Edgar Filing: PFIZER INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 2, 2017

TRANSITION REPORT PURSUANT TO SECTION 13

OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

COMMISSION FILE NUMBER 1-3619

----

PFIZER INC.

(Exact name of registrant as specified in its charter)



DELAWARE (State of Incorporation)	13-5315170 (I.R.S. Employer Identification No.)

235 East 42^nd Street, New York, New York 10017

(Address of principal executive offices) (zip code)

(212) 733-2323

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.



YES X	NO ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



YES X	NO ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

Large Accelerated filer X Accelerated filer ___ Non-accelerated filer ___ Smaller reporting company ___ Emerging growth company ___

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



YES ____	NO X

At May 8, 2017, 5,967,844,470 shares of the issuer’s voting common stock were outstanding.

Table of Contents



PART I. FINANCIAL INFORMATION	Page

Item 1.
Financial Statements

Condensed Consolidated Statements of Income for the three months ended April 2, 2017 and April 3, 2016	5

Condensed Consolidated Statements of Comprehensive Income for the three months ended April 2, 2017 and April 3, 2016	6

Condensed Consolidated Balance Sheets as of April 2, 2017 and December 31, 2016	7

Condensed Consolidated Statements of Cash Flows for the three months ended April 2, 2017 and April 3, 2016	8

Notes to Condensed Consolidated Financial Statements	9

Review Report of Independent Registered Public Accounting Firm	41

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations	42

Item 3.
Quantitative and Qualitative Disclosures About Market Risk	94

Item 4.
Controls and Procedures	94

PART II. OTHER INFORMATION

Item 1.
Legal Proceedings	95

Item 1A.
Risk Factors	95

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds	96

Item 3.
Defaults Upon Senior Securities	96

Item 4.
Mine Safety Disclosures	96

Item 5.
Other Information	96

Item 6.
Exhibits	97

Signature	98

GLOSSARY OF DEFINED TERMS

Unless the context requires otherwise, references to “Pfizer,” “the Company,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q (defined below) refer to Pfizer Inc. and its subsidiaries. We also have used several other terms in this Quarterly Report on Form 10-Q, most of which are explained or defined below:



2016 Financial Report	Financial Report for the fiscal year ended December 31, 2016, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2016
2016 Form 10-K	Annual Report on Form 10-K for the fiscal year ended December 31, 2016
AAV	Adeno-Associated Virus
ACA (Also referred to as U.S. Healthcare Legislation)	U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
ACIP	Advisory Committee on Immunization Practices
ALK	anaplastic lymphoma kinase
Allergan	Allergan plc
Alliance revenues	Revenues from alliance agreements under which we co-promote products discovered or developed by other companies or us
Anacor	Anacor Pharmaceuticals, Inc.
Astellas	Astellas Pharma US, Inc.
ASU	Accounting Standards Update
ATM-AVI	aztreonam-avibactam
Bamboo	Bamboo Therapeutics, Inc.
BMS	Bristol-Myers Squibb Company
CDC	U.S. Centers for Disease Control and Prevention
Cellectis	Cellectis SA
Citibank	Citibank N.A.
Developed Markets	U.S., Western Europe, Japan, Canada, Australia, South Korea, Scandinavian countries, Finland and New Zealand
EEA	European Economic Area
EH	Essential Health
EMA	European Medicines Agency
Emerging Markets	Includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Africa, Eastern Europe, Central Europe, the Middle East and Turkey
EPS	earnings per share
EU	European Union
EURIBOR	Euro Interbank Offered Rate
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FDA	U.S. Food and Drug Administration
GAAP	Generally Accepted Accounting Principles
GIST	gastrointestinal stromal tumors
GPD	Global Product Development organization
HER2-	human epidermal growth factor receptor 2-negative
HIS	Hospira Infusion Systems
Hisun	Zhejiang Hisun Pharmaceuticals Co., Ltd.
Hisun Pfizer	Hisun Pfizer Pharmaceuticals Company Limited
Hospira	Hospira, Inc.
HR+	hormone receptor-positive
ICU Medical	ICU Medical, Inc.
IH	Innovative Health
IPR&D	in-process research and development
IRS	U.S. Internal Revenue Service
IV	intravenous
Janssen	Janssen Biotech Inc.
King	King Pharmaceuticals, Inc.
LDL	low density lipoprotein
LIBOR	London Interbank Offered Rate
Lilly	Eli Lilly & Company
LOE	loss of exclusivity



MCO	Managed Care Organization
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
MDV	multi-dose vial
Medivation	Medivation, Inc.
Merck	Merck & Co., Inc.
Meridian	Meridian Medical Technologies, Inc.
Moody’s	Moody’s Investors Service
NDA	new drug application
NovaQuest	NovaQuest Co-Investment Fund V, L.P.
NSCLC	non-small cell lung cancer
NYSE	New York Stock Exchange
OPKO	OPKO Health, Inc.
OTC	over-the-counter
PBM	Pharmacy Benefit Manager
Pharmacia	Pharmacia Corporation
PP&E	Property, plant & equipment
Quarterly Report on Form 10-Q	Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2017
RCC	renal cell carcinoma
R&D	research and development
RPI	RPI Finance Trust
Sandoz	Sandoz, Inc., a division of Novartis AG
SEC	U.S. Securities and Exchange Commission
S&P	Standard and Poor’s
Teuto	Laboratório Teuto Brasileiro S.A.
U.K.	United Kingdom
U.S.	United States
VAT	value added tax
WRD	Worldwide Research and Development
Zoetis	Zoetis Inc.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



	Three Months Ended
(MILLIONS, EXCEPT PER COMMON SHARE DATA)	April 2, 2017			April 3, 2016
Revenues	$	12,779		$	13,005
Costs and expenses:
Cost of sales^(a)	2,470			2,851
Selling, informational and administrative expenses^(a)	3,308			3,385
Research and development expenses^(a)	1,708			1,731
Amortization of intangible assets	1,186			1,006
Restructuring charges and certain acquisition-related costs	157			141
Other (income)/deductions––net	(1		)	330
Income from continuing operations before provision for taxes on income	3,951			3,561
Provision for taxes on income^(b)	821			513
Income from continuing operations^(b)	3,130			3,048
Discontinued operations––net of tax	—			—
Net income before allocation to noncontrolling interests^(b)	3,130			3,048
Less: Net income attributable to noncontrolling interests	9			9
Net income attributable to Pfizer Inc.^(b)	$	3,121		$	3,038

Earnings per common share––basic^(b):
Income from continuing operations attributable to Pfizer Inc. common shareholders	$	0.52		$	0.49
Discontinued operations––net of tax	—			—
Net income attributable to Pfizer Inc. common shareholders	$	0.52		$	0.49

Earnings per common share––diluted^(b):
Income from continuing operations attributable to Pfizer Inc. common shareholders	$	0.51		$	0.49
Discontinued operations––net of tax	—			—
Net income attributable to Pfizer Inc. common shareholders	$	0.51		$	0.49

Weighted-average shares––basic	6,006			6,150
Weighted-average shares––diluted	6,092			6,225
Cash dividends paid per common share	$	0.32		$	0.30


^(a)	Excludes amortization of intangible assets, except as disclosed in Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets.


^(b)	Amounts for the three months ended April 3, 2016 have been revised from previously reported amounts to reflect the adoption of a new accounting standard in the fourth quarter of 2016, as of January 1, 2016. For additional information, see Note 1B. Basis of Presentation and Significant Accounting Policies––Adoption of New Accounting Standards.

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Three Months Ended
(MILLIONS OF DOLLARS)	April 2, 2017			April 3, 2016
Net income before allocation to noncontrolling interests	$	3,130		$	3,048

Foreign currency translation adjustments, net	228			67
	228			67
Unrealized holding losses on derivative financial instruments, net	(9		)	(273		)
Reclassification adjustments for realized gains^(a)	(241		)	(339		)
	(251		)	(612		)
Unrealized holding gains on available-for-sale securities, net	150			129
Reclassification adjustments for realized losses^(a)	137			209
	287			339
Benefit plans: actuarial gains, net	1			—
Reclassification adjustments related to amortization^(b)	163			139
Reclassification adjustments related to settlements, net^(b)	52			26
Other	45			38
	261			203
Benefit plans: prior service costs and other, net	—			—
Reclassification adjustments related to amortization^(b)	(45		)	(41		)
Reclassification adjustments related to curtailments, net^(b)	(7		)	(6		)
Other	1			5
	(52		)	(42		)
Other comprehensive income/(loss), before tax	474			(44		)
Tax provision/(benefit) on other comprehensive income/(loss)^(c)	25			(41		)
Other comprehensive income/(loss) before allocation to noncontrolling interests	$	449		$	(4	)

Comprehensive income before allocation to noncontrolling interests	$	3,579		$	3,044
Less: Comprehensive income attributable to noncontrolling interests	15			4
Comprehensive income attributable to Pfizer Inc.	$	3,563		$	3,040


^(a)	Reclassified into Other (income)/deductions—net and Cost of sales in the condensed consolidated statements of income.


^(b)	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.


^(c)	See Note 5C. Tax Matters: Tax Provision/(Benefit) on Other Comprehensive Income/(Loss).

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEETS



(MILLIONS OF DOLLARS)	April 2, 2017			December 31, 2016
	(Unaudited)
Assets
Cash and cash equivalents	$	4,057		$	2,595
Short-term investments	10,503			15,255
Trade accounts receivable, less allowance for doubtful accounts: 2017—$588; 2016—$609	8,892			8,225
Inventories	7,415			6,783
Current tax assets	2,791			3,041
Other current assets	2,218			2,249
Assets held for sale	3			801
Total current assets	35,878			38,949
Long-term investments	7,346			7,116
Property, plant and equipment, less accumulated depreciation: 2017—$15,050; 2016—$14,807	13,238			13,318
Identifiable intangible assets, less accumulated amortization	52,427			52,648
Goodwill	54,656			54,449
Noncurrent deferred tax assets and other noncurrent tax assets	1,909			1,812
Other noncurrent assets	3,329			3,323
Total assets	$	168,784		$	171,615

Liabilities and Equity
Short-term borrowings, including current portion of long-term debt: 2017—$3,292; 2016—$4,225	$	7,680		$	10,688
Trade accounts payable	3,393			4,536
Dividends payable	—			1,944
Income taxes payable	790			437
Accrued compensation and related items	1,858			2,487
Other current liabilities	11,143			11,023
Total current liabilities	24,864			31,115

Long-term debt	36,330			31,398
Pension benefit obligations, net	5,300			6,406
Postretirement benefit obligations, net	1,742			1,766
Noncurrent deferred tax liabilities	30,857			30,753
Other taxes payable	4,027			4,000
Other noncurrent liabilities	6,918			6,337
Total liabilities	110,038			111,776

Commitments and Contingencies

Preferred stock	23			24
Common stock	463			461
Additional paid-in capital	83,111			82,685
Treasury stock	(89,414		)	(84,364		)
Retained earnings	74,847			71,774
Accumulated other comprehensive loss	(10,594		)	(11,036		)
Total Pfizer Inc. shareholders’ equity	58,435			59,544
Equity attributable to noncontrolling interests	311			296
Total equity	58,746			59,840
Total liabilities and equity	$	168,784		$	171,615

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Three Months Ended
(MILLIONS OF DOLLARS)	April 2, 2017			April 3, 2016
Operating Activities
Net income before allocation to noncontrolling interests	$	3,130		$	3,048
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization	1,555			1,425
Asset write-offs and impairments	35			146
Loss on sale of HIS net assets	37			—
Deferred taxes from continuing operations	38			(204		)
Share-based compensation expense	218			143
Benefit plan contributions in excess of expense	(986		)	(853		)
Other adjustments, net	(211		)	229
Other changes in assets and liabilities, net of acquisitions and divestitures^(a)	(2,225		)	(2,125		)
Net cash provided by operating activities	1,589			1,808

Investing Activities
Purchases of property, plant and equipment	(358		)	(301		)
Purchases of short-term investments	(701		)	(3,489		)
Proceeds from redemptions/sales of short-term investments	2,235			7,922
Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less	3,778			493
Purchases of long-term investments	(740		)	(1,308		)
Proceeds from redemptions/sales of long-term investments	846			1,142
Acquisitions of businesses, net of cash acquired	(585		)	(110		)
Other investing activities, net	297			6
Net cash provided by investing activities	4,772			4,355

Financing Activities
Proceeds from short-term borrowings	2,554			682
Principal payments on short-term borrowings	(2,530		)	(1,350		)
Net proceeds from/(payments on) short-term borrowings with original maturities of three months or less	(2,113		)	1,724
Proceeds from issuance of long-term debt	5,273			—
Principal payments on long-term debt	(1,253		)	(1,536		)
Purchases of common stock	(5,000		)	(5,000		)
Cash dividends paid	(1,945		)	(1,854		)
Proceeds from exercise of stock options	313			296
Other financing activities, net^(a)	(220		)	(132		)
Net cash used in financing activities	(4,921		)	(7,171		)
Effect of exchange-rate changes on cash and cash equivalents	21			(73		)
Net increase/(decrease) in cash and cash equivalents	1,461			(1,080		)
Cash and cash equivalents, beginning	2,595			3,641
Cash and cash equivalents, end	$	4,057		$	2,561

Supplemental Cash Flow Information
Non-cash transactions:
Receipt of ICU Medical common stock^(b)	$	428		$	—
Promissory note from ICU Medical^(b)	75			—
Cash paid (received) during the period for:
Income taxes	$	195		$	518
Interest	216			409
Interest rate hedges	32