Pfizer 2015 Annual Report Download - page 86

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
2015 Financial Report
85
In early 2014, we announced that we would be incurring costs in 2014-2016 related to new programs: our new global commercial structure
reorganization and additional cost-reduction/productivity initiatives. We have the following initiatives underway associated with these
programs:
• Manufacturing plant network rationalization and optimization, where execution timelines are necessarily long. Our plant network strategy is
expected to result in the exit of four sites over the next several years. In connection with these activities, during 2014-2016, we expect to
incur costs of approximately $500 million associated with prior acquisition activity and costs of approximately $1 billion associated with
new non-acquisition-related cost-reduction initiatives. Through December 31, 2015, we incurred approximately $354 million and $472
million, respectively, associated with these initiatives.
• New global commercial structure reorganization, which primarily includes the streamlining of certain functions, the realignment of regional
locations and colleagues to support the businesses, as well as implementing the necessary system changes to support future reporting
requirements. In connection with this reorganization, during 2014-2016, we expect to incur costs of approximately $250 million. Through
December 31, 2015, we incurred approximately $219 million associated with this reorganization.
• Other new cost-reduction/productivity initiatives, primarily related to commercial property rationalization and consolidation. In connection
with these cost-reduction activities, during 2014-2016, we expect to incur costs of approximately $850 million. Through December 31,
2015, we incurred approximately $493 million associated with these initiatives.
The costs expected to be incurred during 2014-2016, of approximately $2.6 billion in total for the above-mentioned programs (but not including
expected costs associated with the Hospira integration), include restructuring charges, integration costs, implementation costs and additional
depreciation––asset restructuring. Of this amount, we expect that about a quarter of the charges will be non-cash.
At the end of 2013, we had substantially completed many of the initiatives launched in prior periods.
Current-Period Key Activities
In 2015, we incurred approximately $1.4 billion in cost-reduction and acquisition-related costs (excluding transaction costs) in connection with
the acquisition of Hospira and the aforementioned programs, primarily associated with our manufacturing and sales operations.
The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
Year Ended December 31,
(MILLIONS OF DOLLARS) 2015 2014 2013
Restructuring charges(a):
Employee terminations $489 $68$
805
Asset impairments 254 45 165
Exit costs 68 58 68
Total restructuring charges 811 170 1,038
Transaction costs(b) 123 ——
Integration costs(c) 219 80 144
Restructuring charges and certain acquisition-related costs 1,152 250 1,182
Additional depreciation––asset restructuring recorded in our
consolidated statements of income as follows(d):
Cost of sales 117 228 178
Selling, informational and administrative expenses —119
Research and development expenses 531 94
Total additional depreciation––asset restructuring 122 261 291
Implementation costs recorded in our consolidated statements of income as follows(e):
Cost of sales 102 78 53
Selling, informational and administrative expenses 82 140 145
Research and development expenses 14 52 33
Other (income)/deductions––net 51—
Total implementation costs 203 270 231
Total costs associated with acquisitions and cost-reduction/productivity initiatives $1,478 $781 $1,704
(a) In 2015, Employee terminations represent the expected reduction of the workforce by approximately 3,900 employees, mainly in sales, corporate and research.
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.
The restructuring charges in 2015, which include a $39 million charge related to a 36% reduction in our labor force in Venezuela, are associated with the
following:
• Global Innovative Pharmaceutical segment (GIP) ($39 million); the Global Vaccines, Oncology and Consumer Healthcare segment (VOC) ($45 million);
the Global Established Pharmaceutical segment (GEP) ($402 million); Worldwide Research and Development and Medical (WRD/M) ($80 million);
manufacturing operations ($80 million); and Corporate ($164 million).