Exit, Disposal And Other Restructuring Activities

3 Months Ended

Oct. 01, 2011

Exit, Disposal And Other Restructuring Activities [Abstract]

Exit, Disposal And Other Restructuring Activities

6. Exit, Disposal and Other Restructuring Activities

In January 2011, the corporation announced that its board of directors had agreed in principle to divide the company into two separate, publicly traded companies which is expected to be completed in the first half of calendar 2012. Under this plan, the corporation's International Beverage operations will be spun-off, tax-free, into a new public company. As the corporation prepares for the spin-off, it will incur certain spin-off related costs. Spin-off related costs will include restructuring actions such as employee termination costs and costs related to renegotiating contractual agreements; third party professional fees for consulting and other services that are directly related to the spin-off; and the costs of employees solely dedicated to activities directly related to the spin-off.

In 2009, the corporation initiated Project Accelerate, which was a series of global initiatives designed to drive significant savings over a three year period. The overall cost of the initiatives included severance costs as well as transition costs associated with transferring services to an outside third party. An important component of the Project Accelerate involved the outsourcing of pieces of the finance and global information services groups as well as the company's indirect procurement activities. The Project Accelerate initiative was substantially completed as of the end of 2011.

The nature of the costs incurred under these plans includes the following:

1) Exit Activities, Asset and Business Disposition Actions – These amounts primarily relate to:

• Employee termination costs

• Lease exit costs

• Gains or losses on the disposition of assets or asset groupings that do not qualify as discontinued operations

2) Costs recognized in Cost of sales and Selling, general and administrative expenses primarily relate to:

• Expenses associated with the installation of new information systems

• Costs to retain and relocate employees

• Consulting costs

• Costs associated with the transition of services to an outside third party vendor as part of a business process outsourcing initiative

Certain of these costs are recognized in Cost of sales or Selling, general and administrative expenses in the Consolidated Statements of Income as they do not qualify for treatment as an exit activity or asset and business disposition under the accounting rules for exit and disposal activities. However, management believes the disclosure of these charges provides the reader greater transparency to the total cost of the initiatives.

The following is a summary of the (income) expense associated with new and ongoing actions, which also highlights where the costs are reflected in the Consolidated Statements of Income along with the impact on diluted EPS:

	Quarter ended
(In millions)	Oct. 1, 2011			Oct. 2, 2010
Selling, general and administrative expenses	$	36		$	2
Net charges for (income from):
Exit activities		32			4
Decrease in income from continuing operations before income taxes		68			6
Income tax benefit		(18	)		(2	)
Decrease in income from continuing operations	$	50		$	4
Impact on diluted EPS	$	0.08		$	0.01

The impact of these actions on the corporation's business segments and unallocated corporate expenses is summarized as follows:

	Quarter ended
(In millions)	Oct. 1, 2011		Oct. 2, 2010
North American Retail	$	8	$	1
North American Foodservice and Specialty Meats		1		—
Coffee & Tea		9		2
Decrease in operating segment income		18		3
Increase in general corporate expenses		50		3
Total	$	68	$	6

The following discussion provides information concerning the exit, disposal and other activities for each year where actions were initiated and material reserves exist.

2012 Actions

During 2012, the corporation approved certain actions related to exit, disposal, and spin-off activities and recognized charges of $68 million related to these actions. Each of these activities is expected to be completed within a 12-month period after being approved and include the following:

• Recognized a charge to implement a plan to terminate approximately 250 employees, related to the North American Retail, Coffee & Tea and corporate office operations and provide them with severance benefits in accordance with benefit plans previously communicated to the affected employee group or with local employment laws. Of the 250 targeted employees, approximately 30 employees have been terminated. The remaining employees are expected to be terminated within the next 12 months.

• Recognized costs associated with terminating software services provided by an outside third party vendor.

The following table summarizes the net charges taken for the exit, disposal and spin-off activities approved during 2012 and the related status of the related accruals as of October 1, 2011. The accrued amounts remaining represent cash expenditures necessary to satisfy remaining obligations. The majority of the cash payments to satisfy the accrued costs are expected to be paid in the next 12 months. Charges of approximately $375 million are expected to be recognized in 2012 for various exit, disposal and other restructuring related actions.

(In millions)	Employee termination and other benefits			IT and other costs			Non- cancellable leases/ Contractual obligations		Total
Exit, disposal and other costs recognized during 2012	$	27		$	36		$	5	$	68
Charges recognized in discontinued operations		—			7			—		7
Cash payments		(2	)		(20	)		—		(22	)
Accrued costs as of October 1, 2011	$	25		$	23		$	5	$	53

2011 Actions

During 2011, the corporation approved certain actions related to exit, disposal, Project Accelerate and spin-off activities and recognized charges of $141 million related to these actions. Each of these activities were expected to be completed within a 12-month period after being approved and include the following:

• Recognized a charge to implement a plan to terminate approximately 920 employees, related to the European beverage, North American Retail and North American Foodservice businesses and the corporate office operations and provide them with severance benefits in accordance with benefit plans previously communicated to the affected employee group or with local employment laws. Of the 920 targeted employees, approximately 360 have been terminated. The remaining employees are expected to be terminated within the next 12 months.

• Recognized costs associated with the transition of services to an outside third party vendor as part of a business process outsourcing initiative.

• Recognized third party and employee costs associated with the planned spin-off of the corporation's International Beverage operations.

The corporation also recognized $97 million of charges in discontinued operations primarily related to restructuring actions taken to eliminate stranded overhead associated with the household and body care businesses.

The following table summarizes the net charges taken for the exit, disposal, Project Accelerate and spin-off activities approved during 2011 and the related status of the related accruals as of October 1, 2011. The accrued amounts remaining represent those cash expenditures necessary to satisfy remaining obligations. The majority of the cash payments to satisfy the accrued costs are expected to be paid in the next 12 months.

(In millions)	Employee termination and other benefits			IT and other  costs			Non- cancellable leases/ Contractual obligations			Total
Accrued costs as of July 2, 2011	$	98		$	24		$	9		$	131
Cash payments		(15	)		(16	)		(9	)		(40	)
Change in estimate		1			—			—			1
Noncash charges		(2	)		(1	)		—			(3	)
Foreign exchange impacts		(5	)		—			—			(5	)
Accrued costs as of October 1, 2011	$	77		$	7		$	—		$	84

2010 Actions

During 2010, the corporation approved certain actions related to exit, disposal, and Project Accelerate activities and recognized charges of $85 million related to these actions. Each of these activities were expected to be completed within a 12-month period after being approved and include the following:

• Recognized a charge to implement a plan to terminate approximately 890 employees, related to European beverage and North American foodservice operations, and provide them with severance benefits in accordance with benefit plans previously communicated to the affected employee group or with local employment laws. Of the 890 targeted employees, 50 employees have not yet been terminated, but are expected to be terminated within the next 12 months.

• Recognized costs associated with the transition of services to an outside third party vendor as part of a business process outsourcing initiative.

The following table summarizes the significant actions completed during the first quarter of 2012 and the status of the remaining accruals related to the 2010 actions as of October 1, 2011. The accrued amounts remaining represent those cash expenditures necessary to satisfy remaining obligations. The majority of the cash payments to satisfy the accrued costs are expected to be paid in the next 12 months. The corporation does not anticipate any additional material future charges related to the 2010 actions. The composition of these charges and the remaining accruals are summarized below.

(In millions)	Employee termination and other benefits			Non- cancellable Leases		Total
Accrued costs as of July 2, 2011	$	9		$	10	$	19
Cash payments		(2	)		—		(2	)
Noncash charges		(1	)		—		(1	)
Foreign exchange impacts		(1	)		—		(1	)
Accrued costs as of October 1, 2011	$	5		$	10	$	15

In periods prior to 2010, the corporation had approved and completed various actions to exit certain defined business activities and lower its cost structure and these actions have had minimal impact on current year results. As of October 1, 2011, the accrued liabilities remaining in the Condensed Consolidated Balance Sheet related to these completed actions total $20 million and primarily represent certain severance obligations. These accrued amounts are expected to be satisfied in cash and will be funded from operations.