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

Project K, a four-year efficiency and effectiveness program, was announced in November 2013, and is expected to continue generating 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 continue 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. Based on current estimates and actual charges to date, the Company expects the total project charges will consist of asset-related costs totaling $400 to $450 million which will consist primarily of asset impairments, accelerated depreciation and other exit-related costs; employee-related costs totaling $400 to $450 million which will include severance, pension and other termination benefits; and other costs totaling $400 to $500 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 13%), U.S. Specialty (approximately 1%), North America Other (approximately 10%), Europe (approximately 17%), Latin America (approximately 2%), Asia-Pacific (approximately 6%), and Corporate (approximately 33%). Certain 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 $862 million that have been attributed to the program. The charges consist of $6 million recorded as a reduction of revenue, $535 million recorded in COGS and $321 million recorded in SGA.

Other Projects

In 2015 the Company initiated the implementation of a zero-based budgeting (ZBB) program in its North America business that is expected to deliver visibility to ongoing annual savings. During 2016 ZBB was expanded to include the international segments of the business. In support of the ZBB initiative, the Company incurred pre-tax charges of approximately $7 million during the quarter ended April 2, 2016. Total charges of $19 million have been recognized since the inception of the ZBB program.

Total Projects

During the quarter ended April 2, 2016, the Company recorded total charges of $52 million across all restructuring and cost reduction activities. The charges were comprised of $18 million recorded in cost of goods sold (COGS) and $34 million recorded in selling, general and administrative (SGA) expense.

During the quarter ended April 4, 2015, the Company recorded total charges of $68 million across all restructuring and cost reduction activities. The charges were comprised of $2 million being recorded as a reduction of revenue, $32 million recorded in COGS and $34 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 April 2, 2016 and April 4, 2015 and program costs to date for programs currently active as of April 2, 2016.



	Quarter ended				Program costs to date
(millions)	April 2, 2016		April 4, 2015		April 2, 2016
Employee related costs	$	14	$	17	$	273
Asset related costs	10		23		156
Asset impairment	—		—		105
Other costs	28		28		347
Total	$	52	$	68	$	881

	Quarter ended				Program costs to date
(millions)	April 2, 2016		April 4, 2015		April 2, 2016
U.S. Morning Foods	$	5	$	8	$	223
U.S. Snacks	20		9		146
U.S. Specialty	2		1		13
North America Other	9		6		99
Europe	14		19		187
Latin America	—		—		16
Asia Pacific	—		5		74
Corporate	2		20		123
Total	$	52	$	68	$	881

For the quarters ended April 2, 2016 and April 4, 2015 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 April 2, 2016 total exit cost reserves were $81 million, related to severance payments and other costs of which a substantial portion will be paid out in 2016 and 2017. The following table provides details for exit cost reserves.



	Employee Related Costs			Asset Impairment		Asset Related Costs			Other Costs			Total
Liability as of January 2, 2016	$	55		$	—	$	—		$	33		$	88
2016 restructuring charges	14			—		10			28			52
Cash payments	(20		)	—		(7		)	(29		)	(56		)
Non-cash charges and other	—			—		(3		)	—			(3		)
Liability as of April 2, 2016	$	49		$	—	$	—		$	32		$	81