Pfizer 2013 Annual Report Download - page 70

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
2013 Financial Report 69
The unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company nor do they
reflect the expected realization of any cost savings associated with the acquisition. The unaudited pro forma consolidated results reflect the
historical financial information of Pfizer and King, adjusted for the following pre-tax amounts:
• Elimination of King's historical intangible asset amortization expense (approximately $6 million in 2011).
• Additional amortization expense (approximately $15 million in 2011) related to the fair value of identifiable intangible assets acquired.
• Additional depreciation expense (approximately $3 million in 2011) related to the fair value adjustment to property, plant and equipment
acquired.
• Adjustment related to the fair value adjustments to acquisition-date inventory estimated to have been sold (elimination of $160 million
charge in 2011).
• Adjustment for acquisition-related costs directly attributable to the acquisition (elimination of $224 million of charges in 2011, reflecting
charges incurred by both King and Pfizer).
B. Divestitures
Animal Health Business—Zoetis Inc.
On June 24, 2013, we completed the full disposition of our Animal Health business. The full disposition was completed through a series of
steps, including the formation of Zoetis, an initial public offering (IPO) of an approximate 19.8% interest in Zoetis and an exchange offer for the
remaining 80.2% interest.
Formation of Zoetis—On January 28, 2013, our then wholly owned subsidiary, Zoetis, issued $3.65 billion aggregate principal amount of
senior notes. Also, on January 28, 2013, we transferred to Zoetis substantially all of the assets and liabilities of our Animal Health business in
exchange for all of the Class A and Class B common stock of Zoetis, $1.0 billion of the $3.65 billion of Zoetis senior notes, and an amount of
cash equal to substantially all of the cash proceeds received by Zoetis from the remaining $2.65 billion of senior notes issued. The $1.0 billion
of Zoetis senior notes received by Pfizer were exchanged by Pfizer for the retirement of Pfizer commercial paper issued in 2012, and the cash
proceeds received by Pfizer of approximately $2.6 billion were used for dividends and stock buybacks.
Initial Public Offering (19.8% Interest)—On February 6, 2013, an IPO of the Class A common stock of Zoetis was completed, pursuant to
which we sold 99.015 million shares of Class A common stock of Zoetis (all of the Class A common stock, including shares sold pursuant to
the underwriters' overallotment option to purchase additional shares, which was exercised in full) in exchange for the retirement of
approximately $2.5 billion of Pfizer commercial paper issued in 2013. The Class A common stock sold in the IPO represented approximately
19.8% of the total outstanding Zoetis shares. The excess of the consideration received over the net book value of our divested interest was
approximately $2.3 billion and was recorded in Additional paid-in capital.
Exchange Offer (80.2% Interest)—On June 24, 2013, we exchanged all of our remaining interest in Zoetis, 400.985 million shares of Class A
common stock of Zoetis (after converting all of our Class B common stock into Class A common stock, representing approximately 80.2% of
the total outstanding Zoetis shares), for approximately 405.117 million outstanding shares of Pfizer common stock on a tax-free basis pursuant
to an exchange offer made to Pfizer shareholders. The $11.4 billion of Pfizer common stock received in the exchange transaction was
recorded in Treasury stock and was valued using the opening price of Pfizer common stock on June 24, 2013, the date we accepted the
Zoetis shares for exchange. The gain on the sale of the remaining interest in Zoetis was approximately $10.3 billion, net of income taxes
resulting from certain legal entity reorganizations, and was recorded in Gain on disposal of discontinued operations––net of tax in the
consolidated statement of income for the year ended December 31, 2013.
In summary, as a result of the above transactions, we received cash and were relieved of debt obligations in the aggregate amount of
approximately $6.1 billion and received shares of Pfizer common stock (held in Treasury stock) valued at approximately $11.4 billion.
The operating results of the animal health business are reported as Income from discontinued operations––net of tax in the consolidated
statements of income through June 24, 2013, the date of disposal. In addition, in the consolidated balance sheet as of December 31, 2012,
the assets and liabilities associated with this business are classified as Assets of discontinued operations and other assets held for sale and
Liabilities of discontinued operations, as appropriate. Prior-period financial information has been restated, as appropriate.
In connection with the above transactions, we entered into a transitional services agreement (TSA) and manufacturing and supply agreements
(MSAs) with Zoetis that are designed to facilitate the orderly transfer of business operations to the standalone Zoetis entity. The TSA relates
primarily to administrative services, which are generally to be provided within 24 months. Under the MSAs, we will manufacture and supply
certain animal health products to Zoetis for a transitional period of up to 5 years, with an ability to extend, if necessary, upon mutual agreement
of both parties. These agreements are not material and none confers upon us the ability to influence the operating and/or financial policies of
Zoetis subsequent to June 24, 2013, the full disposition date.
Nutrition Business
On November 30, 2012, we completed the sale of our Nutrition business to Nestlé for $11.85 billion in cash, and recognized a gain of
approximately $4.8 billion, net of tax, in Gain on disposal of discontinued operations––net of tax. The divested business includes:
• our former Nutrition operating segment and certain prenatal vitamins previously commercialized by the Pfizer Consumer Healthcare
operating segment; and