BUSINESS OPTIMIZATION CHARGES

9 Months Ended

Sep. 30, 2020

Restructuring and Related Activities [Abstract]

In 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, 2020, we have incurred cumulative pre-tax costs of $1.1 billion related to these actions. The costs consisted primarily of employee termination costs, implementation costs, contract termination costs, asset impairments and accelerated depreciation. We currently expect to incur additional pre-tax costs of approximately $15 million through the completion of the initiatives that are currently underway, primarily related to implementation costs. We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified, we may incur additional restructuring charges and costs to implement business optimization programs in future periods.

During the three and nine months ended September 30, 2020 and 2019, we recorded the following charges related to business optimization programs.


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2020		2019		2020		2019
Restructuring charges	$	26	$	17	$	58	$	94
Costs to implement business optimization programs	6		10		19		32
Accelerated depreciation	—		1		—		5
Total business optimization charges	$	32	$	28	$	77	$	131

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, 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 and nine months ended September 30, 2019, 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, 2020 and 2019, we recorded the following restructuring charges.


	Three months ended September 30, 2020
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	4	$	15	$	1	$	20
Contract termination and other costs	1		3		—		4
Asset impairments	—		2		—		2
Total restructuring charges	$	5	$	20	$	1	$	26


	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



	Nine months ended September 30, 2020
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	9	$	34	$	(1)	$	42
Contract termination and other costs	3		3		—		6
Asset impairments	8		2		—		10
Total restructuring charges	$	20	$	39	$	(1)	$	58



	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

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 expense (income), net in our condensed consolidated statement of income for the nine months ended September 30, 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	53
Payments	(63)
Reserve adjustments	(5)
Currency translation	4
Liability balance as of September 30, 2020	$	81

Substantially all of our restructuring liabilities as of September 30, 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 2021.