RESTRUCTURING-RELATED ACTIVITIES

On an ongoing 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.

2014 Restructuring Plan

On October 22, 2013, the Board of Directors approved, and we committed to, a restructuring initiative (the 2014 Restructuring plan). The 2014 Restructuring plan is intended to build on the progress we have made to address financial pressures in a changing global marketplace, further strengthen our operational effectiveness and efficiency and support new growth investments. Key activities under the plan include continued implementation of our ongoing Plant Network Optimization (PNO) strategy, continued focus on driving operational efficiencies and ongoing business and commercial model changes. The PNO strategy is intended to simplify our manufacturing plant structure by transferring certain production lines among facilities. Other activities involve rationalizing organizational reporting structures to streamline various functions, eliminate bureaucracy, increase productivity and better align resources to business strategies and marketplace dynamics. These activities were initiated in the fourth quarter of 2013 and are expected to be substantially completed by the end of 2015.

We estimate that the implementation of the 2014 Restructuring plan will result in total pre-tax charges of approximately $175 million to $225 million, and approximately $160 million to $210 million of these charges is estimated to result in cash outlays, of which we have made payments of $61 million to date. We have recorded related costs of $95 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 consolidated statements of operations.

The following table provides a summary of our estimates of costs associated with the 2014 Restructuring plan by major type of cost:



Type of cost	Total estimated amount expected to be incurred
Restructuring charges:
Termination benefits	$100 million to $120 million
Other (1)	$10 million to $20 million
Restructuring-related expenses:
Other (2)	$65 million to $85 million
	$175 million to $225 million

(1) Consists primarily of consultant fees and costs associated with contractual cancellations.

(2) Comprised of other costs directly related to the 2014 Restructuring plan, including program management, accelerated depreciation, and costs to transfer product lines among facilities.

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 2011 Restructuring plan included 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 expanded our ability to deliver best-in-class global shared services for certain functions and divisions at several locations in emerging markets. This action was 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 undertook 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 plan (the Expansion). The Expansion was 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, were substantially completed by the end of 2013.

The 2011 Restructuring plan, including the Expansion, is estimated to result in total pre-tax charges of approximately $289 million to $292 million, and approximately $287 million to $291 million of these charges is estimated to result in cash outlays, of which we have made payments of $287 million to date. We have recorded related costs of $288 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 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	$138 million to $141 million
Other (1)	$112 million
Restructuring-related expenses:
Other (2)	$39 million
	$289 million to $292 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.

Plant Network Optimization Program

In January 2009, our Board of Directors approved, and we committed to, a PNO program, intended to simplify our manufacturing plant structure by transferring certain production lines among facilities and by closing certain other facilities. The program was intended to improve our overall gross profit margins. Activities under the PNO program were initiated in the first quarter of 2009 and were substantially completed during 2012.

The PNO program resulted in total pre-tax charges of $126 million, and resulted in cash outlays of $103 million. We 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 costs associated with the PNO program by major type of cost:



Type of cost	Total amount incurred
Restructuring charges:
Termination benefits	$30 million

Restructuring-related expenses:
Accelerated depreciation	$22 million
Transfer costs (1)	$74 million
	$126 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 $2 million in the third quarter of 2014, $19 million in the third quarter of 2013, $37 million in the first nine months of 2014, and $55 million in the first nine months of 2013. During the first nine months of 2013, our restructuring charges were partially offset by a $19 million gain recognized on the sale of our Natick, Massachusetts headquarters. In addition, we recorded expenses within other lines of our accompanying unaudited condensed consolidated statements of operations related to our restructuring initiatives of $15 million in the third quarter of 2014, $7 million in the third quarter of 2013, $33 million in the first nine months of 2014, and $16 million in the first nine months of 2013.

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 September 30, 2014
(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs		Other		Total
Restructuring charges	$	—		$	—	$	—	$	—	$	2	$	2
Restructuring-related expenses:
Cost of products sold	—			—		9		—		—		9
Selling, general and administrative expenses	—			1		—		—		5		6
	—			1		9		—		5		15
	$	—		$	1	$	9	$	—	$	7	$	17

(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs		Other		Total
2014 Restructuring plan	$	(1	)	$	1	$	9	$	—	$	7	$	16
2011 Restructuring plan (including the Expansion)	1			—		—		—		—		1
	$	—		$	1	$	9	$	—	$	7	$	17

Three Months Ended September 30, 2013
(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Net Gain on Fixed Asset Disposals		Other		Total
Restructuring charges	$	5		$	—	$	—	$	—	$	14	$	19
Restructuring-related expenses:
Selling, general and administrative expenses	—			1		—		—		6		7
	—			1		—		—		6		7
	$	5		$	1	$	—	$	—	$	20	$	26

(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Net Gain on Fixed Asset Disposals		Other		Total
2011 Restructuring plan (including the Expansion)	$	5		$	1	$	—	$	—	$	20	$	26
	$	5		$	1	$	—	$	—	$	20	$	26



Nine Months Ended September 30, 2014
(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs			Other		Total
Restructuring charges	$	19		$	—	$	—	$	—		$	18	$	37
Restructuring-related expenses:
Cost of products sold	—			—		15		—			—		15
Selling, general and administrative expenses	—			3		—		—			15		18
	—			3		15		—			15		33
	$	19		$	3	$	15	$	—		$	33	$	70

(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Fixed Asset Write-offs			Other		Total
2014 Restructuring plan	$	18		$	3	$	15	$	—		$	30	$	66
2011 Restructuring plan (including the Expansion)	1			—		—		—			3		4
	$	19		$	3	$	15	$	—		$	33	$	70

Nine Months Ended September 30, 2013
(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Net Gain on Fixed Asset Disposals			Other		Total
Restructuring charges	$	26		$	—	$	—	$	(16	)	$	45	$	55
Restructuring-related expenses:
Selling, general and administrative expenses	—			2		—		—			14		16
	—			2		—		—			14		16
	$	26		$	2	$	—	$	(16	)	$	59	$	71

(in millions)	Termination Benefits			Accelerated Depreciation		Transfer Costs		Net Gain on Fixed Asset Disposals			Other		Total
2011 Restructuring plan (including the Expansion)	$	30		$	2	$	—	$	(16	)	$	59	$	75
Plant Network Optimization program	(4		)	—		—		—			—		(4		)
	$	26		$	2	$	—	$	(16	)	$	59	$	71

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 2014 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 September 30, 2014, we have incurred cumulative restructuring charges related to our 2014 Restructuring plan, 2011 Restructuring plan (including the Expansion), and PNO program of $341 million and restructuring-related costs of $168 million since we committed to each plan. The following presents these costs by major type and by plan:



(in millions)	2014 Restructuring plan		2011 Restructuring plan (including the Expansion)			Plant Network Optimization program		Total
Termination benefits	$	47	$	137		$	30	$	214
Fixed asset write-offs	—		(1		)	—		(1		)
Other	15		113			—		128
Total restructuring charges	62		249			30		341
Accelerated depreciation	3		5			22		30
Transfer costs	15		—			74		89
Other	15		34			—		49
Restructuring-related expenses	33		39			96		168
	$	95	$	288		$	126	$	509

We made cash payments of $27 million in the third quarter of 2014 and $80 million in the first nine months of 2014 associated with restructuring initiatives pursuant to these plans, and as of September 30, 2014, we had made total cash payments of $451 million related to our 2014 Restructuring plan, 2011 Restructuring plan (including the Expansion), and PNO program since committing to each plan. These payments were made using cash generated from operations, and are comprised of the following:



(in millions)	2014 Restructuring plan		2011 Restructuring plan (including the Expansion)		Plant Network Optimization program		Total
Three Months Ended September 30, 2014
Termination benefits	$	7	$	2	$	—	$	9
Transfer costs	9		—		—		9
Other	7		2		—		9
	$	23	$	4	$	—	$	27

Nine Months Ended September 30, 2014
Termination benefits	$	19	$	9	$	—	$	28
Transfer costs	15		—		—		15
Other	27		10		—		37
	$	61	$	19	$	—	$	80

Program to Date
Termination benefits	$	19	$	133	$	30	$	182
Transfer costs	15		—		73		88
Other	27		154		—		181
	$	61	$	287	$	103	$	451

Our restructuring liability is primarily comprised of accruals for termination benefits. The following is a rollforward of the termination benefit liability associated with our 2014 Restructuring plan and 2011 Restructuring plan (including the Expansion), which is reported as a component of accrued expenses included in our accompanying unaudited condensed balance sheets:



(in millions)	2014 Restructuring plan			2011 Restructuring plan (including the Expansion)			Total
Accrued as of December 31, 2013	$	29		$	12		$	41
Charges (credits)	18			1			19
Cash payments	(19		)	(9		)	(28		)
Accrued as of September 30, 2014	$	28		$	4		$	32

In addition to our accrual for termination benefits, we had a $3 million liability as of September 30, 2014 and an $8 million liability as of December 31, 2013 for other restructuring-related items.