PFIZER INC - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13

OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

COMMISSION FILE NUMBER 1-3619

----

PFIZER INC.

(Exact name of registrant as specified in its charter)



Delaware	13-5315170
(State of Incorporation)	(I.R.S. Employer Identification No.)

235 East 42^nd Street, New York, New York 10017

(Address of principal executive offices) (zip code)

(212) 733-2323

(Registrant’s telephone number)



Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.05 par value	PFE	New York Stock Exchange
0.000% Notes due 2020	PFE20A	New York Stock Exchange
0.250% Notes due 2022	PFE22	New York Stock Exchange
1.000% Notes due 2027	PFE27	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes	x	No	☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).



Yes	x	No	☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated filer x Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes	☐	No	x

At November 4, 2019, 5,534,122,364 shares of the issuer’s voting common stock were outstanding.

Table of Contents



PART I. FINANCIAL INFORMATION	Page

Item 1.
Financial Statements

Condensed Consolidated Statements of Income for the three and nine months ended September 29, 2019 and September 30, 2018	5

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 29, 2019 and September 30, 2018	6

Condensed Consolidated Balance Sheets as of September 29, 2019 and December 31, 2018	7

Condensed Consolidated Statements of Equity for the three and nine months ended September 29, 2019 and September 30, 2018	8

Condensed Consolidated Statements of Cash Flows for the nine months ended September 29, 2019 and September 30, 2018	10

Notes to Condensed Consolidated Financial Statements	12

Review Report of Independent Registered Public Accounting Firm	52

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations	53

Item 3.
Quantitative and Qualitative Disclosures About Market Risk	114

Item 4.
Controls and Procedures	114

PART II. OTHER INFORMATION

Item 1.
Legal Proceedings	115

Item 1A.
Risk Factors	115

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds	116

Item 3.
Defaults Upon Senior Securities	116

Item 4.
Mine Safety Disclosures	116

Item 5.
Other Information	116

Item 6.
Exhibits	117

Signature	118

GLOSSARY OF DEFINED TERMS

Unless the context requires otherwise, references to “Pfizer,” “the Company,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q (defined below) refer to Pfizer Inc. and its subsidiaries. We also have used several other terms in this Quarterly Report on Form 10-Q, most of which are explained or defined below:



2018 Financial Report	Financial Report for the fiscal year ended December 31, 2018, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2018
2018 Form 10-K	Annual Report on Form 10-K for the fiscal year ended December 31, 2018
ACA (Also referred to as U.S. Healthcare Legislation)	U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
ACIP	Advisory Committee on Immunization Practices
Akcea	Akcea Therapeutics, Inc.
ALK	anaplastic lymphoma kinase
Alliance revenues	Revenues from alliance agreements under which we co-promote products discovered or developed by other companies or us
Allogene	Allogene Therapeutics, Inc.
Anacor	Anacor Pharmaceuticals, Inc.
AOCI	Accumulated Other Comprehensive Income
Array	Array BioPharma Inc.
Astellas	Astellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc.
Bain Capital	Bain Capital Private Equity and Bain Capital Life Sciences
Bamboo	Bamboo Therapeutics, Inc.
Biopharma	Pfizer Biopharmaceuticals Group
BMS	Bristol-Myers Squibb Company
CAR T	chimeric antigen receptor T cell
CDC	U.S. Centers for Disease Control and Prevention
Cerevel	Cerevel Therapeutics, LLC
cGMP	current Good Manufacturing Practices
Citibank	Citibank, N.A.
Developed Markets	U.S., Western Europe, Japan, Canada, South Korea, Australia, Scandinavian countries, Finland and New Zealand
EGFR	epidermal growth factor receptor
EH	Essential Health
EMA	European Medicines Agency
Emerging Markets	Includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Eastern Europe, the Middle East, Africa, Central Europe and Turkey
EPS	earnings per share
EU	European Union
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FDA	U.S. Food and Drug Administration
GAAP	Generally Accepted Accounting Principles
GIST	gastrointestinal stromal tumors
GPD	Global Product Development organization
GSK	GlaxoSmithKline plc
GS&Co.	Goldman, Sachs & Co. LLC
hGH-CTP	human growth hormone
HIS	Hospira Infusion Systems
Hisun Pfizer	Hisun Pfizer Pharmaceuticals Company Limited
Hospira	Hospira, Inc.
HR+	hormone receptor-positive
ICU Medical	ICU Medical, Inc.
IH	Innovative Health
Ionis	Ionis Pharmaceuticals, Inc.
IPR&D	in-process research and development
IRS	U.S. Internal Revenue Service
IV	intravenous
Janssen	Janssen Biotech Inc.



J&J	Johnson & Johnson
JV	Joint Venture
King	King Pharmaceuticals LLC (formerly King Pharmaceuticals, Inc.)
LDL	low density lipoprotein
LEP	Legacy Established Products
LIBOR	London Interbank Offered Rate
Lilly	Eli Lilly & Company
LOE	loss of exclusivity
MCC	Merkel cell carcinoma
MCO	managed care organization
mCRC	metastatic colorectal cancer
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Medivation	Medivation LLC (formerly Medivation, Inc.)
Merck	Merck & Co., Inc.
Meridian	Meridian Medical Technologies, Inc.
Moody’s	Moody’s Investors Service
Mylan	Mylan N.V.
NDA	new drug application
NSCLC	non-small cell lung cancer
NYSE	New York Stock Exchange
OPKO	OPKO Health, Inc.
OTC	over-the-counter
PARP	poly ADP ribose polymerase
PBM	pharmacy benefit manager
Pharmacia	Pharmacia Corporation
PP&E	property, plant & equipment
PsA	psoriatic arthritis
Quarterly Report on Form 10-Q	Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2019
RA	rheumatoid arthritis
RCC	renal cell carcinoma
R&D	research and development
ROU	right of use
Sandoz	Sandoz, Inc., a division of Novartis AG
SEC	U.S. Securities and Exchange Commission
SFJ	SFJ Pharmaceuticals Group
Shire	Shire International GmbH
SI&A	selling, informational and administrative
S&P	Standard and Poor’s
TCJA	legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017
Therachon	Therachon Holding AG
UC	ulcerative colitis
U.K.	United Kingdom
U.S.	United States
ViiV	ViiV Healthcare Limited
VBP	Volume-based procurement program
WRDM	Worldwide Research, Development and Medical

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



	Three Months Ended						Nine Months Ended
(MILLIONS, EXCEPT PER COMMON SHARE DATA)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Revenues	$	12,680		$	13,298		$	39,062		$	39,670
Costs and expenses:
Cost of sales^(a)	2,602			2,694			7,611			8,173
Selling, informational and administrative expenses^(a)	3,260			3,494			10,110			10,448
Research and development expenses^(a)	2,283			2,008			5,827			5,549
Amortization of intangible assets	1,212			1,253			3,578			3,640
Restructuring charges and certain acquisition-related costs	365			85			295			172
(Gain) on completion of Consumer Healthcare JV transaction	(8,087		)	—			(8,087		)	—
Other (income)/deductions––net	319			(414		)	537			(1,143		)
Income from continuing operations before provision for taxes on income	10,727			4,177			19,190			12,831
Provision for taxes on income	3,047			66			2,566			1,270
Income from continuing operations	7,680			4,111			16,625			11,562
Discontinued operations––net of tax	4			11			4			10
Net income before allocation to noncontrolling interests	7,684			4,122			16,628			11,571
Less: Net income attributable to noncontrolling interests	4			8			19			25
Net income attributable to Pfizer Inc.	$	7,680		$	4,114		$	16,609		$	11,546

Earnings per common share––basic:
Income from continuing operations attributable to Pfizer Inc. common shareholders	$	1.38		$	0.70		$	2.98		$	1.96
Discontinued operations––net of tax	—			—			—			—
Net income attributable to Pfizer Inc. common shareholders	$	1.38		$	0.70		$	2.98		$	1.96

Earnings per common share––diluted:
Income from continuing operations attributable to Pfizer Inc. common shareholders	$	1.36		$	0.69		$	2.92		$	1.92
Discontinued operations––net of tax	—			—			—			—
Net income attributable to Pfizer Inc. common shareholders	$	1.36		$	0.69		$	2.92		$	1.92

Weighted-average shares––basic	5,545			5,875			5,581			5,899
Weighted-average shares––diluted	5,649			5,986			5,690			5,998


^(a)	Excludes amortization of intangible assets, except as disclosed in Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets.

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Three Months Ended						Nine Months Ended
(MILLIONS OF DOLLARS)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Net income before allocation to noncontrolling interests	$	7,684		$	4,122		$	16,628		$	11,571

Foreign currency translation adjustments, net	(468		)	(567		)	(628		)	(507		)
Reclassification adjustments^(a)	268			(2		)	270			(22		)
	(200		)	(569		)	(358		)	(530		)
Unrealized holding gains on derivative financial instruments, net	150			222			241			236
Reclassification adjustments for (gains)/losses included in net income^(b)	(29		)	(235		)	(372		)	119
	122			(13		)	(131		)	355
Unrealized holding gains/(losses) on available-for-sale securities, net	15			149			48			(65		)
Reclassification adjustments for (gains)/losses included in net income^(b)	(7		)	(36		)	30			(67		)
Reclassification adjustments for unrealized gains included in Retained earnings^(c)	—			—			—			(462		)
	8			112			77			(595		)
Benefit plans: actuarial gains/(losses), net	(171		)	8			(175		)	114
Reclassification adjustments related to amortization	60			60			180			183
Reclassification adjustments related to settlements, net	38			42			40			108
Other	42			49			60			69
	(31		)	158			105			474
Benefit plans: prior service costs and other, net	—			—			(1		)	—
Reclassification adjustments related to amortization of prior service costs and other, net	(44		)	(46		)	(137		)	(137		)
Reclassification adjustments related to curtailments of prior service costs and other, net	(46		)	(4		)	(46		)	(18		)
Other	3			—			4			1
	(88		)	(50		)	(180		)	(154		)
Other comprehensive loss, before tax	(190		)	(361		)	(486		)	(449		)
Tax provision on other comprehensive loss	84			62			50			667
Other comprehensive loss before allocation to noncontrolling interests	$	(275	)	$	(422	)	$	(536	)	$	(1,116	)
Comprehensive income before allocation to noncontrolling interests	$	7,409		$	3,700		$	16,092		$	10,455
Less: Comprehensive income/(loss) attributable to noncontrolling interests	(6		)	—			8			5
Comprehensive income attributable to Pfizer Inc.	$	7,415		$	3,700		$	16,084		$	10,450

^(a)

For the third quarter and first nine months of 2019, the foreign currency translation adjustments are primarily reclassified into (Gain) on completion of Consumer Healthcare JV transaction in the condensed consolidated statements of income as a result of the contribution of our Consumer Healthcare business to the Consumer Healthcare joint venture with GSK. See Note 2B. The remaining foreign currency translation adjustments are reclassified into Other (income)/deductions—net in the condensed consolidated statements of income.


^(b)	Reclassified into Other (income)/deductions—net and Cost of sales in the condensed consolidated statements of income. For additional information on amounts reclassified into Other (income)/deductions—net and Cost of sales, see Note 7E. Financial Instruments: Derivative Financial Instruments and Hedging Activities.


^(c)	For additional information, see Notes to Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEETS



(MILLIONS OF DOLLARS)	September 29, 2019			December 31, 2018
	(Unaudited)
Assets
Cash and cash equivalents	$	2,785		$	1,139
Short-term investments	6,302			17,694
Trade accounts receivable, less allowance for doubtful accounts: 2019—$541; 2018—$541	9,439			8,025
Inventories	8,222			7,508
Current tax assets	3,730			3,374
Other current assets	2,954			2,461
Assets held for sale	29			9,725
Total current assets	33,459			49,926
Equity-method investments	15,999			181
Long-term investments	2,723			2,586
Property, plant and equipment, less accumulated depreciation: 2019—$16,728; 2018—$16,591	13,701			13,385
Identifiable intangible assets, less accumulated amortization	38,995			35,211
Goodwill	58,665			53,411
Noncurrent deferred tax assets and other noncurrent tax assets	1,984			1,924
Other noncurrent assets	4,920			2,799
Total assets	$	170,446		$	159,422

Liabilities and Equity
Short-term borrowings, including current portion of long-term debt: 2019—$2,431; 2018—$4,776	$	16,617		$	8,831
Trade accounts payable	3,942			4,674
Dividends payable	1,992			2,047
Income taxes payable	1,892			1,265
Accrued compensation and related items	2,369			2,397
Other current liabilities	10,160			10,753
Liabilities held for sale	—			1,890
Total current liabilities	36,974			31,858

Long-term debt	36,044			32,909
Pension benefit obligations, net	5,103			5,272
Postretirement benefit obligations, net	1,321			1,338
Noncurrent deferred tax liabilities	6,724			3,700
Other taxes payable	12,504			14,737
Other noncurrent liabilities	6,381			5,850
Total liabilities	105,051			95,664

Commitments and Contingencies

Preferred stock	18			19
Common stock	468			467
Additional paid-in capital	87,099			86,253
Treasury stock	(110,795		)	(101,610		)
Retained earnings	100,113			89,554
Accumulated other comprehensive loss	(11,801		)	(11,275		)
Total Pfizer Inc. shareholders’ equity	65,103			63,407
Equity attributable to noncontrolling interests	293			351
Total equity	65,396			63,758
Total liabilities and equity	$	170,446		$	159,422

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY



	PFIZER INC. SHAREHOLDERS
	Preferred Stock					Common Stock						Treasury Stock
(MILLIONS, EXCEPT PREFERRED SHARES)	Shares		Stated Value			Shares	Par Value		Add’l Paid-In Capital			Shares		Cost			Retained Earnings			Accum. Other Comp. Loss			Share- holders’ Equity			Non-controlling interests			Total Equity
Balance, June 30, 2019	458		$	18		9,363	$	468	$	86,963		(3,801	)	$	(110,786	)	$	94,440		$	(11,535	)	$	59,568		$	357		$	59,924
Net income																	7,680						7,680			4			7,684
Other comprehensive income/(loss), net of tax																				(265		)	(265		)	(9		)	(275		)
Cash dividends declared:
Common stock																	(2,006		)				(2,006		)				(2,006		)
Preferred stock																	—						—						—
Noncontrolling interests																							—			2			2
Share-based payment transactions						3	—		136			—		(8		)							128						128
Purchases of common stock												(34	)	—									—						—
Preferred stock conversions and redemptions	(8	)	—						—			—		—									(1		)				(1		)
Other^(a)									—			—		—			—			—			—			(61		)	(61		)
Balance, September 29, 2019	449		$	18		9,366	$	468	$	87,099		(3,835	)	$	(110,795	)	$	100,113		$	(11,801	)	$	65,103		$	293		$	65,396

	PFIZER INC. SHAREHOLDERS
	Preferred Stock					Common Stock						Treasury Stock
(MILLIONS, EXCEPT PREFERRED SHARES)	Shares		Stated Value			Shares	Par Value		Add’l Paid-In Capital			Shares		Cost			Retained Earnings			Accum. Other Comp. Loss			Share- holders’ Equity			Non-controlling interests			Total Equity
Balance July 1, 2018	502		$	20		9,303	$	465	$	84,898		(3,438	)	$	(95,463	)	$	89,860		$	(10,003	)	$	69,778		$	346		$	70,124
Net income																	4,114						4,114			8			4,122
Other comprehensive income/(loss), net of tax																				(414		)	(414		)	(9		)	(422		)
Cash dividends declared:
Common stock																	(1,977		)				(1,977		)				(1,977		)
Preferred stock																	—						—						—
Noncontrolling interests																							—			—			—
Share-based payment transactions						23	1		930			—		(6		)							926						926
Purchases of common stock												(47	)	(1,105		)							(1,105		)				(1,105		)
Preferred stock conversions and redemptions	(14	)	(1		)				(1		)	—		—									(1		)				(1		)
Other									—			—					(2		)	—			(2		)	—			(2		)
Balance, September 30, 2018	488		$	20		9,326	$	466	$	85,828		(3,484	)	$	(96,574	)	$	91,995		$	(10,417	)	$	71,319		$	346		$	71,664

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY



	PFIZER INC. SHAREHOLDERS
	Preferred Stock					Common Stock						Treasury Stock
(MILLIONS, EXCEPT PREFERRED SHARES)	Shares		Stated Value			Shares	Par Value		Add’l Paid-In Capital			Shares		Cost			Retained Earnings			Accum. Other Comp. Loss			Share- holders’ Equity			Non-controlling interests			Total Equity
Balance, January 1, 2019	478		$	19		9,332	$	467	$	86,253		(3,615	)	$	(101,610	)	$	89,554		$	(11,275	)	$	63,407		$	351		$	63,758
Net income																	16,609						16,609			19			16,628
Other comprehensive income/(loss), net of tax																				(525		)	(525		)	(11		)	(536		)
Cash dividends declared:
Common stock																	(6,068		)				(6,068		)				(6,068		)
Preferred stock																	(1		)				(1		)				(1		)
Noncontrolling interests																							—			(5		)	(5		)
Share-based payment transactions						34	2		848			(7	)	(320		)							530						530
Purchases of common stock												(213	)	(8,865		)							(8,865		)				(8,865		)
Preferred stock conversions and redemptions	(28	)	(1		)				(2		)	—		—									(3		)				(3		)
Other^(a)									—			—					19						19			(61		)	(42		)
Balance, September 29, 2019	449		$	18		9,366	$	468	$	87,099		(3,835	)	$	(110,795	)	$	100,113		$	(11,801	)	$	65,103		$	293		$	65,396

	PFIZER INC. SHAREHOLDERS
	Preferred Stock					Common Stock						Treasury Stock
(MILLIONS, EXCEPT PREFERRED SHARES)	Shares		Stated Value			Shares	Par Value		Add’l Paid-In Capital			Shares		Cost			Retained Earnings			Accum. Other Comp. Loss			Share- holders’ Equity			Non-controlling interests			Total Equity
Balance, January 1, 2018	524		$	21		9,275	$	464	$	84,278		(3,296	)	$	(89,425	)	$	85,291		$	(9,321	)	$	71,308		$	348		$	71,656
Net income																	11,546						11,546			25			11,571
Other comprehensive income/(loss), net of tax																				(1,096		)	(1,096		)	(20		)	(1,116		)
Cash dividends declared:
Common stock																	(6,012		)				(6,012		)				(6,012		)
Preferred stock																	(1		)				(1		)				(1		)
Noncontrolling interests																							—			(7		)	(7		)
Share-based payment transactions						51	3		1,551			3		19									1,573						1,573
Purchases of common stock												(192	)	(7,168		)							(7,168		)				(7,168		)
Preferred stock conversions and redemptions	(36	)	(1		)				(2		)	—		—									(3		)				(3		)
Other^(b)									—			—		—			1,171			—			1,171			—			1,171
Balance, September 30, 2018	488		$	20		9,326	$	466	$	85,828		(3,484	)	$	(96,574	)	$	91,995		$	(10,417	)	$	71,319		$	346		$	71,664

^(a)

The increase to Retained earnings in the first nine months of 2019 includes the cumulative effect of the adoption of a new accounting standard for leases in the first quarter of 2019. For additional information, see Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards. The decrease in Equity attributable to noncontrolling interests resulted from the deconsolidation of our Consumer Healthcare business in connection with the formation of the GSK Consumer Healthcare joint venture. For additional information, see Note 2B. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Equity-Method Investment and Assets and Liabilities Held for Sale.

^(b)

Represents the cumulative effect of the adoption of new accounting standards in the first quarter of 2018 for revenues, financial assets and liabilities, income tax accounting, and the reclassification of certain tax effects from Accumulated other comprehensive income. For additional information, see Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Nine Months Ended
(MILLIONS OF DOLLARS)	September 29, 2019			September 30, 2018
Operating Activities
Net income before allocation to noncontrolling interests	$	16,628		$	11,571
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization	4,626			4,743
Asset write-offs and impairments	224			88
TCJA impact^(a)	(319		)	(410		)
Gain on completion of Consumer Healthcare JV transaction, net of cash conveyed^(b)	(8,233		)	—
Deferred taxes from continuing operations^(c)	2,067			(974		)
Share-based compensation expense	448			682
Benefit plan contributions in excess of income	(429		)	(1,000		)
Other adjustments, net	(622		)	(1,170		)
Other changes in assets and liabilities, net of acquisitions and divestitures	(5,571		)	(2,441		)
Net cash provided by operating activities	8,819			11,089

Investing Activities
Purchases of property, plant and equipment	(1,504		)	(1,357		)
Purchases of short-term investments	(4,583		)	(7,364		)
Proceeds from redemptions/sales of short-term investments	7,766			12,752
Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less	8,307			385
Purchases of long-term investments	(134		)	(1,503		)
Proceeds from redemptions/sales of long-term investments	116			2,174
Acquisition of business, net of cash acquired	(10,861		)	—
Acquisitions of intangible assets	(364		)	(47		)
Other investing activities, net^(b)	145			248
Net cash provided by/(used in) investing activities	(1,112		)	5,289

Financing Activities
Proceeds from short-term borrowings	11,582			1,945
Principal payments on short-term borrowings	(4,088		)	(4,239		)
Net proceeds from/(payments on) short-term borrowings with original maturities of three months or less	2,604			(973		)
Proceeds from issuance of long-term debt	4,942			4,974
Principal payments on long-term debt	(5,806		)	(3,104		)
Purchases of common stock	(8,865		)	(7,168		)
Cash dividends paid	(6,051		)	(6,015		)
Proceeds from exercise of stock options	303			1,099
Other financing activities, net	(667		)	(553		)
Net cash used in financing activities	(6,045		)	(14,034		)
Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents	(41		)	(116		)
Net increase in cash and cash equivalents and restricted cash and cash equivalents	1,620			2,227
Cash and cash equivalents and restricted cash and cash equivalents, beginning	1,225			1,431
Cash and cash equivalents and restricted cash and cash equivalents, end	$	2,846		$	3,658
- continued -

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)




(MILLIONS OF DOLLARS)	September 29, 2019			September 30, 2018
Supplemental Cash Flow Information
Non-cash transactions:
32% equity-method investment in GSK Consumer Healthcare JV in exchange for contributing Pfizer’s Consumer Healthcare business^(b)	$	15,711		$	—
Equity investment in Cerevel Therapeutics, Inc. in exchange for Pfizer’s portfolio of clinical and pre-clinical neuroscience assets⁽^d)	—			343
Equity investment in Allogene received in exchange for Pfizer's allogeneic CAR T developmental program assets^(d)	—			92
Cash paid (received) during the period for:
Income taxes	2,636			1,666
Interest paid	1,246			968
Interest rate hedges	(78		)	(104		)

^(a)

As a result of the enactment of the TCJA in December 2017, Pfizer’s Provision for taxes on income for (i) the nine months ended September 29, 2019 was favorably impacted by approximately $319 million, primarily as a result of additional guidance issued by the U.S. Department of Treasury and (ii) the nine months ended September 30, 2018 was favorably impacted by approximately $410 million, primarily related to certain tax initiatives associated with the lower U.S. tax rate as a result of the TCJA.

^(b)

The $8.2 billion Gain on completion of Consumer Healthcare JV transaction, net of cash conveyed reflects the receipt of a 32% equity-method investment in the new company valued at $15.7 billion in exchange for net assets contributed of $7.6 billion and is presented in operating activities net of $146 million cash conveyed that is reflected in Other investing activities, net. For additional information, see Note 2B. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Equity-Method Investment and Assets and Liabilities Held for Sale.

^(c)

Includes tax expense of $2.7 billion associated with the gain related to the completion of the Consumer Healthcare joint venture transaction with GSK. For additional information, see Note 2B. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Equity-Method Investment and Assets and Liabilities Held for Sale and Note 5A. Tax Matters: Taxes on Income from Continuing Operations.


^(d)	For additional information, see Notes to Consolidated Financial Statements––Note 2B. Acquisitions, Divestitures, Assets and Liabilities Held for Sale, Licensing Arrangements, Research and Development and Collaborative Arrangements, Equity-Method Investments and Privately Held Investment: Divestitures: Divestitures in our 2018 Financial Report.

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation and Significant Accounting Policies

A. Basis of Presentation

See the Glossary of Defined Terms at the beginning of this Quarterly Report on Form 10-Q for terms used throughout the condensed consolidated financial statements and related notes in this Quarterly Report on Form 10-Q.

We prepared the condensed consolidated financial statements following the requirements of the SEC for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted.

The financial information included in our condensed consolidated financial statements for subsidiaries operating outside the U.S. is as of and for the three and nine months ended August 25, 2019 and August 26, 2018. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three and nine months ended September 29, 2019 and September 30, 2018.

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.

We are responsible for the unaudited financial statements included in this Quarterly Report on Form 10-Q. The interim 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 Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2018 Financial Report.

At the beginning of our 2019 fiscal year, we began to manage our commercial operations through a new global structure consisting of three business segments––Pfizer Biopharmaceuticals Group (Biopharma), Upjohn and through July 31, 2019, Consumer Healthcare. Biopharma and Upjohn are the only reportable segments. We have revised prior-period segment information to reflect the reorganization. For additional information, see Note 13. In addition, certain amounts within Long-term investments in the December 31, 2018 condensed consolidated balance sheet have been reclassified to Equity-method investments to conform to the current presentation. For additional information, see Note 2B.

Certain amounts in the condensed consolidated financial statements and associated notes may not add due to rounding. All percentages have been calculated using unrounded amounts.

In the first quarter of 2019, as of January 1, 2019, we adopted four new accounting standards. See Note 1B for further information.

Our recent significant business development activities include:

•

Formation of a New Consumer Healthcare Joint Venture––On July 31, 2019, we completed the transaction in which we and GSK combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name. In accordance with our domestic and international reporting periods, our financial results, and our Consumer Healthcare segment’s operating results, for the third quarter of 2019 reflect only one month of Consumer Healthcare segment domestic operations and two months of Consumer Healthcare segment international operations. Likewise, our financial results, and our Consumer Healthcare segment’s operating results, for the first nine months of 2019 reflect seven months of Consumer Healthcare segment domestic operations and eight months of Consumer Healthcare segment international operations. Assets and liabilities associated with our Consumer Healthcare business were reclassified as held for sale in the consolidated balance sheet as of December 31, 2018.

•

Acquisition of Array BioPharma Inc.––On July 30, 2019, we acquired Array for $48 per share in cash. The total fair value of the consideration transferred for Array was approximately $11.2 billion ($10.9 billion, net of cash acquired). Our financial statements for the third quarter and first nine months of 2019 reflect the assets, liabilities, operating results and cash flows of Array, commencing from the acquisition date.

•

Agreement to Combine Upjohn with Mylan N.V.––On July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, creating a new global pharmaceutical company. Under the terms of the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, Upjohn is expected to be spun-off or split-off to Pfizer’s shareholders and, immediately thereafter, combined with Mylan. Pfizer shareholders would own 57% of the combined new company, and former Mylan shareholders would own 43%. The transaction is expected to be tax free to Pfizer

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

and Pfizer shareholders. The transaction is anticipated to close in mid-2020, subject to Mylan shareholder approval and satisfaction of other customary closing conditions, including receipt of regulatory approvals.

•

Acquisition of Therachon Holding AG––On July 1, 2019, we acquired all the remaining shares of Therachon for $340 million upfront, plus potential milestone payments of up to $470 million, contingent on the achievement of key milestones in the development and commercialization of the lead asset. The total fair value of the consideration transferred for Therachon was approximately $322 million. Our financial statements for the third quarter and first nine months of 2019 reflect the assets, liabilities, operating results and cash flows of Therachon, commencing from the acquisition date and, in accordance with our international reporting period, reflect two months of Therachon operations and cash flows.

For additional information, see Note 2 below and Notes to Consolidated Financial Statements––Note 2. Acquisitions, Divestitures, Assets and Liabilities Held for Sale, Licensing Arrangements, Research and Development and Collaborative Arrangements, Equity-Method Investments and Privately Held Investment in Pfizer’s 2018 Financial Report.

B. Adoption of New Accounting Standards

On January 1, 2019, we adopted four new accounting standards.

Leases––On January 1, 2019, we adopted a new accounting standard for leases and changed our lease policies accordingly. Under the new standard, the most significant change is the requirement of balance sheet recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. We adopted the new accounting standard utilizing the modified retrospective method using a simplified transition approach, and, therefore, no adjustments were made to our prior period financial statements. We have elected the package of practical expedients for transition which are permitted in the new standard. Accordingly, we did not reassess whether (i) any expired or existing contracts are or contain leases under the new standard, (ii) classification of leases as operating leases or capital leases would be different under the new standard, or (iii) any initial direct costs would have met the definition of initial direct costs under the new standard. Additionally, we did not elect to use hindsight in determining the lease term for existing leases as of January 1, 2019. We recorded noncurrent ROU assets of $1.4 billion and current and noncurrent operating lease liabilities of $1.4 billion as of January 1, 2019. We also recorded the cumulative effect of adopting the standard as an adjustment to increase the opening balance of Retained earnings by $30 million on a pre-tax basis ($20 million after-tax), relating to previously deferred sale-leaseback gains that can be recognized under the new rules.



Adopting the standard related to leases impacted our prior period condensed consolidated balance sheet as follows:
(MILLIONS OF DOLLARS)	As Previously Reported Balance at December 31, 2018		Effect of Change Higher/(Lower)			Balance at January 1, 2019
Other current assets	$	2,461	$	(1	)	$	2,460
Noncurrent deferred tax assets and other noncurrent tax assets	1,924		(11		)	1,913
Other noncurrent assets	2,799		1,351			4,149
Other current liabilities	10,753		258			11,011
Other noncurrent liabilities	5,850		1,060			6,910
Retained earnings	89,554		20			89,574

Adoption of the standard related to leases did not have a material impact on our condensed consolidated statements of income or condensed consolidated statements of cash flows for the nine months ended September 29, 2019. For additional information, see Note 1D.

Amortization Period for Certain Callable Debt Securities Held at a Premium––We prospectively adopted the standard, which shortens the amortization period for certain callable debt securities held at a premium. The new guidance requires the premium to be amortized to the earliest call date. We do not have any investments with features subject to this standard and, therefore, there was no impact to our condensed consolidated financial statements from the adoption of this new standard.

Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity and Accounting for Certain Financial Instruments with Down Round Features––We prospectively adopted the standard, which changes the accounting for warrants or convertible instruments that include a down round feature. We do not have any financial instruments with features subject to this standard and, therefore, there was no impact to our condensed consolidated financial statements from the adoption of this new standard.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Accounting for Share-Based Payments to Nonemployees––We prospectively adopted the standard, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. We do not have any share-based awards issued to nonemployees and, therefore, there was no impact to our condensed consolidated financial statements from the adoption of this new standard.

On January 1, 2018, we adopted eleven new accounting standards. For additional information, see Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 included in our 2018 Financial Report.

C. Revenues and Trade Accounts Receivable

Our accruals for Medicare rebates, Medicaid and related state program rebates, performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts totaled $5.6 billion as of September 29, 2019 and $5.4 billion as of December 31, 2018.



The following table provides information about the balance sheet classification of these accruals:
(MILLIONS OF DOLLARS)	September 29, 2019		December 31, 2018
Reserve against Trade accounts receivable, less allowance for doubtful accounts	$	1,203	$	1,288
Other current liabilities:
Accrued rebates	3,275		3,208
Other accruals	617		531
Other noncurrent liabilities	463		399
Total accrued rebates and other accruals	$	5,557	$	5,426

D. Leases

On January 1, 2019, we adopted a new accounting standard for leases. For further information, see Note 1B.

We lease real estate, fleet, and equipment for use in our operations. Our leases generally have lease terms of 1 to 30 years, some of which include options to terminate or extend leases for up to 5 to 10 years or on a month-to-month basis. We include options that are reasonably certain to be exercised as part of the determination of lease terms. We may negotiate termination clauses in anticipation of any changes in market conditions, but generally these termination options are not exercised. Residual value guarantees are generally not included within our operating leases with the exception of some fleet leases. In addition to base rent payments, the leases may require us to pay directly for taxes and other non-lease components, such as insurance, maintenance and other operating expenses, which may be dependent on usage or vary month-to-month. Variable lease payments amounted to $74 million for the three months ended September 29, 2019 and $192 million for the nine months ended September 29, 2019. We have elected the practical expedient in the new standard to not separate non-lease components from lease components in calculating the amounts of ROU assets and lease liabilities for all underlying asset classes.

We determine if an arrangement is a lease at inception of the contract in accordance with guidance detailed in the new standard and we perform the lease classification test as of the lease commencement date. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.



For operating leases, the ROU assets and liabilities are presented in our condensed consolidated balance sheet as follows:
		Balance at
(MILLIONS OF DOLLARS)	Balance Sheet Classification	September 29, 2019
ROU assets	Other noncurrent assets	$	1,306
Lease liabilities (short-term)	Other current liabilities	281
Lease liabilities (long-term)	Other noncurrent liabilities	1,037

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



Our total lease costs are as follows:
	Three Months Ended			Nine Months Ended
(MILLIONS OF DOLLARS)	September 29, 2019			September 29, 2019
Operating lease cost	$	111		$	310
Variable lease cost	74			192
Sublease income	(10		)	(31		)
Total lease cost	$	174		$	471



Other supplemental information includes the following:
	Weighted-Average Remaining Contractual Lease Term (Years) as of	Weighted-Average Discount Rate as of
(MILLIONS OF DOLLARS)	September 29, 2019	September 29, 2019		Nine Months Ended September 29, 2019
Operating leases	6.8	3.6	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases				$	244
(Gains)/losses on sale and leaseback transactions, net				(32		)
ROU assets obtained in exchange for new operating lease liabilities				$	250



The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded in the condensed consolidated balance sheet as of September 29, 2019:
(MILLIONS OF DOLLARS)
Period	Operating Lease Liabilities
Next one year^(a)	$	322
1-2 years	279
2-3 years	222
3-4 years	176
4-5 years	110
Thereafter	406
Total undiscounted lease payments	1,516
Less: Imputed interest	197
Present Value of Minimum Lease Payments	1,319
Less: Current portion	281
Noncurrent portion	$	1,037


^(a)	Reflects lease payments due within 12 months subsequent to the balance sheet date.

In April 2018, we entered an agreement to lease space in an office building in New York City. We expect to take control of the property in 2021 and relocate our global headquarters to this new office building in 2022. Our future minimum rental commitment under this 20-year lease is approximately $1.7 billion.

Prior to our adoption of the new lease standard, rental expense, net of sublease income, was $301 million in 2018, $314 million in 2017 and $292 million in 2016.



As of December 31, 2018, the future minimum rental commitments under non-cancelable operating leases follow:
(MILLIONS OF DOLLARS)	2019		2020		2021		2022		2023		After 2023
Lease commitments	$	300	$	252	$	210	$	267	$	248	$	2,040

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 2. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement

A. Acquisitions

Array BioPharma Inc.

On July 30, 2019, we acquired Array, a commercial stage biopharmaceutical company focused on targeted small molecule medicines to treat cancer and other diseases of high unmet need, for $48 per share in cash. The total fair value of the consideration transferred for Array was approximately $11.2 billion ($10.9 billion, net of cash acquired). In addition, approximately $157 million in payments to Array employees for the fair value of previously unvested stock options was recognized as post-closing compensation expense and recorded in Restructuring charges and certain acquisition-related costs in the condensed consolidated statement of income for the three and nine months ended September 29, 2019 (see Note 3). We financed the majority of the transaction with debt and the balance with existing cash.

Array’s portfolio includes the approved combined use of Braftovi (encorafenib) and Mektovi (binimetinib) for the treatment of BRAF^V600E- or BRAF^V600K-mutant unresectable or metastatic melanoma. The combination therapy has significant potential for long-term growth via expansion into additional areas of unmet need and is currently being investigated in over 30 clinical trials across several solid tumor indications, including the Phase 3 BEACON trial in BRAF-mutant mCRC, through collaborations with third parties. Pfizer has exclusive rights to commercialize the combination therapy in the U.S. and Canada. In addition to the combination therapy for BRAF-mutant metastatic melanoma, Array brings a broad pipeline of targeted cancer medicines in different stages of research and development, as well as a portfolio of out-licensed medicines, which are expected to generate material milestones and royalties over time.

In connection with this acquisition, we provisionally recorded: (i) $7.2 billion in Identifiable intangible assets, consisting of $1.8 billion of Developed technology rights with a useful life of 16 years, $4.0 billion of IPR&D and $1.4 billion for Licensing agreements ($1.1 billion for technology in development––indefinite-lived licensing agreements and $340 million for developed technology––finite-lived licensing agreements with a useful life of 10 years), (ii) $5.4 billion of Goodwill, (iii) $1.3 billion of net deferred tax liabilities and (iv) $451 million of assumed long-term debt, which was paid in full as of September 29, 2019. The allocation of the consideration transferred to the assets acquired and the liabilities assumed has not yet been finalized.

Therachon Holding AG

On July 1, 2019, we acquired all the remaining shares of Therachon, a privately-held clinical-stage biotechnology company focused on rare diseases, with assets in development for the treatment of achondroplasia, a genetic condition and the most common form of short-limb dwarfism, for $340 million upfront, plus potential milestone payments of up to $470 million contingent on the achievement of key milestones in the development and commercialization of the lead asset. In 2018, we acquired approximately 3% of Therachon’s outstanding shares for $5 million. We accounted for the transaction as an asset acquisition since the lead asset represented substantially all the fair value of the gross assets acquired. The total fair value of the consideration transferred for Therachon was approximately $322 million, which consisted of $317 million of cash and our previous $5 million investment in Therachon. Therachon is a wholly-owned subsidiary of Pfizer. In connection with this asset acquisition, we recorded a charge of $337 million in Research and development expenses.

B. Equity-Method Investment and Assets and Liabilities Held for Sale

On July 31, 2019, we completed the transaction in which we and GSK combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name. In exchange for contributing our Consumer Healthcare business to the joint venture, we received a 32% equity stake in the new company and GSK owns the remaining 68%. Upon the closing of the transaction, we deconsolidated our Consumer Healthcare business and recognized a pre-tax gain of $8.1 billion ($5.4 billion, net of tax) in our fiscal third quarter of 2019 in (Gain) on completion of Consumer Healthcare JV transaction for the difference in the fair value of our 32% equity stake in the new company and the carrying value of our Consumer Healthcare business. We may record additional adjustments to the gain in future periods, which we do not expect to have a material impact on our consolidated financial statements.

In valuing our investment in GSK Consumer Healthcare, we used discounted cash flow techniques. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which include the expected impact of competitive, legal or regulatory forces on the products; the long-term growth rate, which seeks to project the sustainable growth rate over the long term; the discount rate, which seeks to reflect our best estimate of the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

diversity of the projected cash flows. As part of the joint venture transaction, we agreed to indemnify GSK with respect to certain tax matters related to periods prior to closing of the transaction as well as certain potential environmental or other legal liabilities associated with the previous operation of our Consumer Healthcare business. We recognized a liability of $45 million with respect to the tax matters indemnification. The value of the environmental and legal indemnifications was not considered to be material.

We are accounting for our interest in GSK Consumer Healthcare as an equity-method investment. Our investment in GSK Consumer Healthcare is reported as a private equity investment in the Equity-method investments line in our condensed consolidated balance sheet as of September 29, 2019. Our consolidated statements of income for the third quarter and first nine months of 2019 include revenues and expenses associated with Pfizer’s Consumer Healthcare business through July 31, 2019. We will record our share of earnings from the Consumer Healthcare joint venture on a quarterly basis on a one-quarter lag in Other (income)/deductions––net commencing from August 1, 2019. Therefore, we will record our share of two months of the joint venture’s earnings generated in the third quarter of 2019 in our operating results in the fourth quarter of 2019. As of the July 31, 2019 closing date, the fair value of our investment in GSK Consumer Healthcare was approximately $15.7 billion. The excess of the initial fair value of our investment over the underlying equity in the carrying value of the net assets of GSK Consumer Healthcare has not yet been allocated within the investment account. We expect to complete the allocation in our fourth quarter of 2019, and we will record the amortization of identified basis differences, as applicable, on a one-quarter lag in Other (income)/deductions––net commencing August 1, 2019. Therefore, we will record the amortization of identified basis differences for two months of the third quarter of 2019 in our operating results in the fourth quarter of 2019.

While we have received our full 32% interest in GSK Consumer Healthcare as of the July 31, 2019 closing and transferred control of our Consumer Healthcare business to GSK Consumer Healthcare, the contribution of the business was not completed in certain non-U.S. jurisdictions due to temporary regulatory or operational constraints. In these jurisdictions, we have continued to operate the business for the net economic benefit of GSK Consumer Healthcare, and we are indemnified by GSK Consumer Healthcare against risks associated with such operations during the interim period, subject to our obligations under the definitive transaction agreements. We expect the contribution of our Consumer Healthcare business in these jurisdictions to be fully completed by the first half of 2021. As such, and as we and GSK Consumer Healthcare are contractually obligated to complete the transaction, we have treated these jurisdictions as sold for accounting purposes.

In connection with the contribution of our Consumer Healthcare business, we entered into certain transitional agreements designed to facilitate the orderly transition of the business to GSK Consumer Healthcare. These agreements primarily relate to administrative services, which are generally to be provided for a period of up to 24 months after the closing date. We will also manufacture and supply certain consumer products for GSK Consumer Healthcare and GSK Consumer Healthcare will manufacture and supply certain retained Pfizer products for us after closing, generally for a term of up to six years. These agreements are not material to Pfizer.

Assets and liabilities associated with our Consumer Healthcare business were reclassified as held for sale in the consolidated balance sheets as of December 31, 2018. The Consumer Healthcare business assets held for sale are reported in Assets held for sale and Consumer Healthcare business liabilities held for sale are reported in Liabilities held for sale in the consolidated balance sheet as of December 31, 2018. This includes the Consumer Healthcare business tax assets and liabilities related to fully dedicated consumer healthcare subsidiaries.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



The amounts associated with the Consumer Healthcare business, as well as other assets classified as held for sale consisted of the following:
(MILLIONS OF DOLLARS)	December 31, 2018
Assets Held for Sale
Cash and cash equivalents	$	32
Trade accounts receivable, less allowance for doubtful accounts	532
Inventories	538
Other current assets	56
PP&E	675
Identifiable intangible assets, less accumulated amortization	5,763
Goodwill	1,972
Noncurrent deferred tax assets and other noncurrent tax assets	54
Other noncurrent assets	57
Total Consumer Healthcare assets held for sale	9,678
Other assets held for sale^(a)	46
Assets held for sale	$	9,725

Liabilities Held for Sale

Trade accounts payable	$	406
Income taxes payable	39
Accrued compensation and related items	93
Other current liabilities	353
Pension benefit obligations, net	39
Postretirement benefit obligations, net	33
Noncurrent deferred tax liabilities	870
Other noncurrent liabilities	56
Total Consumer Healthcare liabilities held for sale	$	1,890


^(a)	Other assets held for sale consist of PP&E.

As a part of Pfizer, pre-tax income on a management business unit basis for the Consumer Healthcare business was $100 million for the third quarter of 2019 and $654 million for the nine months ended September 29, 2019, through July 31, 2019, and $211 million for the third quarter of 2018 and $725 million for the nine months ended September 30, 2018.

C. Research and Development Arrangement

Research and Development Arrangement with NovaQuest Co-Investment Fund V, L.P.

In April 2016, Pfizer entered into an agreement with NovaQuest under which NovaQuest would fund up to $200 million in development costs related to certain Phase 3 clinical trials of Pfizer’s rivipansel compound and Pfizer would use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. NovaQuest’s development funding was expected to cover up to 100% of the development costs and was received over approximately 13 quarters from 2016 through the second quarter of 2019 after which Pfizer is responsible for the remaining development costs. As there is a substantive and genuine transfer of risk to NovaQuest, the development funding was recognized by us as an obligation to perform contractual services and therefore a reduction of Research and development expenses as incurred. The funding cap was reached in 2019. Following potential regulatory approval, NovaQuest would be eligible to receive a combination of fixed milestone payments of up to approximately $267 million in total, based on achievement of first commercial sale and certain levels of cumulative net sales as well as royalties on rivipansel net sales over approximately eight years. Fixed sales-based milestone payments would be recorded as intangible assets and amortized to Amortization of intangible assets over the estimated commercial life of the rivipansel product and royalties on net sales would be recorded as Cost of sales when incurred.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In August 2019, we announced that the Phase 3 RESET (Rivipansel Evaluating Safety, Efficacy and Time to Discharge) pivotal study did not meet its primary or key secondary efficacy endpoints. The objective of the trial was to evaluate the efficacy and safety of rivipansel in patients aged six and older with sickle cell disease who were hospitalized for a vaso-occlusive crisis and required treatment with IV opioids. As a result, in the third quarter of 2019, we recorded a $127 million charge in Cost of sales related to rivipansel, primarily for inventory manufactured for expected future sale, as well as $15 million of anticipated clinical development program close-out costs, which were recorded in Research and development costs in the condensed consolidated statement of income. Detailed analyses of the RESET study, including additional data on efficacy and safety endpoints, are under review and will be submitted for presentation at a future scientific meeting. Following those detailed analyses, the impact on the NovaQuest agreement will be evaluated.

Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives

We incur significant costs in connection with acquiring, integrating and restructuring businesses and in connection with our global cost-reduction/productivity initiatives. For example:

•

In connection with acquisition activity, we typically incur costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and


•	In connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems.

All of our businesses and functions may be impacted by these actions, including sales and marketing, manufacturing and R&D, as well as groups such as information technology, shared services and corporate operations.

2017-2019 Initiatives and Organizing for Growth

During 2018, as we reviewed our business opportunities and challenges and the way in which we think about our business operations, we determined that at the start of our 2019 fiscal year, we would begin operating under our new commercial structure, which reorganized our operations into three businesses––Biopharma, a science-based innovative medicines business; Upjohn, a global, primarily off-patent branded and generic established medicines business; and through July 31, 2019, a Consumer Healthcare business (see Note 13). To operate effectively in this structure and position ourselves for future growth, we are focused on creating a simpler, more efficient operating structure within each business as well as the functions that support them. Beginning in the fourth quarter of 2018, we reviewed previously planned initiatives and new initiatives to ensure that there was alignment around our new structure and combined the 2017-2019 initiatives with our current Organizing for Growth initiatives to form one cohesive plan. Initiatives for the combined program include activities related to the optimization of our manufacturing plant network, the centralization of our corporate and platform functions, and the simplification and optimization of our operating business structure and functions that support them. From 2017 through September 29, 2019, we incurred approximately $819 million associated with manufacturing optimization, and approximately $945 million associated with other activities.

In 2019, we expect restructuring, implementation and additional depreciation charges of about $600 million and, of that amount, we expect approximately 15% of the total charges will be non-cash.

Current-Period Key Activities

For the first nine months of 2019, we incurred costs of $452 million composed of $272 million associated with the integration of Array, $300 million associated with the 2017-2019 and Organizing for Growth initiatives and $74 million associated with the integration of Hospira, partially offset by income of $194 million, primarily due to the reversal of certain accruals upon the effective favorable settlement of a U.S. IRS audit for multiple tax years and other acquisition-related initiatives.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
	Three Months Ended						Nine Months Ended
(MILLIONS OF DOLLARS)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Restructuring charges/(credits):
Employee terminations	$	82		$	(24	)	$	(86	)	$	(53	)
Asset impairments	3			12			3			8
Exit costs/(credits)	(1		)	14			33			14
Restructuring charges/(credits)^(a)	83			1			(50		)	(32		)
Transaction costs^(b)	65			1			65			1
Integration costs and other^(c)	217			82			281			202
Restructuring charges and certain acquisition-related costs	365			85			295			172
Net periodic benefit costs recorded in Other (income)/deductions––net	9			41			19			103
Additional depreciation––asset restructuringrecorded in our condensed consolidated statements of income as follows^(d):
Cost of sales	6			12			21			43
Selling, informational and administrative expenses	—			—			2			—
Research and development expenses	—			—			6			—
Total additional depreciation––asset restructuring	6			12			29			43
Implementation costs recorded in our condensed consolidated statements of income as follows^(e):
Cost of sales	14			21			45			57
Selling, informational and administrative expenses	23			17			48			51
Research and development expenses	3			9			16			22
Total implementation costs	40			48			109			130
Total costs associated with acquisitions and cost-reduction/productivity initiatives	$	420		$	186		$	452		$	447

^(a)

In the third quarter of 2019, restructuring charges mainly represent employee termination costs associated with cost-reduction and productivity initiatives as well as our acquisition of Array. In the first nine months of 2019, restructuring credits mostly represent the reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of a U.S. IRS audit for multiple tax years (see Note 5B), partially offset by employee termination costs associated with cost-reduction and productivity initiatives, as well as our acquisition of Array. In the third quarter of 2018, restructuring charges were primarily due to accruals for exit costs and asset write downs related to our acquisition of Hospira, partially offset by the reversal of previously recorded accruals for employee termination costs. In the first nine months of 2018, restructuring credits were mostly related to the reversal of previously recorded accruals for employee termination costs.

The restructuring activities for 2019 are associated with the following:


•	For the third quarter of 2019, Biopharma ($10 million charge); Upjohn ($6 million credit); and Other ($79 million charge).


•	For the first nine months of 2019, Biopharma ($38 million credit); Upjohn ($27 million credit); and Other ($15 million charge).

The restructuring activities for 2018 are associated with the following:


•	For the third quarter of 2018, total reportable segments ($6 million credit); and Other ($7 million charge).


•	For the first nine months of 2018, total reportable segments ($30 million credit); and Other ($2 million credit). At the beginning of fiscal 2019, we revised our operating segments and are unable to directly associate these prior-period restructuring charges with the new individual segments.


^(b)	Transaction costs represent external costs for banking, legal, accounting and other similar services. In the third quarter and first nine months of 2019, transaction costs relate to our acquisition of Array.

^(c)

Integration costs and other represent external, incremental costs directly related to integrating acquired businesses, such as expenditures for consulting and the integration of systems and processes, and certain other qualifying costs. In the third quarter and first nine months of 2019, integration costs and other primarily includes $157 million in payments to Array employees for the fair value of previously unvested stock options that was recognized as post-closing compensation expense (see Note 2A). In the third quarter and first nine months of 2018, integration costs and other were primarily related to our acquisition of Hospira.


^(d)	Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions.


^(e)	Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



The following table provides the components of and changes in our restructuring accruals:
(MILLIONS OF DOLLARS)	Employee Termination Costs			Asset Impairment Charges			Exit Costs			Accrual
Balance, December 31, 2018^(a)	$	1,203		$	—		$	49		$	1,252
Provision/(credit)^(b)	(86		)	3			33			(50		)
Utilization and other^(c)	(431		)	(3		)	(33		)	(467		)
Balance, September 29, 2019^(d)	$	686		$	—		$	48		$	734


^(a)	Included in Other current liabilities ($823 million) and Other noncurrent liabilities ($428 million).


^(b)	Includes the reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of a U.S. IRS audit for multiple tax years. See Note 5B for additional information.


^(c)	Includes adjustments for foreign currency translation.


^(d)	Included in Other current liabilities ($535 million) and Other noncurrent liabilities ($199 million).

Note 4. Other (Income)/Deductions—Net



The following table provides components of Other (income)/deductions––net:
	Three Months Ended						Nine Months Ended
(MILLIONS OF DOLLARS)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Interest income^(a)	$	(60	)	$	(82	)	(185		)	(240		)
Interest expense^(a)	409			310			1,158			946
Net interest expense	348			228			973			706
Royalty-related income^(b)	(155		)	(143		)	(475		)	(360		)
Net gains on asset disposals	(32		)	(4		)	(33		)	(19		)
Net gains recognized during the period on investments in equity securities^(c)	(6		)	(85		)	(153		)	(460		)
Net realized losses on sales of investments in debt securities	—			8			—			19
Income from collaborations, out-licensing arrangements and sales of compound/product rights^(d)	(20		)	(139		)	(124		)	(455		)
Net periodic benefit credits other than service costs^(e)	(19		)	(65		)	(110		)	(231		)
Certain legal matters, net^(f)	64			37			84			(70		)
Certain asset impairments^(g)	28			(1		)	188			40
Business and legal entity alignment costs^(h)	87			1			343			5
Net losses on early retirement of debt⁽ⁱ⁾	—			—			138			3
Other, net^(j)	24			(252		)	(294		)	(322		)
Other (income)/deductions––net	$	319		$	(414	)	$	537		$	(1,143	)

^(a)

Interest income decreased in the third quarter and first nine months of 2019, primarily driven by a lower investment balance. Interest expense increased in the third quarter and first nine months of 2019, mainly as a result of an increased commercial paper balance due to the acquisition of Array, as well as the retirement of lower-coupon debt and the issuance of new debt with a higher coupon than the debt outstanding for the comparative prior year periods.


^(b)	The increase in royalty-related income for the first nine months of 2019 is primarily due to a one-time favorable resolution in the second quarter of 2019 of a legal dispute for $82 million.


^(c)	The third quarter of 2018 included gains of $24 million and the first nine months of 2018 included gains of $229 million related to our investment in ICU Medical stock. For additional information on investments, see Note 7B.

^(d)

Includes income from upfront and milestone payments from our collaboration partners and income from out-licensing arrangements and sales of compound/product rights. In the first nine months of 2019, mainly includes, among other things, $70 million in milestone income from Mylan Pharmaceuticals Inc. related to the FDA’s approval and launch of Wixela Inhub^®, a generic of Advair Diskus^®(fluticasone propionate and salmeterol inhalation powder) and $26 million in milestone income from multiple licensees. In the third quarter of 2018, primarily included, among other things, (i) $40 million in milestone income from a certain licensee, (ii) a $35 million milestone payment received from Shire related to their first dosing of a patient in a Phase 3 clinical trial of a compound out-licensed by Pfizer to Shire for the treatment of Crohn’s disease and (iii) $45 million in gains related to sales of compound/product rights. In the first nine months of 2018, mainly included, among other things, (i) approximately $128 million in milestone income from multiple licensees, (ii) an upfront payment to us of $75 million for the sale of an α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid (AMPA) receptor potentiator for cognitive impairment associated with schizophrenia (CIAS) to Biogen Inc., (iii) $110 million in milestone payments received from Shire, of which $75 million was received in the first quarter of 2018 related to their first dosing of a patient in a Phase 3 clinical trial of a compound out-licensed by Pfizer to Shire for the treatment of ulcerative colitis and $35 million was received from Shire related to their first dosing of a patient in a Phase 3 clinical trial for the treatment of Crohn’s disease, (iv) a $40 million milestone payment from Merck in conjunction with the approval of ertugliflozin in the EU and (v) $45 million in gains related to sales of compound/product rights.


^(e)	For additional information, see Note 10.


^(f)	For the first nine months of 2018, the net credits primarily represented the reversal of a legal accrual where a loss was no longer deemed probable.

^(g)

The first nine months of 2019 include an intangible asset impairment charge of $10 million and the first nine months of 2018 included an intangible asset impairment charge of $31 million recorded in the second quarter of 2018, which are all related to a finite-lived developed technology right, acquired in connection with our acquisition of Anacor, for the treatment for toenail fungus marketed in the U.S. market only, associated with Biopharma and reflect,

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

among other things, updated commercial forecasts. The first nine months of 2019 also includes intangible asset impairment charges of: (i) $90 million related to WRDM IPR&D, for a pre-clinical stage asset from our acquisition of Bamboo for gene therapies for the potential treatment of patients with certain rare diseases and (ii) $40 million related to a Biopharma developed technology right, acquired in connection with our acquisition of King, for government defense products. The WRDM IPR&D intangible asset impairment charge was the result of a determination to not use certain Bamboo IPR&D acquired in future rare disease development. The intangible asset impairment charge related to the Biopharma developed technology right reflects, among other things, updated commercial forecasts including manufacturing cost assumptions. In addition, the first nine months of 2019, includes other asset impairments of $48 million.

^(h)

In the third quarter and first nine months of 2019, and in the third quarter of 2018, represents incremental costs associated with the design, planning and implementation of our new organizational structure, effective in the beginning of 2019, and primarily includes consulting, legal, tax and advisory services. In the first nine months of 2018, mainly represents expenses for changes to our infrastructure to align our commercial operations that existed through December 31, 2018, 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.


⁽ⁱ⁾	In the first nine months of 2019, represents net losses due to the early retirement of debt in the first quarter of 2019, inclusive of the related termination of cross-currency swaps.

^(j)

The third quarter of 2019 includes, among other things, dividend income of $43 million from our investment in ViiV and charges of $121 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity, associated with the formation of the GSK Consumer Healthcare joint venture. The first nine months of 2019 includes, among other things, (i) dividend income of $184 million from our investment in ViiV, (ii) charges of $146 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity, associated with the formation of the GSK Consumer Healthcare joint venture and (iii) $50 million of income from insurance recoveries related to Hurricane Maria. The third quarter and first nine months of 2018 included a non-cash $343 million pre-tax gain associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and pre-clinical stage neuroscience assets primarily targeting disorders of the central nervous system. The third quarter of 2018 also included, among other things, dividend income of $91 million from our investment in ViiV, and charges of $122 million, reflecting the change in the fair value of contingent consideration. The first nine months of 2018 also included, among other things, (i) dividend income of $226 million from our investment in ViiV, (ii) charges of $257 million, reflecting the change in the fair value of contingent consideration, (iii) a non-cash $50 million pre-tax gain on the contribution of Pfizer’s allogeneic CAR T development program assets obtained from Cellectis S.A. and Les Laboratoires Servier SAS in connection with our contribution agreement entered into with Allogene, and (iv) a non-cash $17 million gain on the cash settlement of a liability that we incurred in April 2018 upon the EU approval of Mylotarg.



The following table provides additional information about the intangible assets that were impaired during 2019 in Other (income)/deductions:
	Fair Value^(a)								Nine Months Ended September 29, 2019
(MILLIONS OF DOLLARS)	Amount		Level 1		Level 2		Level 3		Impairment
Intangible assets––IPR&D^(b)	$	—	$	—	$	—	$	—	$	90
Intangible assets––Developed technology rights^(b)	13		—		—		13		50
Total	$	13	$	—	$	—	$	13	$	140


^(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 first nine months of 2019. 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.

Note 5. Tax Matters

A. Taxes on Income from Continuing Operations

During the second quarter of 2019, Pfizer reached settlement of disputed issues at the IRS Office of Appeals, thereby settling all issues related to U.S. tax returns of Pfizer for the years 2009-2010. As a result of settling these years, in the second quarter of 2019 we recorded a benefit of approximately $1.4 billion, representing tax and interest.

Our effective tax rate for continuing operations was 28.4% for the third quarter of 2019, compared to 1.6% for the third quarter of 2018 and was 13.4% for the first nine months of 2019, compared to 9.9% for the first nine months of 2018.

The higher effective tax rate for the third quarter of 2019 in comparison with the same period in 2018 was primarily due to:


•	the tax expense of $2.7 billion associated with the gain related to the completion of the Consumer Healthcare joint venture transaction with GSK;


•	the non-recurrence of certain tax initiatives and favorable adjustments to the provisional estimate of the legislation commonly referred to as the TCJA; and


•	a decrease in tax benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The higher effective tax rate for the first nine months of 2019 in comparison with the same period in 2018 was primarily due to:


•	the tax expense of $2.7 billion associated with the gain related to the completion of the Consumer Healthcare joint venture transaction with GSK; and


•	the non-recurrence of certain tax initiatives and favorable adjustments to the provisional estimate of the TCJA,

partially offset by:


•	an increase in tax benefits associated with the resolution of certain tax positions pertaining to prior years, primarily resulting from the aforementioned favorable settlement with the IRS; and


•	the tax benefit recorded as a result of additional guidance issued by the U.S. Department of Treasury related to the enactment of the TCJA.

Our estimated $15 billion repatriation tax liability on accumulated post-1986 foreign earnings for which we elected, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, payment over eight years through 2026 is reported in current Income taxes payable (approximately $750 million) and the remaining liability is reported in noncurrent Other taxes payable in our consolidated balance sheet as of September 29, 2019. The first installment of $750 million was paid in April 2019. Our obligations may vary as a result of changes in our uncertain tax positions and/or availability of attributes such as foreign tax and other credit carryforwards.

B. Tax Contingencies

We are subject to income tax in many jurisdictions, and a certain degree of estimation is required in recording the assets and liabilities related to income taxes. All of our tax positions are subject to audit by the local taxing authorities in each tax jurisdiction. These tax audits can involve complex issues, interpretations and judgments and the resolution of matters may span multiple years, particularly if subject to negotiation or litigation. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution.

The U.S. is one of our major tax jurisdictions, and we are regularly audited by the IRS:


•	During the second quarter of 2019, Pfizer reached settlement of disputed issues at the IRS Office of Appeals, thereby settling all issues related to U.S. tax returns of Pfizer for the years 2009-2010. As a result of settling these years, in the second quarter of 2019 we recorded a benefit of approximately $1.4 billion, representing tax and interest.


•	With respect to Pfizer, tax years 2011-2015 are currently under audit. Tax years 2016-2019 are open, but not under audit. All other tax years are closed.

In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (2013-2019), Japan (2017-2019), Europe (2011-2019, primarily reflecting Ireland, the U.K., France, Italy, Spain and Germany), Latin America (1998-2019, primarily reflecting Brazil) and Puerto Rico (2015-2019).

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

C. Tax Provision on Other Comprehensive Loss



The following table provides the components of Tax provision on other comprehensive loss:
	Three Months Ended						Nine Months Ended
(MILLIONS OF DOLLARS)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Foreign currency translation adjustments, net^(a)	$	86		$	14		$	96		$	82
Unrealized holding gains on derivative financial instruments, net	31			35			37			39
Reclassification adjustments for (gains)/losses included in net income	(3		)	(28		)	(62		)	36
Reclassification adjustments of certain tax effects from AOCI to Retained earnings^(b)	—			—			—			1
	28			7			(24		)	77
Unrealized holding gains/(losses) on available-for-sale securities, net	2			20			6			(8		)
Reclassification adjustments for (gains)/losses included in net income	(1		)	(6		)	4			(8		)
Reclassification adjustments for tax on unrealized gains from AOCI to Retained earnings^(c)	—			—			—			(45		)
	1			14			10			(62		)
Benefit plans: actuarial gains/(losses), net	(41		)	2			(42		)	27
Reclassification adjustments related to amortization	23			15			41			43
Reclassification adjustments related to settlements, net	9			10			10			25
Reclassification adjustments of certain tax effects from AOCI to Retained earnings^(b)	—			—			—			637
Other	(1		)	11			2			18
	(10		)	38			12			750
Benefit plans: prior service costs and other, net	—			—			—			—
Reclassification adjustments related to amortization of prior service costs and other, net	(11		)	(11		)	(33		)	(33		)
Reclassification adjustments related to curtailments of prior service costs and other, net	(11		)	(1		)	(11		)	(4		)
Reclassification adjustments of certain tax effects from AOCI to Retained earnings^(b)	—			—			—			(144		)
Other	1			1			1			1
	(21		)	(11		)	(43		)	(179		)
Tax provision on other comprehensive loss	$	84		$	62		$	50		$	667


^(a)	Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.


^(b)	For additional information on the adoption of a new accounting standard related to reclassification of certain tax effects from AOCI, see Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.


^(c)	For additional information on the adoption of a new accounting standard related to financial assets and liabilities, see Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.

Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests



The following table provides the changes, net of tax, in Accumulated other comprehensive loss:
	Net Unrealized Gains/(Losses)									Benefit Plans
(MILLIONS OF DOLLARS)	Foreign Currency Translation Adjustments			Derivative Financial Instruments			Available-For-Sale Securities			Actuarial Gains/(Losses)			Prior Service (Costs)/Credits and Other			Accumulated Other Comprehensive Income/(Loss)
Balance, December 31, 2018	$	(6,075	)	$	167		$	(68	)	$	(6,027	)	$	728		$	(11,275	)
Other comprehensive income/(loss)^(a)	(443		)	(107		)	68			94			(137		)	(525		)
Balance, September 29, 2019	$	(6,519	)	$	60		$	—		$	(5,933	)	$	591		$	(11,801	)


^(a)	Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $11 million loss for the first nine months of 2019.

As of September 29, 2019, with respect to derivative financial instruments, the amount of unrealized pre-tax net gains on derivative financial instruments estimated to be reclassified into income within the next 12 months is approximately $247 million. The net gains are expected to be offset primarily by net losses from reclassification adjustments related to foreign currency exchange-denominated forecasted intercompany inventory sales.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 7. Financial Instruments

A. Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the financial assets and liabilities measured at fair value using a market approach on a recurring basis by balance sheet categories and fair value hierarchy level as defined in Notes to Consolidated Financial Statements––Note 1E. Basis of Presentation and Significant Accounting Policies: Fair Value in Pfizer’s 2018 Financial Report:

September 29, 2019

December 31, 2018

(MILLIONS OF DOLLARS)

Total

Level 1

Level 2

Total

Level 1

Level 2

Financial assets measured at fair value on a recurring basis:

Short-term investments