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(A Business Unit of Pfizer
Combined Financial Statements as of December 31, 2019 and 2018
and for the Years Ended December 31, 2019, 2018 and 2017
and Report of Independent Registered Public Accounting Firm
Index to Financial Statements
| Page | ||||
| Report of Independent Registered Public Accounting Firm | 3 | |||
| Combined Statements of Income for the Years Ended December 31, 2019, 2018 and 2017 | 4 | |||
| Combined Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017 | 5 | |||
| Combined Balance Sheets as of December 31, 2019 and 2018 | 6 | |||
| Combined Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017 | 7 | |||
| Combined Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 | 8 | |||
| Notes to Combined Financial Statements | beginning on page 9 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Pfizer Inc.:
Combined Financial Statements
We have audited the accompanying combined balance sheets of Upjohn (a business unit of Pfizer Inc.) (the Company) as of
December 31, 2019 and 2018, the related combined statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the combined
financial statements). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
These combined financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these
combined financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the combined financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the combined financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company s auditor since 2018.
KPMG LLP is a Delaware limited liability partnership and the U.S. member
firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative ( KPMG International ), a Swiss entity.
(A Business Unit of Pfizer Inc.)
COMBINED STATEMENTS OF INCOME
| Year Ended December 31, | ||||||||||||
| (millions of dollars) | 2019 | 2018 | 2017 | |||||||||
| Revenues | $ | 10,244 | $ | 12,431 | $ | 13,359 | ||||||
| Costs and expenses: | ||||||||||||
| Cost of sales (a) | 1,713 | 2,003 | 2,036 | |||||||||
| Selling, informational and administrative expenses (a) | 2,252 | 2,568 | 2,771 | |||||||||
| Research and development expenses (a) | 279 | 308 | 343 | |||||||||
| Amortization of intangible assets | 148 | 157 | 166 | |||||||||
| Restructuring charges/(credits) | 159 | 39 | (80 | ) | ||||||||
| Other (income)/deductions net | 362 | 300 | 288 | |||||||||
| Income before provision/(benefit) for taxes on income | 5,331 | 7,056 | 7,835 | |||||||||
| Provision/(benefit) for taxes on income | 409 | 925 | (2,366 | ) | ||||||||
| Net income before allocation to noncontrolling interests | 4,922 | 6,131 | 10,201 | |||||||||
| Less: Net income attributable to noncontrolling interests | 5 | 3 | 3 | |||||||||
| Net income attributable to Upjohn | $ | 4,917 | $ | 6,128 | $ | 10,199 |
Amounts may not add due to rounding.
See Notes to Combined Financial Statements, which are an integral part of these statements.
(A Business Unit of Pfizer Inc.)
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
| Year Ended December 31, | ||||||||||||
| (millions of dollars) | 2019 | 2018 | 2017 | |||||||||
| Net income before allocation to noncontrolling interests | $ | 4,922 | $ | 6,131 | $ | 10,201 | ||||||
| Foreign currency translation adjustments | (14 | ) | (166 | ) | 214 | |||||||
| Benefit plans: actuarial gains/(losses), net | (14 | ) | (30 | ) | 74 | |||||||
| Reclassification adjustments related to amortization | 13 | 17 | 49 | |||||||||
| Reclassification adjustments related to curtailments and settlements | 14 | 3 | 4 | |||||||||
| Other | (6 | ) | 3 | (2 | ) | |||||||
| 7 | (6 | ) | 125 | |||||||||
| Benefit plans: prior service (costs)/credits and other, net | (2 | ) | (5 | ) | ||||||||
| Reclassification adjustments related to amortization | (22 | ) | (25 | ) | (25 | ) | ||||||
| Reclassification adjustments related to curtailments, net | (19 | ) | (1 | ) | (1 | ) | ||||||
| Other | 1 | |||||||||||
| (42 | ) | (31 | ) | (25 | ) | |||||||
| Other comprehensive income/(loss), before tax | (49 | ) | (203 | ) | 314 | |||||||
| Tax provision/(benefit) on other comprehensive income/(loss) (a) | (11 | ) | 27 | |||||||||
| Other comprehensive income/(loss) before allocation to noncontrolling interests | (49 | ) | (192 | ) | 286 | |||||||
| Comprehensive income before allocation to noncontrolling interests | 4,873 | 5,939 | 10,488 | |||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 3 | 1 | 4 | |||||||||
| Comprehensive income attributable to Upjohn | $ | 4,870 | $ | 5,937 | $ | 10,484 |
Amounts may not add due to rounding.
See Notes to Combined Financial Statements, which are an integral part of these statements.
(A Business Unit of Pfizer Inc.)
COMBINED BALANCE SHEETS
| (millions of dollars) | December 31, 2019 | December 31, 2018 | ||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 184 | $ | |||||
| Trade accounts receivable, less allowance for doubtful accounts: 2019 $40; 2018 $47 | 1,946 | 2,353 | ||||||
| Inventories | 1,155 | 1,235 | ||||||
| Current tax assets | 628 | 971 | ||||||
| Other current assets | 261 | 256 | ||||||
| Total current assets | 4,173 | 4,815 | ||||||
| Property, plant and equipment, less accumulated depreciation | 999 | 952 | ||||||
| Identifiable intangible assets, less accumulated amortization | 1,434 | 1,583 | ||||||
| Goodwill | 8,709 | 8,735 | ||||||
| Noncurrent deferred tax assets and other noncurrent tax assets | 651 | 577 | ||||||
| Other noncurrent assets | 399 | 312 | ||||||
| Total assets | $ | 16,366 | $ | 16,975 | ||||
| Liabilities and Equity | ||||||||
| Trade accounts payable | $ | 426 | $ | 656 | ||||
| Income taxes payable | 371 | 323 | ||||||
| Accrued compensation and related items | 335 | 332 | ||||||
| Other current liabilities | 2,125 | 2,460 | ||||||
| Total current liabilities | 3,257 | 3,771 | ||||||
| Pension benefit obligations, net | 306 | 248 | ||||||
| Postretirement benefit obligations, net | 198 | 251 | ||||||
| Noncurrent deferred tax liabilities | 38 | 56 | ||||||
| Other taxes payable | 4,623 | 5,249 | ||||||
| Other noncurrent liabilities | 426 | 407 | ||||||
| Total liabilities | 8,849 | 9,982 | ||||||
| Commitments and Contingencies | ||||||||
| Business unit equity | 8,224 | 7,653 | ||||||
| Accumulated other comprehensive loss | (707 | ) | (660 | ) | ||||
| Total equity | 7,517 | 6,992 | ||||||
| Total liabilities and equity | $ | 16,366 | $ | 16,975 |
not add due to rounding.
See Notes to Combined Financial Statements, which are an integral part of these statements.
(A Business Unit of Pfizer Inc.)
COMBINED STATEMENTS OF EQUITY
| Upjohn | ||||||||||||||||||||
| (millions of dollars) | Business Unit Equity | Accumulated Other Comp. Income/ (Loss) | Total Business Unit Equity | Equity Attributable to Noncontrolling Interests | Total Equity | |||||||||||||||
| Balance, January 1, 2017 | $ | 3,954 | $ | (755 | ) | $ | 3,198 | $ | $ | 3,198 | ||||||||||
| Net income | 10,199 | 10,199 | 3 | 10,201 | ||||||||||||||||
| Other comprehensive income/(loss), net of tax | 286 | 286 | 1 | 286 | ||||||||||||||||
| Share-based payment transactions | 103 | 103 | 103 | |||||||||||||||||
| Net transfers between Pfizer and noncontrolling interests | (4 | ) | (4 | ) | ||||||||||||||||
| Net transfers Pfizer (a) | (7,259 | ) | (7,259 | ) | (7,259 | ) | ||||||||||||||
| Balance, December 31, 2017 | 6,996 | (470 | ) | 6,526 | 6,526 | |||||||||||||||
| Net income | 6,128 | 6,128 | 3 | 6,131 | ||||||||||||||||
| Other comprehensive income/(loss), net of tax | (191 | ) | (191 | ) | (1 | ) | (192 | ) | ||||||||||||
| Share-based payment transactions | 104 | 104 | 104 | |||||||||||||||||
| Net transfers between Pfizer and noncontrolling interests | (1 | ) | (1 | ) | ||||||||||||||||
| Net transfers Pfizer (a), (b) | (5,576 | ) | (5,576 | ) | (5,576 | ) | ||||||||||||||
| Balance, December 31, 2018 | 7,653 | (660 | ) | 6,992 | 6,992 | |||||||||||||||
| Net income | 4,917 | 4,917 | 5 | 4,922 | ||||||||||||||||
| Other comprehensive income/(loss), net of tax | (47 | ) | (47 | ) | (2 | ) | (49 | ) | ||||||||||||
| Share-based payment transactions | 76 | 76 | 76 | |||||||||||||||||
| Net transfers between Pfizer and noncontrolling interests | (3 | ) | (3 | ) | ||||||||||||||||
| Net transfers Pfizer (a) | (4,421 | ) | (4,421 | ) | (4,421 | ) | ||||||||||||||
| Balance, December 31, 2019 | $ | 8,224 | $ | (707 | ) | $ | 7,517 | $ | $ | 7,517 |
Amounts may not add due to
See Notes to Combined Financial Statements, which are an integral part of these statements.
(A Business Unit of Pfizer Inc.)
COMBINED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
| (millions of dollars) | 2019 | 2018 | 2017 | |||||||||
| Operating Activities | ||||||||||||
| Net income before allocation to noncontrolling interests | $ | 4,922 | $ | 6,131 | $ | 10,201 | ||||||
| Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 311 | 353 | 375 | |||||||||
| Asset write-offs and related charges | 17 | 3 | 5 | |||||||||
| Tax Cuts and Jobs Act (TCJA) impact (a) | (67 | ) | (49 | ) | (4,988 | ) | ||||||
| Deferred taxes | (36 | ) | 47 | 840 | ||||||||
| Share-based compensation expense | 76 | 104 | 103 | |||||||||
| Benefit plan contributions in excess of expense/income | (91 | ) | (56 | ) | (17 | ) | ||||||
| Other adjustments, net | (100 | ) | 41 | 17 | ||||||||
| Other changes in assets and liabilities: | ||||||||||||
| Trade accounts receivable | 408 | (158 | ) | 241 | ||||||||
| Inventories | 74 | (310 | ) | 232 | ||||||||
| Other assets | (53 | ) | 63 | (147 | ) | |||||||
| Trade accounts payable | (241 | ) | 38 | (145 | ) | |||||||
| Other liabilities | (273 | ) | (481 | ) | 265 | |||||||
| Other tax accounts, net | (227 | ) | (7 | ) | 414 | |||||||
| Net cash provided by operating activities | 4,720 | 5,721 | 7,397 | |||||||||
| Investing Activities | ||||||||||||
| Purchases of property, plant and equipment | (104 | ) | (57 | ) | (50 | ) | ||||||
| Acquisitions of intangible assets | (2 | ) | ||||||||||
| Other investing activities, net (b) | 6 | |||||||||||
| Net cash used in investing activities | (98 | ) | (59 | ) | (50 | ) | ||||||
| Financing Activities | ||||||||||||
| Net financing activities with Pfizer | (4,438 | ) | (5,662 | ) | (7,350 | ) | ||||||
| Net cash used in financing activities | (4,438 | ) | (5,662 | ) | (7,350 | ) | ||||||
| Effect of exchange-rate changes on cash and cash equivalents | (1 | ) | ||||||||||
| Net increase/(decrease) in cash and cash equivalents | 184 | (2 | ) | |||||||||
| Cash and cash equivalents, beginning | 2 | |||||||||||
| Cash and cash equivalents, end | $ | 184 | $ | $ | ||||||||
| Supplemental Cash Flow Information | ||||||||||||
| Cash paid during the period for: | ||||||||||||
| Income taxes | $ | 1,076 | $ | 1,252 | $ | 1,216 | ||||||
| Interest |
Amounts may not add due to rounding.
See Notes to Combined Financial Statements, which are an integral part of these statements.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1. Business Description
Upjohn (collectively, Upjohn, the Upjohn Business, the business, the company, we, us and our) is a business unit of Pfizer Inc. (Pfizer). We are a China-based
global pharmaceutical company with a portfolio of well-established, primarily off-patent branded and generic medicines, including Lyrica, Lipitor, Norvasc, Celebrex and
Viagra, as well as a U.S.-based generics platform, Greenstone. Our pharmaceutical products are used to treat non-communicable diseases (NCDs). We commercialize, manufacture and develop pharmaceutical
products across a broad range of therapeutic areas, including cardiovascular, pain and neurology, psychiatry, urology and ophthalmology. The accompanying combined financial statements include the accounts of all operations that comprise the Upjohn
operations of Pfizer.
Our business and the pharmaceutical industry are characterized by meaningful differences in customer needs across different
regions. As a result of these differences, among other things, we manage our commercial operations through three geographic regions: Developed Markets, Greater China and Emerging Markets. For additional information about this operating structure,
Our revenues are derived from the sale of our pharmaceutical products in approximately 120 countries around the world. The majority
of our revenue is generated in the U.S., China and Japan. We sell our products to physicians, patients, pharmacists and retail channels, insurers, government agencies and other healthcare providers.
Around the world, Upjohn manufacturing of active pharmaceutical ingredients and finished dosage forms is performed by a combination of internal and external
manufacturing operations. We have eight manufacturing facilities located in Puerto Rico, Singapore, China, Ireland, Turkey, Egypt and Algeria. In 2019, we manufactured about 85% of the volume of active pharmaceutical ingredients for our
pharmaceutical products, with the remainder of our active pharmaceutical ingredients manufactured by Pfizer or by third-party partners.
end-to-end experience across the total product life cycle, which includes global regulatory licensing, launch, growth and post-approval lifecycle management. Our
research, development and medical platform seeks to maximize the impact of our existing product portfolio by examining whether there is an opportunity for new indications, label extensions, product formulations, and market registrations for our
products. We also use our platform to determine whether there is an opportunity to integrate new products into our portfolio.
On July 29, 2019, Pfizer
announced it had entered into a definitive agreement to combine Upjohn with Mylan N.V. (Mylan), creating a new global pharmaceutical company. The name of the new company to be formed by the planned combination of the Upjohn Business and Mylan will
be Viatris. Under terms of the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, Upjohn is expected to be spun-off or split-off to Pfizer s shareholders and, immediately thereafter, combined with Mylan. Pfizer shareholders would own 57% of the combined new company, and former Mylan shareholders would own 43%. Upjohn will issue
$12 billion of debt in connection with its separation from Pfizer, and the new company will make a cash payment to Pfizer equal to $12 billion as partial consideration for the contribution of the Upjohn Business from Pfizer to the new
company. The transaction is generally expected to be tax free to Pfizer and Pfizer shareholders and is expected to close mid-2020, subject to Mylan shareholder approval and satisfaction of other customary
closing conditions, including receipt of regulatory approvals.
Pfizer, the Upjohn Business and Mylan are in the process of negotiating the terms on which
Pfizer would transfer its Meridian Medical Technologies business (Meridian), the manufacturer of EpiPen and other auto-injector products, and/or certain Pfizer assets that currently form part
of the Mylan-Japan collaboration for generic drugs in Japan (Mylan-Japan collaboration) to Viatris following the completion of the proposed combination of the Upjohn Business and Mylan. There can be no assurance that any agreement or transaction
will result from these negotiations and if the parties are unsuccessful in their efforts to negotiate the terms of such potential transactions, Meridian and/or the Pfizer assets that currently form part of the Mylan-Japan collaboration will remain
with Pfizer. The Upjohn Business s results of operations, financial condition and cash flows presented in these combined financial statements and notes thereto do not include the results of operations, assets and liabilities or cash flows of
Meridian and the Mylan-Japan collaboration.
Note 2. Basis of Presentation
The combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP)
and present the combined balance sheets of Upjohn as of December 31, 2019 and 2018 and the related combined statements of income, comprehensive income, equity and cash flows of Upjohn for each of the years in the three-year period ended December 31,
2019. For operations outside the U.S., the combined financial information is included as of and for the fiscal year ended November 30 for each year presented. All significant intercompany balances and transactions among the legal entities that
comprise Upjohn have been eliminated. Balances due from or due to Pfizer that are expected to be cash-settled, if any, are included, depending on the nature of the balance, in Other current
NOTES TO COMBINED FINANCIAL STATEMENTS
assets, Other noncurrent assets, Other current liabilities and Other
noncurrent liabilities on the combined balance sheets. All balances and transactions among Upjohn and Pfizer that are not cash-settled are shown as part of Business unit equity on the combined balance sheets and represent the net of
amounts settled without payment (to)/from Pfizer. For additional information about balances and transactions among Upjohn and Pfizer, see Note 19.
Certain amounts in the combined financial statements and associated notes may not add due to rounding. All percentages have been calculated using unrounded
The combined financial statements have been derived from the consolidated financial statements and accounting records of Pfizer and include
allocations for direct costs and indirect costs attributable to the operations of the Upjohn business of Pfizer. As part of a Pfizer reorganization beginning in 2019, Upjohn was positioned as a standalone division within Pfizer with distinct and
dedicated manufacturing, marketing and other commercial activities, research, development, medical, regulatory and limited enabling functions. As a result, many of the costs for certain support functions that, prior to 2019, were provided to Upjohn
on a centralized basis within Pfizer are now, beginning in 2019, incurred directly by Upjohn.
These combined financial statements do not purport to
reflect what the results of operations, comprehensive income, financial position, equity or cash flows would have been had we operated as an independent standalone company during the periods presented.
NOTES TO COMBINED FINANCIAL STATEMENTS
Management believes that the allocations are a reasonable reflection of the services received or the costs incurred on behalf of Upjohn and its operations and
that the combined statements of income reflect all costs of the Upjohn Business of Pfizer.
The allocated expenses from Pfizer primarily include:
NOTES TO COMBINED FINANCIAL STATEMENTS
provision/(benefit) in the combined statements of income has been calculated as if Upjohn filed a tax return separate from Pfizer in the various jurisdictions where it does business.