RESTRUCTURING AND COST REDUCTION ACTIVITIES

The Company views its restructuring and cost reduction activities as part of its 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 5-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.

Total projects

The Company recorded $263 million of costs in 2017 associated with cost reduction initiatives. The charges were comprised of $46 million being recorded in COGS and $217 million recorded in SGA expense.

During 2016, the Company recorded $325 million of charges associated with all cost reduction initiatives. The charges were comprised of $173 million being recorded in COGS and $152 million recorded in SGA expense.

During 2015, the Company recorded $323 million of charges associated with all cost reduction initiatives. The charges were comprised of $4 million being recorded as a reduction of revenue, $191 million being recorded in COGS and $128 million recorded in SGA expense.

Project K

In 2017, the Company announced an expansion and an extension to its previously-announced global efficiency and effectiveness program (“Project K”), to reflect additional and changed initiatives. Project K is expected to continue generating a significant amount of savings that may be invested in key strategic areas of focus for the business or utilized to achieve the Company's 2018 Margin Expansion target.

In addition to the original program’s focus on strengthening existing businesses in core markets, increasing growth in developing and emerging markets, and driving an increased level of value-added innovation, the extended program will also focus on implementing a more efficient go-to-market model for certain businesses and creating a more efficient organizational design in several markets. Since inception, Project K has provided significant benefits and is expected to continue to provide a number of benefits in the future, including an optimized supply chain infrastructure, the implementation of global business services, a new global focus on categories, increased agility from a more efficient organization design, and improved effectiveness in go-to-market strategies.

The Company currently anticipates that the program will result in total pre-tax charges, once all phases are approved and implemented, of approximately $1.5 to $1.6 billion, with after-tax cash costs, including incremental capital expenditures, estimated to be approximately $1.1 billion. Based on current estimates and actual charges incurred to date, the Company expects the total project charges will consist of asset-related costs of approximately $500 million which consists primarily of asset impairments, accelerated depreciation and other exit-related costs; employee-related costs of approximately $500 million which includes severance, pension and other termination benefits; and other costs of approximately $600 million which consists primarily of charges related to the design and implementation of global business capabilities and a more efficient go-to-market model.

The Company currently expects that total pre-tax charges related to Project K will impact reportable segments as follows: U.S. Morning Foods (approximately 17%), U.S. Snacks (approximately 34%), U.S. Specialty (approximately 1%), North America Other (approximately 13%), Europe (approximately 22%), Latin America (approximately 2%), Asia-Pacific (approximately 6%), and Corporate (approximately 5%).

Since inception of Project K, the Company has recognized charges of $1,377 million that have been attributed to the program. The charges were comprised of $6 million being recorded as a reduction of revenue, $736 million being recorded in COGS and $635 million recorded in SGA.

The Company will complete its implementation of Project K in 2018, with annual savings expected to increase through 2019. Project charges, after-tax cash costs and annual savings remain in line with expectations.

Other projects

In 2015 the Company implemented a zero-based budgeting (ZBB) program in its North America business that has delivered 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 $3 million, $25 million and $12 million for the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. Total charges of $40 million have been recognized since the inception of the ZBB program.

The Company completed implementation of the ZBB program in 2017, with annual savings expected to increase through 2018. Project charges, after-tax cash costs and annual savings remain in line with expectations.

The tables below provide the details for the charges incurred during 2017, 2016 and 2015 and program costs to date for all programs currently active as of December 30, 2017.



									Program costs to date
(millions)	2017			2016		2015			December 30, 2017
Employee related costs	$	177		$	108	$	63		$	534
Pension curtailment (gain) loss, net	(148		)	1		(1		)	(137		)
Asset related costs	77			46		103			269
Asset impairment	—			50		18			155
Other costs	157			120		140			596
Total	$	263		$	325	$	323		$	1,417

									Program costs to date
(millions)	2017			2016		2015			December 30, 2017
U.S. Morning Foods	$	18		$	23	$	58		$	259
U.S. Snacks	309			76		50			511
U.S. Specialty	2			8		5			21
North America Other	16			38		63			144
Europe	40			126		74			339
Latin America	9			8		4			33
Asia Pacific	11			7		13			92
Corporate	(142		)	39		56			18
Total	$	263		$	325	$	323		$	1,417

Employee related costs consisted of severance and pension charges. Pension curtailment (gain) loss consists of curtailment gains or losses that resulted from project initiatives. Asset impairments were recorded for fixed assets that were determined to be impaired and were written down to their estimated fair value. See Note 14 for more information. Asset related costs consist primarily of accelerated depreciation. Other costs incurred consist primarily of lease termination costs as well as third-party incremental costs related to the development and implementation of global business capabilities and a more efficient to-to-market model.

At December 30, 2017 total project reserves were $160 million, related to severance payments and other costs of which a substantial portion will be paid in 2018 and 2019. The following table provides details for exit cost reserves.



(millions)	Employee Related Costs			Curtailment Gain Loss, net		Asset Impairment			Asset Related Costs			Other Costs			Total
Liability as of January 2, 2016	$	55		—		$	—		$	—		$	33		$	88
2016 restructuring charges	108			1		50			46			120			325
Cash payments	(62		)	—		—			(14		)	(124		)	(200		)
Non-cash charges and other	1			(1	)	(50		)	(32		)	—			(82		)
Liability as of December 31, 2016	$	102		—		$	—		$	—		$	29		$	131
2017 restructuring charges	177			(148	)	—			77			157			263
Cash payments	(182		)	—		—			(34		)	(123		)	(339		)
Non-cash charges and other	—			148		—			(43		)	—			105
Liability as of December 30, 2017	$	97		—		$	—		$	—		$	63		$	160