| Acquisition of King Pharmaceuticals, Inc. |
Note 3.
Acquisition of King Pharmaceuticals, Inc.
On
January 31, 2011 (the acquisition date), we completed our tender
offer for all of the outstanding shares of common stock of King at
a purchase price of $14.25 per share in cash and acquired
approximately 92.5% of the outstanding shares. On February 28,
2011, we acquired all of the remaining shares of King for $14.25
per share in cash. As a result, the total fair value of
consideration transferred for King was approximately $3.6 billion
in cash ($3.2 billion, net of cash acquired).
King’s
principal businesses consist of a prescription pharmaceutical
business focused on delivering new formulations of pain treatments
designed to discourage common methods of misuse and abuse; the
Meridian auto-injector business for emergency drug delivery, which
develops and manufactures the EpiPen; an established products
portfolio; and an animal health business that offers a variety of
feed-additive products for a wide range of species.
The
following table summarizes the provisional amounts recognized for
assets acquired and liabilities assumed as of the acquisition
date.
|
(millions of dollars)
|
|
Amounts
Recognized
as of
Acquisition
Date
(Provisional)
|
|
| |
|
|
|
|
Working
capital, excluding inventories
|
|
$ |
190 |
|
|
Inventories
|
|
|
338 |
|
|
Property,
plant and equipment
|
|
|
413 |
|
|
Identifiable
intangible assets, excluding in-process research and
development
|
|
|
1,781 |
|
|
In-process
research and development
|
|
|
301 |
|
|
Net
tax accounts
|
|
|
(373 |
) |
|
All
other long-term assets and liabilities, net
|
|
|
114 |
|
|
Total
identifiable net assets
|
|
|
2,764 |
|
|
Goodwill
|
|
|
791 |
|
|
Net
assets acquired/total consideration transferred
|
|
$ |
3,555 |
|
As
of the acquisition date, the fair value of accounts receivable
approximated the book value acquired. The gross contractual amount
receivable was $200 million, virtually all of which is expected to
be collected.
Goodwill
is calculated as the excess of the consideration transferred over
the net assets recognized and represents the future economic
benefits arising from other assets acquired that could not be
individually identified and separately recognized. Specifically,
the goodwill recorded as part of the acquisition of King includes
the following:
|
●
|
the
expected synergies and other benefits that we believe will result
from combining the operations of King with the operations of
Pfizer;
|
| |
|
|
●
|
any
intangible assets that do not qualify for separate recognition, as
well as future, yet unidentified projects and products;
and
|
| |
|
|
●
|
the
value of the going-concern element of King’s existing
businesses (the higher rate of return on the assembled collection
of net assets versus if Pfizer had acquired all of the net assets
separately).
|
Goodwill
is not amortized and is not deductible for tax purposes. While the
allocation of goodwill among reporting units is not complete, we
expect that substantially all of the goodwill will be related to
our biopharmaceutical reporting units (see Note 11. Goodwill and Other
Intangible Assets for additional information).
The
assets and liabilities arising from contingencies recognized at
acquisition date, which are subject to change, are not significant
to Pfizer’s financial statements.
The
recorded amounts are provisional and subject to change.
Specifically, the following items are subject to
change:
|
●
|
Amounts
for intangibles, inventory and property, plant and equipment
(PP&E), pending finalization of valuation efforts for acquired
intangible assets and inventory and the confirmation of the
physical existence and condition of certain inventory and PP&E
assets.
|
|
●
|
Amounts
for environmental contingencies, pending the finalization of our
assessment and valuation of environmental matters.
|
|
●
|
Amounts
for legal contingencies, pending the finalization of our
examination and evaluation of the portfolio of filed
cases.
|
|
●
|
Amounts
for income tax assets, receivables and liabilities pending the
filing of King’s pre-acquisition tax returns and the receipt
of information from taxing authorities, which may change certain
estimates and assumptions used.
|
|
●
|
The
allocation of goodwill among reporting units.
|
The
following table presents information for King that is included in
Pfizer’s condensed consolidated statement of income from the
acquisition date, January 31, 2011, through Pfizer’s
second-quarter 2011 domestic and international
quarter-ends:
|
(millions of dollars)
|
|
King’s
Operations
Included
in Pfizer’s
Second-Quarter
2011
Results
|
|
|
King’s
Operations
Included
in Pfizer’s
Six-Month
2011
Results
|
|
| |
|
|
|
|
|
|
|
Revenues
|
|
$ |
357 |
|
|
$ |
581 |
|
|
Loss
from continuing operations attributable to Pfizer Inc. common
shareholders(a)
|
|
|
(5 |
) |
|
|
(74 |
) |
|
(a)
|
Includes
purchase accounting adjustments related to the fair value
adjustments for acquisition-date inventory estimated to have been
sold ($61 million pre-tax in the second quarter of 2011 and $119
million pre-tax in the first six months of 2011), amortization of
identifiable intangible assets acquired from King ($43 million
pre-tax in the second quarter of 2011 and $71 million pre-tax in
the first six months of 2011) and restructuring and integration
costs ($63 million pre-tax in the second quarter of 2011 and $159
million pre-tax in the first six months of 2011).
|
The
following table presents supplemental pro forma information as if
the acquisition of King had occurred on January 1,
2010:
| |
|
Pro
Forma Consolidated Results
|
|
|
|
|
Three
Months
Ended
|
|
|
Six
Months Ended
|
|
|
(millions of dollars, except per
share data)
|
|
July
4,
2010
|
|
|
July
3,
2011
|
|
|
July
4,
2010
|
|
| |
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
17,465 |
|
|
$ |
33,595 |
|
|
$ |
34,414 |
|
|
Income
from continuing operations attributable to Pfizer Inc. common
shareholders
|
|
|
2,408 |
|
|
|
5,008 |
|
|
|
4,314 |
|
|
Diluted
earnings per share attributable to Pfizer Inc. common
shareholders
|
|
|
0.30 |
|
|
|
0.63 |
|
|
|
0.53 |
|
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 $38 million in the second quarter of 2010, $6
million in the first six months of 2011 and $79 million in the
first six months of 2010).
|
|
●
|
Additional
amortization expense (approximately $43 million in the second
quarter of 2010 and $86 million in the first six months of 2010)
related to the fair value of identifiable intangible assets
acquired.
|
|
●
|
Additional
depreciation expense (approximately $9 million in the second
quarter of 2010, $3 million in the first six months of 2011 and $17
million in the first six months of 2010) 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 (addition of $61 million charge in the
second quarter of 2010, elimination of $119 million charge in the
first six months of 2011 and addition of $119 million charge in the
first six months of 2010).
|
|
●
|
Adjustment
for acquisition-related costs directly attributable to the
acquisition (addition of $63 million of charges in the second
quarter of 2010, elimination of $181 million of charges in the
first six months of 2011 and addition of $181 million of charges in
the first six months of 2010, reflecting charges incurred by both
King and Pfizer).
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|