PFIZER INC | 2013 | FY | 3

Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives

We incur significant costs in connection with acquiring, integrating and restructuring businesses and in connection with our global cost-reduction/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/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, among our cost reduction/productivity initiatives, on February 1, 2011, we announced a new productivity initiative to accelerate our strategies to improve innovation and productivity in R&D.
The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2013

 
2012

 
2011

Restructuring charges(a):
 
 
 
 
 
 
Employee terminations
 
$
805

 
$
953

 
$
1,741

Asset impairments
 
165

 
325

 
255

Exit costs
 
68

 
150

 
122

Total restructuring charges
 
1,038

 
1,428

 
2,118

Transaction costs(b)
 
—

 
1

 
30

Integration costs(c)
 
144

 
381

 
693

Restructuring charges and certain acquisition-related costs
 
1,182

 
1,810

 
2,841

Additional depreciation––asset restructuring recorded in our
consolidated statements of income as follows(d):
 
 
 
 
 
 
Cost of sales
 
178

 
257

 
550

Selling, informational and administrative expenses
 
19

 
20

 
72

Research and development expenses
 
94

 
296

 
606

Total additional depreciation––asset restructuring
 
291

 
573

 
1,228

Implementation costs recorded in our consolidated
statements of income as follows(e):
 
 
 
 
 
 
Cost of sales
 
53

 
31

 
250

Selling, informational and administrative expenses
 
145

 
130

 
25

Research and development expenses
 
33

 
231

 
71

Total implementation costs
 
231

 
392

 
346

Total costs associated with acquisitions and cost-reduction/productivity initiatives
 
$
1,704

 
$
2,775

 
$
4,415


(a) 
From the beginning of our cost-reduction/productivity initiatives in 2005 through December 31, 2013, Employee terminations represent the expected reduction of the workforce by approximately 65,100 employees, mainly in manufacturing, sales and research, of which approximately 56,500 employees have been terminated as of December 31, 2013. In 2013, substantially all employee termination costs represent additional costs with respect to approximately 2,900 employees.
The restructuring charges in 2013 are associated with the following:
•
Primary Care operating segment ($255 million), Specialty Care and Oncology operating segment ($138 million), Established Products and Emerging Markets operating segment ($98 million), Consumer Healthcare operating segment ($5 million), research and development operations ($13 million), manufacturing operations ($356 million) and Corporate ($173 million).
The restructuring charges in 2012 are associated with the following:
•
Primary Care operating segment ($295 million), Specialty Care and Oncology operating segment ($174 million), Established Products and Emerging Markets operating segment ($125 million), Consumer Healthcare operating segment ($46 million), research and development operations ($6 million income), manufacturing operations ($281 million) and Corporate ($513 million).
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), Consumer Healthcare operating segment ($8 million), research and development operations ($490 million), manufacturing operations ($277 million) and Corporate ($420 million).
(b) 
Transaction costs represent external costs directly related to acquired businesses and primarily include expenditures for banking, legal, accounting and other similar services.
(c) 
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.
(d) 
Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions.
(e) 
Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives.
The following table provides the components of and changes in our restructuring accruals:
(MILLIONS OF DOLLARS)
 
Employee
Termination
Costs

 
Asset
Impairment
Charges

 
Exit Costs

 
Accrual

Balance, January 1, 2012
 
$
2,429

 
$
—

 
$
92

 
$
2,521

Provision
 
953

 
325

 
150

 
1,428

Utilization and other(a)
 
(1,648
)
 
(325
)
 
(90
)
 
(2,063
)
Balance, December 31, 2012(b)
 
1,734

 
—

 
152

 
1,886

Provision
 
805

 
165

 
68

 
1,038

Utilization and other(a)
 
(854
)
 
(165
)
 
(126
)
 
(1,145
)
Balance, December 31, 2013(c)
 
$
1,685

 
$
—

 
$
94

 
$
1,779


(a) 
Includes adjustments for foreign currency translation.
(b) 
Included in Other current liabilities ($1.2 billion) and Other noncurrent liabilities ($720 million).
(c) 
Included in Other current liabilities ($1.0 billion) and Other noncurrent liabilities ($767 million).

Total restructuring charges incurred from the beginning of our cost-reduction/productivity initiatives in 2005 through December 31, 2013 were $16.3 billion.

The asset impairment charges included in restructuring charges for 2013 are based on an estimate of fair value, which was determined to be lower than the carrying value of the assets prior to the impairment charge.
The following table provides additional information about the long-lived assets that were impaired during 2013 in Restructuring charges and certain acquisition-related costs:
 
 
Fair Value(a)
 
Year Ended December 31,

 
 
 
2013

(MILLIONS OF DOLLARS)
 
Amount

 
Level 1

 
Level 2

 
Level 3

 
Impairment
Assets held for sale(b)
 
$
116

 
$
—

 
$
116

 
$
—

 
$
47

Assets abandoned/demolished
 
—

 
—

 
—

 
—

 
118

Long-lived assets
 
$
116

 
$
—

 
$
116

 
$
—

 
$
165

(a) 
The fair value amount is presented as of the date of impairment, as these assets are not measured at fair value on a recurring basis. See also Note 1E. Basis of Presentation and Significant Accounting Policies: Fair Value.
(b) 
Reflects property, plant and equipment and other long-lived held-for-sale assets written down to their fair value, less costs to sell of $4 million (a net of $112 million) in 2013. Fair value was determined primarily using a market approach, with various inputs, such as recent sales transactions.

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