Restructuring Activities (Notes)

9 Months Ended

Sep. 28, 2019

Restructuring and Related Activities [Abstract]

As part of our restructuring activities, we incur expenses that qualify as exit and disposal costs under U.S. GAAP. These include severance and employee benefit costs and other exit costs. Severance and employee benefit costs primarily relate to cash severance, non-cash severance, including accelerated equity award compensation expense, and pension and other termination benefits. Other exit costs primarily relate to lease and contract terminations. We also incur expenses that are an integral component of, and directly attributable to, our restructuring activities, which do not qualify as exit and disposal costs under U.S. GAAP. These include asset-related costs and other implementation costs. Asset-related costs primarily relate to accelerated depreciation and asset impairment charges. Other implementation costs primarily relate to start-up costs of new facilities, professional fees, asset relocation costs, costs to exit facilities, and costs associated with restructuring benefit plans.

Employee severance and other termination benefit packages are primarily determined based on established benefit arrangements, local statutory requirements, or historical benefit practices. We recognize the contractual component of these benefits when payment is probable and estimable; additional elements of severance and termination benefits associated with non-recurring benefits are recognized ratably over each employee’s required future service period. Charges for accelerated depreciation are recognized on long-lived assets that will be taken out of service before the end of their normal service, in which case depreciation estimates are revised to reflect the use of the asset over its shortened useful life. Asset impairments establish a new fair value basis for assets held for disposal or sale, and those assets are written down to expected net realizable value if carrying value exceeds fair value. All other costs are recognized as incurred.

Restructuring Activities:

We have restructuring programs globally, which are focused primarily on workforce reduction and factory closure and consolidation. As of September 28, 2019, related to these programs, we expect to eliminate approximately 450 positions, primarily outside the U.S. Of these expected reductions, 300 positions were eliminated during the nine months ended September 28, 2019. These programs resulted in expenses of $56 million during the nine months ended September 28, 2019, including $5 million of credits in severance and employee benefit costs, $20 million of non-cash asset-related costs, and $41 million of other implementation costs. Restructuring expenses during the three months ended September 28, 2019 were $15 million, including $2 million of credits in severance and employee benefit costs, $8 million of non-cash asset-related costs, and $9 million of other implementation costs. Restructuring expenses totaled $21 million for the three months and $188 million for the nine months ended September 29, 2018.

Our net liability balance for restructuring project costs that qualify as exit and disposal costs under U.S. GAAP (i.e., severance and employee benefit costs and other exit costs) was (in millions):



	Severance and Employee Benefit Costs			Other Exit Costs			Total
Balance at December 29, 2018	$	32		$	33		$	65
Charges/(credits)	(5		)	—			(5		)
Cash payments	(16		)	(7		)	(23		)
Balance at September 28, 2019	$	11		$	26		$	37

We expect the liability for severance and employee benefit costs as of September 28, 2019 to be paid by the end of 2020. The liability for other exit costs primarily relates to lease obligations. The cash impact of these obligations will continue for the duration of the lease terms, which expire between 2019 and 2026.

Integration Program:

At the end of 2017, we had substantially completed our multi-year program announced following the merger of Kraft Foods Group, Inc. with and into a wholly-owned subsidiary of H. J. Heinz Holding Corporation (“Heinz”) (the “2015 Merger”) (the “Integration Program”), which was designed to reduce costs and integrate and optimize our combined organization, primarily in the U.S. and Canada reportable segments.

We incurred pre-tax costs related to the Integration Program of $10 million during the three months and $90 million during the nine months ended September 29, 2018. No such expenses were incurred during the three or nine months ended September 28, 2019.

Total Expenses:

Total expense/(income) related to restructuring activities, including the Integration Program, by income statement caption, were (in millions):



	For the Three Months Ended						For the Nine Months Ended
	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Severance and employee benefit costs - COGS	$	(1	)	$	(8	)	$	(4	)	$	17
Severance and employee benefit costs - SG&A	(1		)	2			(1		)	12
Severance and employee benefit costs - Other expense/(income)	—			(1		)	—			5
Asset-related costs - COGS	8			8			11			33
Asset-related costs - SG&A	—			6			9			7
Other costs - COGS	5			18			20			125
Other costs - SG&A	4			6			21			21
Other costs - Other expense/(income)	—			—			—			58
	$	15		$	31		$	56		$	278

We do not include our restructuring activities, including the Integration Program, within Segment Adjusted EBITDA (as defined in Note 20, Segment Reporting). The pre-tax impact of allocating such expenses to our segments would have been (in millions):



	For the Three Months Ended					For the Nine Months Ended
	September 28, 2019		September 29, 2018			September 28, 2019		September 29, 2018
United States	$	8	$	23		$	34	$	144
Canada	4		4			10		70
EMEA	—		(11		)	4		17
Rest of World	2		5			3		14
General corporate expenses	1		10			5		33
	$	15	$	31		$	56	$	278