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 focused on reducing complexity in our product portfolios, changing our selling approach in certain markets, reducing our presence in certain countries, and exiting manufacturing sites over a long term period. We have also continued 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. The comprehensive operational efficiency program was substantially completed as of December 31, 2017. We expect to complete the supply network strategy over the next several years.

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



	Three Months Ended					Six Months Ended
	June 30,		July 2,			June 30,		July 2,
(MILLIONS OF DOLLARS)	2018		2017			2018		2017
Restructuring charges/(reversals) and certain acquisition-related costs:
Integration costs^(a)	$	—	$	2		$	1	$	2
Restructuring charges/(reversals)^(b)(c):
Employee termination costs/(reversals)	4		(3		)	5		(4		)
Exit costs	1		1			1		1
Total Restructuring charges/(reversals) and certain acquisition-related costs	$	5	$	—		$	7	$	(1	)


^(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 for the three months ended June 30, 2018, are primarily related to:


•	employee termination costs of $3 million in Europe as a result of initiatives to better align our organizational structure, and


•	employee termination costs of $1 million and exit costs of $1 million as a result of our operational efficiency initiative and supply network strategy.

The restructuring charges for the six months ended June 30, 2018, are primarily related to:


•	employee termination costs of $3 million in Europe as a result of initiatives to better align our organizational structure, and


•	employee termination costs of $2 million and exit costs of $1 million as a result of our operational efficiency initiative and supply network strategy.

The restructuring charges/(reversals) for the three and six months ended July 2, 2017, primarily relate to our operational efficiency initiative and supply network strategy.


^(c)	The restructuring charges/(reversals) are associated with the following:


•	For the three months ended June 30, 2018, International of $4 million and Manufacturing/research/corporate of $1 million.


•	For the six months ended June 30, 2018, International of $4 million and Manufacturing/research/corporate of $2 million.


•	For the three months ended July 2, 2017, U.S. of ($1 million), International of $1 million and Manufacturing/research/corporate of ($2 million).


•	For the six months ended July 2, 2017, International of ($1 million) and Manufacturing/research/corporate of ($2 million).

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



	Three Months Ended					Six Months Ended
	June 30,		July 2,			June 30,		July 2,
(MILLIONS OF DOLLARS)	2018		2017			2018		2017
Restructuring charges/(reversals) and certain acquisition-related costs:
Operational efficiency initiative
Employee termination costs	$	1	$	2		$	1	$	1
Exit costs	—		1			—		1
	1		3			1		2
Supply network strategy:
Employee termination costs	—		(5		)	1		(5		)
Exit costs	1		—			1		—
	1		(5		)	2		(5		)

Total restructuring charges/(reversals) related to the operational efficiency initiative and supply network strategy	2		(2		)	3		(3		)

Other operational efficiency initiative charges
Selling, general and administrative expenses:
Consulting fees	—		1			—		1
Other (income)/deductions—net:
Net (gain)/loss on sale of assets	—		2			—		2
Total other operational efficiency initiative charges	—		3			—		3

Other supply network strategy charges
Cost of sales:
Accelerated depreciation	—		1			—		2
Consulting fees	2		—			3		2
Total other supply network strategy charges	2		1			3		4

Total charges associated with the operational efficiency initiative and supply network strategy	$	4	$	2		$	6	$	4

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



	Employee
	Termination			Exit
(MILLIONS OF DOLLARS)	Costs			Costs			Accrual
Balance, December 31, 2017^(a)	$	41		$	—		$	41
Provision	5			1			6
Utilization and other^(b)	(12		)	(1		)	(13		)
Balance, June 30, 2018^(a)	$	34		$	—		$	34


^(a)	At June 30, 2018, and December 31, 2017, included in Accrued expenses ($12 million and $19 million, respectively) and Other noncurrent liabilities ($22 million and $22 million, respectively).


^(b)	Includes adjustments for foreign currency translation.