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Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
 6 Months Ended
Jul. 02, 2017
Restructuring and Related Activities [Abstract]  
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
In connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems. In connection with our acquisition activity, we typically incur costs and charges associated with executing the transactions, integrating the acquired operations, which may include expenditures for consulting and the integration of systems and processes, product transfers and restructuring. This may include charges related to employees, assets and activities that will not continue. All operating functions can be impacted by these actions, including sales and marketing, manufacturing and research and development (R&D), as well as functions such as business technology, shared services and corporate operations.
The components of costs incurred in connection with restructuring initiatives, acquisitions and cost-reduction/productivity initiatives are as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
July 2,

 
July 3,

 
July 2,

 
July 3,

(MILLIONS OF DOLLARS)
 
2017

 
2016

 
2017

 
2016

Restructuring charges/(reversals) and certain acquisition-related costs:
 
 
 
 
 
 
 
 
Integration costs(a)
 
$
2

 
$
2

 
$
2

 
$
2

Restructuring charges/(reversals)(b):
 
 
 
 
 
 
 
 
Employee termination costs
 
(3
)
 
(24
)
 
(4
)
 
(23
)
Exit costs
 
1

 
1

 
1

 
2

Total Restructuring charges/(reversals) and certain acquisition-related costs
 
$
—

 
$
(21
)
 
$
(1
)
 
$
(19
)
(a) 
Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes, as well as product transfer costs.
(b) 
The restructuring charges/(reversals) for the three months ended July 2, 2017, are associated with the following: U.S. ($1 million reversal), International ($1 million) and Manufacturing/research/corporate ($2 million reversal).
The restructuring charges/(reversals) for the six months ended July 2, 2017, are associated with the following: International ($1 million reversal) and Manufacturing/research/corporate ($2 million reversal).
The restructuring charges/(reversals) for the three months ended July 3, 2016, are associated with the following: U.S. ($1 million reversal), International ($14 million reversal) and Manufacturing/research/corporate ($8 million reversal).
The restructuring charges/(reversals) for the six months ended July 3, 2016, are associated with the following: U.S. ($2 million reversal), International ($15 million reversal) and Manufacturing/research/corporate ($4 million reversal).
During 2015, we launched a comprehensive operational efficiency program, which was incremental to the previously announced supply network strategy. These initiatives have focused on reducing complexity in our product portfolios through the elimination of approximately 5,000 product stock keeping units (SKUs), changing our selling approach in certain markets, reducing our presence in certain countries, and planning to sell or exit 10 manufacturing sites over a long term period. As of July 2, 2017, we divested or exited three U.S. manufacturing sites, three international manufacturing sites, and our 55 percent ownership share of a Taiwan joint venture, inclusive of its related manufacturing site. We are also continuing to optimize our resource allocation and efficiency by reducing resources associated with non-customer facing activities and operating more efficiently as a result of less internal complexity and more standardization of processes. As part of these initiatives, we planned to reduce certain positions through divestitures, normal attrition and involuntary terminations by approximately 2,000 to 2,500, subject to consultations with works councils and unions in certain countries. In 2016, the operations of the Guarulhos, Brazil manufacturing site, including approximately 300 employees, were transferred to us from Pfizer, which increased our range of planned reduction in certain positions to 2,300 to 2,800. Including divestitures, as of July 2, 2017, approximately 2,200 positions have been eliminated and the comprehensive operational efficiency program is substantially complete. We expect additional reductions through divestitures related to our supply network strategy over the next several years.
Charges related to the operational efficiency initiative and supply network strategy are as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
July 2,

 
July 3,

 
July 2,

 
July 3,

(MILLIONS OF DOLLARS)
 
2017

 
2016

 
2017

 
2016

Restructuring charges/(reversals) and certain acquisition-related costs:
 
 
 
 
 
 
 
 
Operational efficiency initiative
 
 
 
 
 
 
 
 
Employee termination costs(a)
 
$
2

 
$
(30
)
 
$
1

 
$
(29
)
Exit costs
 
1

 
2

 
1

 
3

 
 
3

 
(28
)
 
2

 
(26
)
Supply network strategy:
 
 
 
 
 
 
 
 
Employee termination costs
 
(5
)
 
6

 
(5
)
 
6

 
 
(5
)
 
6

 
(5
)
 
6

 
 
 
 
 
 
 
 
 
Total restructuring charges/(reversals) related to the operational efficiency initiative and supply network strategy
 
(2
)
 
(22
)
 
(3
)
 
(20
)
 
 
 
 
 
 
 
 
 
Other operational efficiency initiative charges
 
 
 
 
 
 
 
 
    Selling, general and administrative expenses:
 
 
 
 
 
 
 
 
        Accelerated depreciation
 
—

 
1

 
—

 
1

        Consulting fees
 
1

 
4

 
1

 
7

    Other (income)/deductions—net:
 
 
 
 
 
 
 
 
        Net loss/(gain) on sale of assets(b)
 
2

 
6

 
2

 
(27
)
Total other operational efficiency initiative charges
 
3

 
11

 
3

 
(19
)
 
 
 
 
 
 
 
 
 
Other supply network strategy charges
 
 
 
 
 
 
 
 
    Cost of sales:
 
 
 
 
 
 
 
 
        Accelerated depreciation
 
1

 
1

 
2

 
2

        Consulting fees
 
—

 
1

 
2

 
3

Total other supply network strategy charges
 
1

 
2

 
4

 
5

 
 
 
 
 
 
 
 
 
Total charges associated with the operational efficiency initiative and supply network strategy
 
$
2

 
$
(9
)
 
$
4

 
$
(34
)

(a) 
For the three and six months ended July 3, 2016, includes a reduction in employee termination accruals primarily as a result of higher than expected voluntary attrition rates experienced in the first half of 2016.
(b) 
For the three months ended July 3, 2016, primarily represents the net loss on the sale of our share of our Taiwan joint venture as part of our operational efficiency initiative. For the six months ended July 3, 2016, represents the net gain on the sale of certain manufacturing sites and products, partially offset by the loss on the sale of our share of our Taiwan joint venture, as part of our operational efficiency initiative.
The components of, and changes in, our restructuring accruals are as follows:
 
 
Employee

 
 
 
 
 
 
Termination

 
Exit

 
 
(MILLIONS OF DOLLARS)
 
Costs

 
Costs

 
Accrual(a)

Balance, December 31, 2016(a)
 
$
90

 
$
—

 
$
90

Provision
 
(4
)
 
1

 
(3
)
Utilization and other(b)
 
(36
)
 
(1
)
 
(37
)
Balance, July 2, 2017(a)
 
$
50

 
$
—

 
$
50

(a) 
At July 2, 2017, and December 31, 2016, included in Accrued expenses ($29 million and $61 million, respectively) and Other noncurrent liabilities ($21 million and $29 million, respectively).
(b) 
Includes adjustments for foreign currency translation.