Pfizer 2013 Annual Report Download - page 36

Financial Review
Pfizer Inc. and Subsidiary Companies
2013 Financial Report 35
2012 v. 2011
The lower effective tax rate in 2012 compared to 2011 is primarily the result of:
• an increase, of approximately $1.1 billion in tax benefits, related to certain audit settlements in multiple jurisdictions and the expiration of
certain statutes of limitations covering various periods,
partially offset by:
• the impact of the expiration of the U.S. R&D tax credit on December 31, 2011; and
• the non-deductibility of the 2012 legal charge related to Rapamune (see the "Other (income)/deductions—Net" section of this Financial
Review).
For additional details about the resolution of certain tax positions, see Notes to Consolidated Financial Statements—Note 5A. Tax Matters:
Taxes on Income from Continuing Operations.
Changes in Tax Laws
On February 28, 2013, the Governor of Puerto Rico signed into law Act No. 2-2013, amending Sections 2101 and 2102 of the Puerto Rico
Internal Revenue Code of 1994, which provided for an excise tax that was effective beginning in 2011 (Act 154). The excise tax is imposed on
the purchase of products by multinational corporations and their affiliates from their Puerto Rico affiliates. As originally adopted, the excise tax
was to be in effect from 2011 through 2016 and the tax rate was to decline over time from 4% in 2011 to 1% in 2016. Act No. 2-2013 extended
the excise tax through 2017 and, effective July 1, 2013, increased the tax rate to 4% for all years through 2017. The impact of Act No. 2-2013
is being recorded in Cost of sales and Provision for taxes on income, as appropriate. All expected impacts in 2014 have been reflected in our
financial guidance for 2014.
On January 3, 2013, the President of the United States signed into law the American Taxpayer Relief Act of 2012 (the 2012 Act), which
extended the U.S. R&D tax credit for tax years 2012 and 2013, as well as other provisions. Given the enactment date of the 2012 Act, the
benefit related to our 2012 and 2013 R&D spending was recorded in 2013. On December 31, 2013, the U.S. R&D tax credit expired. Since the
U.S. R&D tax credit was in effect for all of 2013, the expiration has no impact on our 2013 results. We have not anticipated the extension of the
U.S. R&D tax credit in our financial guidance for 2014.
DISCONTINUED OPERATIONS
For additional information about our discontinued operations, see Notes to Consolidated Financial Statements—Note 2B. Acquisitions,
Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures.
The following table provides the components of Discontinued operations—net of tax:
Year Ended December 31,(a)
(MILLIONS OF DOLLARS) 2013 2012 2011
Revenues $2,201 $6,587 $6,897
Pre-tax income from discontinued operations(a) 408 1,253 1,310
Provision for taxes on income(b) 100 459 425
Income from discontinued operations––net of tax 308 794 885
Pre-tax gain on sale of discontinued operations 10,446 7,123 1,688
Provision for taxes on income(c) 92 2,340 384
Gain on disposal of discontinued operations––net of tax 10,354 4,783 1,304
Discontinued operations—net of tax $10,662 $5,577 $2,189
(a) Includes (i) the Animal Health (Zoetis) business through June 24, 2013, the date of disposal, (ii) the Nutrition business through November 30, 2012, the date of
disposal and (iii) the Capsugel business through August 1, 2011, the date of disposal.
(b) Includes a deferred tax benefit of $23 million for 2013 and $23 million for 2012, and a deferred tax expense of $28 million for 2011, which is net of a deferred tax
expense of $42 million in 2012 and includes a deferred tax expense of $6 million in 2011 related to investments in certain foreign subsidiaries, resulting from our
intention not to hold these subsidiaries indefinitely.
(c) For 2013, primarily reflects income tax expense of $122 million resulting from certain legal entity reorganizations. For 2012 and 2011, includes a deferred tax
expense of $1.4 billion for 2012 and $190 million for 2011, which includes a deferred tax expense of $2.2 billion for 2012 and $190 million for 2011 on certain
current-year funds earned outside the U.S. that will not be indefinitely reinvested overseas. For 2012, also includes a deferred tax benefit reflecting the reversal
of net deferred tax liabilities associated with the divested Nutrition assets.
ADJUSTED INCOME
General Description of Adjusted Income Measure
Adjusted income is an alternative view of performance used by management, and we believe that investors’ understanding of our
performance is enhanced by disclosing this performance measure. We report Adjusted income in order to portray the results of our major
operations––the discovery, development, manufacture, marketing and sale of prescription medicines, consumer healthcare (over-the-
counter) products, and vaccines––prior to considering certain income statement elements. We have defined Adjusted income as Net income