Pfizer 2005 Annual Report Download - page 46

2005 Financial Report 45
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
net of tax) in Gains on sales of discontinued operations—net
of tax in the consolidated statement of income for 2003.
•In the first quarter of 2003, we sold the Adams confectionery
products business, formerly part of our Consumer Healthcare
segment, for $4.2 billion in cash. We recorded a gain on the sale
of this business of $3.1 billion ($1.8 billion, net of tax) in Gains
on sales of discontinued operations—net of tax in the
consolidated statement of income for 2003.
•In the first quarter of 2003, we sold the Schick-Wilkinson Sword
shaving products business, formerly part of our Consumer
Healthcare segment, for $930 million in cash. We recorded a
gain on the sale of this business of $462 million ($262 million,
net of tax) in Gains on sales of discontinued operations—net
of tax in the consolidated statement of income for 2003.
In 2005, we earned $29 million of income ($18 million, net of tax)
and in 2004, we earned $17 million of income ($10 million, net
of tax), both amounts relating to the 2003 sale of the femhrt,
Estrostep and Loestrin product lines, which was recorded in Gains
on sales of discontinued operations—net of tax in the consolidated
statement of income for the applicable year.
The significant assets and liabilities as of December 31, 2004
relating to these businesses and product lines included intangible
assets; goodwill; property, plant and equipment; inventory;
accounts receivable; accrued liabilities and deferred taxes.
The following amounts have been segregated from continuing
operations and reported as discontinued operations:
YEAR ENDED DEC. 31,
_________________________________________________
(MILLIONS OF DOLLARS) 2005 2004 2003
Revenues $ 55 $405 $1,214
Pre-tax (loss)/income (33) (39) 43
(Benefit) from/provision
for taxes(a) (2) (17) 17
(Loss)/income from
discontinued operations—
net of tax (31) (22) 26
Pre-tax gains on sales of
discontinued operations 77 75 3,885
Provision for taxes on gains(b) 30 24 1,600
Gains on sales of discontinued
operations—net of tax 47 51 2,285
Discontinued operations—
net of tax $ 16 $29 $2,311
(a) Includes a deferred tax expense of $23 million in 2005, a deferred
tax benefit of $15 million in 2004 and a deferred tax expense of
$8 million in 2003.
(b) Includes a deferred tax expense of nil in 2005 and 2004, and $744
million in 2003.
Net cash flows of our discontinued operations from each of the
categories of operating, investing and financing activities were
not significant for 2005, 2004 and 2003.
4. Adapting to Scale Initiative
In the first quarter of 2005, we launched our multi-year productivity
initiative, called Adapting to Scale (AtS), to increase efficiency and
streamline decision-making across the Company. This initiative,
announced in April 2005, follows the integration of Warner-Lambert
and Pharmacia, which resulted in the tripling of Pfizer’s revenues
over the past six years. The integration of those two companies
resulted in the achievement of significant annual cost savings.
In connection with the AtS productivity initiative, Pfizer
management has performed a comprehensive review of our
processes, organizations, systems and decision-making procedures,
in a company-wide effort to improve performance and efficiency.
This initiative is expected to yield substantial annual cost savings
by 2008. We expect the costs associated with this multi-year effort
to continue through 2008 and to total approximately $4 billion to
$5 billion, on a pre-tax basis. The actions associated with the AtS
productivity initiative will include about $2.8 billion to $3.5 billion
in restructuring charges, such as asset impairments, exit costs and
severance costs (including any related impacts to our benefit
plans, such as settlements and curtailments) and about $1.2 billion
to $1.5 billion in associated implementation costs, such as
accelerated depreciation charges, primarily associated with plant
network optimization efforts, and expenses associated with system
and process standardization and the expansion of shared services.
We incurred the following costs in connection with our AtS
productivity initiative:
YEAR ENDED
DEC. 31,
______________
(MILLIONS OF DOLLARS) 2005
Implementation costs(a) $330
Restructuring charges(b) 450
Total AtS costs $780
(a) Included in Cost of sales ($124 million), Selling, informational and
administrative expenses ($156 million), and Research and
development expenses ($50 million).
(b) Included in Restructuring charges and merger-related costs.
Through December 31, 2005, the restructuring charges primarily
relate to employee termination costs at our manufacturing
facilities in North America and in our U.S. marketing and
worldwide research operations, and the implementation costs
primarily relate to system and process standardization, as well as
the expansion of shared services.
The components of restructuring charges associated with AtS
follow:
UTILIZATION ACCRUAL
COSTS THROUGH AS OF
INCURRED DEC. 31, DEC. 31,
__________ ___________ ___________
(MILLIONS OF DOLLARS) 2005 2005 2005(a)
Employee termination costs $305 $166 $139
Asset impairments 131 131 —
Other 14 3 11
$450 $300 $150
(a) Included in Other current liabilities.
Through December 31, 2005, Employee termination costs
represent the reduction of the workforce by 2,602 employees,
mainly in manufacturing, sales and research. We notified affected
individuals and 2,425 employees were terminated as of December
31, 2005. Employee termination costs are recorded as incurred and
include accrued severance benefits, pension and postretirement