BUSINESS OPTIMIZATION CHARGES

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

BUSINESS OPTIMIZATION CHARGES

BUSINESS OPTIMIZATION CHARGESIn recent years, we have undertaken actions to transform our 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. From the commencement of our business optimization activities in the second half of 2015 through September 30, 2019, we have incurred cumulative pre-tax costs of $927 million related to these actions. The costs consisted primarily of employee termination, implementation costs, asset impairments and accelerated depreciation. We currently expect to incur additional pre-tax costs of approximately $100 million through the completion of these initiatives under our current program. These costs will primarily include employee termination costs, implementation costs, and accelerated depreciation. To the extent further cost savings opportunities are identified, we may incur additional business optimization expenses.

During the three and nine months ended September 30, 2019 and 2018, we recorded the following charges related to business optimization programs.

	Three months ended September 30,				Nine months ended September 30,
(in millions)	2019		2018		2019		2018
Restructuring charges	$	17	$	63	$	94	$	96
Costs to implement business optimization programs	10		24		32		74
Accelerated depreciation	1		3		5		5
Total business optimization charges	$	28	$	90	$	131	$	175

For segment reporting purposes, business optimization charges are unallocated expenses.

Costs to implement business optimization programs for the three and nine months ended September 30, 2019 and 2018, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs. The costs were generally included within cost of sales, selling, general and administrative (SG&A) expense and R&D expense.

For the three and nine months ended September 30, 2019 and 2018, respectively, we recognized accelerated depreciation, primarily associated with facilities to be closed. The costs were recorded within cost of sales and SG&A expense.

During the three and nine months ended September 30, 2019 and 2018, we recorded the following restructuring charges.

	Three months ended September 30, 2019
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	1	$	2	$	2	$	5
Contract termination and other costs	1		—		—		1
Asset impairments	7		—		4		11
Total restructuring charges	$	9	$	2	$	6	$	17

	Three months ended September 30, 2018
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	16	$	33	$	9	$	58
Contract termination costs	—		4		—		4
Asset impairments	—		1		—		1
Total restructuring charges	$	16	$	38	$	9	$	63

	Nine months ended September 30, 2019
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	7	$	27	$	28	$	62
Contract termination and other costs	9		—		—		9
Asset impairments	17		1		5		23
Total restructuring charges	$	33	$	28	$	33	$	94

	Nine months ended September 30, 2018
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	20	$	47	$	19	$	86
Contract termination costs	—		6		—		6
Asset impairments	1		3		—		4
Total restructuring charges	$	21	$	56	$	19	$	96

The following table summarizes activity in the liability related to our restructuring initiatives.

(in millions)
Liability balance as of December 31, 2018	$	101
Charges	84
Payments	(77)
Reserve adjustments	(13)
Currency translation	(5)
Liability balance as of September 30, 2019	$	90

Reserve adjustments primarily related to employee termination cost reserves established in prior periods.

Substantially all of our restructuring liabilities as of September 30, 2019 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs. Substantially all of the cash payments for those liabilities are expected to be disbursed by the end of 2020.