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.

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 10 manufacturing sites over a long term period. As of April 2, 2017, we divested or exited three U.S. manufacturing sites, three international manufacturing sites, and our 55 percent ownership share of a Taiwan joint venture, inclusive of its related manufacturing site. 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 planned 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. Including divestitures, as of April 2, 2017, approximately 2,200 positions have been eliminated and additional reductions are expected primarily over the next three months.

Charges related to the operational efficiency initiative and supply network strategy are as follows:



	Three Months Ended
	April 2,			April 3,
(MILLIONS OF DOLLARS)	2017			2016
Restructuring charges/(reversals) and certain acquisition-related costs^(a):
Operational efficiency initiative
Employee termination costs	$	(1	)	$	1
Exit costs	—			1
Total Restructuring charges/(reversals) and certain acquisition-related costs	(1		)	2

Other operational efficiency initiative charges
Selling, general and administrative expenses:
Consulting fees	—			3
Other (income)/deductions—net:
Net gain on sale of assets^(b)	—			(33		)
Total other operational efficiency initiative charges	—			(30		)

Other supply network strategy charges
Cost of sales:
Accelerated depreciation	1			1
Consulting fees	2			2
Total other supply network strategy charges	3			3

Total charges associated with the operational efficiency initiative and supply network strategy	$	2		$	(25	)


^(a)	The restructuring charges/(reversals) for the three months ended April 2, 2017, are associated with the following: U.S. ($1 million) and International ($2 million reversal).

The restructuring charges for the three months ended April 3, 2016, are associated with the following: U.S. ($1 million reversal), International ($1 million reversal) and Manufacturing/research/corporate ($4 million).


^(b)	For the three months ended April 3, 2016, represents the net gain on the sale of certain manufacturing sites and products.

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





(MILLIONS OF DOLLARS)	Accrual^(a)
Balance, December 31, 2016^(b)	$	90
Provision	(1		)
Utilization and other^(c)	(22		)
Balance, April 2, 2017^(b)	$	67


^(a)	Changes in our restructuring accruals represent employee termination costs.


^(b)	At April 2, 2017, and December 31, 2016, included in Accrued expenses ($39 million and $61 million, respectively) and Other noncurrent liabilities ($28 million and $29 million, respectively).


^(c)	Includes adjustments for foreign currency translation.