April 3, 2021 and January 2, 2021, respectively.
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The Company has elected to not offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable netting agreements. However, if the Company were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in the Consolidated Balance Sheet as of April 3, 2021 and January 2, 2021 would be adjusted as detailed in the following table:
    
As of April 3, 2021:
  
Gross Amounts Not Offset in the
Consolidated Balance Sheet
  
  
Amounts
Presented in the
Consolidated
Balance Sheet
Financial
Instruments
Cash Collateral
Received/
Posted
Net
Amount
Total asset derivatives$233 $(94)$3 $142 
Total liability derivatives$(125)$94 $31 $ 
 
As of January 2, 2021:
  
Gross Amounts Not Offset in the
Consolidated Balance Sheet
  
  
Amounts
Presented in the
Consolidated
Balance Sheet
Financial
Instruments
Cash Collateral
Received/
Posted
Net
Amount
Total asset derivatives$164 $(116)$ $48 
Total liability derivatives$(143)$116 $5 $(22)
The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the quarters ended April 3, 2021 and March 28, 2020 was as follows:
Derivatives and non-derivatives in net investment hedging relationships
(millions)Gain (loss)
recognized in
AOCI
Gain (loss) excluded from assessment of hedge effectivenessLocation of gain (loss) in income of excluded component
 April 3,
2021
March 28,
2020
April 3,
2021
March 28,
2020
Foreign currency denominated long-term debt$103 $9 $ $ 
Cross-currency contracts27 66 5 9 Interest expense
Total$130 $75 $5 $9 
Derivatives not designated as hedging instruments
(millions)Location of gain
(loss) recognized
in income
Gain (loss)
recognized in
income
  April 3,
2021
March 28,
2020
Foreign currency exchange contractsCOGS$(17)$