BUSINESS OPTIMIZATION CHARGES

3 Months Ended

Mar. 31, 2020

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 March 31, 2020, we have incurred cumulative pre-tax costs of $1.0 billion related to these actions. The costs consisted primarily of employee termination costs, implementation costs, asset impairments and accelerated depreciation. We currently expect to incur additional pre-tax costs of approximately $30 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 months ended March 31, 2020 and 2019, we recorded the following charges related to business optimization programs.

	Three months ended March 31,
(in millions)	2020		2019
Restructuring charges	$	25	$	25
Costs to implement business optimization programs	7		10
Accelerated depreciation	—		3
Total business optimization charges	$	32	$	38

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

Costs to implement business optimization programs for the three months ended March 31, 2020 and 2019, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs. The costs were generally included within cost of sales, SG&A expense and R&D expense.

For the three months ended March 31, 2019, 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 months ended March 31, 2020 and 2019, we recorded the following restructuring charges.

	Three months ended March 31, 2020
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	2	$	16	$	1	$	19
Asset impairments	6		—		—		6
Total restructuring charges	$	8	$	16	$	1	$	25

	Three months ended March 31, 2019
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	—	$	(1)	$	9	$	8
Contract termination costs	7		—		—		7
Asset impairments	9		1		—		10
Total restructuring charges	$	16	$	—	$	9	$	25

In conjunction with our business optimization initiatives, we sold property that resulted in a gain of $17 million. This benefit is reflected within other operating income, net in our condensed consolidated statement of income for the three months ended March 31, 2020.

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

(in millions)
Liability balance as of December 31, 2019	$	92
Charges	19
Payments	(21)
Currency translation	(2)
Liability balance as of March 31, 2020	$	88

Substantially all of our restructuring liabilities as of March 31, 2020 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.