The Company views its continued spending on restructuring and cost reduction activities as part of its ongoing operating principles to provide greater visibility in achieving its long-term profit growth targets. Initiatives undertaken are currently expected to recover cash implementation costs within a five-year period of completion. Upon completion (or as each major stage is completed in the case of multi-year programs), the project begins to deliver cash savings and/or reduced depreciation.

The Company has initiated a number of restructuring and cost reduction activities. The most recent and largest program that is currently active is Project K, a four-year efficiency and effectiveness program announced in November 2013. The program is expected to generate a significant amount of savings that will be invested in key strategic areas of focus for the business. The Company expects that this investment will drive future growth in revenues, gross margin, operating profit, and cash flow.

The focus of the program will be to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation. The program is expected to provide a number of benefits, including an optimized supply chain infrastructure, the implementation of global business services, and a new global focus on categories.

During the quarter ended June 28, 2014, the Company recorded total charges of $78 million across all restructuring and cost reduction activities. The charges were comprised of $31 million being recorded in cost of goods sold (COGS) and $47 million recorded in selling, general and administrative (SGA) expense. During the year-to-date period ended June 28, 2014, the Company recorded total charges of $132 million across all restructuring and cost reduction activities. The charges were comprised of $56 million being recorded in COGS and $76 million recorded in SGA expense.

During the quarter ended June 29, 2013 the Company recorded total charges of $7 million across all restructuring and cost reduction activities. The charges were comprised of $3 million being recorded in COGS and $4 million recorded in SGA expense. During the year-to-date period ended June 29, 2013 the Company recorded total charges of $20 million across all restructuring and cost reduction activities. The charges were comprised of $11 million being recorded in COGS and $9 million recorded in SGA expense.

The tables below provide the details for charges across all restructuring and cost reduction activities incurred during the quarters and year-to-date periods ended June 28, 2014 and June 29, 2013 and program costs to date for programs currently active as of June 28, 2014.


		Quarter ended				Year-to-date period ended				Program costs to date
(millions)		June 28, 2014		June 29, 2013		June 28, 2014		June 29, 2013		June 28, 2014
Employee related costs	$	35	$	1	$	52	$	5	$	161
Asset related costs		7		-		10		5		19
Asset Impairment		-		-		-		-		66
Other costs		36		6		70		10		128
Total	$	78	$	7	$	132	$	20	$	374

		Quarter ended				Year-to-date period ended				Program costs to date
(millions)		June 28, 2014		June 29, 2013		June 28, 2014		June 29, 2013		June 28, 2014
U.S. Morning Foods	$	15	$	2	$	26	$	5	$	136
U.S. Snacks		3		3		10		6		37
U.S. Specialty		-		1		1		2		6
North America Other		6		1		9		1		21
Europe		28		-		40		-		67
Latin America		1		-		5		-		12
Asia Pacific		5		-		11		6		35
Corporate		20		-		30		-		60
Total	$	78	$	7	$	132	$	20	$	374

For the quarter and year-to-date periods ended June 28, 2014, and June 29, 2013, employee related costs consist primarily of severance benefits, asset related costs consist primarily of accelerated depreciation, and other costs consist primarily of third-party incremental costs related to the development and implementation of global business capabilities.

The Company currently anticipates that Project K will result in total pre-tax charges, once all phases are approved and implemented, of $1.2 to $1.4 billion, with after-tax cash costs, including incremental capital expenditures, estimated to be $900 million to $1.1 billion. The Company currently expects the charges will consist of asset-related costs totaling $450 to $500 million which will consist primarily of asset impairments, accelerated depreciation and other exit-related costs; employee-related costs totaling $425 to $475 million which will include severance, pension and other termination benefits; and other costs totaling $325 to $425 million which will consist primarily of charges related to the design and implementation of global business capabilities. A significant portion of other costs are the result of the implementation of global business service centers which are intended to simplify and standardize business support processes.

The Company currently expects that total pre-tax charges will impact reportable segments as follows: U.S. Morning Foods (approximately 17%), U.S. Snacks (approximately 10%), U.S. Specialty (approximately 1%), North America Other (approximately 3%), Europe (approximately 10%), Latin America (approximately 2%), Asia-Pacific (approximately 6%), and Corporate (approximately 51%). A majority of the costs impacting Corporate relate to additional initiatives to be executed after 2014 that are currently not fully defined. As the development of these initiatives is completed, the Company will update its estimated costs by reportable segment as needed.

At June 28, 2014 reserves for all restructuring and cost reduction activities are reflected in the table below. A substantial portion of these reserves will be paid out in 2014 and 2015 related to severance payments and other costs.


		Employee Related		Asset		Asset Related		Other
(millions)		Costs		Impairment		Costs		Costs		Total
Liability as of December 28, 2013	$	66	$	-	$	-	$	12	$	78
2014 restructuring charges		52		-		10		70		132
Cash payments		(15)		-		(3)		(70)		(88)
Non-cash charges and other		-		-		(7)		-		(7)
Liability as of June 28, 2014	$	103	$	-	$	-	$	12	$	115