Discontinued Operations and Equity-Method Investment

3 Months Ended

Apr. 04, 2021

Business Combinations, Disposal Groups, Including Discontinued Operations, Equity Method Investments And Research And Development Arrangement [Abstract]

Discontinued Operations and Equity-Method Investment

A. Discontinued Operations

Upjohn Separation and Combination with Mylan

On November 16, 2020, we completed the spin-off and the combination of the Upjohn Business with Mylan to form Viatris. See Note 1A.

In connection with this transaction, Pfizer and Viatris entered into various agreements to effect the separation and combination to provide a framework for our relationship after the combination, including a separation and distribution agreement, interim operating models, including agency arrangements, manufacturing and supply agreements (MSAs), transition service agreements (TSAs), a tax matters agreement, and an employee matters agreement, among others. The interim agency operating model arrangements primarily include billings, collections and remittance of rebates that we are performing on a transitional basis on behalf of Viatris. Under the MSAs, Pfizer or Viatris, as the case may be, manufactures, labels and packages products for the other party. In the first three months of 2021, the amounts recorded under the above agreements were not material to our consolidated results of operations. Net amounts due from Viatris under the above agreements were approximately $871 million as of April 4, 2021 and $401 million as of December 31, 2020. The cash flows associated with the above agreements are included in Net cash provided by operating activities from continuing operations, except for a $277 million payment to Viatris made in the first quarter of 2021 pursuant to terms of the separation agreement, which is reported in Other financing activities, net, and was recorded as a payable to Viatris in Other current liabilities as of December 31, 2020. In addition, Pfizer and Mylan had pre-existing arms-length commercial agreements, which are continuing with Viatris and are not material to Pfizer’s consolidated financial statements.

The operating results of the Upjohn Business and the Mylan-Japan collaboration are reported as Income from discontinued operations––net of tax.


Components of Income from discontinued operations––net of tax:
	Three Months Ended(a)
(MILLIONS)	April 4, 2021		March 29, 2020
Revenues	$	27	$	1,946
Costs and expenses:
Cost of sales	14		442
Selling, informational and administrative expenses	(8)		332
Research and development expenses	1		51
Amortization of intangible assets	—		36
Restructuring charges and certain acquisition-related costs	—		15
Other (income)/deductions––net	1		70
Pre-tax income from discontinued operations	19		1,000
Provision for taxes on income	10		119




Income from discontinued operations––net of tax	$	9	$	881

(a)In the three months ended April 4, 2021, Income from discontinued operations—net of tax primarily relates to the Mylan-Japan collaboration, which did not terminate until December 21, 2020 and which falls in Pfizer’s international first quarter of 2021, and adjustments to tax and legal matters directly related to the disposed Upjohn Business. In the three months ended March 29, 2020, Income from discontinued operations—net of tax relates to the Upjohn Business and the Mylan-Japan collaboration and includes the change in accounting principle in the first quarter of 2021 to MTM Accounting, which has been applied on a retrospective basis for all prior periods presented. See Note 1C.

B. Equity-Method Investment

Formation of Consumer Healthcare JV

On July 31, 2019, we completed a transaction in which we and GSK combined our respective consumer healthcare businesses into a new JV that operates globally under the GSK Consumer Healthcare name. In exchange, we received a 32% equity stake in the new company and GSK owns the remaining 68%.

We are accounting for our interest in the Consumer Healthcare JV as an equity-method investment. The carrying value of our investment in the Consumer Healthcare JV is $16.3 billion as of April 4, 2021 and $16.7 billion as of December 31, 2020 and is reported as a private equity investment in Equity-method investments as of April 4, 2021 and December 31, 2020. The Consumer Healthcare JV is a foreign investee whose reporting currency is the U.K. pound, and therefore we translate its financial statements into U.S. dollars and recognize the impact of foreign currency translation adjustments in the carrying value of our investment and in other comprehensive income. The decrease in the value of our investment from December 31, 2020 is primarily due to $126 million in pre-tax foreign currency translation adjustments (see Note 6), as well as dividends totaling approximately $274 million, partially offset by our share of the JV’s earnings. We record our share of earnings from the Consumer Healthcare JV on a quarterly basis on a one-quarter lag in Other (income)/deductions––net. Our total share of the JV’s earnings generated in the fourth quarter of 2020, which we recorded in our operating results in the first quarter of 2021, was $71 million. Our total share of the JV’s earnings generated in the fourth quarter of 2019, which we recorded in our operating results in the first quarter of 2020 was $11 million. See Note 4. The total amortization and adjustment of basis differences resulting from the excess of the initial fair value of our investment over the underlying equity in the carrying value of the net assets of the JV is included in Other (income)/deductions––net and was not material to our results of operations in the periods presented. See Note 4.



Summarized financial information for our equity method investee, the Consumer Healthcare JV, for the three months ending December 31, 2020, the most recent period available and for the three months ending December 31, 2019, is as follows:
	Three Months Ended
(MILLIONS)	December 31, 2020		December 31, 2019
Net sales	$	3,096	$	3,188
Cost of sales	(1,188)		(1,811)
Gross profit	$	1,908	$	1,377
Income from continuing operations	233		46
Net income	233		46
Income attributable to shareholders	221		37