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.

Prior to the announcement of Project K in 2013, the Company commenced various COGS and SGA cost reduction initiatives. The COGS initiatives are intended to optimize the Company's global manufacturing network, reduce waste, and develop best practices on a global basis. The SGA initiatives focus on improvements in the efficiency and effectiveness of various global support functions.

During 2013, the Company recorded $42 million of charges associated with cost reduction initiatives. The charges were comprised of $21 million being recorded in COGS and $21 million recorded in SGA expense. At December 28, 2013, exit cost reserves were $1 million, related to severance payments which will be made in 2014.

The Company recorded $56 million of costs in 2012 associated with cost reduction initiatives. The charges were comprised of $43 million being recorded in COGS and $13 million recorded in SGA expense. At December 29, 2012, exit cost reserves were $1 million, related to severance payments.

During 2011, the Company recorded $61 million of costs associated with cost reduction initiatives. The charges were comprised of $36 million being recorded in COGS and $25 million recorded in SGA expense. Exit cost reserves at December 31, 2011 were $1 million related to severance payments.

The tables below provide the details for the charges incurred during the years ended 2013, 2012 and 2011 and program costs to date for programs currently active as of December 28, 2013.


								Program costs to date
(millions)		2013		2012		2011		December 28, 2013
Employee related costs	$	7	$	-	$	18	$	38
Asset related costs		4		4		4		8
Asset impairment		4		17		-		21
Other costs		27		35		39		76
Total	$	42	$	56	$	61	$	143

								Program costs to date
(millions)		2013		2012		2011		December 28, 2013
U.S. Morning Foods	$	9	$	16	$	11	$	21
U.S. Snacks		11		10		24		47
U.S. Specialty		2		1		1		6
North America Other		2		6		6		4
Europe		8		3		16		37
Latin America		1		2		1		2
Asia Pacific		8		18		2		26
Corporate		1		-		-		-
Total	$	42	$	56	$	61	$	143

Other costs incurred in 2013, 2012, and 2011 consist primarily of third-party incremental costs related to the development and implementation of new business capabilities primarily in North America.

In 2013, the Company announced Project K, a four-year efficiency and effectiveness program. The program is expected to generate a significant amount of savings, once all phases are approved and implemented, that will 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 will be 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 the program 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 expenditures, 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 17%), U.S. Snacks (approximately 7%), U.S. Specialty (approximately 1%), North America Other (approximately 3%), Europe (approximately 7%), Latin America (approximately 2%), Asia-Pacific (approximately 6%), and Corporate (approximately 57%). A majority of the costs impacting Corporate relate to additional initiatives to be executed after 2014 that are currently not fully defined. As the development of these initiatives is completed, the Company will update its estimated costs by reportable segment as needed.

In 2013, the Company recognized charges of $208 million that have been attributed to the program. The charges comprised of $174 million being recorded in COGS and $34 million recorded in SGA. The tables below outline the details of these charges:

Project K


(millions)		2013
Employee related costs	$	107
Asset related costs		6
Asset impairment		66
Other costs		29
Total	$	208



(millions)		2013
U.S. Morning Foods	$	100
U.S. Snacks		19
U.S. Specialty		3
North America Other		9
Europe		19
Latin America		4
Asia Pacific		24
Corporate		30
Total	$	208

Employee related costs consisted of severance and pension charges. Asset impairments were recorded for fixed assets that were determined to be impaired and were written down to their estimated fair value. Asset related costs relate primarily to accelerated depreciation. See Note 12 for more information. Other costs incurred consist primarily of third-party incremental costs related to the development and implementation of global business capabilities.

At December 28, 2013 exit cost reserves for Project K were $77 million, related to severance payments and other costs of which a substantial portion will be paid in 2014 and 2015. The following table provides details for Project K exit cost reserves.


		Employee Related		Asset		Asset Related		Other
		Costs		Impairment		Costs		Costs		Total
Liability as of December 29, 2012	$	-	$	-	$	-	$	-	$	-
2013 restructuring charges		107		66		6		29		208
Cash payments		(7)		-		(1)		(17)		(25)
Non-cash charges and other (a)		(35)		(66)		(5)		-		(106)
Liability as of December 28, 2013	$	65	$	-	$	-	$	12	$	77
(a) Employee related non-cash charges consist of pension curtailment expense.