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DELAWARE
(State of Incorporation)
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13-5315170
(I.R.S. Employer Identification No.)
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YES X
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NO ___
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YES X
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NO ___
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YES ____
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NO X
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4
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5
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44
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45
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84
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84
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84
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85
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86
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86
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86
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86
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86
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87
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Three Months Ended
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Six Months Ended
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|||||||||||||||
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(MILLIONS, EXCEPT PER COMMON SHARE DATA)
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July 1,
2012
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July 3,
2011
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July 1,
2012
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July 3,
2011
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||||||||||||
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||||||||||||||||
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Revenues
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$ | 15,057 | $ | 16,485 | $ | 29,942 | $ | 32,509 | ||||||||
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Costs and expenses:
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||||||||||||||||
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Cost of sales(a)
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2,752 | 3,571 | 5,497 | 7,040 | ||||||||||||
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Selling, informational and administrative expenses(a)
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3,977 | 4,800 | 7,954 | 9,178 | ||||||||||||
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Research and development expenses(a)
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1,699 | 2,231 | 3,753 | 4,311 | ||||||||||||
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Amortization of intangible assets
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1,291 | 1,384 | 2,711 | 2,749 | ||||||||||||
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Restructuring charges and certain acquisition-related costs
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190 | 478 | 787 | 1,368 | ||||||||||||
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Other deductions––net
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664 | 423 | 2,321 | 1,255 | ||||||||||||
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Income from continuing operations before provision for taxes on income
|
4,484 | 3,598 | 6,919 | 6,608 | ||||||||||||
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Provision for taxes on income
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1,290 | 1,077 | 2,001 | 1,951 | ||||||||||||
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Income from continuing operations
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3,194 | 2,521 | 4,918 | 4,657 | ||||||||||||
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Discontinued operations––net of tax
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66 | 97 | 145 | 195 | ||||||||||||
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Net income before allocation to noncontrolling interests
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3,260 | 2,618 | 5,063 | 4,852 | ||||||||||||
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Less: Net income attributable to noncontrolling interests
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7 | 8 | 16 | 20 | ||||||||||||
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Net income attributable to Pfizer Inc.
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$ | 3,253 | $ | 2,610 | $ | 5,047 | $ | 4,832 | ||||||||
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Earnings per common share––basic:(b)
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||||||||||||||||
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Income from continuing operations attributable to Pfizer Inc.
common shareholders
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$ | 0.43 | $ | 0.32 | $ | 0.65 | $ | 0.58 | ||||||||
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Discontinued operations––net of tax
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0.01 | 0.01 | 0.02 | 0.02 | ||||||||||||
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Net income attributable to Pfizer Inc. common shareholders
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$ | 0.44 | $ | 0.33 | $ | 0.67 | $ | 0.61 | ||||||||
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Earnings per common share––diluted:(b)
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||||||||||||||||
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Income from continuing operations attributable to Pfizer Inc.
common shareholders
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$ | 0.42 | $ | 0.32 | $ | 0.65 | $ | 0.58 | ||||||||
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Discontinued operations––net of tax
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0.01 | 0.01 | 0.02 | 0.02 | ||||||||||||
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Net income attributable to Pfizer Inc. common shareholders
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$ | 0.43 | $ | 0.33 | $ | 0.67 | $ | 0.61 | ||||||||
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Weighted-average shares––Basic
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7,476 | 7,875 | 7,506 | 7,929 | ||||||||||||
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Weighted-average shares––Diluted
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7,537 | 7,935 | 7,570 | 7,980 | ||||||||||||
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Cash dividends paid per common share
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$ | 0.22 | $ | 0.20 | $ | 0.44 | $ | 0.40 | ||||||||
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(a)
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Exclusive of amortization of intangible assets, except as disclosed in Note 9B. Goodwill and Other Intangible Assets: Other Intangible Assets.
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(b)
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EPS amounts may not add due to rounding.
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Three Months Ended
|
Six Months Ended
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|||||||||||||||
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(MILLIONS OF DOLLARS)
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July 1,
2012
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July 3,
2011
|
July 1,
2012
|
July 3,
2011
|
||||||||||||
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||||||||||||||||
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Net income before allocation to noncontrolling interests
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$ | 3,260 | $ | 2,618 | $ | 5,063 | $ | 4,852 | ||||||||
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Other Comprehensive Income/(Loss)
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||||||||||||||||
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Foreign currency translation adjustments
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$ | (1,981 | ) | $ | 956 | $ | (1,718 | ) | $ | 2,546 | ||||||
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Reclassification adjustments(a)
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–– | –– | –– | (7 | ) | |||||||||||
| (1,981 | ) | 956 | (1,718 | ) | 2,539 | |||||||||||
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Unrealized holding gains/(losses) on derivative financial instruments
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(657 | ) | 228 | (230 | ) | 535 | ||||||||||
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Reclassification adjustments for realized (gains)/losses(a)
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427 | (224 | ) | 127 | (734 | ) | ||||||||||
| (230 | ) | 4 | (103 | ) | (199 | ) | ||||||||||
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Unrealized holding gains/(losses) on available-for-sale securities
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12 | 17 | 92 | (20 | ) | |||||||||||
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Reclassification adjustments for realized (gains)/losses(a)
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16 | (1 | ) | 33 | 9 | |||||||||||
| 28 | 16 | 125 | (11 | ) | ||||||||||||
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Benefit plans: Actuarial gains/(losses)
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(505 | ) | 3 | (504 | ) | 3 | ||||||||||
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Reclassification adjustments related to amortization(b)
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113 | 70 | 230 | 140 | ||||||||||||
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Reclassification adjustments related to curtailments and settlements, net(b)
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(8 | ) | 122 | 112 | 173 | |||||||||||
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Other
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39 | (57 | ) | 54 | (144 | ) | ||||||||||
| (361 | ) | 138 | (108 | ) | 172 | |||||||||||
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Benefit plans: Prior service credits and other
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26 | –– | 26 | 1 | ||||||||||||
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Reclassification adjustments related to amortization(b)
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(17 | ) | (17 | ) | (36 | ) | (35 | ) | ||||||||
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Reclassification adjustments related to curtailments and settlements, net(b)
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(73 | ) | (22 | ) | (82 | ) | (33 | ) | ||||||||
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Other
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–– | (1 | ) | (2 | ) | (4 | ) | |||||||||
| (64 | ) | (40 | ) | (94 | ) | (71 | ) | |||||||||
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Other comprehensive income/(loss), before tax
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(2,608 | ) | 1,074 | (1,898 | ) | 2,430 | ||||||||||
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Tax benefit on other comprehensive income/(loss)(c)
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(205 | ) | (32 | ) | (1 | ) | (60 | ) | ||||||||
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Other comprehensive income/(loss) before allocation to noncontrolling interests
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$ | (2,403 | ) | $ | 1,106 | $ | (1,897 | ) | $ | 2,490 | ||||||
| Comprehensive Income | ||||||||||||||||
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Comprehensive income before allocation to noncontrolling interests
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$ | 857 | $ | 3,724 | $ | 3,166 | $ | 7,342 | ||||||||
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Less: Comprehensive income/(loss) attributable to noncontrolling interests
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(10 | ) | 12 | (2 | ) | 28 | ||||||||||
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Comprehensive income attributable to Pfizer Inc.
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$ | 867 | $ | 3,712 | $ | 3,168 | $ | 7,314 | ||||||||
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(a)
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Reclassified into Other deductions—net in the condensed consolidated statements of income.
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(b)
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Generally reclassified into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate in the condensed consolidated statements of income.
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(c)
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See Note 5B. Tax Matters: Taxes on Items of Other Comprehensive Income/(Loss).
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(millions of dollars)
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July 1,
2012
|
Dec. 31,
2011
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||||||
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(Unaudited)
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||||||||
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Assets
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||||||||
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Cash and cash equivalents
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$ | 3,031 | $ | 3,182 | ||||
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Short-term investments
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21,275 | 23,270 | ||||||
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Accounts receivable, less allowance for doubtful accounts
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12,882 | 13,058 | ||||||
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Inventories
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7,001 | 6,610 | ||||||
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Taxes and other current assets
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9,215 | 9,380 | ||||||
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Assets of discontinued operations and other assets held for sale
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5,361 | 5,317 | ||||||
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Total current assets
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58,765 | 60,817 | ||||||
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Long-term investments
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10,548 | 9,814 | ||||||
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Property, plant and equipment, less accumulated depreciation
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14,756 | 15,921 | ||||||
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Goodwill
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44,568 | 44,569 | ||||||
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Identifiable intangible assets, less accumulated amortization
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48,399 | 51,184 | ||||||
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Taxes and other noncurrent assets
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5,806 | 5,697 | ||||||
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Total assets
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$ | 182,842 | $ | 188,002 | ||||
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Liabilities and Equity
|
||||||||
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Short-term borrowings, including current portion of long-term debt
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$ | 7,703 | $ | 4,016 | ||||
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Accounts payable
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3,165 | 3,678 | ||||||
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Dividends payable
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1,826 | 1,796 | ||||||
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Income taxes payable
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2,098 | 1,009 | ||||||
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Accrued compensation and related items
|
1,493 | 2,120 | ||||||
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Other current liabilities
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13,215 | 15,066 | ||||||
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Liabilities of discontinued operations
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1,298 | 1,224 | ||||||
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Total current liabilities
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30,798 | 28,909 | ||||||
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Long-term debt
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30,868 | 34,926 | ||||||
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Pension benefit obligations
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6,484 | 6,341 | ||||||
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Postretirement benefit obligations
|
3,309 | 3,344 | ||||||
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Noncurrent deferred tax liabilities
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18,487 | 18,861 | ||||||
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Other taxes payable
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7,099 | 6,886 | ||||||
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Other noncurrent liabilities
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5,836 | 6,114 | ||||||
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Total liabilities
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102,881 | 105,381 | ||||||
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Commitments and Contingencies
|
||||||||
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Preferred stock
|
42 | 45 | ||||||
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Common stock
|
447 | 445 | ||||||
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Additional paid-in capital
|
72,027 | 71,423 | ||||||
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Employee benefit trusts
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(2 | ) | (3 | ) | ||||
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Treasury stock
|
(34,863 | ) | (31,801 | ) | ||||
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Retained earnings
|
47,904 | 46,210 | ||||||
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Accumulated other comprehensive loss
|
(6,008 | ) | (4,129 | ) | ||||
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Total Pfizer Inc. shareholders’ equity
|
79,547 | 82,190 | ||||||
|
Equity attributable to noncontrolling interests
|
414 | 431 | ||||||
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Total equity
|
79,961 | 82,621 | ||||||
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Total liabilities and equity
|
$ | 182,842 | $ | 188,002 | ||||
|
Six Months Ended
|
||||||||
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(millions of dollars)
|
July 1,
2012
|
July 3,
2011
|
||||||
|
Operating Activities
|
||||||||
|
Net income before allocation to noncontrolling interests
|
$ | 5,063 | $ | 4,852 | ||||
|
Adjustments to reconcile net income before allocation to noncontrolling interests to net
cash provided by operating activities:
|
||||||||
|
Depreciation and amortization
|
4,002 | 4,353 | ||||||
|
Share-based compensation expense
|
247 | 244 | ||||||
|
Asset write-offs and impairment charges
|
758 | 573 | ||||||
|
Deferred taxes from continuing operations
|
(120 | ) | 505 | |||||
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Other deferred taxes
|
14
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(7
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) | |||||
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Benefit plan contributions in excess of expense
|
(20 | ) | (249 | ) | ||||
|
Other non-cash adjustments, net
|
(114 | ) | 10 | |||||
|
Other changes in assets and liabilities, net of acquisitions and divestitures
|
(3,035 | ) | 259 | |||||
|
Net cash provided by operating activities
|
6,795 | 10,540 | ||||||
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Investing Activities
|
||||||||
|
Purchases of property, plant and equipment
|
(548 | ) | (608 | ) | ||||
|
Purchases of short-term investments
|
(10,395 | ) | (6,559 | ) | ||||
|
Proceeds from redemptions and sales of short-term investments
|
14,357 | 4,643 | ||||||
|
Net proceeds from/(payments for) redemptions and sales of short-term investments with
original maturities of 90 days or less
|
(999 | ) | 8,327 | |||||
|
Purchases of long-term investments
|
(2,317 | ) | (3,193 | ) | ||||
|
Proceeds from redemptions and sales of long-term investments
|
304 | 1,572 | ||||||
|
Acquisitions, net of cash acquired
|
(782 | ) | (3,169 | ) | ||||
|
Other investing activities
|
(56 | ) | 73 | |||||
|
Net cash provided by/(used in) investing activities
|
(436 | ) | 1,086 | |||||
|
Financing Activities
|
||||||||
|
Proceeds from short-term borrowings
|
3,764 | 4,868 | ||||||
|
Principal payments on short-term borrowings
|
(2 | ) | (2,483 | ) | ||||
|
Net payments on short-term borrowings with original maturities of 90 days or less
|
(4,146 | ) | (2,452 | ) | ||||
|
Principal payments on long-term debt
|
(7 | ) | (3,481 | ) | ||||
|
Purchases of common stock
|
(2,999 | ) | (3,679 | ) | ||||
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Cash dividends paid
|
(3,283 | ) | (3,159 | ) | ||||
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Other financing activities
|
198 | 64 | ||||||
|
Net cash used in financing activities
|
(6,475 | ) | (10,322 | ) | ||||
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Effect of exchange-rate changes on cash and cash equivalents
|
(35 | ) | 57 | |||||
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Net increase/(decrease) in cash and cash equivalents
|
(151 | ) | 1,361 | |||||
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Cash and cash equivalents, beginning
|
3,182 | 1,735 | ||||||
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Cash and cash equivalents, end
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$ | 3,031 | $ | 3,096 | ||||
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Supplemental Cash Flow Information
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||||||||
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Cash paid during the period for:
|
||||||||
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Income taxes
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$ | 1,127 | $ | 737 | ||||
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Interest
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1,194 | 1,337 | ||||||
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●
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Presentation of comprehensive income in financial statements. As a result of adopting this new standard, we have presented separate Condensed Consolidated Statements of Comprehensive Income.
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●
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An amendment to the guidelines on the measurement and disclosure of fair value that is consistent between U.S. GAAP and International Financial Reporting Standards. The adoption of this new standard did not have a significant impact on our financial statements.
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●
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Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).
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●
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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).
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●
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Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).
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(millions of dollars)
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Amounts
Recognized as of
Acquisition Date
(Final)
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|||
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Working capital, excluding inventories
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$ | 155 | ||
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Inventories
|
340 | |||
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Property, plant and equipment
|
412 | |||
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Identifiable intangible assets, excluding in-process research and development
|
1,806 | |||
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In-process research and development
|
303 | |||
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Net tax accounts
|
(328 | ) | ||
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All other long-term assets and liabilities, net
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102 | |||
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Total identifiable net assets
|
2,790 | |||
|
Goodwill(a)
|
765 | |||
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Net assets acquired/total consideration transferred
|
$ | 3,555 | ||
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(a)
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Goodwill recorded as of the acquisition date totaled $720 million for our three biopharmaceutical operating segments and $45 million for our Animal Health and Consumer Healthcare operating segment. (Since the acquisition of King, we have revised our operating segments. See Note 13A. Segment, Geographic and Other Revenue Information: Segment Information.)
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●
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the expected synergies and other benefits that we believed would result from combining the operations of King with the operations of Pfizer;
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●
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any intangible assets that did not qualify for separate recognition, as well as future, yet unidentified projects and products; and
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●
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the value of the going-concern element of King’s existing businesses (the higher rate of return on the assembled collection of net assets versus if Pfizer had acquired all of the net assets separately).
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(millions of dollars)
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King’s Operations
Included in Pfizer’s
Six-Month
2011 Results
|
|||
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Revenues(a)
|
$ | 581 | ||
|
Loss from continuing operations attributable to Pfizer Inc. common shareholders(a), (b)
|
(74 | ) | ||
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(a)
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From January 31, 2011 (the acquisition date) through Pfizer’s second-quarter 2011 domestic and international quarter-ends.
|
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(b)
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Includes purchase accounting adjustments related to the fair value adjustments for acquisition-date inventory estimated to have been sold ($119 million pre-tax), amortization of identifiable intangible assets acquired from King ($71 million pre-tax) and restructuring and integration costs ($159 million pre-tax).
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|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
(millions of dollars)
|
July 1,
2012
|
July 3,
2011
|
July 1,
2012
|
July 3,
2011
|
||||||||||||
|
Revenues(a)
|
$ | 581 | $ | 714 | $ | 1,101 | $ | 1,369 | ||||||||
|
Income from discontinued operations before provision for taxes
on income
|
$ | 119 | $ | 128 | $ | 237 | $ | 263 | ||||||||
|
Provision for taxes on income(b)
|
(53 | ) | (31 | ) | (92 | ) | (68 | ) | ||||||||
|
Discontinued operations––net of tax(a)
|
$ | 66 | $ | 97 | $ | 145 | $ | 195 | ||||||||
|
(a)
|
Includes the Nutrition business for all periods presented and the Capsugel business for 2011 only.
|
|
(b)
|
Includes deferred tax expense (includes deferred taxes related to investments in certain foreign subsidiaries resulting from our intention not to hold these subsidiaries permanent in duration) of $22 million and a deferred tax benefit of $4 million for the three months ended July 1, 2012 and July 3, 2011, respectively, and a deferred tax expense of $14 million and a deferred tax benefit of $7 million for the six months ended July 1, 2012 and July 3, 2011, respectively.
|
|
(millions of dollars)
|
July 1,
2012
|
Dec. 31,
2011
|
||||||
|
Accounts receivable, less allowance for doubtful accounts
|
$ | 559 | $ | 550 | ||||
|
Inventories
|
366 | 359 | ||||||
|
Prepaid assets
|
40 | 45 | ||||||
|
Current deferred tax assets and other current assets
|
44 | 15 | ||||||
|
Property, plant and equipment, less accumulated depreciation
|
1,138 | 1,118 | ||||||
|
Goodwill
|
495 | 498 | ||||||
|
Identifiable intangible assets, less accumulated amortization
|
2,620 | 2,648 | ||||||
|
Deposits advances and other assets
|
32 | 47 | ||||||
|
Deferred charges
|
21 | 23 | ||||||
|
Noncurrent deferred tax assets and other noncurrent assets
|
46 | 14 | ||||||
|
Assets of discontinued operations and other assets held for sale
|
$ | 5,361 | $ | 5,317 | ||||
|
Current liabilities
|
$ | 427 | $ | 385 | ||||
|
Other liabilities
|
871 | 839 | ||||||
|
Liabilities of discontinued operations
|
$ | 1,298 | $ | 1,224 | ||||
|
|
●
|
In connection with our cost-reduction and productivity initiatives, significant programs of which began in 2005, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems; and
|
|
|
●
|
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).
|
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
(millions of dollars)
|
July 1,
2012
|
July 3,
2011
|
July 1,
2012
|
July 3,
2011
|
||||||||||||
|
Transaction costs(a)
|
$ | 1 | $ | 13 | $ | 1 | $ | 23 | ||||||||
|
Integration costs(b)
|
108 | 199 | 208 | 378 | ||||||||||||
|
Restructuring charges(c):
|
||||||||||||||||
|
Employee termination costs
|
44 | 189 | 311 | 853 | ||||||||||||
|
Asset impairments
|
29 | 33 | 247 | 58 | ||||||||||||
|
Exit costs
|
8 | 44 | 20 | 56 | ||||||||||||
|
Restructuring charges and certain acquisition-related costs
|
190 | 478 | 787 | 1,368 | ||||||||||||
|
Additional depreciation––asset restructuring recorded in our
condensed consolidated statements of income as follows(d):
|
||||||||||||||||
|
Cost of sales
|
57 | 171 | 136 | 343 | ||||||||||||
|
Selling, informational and administrative expenses
|
5 | 22 | 6 | 29 | ||||||||||||
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Research and development expenses
|
–– | 167 | 259 | 230 | ||||||||||||
|
Total additional depreciation––asset restructuring
|
62 | 360 | 401 | 602 | ||||||||||||
|
Implementation costs recorded in our condensed consolidated
statements of income as follows(e):
|
||||||||||||||||
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Cost of sales
|
4 | –– | 4 | –– | ||||||||||||
|
Selling, informational and administrative expenses
|
15 | –– | 31 | –– | ||||||||||||
|
Research and development expenses
|
37 | 10 | 85 | 20 | ||||||||||||
|
Total implementation costs
|
56 | 10 | 120 | 20 | ||||||||||||
|
Total costs associated with acquisitions and cost-reduction/
productivity initiatives
|
$ | 308 | $ | 848 | $ | 1,308 | $ | 1,990 | ||||||||
|
(a)
|
Transaction costs represent external costs directly related to acquired businesses and primarily include expenditures for banking, legal, accounting and other similar services.
|
|
(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)
|
From the beginning of our cost-reduction and transformation initiatives in 2005 through July 1, 2012, Employee termination costs represent the expected reduction of the workforce by approximately 60,000 employees, mainly in manufacturing and sales and research, of which approximately 47,900 employees have been terminated as of July 1, 2012. For the six months ended July 1, 2012, the increase represents additional accruals with respect to reserves for approximately 2,600 employees.
|
|
|
The restructuring charges in 2012 are associated with the following:
|
|
|
●
|
For the three months ended July 1, 2012, Primary Care operating segment ($35 million income), Specialty Care and Oncology operating segment ($16 million), Established Products and Emerging Markets operating segment ($1 million), Animal Health and Consumer Healthcare operating segment ($13 million), research and development operations ($13 million), manufacturing operations ($14 million) and Corporate ($59 million).
|
|
|
●
|
For the six months ended July 1, 2012, Primary Care operating segment ($32 million income), Specialty Care and Oncology operating segment ($19 million), Established Products and Emerging Markets operating segment ($4 million), Animal Health and Consumer Healthcare operating segment ($18 million), research and development operations ($25 million), manufacturing operations ($166 million) and Corporate ($378 million).
|
|
|
The restructuring charges in 2011 are associated with the following:
|
|
|
●
|
For the three months ended July 3, 2011, Primary Care operating segment ($87 million), Specialty Care and Oncology operating segment ($7 million), Established Products and Emerging Markets operating segment ($12 million), Animal Health and Consumer Healthcare operating segment ($4 million), research and development operations ($51 million), manufacturing operations ($81 million) and Corporate ($24 million).
|
|
|
●
|
For the six months ended July 3, 2011, Primary Care operating segment ($133 million), Specialty Care and Oncology operating segment ($42 million), Established Products and Emerging Markets operating segment ($15 million), Animal Health and Consumer Healthcare operating segment ($14 million), research and development operations ($473 million), manufacturing operations ($155 million) and Corporate ($135 million).
|
|
(d)
|
Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions.
|
|
(e)
|
Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction and productivity initiatives.
|
|
(millions of dollars)
|
Employee
Termination
Costs(a)
|
Asset
Impairment
Charges
|
Exit Costs
|
Accrual
|
||||||||||||
|
Balance, December 31, 2011
|
$ | 2,425 | $ | –– | $ | 92 | $ | 2,517 | ||||||||
|
Provision
|
311 | 247 | 20 | 578 | ||||||||||||
|
Utilization and other(b)
|
(784 | ) | (247 | ) | (20 | ) | (1,051 | ) | ||||||||
|
Balance, July 1, 2012(c)
|
$ | 1,952 | $ | –– | $ | 92 | $ | 2,044 | ||||||||
|
(a)
|
For the six months ended July 1, 2012 Provision includes additional accruals with respect to reserves for approximately 2,600 employees.
|
|
(b)
|
Includes adjustments for foreign currency translation.
|
|
(c)
|
Included in Other current liabilities ($1.2 billion) and Other noncurrent liabilities ($853 million).
|
| Fair Value(a) |
Six Months Ended
July 1, 2012
|
|||||||||||||||||||
|
(millions of dollars)
|
Amount
|
Level 1
|
Level 2
|
Level 3
|
Impairment
|
|||||||||||||||
|
Long-lived assets held-for-sale(b)
|
$ | 99 | $ | –– | $ | 99 | $ | –– | $ | 227 | ||||||||||
|
(a)
|
The fair value amount is presented as of the date of impairment, as these assets are not measured at fair value on a recurring basis. See also Note 1C. Basis of Presentation and Significant Accounting Policies: Fair Value.
|
|
(b)
|
Reflects property, plant and equipment and other long-lived assets written down to their fair value of $99 million, less costs to sell of $2 million (a net of $97 million), in the first six months of 2012. The impairment charges of $227 million are included in Restructuring charges and certain acquisition-related costs. Fair value is determined primarily using a market approach, with various inputs, such as recent sales transactions.
|
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
(millions of dollars)
|
July 1,
2012
|
July 3,
2011
|
July 1,
2012
|
July 3,
2011
|
||||||||||||
|
Interest income(a)
|
$ | (86 | ) | $ | (117 | ) | $ | (167 | ) | $ | (222 | ) | ||||
|
Interest expense(a)
|
379 | 404 | 769 | 862 | ||||||||||||
|
Net interest expense
|
293 | 287 | 602 | 640 | ||||||||||||
|
Royalty-related income
|
(124 | ) | (140 | ) | (221 | ) | (311 | ) | ||||||||
|
Net gains on asset disposals
|
(17 | ) | (14 | ) | (24 | ) | (26 | ) | ||||||||
|
Certain legal matters, net(b)
|
474 | (14 | ) | 1,287 | 487 | |||||||||||
|
Certain asset impairment charges(c)
|
77 | 320 | 510 | 480 | ||||||||||||
|
Other, net
|
(39 | ) | (16 | ) | 167 | (15 | ) | |||||||||
|
Other deductions––net
|
$ | 664 | $ | 423 | $ | 2,321 | $ | 1,255 | ||||||||
|
(a)
|
Interest income decreased in both periods in 2012 due to lower interest rates earned on investments. Interest expense decreased in both periods in 2012 due to lower debt balances and the effective conversion of some fixed-rate liabilities to floating-rate liabilities.
|
|
(b)
|
In the second quarter and first six months of 2012, primarily includes charges for hormone-replacement therapy litigation. The first six months of 2012 also includes $450 million in settlement of a lawsuit by Brigham Young University related to Celebrex. In 2011, primarily includes charges for hormone-replacement therapy litigation. (See Note 12. Commitments and Contingencies.)
|
|
(c)
|
In the second quarter of 2012, includes intangible asset impairment charges of approximately $53 million, primarily reflecting a $45 million impairment of developed technology rights. In the first six months of 2012, includes intangible asset impairment charges of $449 million reflecting (i) $305 million of in-process research and development (IPR&D), substantially all related to compounds that targeted autoimmune and inflammatory diseases (full write-off), (ii) $45 million related to our Consumer Healthcare indefinite-lived brand, Robitussin, and (iii) $99 million related to three developed technology rights. The intangible asset impairment charges for 2012 reflect, among other things, the impact of new scientific findings, updated commercial forecasts and an increased competitive environment specifically for Robitussin. The impairment charges for the six months of 2012 are associated with the following: Worldwide Research and Development ($297 million); Consumer Healthcare ($45 million); Established Products ($45 million); Primary Care ($43 million) and Specialty Care ($19 million). In addition, the second quarter and first six months of 2012 also include charges of approximately $24 million and $61 million, respectively, for certain investments. These investment impairment charges reflect the difficult global economic environment.
|
|
|
In the second quarter of 2011, includes intangible asset impairment charges of approximately $320 million, reflecting a $200 million impairment of IPR&D assets, primarily related to a single compound for the treatment of certain autoimmune and inflammatory diseases, and a $120 million impairment of developed technology rights. In the first six months of 2011, includes intangible asset impairment charges of approximately $480 million, reflecting a $360 million impairment of IPR&D assets, primarily related to two compounds for the treatment of certain autoimmune and inflammatory diseases, and a $120 million impairment of developed technology rights. The intangible asset impairment charges for 2011 reflect, among other things, the impact of new scientific findings and updated commercial forecasts. The impairment charges for the six months of 2011 are associated with the following: Worldwide Research and Development ($355 million); Specialty Care ($116 million) and Animal Health ($9 million).
|
| Fair Value(a) |
Six Months Ended July 1, 2012
|
|||||||||||||||||||
|
(millions of dollars)
|
Amount
|
Level 1
|
Level 2
|
Level 3
|
Impairment
|
|||||||||||||||
|
Intangible assets––IPR&D(b)
|
$ | 52 | $ | –– | $ | –– | $ | 52 | $ | 305 | ||||||||||
|
Intangible assets––Other(b)
|
551 | –– | –– | 551 | 144 | |||||||||||||||
|
Total
|
$ | 603 | $ | –– | $ | –– | $ | 603 | $ | 449 | ||||||||||
|
(a)
|
Fair value as of the date of impairment, as these assets are 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 their fair value of $603 million in the first six months of 2012. The impairment charges of $449 million are included in Other deductions––net. When we are required to determine the fair value of intangible assets other than goodwill, we use an income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We start with a forecast of all the expected net cash flows associated with the asset, which includes the application of a terminal value for indefinite-lived assets, and then we apply 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 projections and the impact of technological risk associated with IPR&D assets, as well as the selection of a long-term growth rate; 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.
|
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
(millions of dollars)
|
July 1,
2012
|
July 3,
2011
|
July 1,
2012
|
July 3,
2011
|
||||||||||||
|
Tax Expense/(Benefit) on Other Comprehensive Income/(Loss)
|
||||||||||||||||
|
Foreign currency translation adjustments(a)
|
$ | (30 | ) | $ | (50 | ) | $ | 37 | $ | (10 | ) | |||||
|
Unrealized holding gains/(losses) on derivative financial instruments
|
(216 | ) | 81 | (57 | ) | 207 | ||||||||||
|
Reclassification adjustments for realized (gains)/losses
|
133 | (87 | ) | 18 | (281 | ) | ||||||||||
| (83 | ) | (6 | ) | (39 | ) | (74 | ) | |||||||||
|
Unrealized gains/(losses) on available-for-sale securities
|
(1 | ) | 3 | 13 | –– | |||||||||||
|
Reclassification adjustments for realized (gains)/losses
|
(2 | ) | –– | 5 | 1 | |||||||||||
| (3 | ) | 3 | 18 | 1 | ||||||||||||
|
Benefit plans: Actuarial gains/(losses)
|
(118 | ) | –– | (118 | ) | –– | ||||||||||
|
Reclassification adjustments related to amortization
|
41 | 25 | 85 | 50 | ||||||||||||
|
Reclassification adjustments related to curtailments and settlements, net
|
(4 | ) | 42 | 39 | 61 | |||||||||||
|
Other
|
18 | (32 | ) | 17 | (59 | ) | ||||||||||
| (63 | ) | 35 | 23 | 52 | ||||||||||||
|
Benefit plan: Prior service (costs)/credits and other
|
8 | –– | 8 | –– | ||||||||||||
|
Reclassification adjustments related to amortization
|
(6 | ) | (7 | ) | (14 | ) | (14 | ) | ||||||||
|
Reclassification adjustments related to curtailments and settlements, net
|
(28 | ) | (9 | ) | (32 | ) | (13 | ) | ||||||||
|
Other
|
–– | 2 | (2 | ) | (2 | ) | ||||||||||
| (26 | ) | (14 | ) | (40 | ) | (29 | ) | |||||||||
|
Tax benefit on other comprehensive income/(loss)
|
$ | (205 | ) | $ | (32 | ) | $ | (1 | ) | $ | (60 | ) | ||||
|
|
●
|
With respect to Pfizer Inc., tax years 2006-2010 are currently under audit. Tax years 2011-2012 are not under audit. All other tax years are closed.
|
|
|
●
|
With respect to Wyeth, tax years 2006 through the Wyeth acquisition date (October 15, 2009) are currently under audit. All other tax years are closed.
|
|
|
●
|
With respect to King, the audit for tax year 2008 has been effectively settled, and for Alpharma Inc. (a subsidiary of King), tax years 2005-2007 are currently under audit. For King, tax years 2009 through the date of acquisition (January 31, 2011) are open but not under audit. All other tax years are closed. The open tax years and audits for King and its subsidiaries are not considered material to Pfizer.
|
|
Net Unrealized Gain/(Losses)
|
Benefit Plans
|
|||||||||||||||||||||||
|
(millions of dollars)
|
Currency
Translation
Adjustment
And Other
|
Derivative
Financial
Instruments
|
Available
For-Sale
Securities
|
Actuarial
Gains/(Losses)
|
Prior Service
(Costs)/
Credits And
Other
|
Accumulated
Other
Comprehensive
Loss
|
||||||||||||||||||
|
Balance, December 31, 2011
|
$ | 944 | $ | (361 | ) | $ | 46 | $ | (5,120 | ) | $ | 362 | $ | (4,129 | ) | |||||||||
|
Other comprehensive income/(loss)(a)
|
(1,737 | ) | (64 | ) | 107 | (131 | ) | (54 | ) | (1,879 | ) | |||||||||||||
|
Balance, July 1, 2012
|
$ | (793 | ) | $ | (425 | ) | $ | 153 | $ | (5,251 | ) | $ | 308 | $ | (6,008 | ) | ||||||||
|
(a)
|
Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $18 million loss for the first six month of 2012.
|
|
(millions of dollars)
|
July 1,
2012
|
Dec. 31,
2011
|
||||||
|
Selected financial assets measured at fair value on a recurring basis(a)
|
||||||||
|
Trading securities(b)
|
$ | 137 | $ | 154 | ||||
|
Available-for-sale debt securities(c)
|
27,653 | 29,179 | ||||||
|
Available-for-sale money market funds(d)
|
1,994 | 1,727 | ||||||
|
Available-for-sale equity securities, excluding money market funds(c)
|
272 | 317 | ||||||
|
Derivative financial instruments in receivable positions(e):
|
||||||||
|
Interest rate swaps
|
1,147 | 1,033 | ||||||
|
Foreign currency forward-exchange contracts
|
406 | 349 | ||||||
|
Foreign currency swaps
|
69 | 17 | ||||||
| 31,678 | 32,776 | |||||||
|
Other selected financial assets(f)
|
||||||||
|
Held-to-maturity debt securities, carried at amortized cost(c)
|
1,587 | 1,587 | ||||||
|
Private equity securities, carried at equity method or at cost(g)
|
1,072 | 1,020 | ||||||
| 2,659 | 2,607 | |||||||
|
Total selected financial assets
|
$ | 34,337 | $ | 35,383 | ||||
|
Financial liabilities measured at fair value on a recurring basis(a)
|
||||||||
|
Derivative financial instruments in a liability position(h):
|
||||||||
|
Foreign currency swaps
|
$ | 1,743 | $ | 1,396 | ||||
|
Foreign currency forward-exchange contracts
|
285 | 355 | ||||||
|
Interest rate swaps
|
20 | 14 | ||||||
| 2,048 | 1,765 | |||||||
|
Other financial liabilities(i)
|
||||||||
|
Short-term borrowings, carried at historical proceeds, as adjusted(f)
|
7,703 | 4,016 | ||||||
|
Long-term debt, carried at historical proceeds, as adjusted(j), (k)
|
30,868 | 34,926 | ||||||
| 38,571 | 38,942 | |||||||
|
Total selected financial liabilities
|
$ | 40,619 | $ | 40,707 | ||||
|
(a)
|
We use a market approach in valuing financial instruments on a recurring basis. See also 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 or Level 3 inputs.
|
|
(b)
|
Trading securities are held in trust for legacy business acquisition severance benefits.
|
|
(c)
|
Gross unrealized gains and losses are not significant.
|
|
(d)
|
Includes approximately $625 million as of July 1, 2012 and December 31, 2011 of money market funds that were released from restriction in the second quarter of 2012 and classified as part of Short-term investments. Such money market funds were held in escrow to secure certain of Wyeth’s payment obligations under its 1999 Nationwide Class Action Settlement Agreement, which relates to litigation against Wyeth concerning its former weight-loss products, Redux and Pondimin. The amount also includes $384 million as of July 1, 2012 and $357 million as of December 31, 2011 of money market funds held in trust in connection with the asbestos litigation involving Quigley Company, Inc., a wholly owned subsidiary.
|
|
(e)
|
Designated as hedging instruments, except for certain foreign currency contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $290 million as of July 1, 2012; and foreign currency forward-exchange contracts with fair values of $169 million and interest rate swaps with fair values of $8 million as of December 31, 2011.
|
|
(f)
|
The differences between the estimated fair values and carrying values of these financial assets and liabilities not measured at fair value on a recurring basis were not significant as of July 1, 2012 or December 31, 2011. Held-to-maturity debt securities and our short-term and long-term debt fair value are based on Level 2 valuations using a market approach. Fair value measurements for private equity securities are based on Level 3 valuations using a market approach.
|
|
(g)
|
Our private equity securities represent investments in the life sciences sector.
|
|
(h)
|
Designated as hedging instruments, except for certain foreign currency contracts used as offsets; namely, foreign currency swaps with fair values of $200 million and foreign currency forward-exchange contracts with fair values of $163 million as of July 1, 2012; and foreign currency forward-exchange contracts with fair values of $141 million and foreign currency swaps with fair values of $123 million as of December 31, 2011.
|
|
(i)
|
Some carrying amounts may include adjustments for discount or premium amortization or for the effect of interest rate swaps designated as hedges.
|
|
(j)
|
Includes foreign currency debt with fair values of $885 million as of July 1, 2012 and $919 million as of December 31, 2011, which are used as hedging instruments.
|
|
(k)
|
The fair value of our long-term debt is $35.5 billion as of July 1, 2012 and $40.1 billion as of December 31, 2011.
|
|
(millions of dollars)
|
July 1,
2012
|
Dec. 31,
2011
|
||||||
|
Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 892 | $ | 900 | ||||
|
Short-term investments
|
21,275 | 23,270 | ||||||
|
Long-term investments
|
10,548 | 9,814 | ||||||
|
Taxes and other current assets(a)
|
472 | 357 | ||||||
|
Taxes and other noncurrent assets(b)
|
1,150 | 1,042 | ||||||
| $ | 34,337 | $ | 35,383 | |||||
|
Liabilities
|
||||||||
|
Short-term borrowings, including current portion of long-term debt
|
$ | 7,703 | $ | 4,016 | ||||
|
Other current liabilities(c)
|
545 | 459 | ||||||
|
Long-term debt
|
30,868 | 34,926 | ||||||
|
Other noncurrent liabilities(d)
|
1,503 | 1,306 | ||||||
| $ | 40,619 | $ | 40,707 | |||||
|
(a)
|
As of July 1, 2012, derivative instruments at fair value include foreign currency forward-exchange contracts ($406 million), interest rate swaps ($36 million) and foreign currency swaps ($30 million) and, as of December 31, 2011, include foreign currency forward-exchange contracts ($349 million) and interest rate swaps ($8 million).
|
|
(b)
|
As of July 1, 2012, derivative instruments at fair value include interest rate swaps ($1.1 billion) and foreign currency swaps ($39 million) and, as of December 31, 2011, include interest rate swaps ($1 billion) and foreign currency swaps ($17 million).
|
|
(c)
|
At July 1, 2012, derivative instruments at fair value include foreign currency swaps ($260 million) and foreign currency forward-exchange contracts ($285 million) and, as of December 31, 2011, include foreign currency forward-exchange contracts ($355 million) and foreign currency swaps ($104 million).
|
|
(d)
|
At July 1, 2012, derivative instruments at fair value include foreign currency swaps ($1.5 billion) and interest rate swaps ($20 million) and, as of December 31, 2011, include foreign currency swaps ($1.3 billion) and interest rate swaps ($14 million).
|
|
Years
|
||||||||||||||||
|
Over 1
|
Over 5
|
July 1,
2012
|
||||||||||||||
|
(millions of dollars)
|
Within 1
|
to 5
|
to 10
|
Total
|
||||||||||||
|
Available-for-sale debt securities
|
||||||||||||||||
|
Western European, Asian and other government debt(a)
|
$ | 8,828 | $ | 1,973 | $ | 5 | $ | 10,806 | ||||||||
|
Corporate debt(b)
|
1,510 | 2,415 | 788 | 4,713 | ||||||||||||
|
U.S. government debt
|
4,159 | –– | 258 | 4,417 | ||||||||||||
|
Reverse repurchase agreements(c)
|
2,470 | –– | –– | 2,470 | ||||||||||||
|
Federal Home Loan Mortgage Corporation and Federal National
Mortgage Association asset-backed securities
|
–– | 2,370 | –– | 2,370 | ||||||||||||
|
Western European, Scandinavian and other government agency debt(a)
|
1,911 | 391 | –– | 2,302 | ||||||||||||
|
Supranational debt(a)
|
130 | 445 | –– | 575 | ||||||||||||
|
Held-to-maturity debt securities
|
||||||||||||||||
|
Certificates of deposit and other
|
1,288 | 291 | 8 | 1,587 | ||||||||||||
|
Total debt securities
|
$ | 20,296 | $ | 7,885 | $ | 1,059 | $ | 29,240 | ||||||||
|
(a)
|
All issued by above-investment-grade governments, government agencies or supranational entities, as applicable, except for certain holdings that are immaterial.
|
|
(b)
|
Largely issued by above-investment-grade institutions in the financial services sector.
|
|
(c)
|
Involving U.S. and Germany government securities.
|
|
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)
|
July 1,
2012
|
July 3,
2011
|
July 1,
2012
|
July 3,
2011
|
July 1,
2012
|
July 3,
2011
|
||||||||||||||||||
|
Three Months Ended
|
||||||||||||||||||||||||
|
Derivative Financial Instruments in Cash
Flow Hedge Relationships
|
||||||||||||||||||||||||
|
Foreign currency swaps
|
$ | –– | $ | –– | $ | (646 | ) | $ | 227 | $ | (432 | ) | $ | 224 | ||||||||||
|
Derivative Financial Instruments in Net
Investment Hedge Relationships
|
||||||||||||||||||||||||
|
Foreign currency swaps
|
(1 | ) | 14 | (53 | ) | (991 | ) | –– | –– | |||||||||||||||
|
Derivative Financial Instruments Not
Designated as Hedges
|
||||||||||||||||||||||||
|
Foreign currency forward-exchange contracts
|
190 | (158 | ) | –– | –– | –– | –– | |||||||||||||||||
|
Foreign currency swaps
|
6 | 13 | –– | –– | –– | –– | ||||||||||||||||||
|
Non-Derivative Financial Instruments in
Net Investment Hedge Relationships
|
||||||||||||||||||||||||
|
Foreign currency short-term borrowings
|
–– | –– | –– | 897 | –– | –– | ||||||||||||||||||
|
Foreign currency long-term debt
|
–– | –– | (27 | ) | (34 | ) | –– | –– | ||||||||||||||||
|
All other net
|
3 | –– | (4 | ) | 1 | 5 | –– | |||||||||||||||||
| $ | 198 | $ | (131 | ) | $ | (730 | ) | $ | 100 | $ | (427 | ) | $ | 224 | ||||||||||
|
Six Months Ended
|
||||||||||||||||||||||||
|
Derivative Financial Instruments in Cash
Flow Hedge Relationships
|
||||||||||||||||||||||||
|
Foreign currency swaps
|
$ | –– | $ | –– | $ | (218 | ) | $ | 531 | $ | (132 | ) | $ | 730 | ||||||||||
|
Derivative Financial Instruments in Net
Investment Hedge Relationships
|
||||||||||||||||||||||||
|
Foreign currency swaps
|
(3 | ) | 15 | 73 | (958 | ) | –– | –– | ||||||||||||||||
|
Derivative Financial Instruments Not
Designated as Hedges
|
||||||||||||||||||||||||
|
Foreign currency forward-exchange contracts
|
64 | (317 | ) | –– | –– | –– | –– | |||||||||||||||||
|
Foreign currency swaps
|
(17 | ) | 43 | –– | –– | |||||||||||||||||||