NOTE H – RESTRUCTURING-RELATED ACTIVITIES

On an on-going basis, we monitor the dynamics of the economy, the healthcare industry, and the markets in which we compete; and we continue to assess opportunities for improved operational effectiveness and efficiency, and better alignment of expenses with revenues, while preserving our ability to make the investments in research and development projects, capital and our people that are essential to our long-term success. As a result of these assessments, we have undertaken various restructuring initiatives in order to enhance our growth potential and position us for long-term success. These initiatives are described below.

2011 Restructuring plan

On July 26, 2011, our Board of Directors approved, and we committed to, a restructuring initiative (the 2011 Restructuring plan) designed to strengthen operational effectiveness and efficiencies, increase competitiveness and support new investments, thereby increasing shareholder value. Key activities under the plan include standardizing and automating certain processes and activities; relocating select administrative and functional activities; rationalizing organizational reporting structures; leveraging preferred vendors; and other efforts to eliminate inefficiency. Among these efforts, we are expanding our ability to deliver best-in-class global shared services for certain functions and divisions at several locations in emerging markets. This action is intended to enable us to grow our global commercial presence in key geographies and take advantage of many cost-reducing and productivity-enhancing opportunities. In addition, we are undertaking efforts to streamline various corporate functions, eliminate bureaucracy, increase productivity and better align corporate resources to our key business strategies. Activities under the 2011 Restructuring plan were initiated in the third quarter of 2011 and are expected to be substantially complete by the end of 2013.

We estimate that the 2011 Restructuring plan will result in total pre-tax charges of approximately $155 million to $210 million, and that approximately $150 million to $200 million of these charges will result in future cash outlays, of which we have made payments of $13 million to date. We have recorded related costs of $35 million since the inception of the plan, and are recording a portion of these expenses as restructuring charges and the remaining portion through other lines within our consolidated statements of operations.

The following provides a summary of our expected total costs associated with the plan by major type of cost:



Type of cost	Total estimated amount expected to be incurred
Restructuring charges:
Termination benefits	$125 million to $150 million
Other (1)	$20 million to $40 million
Restructuring-related expenses:
Other (2)	$10 million to $20 million
	$155 million to $210 million


(1)	Includes primarily consulting fees and costs associated with contractual cancellations.


(2)	Comprised of other costs directly related to the 2011 Restructuring plan, including program management, accelerated depreciation, retention and infrastructure-related costs.

2010 Restructuring plan

On February 6, 2010, our Board of Directors approved, and we committed to, a series of management changes and restructuring initiatives (the 2010 Restructuring plan) designed to focus our business, drive innovation, accelerate profitable revenue growth and increase both accountability and shareholder value. Key activities under the plan include the integration of our Cardiovascular and CRM businesses, as well as the restructuring of certain other businesses and corporate functions; the re-alignment of our international structure to reduce our administrative costs and invest in expansion opportunities including significant investments in emerging markets; and the re-prioritization and diversification of our product portfolio. Activities under the 2010 Restructuring plan were initiated in the first quarter of 2010 and are expected to be substantially complete by the end of 2012.

We estimate that the 2010 Restructuring plan will result in total pre-tax charges of approximately $165 million to $185 million, and that approximately $150 million to $160 million of these charges will result in cash outlays, of which we have made payments of $140 million to date. We have recorded related costs of $159 million since the inception of the plan, and are recording a portion of these expenses as restructuring charges and the remaining portion through other lines within our consolidated statements of operations.

The following provides a summary of our expected total costs associated with the plan by major type of cost:



Type of cost	Total estimated amount expected to be incurred
Restructuring charges:
Termination benefits	$95 million to $100 million
Fixed asset write-offs	$10 million to $15 million
Other (1)	$50 million to $55 million
Restructuring-related expenses:
Other (2)	$10 million to $15 million
	$165 million to $185 million


(1)	Includes primarily consulting fees and costs associated with contractual cancellations.


(2)	Comprised of other costs directly related to the 2010 Restructuring plan, including accelerated depreciation and infrastructure-related costs.

Plant Network Optimization program

In January 2009, our Board of Directors approved, and we committed to, a Plant Network Optimization program, which is intended to simplify our manufacturing plant structure by transferring certain production lines among facilities and by closing certain other facilities. The program is a complement to our 2007 Restructuring plan, discussed below, and is intended to improve overall gross profit margins. Activities under the Plant Network Optimization program were initiated in the first quarter of 2009 and are expected to be substantially complete by the end of 2012.

We expect that the execution of the Plant Network Optimization program will result in total pre-tax charges of approximately $130 million to $145 million, and that approximately $110 million to $120 million of these charges will result in cash outlays, of which we have made payments of $70 million to date. We have recorded related costs of $124 million since the inception of the plan, and are recording a portion of these expenses as restructuring charges and the remaining portion through cost of products sold within our consolidated statements of operations. The following provides a summary of our estimates of costs associated with the Plant Network Optimization program by major type of cost:



Type of cost	Total estimated amount expected to be incurred
Restructuring charges:
Termination benefits	$35 million to $40 million

Restructuring-related expenses:
Accelerated depreciation	$20 million to $25 million
Transfer costs (1)	$75 million to $80 million
	$130 million to $145 million


(1)	Consists primarily of costs to transfer product lines among facilities, including costs of transfer teams, freight, idle facility and product line validations.

2007 Restructuring plan

In October 2007, our Board of Directors approved, and we committed to, an expense and head count reduction plan (the 2007 Restructuring plan). The plan was intended to bring expenses in line with revenues as part of our initiatives to enhance short- and long-term shareholder value. Key activities under the plan included the restructuring of several businesses, corporate functions and product franchises in order to better utilize resources, strengthen competitive positions, and create a more simplified and efficient business model; the elimination, suspension or reduction of spending on certain research and development projects; and the transfer of certain production lines among facilities. We initiated these activities in the fourth quarter of 2007 and have substantially completed all activities under the plan. The execution of this plan resulted in total pre-tax expenses of $427 million and required cash outlays of $380 million, of which we have paid $374 million to date.

We recorded restructuring charges pursuant to our restructuring plans of $89 million during 2011, $116 million during 2010, and $63 million during 2009. In addition, we recorded expenses within other lines of our accompanying consolidated statements of operations related to our restructuring initiatives of $40 million during 2011, $53 million during 2010, and $67 million during 2009.

The following presents these costs by major type and line item within our accompanying consolidated statements of operations, as well as by program:



Year Ended December 31, 2011
(in millions)	Termination Benefits		Retention Incentives	Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs	Other		Total
Restructuring charges	$	55							$	34	$	89
Restructuring-related expenses:
Cost of products sold				$	9	$	27				36
Selling, general and administrative expenses									4		4
				9		27			4		40
	$	55		$	9	$	27		$	38	$	129

(in millions)	Termination Benefits		Retention Incentives	Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs	Other		Total
2011 Restructuring plan	$	21							$	14	$	35
2010 Restructuring plan	24			$	1				24		49
Plant Network Optimization program	10			8		$	27				45
	$	55		$	9	$	27		$	38	$	129



Year Ended December 31, 2010
(in millions)	Termination Benefits		Retention Incentives	Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs		Other		Total
Restructuring charges	$	70						$	11	$	35	$	116
Restructuring-related expenses:
Cost of products sold				$	7	$	41					48
Selling, general and administrative expenses										5		5
				7		41				5		53
	$	70		$	7	$	41	$	11	$	40	$	169

(in millions)	Termination Benefits		Retention Incentives	Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs		Other		Total
2010 Restructuring plan	$	66						$	11	$	33	$	110
Plant Network Optimization program	4			$	7	$	28					39
2007 Restructuring plan						13				7		20
	$	70		$	7	$	41	$	11	$	40	$	169



Year Ended December 31, 2009
(in millions)	Termination Benefits		Retention Incentives		Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs		Other		Total
Restructuring charges	$	34							$	13	$	16	$	63
Restructuring-related expenses:
Cost of products sold			$	5	$	8	$	37					50
Selling, general and administrative expenses			10		3						1		14
Research and development expenses			3										3
			18		11		37				1		67
	$	34	$	18	$	11	$	37	$	13	$	17	$	130

(in millions)	Termination Benefits		Retention Incentives		Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs		Other		Total
Plant Network Optimization program	$	22			$	6	$	12					$	40
2007 Restructuring plan	12		$	18	5		25		$	13	$	17	90
	$	34	$	18	$	11	$	37	$	13	$	17	$	130

Termination benefits represent amounts incurred pursuant to our on-going benefit arrangements and amounts for “one-time” involuntary termination benefits, and have been recorded in accordance with ASC Topic 712, Compensation – Non-retirement Postemployment Benefits and ASC Topic 420, Exit or Disposal Cost Obligations. We expect to record additional termination benefits related to our restructuring initiatives in 2012 when we identify with more specificity the job classifications, functions and locations of the remaining head count to be eliminated. Other restructuring costs, which represent primarily consulting fees, are being recorded as incurred in accordance with ASC Topic 420. Accelerated depreciation is being recorded over the adjusted remaining useful life of the related assets, and production line transfer costs are being recorded as incurred. Retention incentives represent cash incentives, which were recorded over the service period during which eligible employees were required to remain employed with us in order to retain the payment.

We have incurred cumulative restructuring charges related to our 2011 Restructuring plan, 2010 Restructuring plan and Plant Network Optimization program of $220 million and restructuring-related costs of $98 million since we committed to each plan. The following presents these costs by major type and by plan:



(in millions)	2011 Restructuring plan		2010 Restructuring plan		Plant Network Optimization		Total
Termination benefits	$	21	$	90	$	36	$	147
Fixed asset write-offs			11				11
Other	13		49				62
Total restructuring charges	34		150		36		220
Accelerated depreciation			1		21		22
Transfer costs					67		67
Other	1		8				9
Restructuring-related expenses	1		9		88		98
	$	35	$	159	$	124	$	318

We made cash payments of $114 million in 2011 associated with restructuring initiatives pursuant to these plans, and have made total cash payments of $223 million related to our 2011 Restructuring plan, 2010 Restructuring plan and Plant Network Optimization program since committing to each plan. Each of these payments was made using cash generated from operations, and are comprised of the following:



(in millions)	2011 Restructuring plan		2010 Restructuring plan		Plant Network Optimization		Total
Year Ended December 31, 2011
Termination benefits	$	3	$	39	$	3	$	45
Transfer costs					27		27
Other	10		32				42
	$	13	$	71	$	30	$	114

Program to Date
Termination benefits	$	3	$	84	$	3	$	90
Transfer costs					67		67
Other	10		56				66
	$	13	$	140	$	70	$	223

We also made cash payments of $4 million during 2011 associated with our 2007 Restructuring plan and have made total cash payments of $374 million related to the 2007 Restructuring plan since committing to the plan in the fourth quarter of 2007.

The following is a rollforward of the restructuring liability associated with our 2011 Restructuring plan, 2010 Restructuring plan and Plant Network Optimization program, since the inception of the respective plan, which is reported as a component of accrued expenses included in our accompanying consolidated balance sheets:



																			Plant Network
	2011 Restructuring plan									2010 Restructuring plan									Optimization

(in millions)	Termination Benefits			Other			Subtotal			Termination Benefits			Other			Subtotal			Termination Benefits			Total
Accrued as of December 31, 2008
Charges																			$	22		$	22
Cash payments
Accrued as of December 31, 2009																			22			22
Charges										$	66		$	28		$	94		4			98
Cash payments										(45		)	(20		)	(65		)				(65		)
Accrued as of December 31, 2010										21			8			29			26			55
Charges	$	21		$	13		$	34		24			24			48			10			92
Cash payments	(3		)	(10		)	(13		)	(39		)	(32		)	(71		)	(3		)	(87		)
Accrued as of December 31, 2011	$	18		$	3		$	21		$	6		$	—		$	6		$	33		$	60

The remaining restructuring liability associated with our 2007 Restructuring plan was $6 million as of December 31, 2011.