Quarterly report pursuant to Section 13 or 15(d)

Productivity, Integration and Restructuring Initiatives

v2.3.0.15
Productivity, Integration and Restructuring Initiatives
 9 Months Ended
Sep. 30, 2011
Productivity integration and restructuring initiatives  
Productivity, Integration and Restructuring Initiatives
Productivity, Integration and Restructuring Initiatives
Productivity Initiatives
During 2008, the Company announced a transformation effort centered on productivity initiatives that will provide additional flexibility to invest for growth. The initiatives impact a number of areas and include aggressively managing operating expenses supported by lean techniques; redesigning key processes to drive standardization and effectiveness; and better leveraging our size and scale.
The Company has incurred total pretax expenses of $428 million related to these productivity initiatives since they commenced in the first quarter of 2008. These expenses were recorded in the line item other operating charges. Refer to Note 15 for the impact these charges had on our operating segments.
Other direct costs included both internal and external costs associated with the development, communication, administration and implementation of these initiatives and accelerated depreciation on certain fixed assets. The Company is expecting to generate at least $500 million in annualized savings from productivity initiatives by the end of 2011 to provide additional flexibility to invest for growth. In realizing these savings, the Company currently expects the total cost of these initiatives to be approximately $500 million and anticipates recognizing the remainder of the costs by the end of 2011.
The following table summarizes the balance of accrued expenses related to productivity initiatives and the changes in the accrued amounts as of and for the three months ended September 30, 2011 (in millions):
 
Accrued
Balance
July 1,
2011

Costs
Incurred
Three Months
Ended
September 30,
2011

Payments

Noncash
and
Exchange

Accrued
Balance
September 30,
2011

Severance pay and benefits
$
28

$
4

$
(8
)
$
1

$
25

Outside services1
4

1

(1
)
—

4

Other direct costs
3

17

(13
)
(1
)
6

Total
$
35

$
22

$
(22
)
$
—

$
35


1 Primarily relate to expenses in connection with legal, outplacement and consulting activities.
The following table summarizes the balance of accrued expenses related to productivity initiatives and the changes in the accrued amounts as of and for the nine months ended September 30, 2011 (in millions):
 
Accrued
Balance
December 31,
2010

Costs
Incurred
Nine Months
Ended
September 30,
2011

Payments

Noncash
and
Exchange

 
Accrued
Balance
September 30,
2011

Severance pay and benefits
$
59

$
16

$
(32
)
$
(18
)
1 
$
25

Outside services2
6

12

(15
)
1

 
4

Other direct costs
9

48

(42
)
(9
)
 
6

Total
$
74

$
76

$
(89
)
$
(26
)
 
$
35


1 Primarily relates to enhanced postretirement benefits associated with the Company's productivity initiatives. These special termination benefits are included in the Company's pension and other postretirement accruals. Refer to Note 12.
2 Primarily relate to expenses in connection with legal, outplacement and consulting activities.
Integration Initiatives
Integration of CCE's North American Business
On October 2, 2010, we acquired CCE's North American business. In 2010, the Company began an integration initiative as a result of this acquisition to develop and design our future operating framework. The Company has incurred total pretax expenses of $350 million related to this initiative since the plan commenced. These expenses were recorded in the line item other operating charges. Other direct costs included both internal and external costs associated with the development and design of our future operating framework in North America. Refer to Note 15 for the impact these charges had on our operating segments.
We believe this acquisition will result in an evolved franchise system that will enable us to better serve the unique needs of the North American market. The creation of a unified operating system will strategically position us to better market and distribute our nonalcoholic beverage brands in North America. We are reconfiguring our manufacturing, supply chain and logistics operations to achieve cost reductions over time. Once fully integrated, we expect to generate operational synergies of at least $350 million per year. We anticipate that these operational synergies will be phased in over the four years following the acquisition, and that we will begin to fully realize the annual benefit from these synergies in the fourth year.
Upon completion of the CCE transaction, we combined the management of the acquired North American business with the management of our existing foodservice business; Minute Maid and Odwalla juice businesses; North America supply chain operations; and Company-owned bottling operations in Philadelphia, Pennsylvania, into a unified bottling and customer service organization called Coca-Cola Refreshments, or CCR. In addition, we reshaped our remaining CCNA operations into an organization that primarily provides franchise leadership and consumer marketing and innovation for the North American market. As a result of the transaction and related reorganization, our North American businesses operate as aligned and agile organizations with distinct capabilities, responsibilities and strengths. The Company currently expects the total cost of these integration initiatives to be approximately $425 million and anticipates recognizing these charges over the three years following the acquisition.
The following table summarizes the balance of accrued expenses related to these integration initiatives and the changes in the accrued amounts as of and for the three months ended September 30, 2011 (in millions):
 
Accrued
Balance
July 1,
2011

Costs
Incurred
Three Months
Ended
September 30,
2011

Payments

Noncash
and
Exchange

Accrued
Balance
September 30,
2011

Severance pay and benefits
$
33

$
(5
)
$
(9
)
$
(1
)
$
18

Outside services1
31

14

(17
)
—

28

Other direct costs
37

40

(40
)
(4
)
33

Total
$
101

$
49

$
(66
)
$
(5
)
$
79


1 Primarily relate to expenses in connection with legal, outplacement and consulting activities.
The following table summarizes the balance of accrued expenses related to these integration initiatives and the changes in the accrued amounts as of and for the nine months ended September 30, 2011 (in millions):
 
Accrued
Balance
December 31,
2010

Costs
Incurred
Nine Months
Ended
September 30,
2011

Payments

Noncash
and
Exchange

Accrued
Balance
September 30,
2011

Severance pay and benefits
$
48

$
6

$
(36
)
$
—

$
18

Outside services1
9

55

(36
)
—

28

Other direct costs
12

154

(128
)
(5
)
33

Total
$
69

$
215

$
(200
)
$
(5
)
$
79


1 Primarily relate to expenses in connection with legal, outplacement and consulting activities.
Integration of Our German Bottling and Distribution Operations
In 2008, the Company began an integration initiative related to the 18 German bottling and distribution operations acquired in 2007. The Company incurred expenses of $13 million and $49 million related to this initiative during the three and nine months ended September 30, 2011, respectively. The Company has incurred total pretax expenses of $274 million related to this initiative since it commenced, which were recorded in the line item other operating charges and impacted the Bottling Investments operating segment. The expenses recorded in connection with these integration activities have been primarily due to involuntary terminations. The Company had $37 million and $34 million accrued related to these integration costs as of September 30, 2011, and December 31, 2010, respectively.
The Company is currently reviewing other integration and restructuring opportunities within the German bottling and distribution operations, which, if implemented, will result in additional charges in future periods. However, as of September 30, 2011, the Company has not finalized any additional plans.
Other Restructuring Activities
The Company incurred expenses of $5 million and $30 million related to other restructuring initiatives during the three and nine months ended September 30, 2011, respectively. These other restructuring initiatives were outside the scope of the productivity and integration initiatives discussed above. These other restructuring charges were related to individually insignificant activities throughout many of our business units. None of these activities is expected to be individually significant. These charges were recorded in the line item other operating charges. Refer to Note 15 for the impact these charges had on our operating segments.