Pfizer 2005 Annual Report Download - page 47

46 2005 Financial Report
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
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, the restructuring costs incurred in the first year
after the acquisition are considered part of the purchase price of
Pharmacia and have been recorded as an increase to goodwill.
These restructuring costs also include costs associated with
relocation. Restructuring costs after April 15, 2004 that are
associated with legacy Pharmacia are charged to the results of
operations. Changes to previous estimates of restructuring costs
included as part of the purchase price allocation of Pharmacia are
recorded as a reduction to goodwill or as an expense to
operations, as appropriate. The components of the restructuring
costs capitalized as a cost of the acquisition of Pharmacia follow:
UTILIZATION ACCRUAL
THROUGH AS OF
COSTS INCURRED DEC. 31,(a) DEC. 31,(b)
___________________________________________________________________
(MILLIONS OF DOLLARS) 2004 2003 TOTAL 2005 2005
Costs capitalized
through
April 15, 2004:
Employee
termination costs $246 $1,289 $1,535 $1,504 $ 31
Other 335 289 624 523 101
$581 $1,578 $2,159 $2,027 $132
(a) Includes insignificant adjustments to original amounts
established.
(b) Included in Other current liabilities.
The majority of the restructuring costs related to employee
terminations. Through December 31, 2005, employee termination
costs 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
We have recorded restructuring costs 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. These costs
have been recorded as a charge to the results of operations and
are included in Restructuring charges and merger-related costs.
The components of the restructuring costs associated with the
acquisition of Pharmacia, which were expensed, follow:
UTILIZATION ACCRUAL
THROUGH AS OF
PROVISIONS DEC. 31, DEC. 31,(a)
_________________________ ___________________
(MILLIONS OF DOLLARS) 2005 2004 2003 TOTAL 2005 2005
Employee
termination
costs $108 $377 $140 $ 625 $538 $ 87
Asset
impairments 234 269 21 524 524 —
Other 48 58 16 122 90 32
$390 $704 $177 $1,271 $1,152 $119
(a) Included in Other current liabilities
benefits. Asset impairments primarily include charges to write off
inventory and write down property, plant and equipment. Other
primarily includes costs to exit certain activities.
5. Merger-Related Costs
We incurred the following merger-related charges primarily in
connection with our acquisition of Pharmacia which was
completed on April 16, 2003:
YEAR ENDED DEC. 31,
_________________________________________________
(MILLIONS OF DOLLARS) 2005 2004 2003
Integration costs:
Pharmacia $538 $475 $ 838
Other 12 21 33
Restructuring costs:
Pharmacia 390 704 177
Other 3(7) 10
Total merger-related costs—
expensed(a) $943 $1,193 $1,058
Total merger-related costs—
capitalized $— $581 $1,578
(a) Included in Restructuring charges and merger-related costs.
A. Integration Costs
Integration costs represent external, incremental costs directly
related to an acquisition, including expenditures for consulting
and systems integration.
B. Restructuring Costs — Pharmacia
In connection with the acquisition of Pharmacia, Pfizer
management approved plans to restructure the operations of both
legacy Pfizer and legacy Pharmacia to 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.