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Pfizer Reports Second-Quarter 2013 Results

  • Results Reflect the Animal Health Business (Zoetis(1)) as a Discontinued Operation for Second-Quarter and Year-to-Date 2013 and 2012
  • Second-Quarter 2013 Revenues of $13.0 Billion, Adjusted Diluted EPS(2) of $0.56 and Reported Diluted EPS(3) of $1.98
  • Repurchased $3.3 Billion and $8.7 Billion of Common Stock in Second-Quarter and to Date in 2013, Respectively
  • Accepted 405.1 Million Shares of Common Stock in Exchange for Remaining Zoetis(1) Interest
  • Reaffirmed All Components of Adjusted Financial Guidance
  • Announced Plan to Create Separate, Internal, Global Innovative and Value Businesses

Tuesday, July 30, 2013 - 3:49am EDT
"Forward-Looking Information and Factors That May Affect Future Results"

NEW YORK---Pfizer Inc. (NYSE: PFE) reported financial results for second-quarter 2013. As a result of the full disposition of Zoetis(1) on June 24, 2013, the financial results of the Animal Health business are now reported as a discontinued operation in the condensed consolidated statements of income for second-quarter and year-to-date for both 2013 and 2012. Results and guidance are summarized below.

OVERALL RESULTS

($ in millions, except

per share amounts)

           
    Second-Quarter     Year-to-Date
    2013     2012     Change     2013     2012     Change
Revenues     $ 12,973     $ 13,968     (7%)     $ 25,383     $ 27,813     (9%)
Adjusted Income(2)     4,003     4,449     (10%)     7,743     8,604     (10%)
Adjusted Diluted EPS(2)     0.56     0.59     (5%)     1.08     1.14     (5%)
Reported Net Income(3)     14,095     3,253     *     16,845     5,047     *
Reported Diluted EPS(3)     1.98     0.43     *     2.34     0.67     *
                                     

* Calculation not meaningful.

 
 

BUSINESS UNIT(4) REVENUES

($ in millions)

Favorable/(Unfavorable)

    Second-Quarter     Year-to-Date
    2013     2012     % Change     2013     2012     % Change
            Total     Oper.         Total     Oper.
Primary Care     $ 3,333     $ 4,018     (17%)     (15%)     $ 6,571     $ 8,115     (19%)     (18%)
Specialty Care     3,378     3,497     (3%)     --     6,542     7,077     (8%)     (6%)
Emerging Markets     2,615     2,620     --     4%     5,035     4,919     2%     5%
Established Products     2,385     2,681     (11%)     (7%)     4,737     5,482     (14%)     (12%)
Consumer Healthcare     800     769     4%     5%     1,611     1,496     8%     8%
Oncology     399     323     24%     28%     771     611     26%     29%
Other(5)     63     60     5%     7%     116     113     3%     4%
Total     $ 12,973     $ 13,968     (7%)     (4%)     $ 25,383     $ 27,813     (9%)     (7%)
                                                 
                                                 
                                                 

SELECTED ADJUSTED COSTS AND EXPENSES(2)

($ in millions)

(Favorable)/Unfavorable

    Second-Quarter     Year-to-Date
    2013     2012     % Change     2013     2012     % Change
            Total     Oper.         Total     Oper.
                                                 
Cost of Sales(2)     $2,194     $2,293     (4%)     2%     $4,423     $4,593     (4%)     (1%)
Percent of Revenues     16.9%     16.4%     N/A     N/A     17.4%     16.5%     N/A     N/A
SI&A Expenses(2)     3,550     3,648     (3%)     (1%)     6,728     7,312     (8%)     (7%)
R&D Expenses(2)     1,521     1,565     (3%)     (2%)     3,139     3,233     (3%)     (3%)
                                                 
Total     7,265     7,506     (3%)     --     14,290     15,138     (6%)     (4%)
                                                 
Effective Tax Rate(2)     27.9%     28.5%                 27.4%     28.6%            
                                                 
                                                 

2013 FINANCIAL GUIDANCE(6)

All components of Adjusted financial guidance are reaffirmed. The guidance for Reported Diluted EPS(3) has been updated to reflect the following:

  • Gain associated with the full disposition of Zoetis(1)
  • Income from a litigation settlement with Teva Pharmaceuticals Industries, Limited (Teva) and Sun Pharmaceutical Industries, Limited (Sun) for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S.
                   
                   
Revenues           $50.8 to $52.8 billion      
Adjusted Cost of Sales(2) as a Percentage of Revenues           18.0% to 19.0%      
Adjusted SI&A Expenses(2)           $14.2 to $15.2 billion      
Adjusted R&D Expenses(2)           $6.1 to $6.6 billion      
Adjusted Other (Income)/Deductions(2)           Approximately $800 million      
Effective Tax Rate on Adjusted Income(2)           Approximately 28.0%      
Reported Diluted EPS(3)           $3.07 to $3.22

(previously $1.44 to $1.59)

     
Adjusted Diluted EPS(2)           $2.10 to $2.20      
                   
                   

EXECUTIVE COMMENTARY

Ian Read, Chairman and Chief Executive Officer, stated, “I am pleased with our recent accomplishments focused on creating greater value for our shareholders, including the completion of the full disposition of Zoetis(1) which generated over $17 billion in value as well as the announcement of our new commercial model. This new model represents the next step in Pfizer’s journey to further revitalize our innovative core, enhance the value of our consumer and off-patent established brands and maximize the use of our capital to create value for Pfizer and our patients, consumers and shareholders.”

“Within our innovative businesses, during second-quarter 2013, revenues in our Oncology business increased 28% operationally due to the uptake of new products, primarily Inlyta and Xalkori in several major markets, and various key products performed well, notably Lyrica, which grew 14% operationally in developed markets, and Celebrex, which grew 13% in the U.S. We continue to expect our Emerging Markets business growth to accelerate in the second half of the year, led by China. From a total company view, we are tracking to our expectations for the full year and continue to capitalize on the investments we are making to better position Pfizer for long-term success,” Mr. Read concluded.

Frank D’Amelio, Chief Financial Officer, stated, “Overall, I am pleased with our financial performance so far this year, despite the continued impact of product losses of exclusivity and a challenging operating environment. We are reaffirming all components of our 2013 adjusted financial guidance, which reflects our performance to date, confidence in the business, financial flexibility and a rigorous expense-management process. We continue to expect to repurchase in the mid-teens of billions of dollars of our common stock this year, with $8.7 billion repurchased through July 29, given our strong operating cash flow and proceeds generated from our portfolio actions.”

QUARTERLY FINANCIAL HIGHLIGHTS (Second-Quarter 2013 vs. Second-Quarter 2012)

  • Revenues decreased $995 million, or 7%, which reflects an operational decline of $603 million, or 4%, and the unfavorable impact of foreign exchange of $392 million, or 3%. The operational decrease was primarily the result of the losses of exclusivity of Lipitor in developed Europe in second-quarter 2012, as well as the impact of multi-source generic competition for Lipitor in the U.S. beginning in late-May 2012. Additionally, revenues were negatively impacted by other product losses of exclusivity, government purchasing patterns for Prevnar/Prevenar in various markets, and certain other events, primarily within the Emerging Markets unit highlighted below.
  • Business unit revenues were impacted by the following:
    • Primary Care: Revenues decreased 15% operationally, primarily due to the shift in the reporting of Lipitor revenues in developed Europe and Australia to the Established Products unit beginning January 1, 2013, as well as the losses of exclusivity of certain other products in various markets and the termination of the co-promotion agreement for Aricept in Japan in December 2012. Additionally, in the U.S., Australia, Canada and certain European countries, the co-promotion agreements for Spiriva are in the final year, which has resulted in a decline in Pfizer’s share of Spiriva revenues per the terms of those agreements. These declines were partially offset by the strong performance of Lyrica in developed markets and Celebrex in the U.S.
    • Specialty Care: Revenues were flat operationally, primarily due to the shift in the reporting of Geodon and Revatio revenues in the U.S. and Xalabrands revenues in developed Europe and Australia to the Established Products unit beginning January 1, 2013, which was essentially offset by growth in Enbrel, Rebif and the hemophilia portfolio (BeneFIX and ReFacto AF/Xyntha) in the U.S. Prevnar/Prevenar revenues continue to be impacted by a large U.S. government purchase in fourth-quarter 2012, which has resulted in fewer purchases so far in 2013, and also were impacted by the end of the supplemental dose program in Asia.
    • Emerging Markets: Revenues grew 4% operationally, primarily due to strong volume growth in China, most notably for Lipitor and Prevenar, which was partially offset by the impact of the transfer of certain product rights to the Pfizer-Hisun joint venture in first-quarter 2013 and the timing of government purchases of Enbrel and Prevenar in certain other emerging markets. Operational revenue growth in emerging markets is expected to accelerate in the second half of the year to a high-single-digit percentage, with the full-year 2013 operational revenue growth now expected to be a mid-single-digit percentage.
    • Established Products: Revenues decreased 7% operationally, primarily due to multi-source generic competition in the U.S. for Lipitor beginning in late-May 2012. This decrease was partially offset by revenues from products in certain markets that were shifted to the Established Products unit from other business units beginning January 1, 2013 and the contribution from the collaboration with Mylan Inc. to market generic drugs in Japan.
    • Consumer Healthcare: Revenues increased 5% operationally, primarily due to strong growth globally for Centrum as a result of several recent product launches in key international markets, as well as increased promotion in the U.S. following the announcement of favorable results from a landmark study that evaluated the long-term health benefits of multivitamins for men age 50 and older.
    • Oncology: Revenues increased 28% operationally, driven by the continued solid uptake of new products, most notably Inlyta and Xalkori in several major markets.
  • Adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses(2) in the aggregate decreased $241 million, or 3%, primarily reflecting the favorable impact of foreign exchange and, to a much lesser extent, the benefits of cost-reduction and productivity initiatives, including a reduction in the number of colleagues and more streamlined corporate support functions. Adjusted cost of sales(2) as a percentage of revenues was favorably impacted by foreign exchange, while unfavorably impacted by the decline in revenues contributing to a shift in geographic and business mix given the aforementioned products that lost exclusivity in various markets.
  • The effective tax rate on adjusted income(2) reflected a 0.6 percentage point decrease, primarily due to the jurisdictional mix of earnings and the extension of the U.S. research and development tax credit that was signed into law in January 2013.
  • The diluted weighted-average shares outstanding declined by approximately 420 million shares, primarily due to the company’s ongoing share-repurchase program.
  • In addition to the aforementioned factors, second-quarter 2013 reported earnings were favorably impacted by the gain associated with the full disposition of Zoetis(1), income from a litigation settlement with Teva and Sun for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S. and lower charges related to other legal matters. Reported earnings were unfavorably impacted by a 5.1 percentage point increase in the effective tax rate on reported income(3) from continuing operations, primarily attributable to the tax liability associated with the aforementioned settlement.

RECENT NOTABLE DEVELOPMENTS

Product Developments

  • Xeljanz
    • The U.S. Food and Drug Administration (FDA) accepted for review a supplemental new drug application for the Xeljanz moderately-to-severely active rheumatoid arthritis (RA) indication seeking expansion of the label to include inhibition of progression of structural damage. The FDA will review the application and is expected to provide a decision by February 2014.
    • The Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) adopted a negative opinion for Xeljanz for the treatment of adult patients with moderate-to-severe active RA. Pfizer appealed this opinion and sought a re-examination of the opinion by the CHMP. Upon re-examination, the CHMP reached a negative opinion. The company is currently evaluating the feedback from the CHMP, will determine next steps to resubmit a Marketing Authorization Application to the EMA and anticipates that this will result in a several-year delay.
    • The phase 3 Xeljanz psoriasis program continues to progress. Due to the large size and complexity of the database, Pfizer has encountered challenges in analyzing the data. As a result, the company now expects to announce the topline results from the first two phase 3 studies by the end of 2013, and the topline results from the two phase 3 pivotal studies in second-quarter 2014. This unexpected delay is not the result of any safety issues.
  • Prevenar -- The European Commission (EC) approved Prevenar 13 for an expanded indication to include adults aged 18 to 49 years for active immunization for the prevention of invasive disease caused by vaccine-type Streptococcus pneumoniae. The EC is the first regulatory authority to approve Prevenar 13 to offer protection against invasive disease at all stages of life.
  • Eliquis
    • The FDA accepted for review a supplemental new drug application for Eliquis for the prophylaxis of deep vein thrombosis, which may lead to pulmonary embolism, in adult patients who have undergone hip or knee replacement surgery. The FDA will review the application and is expected to provide a decision by March 15, 2014.
    • The phase 3 AMPLIFY trial presented at the 24th Congress of the International Society on Thrombosis and Haemostasis demonstrated that Eliquis as a single-agent achieved the primary efficacy endpoint of noninferiority to current standard of care in the reduction of the composite endpoint of recurrent symptomatic acute venous thromboembolism (VTE) or VTE-related death and met the primary safety endpoint of superiority to current standard of care for major bleeding. Pfizer, along with its partner Bristol-Myers Squibb, plan to file for the initial and long-term treatment of VTE, as well as for extended prevention of recurrent VTE, with the FDA and the EMA by the end of the year.

Pipeline Developments

  • Palbociclib received Breakthrough Therapy designation by the FDA for the potential treatment of patients with breast cancer.
  • A phase 3 study evaluating the safety and efficacy of inotuzumab ozogamicin in patients with relapsed or refractory CD22+ aggressive non-Hodgkin lymphoma who are not candidates for intensive high-dose chemotherapy was discontinued due to futility. This compound continues to be studied in adult acute lymphoblastic leukemia and other hematological malignancies.

Business Development/Portfolio Review

  • Pfizer accepted 405.1 million shares of its common stock valued at $11.4 billion in exchange for its remaining 80.2% stake in Zoetis(1)pursuant to a registered exchange offer to Pfizer’s shareholders. As a result, Pfizer no longer has an ownership interest in Zoetis(1) and recorded a gain of $10.5 billion (pre-tax) on the disposition. As of June 24, 2013, those 405.1 million shares are no longer outstanding, which will have a favorable impact on earnings per share over time.
  • Pfizer entered into a worldwide (except Japan) collaboration agreement with Merck & Co., Inc. to develop and commercialize ertugliflozin and ertugliflozin-containing fixed-dose combinations with metformin and Januvia® (sitagliptin) tablets. Ertugliflozin is Pfizer’s investigational medicine for type 2 diabetes, with phase 3 trials expected to begin later in 2013.

Other Developments

  • Pfizer announced plans to move forward to internally separate its commercial operations into three business segments, two of which will include Innovative business lines and a third which will include the Value business line. Each of the three segments will include developed markets and emerging markets. The changes will be implemented in fiscal 2014 in countries that do not require a consultation with works councils or unions, and will be implemented in countries that require consultation after the successful conclusion of those processes. Beginning with the first-quarter 2014 financial results, the company will provide greater financial transparency for each of these three business segments, which will include a 2014 baseline management view of profit and loss for each segment.
  • The Board of Directors authorized a new $10 billion share repurchase program to be utilized over time. This new program is in addition to the $3.1 billion of authorization currently remaining under the previous share repurchase program.
  • Pfizer and Nycomed (now part of Takeda), the owner of the U.S. patent, reached a $2.15 billion litigation settlement with Teva and Sun for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S. prior to the January 2011 expiry of the patent for the active ingredient. Pfizer and Takeda will divide the proceeds of the settlement, with Pfizer receiving $1.4 billion (pre-tax).

For additional details, see the attached financial schedules, product revenue tables and disclosure notice.

(1)   On June 24, 2013, Pfizer completed the full disposition of Zoetis, Inc. (Zoetis) and, as a result, Pfizer now reports the financial results of its Animal Health business as a discontinued operation in the condensed consolidated statements of income for second-quarter and year-to-date for both 2013 and 2012.
     
    The full disposition was achieved through a series of steps, including the formation of Zoetis, a separate company to which Pfizer transferred substantially all of its animal health assets and liabilities, an initial public offering of a 19.8% interest in Zoetis and an exchange offer for the remaining 80.2% interest. The financial results of Zoetis, the standalone public company, may differ from the financial results of the Animal Health business reflected in Pfizer’s condensed consolidated statements of income as a discontinued operation, as the components of this business differed from Zoetis.
     
(2)  

"Adjusted Income" and its components and "Adjusted Diluted Earnings Per Share (EPS)" are defined as reported U.S. generally accepted accounting principles (GAAP) net income(3) and its components and reported diluted EPS(3) excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Adjusted Cost of Sales, Adjusted Selling, Informational and Administrative (SI&A) expenses, Adjusted Research and Development (R&D) expenses and Adjusted Other (Income)/Deductions are income statement line items prepared on the same basis, and, therefore, components of the overall adjusted income measure. As described under Adjusted Income in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of Pfizer's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013, management uses adjusted income, among other factors, to set performance goals and to measure the performance of the overall company. We believe that investors' understanding of our performance is enhanced by disclosing this measure. See the accompanying reconciliations of certain GAAP reported to non-GAAP adjusted information for the second quarter and first six months of 2013 and 2012, as well as reconciliations of full-year 2013 guidance for adjusted income and adjusted diluted EPS to full-year 2013 guidance for reported net income(3) and reported diluted EPS(3). The adjusted income and its components and adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted EPS.

     
(3)   “Reported Net Income” is defined as net income attributable to Pfizer Inc. in accordance with U.S. GAAP. “Reported Diluted EPS” is defined as reported diluted EPS attributable to Pfizer Inc. common shareholders in accordance with U.S. GAAP.
     
(4)   For a description of the revenues in each business unit, see Note 13 to Pfizer’s condensed consolidated financial statements included in Pfizer’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013.
     
(5)   Other represents revenues generated from Pfizer CentreSource, Pfizer’s contract manufacturing and bulk pharmaceutical chemical sales organization.
     
(6)   The 2013 financial guidance reflects the following:
  • The financial results of the Animal Health business from January 1, 2013 to June 24, 2013, as well as the gain on disposal of Zoetis(1), are presented as a discontinued operation. As a result, they have been excluded from all components of the financial guidance except Reported Diluted EPS(3). Reported Diluted EPS(3) guidance includes the gain on disposal of Zoetis(1), as well as the financial results of the Animal Health business as follows:
    • January 1, 2013 to February 6, 2013: 100% of Zoetis(1) financial results are included
    • February 7, 2013 to June 24, 2013: 80.2% of Zoetis(1) financial results are included; 19.8% of Zoetis(1) financial results are excluded, as this interest in Zoetis(1) was no longer owned by Pfizer
    • June 24, 2013 through December 31, 2013: no actual or projected financial results of Zoetis(1) are included
  • The weighted-average shares outstanding used in the computation of Adjusted(2) and Reported(3) Diluted EPS guidance reflects the reduction in shares of Pfizer’s outstanding common stock as a result of the Zoetis(1) exchange offer. Since this reduction occurred on June 24, 2013, Pfizer will only recognize a partial-year benefit to its Adjusted(2) and Reported(3) Diluted EPS guidance.
  • Reported Diluted EPS(3) guidance includes the income from a litigation settlement with Teva and Sun for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S.
  • Does not assume the completion of any business development transactions not completed as of June 30, 2013, including any one-time upfront payments associated with such transactions.
  • Excludes the potential effects of the resolution of litigation-related matters not substantially resolved as of June 30, 2013.
  • Exchange rates assumed are a blend of the actual exchange rates in effect through June 2013 and the mid-July 2013 exchange rates for the remainder of the year.
  • Reconciliation of the 2013 Adjusted Income(2) and Adjusted Diluted EPS(2) guidance to the 2013 Reported Net Income Attributable to Pfizer Inc. and Reported Diluted EPS Attributable to Pfizer Inc. common shareholders guidance:
                       
              ($ in billions, except per share amounts)        
              Income/(Expense)       Net Income           Diluted EPS
              Adjusted income/diluted EPS(2) guidance       $14.4 - $15.1           $2.10 - $2.20
              Purchase accounting impacts of transactions completed as of June 30, 2013       (3.4)        

 

(0.50)
              Acquisition-related costs       (0.4 - 0.5)           (0.06 - 0.07)
              Non-acquisition-related restructuring costs      

(0.5 - 0.8)

          (0.08 - 0.12)
              Certain other items incurred through June 30, 2013       0.7           0.10
             

Discontinued operations

      10.7           1.56
              Reported net income attributable to Pfizer Inc./diluted EPS(3) guidance       $21.1 - $22.2           $3.07 - $3.22
                                   
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(1)
(UNAUDITED)
(millions, except per common share data)
                                             
                                             
        Second-Quarter   % Incr. /   Six Months   % Incr. /
        2013   2012   (Decr.)   2013   2012   (Decr.)
  Revenues   $ 12,973     $ 13,968     (7)   $ 25,383     $ 27,813     (9)
  Costs and expenses:                                        
    Cost of sales(2)     2,242       2,376     (6)     4,505       4,759     (5)
    Selling, informational and administrative expenses(2)     3,591       3,665     (2)     6,808       7,343     (7)
    Research and development expenses(2)     1,530       1,600     (4)     3,240       3,574     (9)
    Amortization of intangible assets(3)     1,140       1,275     (11)     2,359       2,678     (12)
    Restructuring charges and certain acquisition-related costs     183       184     (1)     314       773     (59)
   

Other (income)/deductions—net(4)

   

(1,070

)

    688     *    

(925

)

    2,327     *
  Income from continuing operations before provision                                        
    for taxes on income     5,357       4,180     28     9,082       6,359     43
  Provision for taxes on income     1,782       1,180     51     2,891       1,805     60
  Income from continuing operations     3,575       3,000     19     6,191       4,554     36
 

Discontinued operations—net of tax

    10,559       260     *     10,708       509     *
  Net income before allocation to noncontrolling interests     14,134       3,260     *     16,899       5,063     *
  Less: Net income attributable to noncontrolling interests     39       7     *     54       16     *
  Net income attributable to Pfizer Inc.   $ 14,095     $ 3,253     *   $ 16,845     $ 5,047     *
 

Earnings per common share—basic:

                                       
    Income from continuing operations attributable to                                        
    Pfizer Inc. common shareholders   $ 0.51     $ 0.40     28   $ 0.87     $ 0.60     45
   

Discontinued operations—net of tax

    1.50       0.03     *     1.50       0.07     *
    Net income attributable to Pfizer Inc. common shareholders   $ 2.00     $ 0.44     *   $ 2.37     $ 0.67     *
 

Earnings per common share—diluted:

                                       
    Income from continuing operations attributable to                                        
    Pfizer Inc. common shareholders   $ 0.50     $ 0.40     25   $ 0.86     $ 0.60     43
   

Discontinued operations—net of tax

    1.48       0.03     *     1.49       0.07     *
    Net income attributable to Pfizer Inc. common shareholders   $ 1.98     $ 0.43     *   $ 2.34     $ 0.67     *
  Weighted-average shares used to calculate earnings per common share:                                    
    Basic     7,042       7,476           7,115       7,506      
    Diluted     7,117       7,537           7,185       7,570      
                                             

* Calculation not meaningful.

                                             

See next page for notes (1) through (4).

                                             
EPS amounts may not add due to rounding.
 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
     
(1)   The financial statements present the three and six months ended June 30, 2013 and July 1, 2012. Subsidiaries operating outside the United States are included for the three and six months ended May 26, 2013 and May 27, 2012.
     
    On June 24, 2013, we completed the full disposition of our Animal Health business (Zoetis) and recognized a gain of approximately $10.5 billion (pre-tax) related to this disposal in Discontinued operations––net of tax. The operating results of this business are reported asDiscontinued operations––net of tax for all periods presented.
     
    On November 30, 2012, we completed the sale of our Nutrition business. The operating results of this business are reported asDiscontinued operations––net of tax for the three and six months ended July 1, 2012.
     
    The financial results for the three and six months ended June 30, 2013 are not necessarily indicative of the results which could ultimately be achieved for the full year.
     
(2)   Exclusive of amortization of intangible assets, except as discussed in footnote (3) below.
     
(3)   Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as these intangible assets benefit multiple business functions. Amortization expense related to intangible assets that are associated with a single function is included in Cost of salesSelling, informational and administrative expenses or Research and development expenses, as appropriate.
     
(4)   Other (income)/deductions––net include the following:
     
                  Second-Quarter     Six Months
              (millions of dollars)   2013     2012     2013     2012
              Interest income(a)   $ (102 )     $ (85 )     $ (197 )     $ (166 )
              Interest expense(a)     356         378         727         768  
              Net interest expense     254         293         530         602  
              Royalty-related income     (120 )       (103 )       (183 )       (194 )
              Patent litigation settlement income(b)     (1,351 )       -         (1,351 )       -  
              Other legal matters, net(c)     (12 )       473         (95 )       1,287  
              Gain associated with the transfer of certain product rights to an equity-method investment(d)     31         -         (459 )       -  
              Net gain on asset disposals     (28 )       (17 )       (54 )       (24 )
              Certain asset impairment charges(e)     127         78         525         510  
              Costs associated with the Zoetis IPO(f)     -         29         18         61  
              Other, net     29         (65 )       144         85  
              Other (income)/deductions––net   $ (1,070 )     $ 688       $ (925 )     $ 2,327  
      (a)   Interest income increased in the second quarter and first six months of 2013 due to higher cash and investment balances. Interest expense decreased in the second quarter and first six months of 2013 due to lower debt balances and the effective conversion of some fixed-rate liabilities to floating-rate liabilities.
           
      (b)   Reflects income from a litigation settlement with Teva Pharmaceuticals Industries, Limited and Sun Pharmaceutical Industries, Limited for patent-infringement damages resulting from their "at-risk" launches of generic Protonix in the United States.
           
      (c)   In the first six months of 2013, primarily includes an $80 million insurance recovery related to a certain litigation matter. In the second quarter and first six months of 2012, primarily includes charges related to hormone-replacement therapy litigation. The first six months of 2012 also includes a $450 million settlement of a lawsuit by Brigham Young University related to Celebrex.
           
      (d)   In the first six months of 2013, represents the gain associated with the transfer of certain product rights to Pfizer's 49%-owned equity-method investment in China.
           
      (e)   In the first six months of 2013, primarily relates to developed technology (for use in the development of bone and cartilage) acquired in connection with our acquisition of Wyeth, and, to a lesser extent, two in-process research and development (IPR&D) compounds and certain investments. In the first six months of 2012, primarily relates to an IPR&D compound (targeting autoimmune diseases) acquired in connection with our acquisition of Wyeth and, to a lesser extent, developed technology rights and certain investments.
           
      (f)   Costs incurred in connection with the initial public offering (IPO) of an approximate 19.8% ownership interest in Zoetis. Includes expenditures for banking, legal, accounting and similar services.
           
PFIZER INC. AND SUBSIDIARY COMPANIES
RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)
(millions of dollars, except per common share data)
                                     
      Quarter Ended June 30, 2013
            Purchase     Acquisition-           Certain      
      GAAP     Accounting     Related     Discontinued     Significant     Non-GAAP
      Reported(1)     Adjustments     Costs(2)     Operations     Items(3)     Adjusted(4)
Revenues   $ 12,973   $ -   $ -   $ -   $ -   $ 12,973
Cost of sales(5)     2,242     15     (50)     -     (13)     2,194
Selling, informational and administrative expenses(5)     3,591     1     (6)     -     (36)     3,550
Research and development expenses(5)     1,530     1     -     -     (10)     1,521
Amortization of intangible assets(6)     1,140     (1,097)     -     -     -     43
Restructuring charges and certain acquisition-related costs     183     -     (57)     -     (126)     -
Other (income)/deductions––net     (1,070)     (28)     -     -     1,197     99
Income from continuing operations before provision for taxes on income     5,357     1,108     113     -     (1,012)     5,566
Provision for taxes on income     1,782     298     (75)     -     (452)     1,553
Income from continuing operations     3,575     810     188     -     (560)     4,013
Discontinued operations––net of tax     10,559     -     -     (10,559)     -     -
Net income attributable to noncontrolling interests     39     -     -     (29)     -     10
Net income attributable to Pfizer Inc.     14,095     810     188     (10,530)     (560)     4,003
Earnings per common share attributable to Pfizer Inc.––diluted     1.98     0.11     0.03     (1.48)     (0.08)     0.56
                                     
                                     
      Six Months Ended June 30, 2013
            Purchase     Acquisition-           Certain      
      GAAP     Accounting     Related     Discontinued     Significant     Non-GAAP
      Reported(1)     Adjustments     Costs(2)     Operations     Items(3)     Adjusted(4)
Revenues   $ 25,383   $ -   $ -   $ -   $ -   $ 25,383
Cost of sales(5)     4,505     20     (83)     -     (19)     4,423
Selling, informational and administrative expenses(5)     6,808     6     (8)     -     (78)     6,728
Research and development expenses(5)     3,240     2     -     -     (103)     3,139
Amortization of intangible assets(6)     2,359     (2,277)     -     -     -     82
Restructuring charges and certain acquisition-related costs     314     -     (112)     -     (202)     -
Other (income)/deductions––net     (925)     (78)     -     -     1,326     323
Income from continuing operations before provision for taxes on income     9,082     2,327     203     -     (924)     10,688
Provision for taxes on income     2,891     632     (49)     -     (548)     2,926
Income from continuing operations     6,191     1,695     252     -     (376)     7,762
Discontinued operations––net of tax     10,708     -     -     (10,708)     -     -
Net income attributable to noncontrolling interests     54     -     -     (35)     -     19
Net income attributable to Pfizer Inc.     16,845     1,695     252     (10,673)     (376)     7,743
Earnings per common share attributable to Pfizer Inc.––diluted     2.34     0.24     0.04     (1.49)     (0.05)     1.08
                                     
See end of tables for notes (1) through (6).
                                     
Certain amounts may reflect rounding adjustments.
 
PFIZER INC. AND SUBSIDIARY COMPANIES
RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)
(millions of dollars, except per common share data)
                                     
      Quarter Ended July 1, 2012
            Purchase     Acquisition-           Certain      
      GAAP     Accounting     Related     Discontinued     Significant     Non-GAAP
      Reported(1)     Adjustments     Costs(2)     Operations     Items(3)     Adjusted(4)
Revenues   $ 13,968   $ -   $ -   $ -   $ -   $ 13,968
Cost of sales(5)     2,376     (2)     (54)     -     (27)     2,293
Selling, informational and administrative expenses(5)     3,665     2     (4)     -     (15)     3,648
Research and development expenses(5)     1,600     2     -     -     (37)     1,565
Amortization of intangible assets(6)     1,275     (1,214)     -     -     -     61
Restructuring charges and certain acquisition-related costs     184     -     (170)     -     (14)     -
Other (income)/deductions––net     688     59     -     -     (579)     168
Income from continuing operations before provision for taxes on income     4,180     1,153     228     -     672     6,233
Provision for taxes on income     1,180     310     50     -     237     1,777
Income from continuing operations     3,000     843     178     -     435     4,456
Discontinued operations––net of tax     260     -     -     (260)     -     -
Net income attributable to noncontrolling interests     7     -     -     -     -     7
Net income attributable to Pfizer Inc.     3,253     843     178     (260)     435     4,449
Earnings per common share attributable to Pfizer Inc.––diluted     0.43     0.11     0.02     (0.03)     0.06     0.59
                                     
                                     
      Six Months Ended July 1, 2012
            Purchase     Acquisition-           Certain      
      GAAP     Accounting     Related     Discontinued     Significant     Non-GAAP
      Reported(1)     Adjustments     Costs(2)     Operations     Items(3)     Adjusted(4)
Revenues   $ 27,813   $ -   $ -   $ -   $ -   $ 27,813
Cost of sales(5)     4,759     (9)     (130)     -     (27)     4,593
Selling, informational and administrative expenses(5)     7,343     5     (5)     -     (31)     7,312
Research and development expenses(5)     3,574     3     (5)     -     (339)     3,233
Amortization of intangible assets(6)     2,678     (2,553)     -     -     -     125
Restructuring charges and certain acquisition-related costs     773     -     (261)     -     (512)     -
Other (income)/deductions––net     2,327     (32)     -     -     (1,823)     472
Income from continuing operations before provision for taxes on income     6,359     2,586     401     -     2,732     12,078
Provision for taxes on income     1,805     690     113     -     850     3,458
Income from continuing operations     4,554     1,896     288     -     1,882     8,620
Discontinued operations––net of tax     509     -     -     (509)     -     -
Net income attributable to noncontrolling interests     16     -     -     -     -     16
Net income attributable to Pfizer Inc.     5,047     1,896     288     (509)     1,882     8,604
Earnings per common share attributable to Pfizer Inc.––diluted     0.67     0.25     0.04     (0.07)     0.25     1.14
                                     
See end of tables for notes (1) through (6).
                                     
Certain amounts may reflect rounding adjustments.
 
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)
     
(1)   The financial statements present the three and six months ended June 30, 2013 and July 1, 2012. Subsidiaries operating outside the United States are included for the three and six months ended May 26, 2013 and May 27, 2012.
     
    On June 24, 2013, we completed the full disposition of our Animal Health business (Zoetis) and recognized a gain of approximately $10.5 billion (pre-tax) related to this disposal in Discontinued operations––net of tax. The operating results of this business are reported asDiscontinued operations––net of tax for all periods presented.
     
    On November 30, 2012, we completed the sale of our Nutrition business. The operating results of this business are reported asDiscontinued operations––net of tax for the three and six months ended July 1, 2012.
     
(2)   Acquisition-related costs include the following:
     
                      Second-Quarter     Six Months
              (millions of dollars)       2013     2012     2013     2012
                                             
              Integration costs(a)       $ 33       $ 105       $ 69       $ 200  
              Restructuring charges(a)         24         65         43         61  
              Additional depreciation––asset restructuring(b)         56         58         91         140  
              Total acquisition-related costs––pre-tax         113         228         203         401  
              Income taxes(c)         75         (50 )       49         (113 )
              Total acquisition-related costs––net of tax       $ 188       $ 178       $ 252       $ 288  
                                                         
    (a)   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. Restructuring charges include employee termination costs, asset impairments and other exit costs associated with business combinations. All of these costs and charges are included inRestructuring charges and certain acquisition-related costs.
         
    (b)   Represents the impact of changes in the estimated useful lives of assets involved in restructuring actions related to acquisitions. Included in Cost of sales ($50 million) and Selling, informational and administrative expenses ($6 million) for the three months ended June 30, 2013. Included in Cost of sales ($83 million) and Selling, informational and administrative expenses ($8 million) for the six months ended June 30, 2013. Included in Cost of sales ($54 million) and Selling, informational and administrative expenses ($4 million) for the three months ended July 1, 2012. Included in Cost of sales ($130 million), Selling, informational and administrative expenses ($5 million) and Research and development expenses ($5 million) for the six months ended July 1, 2012.
         
    (c)   Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. In the second quarter and first six months of 2013, also includes the unfavorable impact of the remeasurement of certain deferred tax liabilities resulting from plant network restructuring activities.
         
(3)   Certain significant items include the following:
     
                 

 

Second-Quarter     Six Months
              (millions of dollars)     2013     2012     2013     2012
                                       
              Restructuring charges(a)     $ 126       $ 14       $ 202       $ 512  
              Implementation costs and additional depreciation––asset restructuring(b)       59         56         198         374  
              Patent litigation settlement income(c)       (1,351 )       -         (1,351 )       -  
              Other legal matters, net(d)       (13 )       483         (100 )       1,258  
              Gain associated with the transfer of certain product rights to an equity-method investment(e)       31         -         (459 )       -  
              Certain asset impairment charges(f)       95         77         489         489  
              Costs associated with the Zoetis IPO(g)       -         29         18         61  
              Other       41         13         79         38  
              Total certain significant items––pre-tax       (1,012 )       672         (924 )       2,732  
              Income taxes(h)       452         (237 )       548         (850 )
              Total certain significant items––net of tax     $ (560 )     $ 435       $ (376 )     $ 1,882  
                                                       
    (a)   Primarily related to our cost-reduction and productivity initiatives. Included in Restructuring charges and certain acquisition-related costs.
         
    (b)   Primarily related to our cost-reduction and productivity initiatives. Included in Cost of sales ($13 million), Selling, informational and administrative expenses ($36 million) and Research and development expenses ($10 million) for the three months ended June 30, 2013. Included in Cost of sales ($19 million), Selling, informational and administrative expenses ($76 million) and Research and development expenses ($103 million) for the six months ended June 30, 2013. Included in Cost of sales ($4 million), Selling, informational and administrative expenses ($15 million) and Research and development expenses ($37 million) for the three months ended July 1, 2012. Included in Cost of sales ($4 million), Selling, informational and administrative expenses ($31 million) andResearch and development expenses ($339 million) for the six months ended July 1, 2012.
         
    (c)   Included in Other (income)/deductions––net. Reflects income from a litigation settlement with Teva Pharmaceuticals Industries, Limited and Sun Pharmaceutical Industries, Limited for patent-infringement damages resulting from their "at-risk" launches of generic Protonix in the United States.
         
    (d)   Included in Other (income)/deductions––net. In the first six months of 2013, primarily includes an $80 million insurance recovery related to a certain litigation matter. In the second quarter and first six months of 2012, primarily includes charges related to hormone-replacement therapy litigation. The first six months of 2012 also includes a $450 million settlement of a lawsuit by Brigham Young University related to Celebrex.
         
    (e)   Included in Other (income)/deductions––net. In the first six months of 2013, represents the gain associated with the transfer of certain product rights to Pfizer's 49%-owned equity-method investment in China.
         
    (f)  

Primarily included in Other (income)/deductions––net. In the first six months of 2013, primarily relates to developed technology (for use in the development of bone and cartilage) acquired in connection with our acquisition of Wyeth, and, to a lesser extent, two IPR&D compounds. In the first six months of 2012, primarily relates to an IPR&D compound (targeting autoimmune diseases) acquired in connection with our acquisition of Wyeth and, to a lesser extent, developed technology rights.

         
    (g)   Included in Other (income)/deductions––net. Costs incurred in connection with the initial public offering of an approximate 19.8% ownership interest in Zoetis. Includes expenditures for banking, legal, accounting and similar services.
         
    (h)  

Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. The second quarter and first six months of 2013 were unfavorably impacted by the tax liability associated with the patent litigation settlement income. The first six months of 2013 unfavorably impacted by the non-deductibility of goodwill derecognized and the jurisdictional mix of the other intangible assets divested as part of the transfer of certain product rights to Pfizer's 49%-owned equity-method investment in China.

         
(4)   Non-GAAP Adjusted income and its components and Non-GAAP Adjusted diluted EPS are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted EPS. Despite the importance of these measures to management in goal setting and performance measurement, Non-GAAP Adjusted income and its components and Non-GAAP Adjusted diluted EPS are Non-GAAP financial measures that have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, Non-GAAP Adjusted income and its components and Non-GAAP Adjusted diluted EPS (unlike U.S. GAAP net income and its components and diluted EPS) may not be comparable to the calculation of similar measures of other companies. Non-GAAP Adjusted income and its components and Non-GAAP Adjusted diluted EPS are presented solely to permit investors to more fully understand how management assesses performance.
         
(5)   Exclusive of amortization of intangible assets, except as discussed in footnote (6) below.
         
(6)   Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as these intangible assets benefit multiple business functions. Amortization expense related to intangible assets that are associated with a single function is included in Cost of sales, Selling, informational and administrative expenses or Research and development expenses, as appropriate.
     
PFIZER INC.
REVENUES
SECOND QUARTER 2013 and 2012
(UNAUDITED)
(millions of dollars)
             
    WORLDWIDE   UNITED STATES   TOTAL INTERNATIONAL(a)
   

 

 

 

  % Change  

 

 

 

  % Change  

 

 

 

  % Change
   

2013

 

2012

  Total   Oper.  

2013

 

2012

  Total  

2013

 

2012

  Total   Oper.
TOTAL REVENUES   $12,973   $13,968   (7%)   (4%)   $5,090   $5,307   (4%)   $7,883   $8,661   (9%)   (4%)

REVENUES FROM

BIOPHARMACEUTICAL PRODUCTS:

  $12,110   $13,139   (8%)   (5%)   $4,738   $4,945   (4%)   $7,372   $8,194   (10%)   (5%)
Lyrica   1,134   1,035   10%   13%   491   404   22%   643   631   2%   8%
Prevnar/Prevenar family   969   996   (3%)   (1%)   417   427   (2%)   552   569   (3%)   1%
Enbrel (Outside the U.S. and Canada)   960   988   (3%)   1%   -   -   -   960   988   (3%)   2%
Celebrex   715   659   8%   10%   477   421   13%   238   238   -   6%
Lipitor(b)   545   1,220   (55%)   (54%)   86   296   (71%)   459   924   (50%)   (48%)
Viagra   484   485   -   1%   280   267   5%   204   218   (6%)   (3%)
Zyvox   346   343   1%   3%   170   161   6%   176   182   (3%)   2%
Sutent   312   319   (2%)   -   92   87   6%   220   232   (5%)   (1%)
Norvasc   313   348   (10%)   (4%)   10   11   (9%)   303   337   (10%)   (3%)
Premarin family   273   274   -   -   252   250   1%   21   24   (13%)   (8%)
BeneFIX   217   193   12%   15%   109   91   20%   108   102   6%   12%
Genotropin   198   212   (7%)   (2%)   53   50   6%   145   162   (10%)   (3%)
Vfend   177   178   (1%)   4%   14   18   (22%)   163   160   2%   7%
Pristiq   177   158   12%   13%   137   124   10%   40   34   18%   26%
Chantix/Champix   166   172   (3%)   (2%)   84   80   5%   82   92   (11%)   (8%)
Detrol/Detrol LA   155   205   (24%)   (23%)   105   127   (17%)   50   78   (36%)   (31%)
Xalatan/Xalacom   147   209   (30%)   (25%)   7   10   (30%)   140   199   (30%)   (24%)
ReFacto AF/Xyntha   146   138   6%   7%   31   26   19%   115   112   3%   4%
Medrol   123   141   (13%)   (11%)   39   43   (9%)   84   98   (14%)   (11%)
Effexor   125   106   18%   19%   56   24   133%   69   82   (16%)   (13%)
Zoloft   109   139   (22%)   (12%)   2   15   (87%)   107   124   (14%)   (3%)
Zithromax/Zmax   83   106   (22%)   (16%)   (2)   1   *   85   105   (19%)   (11%)
Zosyn/Tazocin   102   141   (28%)   (28%)   44   72   (39%)   58   69   (16%)   (16%)
Relpax   94   89   6%   7%   60   53   13%   34   36   (6%)   -
Fragmin   94   101   (7%)   (5%)   9   13   (31%)   85   88   (3%)   (1%)
Tygacil   92   86   7%   8%   41   38   8%   51   48   6%   11%
Rapamune   86   85   1%   3%   48   46   4%   38   39   (3%)   2%
Cardura   75   91   (18%)   (11%)   1   1   -   74   90   (18%)   (11%)
Revatio   78   143   (45%)   (43%)   20   87   (77%)   58   56   4%   10%
EpiPen   73   92   (21%)   (19%)   54   79   (32%)   19   13   46%   54%
Sulperazon   73   71   3%   4%   -   -   -   73   71   3%   5%
Xanax XR   65   69   (6%)   (2%)   11   11   -   54   58   (7%)   (2%)
Inlyta   71   17   *   *   35   17   106%   36   -   *   *
Aricept(c)   59   84   (30%)   (29%)   -   -   -   59   84   (30%)   (28%)
Xalkori   67   23   191%   196%   35   18   94%   32   5   *   *
Toviaz   65   52   25%   25%   31   28   11%   34   24   42%   42%
Caduet   56   58   (3%)   -   6   4   50%   50   54   (7%)   -
BMP2   66   67   (1%)   (2%)   66   67   (1%)   -   -   -   -
Inspra   59   56   5%   13%   2   2   -   57   54   6%   14%
Unasyn   53   57   (7%)   (1%)   -   2   (100%)   53   55   (4%)   3%
Neurontin   56   62   (10%)   (6%)   11   12   (8%)   45   50   (10%)   (7%)
Diflucan   60   67