Analysis of Pfizer Investments Stated in 10K Report

Analysisof Pfizer Investments Stated in 10K Report

Analysisof Pfizer Investments Stated in 10K Report

Investmentsreported on the face of the balance sheet over the past two years

The 10K reportshows both short and long term investments. According to the report,the company reported cash and cash equivalents of US$3.641 billionand US$3.343 billion in 2015 and 2014 respectively (Pfizer Inc.,2016b). During the same periods, the firm had short-term investmentsof US$19.649 billion and US$32.779 billion. Long-term investmentswere US$15.999 billion and US$17.518 billion. Cash equivalents arehighly liquid, short-term investments with 3 months or less maturity.Thus, they are included as part of investments, as the notes toconsolidated financial statements refer to them as liquidinvestments, but with a short pool. The short-term investmentsreported include held-to-maturity, trading securities,available-for-sale securities, and private equity investmentsintended to be sold within a normal operating cycle. Long-terminvestments reported include non-operating assets, for example, debtand equity securities, cash set aside for long-term purposes,property held for speculation, and noncurrent receivables. However,plant, land, and equipment are excluded since they are utilized bythe company for the production purposes.

Additionalinformation reported on the financial statement notes

Note 2 and note7 of the company’s 10K report provides comprehensive information onthe investments reported in the balance sheet. Pfizer acquiredHospira in September 2015 for a total fair value of US$16.1 billion(Pfizer Inc., 2016a). The investment included short-term investments,assets, inventories, liabilities, and goodwill. Note 7 providessupplementary information on investments made, which includesecurities and trading funds, held-to-maturity debt securities, moneymarket funds, derivative financial instruments, andavailable-for-sale securities. Total investments are US$38.157billion for 2015 and US$53.627 billion for 2014. The notes sectionprovides data on the types of short and long term investments thatthe firm engaged in during the period under review. The grouping ofinvestments depends on their nature, the organization’s ability andintent to hold on the venture and the magnitude to which the firm maywish to exercise influence. The equity securities, tradingsecurities, and available-for-sale debt are carried at fair value,equity private securities accounted at cost or equity method, andheld-to-maturity securities accounted at amortized cost.

Unrealizedgains or losses reported over the past three years in shareholder’sequity

In 2015, Pfizerreported shareholders’ equity and total equity of US$64.72 billionand US$64.998 billion correspondingly. Shareholders’ equity stoodat US$71.301 billion and US$76.31 billion in 2014 and 2013respectively while total equity stood at US$71.622 and US$76.62billion. In 2012, the shareholders’ equity stood at US$81.26billion (Pfizer Inc., 2016b). The difference between shareholders’equity and total equity represented accumulated minority interest(proportion of equity ownership in a subsidiary not credited toPfizer). Thus, shareholders’ equity decreased from US$76.31 billionin 2013 to US$71.301 billion in 2014 and later to US$64.72 billion in2015. The data shows that the firm reported a gain of $150 million in2013 and unrealized losses of $222 and $227 in 2014 and 2015 (PfizerInc., 2016b).

Additionalinformation provided in financial statement disclosures

The notessection offers an evaluation of the unrealized gains/losses that thecompany accumulated during the 3-year period (note 6). At the startof 2013, the firm had a balance of $236 million securities availablefor sale, but it realized a loss of $86 million to close at $150million. Pfizer made a comprehensive loss of $372 million and US$5million in 2015 to realize losses of 222 and 227. Apart fromshareholders’ equity, the financial statement disclosures haveprovided information on unrealized losses and gains relating tofinancial instruments and benefit plans.

Equityinvestments and method utilized to report investments

The company utilizes the equity method to report some investments.Furthermore, private equity securities where the firm possesses greatinfluence are accounted through the method. Pfizer records shares ofinvestee’s expense and income using the equity method. These arerecorded in income/deductions while the excess of the investment costis recorded in identifiable assets. The firm’s investment in ViiVHealthcare Limited is evaluated using the equity method because ofthe significant influence that the company continues to have throughminority veto rights and board representation (Pfizer Inc., 2016a).The firm also accounts its investment in Teuto via the equity methodwhere it recorded losses of US$223 million in 2013. In 2012, the firmtogether with Zhejiang Hisun formed Hisun Pfizer to design, produce,and sell pharmaceutical products. Pfizer invested US$122.5 million inthe company and realized gains of US$459 million in 2013. However,the firm realized a loss of US$463 million in 2015 (Pfizer Inc.,2016b). The organization’s interest in Hisun Pfizer is accountedthrough the equity method. The report reports that the equity ininvestees’ income audited as an equity-method investment is notsignificant to any of its operating segments. The insignificance ofthe firm’s equity investments is supported by the losses itrealized in acquisitions of Hisun Pfizer, Teuto, and ViiV (PfizerInc., 2016a).

Investmentsreported on the face of income statement

The incomestatement offers information on investments related to acquisitions,research and development, and operations. In 2013, the company hadtotal acquisition-related costs amounting to US$383 million, whichdecreased to US$107 million in 2014 and increased to US$591 millionin 2015 (Pfizer Inc., 2016b). The acquisition costs includerestructuring, transaction, income tax, and integration costs. Thesecosts are included, as they relate to expenses realized, for example,asset impairment, exit costs, and employee termination expendituresfrom the acquisition of Hospira and the impending amalgamation withAllergan. The income statement has reported investment relatedexpenses related to Zoetis IPO and gains from rights transfer. Thecomprehensive income statement has information on financialinstruments, foreign currency adjustments, common share, andreclassification adjustments, which are all investments adjustments.

Additionalinformation provided in note disclosures related to income statement

Supplementaryinformation regarding investment is provided per reportable segment,reconciling items, and operating results of Zoetis and PfizerCentreSource (note 18). Supply contracts with Zoetis are provided inOther business activities while and Corporate. Theinformation includes revenues, earnings, amortization, anddepreciation of the investment portfolios. Total revenues andearnings for the investments fell from $51.584 billion to $48.851 and$15.716 billion to $8.965 in 2013 and 2015 (Pfizer Inc., 2016b). Inother comprehensive loss/income, losses and gains onforeign-exchange swaps and contracts have been recorded as hedges.Information on the acquisition of Hospira is provided while thedepreciation and amortization table shows investments on land,property, and equipment (note 18)

Reflectionof investments’ impact on the statement of cash flows

The statementsof cash flows have reported investment activities of US$2.98 billion,US$5.654billion, and US$10.544 in 2015, 2014, and 2013 respectively.In 2014, the company made investment purchases amounting to US$4.2billion while in 2015, it made net redemptions of previousinvestments totaling US$14.6 billion. The firm acquired Hospira in2015 at US$15.7 billion and acquired Baxter’s portfolio at US$763million. In 2014, the company acquired InnoPharma at US$195 million(Pfizer Inc., 2016b). The analysis shows that the company’sinvestment purchases stood at roughly US$38 billion, US$51, and US$43billion in 2015, 2014, and 2013. The purchases correspond to thefirm’s investment redemptions and operating activities. Theoperating activities were highest at 2013 ($17.684 billion) and 2014($16.883 billion) and lowest in 2015 ($14.512), which shows that theinvestment activities sought helped the firm realize some gains. Thedecrease in the investment activities from US$10.544 in 2013 toS$2.98 billion in 2015 shows that the company was realizing incomefrom the ventures.

Comprehensibilityof the information provided in the footnote disclosure

The footnotedisclosures have provided accompanying and explanatory notes on theinvestments recorded in the different financial statements. Thefootnotes following comprehensive income statements and balance sheethave provided valuable data on accounting policies employed and theadjustments made. In the income statement, the notes have providedinformation on the reclassification of operations, income, loss, tax,and cost. Additionally, they have disclosed relations betweendifferent entries, explained the fair value measurements, andexpounded on noncash entries. The largest part of the report entailsnotes on segment data or the operational outcome of each firm’ssegment, the reconciliation of the shareholders’ equity, the fairvalue of investments and the unrealized losses and gains oninvestments and equity. The part contains critical information ontypes of investments, assets, acquisitions, and Pfizer’scontingencies and combinations. Thus, the disclosures have offeredadequate data to effectively comprehend the levels, types, impact,and magnitudes of the investments committed by the firm.

References

Pfizer Inc. (2016a). Form 10-K report. Retrieved 4 October2016 fromhttps://www.sec.gov/Archives/edgar/data/78003/000007800316000077/pfe-12312015x10kshell.htm#sB988B037C06F54E2954ECD6104E4BAA0

Pfizer Inc. (2016b). Pfizer Inc. 2015 financial report.Retrieved 4 October 2016 fromhttps://www.sec.gov/Archives/edgar/data/78003/000007800316000077/pfe-12312015x10kexhibit13.htm#s5B06689E7A6C549CA1C6E052765EC729