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. 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 we believe 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 stockholder 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. On January 25, 2013, our Board of Directors approved, and we committed to, an expansion of the 2011 Restructuring program (the Expansion). The Expansion is intended to further strengthen our operational effectiveness and efficiencies and support new investments. Activities under the 2011 Restructuring plan were initiated in the third quarter of 2011 and all activities, including those related to the Expansion, are expected to be substantially complete by the end of 2013.

We estimate that the 2011 Restructuring plan, including the Expansion, will result in total pre-tax charges of approximately $300 million to $355 million, and that approximately $270 million to $300 million of these charges will result in future cash outlays, of which we have made payments of $174 million, which were partially offset by proceeds of $53 million on facility and fixed asset sales, as of March 31, 2013. As of March 31, 2013, we recorded related costs of $201 million since the inception of the plan, and recorded a portion of these expenses as restructuring charges and the remaining portion through other lines within our unaudited condensed consolidated statements of operations.

The following provides a summary of our expected total costs associated with the 2011 Restructuring plan, including the Expansion, by major type of cost:



Type of cost	Total estimated amount expected to be incurred
Restructuring charges:
Termination benefits	$185 million to $210 million
Other (1)	$70 million to $90 million
Restructuring-related expenses:
Other (2)	$45 million to $55 million
	$300 million to $355 million


(1)	Includes primarily consulting fees, gains and losses on disposals of fixed assets and costs associated with contractual cancellations.


(2)	Comprised of other costs directly related to the 2011 Restructuring plan, including the Expansion, such as 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 stockholder value. Key activities under the plan included the restructuring of certain of our 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 were complete by the end of 2012.

The execution of the 2010 Restructuring plan resulted in total pre-tax charges of $160 million, and required cash outlays of $145 million, of which we made payments of $145 million as of March 31, 2013. As of March 31, 2013, we recorded 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 costs associated with the 2010 Restructuring plan by major type of cost:



Type of cost	Total amount incurred
Restructuring charges:
Termination benefits	$90 million
Fixed asset write-offs	$11 million
Other (1)	$51 million
Restructuring-related expenses:
Other (2)	$8 million
	$160 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 initiative (the Plant Network Optimization program), intended to simplify our manufacturing plant structure by transferring certain production lines among facilities and by closing certain other facilities. The program was a complement to the restructuring initiatives approved by our Board of Directors in 2007 (the 2007 Restructuring plan), and was intended to improve overall gross profit margins. Activities under the Plant Network Optimization program were initiated in the first quarter of 2009 and were substantially completed during 2012.

We estimate that the execution of the Plant Network Optimization program will result in total pre-tax charges of approximately $130 million, and that approximately $105 million to $110 million of these charges will result in cash outlays, of which we made payments of $103 million as of March 31, 2013. As of March 31, 2013, we recorded related costs of $129 million since the inception of the plan, and recorded a portion of these expenses as restructuring charges and the remaining portion through cost of products sold within our unaudited condensed 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	$33 million

Restructuring-related expenses:
Accelerated depreciation	$22 million
Transfer costs (1)	$75 million
	$130 million


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

In the aggregate, we recorded net restructuring charges pursuant to our restructuring plans of $10 million in the first quarter of 2013 and 2012. During the first quarter of 2013, our other restructuring charges were partially offset by a $19 million gain recognized on the sale of our Natick, Massachusetts headquarters. We are currently in the process of consolidating our Natick, Massachusetts headquarters into our Marlborough, Massachusetts location, where we are establishing a new global headquarters campus. In addition, we recorded expenses within other lines of our accompanying unaudited condensed consolidated statements of operations related to our restructuring initiatives of $5 million in the first quarter of 2013 and $7 million in the first quarter of 2012.

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



Three Months Ended March 31, 2013
(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs			Other		Total
Restructuring charges	$	8						$	(17	)	$	19	$	10
Restructuring-related expenses:
Cost of products sold						$	—						—
Selling, general and administrative expenses				$	1						4		5
	—			1		—		—			4		5
	$	8		$	1	$	—	$	(17	)	$	23	$	15


(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs			Other		Total
2011 Restructuring plan	$	10		$	1			$	(17	)	$	23	$	17
2010 Restructuring plan	—												—
Plant Network Optimization program	(2		)			$	—						(2		)
	$	8		$	1	$	—	$	(17	)	$	23	$	15

Three Months Ended March 31, 2012
(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs			Other		Total
Restructuring charges	$	(1	)								$	11	$	10
Restructuring-related expenses:
Cost of products sold						$	4						4
Selling, general and administrative expenses											3		3
				—		4					3		7
	$	(1	)	$	—	$	4				$	14	$	17

(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs			Other		Total
2011 Restructuring plan	$	2									$	13	$	15
2010 Restructuring plan	(2		)								1		(1		)
Plant Network Optimization program	(1		)			$	4						3
	$	(1	)	$	—	$	4				$	14	$	17

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 (Topic 420). We expect to record additional termination benefits related to our restructuring initiatives in 2013 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 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.

As of March 31, 2013, we have incurred cumulative restructuring charges related to our 2011 Restructuring plan (including the Expansion), 2010 Restructuring plan and Plant Network Optimization program of $365 million and restructuring-related costs of $125 million since we committed to each plan. The following presents these costs by major type and by plan:

The following presents these costs by major type and by plan:



(in millions)	2011 Restructuring plan (including the Expansion)		2010 Restructuring plan		Plant Network Optimization Program		Total
Termination benefits	$	110	$	90	$	33	$	233
Fixed asset write-offs			11				11
Other	70		51				121
Total restructuring charges	180		152		33		365
Accelerated depreciation					22		22
Transfer costs					74		74
Other	21		8				29
Restructuring-related expenses	21		8		96		125
	$	201	$	160	$	129	$	490

We made cash payments of $47 million and received $53 million of cash proceeds on facility and fixed asset sales associated with our restructuring initiatives during the first quarter of 2013. As of March 31, 2013, we had made total cash payments of $422 million related to our 2011 Restructuring plan (including the Expansion), 2010 Restructuring plan and Plant Network Optimization program since committing to each plan, partially offset by proceeds of $53 million. Payments were made using cash generated from operations, and are comprised of the following:



(in millions)	2011 Restructuring plan (including the Expansion)		2010 Restructuring plan		Plant Network Optimization Program		Total
Three Months Ended March 31, 2013
Termination benefits	$	22	$	—	$	1	$	23
Transfer costs					—		—
Other	24						24
	$	46	$	—	$	1	$	47

Program to Date
Termination benefits	$	85	$	89	$	30	$	204
Transfer costs					73		73
Other	89		56				145
	$	174	$	145	$	103	$	422

Our restructuring liability is primarily comprised of accruals for termination benefits. The following is a rollforward of the termination benefit liability associated with our 2011 Restructuring plan (including the Expansion), 2010 Restructuring plan and Plant Network Optimization program, since the inception of the respective plans, which is reported as a component of accrued expenses included in our accompanying unaudited condensed balance sheets:



	Restructuring Plan Termination Benefits
(in millions)	2011			2010			Plant Network Optimization			Total
Accrued as of December 31, 2012	$	36		$	3		$	9		$	48
Charges (credits)	10			—			(2		)	8
Cash payments	(22		)	—			(1		)	(23		)
Other adjustments	—			(3		)	—			(3		)
Accrued as of March 31, 2013	$	24		$	—		$	6		$	30

In addition to our accrual for termination benefits, we had an $8 million liability as of March 31, 2013 and a $5 million liability as of December 31, 2012 for other restructuring-related items.