Basis of Presentation and Significant Accounting Policies

3 Months Ended

Apr. 04, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Significant Accounting Policies

A. Basis of Presentation

We prepared these condensed consolidated financial statements in conformity with U.S. GAAP, consistent in all material respects with those applied in our 2020 Form 10-K, except as disclosed in Note 1C. As permitted under the SEC requirements for interim reporting, certain footnotes or other financial information have been condensed or omitted.

These financial statements include all normal and recurring adjustments that are considered necessary for the fair statement of results for the interim periods presented. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2020 Form 10-K. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year.

Pfizer’s fiscal quarter-end for subsidiaries operating outside the U.S. is as of and for the three months ended February 28, 2021 and February 23, 2020, and for U.S. subsidiaries is as of and for the three months ended April 4, 2021 and March 29, 2020.

Business development activities impacted financial results in the periods presented. See Note 1A in our 2020 Form 10-K, and Note 2. On November 16, 2020, we completed the spin-off and the combination of our Upjohn Business with Mylan to form Viatris. For additional information, see Note 2B in our 2020 Form 10-K. On December 21, 2020, which falls in Pfizer’s international first quarter of 2021, Pfizer and Viatris completed the termination of the Mylan-Japan collaboration pursuant to an agreement dated November 13, 2020 and we transferred related inventories and operations that were part of the Mylan-Japan collaboration to Viatris. As a result, the financial position and results of operations of the Upjohn Business and the Mylan-Japan collaboration are presented as discontinued operations for all periods presented. Prior-period information has been restated to reflect our current organization structure.

B. New Accounting Standard Adopted in 2021

On January 1, 2021, we adopted a new accounting standard for income tax that eliminates certain exceptions to the guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

For information on new accounting standards adopted in 2020, see Note 1B in our 2020 Form 10-K.

C. Change in Accounting Principle

In the first quarter of 2021, we adopted a change in accounting principle to a more preferable policy under U.S. GAAP to immediately recognize actuarial gains and losses arising from the remeasurement of our pension and postretirement plans (“MTM Accounting”). Under the prior policy, we deferred recognition of these gains and losses in Accumulated other comprehensive loss. The accumulated actuarial gains/losses outside of a “corridor” were then amortized into net periodic benefit costs over the average remaining service period or the average life expectancy of participants. This change has been applied to all pension and postretirement plans on a retrospective basis for all prior periods presented, and as of January 1, 2020, resulted in a cumulative effect decrease to Retained earnings of $6.3 billion, with a corresponding offset to Accumulated other comprehensive loss. Each time a pension or postretirement plan is remeasured, the actuarial gain or loss is recognized immediately and classified as Other (income)/deductions––net.

We believe that MTM Accounting is a more preferable policy as it provides improved transparency of results and performance, better alignment with fair value accounting principles and a better reflection of current economic and interest rate trends on plan investments and assumptions and the actuarial impact of plan remeasurements.



The impacts of the adjustments on our condensed consolidated financial statements are summarized as follows:
	Three Months Ended
	April 4, 2021						March 29, 2020
(MILLIONS, EXCEPT PER COMMON SHARE DATA)	Previous Accounting Principle		Impact of Change		As Reported		Previous Accounting Principle		Impact of Change		As Adjusted
Condensed Consolidated Statements of Income:
Other (income)/deductions––net	$	(857)	$	(146)	$	(1,004)	$	216	$	(25)	$	190
Income from continuing operations before provision for taxes on income	5,536		146		5,683		2,817		25		2,842
Provision for taxes on income	773		32		805		355		4		359
Income from discontinued operations––net of tax	9		—		9		948		(68)		881
Net income before allocation to noncontrolling interests	4,772		114		4,886		3,410		(47)		3,364
Net income attributable to Pfizer Inc. common shareholders	4,763		114		4,877		3,401		(47)		3,355

Earnings per common share––basic:
Income from continuing operations attributable to Pfizer Inc. common shareholders	$	0.85	$	0.02	$	0.87	$	0.44	$	—	$	0.45
Income from discontinued operations––net of tax	—		—		—		0.17		(0.01)		0.16
Net income attributable to Pfizer Inc. common shareholders	0.85		0.02		0.87		0.61		(0.01)		0.60
Earnings per common share––diluted:
Income from continuing operations attributable to Pfizer Inc. common shareholders	$	0.84	$	0.02	$	0.86	$	0.44	$	—	$	0.44
Income from discontinued operations––net of tax	—		—		—		0.17		(0.01)		0.16
Net income attributable to Pfizer Inc. common shareholders	0.84		0.02		0.86		0.61		(0.01)		0.60

Condensed Consolidated Statements of Comprehensive Income:
Foreign currency translation adjustments, net	$	546	$	(81)	$	465	$	(1,272)	$	16	$	(1,256)
Benefit plans: actuarial gains/(losses), net	47		(47)		—		(166)		166		—
Reclassification adjustments related to amortization	75		(75)		—		66		(66)		—
Reclassification adjustments related to settlements, net	19		(19)		—		53		(53)		—
Other	(81)		81		—		16		(16)		—
Tax provision/(benefit) on other comprehensive income/(loss)	72		12		84		(377)		(3)		(380)

Condensed Consolidated Statements of Cash Flows:
Deferred taxes from continuing operations	$	167	$	32	$	199	$	77	$	4	$	82
Benefit plan contributions in excess of expense/income	(226)		(146)		(373)		(250)		(25)		(276)


	April 4, 2021						December 31, 2020
(MILLIONS)	Previous Accounting Principle		Impact of Change		As Reported		Previous Accounting Principle		Impact of Change		As Adjusted
Condensed Consolidated Balance Sheets:
Noncurrent deferred tax assets and other noncurrent tax assets	$	2,569	$	(32)	$	2,537	$	2,383	$	—	$	2,383
Other noncurrent assets	4,738		6		4,744		4,569		—		4,569
Pension benefit obligations	4,527		—		4,526		4,766		—		4,766
Retained earnings	95,044		114		95,158		96,770		(6,378)		90,392
Accumulated other comprehensive loss	(4,523)		(141)		(4,664)		(11,688)		6,378		(5,310)

D. Revenues and Trade Accounts Receivable

Customers––Our prescription pharmaceutical products are sold principally to wholesalers, but we also sell directly to retailers, hospitals, clinics, government agencies and pharmacies. In the U.S., we primarily sell our vaccines products directly to the federal government, CDC, wholesalers, individual provider offices, retail pharmacies and integrated delivery networks. Outside the U.S., we primarily sell our vaccines to government and non-government institutions.

Deductions from Revenues––Our accruals for Medicare, Medicaid and related state program and performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts are as follows:


(MILLIONS)	April 4, 2021		December 31, 2020
Reserve against Trade accounts receivable, less allowance for doubtful accounts	$	848	$	861
Other current liabilities:
Accrued rebates	3,211		3,017
Other accruals	449		436
Other noncurrent liabilities	340		399
Total accrued rebates and other sales-related accruals	$	4,848	$	4,712

Trade Accounts Receivable––Trade accounts receivable are stated at their net realizable value. The allowance for credit losses reflects our best estimate of expected credit losses of the receivables portfolio determined on the basis of historical experience, current information, and forecasts of future economic conditions. In developing the estimate for expected credit losses, trade accounts receivables are segmented into pools of assets depending on market (U.S. versus international), delinquency status, and customer type (high risk versus low risk and government versus non-government), and fixed reserve percentages are established for each pool of trade accounts receivables.

In determining the reserve percentages for each pool of trade accounts receivables, we considered our historical experience with certain customers and customer types, regulatory and legal environments, country and political risk, and other relevant current and future forecasted macroeconomic factors. These credit risk indicators are monitored on a quarterly basis to determine whether there have been any changes in the economic environment that would indicate the established reserve percentages should be adjusted, and are considered on a regional basis to reflect more geographic-specific metrics. Additionally, write-offs and recoveries of customer receivables are tracked against collections on a quarterly basis to determine whether the reserve percentages remain appropriate. When management becomes aware of certain customer-specific factors that impact credit risk, specific allowances for these known troubled accounts are recorded. Trade accounts receivable are written off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted.

During the three months ended April 4, 2021 and March 29, 2020, additions to the allowance for credit losses, write-offs and recoveries of customer receivables were not material to our condensed consolidated financial statements. For additional information on our trade accounts receivable, see Note 1G in our 2020 Form 10-K.