RESTRUCTURING

In the first quarter of 2016, 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 related charges of approximately $2.4 billion. In the fiscal first quarter of 2018, the Company recorded a pre-tax charge of $107 million, of which $6 million was included in cost of products sold and $59 million was included in other (income) expense. See the following table for additional details. Total project costs of $2.1 billion have been recorded since the restructuring was announced.

Additionally, as part of the plan, the Company expects that the restructuring actions will result in position eliminations of approximately 5 percent of the Medical Devices segment’s global workforce. Approximately 2,500 positions have been eliminated of which 1,800 received separation payments since the restructuring announcement.

Subsequent to the fiscal first quarter, the Company announced plans on April 17, 2018, to implement a series of actions across its Global Supply Chain that are intended to focus resources and increase investments in the critical capabilities, technologies and solutions necessary to manufacture and supply its product portfolio, enhance agility and drive growth. The Company expects the Global Supply Chain actions will include expanding the use of strategic collaborations and bolstering initiatives to reduce complexity, improve cost-competitiveness, enhance capabilities and optimize the Supply Chain network. Discussions regarding specific future actions are ongoing and are subject to all relevant consultation requirements before they are finalized.

In total, the Company expects these actions to generate approximately $0.6 billion to $0.8 billion in annual pre-tax cost savings that will be substantially delivered by 2022. The Company expects to record pre-tax restructuring charges of approximately $1.9 billion to $2.3 billion, over the 4 to 5 year period of this activity. The Company estimates that approximately 70% of the cumulative pre-tax costs will result in cash outlays. These costs are associated with network optimizations, exit costs and accelerated depreciation and amortization.

The following table summarizes the severance related reserves and the associated spending under these restructuring programs through the fiscal three months of 2018:



(Dollars in Millions)	Severance			Asset Write-offs		Other**		Total
Reserve balance, December 31, 2017	$	229		—		38		267

Current year activity:
Charges	—			5		102		107
Cash payments	(16		)	—		(122	)	(138	)
Settled non cash	—			(5	)	—		(5	)
Accrual adjustment	—			—		—		—

Reserve balance, April 1, 2018*	$	213		—		18		231

*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.

The Company expects that the Medical Devices restructuring program will be completed by the end of fiscal year 2018 with certain projects and severance charges continuing beyond that date. The Company continuously reevaluates its severance reserves related to restructuring and the timing of payments has extended due to the planned release of associates regarding several longer-term projects. The Company believes that the existing severance reserves are sufficient to cover the recently announced Global Supply Chain plans given the period over which the actions will take place. The Company will continue to assess and make adjustments as necessary if additional amounts become probable and estimable.