Restructuring Program

9 Months Ended

Sep. 30, 2018

Restructuring and Related Activities [Abstract]

Note 7. Restructuring Program

On May 6, 2014, our Board of Directors approved a $3.5 billion 2014-2018 restructuring program and up to $2.2 billion of capital expenditures. On August 31, 2016, our Board of Directors approved a $600 million reallocation between restructuring program cash costs and capital expenditures so the $5.7 billion program consisted of approximately $4.1 billion of restructuring program charges ($3.1 billion cash costs and $1.0 billion non-cash costs) and up to $1.6 billion of capital expenditures.

On September 6, 2018, our Board of Directors approved an extension of the restructuring program through 2022, an increase of $1.3 billion in the program charges and an increase of $700 million in capital expenditures. The total $7.7 billion program now consists of $5.4 billion of program charges ($4.1 billion of cash costs and $1.3 billion of non-cash costs) and total capital expenditures of $2.3 billion to be incurred over the life of the program. The current restructuring program, as increased and extended by these actions, is now called the Simplify to Grow Program.

The primary objective of the Simplify to Grow Program is to reduce our operating cost structure in both our supply chain and overhead costs. The program covers severance as well as asset disposals and other manufacturing and procurement-related one-time costs. Since inception, we have incurred total restructuring and related implementation charges of $3.7 billion related to the Simplify to Grow Program. We expect to incur the program charges by year-end 2022.

Restructuring Costs:

We recorded restructuring charges of $56 million in the third quarter of 2018 and $113 million in the third quarter of 2017 and $220 million in the first nine months of 2018 and $418 million in the first nine months of 2017 within asset impairment and exit costs or benefit plan non-service income. The Simplify to Grow Program liability activity for the nine months ended September 30, 2018 was:



	Severance and related costs			Asset Write-downs			Total
	(in millions)
Liability balance, January 1, 2018	$	464		$	—		$	464
Charges	175			45			220
Cash spent	(232		)	—			(232		)
Non-cash settlements/adjustments	(3		)	(45		)	(48		)
Currency	(28		)	—			(28		)
Liability balance, September 30, 2018	$	376		$	—		$	376

We spent $70 million in the third quarter of 2018 and $83 million in the third quarter of 2017 and $232 million in the first nine months of 2018 and $245 million in the first nine months of 2017 in cash severance and related costs. We also recognized non-cash asset write-downs (including accelerated depreciation and asset impairments) and other non-cash adjustments totaling $9 million in the third quarter of 2018 and $48 million in the third quarter of 2017 and $48 million in the first nine months of 2018 and $174 million in the first nine months of 2017. At September 30, 2018, $308 million of our net restructuring liability was recorded within other current liabilities and $68 million was recorded within other long-term liabilities.

Implementation Costs:

Implementation costs are directly attributable to restructuring activities; however, they do not qualify for special accounting treatment as exit or disposal activities. We believe the disclosure of implementation costs provides readers of our financial statements with more information on the total costs of our Simplify to Grow Program. Implementation costs primarily relate to reorganizing our operations and facilities in connection with our supply chain reinvention program and other identified productivity and cost saving initiatives. The costs include incremental expenses related to the closure of facilities, costs to terminate certain contracts and the simplification of our information systems. Within our continuing results of operations, we recorded implementation costs of $83 million in the third quarter of 2018 and $62 million in the third quarter of 2017 and $215 million in the first nine months of 2018 and $179 million in the first nine months of 2017. We recorded these costs within cost of sales and general corporate expense within selling, general and administrative expenses.

Restructuring and Implementation Costs:

During the three and nine months ended September 30, 2018 and September 30, 2017, and since inception of the Simplify to Grow Program, we recorded the following restructuring and implementation costs within segment operating income and earnings before income taxes:



	Latin America		AMEA		Europe		North America ⁽¹⁾			Corporate ⁽²⁾		Total
	(in millions)
For the Three Months Ended September 30, 2018
Restructuring Costs	$	11	$	27	$	26	$	(9	)	$	1	$	56
Implementation Costs	16		8		16		23			20		83
Total	$	27	$	35	$	42	$	14		$	21	$	139
For the Three Months Ended September 30, 2017
Restructuring Costs	$	45	$	32	$	30	$	6		$	—	$	113
Implementation Costs	8		11		18		13			12		62
Total	$	53	$	43	$	48	$	19		$	12	$	175
For the Nine Months Ended September 30, 2018
Restructuring Costs	$	47	$	50	$	96	$	17		$	10	$	220
Implementation Costs	46		28		45		61			35		215
Total	$	93	$	78	$	141	$	78		$	45	$	435
For the Nine Months Ended September 30, 2017
Restructuring Costs	$	76	$	105	$	149	$	71		$	17	$	418
Implementation Costs	28		31		49		38			33		179
Total	$	104	$	136	$	198	$	109		$	50	$	597
Total Project ⁽³⁾
Restructuring Costs	$	477	$	498	$	935	$	436		$	108	$	2,454
Implementation Costs	198		157		317		314			256		1,242
Total	$	675	$	655	$	1,252	$	750		$	364	$	3,696


(1)	During 2018 and 2017, our North America region implementation costs included incremental costs that we incurred related to renegotiating collective bargaining agreements that expired in February 2016 for eight U.S. facilities and related to executing business continuity plans for the North America business.

(2)

During the first quarter of 2018, in connection with adopting a new pension cost classification accounting standard, we reclassified certain of our benefit plan component costs other than service costs out of operating income into a new line, benefit plan non-service income, on our condensed consolidated statements of earnings. As such, we have recast our historical operating income, segment operating income and restructuring and implementation costs by segment to reflect this reclassification, which had no impact to earnings before income taxes or net earnings. The benefit plan non-service income amounts no longer recorded in segment operating income are included within the Corporate column in the table above. The Corporate column also includes minor adjustments for rounding.

(3)

Includes all charges recorded since program inception on May 6, 2014 through September 30, 2018.