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 3 to 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 $143 million of costs in 2018 associated with cost reduction initiatives. The charges were comprised of $99 million being recorded in Cost of Goods Sold (COGS), $74 million recorded in Selling, General, Administrative (SG&A) expense and $(30) million recorded in Other (Income) Expense, net (OIE).

The Company recorded $263 million of costs in 2017 associated with all cost reduction initiatives. The charges were comprised of $115 million expense being recorded in COGS, a $296 million expense recorded in SGA expense, and a $(148) million gain recorded in OIE.

During 2016, the Company recorded $325 million of charges associated with all cost reduction initiatives. The charges were comprised of $172 million expense being recorded in COGS, a $152 million expense recorded in SGA expense, and a $1 million loss recorded in OIE.

Project K

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 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.

As of the end of 2018, the Company has approved all remaining Project K initiatives and implementation of these remaining initiatives will be completed in 2019. Project charges, after-tax cash costs and annual savings remain in line with expectations.

The Company currently anticipates that the program will result in total pre-tax charges, once all phases are implemented, of approximately $1.6 billion, with after-tax cash costs, including incremental capital expenditures, estimated to be approximately $1.2 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 $400 million which includes severance, pension and other termination benefits; and other costs of approximately $700 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 31%), U.S. Specialty Channels (approximately 1%), North America Other (approximately 16%), Europe (approximately 22%), Latin America (approximately 3%), Asia-Pacific (approximately 6%), and Corporate (approximately 4%).

Since inception of Project K, the Company has recognized charges of $1,520 million that have been attributed to the program. The charges were comprised of $6 million being recorded as a reduction of revenue, $893 million being recorded in COGS, $788 million recorded in SGA and $(167) million recorded in OIE.

Other projects

The Company implemented a global zero-based budgeting (ZBB) program that has delivered annual savings. The Company completed implementation of the ZBB program in 2017. Final project charges, after-tax cash costs and annual savings remain in line with expectations.

In support of the ZBB initiative, the Company incurred pre-tax charges of approximately $3 million and $25 million for the years ended December 30, 2017 and December 31, 2016, respectively. Total charges of $40 million were recognized related to implementation of the ZBB program.

The tables below provide the details for the charges incurred during 2018, 2017 and 2016 and program costs to date for all programs currently active as of December 29, 2018.



									Program costs to date
(millions)	2018			2017			2016		December 29, 2018
Employee related costs	$	63		$	177		$	108	$	597
Pension curtailment (gain) loss, net	(30		)	(148		)	1		(167		)
Asset related costs	16			77			46		285
Asset impairment	14			—			50		169
Other costs	80			157			120		636
Total	$	143		$	263		$	325	$	1,520

									Program costs to date
(millions)	2018			2017			2016		December 29, 2018
U.S. Morning Foods	$	50		$	18		$	23	$	301
U.S. Snacks	28			309			76		531
U.S. Specialty Channels	4			2			8		25
North America Other	25			16			38		165
Europe	3			40			126		333
Latin America	15			9			8		42
Asia Pacific	11			11			7		98
Corporate	7			(142		)	39		25
Total	$	143		$	263		$	325	$	1,520

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 go-to-market model.

At December 29, 2018 total project reserves were $104 million, related to severance payments and other costs of which a substantial portion will be paid in 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 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
2018 restructuring charges	63			(30		)	14			16			80			143
Cash payments	(67		)	—			—			(9		)	(133		)	(209		)
Non-cash charges and other	—			30			(14		)	(6		)	—			10
Liability as of December 29, 2018	$	93		$	—		$	—		$	1		$	10		$	104