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

9 Months Ended

Sep. 30, 2018

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)	September 30, 2018			October 1, 2017			September 30, 2018			October 1, 2017
Restructuring (credits)/charges:
Employee terminations	$	(24	)	$	(55	)	$	(53	)	$	(113	)
Asset impairments(a)	12			101			8			126
Exit costs	14			10			14			16
Restructuring charges/(credits)(b)	1			56			(32		)	28
Transaction costs(c)	1			(14		)	1			4
Integration costs(d)	82			73			202			235
Restructuring charges and certain acquisition-related costs	85			114			172			267
Net periodic benefit costs recorded in Other (income)/deductions––net(e)	41			35			103			110
Additional depreciation––asset restructuring, virtually all of which is recorded in Cost of sales(f)	12			39			43			74
Implementation costs recorded in our condensed consolidated statements of income as follows(g):
Cost of sales	21			26			57			77
Selling, informational and administrative expenses	17			22			51			46
Research and development expenses	9			9			22			26
Total implementation costs	48			57			130			150
Total costs associated with acquisitions and cost-reduction/productivity initiatives	$	186		$	245		$	447		$	601

^(a)  The asset impairment charges for the three and nine months ended October 1, 2017 are largely associated with our acquisitions of Hospira and Medivation.

^(b)  In the third quarter of 2018, restructuring charges are primarily due to accruals for exit costs and asset write downs related to our acquisition of Hospira, partially offset by the reversal of previously recorded accruals for employee termination costs. In the first nine months of 2018, restructuring credits are mostly related to the reversal of previously recorded accruals for employee termination costs. In the three and nine months ended October 1, 2017, restructuring charges were mainly associated with our acquisitions of Hospira and Medivation, partially offset by credits associated with cost-reduction and productivity initiatives not associated with acquisitions that mostly related to the reversal of previously recorded accruals for employee termination costs. Employee terminations primarily include revisions of our estimates of severance benefits. Employee termination costs are generally recorded when the actions are probable and estimable and include accrued severance benefits, many of which may be paid out during periods after termination.

The restructuring activities for 2018 are associated with the following:

• For the third quarter of 2018, IH ($13 millioncredit); EH ($7 millioncharge); manufacturing operations ($1 millioncharge); WRD/GPD ($3 millioncharge); and Corporate ($3 millioncharge).

• For the first nine months of2018, IH ($25 millioncredit); EH ($5 millioncredit); WRD/GPD ($1 millioncharge); manufacturing operations ($16 millioncharge); and Corporate ($19 millioncredit).

The restructuring activities for 2017 are associated with the following:

• For the third quarter of 2017, IH ($1 millioncharge); EH ($1 millioncharge); WRD/GPD ($2 millioncharge); manufacturing operations ($40 millioncharge); and Corporate ($12 millioncharge).

• For the first nine months of2017, IH ($1 millioncredit); EH ($11 millioncredit); WRD/GPD ($24 millioncredit); manufacturing operations ($48 millioncharge); and Corporate ($15 millioncharge).

^(c)  Transaction costs represent external costs for banking, legal, accounting and other similar services, which in the third quarter of 2017 reflect the reversal of an accrual related to the acquisition of Medivation. Transaction costs for the first nine months of2017 were directly related to our acquisitions of Hospira, Anacor and Medivation.

^(d)  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 and first nine months of 2018, integration costs were primarily related to our acquisition of Hospira. In the third quarter and first nine months of 2017, integration costs primarily relate to our acquisitions of Hospira and Medivation. The first nine months of 2017 also include a net gain of $12 million related to the settlement of the Hospira U.S. qualified defined benefit pension plan (see Note 10).

^(e)  In the three and nine months ended September 30, 2018, primarily represents the net pension curtailments and settlements included in Other (income)/deductions––net upon the adoption of a new accounting standard in the first quarter of 2018. In the three and nine months ended October 1, 2017, primarily represents the net pension curtailments and settlements, partially offset by net periodic benefit credits, excluding service costs, related to our acquisition of Hospira, both of which were reclassified to Other (income)/deductions––net as a result of the retrospective adoption of a new accounting standard in the first quarter of 2018. These credits included a net settlement gain, partially offset by accelerated amortization of actuarial losses and prior service costs upon the settlement of the remaining obligation associated with the Hospira U.S. qualified defined benefit pension plan. For additional information, see Note 1B and Note 10.

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

^(g)  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, 2017(a)	$	1,039		$	—		$	66		$	1,105
Provision/(Credit)	(53		)	8			14			(32		)
Utilization and other(b)	(235		)	(8		)	(34		)	(277		)
Balance, September 30, 2018(c)	$	750		$	—		$	46		$	796

^(a)  Included in Other current liabilities ($643 million) and Other noncurrent liabilities ($462 million).

^(b)  Includes adjustments for foreign currency translation.

^(c)  Included in Other current liabilities ($397 million) and Other noncurrent liabilities ($399 million).