Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives (Tables)

9 Months Ended

Oct. 02, 2016

Restructuring and Related Activities [Abstract]

Schedule of Components of Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives

The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
	Three Months Ended				Nine Months Ended
(MILLIONS OF DOLLARS)	October 2, 2016		September 27, 2015		October 2, 2016		September 27, 2015
Restructuring charges(a):
Employee terminations	$	347	$	241	$	464	$	306
Asset impairments	27		198		45		209
Exit costs	29		30		64		40
Total restructuring charges	404		469		574		555
Transaction costs(b)	54		64		114		70
Integration costs(c)	74		48		300		102
Restructuring charges and certain acquisition-related costs	531		581		988		727
Additional depreciation––asset restructuringrecorded in our condensed consolidated statements of income as follows(d):
Cost of sales	46		23		145		67
Research and development expenses	1		1		5		3
Total additional depreciation––asset restructuring	47		24		151		71
Implementation costs recorded in our condensed consolidated statements of income as follows(e):
Cost of sales	46		23		127		64
Selling, informational and administrative expenses	23		16		56		55
Research and development expenses	8		2		17		13
Other (income)/deductions––net	1		2		2		3
Total implementation costs	78		42		202		135
Total costs associated with acquisitions and cost-reduction/productivity initiatives	$	655	$	647	$	1,341	$	933

^(a)  In the nine months ended October 2, 2016, Employee terminations represent the expected reduction of the workforce by approximately 2,100employees, mainly in manufacturing, sales, research and corporate. Employee termination costs are generally recorded when the actions are probable and estimable and include accrued severance benefits, pension and postretirement benefits, many of which may be paid out during periods after termination.

The restructuring charges for 2016 are associated with the following:

• For the third quarter of 2016, the IH segment ($148 million); the EH segment ($28 million); WRD, GPD and Medical (M) (WRD/GPD/M) ($52 million); manufacturing operations ($108 million); and Corporate ($67 million).

• For the first nine months of 2016, IH ($162 million); EH ($19 million); WRD/GPD/M ($104 million); manufacturing operations ($181 million); and Corporate ($107 million).

The restructuring charges for 2015 are associated with the following:

• For the third quarter of 2015, IH ($9 million); EH ($280 million); WRD/GPD/M ($50 million); manufacturing operations ($26 million); and Corporate ($104 million).

• For the first nine monthsof 2015, IH ($55 million); EH ($288 million); WRD/GPD/M ($66 million); manufacturing operations ($18 million); and Corporate ($127 million).

In September 2015, in order to eliminate certain redundancies in Pfizer’s biosimilar drug products pipeline created as a result of the acquisition of Hospira, Pfizer opted to return rights to Celltrion that Hospira had previously acquired to potential biosimilars to Rituxan® (rituximab) and Herceptin® (trastuzumab). As such, upon return of the acquired rights, in the third quarter and first nine months of 2015, we incurred charges of $205 million, which are comprised of (i) a write-off of the applicable IPR&D assets, totaling $160 million, which is included in Asset impairments; (ii) a write-off of amounts prepaid to Celltrion in the amount of $25 million, which is included in Asset impairments;and (iii) a payment to Celltrion of $20 million, which is included in Exit costs.

^(b)  Transaction costs represent external costs for banking, legal, accounting and other similar services, most of which in the third quarter of 2016 are directly related to our acquisition of Medivation, and most of which in the first nine months of2016 are directly related to our acquisitions of Medivation and Anacor, and the terminated transaction with Allergan. Transaction costs in 2015 represent external costs directly related to the acquisition of Hospira and primarily include expenditures for banking, legal, accounting and other similar services.

^(c)  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. In the third quarter of 2016, integration costs mostly relate to our acquisition of Hospira and for the first nine months of2016, integration costs mostly relate to our acquisition of Hospira and the terminated transaction with Allergan. Integration costs in 2015 represent external incremental costs directly related to our acquisition of Hospira.

^(d)  Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions.

^(e)  Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives.

Schedule of Components of and Changes in Restructuring Accruals

The following table provides the components of and changes in our restructuring accruals:
(MILLIONS OF DOLLARS)	Employee Termination Costs			Asset Impairment Charges			Exit Costs			Accrual
Balance, December 31, 2015(a)	$	1,109		$	—		$	48		$	1,157
Provision	464			45			64			574
Utilization and other(b)	(360		)	(45		)	(50		)	(455		)
Balance, October 2, 2016(c)	$	1,213		$	—		$	62		$	1,275

^(a)  Included in Other current liabilities ($776 million) and Other noncurrent liabilities ($381 million).

^(b)  Includes adjustments for foreign currency translation.

^(c)  Included in Other current liabilities ($714 million) and Other noncurrent liabilities ($561 million).