Restructuring

6 Months Ended

Jul. 03, 2022

Restructuring and Related Activities [Abstract]

Restructuring

RESTRUCTURING

In the fiscal second quarter of 2018 the Company announced plans to implement a series of actions across its Global Supply Chain that are intended to focus resources and increase investments in the critical capabilities, technologies and solutions necessary to manufacture and supply its product portfolio, enhance agility and drive growth. The Global Supply Chain actions will include expanding the use of strategic collaborations and bolstering initiatives to reduce complexity, improve cost-competitiveness, enhance capabilities and optimize the Supply Chain network. In the fiscal second quarter of 2022, the Company recorded a net pre-tax charge of $128 million, which is included on the following lines of the Consolidated Statement of Earnings, $85 million in restructuring, $17 million in cost of products sold and $26 million in other (income) expense, net. In the fiscal six months of 2022, the Company recorded a net pre-tax charge of $200 million, which is included on the following lines of the Consolidated Statement of Earnings, $155 million in restructuring, $33 million in cost of products sold and $12 million in other (income) expense, net. Total project costs of approximately $2.0 billion have been recorded since the restructuring was announced. See the following table for additional details on the restructuring program.

In total, the Company expects the Global Supply Chain actions to generate approximately $0.6 billion to $0.8 billion in annual pre-tax cost savings that will be substantially delivered by the end of 2022. The Company expects to record pre-tax restructuring charges of approximately $2.1 billion to $2.3 billion by the completion of the program in December 2022. These costs are associated with network optimizations, exit costs and accelerated depreciation and amortization.   

The following table summarizes the severance related reserves and the associated restructuring expenses through the fiscal second quarter of 2022:

(Dollars in Millions)	Severance		Asset Write-offs/Sales		Other(2)	Total
Reserve balance, January 2, 2022	$	112	—		25	137
Current year activity:
Charges	—		(11)		211	200
Cash settlements	(23)		35	(3)	(214)	(202)
Settled non cash	—		(24)		—	(24)
Reserve balance, July 3, 2022(1)	$	89	—		22	111

(1) Cash outlays for severance are expected to be substantially paid out by the completion of the program in December 2022.

(2) Other includes project expense such as salaries for employees supporting these initiatives and consulting expenses.

(3) Represents gain on sale of assets

The Company continuously reevaluates its severance reserves related to restructuring and the timing of payments due to the planned release of associates regarding several longer-term projects. The Company believes that the existing severance reserves are sufficient to cover the Global Supply Chain plans given the period over which the actions will take place. The Company will continue to assess and make adjustments as necessary if additional amounts become probable and estimable.