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Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives (Tables)
 12 Months Ended
Dec. 31, 2019
Restructuring and Related Activities [Abstract]  
Schedule Providing 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:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
2017

Restructuring charges/(credits):
 
 
 
 
 
 
Employee terminations
 
$
239

 
$
459

 
$
(181
)
Asset impairments(a)
 
81

 
290

 
190

Exit costs
 
53

 
33

 
21

Restructuring charges(b)
 
373

 
782

 
30

Transaction costs(c)
 
63

 
1

 
4

Integration costs and other(d)
 
311

 
260

 
317

Restructuring charges and certain acquisition-related costs
 
747

 
1,044

 
351

Net periodic benefit costs recorded in Other (income)/deductions––net(e)
 
23

 
146

 
136

Additional depreciation––asset restructuring recorded in our consolidated statements of income as follows(f):
 
 
 
 
 
 
Cost of sales
 
27

 
48

 
91

Selling, informational and administrative expenses
 
3

 
2

 
—

Research and development expenses
 
8

 
—

 
—

Total additional depreciation––asset restructuring
 
38

 
50

 
91

Implementation costs recorded in our consolidated statements of income as follows(g):
 
 
 
 
 
 
Cost of sales
 
63

 
83

 
118

Selling, informational and administrative expenses
 
73

 
72

 
71

Research and development expenses
 
22

 
39

 
38

Total implementation costs
 
158

 
194

 
227

Total costs associated with acquisitions and cost-reduction/productivity initiatives
 
$
967

 
$
1,434

 
$
805

(a) 
The asset impairment charges for 2018 are largely associated with cost reduction initiatives not associated with acquisitions. The asset impairment charges for 2017 are largely associated with our acquisitions of Hospira and Medivation. The asset impairment charges included in restructuring charges for 2017 are primarily associated with abandoned assets. See (b) below for additional information.
(b) 
In 2019, restructuring charges mainly represent employee termination costs associated with cost-reduction and productivity initiatives, partially offset by the reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of a U.S. IRS audit for multiple tax years (see Note 5B). In 2018, restructuring charges were primarily related to employee termination costs and asset write downs. The employee termination costs for 2019 and 2018 were primarily associated with our improvements to operational effectiveness as part of the realignment of our organizational structure, and for 2019, also includes employee termination costs associated with the Transforming to a More Focused Company initiative. In 2017, restructuring charges were primarily 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 resulting from revisions of our severance benefit estimates. 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 activities in 2019 are associated with the following:
•
Biopharma ($118 million charge); Upjohn ($75 million charge); and Other ($180 million charge).
At the beginning of fiscal 2019, we revised our operating segments and are unable to directly associate 2018 and 2017 restructuring charges with the new individual segments.
The restructuring activities for 2018 are associated with the following:
•
Total reportable segments ($207 million charge); and Other ($575 million charge).
The restructuring activities for 2017 are associated with the following:
•
Total reportable segments ($89 million credit); and Other ($119 million charge).
(c) 
Transaction costs represent external costs for banking, legal, accounting and other similar services. In 2019, transaction costs relate to our acquisition of Array. In 2017, transaction costs were directly related to our acquisitions of Hospira, Anacor and Medivation.
(d) 
Integration costs and other represent external, incremental costs directly related to integrating acquired businesses, such as expenditures for consulting and the integration of systems and processes, and certain other qualifying costs. In 2019, integration costs and other mainly related to our acquisitions of Array (including $157 million in payments to Array employees for the fair value of previously unvested stock options that was recognized as post-closing compensation expense (see Note 2A)) and Hospira. In 2018, integration costs and other mostly related to our acquisition of Hospira. In 2017, integration costs primarily related to our acquisitions of Hospira and Medivation, as well as a net gain of $12 million related to the settlement of the Hospira U.S. qualified defined benefit pension plan (see Note 11).
(e) 
In 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 2017, mainly 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 11.
(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 Restructuring Reserve by Type of Cost
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, January 1, 2018
 
$
1,039

 
$
—

 
$
66

 
$
1,105

Provision
 
459

 
290

 
33

 
782

Utilization and other(a)
 
(295
)
 
(290
)
 
(51
)
 
(636
)
Balance, December 31, 2018(b)
 
1,203

 
—

 
49

 
1,252

Provision(c)
 
239

 
81

 
53

 
373

Utilization and other(a)
 
(555
)
 
(81
)
 
(55
)
 
(691
)
Balance, December 31, 2019(d)
 
$
887

 
$
—

 
$
46

 
$
933

(a) 
Includes adjustments for foreign currency translation.
(b) 
Included in Other current liabilities ($823 million) and Other noncurrent liabilities ($428 million).
(c) 
Includes the reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of a U.S. IRS audit for multiple tax years. See Note 5D for additional information.
(d) 
Included in Other current liabilities ($714 million) and Other noncurrent liabilities ($219 million).