Pfizer 2007 Annual Report Download - page 50

48 2007 Financial Report
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
Our Exubera-related exit plans included working with physicians
over a three-month period to transition patients to other treatment
options, evaluating redeployment options for colleagues, working
with our partners and vendors with respect to transition and exit
activities, working with regulators on concluding outstanding
clinical trials, implementing an extended transition program for
those patients unable to transition to other medications within the
three-month period, and exploring asset disposal or redeployment
opportunities, as appropriate, among other activities.
As part of this exit plan, in 2007, we paid $135 million to one of
our partners in satisfaction of all remaining obligations under
existing agreements relating to Exubera and a next generation
insulin (NGI) under development. In addition, in the event that
a new partner is selected, we have agreed to transfer our
remaining rights and all economic benefits for Exubera and NGI.
This transfer of our interests would include the transfer of the
Exubera New Drug Application and Investigational New Drug
Applications and all non-U.S. regulatory filings and applications,
continuation of ongoing Exubera clinical trials and certain supply
chain transition activities.
Total pre-tax charges for 2007 were $2.8 billion, virtually all of
which were recorded in the third quarter. The financial statement
line items in which the various charges are recorded and related
activity are as follows:
SELLING,
CUSTOMER INFORMATIONAL RESEARCH & ACTIVITY ACCRUAL
RETURNS - COST OF & ADMINISTRATIVE DEVELOPMENT THROUGH AS OF
(MILLIONS OF DOLLARS) REVENUES SALES EXPENSES EXPENSES TOTAL DEC. 31, 2007(a) DEC. 31, 2007
Intangible asset impairment
charges(b) $ — $1,064 $41 $ — $1,105 $1,105 $ —
Inventory write-offs — 661 — — 661 661 —
Fixed assets impairment
charges and other — 451 — 3 454 454 —
Other exit costs 10 427 44 97 578 164 414(c)
Total $10 $2,603 $85 $100 $2,798 $2,384 $414
(a) Includes adjustments for foreign currency translation.
(b) Amortization of these assets had previously been recorded in
Cost of sales and Selling, informational and administrative expenses .
(c) Included in
Other current liabilities ($375 million) and Other noncurrent liabilities ($39 million).
The asset write-offs (intangibles, inventory and fixed assets)
represent non-cash charges. The other exit costs, primarily
severance, contract and other termination costs, as well as other
liabilities, are associated with marketing and research programs,
and manufacturing operations related to Exubera. These exit
costs resulted in cash expenditures in 2007 (such as the $135
million settlement referred to above) and will result in additional
cash expenditures in 2008. We expect that substantially all of the
cash spending will be completed within the next year. As a result
of exiting this product, certain additional cash costs will be
incurred and reported in future periods, such as maintenance-level
operating costs. However, those future costs are not expected to
be significant. We expect that substantially all exit activities will
be completed within the next year.
5. Cost-Reduction Initiatives
In the first quarter of 2005, we launched cost-reduction initiatives
to increase efficiency and streamline decision-making across the
company. These initiatives, announced in April 2005 and
broadened in October 2006 and January 2007, follow the
integration of Warner-Lambert and Pharmacia.
We incurred the following costs in connection with our cost-
reduction initiatives:
YEAR ENDED DEC. 31,
_____________________________________________________
(MILLIONS OF DOLLARS) 2007 2006 2005
Implementation costs(a) $1,389 $ 788 $325
Restructuring charges(b) 2,523 1,296 438
Total costs related to our
cost-reduction initiatives $3,912 $2,084 $763
(a) For 2007, included in
Cost of sales ($700 million), Selling,
informational and administrative expenses ($334 million), Research
and development expenses ($416 million) and in Other
(income)/deductions—net ($61 million income). For 2006, included
in Cost of sales ($392 million), Selling, informational and
administrative expenses ($243 million), Research and development
expenses ($176 million), and in Other (income)/deductions—net ($23
million income). For 2005, included in Cost of sales ($124 million),
Selling, informational and administrative expenses ($151 million), and
Research and development expenses ($50 million).
(b) Included in
Restructuring charges and acquisition-related costs .
From the beginning of the cost-reduction initiatives in 2005,
through December 31, 2007, the restructuring charges primarily
relate to our plant network optimization efforts and the
restructuring of our worldwide sales, marketing and research
and development operations, while the implementation costs
primarily relate to accelerated depreciation of certain assets, as
well as system and process standardization and the expansion of
shared services.