Pfizer 2011 Annual Report Download - page 71

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
We are accounting for our interest in ViiV as an equity method investment due to the significant influence we have over the
operations of ViiV through our board representation and minority veto rights. Our investment in ViiV is reported as a private equity
investment in Long-term investments and loans. Our share of ViiV’s income and expenses is recorded in Other deductions—net.
3. Restructuring Charges and Other Costs Associated with Acquisitions and
Cost-Reduction/Productivity Initiatives
We incur significant costs in connection with acquiring businesses and restructuring and integrating acquired businesses and in
connection with our global cost-reduction and productivity initiatives. For example:
•for 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; and
•for our acquisition activity, we typically incur costs that can include transaction costs, integration costs (such as expenditures for
consulting and the integration of systems and processes) and restructuring charges, related to employees, assets and activities that will
not continue in the combined company.
All of our businesses and functions can be impacted by these actions, including sales and marketing, manufacturing and research
and development, as well as functions such as information technology, shared services and corporate operations. In early February
2011, we announced a new research and productivity initiative to accelerate our strategies to improve innovation and overall
productivity in R&D by prioritizing areas with the greatest scientific and commercial promise, utilizing appropriate risk/return profiles
and focusing on areas with the highest potential to deliver value in the near term and over time.
The components of costs incurred in connection with our acquisitions and our cost-reduction/productivity initiatives follow:
YEAR ENDED DECEMBER 31,
(MILLIONS OF DOLLARS) 2011 2010 2009
Transaction costs(a) $30 $ 22 $ 768
Integration costs(b) 730 1,004 569
Restructuring charges(c)
Employee termination costs 1,791 1,114 2,564
Asset impairments 256 870 159
Other 127 191 270
Restructuring charges and certain acquisition-related costs 2,934 3,201 4,330
Additional depreciation—asset restructuring, recorded in our consolidated statements of
income as follows(d):
Cost of Sales 557 527 133
Selling, informational and administrative expenses 75 227 53
Research and development expenses 607 34 55
Total additional depreciation—asset restructuring 1,239 788 241
Implementation costs, recorded in our consolidated statements of income as follows(e)
Cost of sales 250 —46
Selling, informational and administrative expenses 25 — 159
Research and development expenses 72 —36
Other deductions—net ——9
Total implementation costs 347 — 250
Total costs associated with cost-reduction and productivity initiatives and acquisition activity $4,520 $3,989 $4,821
(a) Transaction costs represent external costs directly related to acquired businesses and primarily include expenditures for banking, legal, accounting
and other similar services. Substantially all of the costs incurred in 2009 were fees related to a $22.5 billion bridge term loan credit agreement
entered into with certain financial institutions on March 12, 2009 to partially fund our acquisition of Wyeth. The bridge term loan credit agreement
was terminated in June 2009 as a result of our issuance of approximately $24.0 billion of senior unsecured notes in the first half of 2009.
(b) Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for
consulting and the integration of systems and processes.
(c) From the beginning of our cost-reduction and productivity initiatives in 2005 through December 31, 2011, Employee termination costs represent the
expected reduction of the workforce by approximately 57,400 employees, mainly in manufacturing and sales and research, of which approximately
42,800 employees have been terminated as of December 31, 2011. Employee termination costs are generally recorded when the actions are
probable and estimable and include accrued severance benefits, pension and postretirement benefits, many of which may be paid out during
periods after termination. Asset impairments primarily include charges to write down property, plant and equipment to fair value. Other primarily
includes costs to exit certain assets and activities.
The restructuring charges in 2011 are associated with the following:
•Primary Care operating segment ($593 million), Specialty Care and Oncology operating segment ($220 million), Established
Products and Emerging Markets operating segment ($110 million), Animal Health and Consumer Healthcare operating segment
($51 million), Nutrition operating segment ($4 million), research and development operations ($489 million), manufacturing
operations ($280 million) and Corporate ($427 million).
70 2011 Financial Report