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 and six months ended June 29, 2014 and June 30, 2013 | |
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 29, 2014 and June 30, 2013 | |
Condensed Consolidated Balance Sheets as of June 29, 2014 and December 31, 2013 | |
Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2014 and June 30, 2013 | |
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS, EXCEPT PER COMMON SHARE DATA) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Revenues | $ | 12,773 | $ | 12,973 | $ | 24,126 | $ | 25,383 | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of sales(a) | 2,462 | 2,242 | 4,507 | 4,505 | ||||||||||||
Selling, informational and administrative expenses(a) | 3,520 | 3,591 | 6,560 | 6,808 | ||||||||||||
Research and development expenses(a) | 1,759 | 1,530 | 3,382 | 3,240 | ||||||||||||
Amortization of intangible assets | 1,001 | 1,140 | 2,118 | 2,359 | ||||||||||||
Restructuring charges and certain acquisition-related costs | 81 | 183 | 139 | 314 | ||||||||||||
Other (income)/deductions––net | (53 | ) | (1,070 | ) | 570 | (925 | ) | |||||||||
Income from continuing operations before provision for taxes on income | 4,003 | 5,357 | 6,850 | 9,082 | ||||||||||||
Provision for taxes on income | 1,082 | 1,782 | 1,664 | 2,891 | ||||||||||||
Income from continuing operations | 2,921 | 3,575 | 5,186 | 6,191 | ||||||||||||
Discontinued operations: | ||||||||||||||||
Income from discontinued operations––net of tax | (2 | ) | 141 | 3 | 290 | |||||||||||
Gain on disposal of discontinued operations––net of tax | 2 | 10,418 | 70 | 10,418 | ||||||||||||
Discontinued operations––net of tax | — | 10,559 | 73 | 10,708 | ||||||||||||
Net income before allocation to noncontrolling interests | 2,921 | 14,134 | 5,259 | 16,899 | ||||||||||||
Less: Net income attributable to noncontrolling interests | 9 | 39 | 18 | 54 | ||||||||||||
Net income attributable to Pfizer Inc. | $ | 2,912 | $ | 14,095 | $ | 5,241 | $ | 16,845 | ||||||||
Earnings per common share––basic(b): | ||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.46 | $ | 0.51 | $ | 0.81 | $ | 0.87 | ||||||||
Discontinued operations––net of tax | — | 1.50 | 0.01 | 1.50 | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.46 | $ | 2.00 | $ | 0.82 | $ | 2.37 | ||||||||
Earnings per common share––diluted(b): | ||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.45 | $ | 0.50 | $ | 0.80 | $ | 0.86 | ||||||||
Discontinued operations––net of tax | — | 1.48 | 0.01 | 1.49 | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.45 | $ | 1.98 | $ | 0.81 | $ | 2.34 | ||||||||
Weighted-average shares––basic | 6,368 | 7,042 | 6,379 | 7,115 | ||||||||||||
Weighted-average shares––diluted | 6,444 | 7,117 | 6,460 | 7,185 | ||||||||||||
Cash dividends paid per common share | $ | 0.26 | $ | 0.24 | $ | 0.52 | $ | 0.48 | ||||||||
(a) | Excludes amortization of intangible assets, except as disclosed in Note 9B. Goodwill and Other Intangible Assets: Other Intangible Assets. |
(b) | EPS amounts may not add due to rounding. |
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Net income before allocation to noncontrolling interests | $ | 2,921 | $ | 14,134 | $ | 5,259 | $ | 16,899 | ||||||||
Foreign currency translation adjustments | $ | 233 | $ | (755 | ) | $ | 158 | $ | (1,047 | ) | ||||||
Reclassification adjustments(a) | — | 171 | (62 | ) | 171 | |||||||||||
233 | (584 | ) | 96 | (876 | ) | |||||||||||
Unrealized holding gains/(losses) on derivative financial instruments | 1 | 529 | (57 | ) | 133 | |||||||||||
Reclassification adjustments for realized (gains)/losses(b) | 74 | (224 | ) | 86 | 302 | |||||||||||
75 | 305 | 29 | 435 | |||||||||||||
Unrealized holding gains/(losses) on available-for-sale securities | (15 | ) | (178 | ) | 93 | (188 | ) | |||||||||
Reclassification adjustments for realized (gains)/losses(b) | (79 | ) | 74 | (178 | ) | (84 | ) | |||||||||
(94 | ) | (104 | ) | (85 | ) | (272 | ) | |||||||||
Benefit plans: actuarial gains/(losses), net | (11 | ) | 22 | (5 | ) | 44 | ||||||||||
Reclassification adjustments related to amortization(c) | 49 | 150 | 98 | 301 | ||||||||||||
Reclassification adjustments related to settlements, net(c) | 18 | 41 | 39 | 96 | ||||||||||||
Other | (9 | ) | 43 | (26 | ) | 140 | ||||||||||
47 | 256 | 106 | 581 | |||||||||||||
Benefit plans: prior service credits and other | — | — | — | 3 | ||||||||||||
Reclassification adjustments related to amortization(c) | (18 | ) | (13 | ) | (36 | ) | (29 | ) | ||||||||
Reclassification adjustments related to curtailments, net(c) | 15 | — | 11 | (9 | ) | |||||||||||
Other | — | (4 | ) | (1 | ) | (6 | ) | |||||||||
(3 | ) | (17 | ) | (26 | ) | (41 | ) | |||||||||
Other comprehensive income/(loss), before tax | 258 | (144 | ) | 120 | (173 | ) | ||||||||||
Tax provision/(benefit) on other comprehensive income/(loss)(d) | 5 | 187 | (12 | ) | 363 | |||||||||||
Other comprehensive income/(loss) before allocation to noncontrolling interests | $ | 253 | $ | (331 | ) | $ | 132 | $ | (536 | ) | ||||||
Comprehensive income before allocation to noncontrolling interests | $ | 3,174 | $ | 13,803 | $ | 5,391 | $ | 16,363 | ||||||||
Less: Comprehensive income attributable to noncontrolling interests | 24 | 18 | 31 | 30 | ||||||||||||
Comprehensive income attributable to Pfizer Inc. | $ | 3,150 | $ | 13,785 | $ | 5,360 | $ | 16,333 | ||||||||
(a) | Reclassified into Gain on disposal of discontinued operations—net of tax in the condensed consolidated statements of income. |
(b) | Reclassified into Other (income)/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: Tax Provision/(Benefit) on Other Comprehensive Income/(Loss). |
(MILLIONS OF DOLLARS) | June 29, 2014 | December 31, 2013 | ||||||
(Unaudited) | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | 3,406 | $ | 2,183 | ||||
Short-term investments | 30,648 | 30,225 | ||||||
Accounts receivable, less allowance for doubtful accounts | 10,388 | 9,357 | ||||||
Inventories | 6,249 | 6,166 | ||||||
Current deferred tax assets and other current tax assets | 4,869 | 4,624 | ||||||
Other current assets | 2,727 | 3,689 | ||||||
Total current assets | 58,287 | 56,244 | ||||||
Long-term investments | 17,168 | 16,406 | ||||||
Property, plant and equipment, less accumulated depreciation | 12,179 | 12,397 | ||||||
Goodwill | 42,661 | 42,519 | ||||||
Identifiable intangible assets, less accumulated amortization | 37,360 | 39,385 | ||||||
Noncurrent deferred tax assets and other noncurrent tax assets | 1,383 | 1,554 | ||||||
Other noncurrent assets | 3,574 | 3,596 | ||||||
Total assets | $ | 172,612 | $ | 172,101 | ||||
Liabilities and Equity | ||||||||
Short-term borrowings, including current portion of long-term debt | $ | 5,561 | $ | 6,027 | ||||
Accounts payable | 2,990 | 3,234 | ||||||
Dividends payable | 1,650 | 1,663 | ||||||
Income taxes payable | 760 | 678 | ||||||
Accrued compensation and related items | 1,631 | 1,792 | ||||||
Other current liabilities | 9,346 | 9,972 | ||||||
Total current liabilities | 21,938 | 23,366 | ||||||
Long-term debt | 32,267 | 30,462 | ||||||
Pension benefit obligations, net | 4,483 | 4,635 | ||||||
Postretirement benefit obligations, net | 2,621 | 2,668 | ||||||
Noncurrent deferred tax liabilities | 26,309 | 25,590 | ||||||
Other taxes payable | 3,800 | 3,993 | ||||||
Other noncurrent liabilities | 4,238 | 4,767 | ||||||
Total liabilities | 95,656 | 95,481 | ||||||
Commitments and Contingencies | ||||||||
Preferred stock | 31 | 33 | ||||||
Common stock | 454 | 453 | ||||||
Additional paid-in capital | 78,208 | 77,283 | ||||||
Treasury stock | (70,535 | ) | (67,923 | ) | ||||
Retained earnings | 71,627 | 69,732 | ||||||
Accumulated other comprehensive loss | (3,152 | ) | (3,271 | ) | ||||
Total Pfizer Inc. shareholders’ equity | 76,633 | 76,307 | ||||||
Equity attributable to noncontrolling interests | 323 | 313 | ||||||
Total equity | 76,956 | 76,620 | ||||||
Total liabilities and equity | $ | 172,612 | $ | 172,101 | ||||
Six Months Ended | ||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | ||||||
Operating Activities | ||||||||
Net income before allocation to noncontrolling interests | $ | 5,259 | $ | 16,899 | ||||
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 2,880 | 3,400 | ||||||
Asset write-offs, impairments and related charges | 189 | 648 | ||||||
Gain associated with the transfer of certain product rights to an equity-method investment | — | (459 | ) | |||||
Gain on disposal of discontinued operations | (66 | ) | (10,539 | ) | ||||
Deferred taxes from continuing operations | 853 | 1,254 | ||||||
Deferred taxes from discontinued operations | (2 | ) | (19 | ) | ||||
Share-based compensation expense | 281 | 292 | ||||||
Benefit plan contributions (in excess of)/less than expense | (124 | ) | 149 | |||||
Other non-cash adjustments, net | (299 | ) | (101 | ) | ||||
Other changes in assets and liabilities, net of acquisitions and divestitures | (1,949 | ) | (5,464 | ) | ||||
Net cash provided by operating activities | 7,022 | 6,060 | ||||||
Investing Activities | ||||||||
Purchases of property, plant and equipment | (570 | ) | (511 | ) | ||||
Purchases of short-term investments | (21,081 | ) | (21,663 | ) | ||||
Proceeds from redemptions and sales of short-term investments | 20,795 | 14,502 | ||||||
Net (purchases of)/proceeds from redemptions/sales of investments with original maturities of 90 days or less | 1,399 | (401 | ) | |||||
Purchases of long-term investments | (5,327 | ) | (5,233 | ) | ||||
Proceeds from redemptions and sales of long-term investments | 2,947 | 3,194 | ||||||
Acquisitions of businesses, net of cash acquired | — | (15 | ) | |||||
Acquisitions of intangible assets | (56 | ) | (127 | ) | ||||
Other investing activities | 288 | 171 | ||||||
Net cash used in investing activities | (1,605 | ) | (10,083 | ) | ||||
Financing Activities | ||||||||
Proceeds from short-term borrowings | 1 | 2,334 | ||||||
Principal payments on short-term borrowings | (7 | ) | (2,333 | ) | ||||
Net proceeds from/(payments on) short-term borrowings with original maturities of 90 days or less | (2,692 | ) | 2,251 | |||||
Proceeds from issuance of long-term debt(a) | 4,491 | 6,618 | ||||||
Principal payments on long-term debt | (752 | ) | (2,394 | ) | ||||
Purchases of common stock | (2,520 | ) | (7,889 | ) | ||||
Cash dividends paid | (3,320 | ) | (3,436 | ) | ||||
Proceeds from exercise of stock options | 583 | 1,175 | ||||||
Other financing activities | 43 | 74 | ||||||
Net cash used in financing activities | (4,173 | ) | (3,600 | ) | ||||
Effect of exchange-rate changes on cash and cash equivalents | (21 | ) | (22 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | 1,223 | (7,645 | ) | |||||
Cash and cash equivalents, beginning | 2,183 | 10,081 | ||||||
Cash and cash equivalents, end | $ | 3,406 | $ | 2,436 | ||||
Supplemental Cash Flow Information | ||||||||
Non-cash transactions: | ||||||||
Sale of subsidiary common stock (Zoetis) for Pfizer common stock(b) | $ | — | $ | 11,408 | ||||
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 (Hisun Pfizer)(c) | — | 1,233 | ||||||
Cash paid during the period for: | ||||||||
Income taxes | $ | 1,068 | $ | 1,305 | ||||
Interest | 996 | 1,103 | ||||||
(a) | In 2013, 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 2B. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Divestiture. |
(b) | See Note 2B. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Divestiture. |
(c) | See Note 2D. Acquisition, Divestiture, Collaborative Arrangement 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' 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 and recognized a gain on sale of approximately $10.4 billion, net of income taxes resulting from certain legal entity reorganizations, which was recorded in Gain on disposal of discontinued operations––net of tax in the condensed consolidated statements of income for the three and six months ended June 30, 2013. |
The following table provides the components of Discontinued operations—net of tax, virtually all of which relates to Zoetis: | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Revenues | $ | — | $ | 1,112 | $ | — | $ | 2,201 | ||||||||
Pre-tax income from discontinued operations | (3 | ) | 189 | 2 | 389 | |||||||||||
Provision for taxes on income(a) | (1 | ) | 48 | (1 | ) | 99 | ||||||||||
Income from discontinued operations––net of tax | (2 | ) | 141 | 3 | 290 | |||||||||||
Pre-tax gain on disposal of discontinued operations(b) | 2 | 10,539 | 66 | 10,539 | ||||||||||||
Provision for taxes on income(b), (c) | — | 121 | (4 | ) | 121 | |||||||||||
Gain on disposal of discontinued operations––net of tax(b) | 2 | 10,418 | 70 | 10,418 | ||||||||||||
Discontinued operations––net of tax | $ | — | $ | 10,559 | $ | 73 | $ | 10,708 | ||||||||
(a) | Includes deferred tax benefits of $2 million and $26 million for the three months ended June 29, 2014 and June 30, 2013, respectively, and deferred tax benefits of $2 million and $19 million for the six months ended June 29, 2014 and June 30, 2013, respectively. |
(b) | For the three and six months ended June 29, 2014, represents post-close adjustments. |
(c) | Reflects income taxes resulting from certain legal entity reorganizations. |
• | 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 ten 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 | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Restructuring charges(a): | ||||||||||||||||
Employee terminations | $ | 17 | $ | 136 | $ | 47 | $ | 115 | ||||||||
Asset impairments | 13 | 12 | 19 | 115 | ||||||||||||
Exit costs | 36 | 2 | 40 | 15 | ||||||||||||
Total restructuring charges | 66 | 150 | 106 | 245 | ||||||||||||
Integration costs(b) | 15 | 33 | 33 | 69 | ||||||||||||
Restructuring charges and certain acquisition-related costs | 81 | 183 | 139 | 314 | ||||||||||||
Additional depreciation––asset restructuring recorded in our condensed consolidated statements of income as follows(c): | ||||||||||||||||
Cost of sales | 72 | 58 | 146 | 91 | ||||||||||||
Selling, informational and administrative expenses | 1 | 8 | 1 | 19 | ||||||||||||
Research and development expenses | 29 | 3 | 29 | 94 | ||||||||||||
Total additional depreciation––asset restructuring | 102 | 69 | 176 | 204 | ||||||||||||
Implementation costs recorded in our condensed consolidated statements of income as follows(d): | ||||||||||||||||
Cost of sales | 22 | 5 | 28 | 11 | ||||||||||||
Selling, informational and administrative expenses | 38 | 34 | 53 | 65 | ||||||||||||
Research and development expenses | 16 | 7 | 27 | 9 | ||||||||||||
Total implementation costs | 76 | 46 | 108 | 85 | ||||||||||||
Total costs associated with acquisitions and cost-reduction/productivity initiatives | $ | 259 | $ | 298 | $ | 423 | $ | 603 | ||||||||
(a) | In the six months ended June 29, 2014, Employee terminations represent the expected reduction of the workforce by approximately 300 employees, mainly in manufacturing and sales. |
• | For the three months ended June 29, 2014, the Global Innovative Pharmaceutical segment (GIP) ($9 million), the Global Established Pharmaceutical segment (GEP) ($24 million), the Global Vaccines, Oncology and Consumer Healthcare segment (VOC) ($6 million), Worldwide Research and Development and Medical ($8 million), manufacturing operations ($12 million) and Corporate ($7 million). |
• | For the six months ended June 29, 2014, the Global Innovative Pharmaceutical segment (GIP) ($11 million), the Global Established Pharmaceutical segment (GEP) ($31 million), the Global Vaccines, Oncology and Consumer Healthcare segment (VOC) ($6 million), Worldwide Research and Development and Medical ($9 million), manufacturing operations ($38 million) and Corporate ($11 million). |
• | For the three months ended June 30, 2013, total operating segments ($54 million), Worldwide Research and Development and Medical ($12 million), manufacturing operations ($80 million) and Corporate ($4 million). |
• | For the six months ended June 30, 2013, total operating segments ($67 million), Worldwide Research and Development and Medical ($15 million), manufacturing operations ($82 million) and Corporate ($81 million). |
(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 | 47 | 19 | 40 | 106 | ||||||||||||
Utilization and other(b) | (239 | ) | (19 | ) | (69 | ) | (327 | ) | ||||||||
Balance, June 29, 2014(c) | $ | 1,493 | $ | — | $ | 65 | $ | 1,558 | ||||||||
(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 ($1.0 billion) and Other noncurrent liabilities ($550 million). |
The following table provides components of Other (income)/deductions––net: | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Interest income | $ | (104 | ) | $ | (102 | ) | $ | (196 | ) | $ | (197 | ) | ||||
Interest expense(a) | 343 | 356 | 664 | 727 | ||||||||||||
Net interest expense | 239 | 254 | 468 | 530 | ||||||||||||
Royalty-related income(b) | (239 | ) | (120 | ) | (487 | ) | (183 | ) | ||||||||
Patent litigation settlement income(c) | — | (1,351 | ) | — | (1,351 | ) | ||||||||||
Other legal matters, net(d) | (2 | ) | (12 | ) | 692 | (95 | ) | |||||||||
Gain associated with the transfer of certain product rights(e) | — | 31 | — | (459 | ) | |||||||||||
Net gains on asset disposals(f) | (33 | ) | (28 | ) | (214 | ) | (54 | ) | ||||||||
Certain asset impairments and related charges(g) | — | 127 | 115 | 525 | ||||||||||||
Costs associated with the Zoetis IPO(h) | — | — | — | 18 | ||||||||||||
Other, net | (18 | ) | 29 | (4 | ) | 144 | ||||||||||
Other (income)/deductions––net | $ | (53 | ) | $ | (1,070 | ) | $ | 570 | $ | (925 | ) | |||||
(a) | Interest expense decreased in the second quarter and first six months of 2014 primarily due to the benefit of the effective conversion of some fixed-rate liabilities to floating-rate liabilities. |
(b) | Royalty-related income increased in the second quarter and first six months of 2014 primarily 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 Pfizer became entitled to royalties for a 36-month period. |
(c) | In 2013, reflects income from a litigation settlement with Teva Pharmaceuticals Industries Ltd. (Teva) and Sun Pharmaceutical Industries Ltd. (Sun) for patent-infringement damages resulting from their "at-risk" launches of generic Protonix in the U.S. As of June 29, 2014, approximately $256 million is not yet due and is included in Other current assets. |
(d) | In the first six months of 2014, primarily includes approximately $620 million for Neurontin-related matters (including off-label promotion actions and antitrust actions) and approximately $55 million for an Effexor-related matter. In the first six months 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. |
(e) | In the first six months of 2013, 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 2D. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Equity-Method Investments. |
(f) | In the first six months of 2014, primarily includes gains on sales of product rights (approximately $96 million) and gains on sales of investments in equity securities (approximately $98 million). |
(g) | In the first six months of 2014, includes intangible asset impairment charges 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 six months 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 six months of 2013, includes intangible asset impairment charges of $489 million, primarily reflecting (i) $394 million of developed technology rights (for use in the development of bone and cartilage) acquired in connection with our acquisition of Wyeth, and (ii) $81 million related to two IPR&D compounds. The intangible asset impairment charges for 2013 reflect, among other things, updated commercial forecasts. The impairment charges for the first six months of 2013 are associated with the following: Global |
(h) | Represents 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 2B. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Divestiture. |
The following table provides additional information about the intangible assets that were impaired during the first six months of 2014 in Other (income)/deductions––net: | ||||||||||||||||||||
Fair Value(a) | Six Months Ended June 29, 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 six 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. |
• | the non-recurrence in the second quarter of 2014 of the unfavorable impact of the tax rate associated with the patent litigation settlement income in the second quarter of 2013; |
• | the favorable impact of the resolution in the second quarter of 2014 of certain tax positions, pertaining to prior years with various foreign tax authorities, and from the expiration of certain statutes of limitations; and |
• | the change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, |
• | the expiration of the U.S. research and development (R&D) tax credit on December 31, 2013. |
• | the favorable impact of the resolution in the first six months of 2014 of certain tax positions, pertaining to prior years primarily with various foreign tax authorities, and from the expiration of certain statutes of limitations; |
• | the non-recurrence in the first six months of 2014 of the unfavorable tax impact associated with the non-deductibility of the goodwill derecognized and the jurisdictional mix of the other intangible assets divested as part of the transfer of certain product rights to our 49%-owned equity-method investment with Hisun in China in the first six months of 2013; |
• | the non-recurrence in the first six months of 2014 of the unfavorable impact of the tax rate associated with the patent litigation settlement income in the first six months of 2013; and |
• | the change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, |
• | the expiration of the U.S. R&D tax credit on December 31, 2013. |
• | 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 income/(loss): | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Foreign currency translation adjustments(a) | $ | (3 | ) | $ | 19 | $ | (10 | ) | $ | 90 | ||||||
Unrealized holding gains/(losses) on derivative financial instruments | 1 | 135 | (16 | ) | (20 | ) | ||||||||||
Reclassification adjustments for realized (gains)/losses | 9 | (89 | ) | 8 | 78 | |||||||||||
10 | 46 | (8 | ) | 58 | ||||||||||||
Unrealized holding gains/(losses) on available-for-sale securities | (4 | ) | 4 | 23 | 15 | |||||||||||
Reclassification adjustments for realized (gains)/losses | (11 | ) | 31 | (40 | ) | 6 | ||||||||||
(15 | ) | 35 | (17 | ) | 21 | |||||||||||
Benefit plans: actuarial gains/(losses), net | (3 | ) | 5 | (2 | ) | 11 | ||||||||||
Reclassification adjustments related to amortization | 16 | 52 | 32 | 106 | ||||||||||||
Reclassification adjustments related to settlements, net | 7 | 16 | 15 | 36 | ||||||||||||
Other | 5 | 21 | (7 | ) | 58 | |||||||||||
25 | 94 | 38 | 211 | |||||||||||||
Benefit plans: prior service credits and other | — | 2 | — | 1 | ||||||||||||
Reclassification adjustments related to amortization | (7 | ) | (6 | ) | (14 | ) | (12 | ) | ||||||||
Reclassification adjustments related to curtailments, net | 2 | (1 | ) | 1 | (4 | ) | ||||||||||
Other | (7 | ) | (2 | ) | (2 | ) | (2 | ) | ||||||||
(12 | ) | (7 | ) | (15 | ) | (17 | ) | |||||||||
Tax provision/(benefit) on other comprehensive income/(loss) | $ | 5 | $ | 187 | $ | (12 | ) | $ | 363 | |||||||
(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) | 93 | 37 | (68 | ) | 68 | (11 | ) | 119 | ||||||||||||||||
Balance, June 29, 2014 | $ | (497 | ) | $ | 116 | $ | 82 | $ | (3,155 | ) | $ | 302 | $ | (3,152 | ) | |||||||||
(a) | Amounts do not include foreign currency translation income of $13 million attributable to noncontrolling interests for the first six months of 2014. |
The following table provides additional information about certain of our financial assets and liabilities: | ||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | December 31, 2013 | ||||||
Selected financial assets measured at fair value on a recurring basis(a) | ||||||||
Trading securities(b) | $ | 105 | $ | 126 | ||||
Available-for-sale debt securities(c) | 36,189 | 34,899 | ||||||
Available-for-sale money market funds | 1,474 | 945 | ||||||
Available-for-sale equity securities, excluding money market funds(c) | 306 | 356 | ||||||
Derivative financial instruments in receivable positions(d): | ||||||||
Interest rate swaps | 555 | 468 | ||||||
Foreign currency swaps | 637 | 871 | ||||||
Foreign currency forward-exchange contracts | 122 | 172 | ||||||
39,388 | 37,837 | |||||||
Other selected financial assets | ||||||||
Held-to-maturity debt securities, carried at amortized cost(c), (e) | 9,001 | 9,139 | ||||||
Private equity securities, carried at equity-method or at cost(e), (f) | 2,171 | 2,270 | ||||||
11,172 | 11,409 | |||||||
Total selected financial assets | $ | 50,560 | $ | 49,246 | ||||
Selected financial liabilities measured at fair value on a recurring basis(a) | ||||||||
Derivative financial instruments in a liability position(g): | ||||||||
Interest rate swaps | $ | 90 | $ | 301 | ||||
Foreign currency swaps | 182 | 110 | ||||||
Foreign currency forward-exchange contracts | 119 | 219 | ||||||
391 | 630 | |||||||
Other selected financial liabilities(h) | ||||||||
Short-term borrowings, carried at historical proceeds, as adjusted(e) | 5,561 | 6,027 | ||||||
Long-term debt, carried at historical proceeds, as adjusted(i), (j) | 32,267 | 30,462 | ||||||
37,828 | 36,489 | |||||||
Total selected financial liabilities | $ | 38,219 | $ | 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 benefits attributable to the former Pharmacia Savings Plus Plan. |
(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 $14 million and foreign currency forward-exchange contracts with fair values of $61 million as of June 29, 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 June 29, 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 contracts used as offsets; namely, foreign currency swaps with fair values of $90 million and foreign currency forward-exchange contracts with fair values of $57 million as of June 29, 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 $669 million as of June 29, 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 $37.0 billion as of June 29, 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. Generally, the difference between the fair value of our long-term debt and the amount reported on the condensed consolidated balance sheet is due to a decline in relative market interest rates since the debt issuance. |
The following table provides the classification of these selected financial assets and liabilities in the condensed consolidated balance sheets: | ||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | December 31, 2013 | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | 1,430 | $ | 1,104 | ||||
Short-term investments | 30,648 | 30,225 | ||||||
Long-term investments | 17,168 | 16,406 | ||||||
Other current assets(a) | 203 | 286 | ||||||
Other noncurrent assets(b) | 1,111 | 1,225 | ||||||
$ | 50,560 | $ | 49,246 | |||||
Liabilities | ||||||||
Short-term borrowings, including current portion of long-term debt | $ | 5,561 | $ | 6,027 | ||||
Other current liabilities(c) | 215 | 303 | ||||||
Long-term debt | 32,267 | 30,462 | ||||||
Other noncurrent liabilities(d) | 176 | 327 | ||||||
$ | 38,219 | 37,119 | ||||||
(a) | As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($73 million), foreign currency swaps ($8 million) and foreign currency forward-exchange contracts ($122 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 June 29, 2014, derivative instruments at fair value include interest rate swaps ($482 million) and foreign currency swaps ($629 million) and, as of December 31, 2013, include interest rate swaps ($378 million) and foreign currency swaps ($847 million). |
(c) | As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($2 million), foreign currency swaps ($94 million) and foreign currency forward-exchange contracts ($119 million) and, as of December 31, 2013, include foreign currency swaps ($84 million) and foreign currency forward-exchange contracts ($219 million). |
(d) | As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($88 million) and foreign currency swaps ($88 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 | June 29, 2014 | |||||||||||||||||||
(MILLIONS OF DOLLARS) | Within 1 | Over 1 to 5 | Over 5 to 10 | Over 10 | Total | |||||||||||||||
Available-for-sale debt securities | ||||||||||||||||||||
Western European, Japanese and other government debt(a) | $ | 12,844 | $ | 2,406 | $ | — | $ | 1 | $ | 15,251 | ||||||||||
Corporate debt(b) | 2,306 | 5,018 | 1,581 | 265 | 9,170 | |||||||||||||||
U.S. government debt | 2,151 | 782 | 10 | — | 2,943 | |||||||||||||||
Western European, Scandinavian, Australian and other government agency debt(a) | 1,965 | 367 | — | — | 2,332 | |||||||||||||||
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities | — | 1,924 | — | — | 1,924 | |||||||||||||||
Reverse repurchase agreements(c) | 1,767 | — | — | — | 1,767 | |||||||||||||||
Supranational debt(a) | 638 | 1,040 | — | — | 1,678 | |||||||||||||||
Government National Mortgage Association and other U.S. government guaranteed asset-backed securities | 18 | 775 | — | 331 | 1,124 | |||||||||||||||
Held-to-maturity debt securities | ||||||||||||||||||||
Western European, Scandinavian and other government debt(a) | 5,547 | — | — | — | 5,547 | |||||||||||||||
Western European, Scandinavian and other government agency debt,(a) time deposits and other | 3,368 | 63 | 23 | — | 3,454 | |||||||||||||||
Total debt securities | $ | 30,604 | $ | 12,375 | $ | 1,614 | $ | 597 | $ | 45,190 | ||||||||||
(a) | Issued by governments, government agencies or supranational entities, as applicable, all of which are investment-grade. |
(b) | Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment-grade. |
(c) | Involving U.S. securities. |
The following table provides the components of the senior unsecured long-term debt issued in the second quarter of 2014: | ||||||
(MILLIONS OF DOLLARS) | Maturity Date | As of June 29, 2014 | ||||
1.1% Notes(a), (b) | May 2017 | $ | 1,000 | |||
2.1% Notes(a), (b) | May 2019 | 1,500 | ||||
3.4% Notes(a), (b) | May 2024 | 1,000 | ||||
4.4% Notes(a), (b) | May 2044 | 500 | ||||
Three-month U.S. dollar London Interbank Offering Rate (LIBOR) plus 0.15% Notes(c) | May 2017 | 500 | ||||
Total long-term debt issued in the second quarter of 2014 | $ | 4,500 | ||||
(a) | Interest is payable semi-annually beginning November 15, 2014. |
(b) | The notes are redeemable, in whole or in part, at any time at Pfizer's option, at a redemption price equal to the greater of 100% of the principal amount of the notes being redeemed on the redemption date, or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus an incremental percentage, depending on the issuance; plus, in each case, accrued and unpaid interest. |
(c) | Interest is payable quarterly beginning August 15, 2014. |
(MILLIONS OF DOLLARS) | 2015 | 2016 | 2017 | 2018 | After 2018 | TOTAL | ||||||||||||||||||
Maturities | $ | — | $ | 4,394 | $ | 4,136 | $ | 2,412 | $ | 21,325 | $ | 32,267 | ||||||||||||
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) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||
Derivative Financial Instruments in Cash Flow Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | $ | — | $ | — | $ | (3 | ) | $ | 268 | $ | 2 | $ | 131 | |||||||||||
Foreign currency forward-exchange contracts | — | — | 4 | 261 | (76 | ) | 93 | |||||||||||||||||
Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | — | — | (3 | ) | 16 | — | — | |||||||||||||||||
Derivative Financial Instruments Not Designated as Hedges: | ||||||||||||||||||||||||
Foreign currency forward-exchange contracts | 32 | (21 | ) | — | — | — | — | |||||||||||||||||
Foreign currency swaps | 3 | 5 | — | — | — | — | ||||||||||||||||||
Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency long-term debt | — | — | (8 | ) | 34 | — | — | |||||||||||||||||
$ | 35 | $ | (16 | ) | $ | (10 | ) | $ | 579 | $ | (74 | ) | $ | 224 | ||||||||||
Six Months Ended | ||||||||||||||||||||||||
Derivative Financial Instruments in Cash Flow Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | $ | — | $ | — | $ | (18 | ) | $ | (181 | ) | $ | 11 | $ | (251 | ) | |||||||||
Foreign currency forward-exchange contracts | — | — | (39 | ) | 314 | (97 | ) | (51 | ) | |||||||||||||||
Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | — | (3 | ) | (11 | ) | 139 | — | — | ||||||||||||||||
Derivative Financial Instruments Not Designated as Hedges: | ||||||||||||||||||||||||
Foreign currency forward-exchange contracts | 20 | 128 | — | — | — | — | ||||||||||||||||||
Foreign currency swaps | — | 1 | — | — | — | — | ||||||||||||||||||
Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency long-term debt | — | — | (22 | ) | 97 | — | — | |||||||||||||||||
All other net | (3 | ) | — | — | — | — | — | |||||||||||||||||
$ | 17 | |||||||||||||||||||||||