6. INFUSION PUMP AND BUSINESS OPTIMIZATION CHARGES

Infusion pump charges

There were no significant updates related to the company’s infusion pump recall activities during the first half of 2015. Refer to the 2014 Annual Report for further information about the company’s infusion pump recall activities.

Business optimization charges

The company records charges from its business optimization initiatives primarily related to costs associated with optimizing the company’s overall cost structure on a global basis, as the company streamlined its international operations, rationalized its manufacturing facilities, enhanced its general and administrative infrastructure and realigned certain R&D activities. Refer to the 2014 Annual Report for further information about these charges.


	Three months ended					Six months ended
	June 30,					June 30,
(in millions)	2015		2014			2015			2014
Cash expenses		$12		$ 4			$ 28			$ 32
Non-cash expenses		2		1			4			1
Reserve adjustments		—		(37	)		(29	)		(37	)
Total business optimization items		$14		$(32	)		$ 3			$ (4	)
Discontinued operations		—		—			—			(8	)
Business optimization items in continuing operations		$14		$(32	)		$ 3			$(12	)

The 2015 and 2014 charges primarily included severance and employee-related costs. The company also recorded adjustments to its previous estimates in both 2015 and 2014.

The business optimization items are recorded as follows in the consolidated statements of income:

•

Second quarter of 2015: $3 million in cost of sales, $8 million in marketing and administrative expenses, and $3 million in R&D expenses

•

Second quarter of 2014: ($14 million) in cost of sales, ($16 million) in marketing and administrative expenses, and ($2 million) in R&D expenses

•

First half of 2015: ($4 million) in cost of sales, $10 million in marketing and administrative expenses, and ($3 million) in R&D expenses

•

First half of 2014: ($10 million) in cost of sales, ($6 million) in marketing and administrative expenses, and $4 million in R&D expenses (with an additional $8 million recorded in discontinued operations)

The following table summarizes cash activity in the reserves related to the company’s business optimization initiatives.


(in millions)
Reserves as of December 31, 2014	$	169
Charges		28
Reserve adjustments		(29	)
Utilization		(36	)
CTA		(10	)
Reserves as of June 30, 2015	$	122

The reserves are expected to be substantially utilized by the end of 2016. The company believes the remaining reserves to be adequate; however, additional adjustments may be recorded in the future as the programs are completed.