RESTRUCTURING

The Company announced restructuring actions in its Medical Devices segment to better serve the needs of patients and customers in today’s evolving healthcare marketplace. The Company is undertaking actions to strengthen its go-to-market model, accelerate the pace of innovation, further prioritize key platforms and geographies, and streamline operations while maintaining high quality standards.

The Company estimates that, in connection with its plans, it will record pre-tax restructuring and other charges of approximately $2.0 billion to $2.4 billion. In the fiscal six months of 2017, the Company recorded a pre-tax charge of $289 million, of which $17 million was included in cost of products sold and $176 million was included in other (income) expense. In the fiscal second quarter of 2017, the Company recorded a pre-tax charge of $128 million, of which $13 million was included in cost of products sold and $104 million was included in other (income) expense. In the fiscal second quarter of 2017, the Company recorded a $90 million accrual adjustment to the severance reserve due to higher voluntary separation than anticipated. See the following table for additional details. Total project costs of $1.6 billion have been recorded since the restructuring announcement.

Additionally, as part of the plan, the Company expects that the restructuring actions will result in position eliminations of approximately 4 to 6 percent of the Medical Devices segment’s global workforce over the next 18 months, subject to any consultation procedures in countries, where required. Approximately 2,100 positions have been eliminated of which 1,650 received separation payments since the restructuring announcement.

The Company estimates that approximately one half of the cumulative pre-tax costs will result in cash outlays, including

approximately $400 million of employee severance. Approximately one half of the cumulative pre-tax costs are non-cash,

relating primarily to facility rationalization, inventory write-offs and intangible asset write-offs.

The following table summarizes the severance related reserves and the associated spending under this initiative through the first fiscal six months of 2017:



(Dollars in Millions)	Severance			Asset Write-offs		Other**		Total
Reserve balance, January 1, 2017	$	380		—		1		381

Current year activity:
Charges	—			112		267		379
Cash payments	(39		)	—		(264	)	(303	)
Settled non cash	—			(112	)	—		(112	)
Accrual adjustment	(90		)	—		—		(90	)

Reserve balance, July 2, 2017*	$	251		—		4		255

*Cash outlays for severance are expected to be substantially paid out over the next 2 years in accordance with the Company's plans and local laws.

**Other includes project expense such as salaries for employees supporting the initiative and consulting expenses.