Pfizer 2006 Annual Report Download - page 49

2006 Financial Report 47
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
5.
Acquisition-Related Costs
We incurred the following acquisition-related charges primarily
in connection with our acquisition of Pharmacia Corporation,
which was completed in 2003:
YEAR ENDED DEC. 31,
_________________________________________________
(MILLIONS OF DOLLARS) 2006 2005 2004
Integration costs:
(a)
Pharmacia $— $532 $ 454
Other 21 11 24
Restructuring charges:
(a)
Pharmacia (3) 372 680
Other 9 3 (7)
Total acquisition-related costs $27 $918 $1,151
(a)
Included in Restructuring charges and acquisition-related costs.
Included in Discontinued operations—net of tax are additional
pre-tax acquisition-related costs of $17 million, $38 million and
$55 million in 2006, 2005 and 2004.
A. Integration Costs
Integration costs represent external, incremental costs directly
related to an acquisition, including expenditures for consulting
and systems integration.
B. Restructuring Charges—Pharmacia
In connection with the acquisition of Pharmacia, Pfizer
management approved plans to restructure the operations of both
legacy Pfizer and legacy Pharmacia to eliminate duplicative
facilities and reduce costs. As of December 31, 2005, the
restructuring of our operations as a result of our acquisition of
Pharmacia was substantially complete. Restructuring charges
included severance, costs of vacating duplicative facilities, contract
termination and other exit costs. Total acquisition-related
expenditures (income statement and balance sheet) incurred
during 2002-2006 to achieve these synergies were $5.2 billion, on
a pre-tax basis.
We have recorded restructuring charges associated with exiting
certain activities of legacy Pfizer and legacy Pharmacia (from
April 16, 2004), including severance, costs of vacating duplicative
facilities, contract termination and other exit costs. These costs
have been recorded as a charge to the results of operations and
are included in Restructuring charges and acquisition-related
costs. The components of the restructuring charges associated with
the acquisition of Pharmacia, which were expensed, follow:
UTILIZATION ACCRUAL
THROUGH AS OF
COSTS INCURRED DEC. 31, DEC. 31,
_____________________________ ____________________
(MILLIONS OF DOLLARS) 2006 2005 2004 2003-2006 2006 2006
(a)
Employee
termination
costs $(18) $100 $371 $ 592 $ 522 $70
Asset
impairments 23 234 255 524 524 —
Other (8) 38 54 99 92 7
$ (3) $372 $680 $1,215 $1,138 $77
(a)
Included in Other current liabilities.
Through December 31, 2006, Employee termination costs
represent the approved reduction of the legacy Pfizer and legacy
Pharmacia (from April 16, 2004) work force by 4,255 employees,
mainly in corporate, manufacturing, distribution, sales and
research. We notified affected individuals and 4,005 employees
were terminated as of December 31, 2006. Employee termination
costs include accrued severance benefits and costs associated
with change-in-control provisions of certain Pharmacia
employment contracts. Asset impairments primarily include
charges to write down property, plant and equipment. Other
primarily includes costs to exit certain activities of legacy Pfizer
and legacy Pharmacia (from April 16, 2004).
6. Other (Income)/Deductions — Net
The components of Other (income)/deductions—net follow:
YEAR ENDED DEC. 31,
___________________________________________________
(MILLIONS OF DOLLARS) 2006 2005 2004
Interest income $ (925) $ (740) $ (346)
Interest expense 517 488 359
Interest expense capitalized (29) (17) (12)
Net interest (income)/expense (437) (269) 1
Asset impairment charges
(a)
320 1,159 702
Royalty income (395) (320) (243)
Net gains on disposals of
investments, products
and product lines
(b)
(233) (172) (6)
Net foreign exchange
(gains)/losses 15 879
Other, net
(c)
(174) (9) 270
Other (income)/
deductions—net $ (904) $ 397 $ 803
(a)
In 2006 and 2004, we recorded a charge of $320 million and $691
million related to the impairment of our Depo-Provera intangible
asset. In 2005, we recorded charges totaling $1.2 billion, primarily
related to the impairment of our Bextra intangible asset. See Note
12B. Goodwill and Other Intangible Assets: Other Intangible Assets.
(b)
In 2006, gross realized gains were $65 million and gross realized
losses were $1 million on sales of available-for-sale securities. In
2005, gross realized gains were $171 million and gross realized
losses were $14 million on sales of available-for-sale securities. In
2004, gross realized gains were $25 million and gross realized
losses were $1 million on sales of available-for-sale securities.
(c)
We recorded charges totaling $369 million in 2004 related to
claims against Quigley Company, Inc., a wholly owned subsidiary
of Pfizer (see Note 19B. Legal Proceedings and Contingencies:
Product Liability Matters).
7. Taxes on Income
A. Taxes on Income
Income from continuing operations before provision for taxes on
income, minority interests and the cumulative effect of a change
in accounting principles consists of the following:
YEAR ENDED DEC. 31,
_______________________________________________________
(MILLIONS OF DOLLARS) 2006 2005 2004
United States $ 3,266 $ 985 $ 4,078
International 9,762 9,815 9,325
Total income from
continuing operations
before provision for taxes
on income, minority
interests and cumulative
effect of a change in
accounting principles $13,028 $10,800 $13,403