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 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.

Total Projects

During the quarter ended March 31, 2018, the Company recorded total charges of $20 million across all restructuring and cost reduction activities. The charges were comprised of $13 million recorded in cost of goods sold (COGS) and a $7 million expense recorded in selling, general and administrative (SG&A) expense.

During the quarter ended April 1, 2017, the Company recorded total charges of $142 million across all restructuring and cost reduction activities. The charges were comprised of $13 million recorded in COGS, $125 million recorded in SG&A expense and $4 million recorded in other (income) expense, net (OIE).

Project K

Project K is expected to continue generating savings that may be invested in key strategic areas of focus for the business or utilized to achieve our growth initiatives.

The program’s focus is on strengthening existing businesses in core markets, increasing growth in developing and emerging markets, driving an increased level of value-added innovation, 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 $1.5 to $1.6 billion, with after-tax cash costs, including incremental capital investments, estimated to be approximately $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 of approximately $500 million which will consist primarily of asset impairments, accelerated depreciation and other exit-related costs; employee-related costs of approximately $500 million which will include 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. Snacks (approximately 34%), U.S. Morning Foods (approximately 17%), 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 the inception of Project K, the Company has recognized charges of $1,397 million that have been attributed to the program. The charges consist of $6 million recorded as a reduction of revenue, $807 million recorded in COGS, $721 million recorded in SG&A, and ($137 million) recorded in OIE.

The tables below provide the details for charges incurred during the quarters ended March 31, 2018 and April 1, 2017 and program costs to date for programs currently active as of March 31, 2018.



	Quarter ended				Program costs to date
(millions)	March 31, 2018		April 1, 2017		March 31, 2018
Employee related costs	$	4	$	107	$	538
Pension curtailment (gain) loss, net	—		4		(137		)
Asset related costs	4		10		273
Asset impairment	—		—		155
Other costs	12		21		568
Total	$	20	$	142	$	1,397

	Quarter ended				Program costs to date
(millions)	March 31, 2018		April 1, 2017		March 31, 2018
U.S. Snacks	$	6	$	120	$	509
U.S. Morning Foods	2		1		253
U.S. Specialty	—		—		21
North America Other	2		7		142
Europe	7		6		337
Latin America	2		1		29
Asia Pacific	—		1		87
Corporate	1		6		19
Total	$	20	$	142	$	1,397

Employee related costs consist primarily of severance and related benefits. Pension curtailment (gain) loss consists of curtailment gains or losses that resulted from project initiatives. Asset related costs consist primarily of accelerated depreciation. Asset impairments were recorded for fixed assets that were determined to be impaired and were written down to their estimated fair value. Other costs consist 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 go-to-market model.

At March 31, 2018 total project reserves were $94 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.



	Employee Related Costs			Pension curtailment (gain) loss, net		Asset Impairment		Asset Related Costs			Other Costs			Total
Liability as of December 31, 2017	$	97		$	—	$	—	$	—		$	63		$	160
2018 restructuring charges	4			—		—		4			12			20
Cash payments	(28		)	—		—		—			(54		)	(82		)
Non-cash charges and other	—			—		—		(4		)	—			(4		)
Liability as of March 31, 2018	$	73		$	—	$	—	$	—		$	21		$	94