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Other (Income)/Deductions - Net | 9 Months Ended
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Oct. 01, 2017
Other Income and Expenses [Abstract] |
Other (Income)/Deductions - Net | Other (Income)/Deductions—Net
The following table provides components of Other (income)/deductions––net:
|  | Three Months Ended |  | Nine Months Ended
(MILLIONS OF DOLLARS) |  | October 1, 2017 |  |  | October 2, 2016 |  |  | October 1, 2017 |  |  | October 2, 2016 |
Interest income(a) |  | $ | (99 | ) |  | $ | (123 | ) |  | $ | (275 | ) |  | $ | (357 | )
Interest expense(a) |  | 320 |  |  | 291 |  |  | 940 |  |  | 889 |
Net interest expense |  | 220 |  |  | 168 |  |  | 666 |  |  | 532 |
Royalty-related income(b) |  | (140 | ) |  | (233 | ) |  | (331 | ) |  | (695 | )
Certain legal matters, net(c) |  | 183 |  |  | (40 | ) |  | 194 |  |  | 494 |
Net gains on asset disposals(d) |  | (155 | ) |  | (47 | ) |  | (349 | ) |  | (81 | )
Loss on sale and impairment on remeasurement of HIS net assets(e) |  | (12 | ) |  | 1,422 |  |  | 52 |  |  | 1,422 |
Certain asset impairments(f) |  | 130 |  |  | 133 |  |  | 143 |  |  | 1,080 |
Business and legal entity alignment costs(g) |  | 16 |  |  | 69 |  |  | 54 |  |  | 180 |
Other, net(h) |  | (191 | ) |  | (55 | ) |  | (445 | ) |  | (117 | )
Other (income)/deductions––net |  | $ | 51 |  |  | $ | 1,417 |  |  | $ | (16 | ) |  | $ | 2,815 |
(a) | Interest income decreased in the third quarter and first nine months of 2017, primarily driven by a lower investment balance. Interest expense increased in the third quarter and first nine months of 2017, primarily as a result of higher short-term interest rates, offset, in part, by the retirement of high-coupon debt and the issuance of new low-coupon debt.
(b) | Royalty-related income decreased in the third quarter and first nine months of 2017, primarily due to lower royalty income for Enbrel of $139 million and $414 million, respectively, resulting from the expiration on October 31, 2016 of the 36-month royalty period under the collaboration agreement for Enbrel in the U.S. and Canada (the collaboration period under the agreement expired on October 31, 2013), partially offset by the addition of Xtandi royalty-related income of $73 million and $160 million, respectively.
(c) | In the third quarter and first nine months of 2017, primarily includes a $94 million charge to resolve a class action lawsuit filed by direct purchasers relating to Celebrex, which is subject to the negotiation of a final settlement agreement and court approval, and a $79 million charge to reflect damages awarded by a jury in a patent matter. In the first nine months of 2016, primarily includes amounts to resolve a Multi-District Litigation relating to Celebrex and Bextra that was pending against the Company in New York federal court for $486 million, partially offset by the reversal of a legal accrual where a loss was no longer deemed probable. In addition, the first nine months of 2016 includes a settlement related to a patent matter.
(d) | In the third quarter of 2017, primarily includes gains on sales/out-licensing of product and compound rights (approximately $71 million) and gains on sales and redemptions of investments in equity and debt securities (approximately $66 million). In the first nine months of 2017, primarily includes gains on sales and redemptions of investments in equity and debt securities (approximately $183 million), gains on sales/out-licensing of product and compound rights (approximately $141 million) and a gain on sale of property (approximately $52 million), partially offset by a net loss related to the sale of our 40% ownership investment in Teuto, including the extinguishment of a put option for the remaining 60% ownership interest (approximately $30 million). In the first nine months of 2016, includes gains on sales/out-licensing of product and compound rights (approximately $49 million).
(e) | In the third quarter and first nine months of 2017, represents adjustments to amounts previously recorded to write down the HIS net assets to fair value less costs to sell related to the sale of HIS net assets to ICU Medical. In the third quarter and first nine months of 2016, represents a charge related to the write-down of the HIS net assets to fair value less estimated costs to sell.
(f) | In the third quarter and first nine months of 2017, primarily includes an intangible asset impairment charge of $127 million related to developed technology rights, acquired in connection with our acquisition of Hospira, for a generic sterile injectable product for the treatment of edema associated with certain conditions. The intangible asset impairment charge for the third quarter and first nine months of 2017 is associated with EH and reflects, among other things, updated commercial forecasts and an increased competitive environment. In the third quarter of 2016, primarily includes intangible asset impairment charges of $126 million, reflecting $97 million of sterile injectable IPR&D compounds acquired in connection with our acquisition of InnoPharma and $29 million of other IPR&D assets acquired in connection with our acquisition of King in 2011. The intangible asset impairment charges for the third quarter of 2016 are associated with the following: EH ($97 million) and IH ($29 million). In the first nine months of 2016, primarily includes intangible asset impairment charges of $767 million, reflecting (i) $331 million related to developed technology rights for a generic injectable antibiotic product for the treatment of bacterial infections; and (ii) $265 million related to an IPR&D compound for the treatment of anemia, both acquired in connection with our acquisition of Hospira; (iii) $97 million of sterile injectable IPR&D compounds acquired in connection with our acquisition of InnoPharma; and (iv) $74 million of other IPR&D assets, $45 million of which were acquired in connection with our acquisition of Hospira and $29 million of which were acquired in connection with our acquisition of King in 2011. The intangible asset impairment charges for the first nine months of 2016 are associated with the following: EH ($738 million) and IH ($29 million). In addition, the first nine months of 2016 includes an impairment loss of $211 million related to Pfizer’s 49%-owned equity-method investment with Hisun in China, Hisun Pfizer, and an impairment loss of $50 million related to Pfizer’s 40%-owned equity-method investment in Teuto. For additional information concerning Hisun Pfizer and Teuto, see Note 2D.
The intangible asset impairment charge for 2016 for the IPR&D compound for the treatment of anemia acquired in connection with our acquisition of Hospira reflects, among other things, the impact of regulatory delays, including delays resulting from a court ruling, which required a 180-day waiting period after approval before a biosimilar product can be launched. The intangible asset impairment charges for 2016 for the sterile injectable IPR&D compounds acquired in connection with our acquisition of InnoPharma reflect, among other things, the impact of portfolio prioritization decisions and decreased commercial profiles of certain compounds. The intangible asset impairment charges for 2016 for developed technology rights and other IPR&D assets acquired in connection with our acquisition of Hospira reflect, among other things, the impact of new scientific findings, updated commercial forecasts, changes in pricing, and an increased competitive environment. The intangible asset impairment charges for 2016 for other IPR&D assets acquired in connection with our acquisition of King reflect changes in the competitive environment.
(g) | In the third quarter and first nine months of 2017 and 2016, represents expenses for changes to our infrastructure to align our commercial operations, including costs to internally separate our businesses into distinct legal entities, as well as to streamline our intercompany supply operations to better support each business.
(h) | In the third quarter and first nine months of 2017, includes, among other things, dividend income of $54 million and $211 million, respectively, from our investment in ViiV, and income of $62 million from resolution of a contract disagreement. In the first nine months of 2016, includes, among other things, $150 million paid to Allergan for reimbursement of Allergan’s expenses associated with the terminated transaction and income of $116 million from resolution of a contract disagreement.
The following table provides additional information about the intangible assets that were impaired during 2017 in Other (income)/deductions––net:
|  | Fair Value(a) |  | Nine Months Ended October 1, 2017
(MILLIONS OF DOLLARS) |  | Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Impairment
Intangible assets––Developed technology rights(b) |  | $ | 50 |  |  | $ | — |  |  | $ | — |  |  | $ | 50 |  |  | $ | 127 |
(a) | The fair value amount is presented as of the date of impairment, as these assets are not measured at fair value on a recurring basis.
(b) Reflects intangible assets written down to fair value in the third quarter of 2017. Fair value was determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We started with a forecast of all the expected net cash flows associated with the asset and then applied an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the product; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.

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- Definition The entire disclosure for other income or other expense items (both operating and nonoperating). Sources of nonoperating income or nonoperating expense that may be disclosed, include amounts earned from dividends, interest on securities, profits (losses) on securities, net and miscellaneous other income or income deductions. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 720 -URI http://asc.fasb.org/topic&trid=2122503 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 610 -URI http://asc.fasb.org/topic&trid=49130413 + Details
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