Pfizer 2007 Annual Report Download - page 51

2007 Financial Report 49
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
The components of restructuring charges associated with our
cost-reduction initiatives follow:
ACTIVITY ACCRUAL
THROUGH AS OF
COSTS INCURRED DEC. 31, DEC. 31,
________________________________ __________________
(MILLIONS OF DOLLARS) 2007 2006 2005 TOTAL 2007(a) 2007(b)
Employee
termination
costs $2,034 $ 809 $303 $3,146 $1,957 $1,189
Asset
impairments 260 368 122 750 750 —
Other 229 119 13 361 261 100
Total $2,523 $1,296 $438 $4,257 $2,968 $1,289
(a) Includes adjustments for foreign currency translation.
(b) Included in
Other current liabilities ($1.1 billion) and Other
noncurrent liabilities ($186 million).
From the beginning of the cost-reduction initiatives in 2005,
through December 31, 2007, Employee termination costs represent
the expected reduction of the workforce by approximately 20,800
employees, mainly in research, manufacturing and sales. As of
December 31, 2007, approximately 13,000 of these employees have
been formally terminated. Employee termination costs are
recorded when the actions are probable and estimable and
include accrued severance benefits, pension and postretirement
benefits. Asset impairments primarily include charges to write
down property, plant and equipment. Other primarily includes
costs to exit certain activities.
6. Acquisition-Related Costs
We recorded in Restructuring charges and acquisition-related
costs $11 million in 2007, $27 million in 2006 and $918 million in
2005, for acquisition-related costs. Amounts in 2005 were primarily
related to our acquisition of Pharmacia on April 16, 2003, and
included integration costs of $543 million and restructuring
charges of $375 million. As of December 31, 2007, virtually all
restructuring charges incurred have been utilized.
Integration costs represent external, incremental costs directly
related to an acquisition, including expenditures for consulting
and systems integration. Restructuring charges can include
severance, costs of vacating duplicative facilities, contract
termination and other exit costs.
7. Other (Income)/Deductions—Net
The components of Other (income)/deductions—net follow:
YEAR ENDED DEC. 31,
_____________________________________________________
(MILLIONS OF DOLLARS) 2007 2006 2005
Interest income $(1,496) $(925) $ (740)
Interest expense 440 517 488
Interest expense capitalized (43) (29) (17)
Net interest income(a) (1,099) (437) (269)
Asset impairment charges(b) —320 1,159
Royalty income (224) (395) (320)
Net gains on asset disposals(c) (326) (280) (172)
Other, net (110) (112) (1)
Other (income)/
deductions—net $(1,759) $(904) $ 397
(a) The increase in net interest income in 2007 compared to 2006 is
due primarily to higher net financial assets during 2007 compared
to 2006, reflecting proceeds of $16.6 billion from the sale of our
Consumer Healthcare business in late December 2006, and higher
interest rates.
(b) In 2006, we recorded a charge of $320 million related to the
impairment of our Depo-Provera intangible asset, for which
amortization expense is included in
Amortization of intangible
assets . In 2005, we recorded charges totaling $1.2 billion, primarily
related to the impairment of our Bextra intangible asset, for
which amortization expense had previously been recorded in
Amortization of intangible assets . See Note 13B. Goodwill and Other
Intangible Assets: Other Intangible Assets.
(c) In 2007, includes a gain of $211 million related to the sale of a
building in Korea. In 2007, gross realized gains were $8 million
and gross realized losses were nil on sales of available-for-sale
securities. In 2006, gross realized gains were $65 million and gross
realized losses were $1 million on sales of available-for-sale securities.
In 2005, gross realized gains were $171 million and gross realized
losses were $14 million on sales of available-for-sale securities.
Proceeds from the sale of available-for-sale securities were $663
million in 2007, $79 million in 2006 and $2.8 billion in 2005.
8. Taxes on Income
A. Adoption of New Accounting Standard
As of January 1, 2007, we adopted the provisions of FIN 48,
Accounting for Uncertainty in Income Taxes, an interpretation of
SFAS 109, Accounting for Income Taxes, as supplemented by FASB
Financial Staff Position FIN 48-1, Definition of Settlement in FASB
Interpretation No. 48, issued May 2, 2007. See Note 1D. Significant
Accounting Policies: New Accounting Standards for a full
description of our accounting policy related to the accounting for
income tax contingencies. As a result of the implementation of
FIN 48, at the date of adoption, we reduced our existing liabilities
for uncertain tax positions by approximately $11 million. This has
been recorded as a direct adjustment to the opening balance of
Retained earnings and it changed the classification of virtually all
amounts associated with uncertain tax positions of approximately
$4.0 billion, including the associated accrued interest of
approximately $780 million, from current to noncurrent. (See
Note 8E. Taxes on Income: Tax Contingencies.)