Restructuring and cost reduction activities

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.

Project K

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 may 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 is 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.

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 investments, 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 18%), U.S. Snacks (approximately 12%), U.S. Specialty (approximately 1%), North America Other (approximately 9%), Europe (approximately 14%), Latin America (approximately 3%), Asia-Pacific (approximately 6%), and Corporate (approximately 37%). A majority of the costs impacting Corporate relate to additional initiatives to be approved and executed in the future. When these initiatives are fully defined and approved, the Company will update its estimated costs by reportable segment as needed.

Since the inception of Project K, the Company has recognized charges of $664 million that have been attributed to the program. The charges consist of $4 million recorded as a reduction of revenue, $423 million recorded in COGS and $237 million recorded in SGA.

All Projects

During the quarter ended July 4, 2015, the Company recorded total charges of $90 million across all restructuring and cost reduction activities. The charges consist of $65 million recorded in cost of goods sold (COGS) and $25 million recorded in selling, general and administrative (SGA) expense. During the year-to-date period ended July 4, 2015, the Company recorded total charges of $158 million across all restructuring and cost reduction activities. The charges consist of $2 million recorded as a reduction of revenue, $97 million recorded in COGS and $59 million recorded in SGA expense.

During the quarter ended June 28, 2014, the Company recorded total charges of $78 million across all restructuring and cost reduction activities. The charges consist of $31 million recorded in COGS and $47 million recorded in 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 consist of $56 million recorded in COGS and $76 million recorded in SGA expense.

The tables below provide the details for charges across all restructuring and cost reduction activities incurred during the quarter and year-to-date periods ended July 4, 2015 and June 28, 2014 and program costs to date for programs currently active as of July 4, 2015.



	Quarter ended				Year-to-date period ended				Program costs to date
(millions)	July 4, 2015		June 28, 2014		July 4, 2015		June 28, 2014		July 4, 2015
Employee related costs	$	16	$	35	$	33	$	52	$	230
Asset related costs	24		7		47		10		90
Asset impairment	18		—		18		—		105
Other costs	32		36		60		70		239
Total	$	90	$	78	$	158	$	132	$	664

	Quarter ended				Year-to-date period ended				Program costs to date
(millions)	July 4, 2015		June 28, 2014		July 4, 2015		June 28, 2014		July 4, 2015
U.S. Morning Foods	$	13	$	15	$	21	$	26	$	181
U.S. Snacks	10		3		19		10		95
U.S. Specialty	1		—		2		1		8
North America Other	23		6		29		9		56
Europe	25		28		44		40		143
Latin America	1		1		1		5		13
Asia Pacific	3		5		8		11		69
Corporate	14		20		34		30		99
Total	$	90	$	78	$	158	$	132	$	664

For the quarter and year-to-date periods ended July 4, 2015 and June 28, 2014 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.

At July 4, 2015 total exit cost reserves were $78 million, related to severance payments and other costs of which a substantial portion will be paid out in 2015 and 2016. The following table provides details for exit cost reserves.



	Employee Related Costs			Asset Impairment			Asset Related Costs			Other Costs			Total
Liability as of January 3, 2015	$	96		$	—		$	—		$	14		$	110
2015 restructuring charges	33			18			47			60			158
Cash payments	(62		)	—			(12		)	(63		)	(137		)
Non-cash charges and other	(2		)	(18		)	(33		)	—			(53		)
Liability as of July 4, 2015	$	65		$	—		$	2		$	11		$	78