Restructuring

In the first quarter of 2016, the Company announced restructuring actions in its Medical Devices segment to better serve the needs of patients and customers in today’s evolving healthcare marketplace. The Company has undertaken actions to strengthen its go-to-market model, accelerate the pace of innovation, further prioritize key platforms and geographies, and streamline operations while maintaining high quality standards.

In 2018, the Company recorded a pre-tax charge of $462 million, of which $46 million was included in cost of products sold and $227 million was included in other (income) expense. Total project costs of $2.5 billion have been recorded since the restructuring has been announced. This restructuring program was completed in the fiscal fourth quarter of 2018.

On April 17, 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. For additional details on the global supply chain restructuring strategic collaborations see Note 20 to the Consolidated Financial Statements. In 2018, the Company recorded a pre-tax charge of $238 million, of which $59 million was included in cost of products sold and $117 million was included in other (income) expense. See the following table for additional details on the restructuring programs.

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 2022. The Company expects to record pre-tax restructuring charges of approximately $1.9 billion to $2.3 billion, over the 4 to 5 year period of this activity. These costs are associated with network optimizations, exit costs and accelerated depreciation and amortization.

The following table summarizes the severance charges and the associated spending under these initiatives through the fiscal year ended 2018:



(Dollars in Millions)	Severance			Asset Write-offs		Other**		Total
Reserve balance, January 3, 2016	$	484		—		17		501

2016 activity	(104		)	—		(16	)	(120	)

Reserve balance, January 1, 2017	380			—		1		381

2017 activity	(151		)	—		37		(114	)

Reserve balance, December 31, 2017	229			—		38		267

Current year activity:
Charges	—			132		568		700
Cash payments	(35		)	—		(558	)	(593	)
Settled non cash	—			(132	)	—		(132	)
Reserve balance, December 30, 2018*	$	194		—		48		242

*Cash outlays for severance are expected to be substantially paid out over the next 2 years in accordance with the Company's plans and local laws.

**Other includes project expense such as salaries for employees supporting the initiative and consulting expenses.

Although the Medical Devices restructuring program was completed in 2018, the Company expects that severance charges will continue beyond that date. The Company continuously reevaluates its severance reserves related to restructuring and the timing of payments has extended 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. Approximately 2,375 individuals received separation payments since these restructuring announcements.