Pfizer 2012 Annual Report Download - page 31

Financial Review
Pfizer Inc. and Subsidiary Companies
30
2012 Financial Report
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/
Productivity Initiatives
Year Ended December 31, % Change
(MILLIONS OF DOLLARS) 2012 2011 2010 12/11 11/10
Costs associated with acquisitions and cost-reduction/
productivity initiatives $2,855 $4,512 $3,926 (37)15
We incur significant costs in connection with acquiring, integrating and restructuring businesses and in connection with our global cost-
reduction and productivity initiatives. For example:
• In connection with acquisition activity, we typically incur costs associated with executing the transactions, integrating the acquired
operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the
combined company (which may include charges related to employees, assets and activities that will not continue in the combined
company); and
• In connection with our cost-reduction and productivity initiatives, we typically incur costs and charges associated with site closings and
other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global
systems.
All of our businesses and functions may be impacted by these actions, including sales and marketing, manufacturing and research and
development, as well as groups such as information technology, shared services and corporate operations. Since the acquisition of Wyeth on
October 15, 2009, our cost-reduction initiatives announced on January 26, 2009, but not completed as of December 31, 2009, were
incorporated into a comprehensive plan to integrate Wyeth’s operations to generate cost savings and to capture synergies across the
combined company. In addition, on February 1, 2011, among our ongoing cost reduction/productivity initiatives, we announced a new research
and productivity initiative to accelerate our strategies to improve innovation and productivity in R&D by prioritizing areas that we believe have
the greatest scientific and commercial promise, utilizing appropriate risk/return profiles and focusing on areas that we believe have the highest
potential to deliver value in the near term and over time.
Cost-Reduction Goals
With respect to the January 26, 2009 announcements, and our acquisition of Wyeth on October 15, 2009, in the aggregate, we achieved our
cost-reduction goal by the end of 2011, a year earlier than expected, and are continuing to generate cost reductions.
With respect to the R&D productivity initiative announced on February 1, 2011, we met our goal to achieve significant reductions in our annual
research and development expenses by the end of 2012. Adjusted R&D expenses were $7.3 billion in 2012, and we expect adjusted R&D
expenses to be approximately $6.5 billion to $7.0 billion in 2013. For an understanding of adjusted research and development expenses, see
the “Adjusted Income” section of this Financial Review.
In addition to these major initiatives, we continuously monitor our organizations for cost reduction and/or productivity opportunities.
Total Costs
Through December 31, 2012, we incurred approximately $14.8 billion (pre-tax) in cost-reduction and acquisition-related costs (excluding
transaction costs) in connection with the aforementioned initiatives. This $14.8 billion is a component of the $15.6 (pre-tax) billion in total
restructuring charges incurred from the beginning of our cost-reduction and productivity initiatives in 2005 through December 31, 2012. See
Notes to Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-
Reduction/Productivity Initiatives for more information. In 2013, we expect to incur approximately $500-$800 million (after tax) in costs in
connection with our ongoing cost-reduction/productivity initiatives and have reflected those costs, as well as the related expected cost
reductions of approximately $1.0 billion (pre-tax), in our 2013 financial guidance. See also the “Our Financial Guidance for 2013” section of
this Financial Review.
Key Activities
The targeted cost reductions were achieved through the following actions and we continue to generate cost reductions through similar actions:
• The closing of duplicative facilities and other site rationalization actions Company-wide, including research and development facilities,
manufacturing plants, sales offices and other corporate facilities. Among the more significant actions are the following:
Manufacturing: After the acquisition of Wyeth, our manufacturing sites totaled 75. Other acquisitions have added 21 manufacturing
sites and we have subsequently exited 12 sites, resulting in 84 sites supporting continuing operations as of December 31, 2012. Our
plant network strategy will result in the exit of a further eight sites over the next several years. These site counts exclude five Nutrition
business-related manufacturing sites as the Nutrition business was sold in 2012. See Notes to Consolidated Financial Statements—
Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures for more information.
Research and Development: After the acquisition of Wyeth, we operated in 20 R&D sites and announced that we would close a
number of sites. We have completed a number of site closures, including our Sandwich, U.K. research and development facility, except
for a small presence. In addition, in 2011, we rationalized several other sites to reduce and optimize the overall R&D footprint. We
disposed of our toxicology site in Catania, Italy; exited our R&D sites in Aberdeen and Gosport, U.K.; and disposed of a vacant site in