Pfizer 2008 Annual Report Download - page 59

Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
B. Certain Product Litigation—Celebrex and Bextra
In October 2008, we reached agreements in principle to resolve the pending U.S. consumer fraud purported class action cases and
more than 90% of the known U.S. personal injury claims involving Celebrex and Bextra, and we reached agreements to resolve
substantially all of the claims of state attorneys general primarily relating to alleged Bextra promotional practices. In connection with
these actions, in the third quarter of 2008, we recorded pre-tax charges of approximately:
•$745 million applicable to all known U.S. personal injury claims;
•$89 million applicable to the pending U.S. consumer fraud purported class action cases; and
•$60 million applicable to agreements to resolve civil claims brought by 33 states and the District of Columbia, primarily relating to
alleged Bextra promotional practices. Under these agreements, we made a payment of $60 million to the states and have adopted
compliance measures that complement policies and procedures previously established by us.
These litigation-related charges were recorded in Other (income)/deductions—net. Virtually all of this amount is included in Other
current liabilities. Although we believe that we have insurance coverage for a portion of the proposed personal injury settlements, no
insurance recoveries have been recorded.
We believe that the charges of approximately $745 million will be sufficient to resolve all known U.S. personal injury claims,
including those not being settled at this time. However, additional charges may have to be taken in the future in connection with
certain pending claims and unknown claims relating to Celebrex and Bextra. (See Note 19B. Legal Proceedings and Contingencies:
Product Litigation.)
C. Adjustment of Prior Years’ Liabilities for Product Returns
Revenues in 2008 include a reduction of $217 million, pre-tax, to adjust our prior years’ liabilities for product returns. After a detailed
review in 2008 of our returns experience, we determined that our previous accounting methodology for product returns needed to be
revised, as the lag time between product sale and return was actually longer than we had previously assumed. Although fully
recorded in 2008, virtually all of the adjustment relates back several years.
We performed an evaluation of the impact of this error on prior years, as well the impact of correcting the error on a cumulative basis
in 2008. As a result of that analysis, we determined that the cumulative correction was not material to our results for 2008 and the
cumulative correction was recorded in 2008. We have also reviewed our expense calculations for the prior years and determined
that the expense recorded in those years was not materially different from what would have been recorded under our revised
approach.
D. Exubera
In the third quarter of 2007, after an assessment of the financial performance of Exubera, an inhalable form of insulin for the
treatment of diabetes, as well as its lack of acceptance by patients, physicians and payers, we decided to exit the product.
In connection with these actions, we recorded total pre-tax charges of $2.8 billion, virtually all of which were recorded in the third
quarter of 2007. These charges were included primarily in Cost of sales ($2.6 billion), Selling, informational and administrative
expenses ($85 million), and Research and development expenses ($100 million). The charges comprised asset write-offs of $2.2
billion (intangibles, inventory and fixed assets) and other exit costs, primarily severance, contract and other termination costs. The
exit costs resulted in cash expenditures in 2007 and 2008. As of December 31, 2008, the remaining accrual for other exit costs is
approximately $152 million. Substantially all of this cash spending is expected to be completed in 2009.
5. Cost-Reduction Initiatives
In the first quarter of 2005, we launched cost-reduction and transformation initiatives to increase efficiency and streamline decision-
making across the company. These initiatives, announced in April 2005, broadened in October 2006 and expanded in January 2007,
followed the integration of Warner-Lambert and Pharmacia. In January 2009, we announced a new cost-reduction initiative, the
implementation of which we expect will be completed by the end of 2010.
We incurred the following costs in connection with all of our cost-reduction initiatives:
YEAR ENDED DECEMBER 31,
(MILLIONS OF DOLLARS) 2008 2007 2006
Implementation costs(a) $1,605 $1,389 $ 788
Restructuring charges(b) 2,626 2,523 1,296
Total costs related to our cost-reduction initiatives $4,231 $3,912 $2,084
(a) For 2008, included in Cost of sales ($745 million), Selling, informational and administrative expenses ($413 million), Research and development
expenses ($433 million) and Other (income)/deductions—net ($14 million). For 2007, included in Cost of sales ($700 million), Selling, informational
and administrative expenses ($334 million), Research and development expenses ($416 million), and Other (income)/deductions—net ($61 million
income). For 2006, included in Cost of sales ($392 million), Selling, informational and administrative expenses ($243 million), Research and
development expenses ($176 million), and Other (income)/deductions—net ($23 million income).
(b) Included in Restructuring charges and acquisition-related costs.
2008 Financial Report 57