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 September 29, 2018, the Company recorded total net charges of $34 million across all restructuring and cost reduction activities. The charges were comprised of a $49 million expense recorded in cost of goods sold (COGS), a $15 million expense recorded in selling, general and administrative (SG&A) expense and a $(30) million net curtailment gain related to the freeze of certain European pension plans recorded in other (income) expense, net (OIE). During the year-to-date period ended September 29, 2018, the Company recorded total net charges of $59 million across all restructuring and cost reduction activities. The charges were comprised of $58 million recorded in COGS, $31 million recorded in SG&A expense and a net gain of $(30) million recorded in OIE.

During the quarter ended September 30, 2017, the Company recorded total charges of $1 million across all restructuring and cost reduction activities. The charges were comprised of $49 million recorded in COGS, $86 million recorded in SG&A expense and $(134) million net gain recorded in OIE. During the year-to-date period ended September 30, 2017, the Company recorded total charges of $239 million across all restructuring and cost reduction activities. The charges were comprised of $85 million recorded in COGS, $287 million recorded in SG&A expense and $(133) million net gain recorded in 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.

Since inception, Project K has reduced the Company’s cost structure, and is expected to provide enduring benefits, including an optimized supply chain infrastructure, an efficient global business services model, a global focus on categories, increased agility from a more efficient organization design, and improved effectiveness in go-to-market models. These benefits are intended to strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation.

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 32%), U.S. Morning Foods (approximately 17%), U.S. Specialty Channels (approximately 1%), North America Other (approximately 15%), Europe (approximately 22%), Latin America (approximately 3%), Asia-Pacific (approximately 6%), and Corporate (approximately 4%).

Since the inception of Project K, the Company has recognized charges of $1,436 million that have been attributed to the program. The charges consist of $6 million recorded as a reduction of revenue, $852 million recorded in COGS, $745 million recorded in SG&A, and $(167) million recorded in OIE.

The tables below provide the details for charges incurred during the quarters and year-to-date periods ended September 29, 2018 and September 30, 2017 and program costs to date for programs currently active as of September 29, 2018.



	Quarter ended						Year-to-date period ended						Program costs to date
(millions)	September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017			September 29, 2018
Employee related costs	$	17		$	31		$	22		$	166		$	556
Pension curtailment (gain) loss, net	(30		)	(134		)	(30		)	(133		)	(167		)
Asset related costs	10			38			—			68			269
Asset impairment	14			—			14			—			169
Other costs	23			66			53			138			609
Total	$	34		$	1		$	59		$	239		$	1,436

	Quarter ended						Year-to-date period ended						Program costs to date
(millions)	September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017			September 29, 2018
U.S. Snacks	$	4		$	106		13			$	305		$	516
U.S. Morning Foods	19			14			31			16			282
U.S. Specialty Channels	1			—			1			1			22
North America Other	20			4			21			13			161
Europe	(16		)	13			(22		)	21			308
Latin America	3			2			7			6			34
Asia Pacific	2			1			5			5			92
Corporate	1			(139		)	3			(128		)	21
Total	$	34		$	1		$	59		$	239		$	1,436

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. During the year-to-date period ended ended September 29, 2018, a gain was recognized related to the sale of a manufacturing facility in Europe that was previously impacted as part of Project K. 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 September 29, 2018 total project reserves were $83 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	22			(30		)	14			—			53			59
Cash payments	(52		)	—			—			(3		)	(103		)	(158		)
Non-cash charges and other	—			30			(14		)	6			—			22
Liability as of September 29, 2018	$	67		$	—		$	—		$	3		$	13		$	83