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 June 30, 2019

OR

☐ 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

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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 August 5, 2019, 5,531,048,353 shares of the issuer’s voting common stock were outstanding.

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Table of Contents

PART I.  FINANCIAL INFORMATION	Page
Item 1.
Financial Statements
Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019 and July 1, 2018	5
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and July 1, 2018	6
Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	7
Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2019 and July 1, 2018	8
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and July 1, 2018	10
Notes to Condensed Consolidated Financial Statements	11
Review Report of Independent Registered Public Accounting Firm	46
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
Item 3.
Quantitative and Qualitative Disclosures About Market Risk	107
Item 4.
Controls and Procedures	107
PART II.  OTHER INFORMATION
Item 1.
Legal Proceedings	108
Item 1A.
Risk Factors	108
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds	109
Item 3.
Defaults Upon Senior Securities	109
Item 4.
Mine Safety Disclosures	109
Item 5.
Other Information	109
Item 6.
Exhibits	110
Signature	111

2

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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
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.
Bamboo	Bamboo Therapeutics, Inc.
Biopharma	Pfizer Biopharmaceuticals Group
BMS	Bristol-Myers Squibb Company
BRCA	BReast CAncer susceptibility gene
CAR T	chimeric antigen receptor T cell
CDC	U.S. Centers for Disease Control and Prevention
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
IPR&D	in-process research and development
IRS	U.S. Internal Revenue Service
IV	intravenous
Janssen	Janssen Biotech Inc.
J&J	Johnson & Johnson
King	King Pharmaceuticals LLC (formerly King Pharmaceuticals, Inc.)
LDL	low density lipoprotein

3

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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 June 30, 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
WRDM	Worldwide Research, Development and Medical

4

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

		Three Months Ended								Six Months Ended
(MILLIONS, EXCEPT PER COMMON SHARE DATA)		June 30, 2019				July 1, 2018				June 30, 2019				July 1, 2018
Revenues		$	13,264			$	13,466			$	26,382			$	26,373
Costs and expenses:
Cost of sales(a)		2,576				2,916				5,009				5,479
Selling, informational and administrative expenses(a)		3,511				3,542				6,850				6,954
Research and development expenses(a)		1,842				1,797				3,544				3,540
Amortization of intangible assets		1,184				1,191				2,367				2,387
Restructuring charges and certain acquisition-related costs		(115		)		44				(69		)		87
Other (income)/deductions––net		126				(551		)		218				(728		)
Income from continuing operations before provision/(benefit) for taxes on income		4,141				4,527				8,463				8,654
Provision/(benefit) for taxes on income		(915		)		648				(481		)		1,204
Income from continuing operations		5,056				3,879				8,945				7,450
Discontinued operations––net of tax		—				—				—				(1		)
Net income before allocation to noncontrolling interests		5,056				3,879				8,945				7,449
Less: Net income attributable to noncontrolling interests		10				7				15				16
Net income attributable to Pfizer Inc.		$	5,046			$	3,872			$	8,929			$	7,432
Earnings per common share––basic:
Income from continuing operations attributable to Pfizer Inc. common shareholders		$	0.91			$	0.66			$	1.59			$	1.26
Discontinued operations––net of tax		—				—				—				—
Net income attributable to Pfizer Inc. common shareholders		$	0.91			$	0.66			$	1.59			$	1.26
Earnings per common share––diluted:
Income from continuing operations attributable to Pfizer Inc. common shareholders		$	0.89			$	0.65			$	1.56			$	1.24
Discontinued operations––net of tax		—				—				—				—
Net income attributable to Pfizer Inc. common shareholders		$	0.89			$	0.65			$	1.56			$	1.24
Weighted-average shares––basic		5,562				5,866				5,598				5,911
Weighted-average shares––diluted		5,672				5,952				5,711				6,004

(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.

5

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PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

		Three Months Ended								Six Months Ended
(MILLIONS OF DOLLARS)		June 30, 2019				July 1, 2018				June 30, 2019				July 1, 2018
Net income before allocation to noncontrolling interests		$	5,056			$	3,879			$	8,945			$	7,449
Foreign currency translation adjustments, net		(485		)		(699		)		(161		)		59
Reclassification adjustments		—				(35		)		2				(20		)
		(485		)		(734		)		(159		)		39
Unrealized holding gains/(losses) on derivative financial instruments, net		(176		)		127				91				13
Reclassification adjustments for (gains)/losses included in net income(a)		(81		)		310				(343		)		354
		(256		)		437				(252		)		367
Unrealized holding gains/(losses) on available-for-sale securities, net		(7		)		(374		)		33				(214		)
Reclassification adjustments for (gains)/losses included in net income(a)		26				143				37				(31		)
Reclassification adjustments for unrealized gains included in Retained earnings(b)		—				—				—				(462		)
		19				(231		)		70				(707		)
Benefit plans: actuarial gains/(losses), net		(4		)		(57		)		(4		)		106
Reclassification adjustments related to amortization		60				61				121				123
Reclassification adjustments related to settlements, net		2				30				2				67
Other		41				107				18				21
		100				141				137				316
Benefit plans: prior service costs and other, net		(1		)		—				(1		)		—
Reclassification adjustments related to amortization of prior service costs and other, net		(46		)		(46		)		(93		)		(92		)
Reclassification adjustments related to curtailments of prior service costs and other, net		—				(7		)		—				(13		)
Other		1				(1		)		2				1
		(46		)		(53		)		(92		)		(104		)
Other comprehensive loss, before tax		(669		)		(440		)		(296		)		(88		)
Tax provision/(benefit) on other comprehensive loss		(59		)		173				(34		)		605
Other comprehensive loss before allocation to noncontrolling interests		$	(610	)		$	(613	)		$	(262	)		$	(693	)
Comprehensive income before allocation to noncontrolling interests		$	4,446			$	3,266			$	8,683			$	6,755
Less: Comprehensive income/(loss) attributable to noncontrolling interests		12				(4		)		13				6
Comprehensive income attributable to Pfizer Inc.		$	4,434			$	3,270			$	8,669			$	6,750

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

(b)	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.

6

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PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(MILLIONS OF DOLLARS)		June 30, 2019				December 31, 2018
		(Unaudited)
Assets
Cash and cash equivalents		$	1,784			$	1,139
Short-term investments		11,128				17,694
Trade accounts receivable, less allowance for doubtful accounts: 2019—$540; 2018—$541		9,793				8,025
Inventories		8,233				7,508
Current tax assets		3,723				3,374
Other current assets		2,535				2,461
Assets held for sale		9,877				9,725
Total current assets		47,073				49,926
Long-term investments		2,905				2,767
Property, plant and equipment, less accumulated depreciation: 2019—$16,389; 2018—$16,591		13,521				13,385
Identifiable intangible assets, less accumulated amortization		33,024				35,211
Goodwill		53,352				53,411
Noncurrent deferred tax assets and other noncurrent tax assets		1,935				1,924
Other noncurrent assets		4,388				2,799
Total assets		$	156,199			$	159,422
Liabilities and Equity
Short-term borrowings, including current portion of long-term debt: 2019—$2,139; 2018—$4,776		$	10,507			$	8,831
Trade accounts payable		4,002				4,674
Dividends payable		1,991				2,047
Income taxes payable		1,536				1,265
Accrued compensation and related items		1,875				2,397
Other current liabilities		10,110				10,753
Liabilities held for sale		2,009				1,890
Total current liabilities		32,030				31,858
Long-term debt		36,168				32,909
Pension benefit obligations, net		4,982				5,272
Postretirement benefit obligations, net		1,310				1,338
Noncurrent deferred tax liabilities		3,180				3,700
Other taxes payable		12,421				14,737
Other noncurrent liabilities		6,183				5,850
Total liabilities		96,274				95,664
Commitments and Contingencies
Preferred stock		18				19
Common stock		468				467
Additional paid-in capital		86,963				86,253
Treasury stock		(110,786		)		(101,610		)
Retained earnings		94,440				89,554
Accumulated other comprehensive loss		(11,535		)		(11,275		)
Total Pfizer Inc. shareholders’ equity		59,568				63,407
Equity attributable to noncontrolling interests		357				351
Total equity		59,924				63,758
Total liabilities and equity		$	156,199			$	159,422

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

7

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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, March 31, 2019		466			$	19			9,358			$	468			$	86,635			(3,801	)		$	(110,781	)		$	93,388			$	(10,923	)		$	58,806			$	352			$	59,158
Net income																											5,046								5,046				10				5,056
Other comprehensive income/(loss), net of tax																															(613		)		(613		)		3				(610		)
Cash dividends declared:
Common stock																											(3,994		)						(3,994		)						(3,994		)
Preferred stock																											—								—								—
Noncontrolling interests																																			—				(8		)		(8		)
Share-based payment transactions									5			—				329				—			(6		)										324								324
Purchases of common stock																				—			—												—								—
Preferred stock conversions and redemptions		(8	)		—											(1		)		—			—												(1		)						(1		)
Other																—				—			—				—				—				—				—				—
Balance, June 30, 2019		458			$	18			9,363			$	468			$	86,963			(3,801	)		$	(110,786	)		$	94,440			$	(11,535	)		$	59,568			$	357			$	59,924
		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 April 1, 2018		513			$	21			9,299			$	465			$	84,599			(3,437	)		$	(95,460	)		$	89,961			$	(9,402	)		$	70,184			$	358			$	70,541
Net income																											3,872								3,872				7				3,879
Other comprehensive income/(loss), net of tax																															(602		)		(602		)		(11		)		(613		)
Cash dividends declared:
Common stock																											(3,970		)						(3,970		)						(3,970		)
Preferred stock																											—								—								—
Noncontrolling interests																																			—				(7		)		(7		)
Share-based payment transactions									4			—				300				—			(4		)										297								297
Purchases of common stock																				—			—												—								—
Preferred stock conversions and redemptions		(11	)		—											(1		)		—			—												(1		)						(1		)
Other																—				—			—				(2		)		—				(2		)		—				(2		)
Balance, July 1, 2018		502			$	20			9,303			$	465			$	84,898			(3,438	)		$	(95,463	)		$	89,860			$	(10,003	)		$	69,778			$	346			$	70,124

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

8

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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																											8,929								8,929				15				8,945
Other comprehensive income/(loss), net of tax																															(260		)		(260		)		(2		)		(262		)
Cash dividends declared:
Common stock																											(4,062		)						(4,062		)						(4,062		)
Preferred stock																											(1		)						(1		)						(1		)
Noncontrolling interests																																			—				(8		)		(8		)
Share-based payment transactions									31			2				712				(7	)		(312		)										402								402
Purchases of common stock																				(180	)		(8,865		)										(8,865		)						(8,865		)
Preferred stock conversions and redemptions		(20	)		(1		)									(1		)		—			—												(2		)						(2		)
Other(a)																—				—			—				19				—				19				—				19
Balance, June 30, 2019		458			$	18			9,363			$	468			$	86,963			(3,801	)		$	(110,786	)		$	94,440			$	(11,535	)		$	59,568			$	357			$	59,924
		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																											7,432								7,432				16				7,449
Other comprehensive income/(loss), net of tax																															(682		)		(682		)		(11		)		(693		)
Cash dividends declared:
Common stock																											(4,035		)						(4,035		)						(4,035		)
Preferred stock																											(1		)						(1		)						(1		)
Noncontrolling interests																																			—				(7		)		(7		)
Share-based payment transactions									28			1				621				3			25												648								648
Purchases of common stock																				(145	)		(6,063		)										(6,063		)						(6,063		)
Preferred stock conversions and redemptions		(22	)		(1		)									(1		)		—			—												(2		)						(2		)
Other(b)																—				—			—				1,172				—				1,173				—				1,172
Balance, July 1, 2018		502			$	20			9,303			$	465			$	84,898			(3,438	)		$	(95,463	)		$	89,860			$	(10,003	)		$	69,778			$	346			$	70,124

(a)	Represents 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.

(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.

9

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PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		Six Months Ended
(MILLIONS OF DOLLARS)		June 30, 2019				July 1, 2018
Operating Activities
Net income before allocation to noncontrolling interests		$	8,945			$	7,449
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization		3,073				3,129
Asset write-offs and impairments		178				41
TCJA impact(a)		(285		)		(68		)
Deferred taxes from continuing operations		(160		)		(500		)
Share-based compensation expense		384				379
Benefit plan contributions in excess of income		(313		)		(826		)
Other adjustments, net		(462		)		(523		)
Other changes in assets and liabilities, net of acquisitions and divestitures		(7,051		)		(3,250		)
Net cash provided by operating activities		4,309				5,830
Investing Activities
Purchases of property, plant and equipment		(939		)		(810		)
Purchases of short-term investments		(4,063		)		(3,122		)
Proceeds from redemptions/sales of short-term investments		6,001				10,497
Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less		4,717				1,231
Purchases of long-term investments		(123		)		(1,070		)
Proceeds from redemptions/sales of long-term investments		142				1,361
Acquisitions of intangible assets		(267		)		(32		)
Other investing activities, net		179				138
Net cash provided by investing activities		5,648				8,193
Financing Activities
Proceeds from short-term borrowings		3,956				1,746
Principal payments on short-term borrowings		(2,375		)		(2,921		)
Net proceeds from short-term borrowings with original maturities of three months or less		2,719				2,092
Proceeds from issuance of long-term debt		4,942				—
Principal payments on long-term debt		(5,355		)		(3,104		)
Purchases of common stock		(8,865		)		(6,063		)
Cash dividends paid		(4,047		)		(4,021		)
Proceeds from exercise of stock options		248				474
Other financing activities, net		(541		)		(831		)
Net cash used in financing activities		(9,318		)		(12,628		)
Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents		(28		)		(15		)
Net increase in cash and cash equivalents and restricted cash and cash equivalents		612				1,381
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		$	1,837			$	2,811
Supplemental Cash Flow Information
Non-cash transactions:
Equity investment in Allogene received in exchange for Pfizer's allogeneic CAR T developmental program assets(b)		$	—			$	92
Cash paid (received) during the period for:
Income taxes		2,136				1,197
Interest paid		809				724
Interest rate hedges		(72		)		(71		)

(a)

As a result of the enactment of the TCJA in December 2017, Pfizer’s Provision for taxes on income for (i) the six months ended June 30, 2019 was favorably impacted by approximately $285 million, primarily as a result of additional guidance issued by the U.S. Department of Treasury and (ii) the six months ended July 1, 2018 was favorably impacted by approximately $68 million, primarily related to certain tax initiatives associated with the lower U.S. tax rate as a result of the TCJA.

(b)	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 in our 2018 Financial Report.

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

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PFIZER INC. AND SUBSIDIARY COMPANIES

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 six months ended May 26, 2019 and May 27, 2018. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three and six months ended June 30, 2019 and July 1, 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.

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, which fell in the third fiscal quarter of 2019, we closed 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. Assets and liabilities associated with our Consumer Healthcare business were reclassified as held for sale in the consolidated balance sheets as of June 30, 2019 and December 31, 2018.

•

Acquisition of Array BioPharma Inc.––On July 30, 2019, which fell in the third fiscal quarter of 2019, we acquired Array, a commercial stage biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule medicines to treat cancer and other diseases of high unmet need, for $48 per share in cash, for a total enterprise value of approximately $11.4 billion. We financed the majority of the transaction with debt and the balance with existing cash.

•

Agreement to Combine Upjohn with Mylan––On July 29, 2019, which fell in the third fiscal quarter of 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 simultaneously combined with Mylan. Pfizer shareholders would own 57% of the combined new company, and Mylan shareholders would own 43%. The transaction is expected to be tax free to Pfizer and Pfizer shareholders. The transaction is anticipated to close in mid-2020, subject to Mylan shareholder approval and customary closing conditions, including receipt of regulatory approvals.

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PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

•

Acquisition of Therachon Holding AG––On July 1, 2019, which fell in the third fiscal quarter of 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 TA-46. In 2018, Pfizer acquired 3% of Therachon’s outstanding shares.

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 six months ended June 30, 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.

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

12

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PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 June 30, 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)		June 30, 2019				December 31, 2018
Reserve against Trade accounts receivable, less allowance for doubtful accounts		$	1,226			$	1,288
Other current liabilities:
Accrued rebates		3,256				3,208
Other accruals		620				531
Other noncurrent liabilities		472				399
Total accrued rebates and other accruals		$	5,574			$	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 $59 million for the three months ended June 30, 2019 and $118 million for the six months ended June 30, 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:
(MILLIONS OF DOLLARS)		Balance Sheet Classification		Balance at June 30, 2019
ROU assets		Other noncurrent assets		$	1,273
Lease liabilities (short-term)		Other current liabilities		263
Lease liabilities (long-term)		Other noncurrent liabilities		1,026

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PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Our total lease costs are as follows:
		Three Months Ended				Six Months Ended
(MILLIONS OF DOLLARS)		June 30, 2019				June 30, 2019
Operating lease cost		$	100			$	200
Variable lease cost		59				118
Sublease income		(11		)		(21		)
Total lease cost		$	148			$	297

Other supplemental information includes the following:
(MILLIONS OF DOLLARS)		Weighted-Average Remaining Contractual Lease Term (Years) as of June 30, 2019		Weighted-Average Discount Rate as of June 30, 2019			Six Months Ended June 30, 2019
Operating leases		7.1		3.7	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases							$	156
ROU assets obtained in exchange for new operating lease liabilities							$	122

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 June 30, 2019:
(MILLIONS OF DOLLARS)
Period		Operating Lease Liabilities
Next one year(a)		$	302
1-2 years		254
2-3 years		216
3-4 years		171
4-5 years		122
Thereafter		419
Total undiscounted lease payments		1,483
Less: Imputed interest		195
Present Value of Minimum Lease Payments		1,288
Less: Current portion		263
Noncurrent portion		$	1,026

(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

Note 2. Assets and Liabilities Held for Sale

On July 31, 2019, which fell in the third fiscal quarter of 2019, we closed 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, 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

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PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Consumer Healthcare business and expect to recognize a gain in our fiscal third quarter of 2019 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 will account for our 32% equity stake in the new company as an equity-method investment. Assets and liabilities associated with our Consumer Healthcare business were reclassified as held for sale in the consolidated balance sheets as of June 30, 2019 and 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. This includes the Consumer Healthcare business tax assets and liabilities related to fully dedicated consumer healthcare subsidiaries.

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)		June 30, 2019				December 31, 2018
Assets Held for Sale
Cash and cash equivalents		$	53			$	32
Trade accounts receivable, less allowance for doubtful accounts		555				532
Inventories		580				538
Other current assets		56				56
PP&E		714				675
Identifiable intangible assets, less accumulated amortization		5,753				5,763
Goodwill		1,965				1,972
Noncurrent deferred tax assets and other noncurrent tax assets		55				54
Other noncurrent assets		91				57
Total Consumer Healthcare assets held for sale		9,821				9,678
Other assets held for sale(a)		56				46
Assets held for sale		$	9,877			$	9,725
Liabilities Held for Sale
Trade accounts payable		$	348			$	406
Income taxes payable		63				39
Accrued compensation and related items		79				93
Other current liabilities		334				353
Pension benefit obligations, net		41				39
Postretirement benefit obligations, net		34				33
Noncurrent deferred tax liabilities		1,036				870
Other noncurrent liabilities		74				56
Total Consumer Healthcare liabilities held for sale		$	2,009			$	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 $274 million for the second quarter of 2019 and $554 million for the six months ended June 30, 2019, and $249 million for the second quarter of 2018 and $514 million for the six months ended July 1, 2018.

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.

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PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 June 30, 2019, we incurred approximately $774 million associated with manufacturing optimization, and approximately $871 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 20% of the total charges will be non-cash.

Current-Period Key Activities

For the first six months of 2019, we incurred costs of $32 million composed of $180 million associated with the 2017-2019 and Organizing for Growth initiatives, $51 million associated with the integration of Hospira and income of $199 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.

The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
		Three Months Ended								Six Months Ended
(MILLIONS OF DOLLARS)		June 30, 2019				July 1, 2018				June 30, 2019				July 1, 2018
Restructuring charges/(credits):
Employee terminations		$	(166	)		$	(21	)		$	(167	)		$	(29	)
Asset impairments		(9		)		(6		)		—				(4		)
Exit costs		31				3				34				—
Restructuring credits(a)		(144		)		(24		)		(134		)		(33		)
Integration costs(b)		29				68				64				120
Restructuring charges and certain acquisition-related costs		(115		)		44				(69		)		87
Net periodic benefit costs recorded in Other (income)/deductions––net		4				29				10				61
Additional depreciation––asset restructuring recorded in our condensed consolidated statements of income as follows(c):
Cost of sales		7				13				15				30
Selling, informational and administrative expenses		1				—				2				—
Research and development expenses		2				—				5				—
Total additional depreciation––asset restructuring		10				13				23				31
Implementation costs recorded in our condensed consolidated statements of income as follows(d):
Cost of sales		17				20				31				36
Selling, informational and administrative expenses		16				16				25				34
Research and development expenses		9				7				13				13
Total implementation costs		42				44				69				82
Total costs associated with acquisitions and cost-reduction/productivity initiatives		$	(59	)		$	131			$	32			$	262

(a)

In the second quarter and first six 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). In the three and six months ended July 1, 2018, restructuring credits were associated with cost-reduction and productivity initiatives not associated with acquisitions, as well as acquisition-related costs, primarily associated with Hospira.

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PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The restructuring activities for 2019 are associated with the following:

•	For the second quarter of 2019, Biopharma ($62 million credit); Upjohn ($9 million credit); and Other ($74 million credit).

•	For the first six months of 2019, Biopharma ($48 million credit); Upjohn ($22 million credit); and Other ($63 million credit).

The restructuring activities for 2018 are associated with the following:

•	For the second quarter of 2018, total reportable segments ($10 million credit); and Other ($13 million credit).

•	For the first six months of 2018, total reportable segments ($24 million credit); and Other ($9 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)	Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes. In the second quarter and first six months of 2019 and 2018, integration costs were primarily related to our acquisition of Hospira.

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

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

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)		(167		)		—				34				(134		)
Utilization and other(c)		(303		)		—				(18		)		(321		)
Balance, June 30, 2019(d)		$	733			$	—			$	64			$	797

(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 ($593 million) and Other noncurrent liabilities ($204 million).

Note 4. Other (Income)/Deductions—Net

The following table provides components of Other (income)/deductions––net:
		Three Months Ended								Six Months Ended
(MILLIONS OF DOLLARS)		June 30, 2019				July 1, 2018				June 30, 2019				July 1, 2018
Interest income(a)		$	(59	)		$	(80	)		(125		)		(157		)
Interest expense(a)		389				326				750				635
Net interest expense		330				245				625				478
Royalty-related income(b)		(231		)		(121		)		(320		)		(217		)
Net gains on asset disposals		—				(15		)		(1		)		(22		)
Net gains recognized during the period on investments in equity securities(c)		(36		)		(257		)		(147		)		(375		)
Net realized losses on sales of investments in debt securities		—				8				—				12
Income from collaborations, out-licensing arrangements and sales of compound/product rights(d)		(22		)		(174		)		(104		)		(316		)
Net periodic benefit credits other than service costs(e)		(51		)		(84		)		(91		)		(166		)
Certain legal matters, net(f)		15				(88		)		19				(107		)
Certain asset impairments(g)		10				40				160				40
Business and legal entity alignment costs(h)		137				1				256				4
Net losses on early retirement of debt(i)		—				—				138				3
Other, net(j)		(27		)		(106		)		(318		)		(64		)
Other (income)/deductions––net		$	126			$	(551	)		$	218			$	(728	)

(a)

Interest income decreased in the second quarter and first six months of 2019, primarily driven by a lower investment balance. Interest expense increased in the second quarter and first six months of 2019, mainly as a result of higher short-term interest rates, 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 second quarter and first six 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 second quarter of 2018 included gains of $142 million and the first six months of 2018 included gains of $203 million related to our investment in ICU Medical stock. For additional information, 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 six months of 2019, mainly includes $68 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). In the second quarter of 2018, primarily included, among other things, $88 million in milestone income from multiple licensees and an upfront payment to us of $75 million for the sale of

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

an α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid (AMPA) receptor potentiator for cognitive impairment associated with schizophrenia (CIAS) to Biogen Inc. In the first six months of 2018, mainly includes, among other things, all of the factors discussed above for the second quarter of 2018, as well as a $75 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 ulcerative colitis, and a $40 million milestone payment from Merck in conjunction with the approval of ertugliflozin in the EU.

(e)	For additional information, see Note 10.

(f)	In the second quarter and first six months of 2018, primarily represented the reversal of a legal accrual where a loss was no longer deemed probable.

(g)

The second quarter and first six months of 2019 include an intangible asset impairment charge of $10 million and the second quarter and first six months of 2018 included an intangible asset impairment charge of $31 million, 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, among other things, updated commercial forecasts. The first six months of 2019 also includes intangible asset impairment charges of: (i) $90 million related to WRDM IPR&D, which relates to 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 six months of 2019, includes other asset impairments of $20 million.

(h)

In the second quarter and first six months of 2019, 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 second quarter and first six months of 2018, 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 six 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 second quarter of 2019 includes, among other things, charges of $81 million, reflecting the change in the fair value of contingent consideration, dividend income of $76 million from our investment in ViiV and $25 million of income from insurance recoveries related to Hurricane Maria. The first six months of 2019 includes, among other things, dividend income of $140 million from our investment in ViiV and $50 million of income from insurance recoveries related to Hurricane Maria. The second quarter of 2018 included, among other things, dividend income of $76 million from our investment in ViiV, and charges of $23 million, reflecting the change in the fair value of contingent consideration. The first six months of 2018 included, among other things, dividend income of $135 million from our investment in ViiV, and charges of $135 million reflecting the change in the fair value of contingent consideration. The second quarter and first six months of 2018 also included 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 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)																Six Months Ended June 30, 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 six 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 (22.1)% for the second quarter of 2019, compared to 14.3% for the second quarter of 2018 and was (5.7)% for the first six months of 2019, compared to 13.9% for the first six months of 2018.

The lower effective tax rate for the second quarter and first six months of 2019 in comparison with the same periods in 2018 was primarily due to:

•	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;

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(UNAUDITED)

•	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, as well as

•	the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business.

Our estimated $15 billion repatriation tax liability on accumulated post-1986 foreign earnings for which we plan to elect, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, payment over eight years through 2026 is reported in Income taxes payable (approximately $750 million) and the remaining liability is reported in Other taxes payable in our consolidated balance sheet as of June 30, 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 United Kingdom, France, Italy, Spain and Germany), Latin America (1998-2019, primarily reflecting Brazil) and Puerto Rico (2014-2019).

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

C. Tax Provision/(Benefit) on Other Comprehensive Loss

The following table provides the components of Tax provision/(benefit) on other comprehensive loss:
		Three Months Ended								Six Months Ended
(MILLIONS OF DOLLARS)		June 30, 2019				July 1, 2018				June 30, 2019				July 1, 2018
Foreign currency translation adjustments, net(a)		$	(17	)		$	101			$	10			$	67
Unrealized holding gains/(losses) on derivative financial instruments, net		(53		)		8				6				4
Reclassification adjustments for (gains)/losses included in net income		(4		)		72				(59		)		65
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b)		—				—				—				1
		(57		)		79				(53		)		70
Unrealized holding gains/(losses) on available-for-sale securities, net		(1		)		(48		)		4				(28		)
Reclassification adjustments for (gains)/losses included in net income		3				20				5				(2		)
Reclassification adjustments for tax on unrealized gains from AOCI to Retained earnings(c)		—				—				—				(45		)
		2				(29		)		9				(76		)
Benefit plans: actuarial gains/(losses), net		(1		)		(13		)		(1		)		25
Reclassification adjustments related to amortization		15				14				18				28
Reclassification adjustments related to settlements, net		—				7				1				15
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b)		—				—				—				637
Other		8				27				3				6
		23				34				21				712
Benefit plans: prior service costs and other, net		—				—				—				—
Reclassification adjustments related to amortization of prior service costs and other, net		(11		)		(11		)		(22		)		(22		)
Reclassification adjustments related to curtailments of prior service costs and other, net		—				4				—				(3		)
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b)		—				—				—				(144		)
Other		—				(6		)		—				—
		(11		)		(13		)		(22		)		(168		)
Tax provision/(benefit) on other comprehensive loss		$	(59	)		$	173			$	(34	)		$	605

(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)		(167		)		(200		)		61				116				(70		)		(260		)
Balance, June 30, 2019		$	(6,242	)		$	(33	)		$	(8	)		$	(5,911	)		$	658			$	(11,535	)

(a)	Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $2 million loss for the first six months of 2019.

As of June 30, 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 $153 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 and available-for-sale debt securities.

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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:
		June 30, 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
Classified as equity securities:
Money market funds		$	4,727			$	—			$	4,727			$	1,571			$	—			$	1,571
Equity(a)		26				15				12				29				17				11
		4,753				15				4,739				1,600				17				1,583
Classified as available-for-sale debt securities:
Government and agency—non-U.S.		3,014				—				3,014				9,609				—				9,609
Corporate and other		2,013				—				2,013				5,482				—				5,482
		5,027				—				5,027				15,091				—				15,091
Total short-term investments		9,780				15				9,766				16,691				17				16,674
Other current assets
Derivative assets:
Interest rate contracts		79				—				79				97				—				97
Foreign exchange contracts		334