Costs Associated with Cost-Reduction and Productivity Initiatives and Acquisition Activity (Tables)

We incurred the following costs in connection with our cost-reduction and productivity initiatives and acquisition activity, such as King (acquired in 2011) and Wyeth (acquired in 2009):

	Three Months Ended				Six Months Ended
(millions of dollars)	July 3, 2011		July 4, 2010		July 3, 2011		July 4, 2010

Transaction costs(a)	$	13	$	4	$	23	$	13
Integration costs(b)		201		211		380		419
Restructuring charges(c):
Employee termination costs		189		118		856		576
Asset impairments		33		497		58		503
Other		43		55		56		80
Restructuring charges and certain acquisition-related costs		479		885		1,373		1,591
Additional depreciation––asset restructuring (d)
Cost of sales		171		113		343		126
Selling, informational and administrative expenses		23		103		30		163
Research and development expenses		168		––		232		20
Total additional depreciation––asset restructuring		362		216		605		309
Implementation costs(e)
Research and development expenses		10		––		20		––
Total implementation costs		10		––		20		––
Total costs associated with cost-reduction initiatives and acquisition activity	$	851	$	1,101	$	1,998	$	1,900

(a)	Transaction costs represent external costs directly related to business combinations and primarily include expenditures for banking, legal, accounting and other similar services.

(b)	Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and systems integration.

(c)

From the beginning of our cost-reduction and transformation initiatives in 2005 through July 3, 2011, Employee termination costs represent the expected reduction of the workforce by approximately 55,400 employees, mainly in manufacturing and sales and research, of which approximately 39,100 employees have been terminated as of July 3, 2011. 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. Asset impairments primarily include charges to write down property, plant and equipment to fair value. Other primarily includes costs to exit certain assets and activities.

These restructuring charges in 2011 are associated with the following:

●

For the three months ended July 3, 2011, Primary Care operating segment ($87 million), Specialty Care and Oncology operating segment ($7 million), Established Products and Emerging Markets operating segment ($12 million), Animal Health and Consumer Healthcare operating segment ($4 million), research and development operations ($51 million), manufacturing operations ($81 million) and Corporate ($23 million).

●

For the six months ended July 3, 2011, Primary Care operating segment ($133 million), Specialty Care and Oncology operating segment ($42 million), Established Products and Emerging Markets operating segment ($15 million), Animal Health and Consumer Healthcare operating segment ($14 million), Nutrition operating segment ($2 million), research and development operations ($473 million), manufacturing operations ($156 million) and Corporate ($135 million).

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

(e)	Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction and productivity initiatives.

The components of restructuring charges associated with all of our cost-reduction and productivity initiatives and acquisition activity follow:

	Costs Incurred		Activity		Accrual
(millions of dollars)		2005-2011	Through July 3, 2011(a)		As of July 3, 2011(b)

Employee termination costs	$	9,667	$	7,395	$	2,272
Asset impairments		2,366		2,366		––
Other		958		875		83
Total restructuring charges	$	12,991	$	10,636	$	2,355

(a)	Includes adjustments for foreign currency translation.

(b)	Included in Other current liabilities ($1.7 billion) and Other noncurrent liabilities ($657 million).

- Definition

Tabular disclosure of restructuring and related costs by type of restructuring including the description of the restructuring costs, such as the expected cost; the costs incurred during the period; the cumulative costs incurred as of the balance sheet date; the income statement caption within which the restructuring charges recognized for the period are included; and changes to an entity's restructuring reserve that occurred during the period associated with the exit from or disposal of business activities or restructurings for each major type of cost.

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