Pfizer 2013 Annual Report Download - page 33

Financial Review
Pfizer Inc. and Subsidiary Companies
32
2013 Financial Report
significant portion of our spending quickly, as conditions change, we believe that any prior-period information about R&D expense by
development phase or by therapeutic area would not necessarily be representative of future spending.
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/
Productivity Initiatives
Year Ended December 31, % Change
(MILLIONS OF DOLLARS) 2013 2012 2011 13/12 12/11
Costs associated with acquisitions and cost-reduction/
productivity initiatives(a) $1,704 $2,775 $4,415 (39)(37)
(a) Comprises Restructuring charges and certain acquisition-related costs as well as costs associated with our cost-reduction/productivity initiatives included in
Cost of sales, Selling, informational and administrative expenses and/or Research and development expenses, as appropriate.
We have incurred significant costs in connection with acquiring, integrating and restructuring businesses and in connection with our global
cost-reduction and 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 have been impacted by these types of actions, including sales and marketing, manufacturing and R&D, 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 ongoing cost reduction/productivity initiatives, on February 1, 2011, we announced a new research and productivity
initiative to accelerate our strategies to improve innovation and productivity in R&D by prioritizing areas that we believe have the greatest
scientific and commercial promise, utilizing appropriate risk/return profiles and focusing on areas with the highest potential to deliver value in
the near term and over time.
Costs associated with the above actions decreased 39% in 2013, compared to 2012, due to lower costs incurred in all categories:
restructuring charges and transaction costs (down $391 million), integration costs (down $237 million), additional depreciation––asset
restructuring (down $282 million) and lower implementation costs (down $161 million). Costs associated with the above actions decreased
37% in 2012, compared to 2011, due to lower costs incurred in most categories: restructuring charges and transaction costs (down $719
million), integration costs (down $312 million), additional depreciation––asset restructuring (down $655 million) and higher implementation
costs (up $46 million). See Notes to Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with
Acquisitions and Cost-Reduction/Productivity Initiatives for more information.
The overall lower costs reflect the fact that these programs have been substantially completed, except for our manufacturing plant network
rationalization, where execution timelines are necessarily long (see "Key Activities" below). In connection with these continuing manufacturing
plant network rationalization activities, we expect to incur approximately $450 million in associated costs in 2014-2016.
Cost-Reduction Goals
With respect to the January 26, 2009 announcements, and our acquisition of Wyeth on October 15, 2009, in the aggregate, we achieved our
cost-reduction goal by the end of 2011, a year earlier than expected, and are continuing to generate cost reductions.
With respect to the R&D productivity initiative announced on February 1, 2011, we met our goal to achieve significant reductions in our annual
research and development expenses by the end of 2012. Adjusted R&D expenses were $6.6 billion in 2013, and we expect adjusted R&D
expenses to be approximately $6.4 billion to $6.9 billion in 2014, which reflects the late-2013 and early-2014 initiation of Phase 3 clinical
programs for certain pipeline compounds. For an understanding of adjusted research and development expenses, see the “Adjusted Income”
section of this Financial Review.
Total Costs
Through December 31, 2013, we incurred approximately $15.5 billion (pre-tax) in cost-reduction and acquisition-related costs (excluding
transaction costs) in connection with the aforementioned initiatives. This $15.5 billion is a component of the $16.3 billion (pre-tax) in total
restructuring charges incurred from the beginning of our cost-reduction/productivity initiatives in 2005 through December 31, 2013. See Notes
to Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/
Productivity Initiatives for more information.