Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives

In connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems. In connection with our acquisition activity, we typically incur costs and charges associated with executing the transactions, integrating the acquired operations, which may include expenditures for consulting and the integration of systems and processes, product transfers and restructuring the consolidated company, which may include charges related to employees, assets and activities that will not continue in the consolidated company. All operating functions can be impacted by these actions, including sales and marketing, manufacturing and research and development (R&D), as well as functions such as business technology, shared services and corporate operations.

The components of costs incurred in connection with restructuring initiatives, acquisitions and cost-reduction/productivity initiatives are as follows:



	Three Months Ended				Nine Months Ended
	October 2,		September 27,		October 2,			September 27,
(MILLIONS OF DOLLARS)	2016		2015		2016			2015
Restructuring charges/(benefits) and certain acquisition-related costs:
Integration costs^(a)	$	—	$	5	$	2		$	9
Restructuring charges/(benefits)^(b):
Employee termination costs	3		—		(20		)	237
Asset impairment charges	—		8		—			34
Exit costs	1		—		3			—
Total Restructuring charges/(benefits) and certain acquisition-related costs	$	4	$	13	$	(15	)	$	280


^(a)	Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes, as well as product transfer costs.


^(b)	The restructuring charges/(benefits) for the three and nine months ended October 2, 2016, and September 27, 2015, primarily relate to our operational efficiency initiative and supply network strategy.

The restructuring charges/(benefits) for the three and nine months ended October 2, 2016, are associated with the following: U.S. ($0 million and $2 million benefit, respectively), International ($1 million benefit and $16 million benefit, respectively) and Manufacturing/research/corporate ($5 million and $1 million, respectively).

The restructuring charges for the three and nine months ended September 27, 2015, are associated with the following: U.S. ($3 million benefit and $27 million, respectively), International ($2 million and $117 million, respectively) and Manufacturing/research/corporate ($9 million and $127 million, respectively).

During 2015, we launched a comprehensive operational efficiency program, which was incremental to the previously announced supply network strategy. These initiatives have focused on reducing complexity in our product portfolios through the elimination of approximately 5,000 product stock keeping units (SKUs), changing our selling approach in certain markets, reducing our presence in certain countries, and planning to sell or exit ten manufacturing sites over the long term. As of October 2, 2016, we divested three U.S. manufacturing sites, one international manufacturing site, and our 55 percent ownership share of a Taiwan joint venture, inclusive of its related manufacturing site, and exited one international manufacturing site. See Note 4B. Acquisitions and Divestitures: Divestitures for additional information. We are also continuing to optimize our resource allocation and efficiency by reducing resources associated with non-customer facing activities and operating more efficiently as a result of less internal complexity and more standardization of processes. As part of these initiatives, we expect to reduce certain positions through divestitures, normal attrition and involuntary terminations by approximately 2,000 to 2,500, subject to consultations with works councils and unions in certain countries. As of October 2, 2016, approximately 1,800 positions have been eliminated and additional reductions are expected primarily over the next nine months.

Restructuring charges/(benefits) related to these initiatives are as follows:



	Three Months Ended				Nine Months Ended
	October 2,		September 27,		October 2,			September 27,
(MILLIONS OF DOLLARS)	2016		2015		2016			2015
Operational efficiency initiative:
Employee termination costs^(a)	$	3	$	—	$	(26	)	$	228
Asset impairment	—		8		—			33
Exit costs	1		—		4			—
	4		8		(22		)	261

Supply network strategy:
Employee termination costs	—		—		6			9
Asset impairment charges	—		—		—			1
	—		—		6			10
Total restructuring charges/(benefits) related to the operational efficiency initiative and supply network strategy	4		8		(16		)	271

Other operational efficiency initiative charges
Cost of sales:
Inventory write-offs	1		5		1			5
Selling, general and administrative expenses:
Accelerated depreciation	—		—		1			—
Consulting fees	4		8		11			28
Other (income)/deductions:
Net gain on sale of assets^(b)	—		—		(27		)	—
Total other operational efficiency initiative charges	5		13		(14		)	33

Other supply network strategy charges
Cost of sales:
Accelerated depreciation	2		—		4			—
Consulting fees	—		3		3			13
Total other supply network strategy charges	2		3		7			13
Total costs associated with the operational efficiency initiative and supply network strategy	$	11	$	24	$	(23	)	$	317


^(a)	For the nine months ended October 2, 2016, includes a reduction in employee termination accruals primarily as a result of higher than expected voluntary attrition rates experienced in the first half of 2016.


^(b)	For the nine months ended October 2, 2016, represents the net gain on the sale of certain manufacturing sites and products, partially offset by the loss on the sale of our share of our Taiwan joint venture, as part of our operational efficiency initiative.

The components of, and changes in, our restructuring accruals are as follows:



	Employee
	Termination			Exit
(MILLIONS OF DOLLARS)	Costs			Costs			Accrual
Balance, December 31, 2015^(a)	$	221		$	1		$	222
Provision	(20		)	3			(17		)
Utilization and other^(b)	(99		)	(2		)	(101		)
Balance, October 2, 2016^(a)	$	102		$	2		$	104


^(a)	At October 2, 2016, and December 31, 2015, included in Accrued expenses ($70 million and $162 million, respectively) and Other noncurrent liabilities ($34 million and $60 million, respectively).


^(b)	Includes adjustments for foreign currency translation.