DELAWARE (State of Incorporation) | 13-5315170 (I.R.S. Employer Identification No.) |
YES X | NO ___ |
YES X | NO ___ |
YES ____ | NO X |
Page | |
Condensed Consolidated Statements of Income for the three months ended March 30, 2014 and March 31, 2013 | |
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 30, 2014 and March 31, 2013 | |
Condensed Consolidated Balance Sheets as of March 30, 2014 and December 31, 2013 | |
Condensed Consolidated Statements of Cash Flows for the three months ended March 30, 2014 and March 31, 2013 | |
Three Months Ended | ||||||||
(MILLIONS, EXCEPT PER COMMON SHARE DATA) | March 30, 2014 | March 31, 2013 | ||||||
Revenues | $ | 11,353 | $ | 12,410 | ||||
Costs and expenses: | ||||||||
Cost of sales(a) | 2,045 | 2,263 | ||||||
Selling, informational and administrative expenses(a) | 3,040 | 3,217 | ||||||
Research and development expenses(a) | 1,623 | 1,710 | ||||||
Amortization of intangible assets | 1,117 | 1,219 | ||||||
Restructuring charges and certain acquisition-related costs | 58 | 131 | ||||||
Other deductions––net | 623 | 145 | ||||||
Income from continuing operations before provision for taxes on income | 2,847 | 3,725 | ||||||
Provision for taxes on income | 582 | 1,109 | ||||||
Income from continuing operations | 2,265 | 2,616 | ||||||
Discontinued operations––net of tax | 73 | 149 | ||||||
Net income before allocation to noncontrolling interests | 2,338 | 2,765 | ||||||
Less: Net income attributable to noncontrolling interests | 9 | 15 | ||||||
Net income attributable to Pfizer Inc. | $ | 2,329 | $ | 2,750 | ||||
Earnings per common share––basic: | ||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.35 | $ | 0.36 | ||||
Discontinued operations––net of tax | 0.01 | 0.02 | ||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.36 | $ | 0.38 | ||||
Earnings per common share––diluted: | ||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.35 | $ | 0.36 | ||||
Discontinued operations––net of tax | 0.01 | 0.02 | ||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.36 | $ | 0.38 | ||||
Weighted-average shares––basic | 6,389 | 7,187 | ||||||
Weighted-average shares––diluted | 6,476 | 7,269 | ||||||
Cash dividends paid per common share | $ | 0.26 | $ | 0.24 | ||||
(a) | Excludes amortization of intangible assets, except as disclosed in Note 9B. Goodwill and Other Intangible Assets: Other Intangible Assets. |
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | March 31, 2013 | ||||||
Net income before allocation to noncontrolling interests | $ | 2,338 | $ | 2,765 | ||||
Foreign currency translation adjustments | $ | (75 | ) | $ | (292 | ) | ||
Reclassification adjustments(a) | (62 | ) | — | |||||
(137 | ) | (292 | ) | |||||
Unrealized holding losses on derivative financial instruments | (58 | ) | (396 | ) | ||||
Reclassification adjustments for realized losses(b) | 12 | 526 | ||||||
(46 | ) | 130 | ||||||
Unrealized holding gains/(losses) on available-for-sale securities | 108 | (10 | ) | |||||
Reclassification adjustments for realized gains(b) | (99 | ) | (158 | ) | ||||
9 | (168 | ) | ||||||
Benefit plans: actuarial gains, net | 6 | 22 | ||||||
Reclassification adjustments related to amortization(c) | 49 | 151 | ||||||
Reclassification adjustments related to settlements, net(c) | 21 | 55 | ||||||
Other | (17 | ) | 97 | |||||
59 | 325 | |||||||
Benefit plans: prior service credits and other | — | 3 | ||||||
Reclassification adjustments related to amortization(c) | (18 | ) | (16 | ) | ||||
Reclassification adjustments related to curtailments, net(c) | (4 | ) | (9 | ) | ||||
Other | (1 | ) | (2 | ) | ||||
(23 | ) | (24 | ) | |||||
Other comprehensive loss, before tax | (138 | ) | (29 | ) | ||||
Tax provision/(benefit) on other comprehensive loss(d) | (17 | ) | 176 | |||||
Other comprehensive loss before allocation to noncontrolling interests | $ | (121 | ) | $ | (205 | ) | ||
Comprehensive income before allocation to noncontrolling interests | $ | 2,217 | $ | 2,560 | ||||
Less: Comprehensive income attributable to noncontrolling interests | 7 | 12 | ||||||
Comprehensive income attributable to Pfizer Inc. | $ | 2,210 | $ | 2,548 | ||||
(a) | Reclassified into Discontinued operations—net of tax in the condensed consolidated statements of income. |
(b) | Reclassified into Other deductions—net in the condensed consolidated statements of income. |
(c) | Generally reclassified, as part of net periodic pension cost, into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate, in the condensed consolidated statements of income. For additional information, see Note 10. Pension and Postretirement Benefit Plans. |
(d) | See Note 5C. Tax Matters: Taxes on Items of Other Comprehensive Loss. |
(MILLIONS OF DOLLARS) | March 30, 2014 | December 31, 2013 | ||||||
(Unaudited) | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | 2,862 | $ | 2,183 | ||||
Short-term investments | 31,019 | 30,225 | ||||||
Accounts receivable, less allowance for doubtful accounts | 9,399 | 9,357 | ||||||
Inventories | 6,066 | 6,166 | ||||||
Current deferred tax assets and other current tax assets | 4,974 | 4,624 | ||||||
Other current assets | 3,473 | 3,689 | ||||||
Total current assets | 57,793 | 56,244 | ||||||
Long-term investments | 15,822 | 16,406 | ||||||
Property, plant and equipment, less accumulated depreciation | 12,347 | 12,397 | ||||||
Goodwill | 42,467 | 42,519 | ||||||
Identifiable intangible assets, less accumulated amortization | 38,122 | 39,385 | ||||||
Noncurrent deferred tax assets and other noncurrent tax assets | 1,498 | 1,554 | ||||||
Other noncurrent assets | 3,759 | 3,596 | ||||||
Total assets | $ | 171,808 | $ | 172,101 | ||||
Liabilities and Equity | ||||||||
Short-term borrowings, including current portion of long-term debt | $ | 9,319 | $ | 6,027 | ||||
Accounts payable | 2,546 | 3,234 | ||||||
Dividends payable | 1 | 1,663 | ||||||
Income taxes payable | 851 | 678 | ||||||
Accrued compensation and related items | 1,758 | 1,792 | ||||||
Other current liabilities | 10,315 | 9,972 | ||||||
Total current liabilities | 24,790 | 23,366 | ||||||
Long-term debt | 27,649 | 30,462 | ||||||
Pension benefit obligations, net | 4,533 | 4,635 | ||||||
Postretirement benefit obligations, net | 2,645 | 2,668 | ||||||
Noncurrent deferred tax liabilities | 25,923 | 25,590 | ||||||
Other taxes payable | 3,784 | 3,993 | ||||||
Other noncurrent liabilities | 4,416 | 4,767 | ||||||
Total liabilities | 93,740 | 95,481 | ||||||
Commitments and Contingencies | ||||||||
Preferred stock | 32 | 33 | ||||||
Common stock | 454 | 453 | ||||||
Additional paid-in capital | 77,849 | 77,283 | ||||||
Treasury stock | (69,204 | ) | (67,923 | ) | ||||
Retained earnings | 72,028 | 69,732 | ||||||
Accumulated other comprehensive loss | (3,390 | ) | (3,271 | ) | ||||
Total Pfizer Inc. shareholders’ equity | 77,769 | 76,307 | ||||||
Equity attributable to noncontrolling interests | 299 | 313 | ||||||
Total equity | 78,068 | 76,620 | ||||||
Total liabilities and equity | $ | 171,808 | $ | 172,101 | ||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | March 31, 2013 | ||||||
Operating Activities | ||||||||
Net income before allocation to noncontrolling interests | $ | 2,338 | $ | 2,765 | ||||
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,456 | 1,774 | ||||||
Asset write-offs, impairments and related charges | 137 | 513 | ||||||
Gain associated with the transfer of certain product rights to an equity-method investment | — | (490 | ) | |||||
Deferred taxes from continuing operations | 345 | 920 | ||||||
Deferred taxes from discontinued operations | — | 7 | ||||||
Share-based compensation expense | 143 | 189 | ||||||
Benefit plan contributions (in excess of)/less than expense | (99 | ) | 71 | |||||
Other non-cash adjustments, net | (294 | ) | (119 | ) | ||||
Other changes in assets and liabilities, net of acquisitions and divestitures | (1,091 | ) | (3,327 | ) | ||||
Net cash provided by operating activities | 2,935 | 2,303 | ||||||
Investing Activities | ||||||||
Purchases of property, plant and equipment | (292 | ) | (202 | ) | ||||
Purchases of short-term investments | (8,721 | ) | (10,742 | ) | ||||
Proceeds from redemptions and sales of short-term investments | 7,569 | 6,386 | ||||||
Net (purchases of)/proceeds from redemptions/sales of investments with original maturities of 90 days or less | 1,500 | (5,596 | ) | |||||
Purchases of long-term investments | (1,808 | ) | (2,246 | ) | ||||
Proceeds from redemptions and sales of long-term investments | 1,454 | 1,444 | ||||||
Acquisitions of intangible assets | (6 | ) | (126 | ) | ||||
Other investing activities | 206 | 156 | ||||||
Net cash used in investing activities | (98 | ) | (10,926 | ) | ||||
Financing Activities | ||||||||
Proceeds from short-term borrowings | — | 1,031 | ||||||
Principal payments on short-term borrowings | (3 | ) | (1,031 | ) | ||||
Net proceeds from short-term borrowings with original maturities of 90 days or less | 1,031 | 3,485 | ||||||
Proceeds from issuance of long-term debt(a) | — | 2,624 | ||||||
Principal payments on long-term debt | (752 | ) | (2 | ) | ||||
Purchases of common stock | (1,197 | ) | (4,626 | ) | ||||
Cash dividends paid | (1,662 | ) | (1,735 | ) | ||||
Proceeds from exercise of stock options | 425 | 642 | ||||||
Other financing activities | 25 | 46 | ||||||
Net cash provided by/(used in) financing activities | (2,133 | ) | 434 | |||||
Effect of exchange-rate changes on cash and cash equivalents | (25 | ) | — | |||||
Net increase/(decrease) in cash and cash equivalents | 679 | (8,189 | ) | |||||
Cash and cash equivalents, beginning | 2,183 | 10,081 | ||||||
Cash and cash equivalents, end | $ | 2,862 | $ | 1,892 | ||||
Supplemental Cash Flow Information | ||||||||
Non-cash transactions: | ||||||||
Exchange of subsidiary common stock (Zoetis) for the retirement of Pfizer commercial paper issued in 2013(b) | $ | — | $ | 2,479 | ||||
Exchange of subsidiary senior notes (Zoetis) for the retirement of Pfizer commercial paper issued in 2012(b) | — | 992 | ||||||
Transfer of certain product rights to an equity-method investment(c) | — | 1,233 | ||||||
Cash paid during the period for: | ||||||||
Income taxes | $ | 536 | $ | 548 | ||||
Interest | 361 | 433 | ||||||
(a) | Includes $2.6 billion from the issuance of senior notes by Zoetis (our former Animal Health subsidiary), net of the $1.0 billion non-cash exchange of Zoetis senior notes for the retirement of Pfizer commercial paper issued in 2012. See Note 2A. Divestiture and Equity-Method Investments: Divestiture. |
(b) | See Note 2A. Divestiture and Equity-Method Investments: Divestiture. |
(c) | See Note 2B. Divestiture and Equity-Method Investments: Equity-Method Investments. |
• | A new standard that clarified the accounting for cumulative translation adjustment (CTA) upon derecognition of a group of assets that is a business or an equity-method investment within a foreign entity. |
• | A new standard regarding the measurement of obligations resulting from joint and several liability arrangements that may include debt agreements, other contractual obligations and settled litigation or judicial rulings. |
• | Quoted prices for identical assets or liabilities in active markets (Level 1 inputs). |
• | Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable (Level 2 inputs). |
• | Unobservable inputs that reflect estimates and assumptions (Level 3 inputs). |
• | Formation of Zoetis—On January 28, 2013, our then wholly owned subsidiary, Zoetis, issued $3.65 billion aggregate principal amount of senior notes. Also, on January 28, 2013, we transferred to Zoetis substantially all of the assets and liabilities of our Animal Health business in exchange for all of the Class A and Class B common stock of Zoetis, $1.0 billion of the $3.65 billion of Zoetis senior notes, and an amount of cash equal to substantially all of the cash proceeds received by Zoetis from the remaining $2.65 billion of senior notes issued. The $1.0 billion of Zoetis senior notes received by Pfizer were exchanged by Pfizer for the retirement of Pfizer commercial paper issued in 2012, and the cash proceeds received by Pfizer of approximately $2.6 billion were used for dividends and stock buybacks. |
• | Initial Public Offering (19.8% Interest)—On February 6, 2013, an IPO of the Class A common stock of Zoetis was completed, pursuant to which we sold 99.015 million shares of Class A common stock of Zoetis (all of the Class A common stock, including shares sold pursuant to the underwriters' over-allotment option to purchase additional shares, which was exercised in full) in exchange for the retirement of approximately $2.5 billion of Pfizer commercial paper issued in 2013. The Class A common stock sold in the IPO represented approximately 19.8% of the total outstanding Zoetis shares. The excess of the consideration received over the net book value of our divested interest was approximately $2.3 billion and was recorded in Additional paid-in capital. |
• | Exchange Offer (80.2% Interest)—On June 24, 2013, we exchanged all of our remaining interest in Zoetis for Pfizer common stock. |
The following table provides the components of Discontinued operations—net of tax: | ||||||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | March 31, 2013 | ||||||
Revenues | $ | — | $ | 1,089 | ||||
Pre-tax income from discontinued operations | 5 | 200 | ||||||
Provision for taxes on income(a) | — | 51 | ||||||
Income from discontinued operations––net of tax | 5 | 149 | ||||||
Pre-tax gain on disposal of discontinued operations | 64 | — | ||||||
Benefit for taxes on income | (4 | ) | — | |||||
Gain on disposal of discontinued operations––net of tax(b) | 68 | — | ||||||
Discontinued operations––net of tax | $ | 73 | $ | 149 | ||||
(a) | Includes a deferred tax expense of $7 million for the three months ended March 31, 2013. |
(b) | For the three months ended March 30, 2014, represents post-close adjustments. |
• | 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 and optimization actions, workforce reductions and the expansion of shared services, including the development of global systems. |
• | Manufacturing plant network rationalization and optimization, where execution timelines are necessarily long. Our plant network strategy is expected to result in the exit of nine sites over the next several years. In connection with these activities, during 2014-2016, we expect to incur costs of approximately $450 million associated with prior acquisition activity and costs of approximately $1.5 billion associated with new non-acquisition-related cost-reduction initiatives. |
• | New global commercial structure reorganization, which primarily includes the streamlining of certain functions, the realignment of regional locations and colleagues to support the businesses, as well as implementing the necessary system changes to support future reporting requirements. In connection with this reorganization, during 2014-2016, we expect to incur costs of approximately $350 million. |
• | Other new cost-reduction/productivity initiatives, primarily related to commercial property rationalization and consolidation. In connection with these cost-reduction activities, during 2014-2016, we expect to incur costs of approximately $900 million. |
The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives: | ||||||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | March 31, 2013 | ||||||
Restructuring charges(a): | ||||||||
Employee terminations | $ | 30 | $ | (21 | ) | |||
Asset impairments | 6 | 103 | ||||||
Exit costs | 4 | 13 | ||||||
Total restructuring charges | 40 | 95 | ||||||
Integration costs(b) | 18 | 36 | ||||||
Restructuring charges and certain acquisition-related costs | 58 | 131 | ||||||
Additional depreciation––asset restructuring recorded in our condensed consolidated statements of income as follows(c): | ||||||||
Cost of sales | 74 | 33 | ||||||
Selling, informational and administrative expenses | — | 11 | ||||||
Research and development expenses | — | 91 | ||||||
Total additional depreciation––asset restructuring | 74 | 135 | ||||||
Implementation costs recorded in our condensed consolidated statements of income as follows(d): | ||||||||
Cost of sales | 6 | 6 | ||||||
Selling, informational and administrative expenses | 15 | 31 | ||||||
Research and development expenses | 11 | 2 | ||||||
Total implementation costs | 32 | 39 | ||||||
Total costs associated with acquisitions and cost-reduction/productivity initiatives | $ | 164 | $ | 305 | ||||
(a) | In the three months ended March 30, 2014, Employee terminations represent the expected reduction of the workforce by approximately 200 employees, mainly in manufacturing and sales. |
• | For the three months ended March 30, 2014, the Global Innovative Pharmaceutical segment (GIP) ($2 million), the Global Established Pharmaceutical segment (GEP) ($7 million), Worldwide Research and Development and Medical ($1 million), manufacturing operations ($26 million) and Corporate ($4 million). |
• | For the three months ended March 31, 2013, total operating segments ($13 million), Worldwide Research and Development and Medical ($2 million), manufacturing operations ($3 million) and Corporate ($77 million). In 2014, we revised our operating segments and are unable to identify these prior-period restructuring charges to the new individual segments. |
(b) | 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. |
(c) | Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions. |
(d) | 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, December 31, 2013(a) | $ | 1,685 | $ | — | $ | 94 | $ | 1,779 | ||||||||
Provision | 30 | 6 | 4 | 40 | ||||||||||||
Utilization and other(b) | (115 | ) | (6 | ) | (25 | ) | (146 | ) | ||||||||
Balance, March 30, 2014(c) | $ | 1,600 | $ | — | $ | 73 | $ | 1,673 | ||||||||
(a) | Included in Other current liabilities ($1.0 billion) and Other noncurrent liabilities ($767 million). |
(b) | Includes adjustments for foreign currency translation. |
(c) | Included in Other current liabilities ($968 million) and Other noncurrent liabilities ($705 million). |
The following table provides components of Other deductions––net: | ||||||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | March 31, 2013 | ||||||
Interest income(a) | $ | (92 | ) | $ | (95 | ) | ||
Interest expense(a) | 321 | 371 | ||||||
Net interest expense | 229 | 276 | ||||||
Royalty-related income(b) | (248 | ) | (63 | ) | ||||
Certain legal matters, net(c) | 694 | (83 | ) | |||||
Gain associated with the transfer of certain product rights(d) | — | (490 | ) | |||||
Net gains on asset disposals(e) | (181 | ) | (26 | ) | ||||
Certain asset impairments and related charges(f) | 115 | 398 | ||||||
Costs associated with the Zoetis IPO(g) | — | 18 | ||||||
Other, net | 14 | 115 | ||||||
Other deductions––net | $ | 623 | $ | 145 | ||||
(a) | Interest income decreased in the first three months of 2014 due to lower cash equivalents and investment balances and lower investment returns. Interest expense decreased in the first three months of 2014 primarily due to the benefit of the conversion of some fixed-rate liabilities to floating-rate liabilities. |
(b) | Royalty-related income increased in 2014 due to royalties earned on sales of Enbrel in the U.S. and Canada after October 31, 2013. On that date, the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada expired, and we became entitled to royalties for a 36-month period. |
(c) | In the first quarter of 2014, includes approximately $620 million for Neurontin-related matters (including off-label promotion actions and antitrust actions) and approximately $50 million for an Effexor-related matter. In the first quarter of 2013, primarily includes an $80 million insurance recovery related to a certain litigation matter. For additional information, see Note 12A. Commitments and Contingencies: Legal Proceedings. |
(d) | Represents the gain associated with the transfer of certain product rights to Hisun Pfizer, our 49%-owned equity-method investment in China. For additional information, see Note 2B. Divestiture and Equity-Method Investments: Equity-Method Investments. |
(e) | In the first quarter of 2014, primarily includes gains on sales of product rights (approximately $70 million) and gains on sales of investments in equity securities (approximately $95 million). |
(f) | In the first quarter of 2014, includes an intangible asset impairment charge of $114 million, virtually all of which relates to an in-process research and development (IPR&D) compound for the treatment of skin fibrosis. The intangible asset impairment charge for the first quarter of 2014 is associated with Worldwide Research and Development and reflects, among other things, the impact of changes to the development program. In the first quarter of 2013, includes an intangible asset impairment charge of $394 million, all of which relates to developed technology rights for use in the development of bone and cartilage. The intangible asset impairment charge for 2013 is associated with the Global Innovative Pharmaceutical segment and reflects, among other things, updated commercial forecasts. |
(g) | Costs incurred in connection with the IPO of an approximate 19.8% ownership interest in Zoetis. Includes expenditures for banking, legal, accounting and similar services. For additional information, see Note 2A. Divestiture and Equity-Method Investments: Divestiture. |
The following table provides additional information about the intangible assets that were impaired during the first three months of 2014 in Other deductions––net: | ||||||||||||||||||||
Fair Value(a) | Three Months Ended March 30, 2014 | |||||||||||||||||||
(MILLIONS OF DOLLARS) | Amount | Level 1 | Level 2 | Level 3 | Impairment | |||||||||||||||
Intangible assets––IPR&D(b) | $ | 79 | $ | — | $ | — | $ | 79 | $ | 114 | ||||||||||
Total | $ | 79 | $ | — | $ | — | $ | 79 | $ | 114 | ||||||||||
(a) | The fair value amount is presented as of the date of impairment, as this asset is not measured at fair value on a recurring basis. See also Note 1C. Basis of Presentation and Significant Accounting Policies: Fair Value. |
(b) | Reflects intangible assets written down to fair value in the first three months of 2014. Fair value was determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We started with a forecast of all the expected net cash flows associated with the asset and then we applied an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the product and the impact of technological risk associated with IPR&D assets; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows. |
• | With respect to Pfizer Inc., tax years 2009 and 2010 are currently under audit. Tax years 2011-2014 are open, but not under audit. All other tax years are closed. |
The following table provides the components of the tax provision/(benefit) on Other comprehensive loss: | ||||||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | March 31, 2013 | ||||||
Foreign currency translation adjustments(a) | $ | (7 | ) | $ | 71 | |||
Unrealized holding losses on derivative financial instruments | (17 | ) | (155 | ) | ||||
Reclassification adjustments for realized (gains)/losses | (1 | ) | 167 | |||||
(18 | ) | 12 | ||||||
Unrealized holding gains on available-for-sale securities | 27 | 11 | ||||||
Reclassification adjustments for realized gains | (29 | ) | (25 | ) | ||||
(2 | ) | (14 | ) | |||||
Benefit plans: actuarial gains, net | 1 | 6 | ||||||
Reclassification adjustments related to amortization | 16 | 54 | ||||||
Reclassification adjustments related to settlements, net | 8 | 20 | ||||||
Foreign currency translation adjustments and other | (12 | ) | 37 | |||||
13 | 117 | |||||||
Benefit plans: prior service costs and other | — | (1 | ) | |||||
Reclassification adjustments related to amortization | (7 | ) | (6 | ) | ||||
Reclassification adjustments related to curtailments, net | (1 | ) | (3 | ) | ||||
Other | 5 | — | ||||||
(3 | ) | (10 | ) | |||||
Tax provision/(benefit) on other comprehensive loss | $ | (17 | ) | $ | 176 | |||
(a) | Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely. |
The following table provides the changes, net of tax, in Accumulated other comprehensive loss: | ||||||||||||||||||||||||
Net Unrealized Gains/(Losses) | Benefit Plans | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Foreign Currency Translation Adjustments | Derivative Financial Instruments | Available-For-Sale Securities | Actuarial Gains/(Losses) | Prior Service (Costs)/Credits and Other | Accumulated Other Comprehensive Loss | ||||||||||||||||||
Balance, December 31, 2013 | $ | (590 | ) | $ | 79 | $ | 150 | $ | (3,223 | ) | $ | 313 | $ | (3,271 | ) | |||||||||
Other comprehensive income/(loss)(a) | (128 | ) | (28 | ) | 11 | 46 | (20 | ) | (119 | ) | ||||||||||||||
Balance, March 30, 2014 | $ | (718 | ) | $ | 51 | $ | 161 | $ | (3,177 | ) | $ | 293 | $ | (3,390 | ) | |||||||||
(a) | Amounts do not include foreign currency translation loss of $2 million attributable to noncontrolling interests for the first three months of 2014. |
The following table provides additional information about certain of our financial assets and liabilities: | ||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | December 31, 2013 | ||||||
Selected financial assets measured at fair value on a recurring basis(a) | ||||||||
Trading securities(b) | $ | 103 | $ | 126 | ||||
Available-for-sale debt securities(c) | 35,693 | 34,899 | ||||||
Available-for-sale money market funds | 977 | 945 | ||||||
Available-for-sale equity securities, excluding money market funds(c) | 462 | 356 | ||||||
Derivative financial instruments in receivable positions(d): | ||||||||
Interest rate swaps | 438 | 468 | ||||||
Foreign currency swaps | 953 | 871 | ||||||
Foreign currency forward-exchange contracts | 49 | 172 | ||||||
38,675 | 37,837 | |||||||
Other selected financial assets | ||||||||
Held-to-maturity debt securities, carried at amortized cost(c), (e) | 8,501 | 9,139 | ||||||
Private equity securities, carried at equity-method or at cost(e), (f) | 2,276 | 2,270 | ||||||
10,777 | 11,409 | |||||||
Total selected financial assets | $ | 49,452 | $ | 49,246 | ||||
Financial liabilities measured at fair value on a recurring basis(a) | ||||||||
Derivative financial instruments in a liability position(g): | ||||||||
Interest rate swaps | $ | 187 | $ | 301 | ||||
Foreign currency swaps | 116 | 110 | ||||||
Foreign currency forward-exchange contracts | 184 | 219 | ||||||
487 | 630 | |||||||
Other financial liabilities(h) | ||||||||
Short-term borrowings, carried at historical proceeds, as adjusted(e) | 9,319 | 6,027 | ||||||
Long-term debt, carried at historical proceeds, as adjusted(i), (j) | 27,649 | 30,462 | ||||||
36,968 | 36,489 | |||||||
Total selected financial liabilities | $ | 37,455 | $ | 37,119 | ||||
(a) | We use a market approach in valuing financial instruments on a recurring basis. For additional information, see Note 1C. Basis of Presentation and Significant Accounting Policies: Fair Value. All of our financial assets and liabilities measured at fair value on a recurring basis use Level 2 inputs in the calculation of fair value, except less than 1% that use Level 1 inputs. |
(b) | Trading securities are held in trust for legacy business acquisition severance benefits. |
(c) | Gross unrealized gains and losses are not significant. |
(d) | Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency swaps with fair values of $26 million and foreign currency forward-exchange contracts with fair values of $30 million as of March 30, 2014; and, interest rate swaps with fair values of $38 million, foreign currency swaps with fair values of $30 million and foreign currency forward-exchange contracts with fair values of $66 million as of December 31, 2013. |
(e) | The differences between the estimated fair values and carrying values of held-to-maturity debt securities, private equity securities at cost and short-term borrowings not measured at fair value on a recurring basis were not significant as of March 30, 2014 or December 31, 2013. The fair value measurements of our held-to-maturity debt securities and our short-term borrowings are based on Level 2 inputs, using a market approach. The fair value measurements of our private equity securities at cost are based on Level 3 inputs. |
(f) | Our private equity securities represent investments in the life sciences sector. |
(g) | Designated as hedging instruments, except for certain foreign currency contracts used as offsets; namely, foreign currency swaps with fair values of $78 million and foreign currency forward-exchange contracts with fair values of $55 million as of March 30, 2014; and, foreign currency swaps with fair values of $76 million and foreign currency forward-exchange contracts with fair values of $77 million as of December 31, 2013. |
(h) | Some carrying amounts may include adjustments for discount or premium amortization or for the effect of hedging the interest rate fair value risk associated with certain financial liabilities by interest rate swaps. |
(i) | Includes foreign currency debt with fair values of $659 million as of March 30, 2014 and $651 million as of December 31, 2013, which are used as hedging instruments. |
(j) | The fair value of our long-term debt (not including the current portion of long-term debt) is $32.6 billion as of March 30, 2014 and $35.1 billion as of December 31, 2013. The fair value measurements for our long-term debt are based on Level 2 inputs, using a market approach. |
The following table provides the classification of these selected financial assets and liabilities in the condensed consolidated balance sheets: | ||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | December 31, 2013 | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | 1,171 | $ | 1,104 | ||||
Short-term investments | 31,019 | 30,225 | ||||||
Long-term investments | 15,822 | 16,406 | ||||||
Other current assets(a) | 132 | 286 | ||||||
Other noncurrent assets(b) | 1,308 | 1,225 | ||||||
$ | 49,452 | $ | 49,246 | |||||
Liabilities | ||||||||
Short-term borrowings, including current portion of long-term debt | $ | 9,319 | $ | 6,027 | ||||
Other current liabilities(c) | 275 | 303 | ||||||
Long-term debt | 27,649 | 30,462 | ||||||
Other noncurrent liabilities(d) | 212 | 327 | ||||||
$ | 37,455 | 37,119 | ||||||
(a) | As of March 30, 2014, derivative instruments at fair value include interest rate swaps ($68 million), foreign currency swaps ($15 million) and foreign currency forward-exchange contracts ($49 million) and, as of December 31, 2013, include interest rate swaps ($90 million), foreign currency swaps ($24 million) and foreign currency forward-exchange contracts ($172 million). |
(b) | As of March 30, 2014, derivative instruments at fair value include interest rate swaps ($370 million) and foreign currency swaps ($938 million) and, as of December 31, 2013, include interest rate swaps ($378 million) and foreign currency swaps ($847 million). |
(c) | As of March 30, 2014, derivative instruments at fair value include interest rate swaps ($1 million), foreign currency swaps ($90 million) and foreign currency forward-exchange contracts ($184 million) and, as of December 31, 2013, include foreign currency swaps ($84 million) and foreign currency forward-exchange contracts ($219 million). |
(d) | As of March 30, 2014, derivative instruments at fair value include interest rate swaps ($186 million) and foreign currency swaps ($26 million) and, as of December 31, 2013, include interest rate swaps ($301 million) and foreign currency swaps ($26 million). |
The following table provides the contractual maturities of the available-for-sale and held-to-maturity debt securities: | ||||||||||||||||||||
Years | March 30, 2014 | |||||||||||||||||||
(MILLIONS OF DOLLARS) | Within 1 | Over 1 to 5 | Over 5 to 10 | Over 10 | Total | |||||||||||||||
Available-for-sale debt securities | ||||||||||||||||||||
Western European, Scandinavian and other government debt(a) | $ | 11,530 | $ | 2,141 | $ | — | $ | — | $ | 13,671 | ||||||||||
Corporate debt(b) | 2,701 | 4,696 | 1,260 | 290 | 8,947 | |||||||||||||||
U.S. government debt | 3,483 | 166 | — | — | 3,649 | |||||||||||||||
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities | — | 2,576 | 10 | 299 | 2,885 | |||||||||||||||
Supranational debt(a) | 990 | 940 | — | — | 1,930 | |||||||||||||||
Western European, Scandinavian and other government agency debt(a) | 1,568 | 356 | — | — | 1,924 | |||||||||||||||
Reverse repurchase agreements(c) | 1,433 | — | — | — | 1,433 | |||||||||||||||
Government National Mortgage Association and other U.S. government guaranteed asset-backed securities | 1,076 | 139 | — | 39 | 1,254 | |||||||||||||||
Held-to-maturity debt securities | ||||||||||||||||||||
Western European, Scandinavian and other government debt(a) | 5,336 | — | — | — | 5,336 | |||||||||||||||
Western European, Scandinavian and other government agency debt, certificates of deposit and other(a) | 2,995 | 169 | 1 | — | 3,165 | |||||||||||||||
Total debt securities | $ | 31,112 | $ | 11,183 | $ | 1,271 | $ | 628 | $ | 44,194 | ||||||||||
(a) | All issued by above-investment-grade governments, government agencies or supranational entities, as applicable. |
(b) | Largely issued by above-investment-grade institutions in the financial services sector. |
(c) | Involving U.S. securities. |
The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk: | ||||||||||||||||||||||||
Amount of Gains/(Losses) Recognized in OID(a), (b), (c) | Amount of Gains/(Losses) Recognized in OCI (Effective Portion)(a), (d) | Amount of Gains/(Losses) Reclassified from OCI into OID (Effective Portion)(a), (d) | ||||||||||||||||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | March 31, 2013 | March 30, 2014 | March 31, 2013 | March 30, 2014 | March 31, 2013 | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||
Derivative Financial Instruments in Cash Flow Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | $ | — | $ | — | $ | (15 | ) | $ | (449 | ) | $ | 9 | $ | (382 | ) | |||||||||
Foreign currency forward-exchange contracts | — | — | (43 | ) | 53 | (21 | ) | (144 | ) | |||||||||||||||
Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | — | (3 | ) | (8 | ) | 123 | — | — | ||||||||||||||||
Derivative Financial Instruments Not Designated as Hedges: | ||||||||||||||||||||||||
Foreign currency forward-exchange contracts | (12 | ) | 149 | — | — | — | — | |||||||||||||||||
Foreign currency swaps | (3 | ) | (4 | ) | — | — | — | — | ||||||||||||||||
Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency long-term debt | — | — | (14 | ) | 63 | — | — | |||||||||||||||||
All other net | (3 | ) | — | — | — | — | — | |||||||||||||||||
$ | (18 | ) | $ | 142 | $ | (80 | ) | $ | (210 | ) | $ | (12 | ) | $ | (526 | ) | ||||||||
(a) | OID = Other (income)/deductions—net, included in Other deductions—net in the condensed consolidated statements of income. OCI = Other comprehensive income/(loss), included in the condensed consolidated statements of comprehensive income. |
(b) | Also includes gains and losses attributable to derivative instruments designated and qualifying as fair value hedges, as well as the offsetting gains and losses attributable to the hedged items in such hedging relationships. |
(c) | There was no significant ineffectiveness for any period presented. |
(d) | For derivative financial instruments in cash flow hedge relationships, the effective portion is included in Other comprehensive loss––Unrealized holding gains/(losses) on derivative financial instruments. For derivative financial instruments in net investment hedge relationships and for foreign currency debt designated as hedging instruments, the effective portion is included in Other comprehensive loss––Foreign currency translation adjustments. |
The following table provides the components of Inventories: | ||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | December 31, 2013 | ||||||
Finished goods | $ | 2,526 | $ | 2,216 | ||||
Work-in-process | 3,013 | 3,445 | ||||||
Raw materials and supplies | 527 | 505 | ||||||
Inventories | $ | 6,066 | $ | 6,166 | ||||
Noncurrent inventories not included above(a) | $ | 468 | $ | 463 | ||||
(a) | Included in Other noncurrent assets. There are no recoverability issues associated with these amounts. |
The following table provides the components of and changes in the carrying amount of Goodwill: | ||||||||||||||
(MILLIONS OF DOLLARS) | GIP | VOC | GEP | To be Allocated(a) | Total | |||||||||
Balance, December 31, 2013 | $ | $ | $ | $ | 42,519 | $ | 42,519 | |||||||
Additions | — | — | ||||||||||||
Other(b) | (52 | ) | (52 | ) | ||||||||||
Balance, March 30, 2014 | $ | $ | $ | $ | 42,467 | $ | 42,467 | |||||||
(a) | The amount to be allocated includes the goodwill associated with our former biopharmaceutical operating segments (see above), for which the allocation to our new reporting units, and, as a result, to the new operating segments, is pending. |
(b) | Primarily reflects the impact of foreign exchange. |
The following table provides the components of Identifiable intangible assets: | ||||||||||||||||||||||||
March 30, 2014 | December 31, 2013 | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Gross Carrying Amount | Accumulated Amortization | Identifiable Intangible Assets, less Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | Identifiable Intangible Assets, less Accumulated Amortization | ||||||||||||||||||
Finite-lived intangible assets | ||||||||||||||||||||||||
Developed technology rights | $ | 72,064 | $ | (42,676 | ) | $ | 29,388 | $ | 72,038 | $ | (41,541 | ) | $ | 30,497 | ||||||||||
Brands | 1,742 | (793 | ) | 949 | 1,743 | (773 | ) | 970 | ||||||||||||||||
Licensing agreements and other | 903 | (810 | ) | 93 | 896 | (805 | ) | 91 | ||||||||||||||||
74,709 | (44,279 | ) | 30,430 | 74,677 | (43,119 | ) | 31,558 | |||||||||||||||||
Indefinite-lived intangible assets | ||||||||||||||||||||||||
Brands and other | 7,363 | 7,363 | 7,384 | 7,384 | ||||||||||||||||||||
In-process research and development | 329 | 329 | 443 | 443 | ||||||||||||||||||||
7,692 | 7,692 | 7,827 | 7,827 | |||||||||||||||||||||
Identifiable intangible assets(a) | $ | 82,401 | $ | (44,279 | ) | $ | 38,122 | $ | 82,504 | $ | (43,119 | ) | $ | 39,385 | ||||||||||
(a) | The decrease is primarily related to amortization and asset impairment charges. For information about impairments of intangible assets, see Note 4. Other Deductions—Net. |
Our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization: | ||||||||||||
March 30, 2014 | ||||||||||||
GIP | VOC | GEP | WRD(a) | |||||||||
Developed technology rights | 34 | % | 32 | % | 34 | % | — | % | ||||
Brands, finite-lived | — | % | 75 | % | 25 | % | — | % | ||||
Brands, indefinite-lived | — | % | 69 | % | 31 | % | — | % | ||||
In-process research and development | 9 | % | 58 | % | 9 | % | 24 | % | ||||
(a) | Worldwide Research and Development. |
The following table provides the components of net periodic benefit cost (including, in 2013, costs reported as part of discontinued operations): | ||||||||||||||||||||||||||||||||
Pension Plans | ||||||||||||||||||||||||||||||||
U.S. Qualified(a) | U.S. Supplemental (Non-Qualified)(b) | International(c) | Postretirement Plans | |||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | March 30, 2014 | March 31, 2013 | March 30, 2014 | March 31, 2013 | March 30, 2014 | March 31, 2013 | March 30, 2014 | March 31, 2013 | ||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||||||||
Net periodic benefit cost: | ||||||||||||||||||||||||||||||||
Service cost | $ | 64 | $ | 77 | $ | 5 | $ | 7 | $ | 52 | $ | 56 | $ | 14 | $ | 16 | ||||||||||||||||
Interest cost | 175 | 168 | 15 | 14 | 100 | 97 | 42 | 42 | ||||||||||||||||||||||||
Expected return on plan assets | (263 | ) | (253 | ) | — | — | (114 | ) | (104 | ) | (16 | ) | (14 | ) | ||||||||||||||||||
Amortization of: | ||||||||||||||||||||||||||||||||
Actuarial losses | 16 | 90 | 7 | 13 | 25 | 37 | 1 | 11 | ||||||||||||||||||||||||
Prior service credits | (2 | ) | (2 | ) | — | (1 | ) | (2 | ) | (2 | ) | (14 | ) | (11 | ) | |||||||||||||||||
Curtailments | 2 | (1 | ) | — | — | (1 | ) | (1 | ) | (3 | ) | (7 | ) | |||||||||||||||||||
Settlements | 9 | 30 | 11 | 22 | 1 | 4 | — | — | ||||||||||||||||||||||||
Special termination benefits | — | — | — | — | 2 | — | — | — | ||||||||||||||||||||||||
$ | 1 | $ | 109 | $ | 38 | $ | 55 | $ | 63 | $ | 87 | $ | 24 | $ | 37 | |||||||||||||||||
(a) | The decrease in net periodic benefit costs for the three months ended March 30, 2014, compared to the three months ended March 31, 2013, for our U.S. qualified pension plans was primarily driven by the decrease in the amounts amortized for actuarial losses resulting from the increase, in 2013, in the discount rate used to determine the benefit obligation (which reduced the amount of deferred actuarial losses), lower service cost resulting from cost-reduction initiatives, lower settlement activity and greater expected return on plan assets resulting from an increased plan asset base, partially offset by higher interest costs resulting from the increase, in 2013, in the discount rate used to determine the benefit obligation. |
(b) | The decrease in net periodic benefit costs for the three months ended March 30, 2014, compared to the three months ended March 31, 2013, for our U.S. supplemental (non-qualified) pension plans was primarily driven by lower settlement activity and the decrease in the amounts amortized for actuarial losses resulting from the increase, in 2013, in the discount rate used to determine the benefit obligation. |
(c) | The decrease in net periodic benefit costs for the three months ended March 30, 2014, compared to the three months ended March 31, 2013, for our international pension plans was primarily driven by the decrease in the amounts amortized for actuarial losses resulting from increases, in 2013, in the discount rates used to determine the benefit obligations and greater expected return on plan assets resulting from an increased plan asset base. |
Pension Plans | ||||||||||||||||
(MILLIONS OF DOLLARS) | U.S. Qualified | U.S. Supplemental (Non-Qualified) | International | Postretirement Plans | ||||||||||||
Contributions from our general assets for the three months ended March 30, 2014 | $ | — | $ | 83 | $ | 87 | $ | 55 | ||||||||
Expected contributions from our general assets during 2014(a) | $ | 6 | $ | 176 | $ | 310 | $ | 239 | ||||||||
(a) | Contributions expected to be made for 2014 are inclusive of amounts contributed during the three months ended March 30, 2014. The U.S. supplemental (non-qualified) pension plan, international pension plan and the postretirement plan contributions from our general assets include direct employer benefit payments. |
The following table provides the detailed calculation of Earnings per common share (EPS): | ||||||||
Three Months Ended | ||||||||
(IN MILLIONS) | March 30, 2014 | March 31, 2013 | ||||||
EPS Numerator––Basic | ||||||||
Income from continuing operations | $ | 2,265 | $ | 2,616 | ||||
Less: Net income attributable to noncontrolling interests | 9 | 9 | ||||||
Income from continuing operations attributable to Pfizer Inc. | 2,256 | 2,607 | ||||||
Less: Preferred stock dividends––net of tax | — | — | ||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | 2,256 | 2,607 | ||||||
Discontinued operations––net of tax | 73 | 149 | ||||||
Less: Discontinued operations––net of tax, attributable to noncontrolling interests | — | 6 | ||||||
Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders | 73 | 143 | ||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 2,329 | $ | 2,750 | ||||
EPS Numerator––Diluted | ||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions | $ | 2,256 | $ | 2,607 | ||||
Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders and assumed conversions | 73 | 143 | ||||||
Net income attributable to Pfizer Inc. common shareholders and assumed conversions | $ | 2,329 | $ | 2,750 | ||||
EPS Denominator | ||||||||
Weighted-average number of common shares outstanding––Basic | 6,389 | 7,187 | ||||||
Common-share equivalents: stock options, stock issuable under employee compensation plans and convertible preferred stock | 87 | 82 | ||||||
Weighted-average number of common shares outstanding––Diluted | 6,476 | 7,269 | ||||||
Stock options that had exercise prices greater than the average market price of our common stock issuable under employee compensation plans(a) | 43 | 97 | ||||||
(a) | These common stock equivalents were outstanding for the three months ended March 30, 2014 and March 31, 2013, but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect. |
• | Patent litigation, which typically involves challenges to the coverage and/or validity of our patents on various products, processes or dosage forms. We are the plaintiff in the vast majority of these actions. An adverse outcome in actions in which we are the plaintiff could result in a loss of patent protection for the drug at issue, a significant loss of revenues from that drug and impairments of any associated assets. |
• | Product liability and other product-related litigation, which can include personal injury, consumer, off-label promotion, securities-law, antitrust and breach of contract claims, among others, often involves highly complex issues relating to medical causation, label warnings and reliance on those warnings, scientific evidence and findings, actual, provable injury and other matters. |
• | Commercial and other matters, which can include merger-related and product-pricing claims and environmental claims and proceedings, can involve complexities that will vary from matter to matter. |
• | Government investigations, which often are related to the extensive regulation of pharmaceutical companies by national, state and local government agencies in the U.S. and in other countries. |