Quarterly report pursuant to Section 13 or 15(d)

Productivity, Integration and Restructuring Initiatives

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Productivity, Integration and Restructuring Initiatives
 9 Months Ended
Oct. 02, 2015
Productivity integration and restructuring initiatives  
Productivity, Integration and Restructuring Initiatives[Text Block]
PRODUCTIVITY, INTEGRATION AND RESTRUCTURING INITIATIVES
Productivity and Reinvestment
In February 2012, the Company announced a four-year productivity and reinvestment program designed to further enable our efforts to strengthen our brands and reinvest our resources to drive long-term profitable growth. This program is focused on the following initiatives: global supply chain optimization; global marketing and innovation effectiveness; operating expense leverage and operational excellence; data and information technology systems standardization; and the integration of Coca-Cola Enterprises Inc.'s former North America business.
In February 2014, the Company announced the expansion of our productivity and reinvestment program to drive incremental productivity by 2016 that will primarily be redirected into increased media investments. Our incremental productivity goal consists of two relatively equal components. First, we will expand savings through global supply chain optimization, data and information technology systems standardization, and resource and cost reallocation. Second, we will increase the effectiveness of our marketing investments by transforming our marketing and commercial model to redeploy resources into more consumer-facing marketing investments to accelerate growth.
In October 2014, the Company announced that we are further expanding our productivity and reinvestment program and extending it through 2019. The expansion of the productivity initiatives will focus on four key areas: restructuring the Company's global supply chain, including manufacturing in North America; implementing zero-based work, an evolution of zero-based budget principles, across the organization; streamlining and simplifying the Company's operating model; and further driving increased discipline and efficiency in direct marketing investments.
The Company has incurred total pretax expenses of $1,688 million related to this program since it commenced. These expenses were recorded in the line item other operating charges in our condensed consolidated statements of income. Refer to Note 15 for the impact these charges had on our operating segments. Outside services reported in the table below are primarily related to expenses in connection with legal, outplacement and consulting activities. Other direct costs reported in the table below include, among other items, internal and external costs associated with the development, communication, administration and implementation of these initiatives; accelerated depreciation on certain fixed assets; losses on disposal of certain assets; contract termination fees; and relocation costs.
The following table summarizes the balance of accrued expenses related to these productivity and reinvestment initiatives and the changes in the accrued amounts as of and for the three months ended October 2, 2015 (in millions):
 
Accrued
Balance
July 3, 2015

Costs
Incurred
Three Months Ended
October 2, 2015

Payments

Noncash
and
Exchange

Accrued
Balance
October 2, 2015

Severance pay and benefits
$
165

$
28

$
(29
)
$
(30
)
$
134

Outside services
7

15

(9
)
(4
)
9

Other direct costs
13

98

(93
)
1

19

Total
$
185

$
141

$
(131
)
$
(33
)
$
162

The following table summarizes the balance of accrued expenses related to these productivity and reinvestment initiatives and the changes in the accrued amounts as of and for the nine months ended October 2, 2015 (in millions):
 
Accrued
Balance
December 31, 2014

Costs
Incurred
Nine Months Ended
October 2, 2015

Payments

Noncash
and
Exchange

Accrued
Balance
October 2, 2015

Severance pay and benefits
$
260

$
62

$
(159
)
$
(29
)
$
134

Outside services
4

43

(35
)
(3
)
9

Other direct costs
21

218

(183
)
(37
)
19

Total
$
285

$
323

$
(377
)
$
(69
)
$
162


Integration of Our German Bottling Operations
In 2008, the Company began an integration initiative related to the 18 German bottling operations acquired in 2007. The Company incurred expenses of $75 million and $204 million related to this initiative during the three and nine months ended October 2, 2015, and has incurred total pretax expenses of $1,039 million related to this initiative since it commenced. These charges were recorded in the line item other operating charges in our condensed consolidated statements of income 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 $144 million and $101 million accrued related to these integration costs as of October 2, 2015 and December 31, 2014, respectively. We are currently reviewing additional restructuring opportunities within the German bottling operations, which if implemented will result in additional charges in future periods. Our German bottling operations are now classified as held for sale. Refer to Note 2.