Pfizer 2005 Annual Report Download - page 23

22 2005 Financial Report
Financial Review
Pfizer Inc and Subsidiary Companies
operations, eliminate duplicative facilities and reduce costs. As of
December 31, 2005, the restructuring of our operations as a
result of our acquisition of Pharmacia is substantially complete.
Restructuring charges included severance, costs of vacating
duplicative facilities, contract termination and other exit costs.
Total merger-related expenditures (income statement and balance
sheet) incurred during 2002-2005 to achieve these synergies were
$5.4 billion, on a pre-tax basis.
The restructuring of our operations resulting from our merger with
Warner-Lambert was substantially complete as of December 31,
2003. Accordingly, we did not incur significant integration or
restructuring charges in 2005 and 2004 directly related to our
merger with Warner-Lambert.
Cost synergies from the Pharmacia acquisition were $4.2 billion
in 2005, $3.6 billion in 2004 and $1.3 billion in 2003. Synergies
come from a broad range of sources, including a streamlined
organization, reduced operating expenses, and procurement
savings.
Restructuring Costs Associated with Legacy
Pharmacia — Capitalized
We recorded, through April 15, 2004, restructuring costs associated
primarily with employee terminations and exiting certain activities
of legacy Pharmacia. These costs were recognized as liabilities
assumed in the purchase business combination. Accordingly, these
costs were considered part of the purchase price of Pharmacia and
have been recorded as an increase to goodwill (see Notes to
Consolidated Financial Statements—Note 2A, Acquisitions:
Pharmacia Corporation). At December 31, 2005, liabilities for
restructuring costs incurred but not paid totaled $132 million
and are included in Other current liabilities. Restructuring charges
after April 15, 2004 associated with legacy Pharmacia are charged
to the results of operations. Changes to previous estimates of
restructuring charges that were included as part of the purchase
price allocation of Pharmacia are recorded as a reduction of
goodwill or as an expense to operations, as appropriate.
The majority of the restructuring costs related to employee
terminations (see Notes to Consolidated Financial Statements—
Note 5B, Merger-Related Costs:Restructuring Costs—Pharmacia).
Through December 31, 2005, employee termination costs totaling
$1.5 billion represent the approved reduction of the legacy
Pharmacia work force by 12,768 employees mainly in corporate,
manufacturing, distribution, sales and research. We notified
affected individuals and 12,589 employees were terminated as of
December 31, 2005. Employee termination costs include accrued
severance benefits and costs associated with change-in-control
provisions of certain Pharmacia employment contracts.
Restructuring Costs Associated with Legacy Pfizer
and Legacy Pharmacia — Expensed
Through December 31, 2005, we have recorded, in total, $1.3
billion of restructuring costs ($390 million recorded in 2005).
These restructuring costs were associated with exiting certain
activities of legacy Pfizer and legacy Pharmacia (from April 16,
2004), including severance, costs of vacating duplicative facilities,
contract termination and other exit costs. At December 31, 2005,
liabilities for restructuring costs incurred but not paid totaled $119
million and are included in Other current liabilities.
The majority of the restructuring costs related to employee
terminations (see Notes to Consolidated Financial Statements—
Note 5B, Merger-Related Costs:Restructuring Costs—Pharmacia).
Through December 31, 2005, employee termination costs totaling
$625 million ($108 million recorded in 2005) represent the
approved reduction of the legacy Pfizer and legacy Pharmacia
(from April 16, 2004) work force by 4,476 employees, mainly in
corporate, manufacturing, distribution, sales and research. We
notified affected individuals and 4,082 employees were terminated
as of December 31, 2005. Employee termination costs include
accrued severance benefits and costs associated with change-in-
control provisions of certain Pharmacia employment contracts.
Adapting to Scale Initiative
In connection with the AtS productivity initiative, Pfizer
management has performed a comprehensive review of our
processes, organizations, systems and decision-making procedures,
in a company-wide effort to improve performance and efficiency.
We expect the costs associated with this multi-year effort to
continue through 2008 and to total approximately $4 billion to
$5 billion, on a pre-tax basis. The actions associated with the AtS
productivity initiative will include restructuring charges, such as
asset impairments, exit costs and severance costs (including any
related impacts to our benefit plans, including settlements and
curtailments) and associated implementation costs, such as
accelerated depreciation charges, primarily associated with plant
network optimization efforts, and expenses associated with
system and process standardization and the expansion of shared
services.
We incurred the following costs in connection with our AtS
initiative, which was launched in the first quarter of 2005:
YEAR ENDED
DEC. 31,
______________
(MILLIONS OF DOLLARS) 2005
Implementation costs(a) $330
Restructuring charges(b) 450
Total AtS costs $780
(a) Included in Cost of sales ($124 million), Selling, informational and
administrative expenses ($156 million), and Research and
development expenses ($50 million).
(b) Included in Restructuring charges and merger-related costs.
Through December 31, 2005, the restructuring charges primarily
relate to employee termination costs at our manufacturing
facilities in North America and in our U.S. marketing and
worldwide research and development operations, and the
implementation costs primarily relate to system and process
standardization, as well as the expansion of shared services.