XML 25 R33.htm IDEA: XBRL DOCUMENT v2.4.0.8
Income Taxes (Tables)
 12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Schedule of Income before Income Tax, Domestic and Foreign [Table Text Block]
The components of Income before provision for taxes on income follow:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2013

 
2012

 
2011

United States
 
$
238

 
$
340

 
$
(239
)
International
 
452

 
370

 
633

Income before provision for taxes on income(a)(b)
 
$
690

 
$
710

 
$
394
Schedule Of Components Of Provision For Income Taxes Table [Text Block]
The components of Provision for taxes on income based on the location of the taxing authorities follow:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2013

 
2012

 
2011

United States:
 
 
 
 
 
 
Current income taxes:
 
 
 
 
 
 
Federal
 
$
63

 
$
132

 
$
(3
)
State and local
 
12

 
5

 
(1
)
Deferred income taxes:
 
 
 
 
 
 
Federal
 
10

 
(7
)
 
(19
)
State and local
 
2

 
11

 
(3
)
Total U.S. tax provision/(benefit)
 
87

 
141

 
(26
)
International:
 
 
 
 
 
 
Current income taxes
 
89

 
211

 
85

Deferred income taxes
 
11

 
(78
)
 
87

Total international tax provision
 
100

 
133

 
172

Provision for taxes on income(a)(b)(c)
 
$
187

 
$
274

 
$
146

(a)
In 2013, the Provision for taxes on income reflects the following:
•
U.S. tax expense of approximately $3 million as a result of providing U.S. deferred income taxes on certain current-year income earned outside the United States that will not be indefinitely reinvested overseas (see C. Deferred Taxes);
•
U.S. tax benefit related to U.S. Research and Development Tax Credit which was retroactively extended on January 3, 2013, and the U.S. Domestic Production Activities deduction;
•
Tax expense of approximately $25 million related to the establishment of valuation allowance; and
•
Tax cost related to changes in uncertain tax positions (see D. Tax Contingencies).
(b) 
In 2012, the Provision for taxes on income reflects the following:
•
U.S. tax benefits of approximately $29.3 million, representing tax and interest, resulting from a multi-year settlement with the U.S. Internal Revenue Service with respect to audits for the years 2006 through 2008, and international tax benefits of approximately $2.7 million, representing tax and interest, resulting from the resolution of certain tax positions pertaining to prior years with various foreign tax authorities and from the expiration of certain statutes of limitations;
•
U.S. tax expense of approximately $9 million as a result of providing U.S. deferred income taxes on certain current-year income earned outside the United States that will not be indefinitely reinvested overseas (see C. Deferred Taxes);
•
The expiration of the U.S. Research and Development Tax Credit on December 31, 2011; and
•
Tax cost related to changes in uncertain tax positions (see D. Tax Contingencies).
(c) 
In 2011, the Provision for taxes on income reflects the following:
•
U.S. tax expense of approximately $9 million as a result of providing U.S. deferred income taxes on certain current-year income earned outside of the United States that will not be indefinitely reinvested overseas; and
•
U.S. tax benefits of approximately $9.5 million, representing tax and interest, resulting from the tax benefit recorded in connection with the settlement of certain audits with the U.S. Internal Revenue Service.
Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]
The reconciliation of the U.S. statutory income tax rate to our effective tax rate follows:
 
 
Year Ended December 31,
 
 
2013

 
2012

 
2011

U.S. statutory income tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State and local taxes, net of federal benefits
 
1.0

 
1.7

 
(0.2
)
Taxation of non-U.S. operations(a)(b)(c)
 
(6.7
)
 
5.6

 
2.7

Unrecognized tax benefits and tax settlements and resolution of certain tax positions(d)
 
1.1

 
(4.1
)
 
(2.4
)
U.S. healthcare legislation(e)
 
—

 
(0.4
)
 
0.3

U.S. Research and Development Tax Credit and U.S. Domestic Production Activities deduction(f)
 
(1.2
)
 
(0.3
)
 
(2.3
)
Non-deductible / non-taxable items(g)
 
0.5

 
0.8

 
2.1

All other—net
 
(2.6
)
 
0.3

 
1.9

Effective tax rate
 
27.1
 %
 
38.6
 %
 
37.1
 %
(a) 
For taxation of non-U.S. operations, this rate impact reflects the income tax rates and relative earnings in the locations where we do business outside of the United States, together with the cost of repatriation decisions, as well as changes in uncertain tax positions not included in the reconciling item called “Unrecognized tax benefits and tax settlements and resolution of certain tax positions”: (i) the jurisdictional mix of earnings is a component of our effective tax rate each year as tax rates outside of the U.S. are generally lower than the U.S. statutory income tax rate. The rate impact of the jurisdictional mix of earnings is influenced by the specific location of non-U.S. earnings and the level of such earnings as compared to our total earnings. This rate impact is then offset or more than offset by the cost of repatriation decisions and other U.S. tax implications of our foreign operations, which may significantly impact the taxation of non-U.S. operations; and (ii) the impact of changes in uncertain tax positions not included in the reconciling item called “Unrecognized tax benefits and tax settlements and resolution of certain tax positions” is a component of our effective tax rate each year that can result in either an increase or decrease to our effective tax rate. The jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation costs, can vary as a result of the repatriation decisions and as a result of operating fluctuations in the normal course of business, the impact of non-deductible items and the extent and location of other income and expense items, such as restructuring charges, asset impairments and gains and losses on asset divestitures.
(b)
The rate impact of taxation of non-U.S. operations was a decrease to our effective tax rate in 2013 due to (i) the jurisdictional mix of earnings as tax rates outside of the United States are generally lower than the U.S. statutory income tax rate; and (ii) incentive tax rulings in Belgium effective December 1, 2012 and in Singapore effective October 29, 2012. The rate impact of taxation of non-U.S. operations was an increase to our effective tax rate in 2012 and 2011 due to (i) the cost of repatriation decisions and other U.S. tax implications that more than offset the impact of the generally lower tax rates outside of the United States; (ii) the tax impact of non-deductible items in those jurisdictions; and (iii) the tax impact of changes in uncertain tax positions related to our non-U.S. operations.
(c)
In 2013, the impact to the rate due to increases in uncertain tax positions was more than offset by the jurisdictional mix of earnings and other U.S. tax implications of our foreign operations described in the above footnotes. The increase in the rate in 2012 as compared to 2011 is primarily due to increases in uncertain tax positions (see D. Tax Contingencies, for current and prior period increases to uncertain tax positions), of which a significant portion relates to our non-U.S. operations.
(d) 
For a discussion about unrecognized tax benefits and tax settlements and resolution of certain tax positions, see A. Taxes on Income and D. Tax Contingencies.
(e) 
The decrease in the rate in 2012 primarily relates to the tax benefit recorded in connection with the establishment of deferred income tax assets related to the Medicare Part D subsidy for retiree prescription drug coverage.
(f) 
In 2013, the decrease in the rate was due to the benefit associated with the U.S. Research and Development Tax Credit. In 2012, no benefit from the U.S. Research and Development Tax Credit was reflected as the credit expired on December 31, 2011 and was not extended until January 2013. In all years, we received a benefit from the U.S. Domestic Production Activities deduction.
(g) 
Non-deductible items include meals and entertainment expenses.
Schedule of Deferred Tax Assets and Liabilities [Table Text Block]
The components of our deferred tax assets and liabilities follow:
 
 
December 31,
 
 
2013
2012
(MILLIONS OF DOLLARS)
 
Assets (Liabilities)
Prepaid/deferred items
 
$
59

 
$
69

Inventories
 
29

 
9

Intangibles
 
(111
)
 
(187
)
Property, plant and equipment
 
(92
)
 
(61
)
Employee benefits
 
11

 
54

Restructuring and other charges
 
4

 
27

Legal and product liability reserves
 
13

 
20

Net operating loss/credit carryforwards
 
30

 
219

Unremitted earnings
 
(3
)
 
(86
)
All other
 
(10
)
 
(3
)
Subtotal
 
(70
)
 
61

Valuation allowance
 
(107
)
 
(69
)
Net deferred tax liability(a)(b)
 
$
(177
)
 
$
(8
)
(a) 
2013 vs. 2012-The significant increase in the total net deferred tax liability from December 31, 2012 to December 31, 2013 is primarily attributable to the Separation Adjustments, predominantly related to deferred tax assets associated with net operating loss/credit carryforwards and deferred tax liabilities associated with unremitted earnings that were retained by Pfizer, partially offset by an increase in valuation allowances representing the amounts determined to be unrecoverable. See Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering, Initial Public Offering and Exchange Offer— Adjustments Associated with the Separation.
(b) 
In 2013, included in Current deferred tax assets ($97 million), Noncurrent deferred tax assets ($63 million), Other current liabilities ($15 million) and Noncurrent deferred tax liabilities ($322 million). In 2012, included in Current deferred tax assets ($101 million), Noncurrent deferred tax assets ($216 million), Other current liabilities ($2 million) and Noncurrent deferred tax liabilities ($323 million).
Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]
The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(MILLIONS OF DOLLARS)
 
2013

 
2012

 
2011

Balance, January 1
 
$
(144
)
 
$
(114
)
 
$
(93
)
Adjustments associated with the Separation(a)
 
115

 
—

 
—

Acquisitions(b)
 
—

 
—

 
(19
)
Increases based on tax positions taken during a prior period(c)
 
(2
)
 
(2
)
 
—

Decreases based on tax positions taken during a prior period(c)(d)
 
—

 
40

 
1

Decreases based on cash payments for a prior period
 
1

 
3

 
7

Increases based on tax positions taken during the current period(c)
 
(16
)
 
(73
)
 
(10
)
Decreases based on tax positions taken during the current period
 
—

 
—

 
—

Lapse in statute of limitations
 
1

 
2

 
—

Balance, December 31(e)
 
$
(45
)
 
$
(144
)
 
$
(114
)
(a) 
The significant decrease in the total gross unrecognized tax benefits from December 31, 2012 to December 31, 2013 is primarily attributable to the elimination of net tax liabilities associated with uncertain tax positions that were retained by Pfizer. See Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering, Initial Public Offering and Exchange Offer— Adjustments Associated with the Separation.
(b) 
The amount in 2011 primarily relates to the acquisition of KAH.
(c) 
Primarily included in Provision for taxes on income.
(d) 
In all years, the decreases are primarily a result of effectively settling certain issues with the U.S. and non-U.S. tax authorities. See A. Tax Matters—Taxes on Income.
(e)
In 2013, included in Noncurrent deferred tax assets ($6 million) and Other taxes payable ($39 million). In 2012, included in Noncurrent deferred tax assets ($6 million) and Other taxes payable ($138 million).