8. INFUSION PUMP AND BUSINESS OPTIMIZATION CHARGES

Infusion Pump Charges

In 2017, the company recorded a charge of $22 million related to a second field corrective action with respect to the SIGMA Spectrum Infusion Pump, which is predominantly sold in the United States. Remediation primarily includes inspection and repair charges as well as a temporary replacement pump in a limited number of cases. The charge includes estimated cash costs associated with remediation efforts and $7 million of this charge had been utilized as of March 31, 2018.

Business Optimization Charges

Beginning in the second half of 2015, the company initiated actions to transform its cost structure and enhance operational efficiency. These efforts include restructuring the organization, optimizing the manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. Through March 31, 2018, the company has incurred cumulative pretax costs of $614 million related to these actions. The costs consisted primarily of employee termination, implementation costs and accelerated depreciation. The company expects to incur additional pretax costs of approximately $200 million and capital expenditures of $50 million through the completion of these initiatives. The costs will primarily include employee termination costs, implementation costs, and accelerated depreciation.

During the three months ended March 31, 2018 and 2017, the company recorded the following charges related to business optimization programs.

	Three months ended
	March 31,
(in millions)	2018		2017
Restructuring charges, net	$	12	$	3
Costs to implement business optimization programs		25		21
Accelerated depreciation		1		5
Total business optimization charges	$	38	$	29

For segment reporting, business optimization charges are unallocated expenses.

During the three months ended March 31, 2018 and 2017, the company recorded the following restructuring charges.

	Three months ended
	March 31, 2018
(in millions)	COGS		SGA		R&D		Total
Employee termination costs	$	1	$	6	$	3	$	10
Asset impairments		1		1		—		2
Total restructuring charges	$	2	$	7	$	3	$	12

	Three months ended
	March 31, 2017
(in millions)	COGS			SGA			R&D			Total
Employee termination costs	$	10		$	6		$	—		$	16
Contract termination costs		—			1			—			1
Reserve adjustments		(7	)		(5	)		(2	)		(14	)
Total restructuring charges	$	3		$	2		$	(2	)	$	3

Costs to implement business optimization programs for the three months ended March 31, 2018 were $25 million and consisted primarily of external consulting and transition costs as well as employee salary and related costs. These costs were included within cost of sales and marketing and administrative expense.

Costs to implement business optimization programs for the three months ended March 31, 2017, were $21 million, and consisted primarily of external consulting and employee salary related costs. These costs were included within cost of sales and marketing and administrative expense.

For the three months ended March 31, 2018 and 2017, the company recognized accelerated depreciation, primarily associated with facilities to be closed, of $1 million and $5 million, respectively. The costs were recorded within cost of sales and marketing and administrative expense.

The following table summarizes activity in the reserves related to the company’s business optimization initiatives.

(in millions)
Reserves as of December 31, 2017	$	112
Charges		10
Utilization		(27	)
CTA		(13	)
Reserves as of March 31, 2018	$	82

Approximately 90% of the company’s restructuring reserves as of March 31, 2018 relate to employee termination costs, with the remaining reserves attributable to contract termination costs. The reserves are expected to be substantially utilized by the end of 2018.