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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 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 (State of Incorporation)	13-5315170 (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)

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



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

At May 6, 2019, 5,559,929,190 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 months ended March 31, 2019 and April 1, 2018	5

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and April 1, 2018	6

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

Condensed Consolidated Statements of Equity for the three months ended March 31, 2019 and April 1, 2018	8

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and April 1, 2018	9

Notes to Condensed Consolidated Financial Statements	10

Review Report of Independent Registered Public Accounting Firm	43

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

Item 3.
Quantitative and Qualitative Disclosures About Market Risk	93

Item 4.
Controls and Procedures	93

PART II. OTHER INFORMATION

Item 1.
Legal Proceedings	94

Item 1A.
Risk Factors	94

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds	95

Item 3.
Defaults Upon Senior Securities	95

Item 4.
Mine Safety Disclosures	95

Item 5.
Other Information	95

Item 6.
Exhibits	96

Signature	97

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
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
EEA	European Economic Area
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
HER2-	human epidermal growth factor receptor 2-negative
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
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
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
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 March 31, 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
SBS	short bowel syndrome
SEC	U.S. Securities and Exchange Commission
SFJ	SFJ Pharmaceuticals Group
Shire	Shire International GmbH
SI&A	selling, informational and administrative
SIP	sterile injectable pharmaceuticals
S&P	Standard and Poor’s
Tax Cuts and Jobs Act or 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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PFIZER INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



	Three Months Ended
(MILLIONS, EXCEPT PER COMMON SHARE DATA)	March 31, 2019		April 1, 2018
Revenues	$	13,118	$	12,906
Costs and expenses:
Cost of sales^(a)	2,433		2,563
Selling, informational and administrative expenses^(a)	3,339		3,412
Research and development expenses^(a)	1,703		1,743
Amortization of intangible assets	1,183		1,196
Restructuring charges and certain acquisition-related costs	46		43
Other (income)/deductions––net	92		(178		)
Income from continuing operations before provision for taxes on income	4,323		4,127
Provision for taxes on income	433		556
Income from continuing operations	3,889		3,571
Discontinued operations––net of tax	—		(1		)
Net income before allocation to noncontrolling interests	3,889		3,570
Less: Net income attributable to noncontrolling interests	6		9
Net income attributable to Pfizer Inc.	$	3,884	$	3,561

Earnings per common share––basic:
Income from continuing operations attributable to Pfizer Inc. common shareholders	$	0.69	$	0.60
Discontinued operations––net of tax	—		—
Net income attributable to Pfizer Inc. common shareholders	$	0.69	$	0.60

Earnings per common share––diluted:
Income from continuing operations attributable to Pfizer Inc. common shareholders	$	0.68	$	0.59
Discontinued operations––net of tax	—		—
Net income attributable to Pfizer Inc. common shareholders	$	0.68	$	0.59

Weighted-average shares––basic	5,635		5,957
Weighted-average shares––diluted	5,750		6,057


^(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
(MILLIONS OF DOLLARS)	March 31, 2019			April 1, 2018
Net income before allocation to noncontrolling interests	$	3,889		$	3,570

Foreign currency translation adjustments, net	324			758
Reclassification adjustments	2			15
	326			773
Unrealized holding gains/(losses) on derivative financial instruments, net	267			(114		)
Reclassification adjustments for (gains)/losses included in net income^(a)	(263		)	44
	4			(69		)
Unrealized holding gains on available-for-sale securities, net	40			160
Reclassification adjustments for (gains)/losses included in net income^(a)	11			(174		)
Reclassification adjustments for unrealized gains included in Retained earnings^(b)	—			(462		)
	51			(476		)
Benefit plans: actuarial gains, net	—			163
Reclassification adjustments related to amortization	60			62
Reclassification adjustments related to settlements, net	—			37
Other	(23		)	(86		)
	37			175
Reclassification adjustments related to amortization of prior service costs and other, net	(46		)	(46		)
Reclassification adjustments related to curtailments of prior service costs and other, net	—			(7		)
Other	—			2
	(46		)	(51		)
Other comprehensive income, before tax	372			352
Tax provision on other comprehensive income	25			432
Other comprehensive income/(loss) before allocation to noncontrolling interests	$	348		$	(80	)

Comprehensive income before allocation to noncontrolling interests	$	4,237		$	3,490
Less: Comprehensive income attributable to noncontrolling interests	1			10
Comprehensive income attributable to Pfizer Inc.	$	4,236		$	3,480


^(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 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)	March 31, 2019			December 31, 2018
	(Unaudited)
Assets
Cash and cash equivalents	$	1,937		$	1,139
Short-term investments	9,682			17,694
Trade accounts receivable, less allowance for doubtful accounts: 2019—$538; 2018—$541	9,599			8,025
Inventories	8,029			7,508
Current tax assets	3,598			3,374
Other current assets	2,567			2,461
Assets held for sale	9,877			9,725
Total current assets	45,290			49,926
Long-term investments	2,859			2,767
Property, plant and equipment, less accumulated depreciation: 2019—$16,158; 2018—$16,591	13,467			13,385
Identifiable intangible assets, less accumulated amortization	34,039			35,211
Goodwill	53,487			53,411
Noncurrent deferred tax assets and other noncurrent tax assets	1,946			1,924
Other noncurrent assets	4,333			2,799
Total assets	$	155,421		$	159,422

Liabilities and Equity
Short-term borrowings, including current portion of long-term debt: 2019—$4,471; 2018—$4,776	$	9,410		$	8,831
Trade accounts payable	4,156			4,674
Dividends payable	—			2,047
Income taxes payable	1,849			1,265
Accrued compensation and related items	1,797			2,397
Other current liabilities	10,276			10,753
Liabilities held for sale	1,935			1,890
Total current liabilities	29,423			31,858

Long-term debt	35,733			32,909
Pension benefit obligations, net	5,125			5,272
Postretirement benefit obligations, net	1,332			1,338
Noncurrent deferred tax liabilities	3,591			3,700
Other taxes payable	14,712			14,737
Other noncurrent liabilities	6,346			5,850
Total liabilities	96,263			95,664

Commitments and Contingencies

Preferred stock	19			19
Common stock	468			467
Additional paid-in capital	86,635			86,253
Treasury stock	(110,781		)	(101,610		)
Retained earnings	93,388			89,554
Accumulated other comprehensive loss	(10,923		)	(11,275		)
Total Pfizer Inc. shareholders’ equity	58,806			63,407
Equity attributable to noncontrolling interests	352			351
Total equity	59,158			63,758
Total liabilities and equity	$	155,421		$	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, 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																3,884						3,884			6			3,889
Other comprehensive income/(loss), net of tax																			353			353			(4		)	348
Cash dividends declared:
Common stock																(68		)				(68		)				(68		)
Preferred stock																—						—						—
Noncontrolling interests																						—			—			—
Share-based payment transactions					26	1		383			(7	)	(306		)							78						78
Purchases of common stock											(180	)	(8,865		)							(8,865		)				(8,865		)
Preferred stock conversions and redemptions	(12	)	—					(1		)	—		—									(1		)				(1		)
Other^(a)			—			—		—			—		—			19			—			19			—			19
Balance, March 31, 2019	466		$	19	9,358	$	468	$	86,635		(3,801	)	$	(110,781	)	$	93,388		$	(10,923	)	$	58,806		$	352		$	59,158



	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																3,561						3,561			9		3,570
Other comprehensive income/(loss), net of tax																			(81		)	(81		)	1		(80		)
Cash dividends declared:
Common stock																(65		)				(65		)			(65		)
Preferred stock																—						—					—
Noncontrolling interests																						—			—		—
Share-based payment transactions					24	1		321			3		29									351					351
Purchases of common stock											(145	)	(6,063		)							(6,063		)			(6,063		)
Preferred stock conversions and redemptions	(11	)	—					(1		)	—		—									(1		)			(1		)
Other^(b)			—			—		—			—		—			1,175			—			1,175			—		1,175
Balance, April 1, 2018	513		$	21	9,299	$	465	$	84,599		(3,437	)	$	(95,460	)	$	89,961		$	(9,402	)	$	70,184		$	358	$	70,541


^(a)	Represents the cumulative effect of the adoption of a new accounting standard in the first quarter of 2019 for leases. 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 Pfizer’s 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)



	Three Months Ended
(MILLIONS OF DOLLARS)	March 31, 2019			April 1, 2018
Operating Activities
Net income before allocation to noncontrolling interests	$	3,889		$	3,570
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization	1,545			1,567
Asset write-offs and impairments	155			7
TCJA impact^(a)	(131		)	(68		)
Deferred taxes from continuing operations	(60		)	294
Share-based compensation expense	185			182
Benefit plan contributions in excess of expense	(151		)	(692		)
Other adjustments, net	(236		)	(161		)
Other changes in assets and liabilities, net of acquisitions and divestitures	(3,498		)	(2,715		)
Net cash provided by operating activities	1,698			1,983

Investing Activities
Purchases of property, plant and equipment	(460		)	(386		)
Purchases of short-term investments	(1,402		)	(913		)
Proceeds from redemptions/sales of short-term investments	3,601			6,463
Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less	5,941			4,507
Purchases of long-term investments	(84		)	(605		)
Proceeds from redemptions/sales of long-term investments	44			576
Acquisitions of intangible assets	(158		)	(32		)
Other investing activities, net	67			57
Net cash provided by investing activities	7,550			9,667

Financing Activities
Proceeds from short-term borrowings	609			428
Principal payments on short-term borrowings	(1,766		)	(2,493		)
Net proceeds from/(payments on) short-term borrowings with original maturities of three months or less	2,032			(83		)
Proceeds from issuance of long-term debt	4,942			—
Principal payments on long-term debt	(3,004		)	(355		)
Purchases of common stock	(8,865		)	(6,063		)
Cash dividends paid	(2,045		)	(2,032		)
Proceeds from exercise of stock options	126			372
Other financing activities, net	(495		)	(495		)
Net cash used in financing activities	(8,467		)	(10,720		)
Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents	12			55
Net increase in cash and cash equivalents and restricted cash and cash equivalents	792			985
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	$	2,018		$	2,416

Supplemental Cash Flow Information
Cash paid (received) during the period for:
Income taxes	$	235		$	257
Interest paid	385			259
Interest rate hedges	(33		)	20

^(a)

As a result of the enactment of the TCJA in December 2017, Pfizer’s Provision for taxes on income for (i) the three months ended March 31, 2019 was favorably impacted by approximately $131 million, primarily as a result of additional guidance issued by the U.S. Department of Treasury and (ii) the three months ended April 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.

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

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 months ended February 24, 2019 and February 25, 2018. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three months ended March 31, 2019 and April 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 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:

•

For additional information, see Note 2 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

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 quarter ended March 31, 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 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 $5.5 billion as of March 31, 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)	March 31, 2019		December 31, 2018
Reserve against Trade accounts receivable, less allowance for doubtful accounts	$	1,232	$	1,288

Other current liabilities:
Accrued rebates	3,344		3,208
Other accruals	559		531

Other noncurrent liabilities	410		399
Total accrued rebates and other accruals	$	5,544	$	5,426

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 March 31, 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 March 31, 2019
ROU assets	Other noncurrent assets	$	1,280
Lease liabilities (short-term)	Other current liabilities	253
Lease liabilities (long-term)	Other noncurrent liabilities	1,043



Our total lease costs are as follows:
	Three Months Ended
(MILLIONS OF DOLLARS)	March 31, 2019
Operating lease cost	$	100
Variable lease cost	59
Sublease income	(10		)
Total lease cost	$	149



Other supplemental information includes the following:
(MILLIONS OF DOLLARS)	Weighted-Average Remaining Contractual Lease Term (Years)	Three Months Ended
(MILLIONS OF DOLLARS)	Weighted-Average Remaining Contractual Lease Term (Years)	March 31, 2019
Operating leases	7.5
Weighted-average discount rate:
Operating leases		3.7	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		78
ROU assets obtained in exchange for new operating lease liabilities		46

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



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 March 31, 2019:
(MILLIONS OF DOLLARS)
Period	Operating Lease Liabilities
Next one year^(a)	$	287
1-2 years	241
2-3 years	207
3-4 years	175
4-5 years	144
Thereafter	435
Total undiscounted lease payments	1,489
Less: Imputed interest	193
Present Value of Minimum Lease Payments	1,296
Less: Current portion	253
Noncurrent portion	$	1,043


^(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 will relocate our global headquarters to this property with commencement expected 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 December 19, 2018, we announced that we entered into a definitive agreement with GSK under which we and GSK have agreed to combine our respective consumer healthcare businesses into a new consumer healthcare joint venture that will operate globally under the GSK Consumer Healthcare name. In exchange for contributing our Consumer Healthcare business, we will receive a 32% equity stake in the new company and GSK will own the remaining 68%. The transaction is expected to close in the second half of 2019, subject to customary closing conditions, including GSK shareholder approval, which occurred on May 8, 2019, and required regulatory approvals. Upon the closing of the transaction, we will deconsolidate our Consumer Healthcare business and recognize a gain 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 after closing of the transaction 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 March 31, 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:

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



(MILLIONS OF DOLLARS)	March 31, 2019		December 31, 2018
Assets Held for Sale
Cash and cash equivalents	$	61	$	32
Trade accounts receivable, less allowance for doubtful accounts	550		532
Inventories	563		538
Other current assets	57		56
PP&E	687		675
Identifiable intangible assets, less accumulated amortization	5,776		5,763
Goodwill	1,972		1,972
Noncurrent deferred tax assets and other noncurrent tax assets	59		54
Other noncurrent assets	105		57
Total Consumer Healthcare assets held for sale	9,830		9,678
Other assets held for sale^(a)	47		46
Assets held for sale	$	9,877	$	9,725

Liabilities Held for Sale

Trade accounts payable	$	335	$	406
Income taxes payable	55		39
Accrued compensation and related items	140		93
Other current liabilities	371		353
Pension benefit obligations, net	39		39
Postretirement benefit obligations, net	33		33
Noncurrent deferred tax liabilities	884		870
Other noncurrent liabilities	78		56
Total Consumer Healthcare liabilities held for sale	$	1,935	$	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 $281 million for the three months ended March 31, 2019 and $265 million for the three months ended 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.

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 reorganizes 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 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

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

business structure and functions that support them. Through March 31, 2019, we incurred approximately $735 million associated with manufacturing optimization, and approximately $793 million associated with other activities.

In 2019, we expect restructuring, implementation and additional depreciation charges of about $800 million and, of that amount, we expect approximately 20% of the total charges will be non-cash.

Current-Period Key Activities

For the first three months of 2019, we incurred costs of $92 million composed of $64 million associated with the 2017-2019 and Organizing for Growth initiatives, $25 million associated with the integration of Hospira and $3 million associated with all other acquisition-related initiatives.



The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
	Three Months Ended
(MILLIONS OF DOLLARS)	March 31, 2019			April 1, 2018
Restructuring charges/(credits):
Employee terminations	$	(2	)	$	(8	)
Asset impairments	9			2
Exit costs	3			(3		)
Restructuring charges/(credits)^(a)	10			(9		)
Integration costs^(b)	36			52
Restructuring charges and certain acquisition-related costs	46			43
Net periodic benefit costs recorded in Other (income)/deductions––net	6			32
Additional depreciation––asset restructuringrecorded in our condensed consolidated statements of income as follows^(c):
Cost of sales	9			17
Selling, informational and administrative expenses	1			—
Research and development expenses	3			—
Total additional depreciation––asset restructuring	13			17
Implementation costs recorded in our condensed consolidated statements of income as follows^(d):
Cost of sales	13			16
Selling, informational and administrative expenses	9			17
Research and development expenses	4			6
Total implementation costs	26			39
Total costs associated with acquisitions and cost-reduction/productivity initiatives	$	92		$	131

^(a)

In the first quarter of 2019, restructuring charges are primarily associated with cost reduction initiatives and mainly represent asset write downs, partially offset by the reversal of previously recorded accruals for employee termination costs and asset impairments related to our acquisition of Hospira. In the three months ended April 1, 2018, restructuring credits were primarily due to the reversal of previously recorded accruals for exit costs related to our acquisition of Hospira, as well as cost-reduction and productivity initiatives not associated with acquisitions.

The restructuring activities for the three months ended March 31, 2019 are associated with the following:


•	Biopharma ($13 million charge); Upjohn ($13 million credit); and Other ($10 million charge).

The restructuring activities for the three months ended April 1, 2018 are associated with the following:


•	Total reportable segments ($14 million credit); and Other ($4 million charge). 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 first quarter 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.

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)	(2		)	9			3			10
Utilization and other^(b)	(145		)	(9		)	(15		)	(169		)
Balance, March 31, 2019^(c)	$	1,057		$	—		$	37		$	1,093


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


^(b)	Includes adjustments for foreign currency translation.


^(c)	Included in Other current liabilities ($669 million) and Other noncurrent liabilities ($424 million).

Note 4. Other (Income)/Deductions—Net



The following table provides components of Other (income)/deductions––net:
	Three Months Ended
(MILLIONS OF DOLLARS)	March 31, 2019			April 1, 2018
Interest income^(a)	$	(66	)	$	(77	)
Interest expense^(a)	361			310
Net interest expense	295			233
Royalty-related income	(89		)	(96		)
Net gains on asset disposals	(1		)	(7		)
Net gains recognized during the period on investments in equity securities^(b)	(111		)	(118		)
Net realized losses on sales of investments in debt securities	—			3
Income from collaborations, out-licensing arrangements and sales of compound/product rights^(c)	(82		)	(142		)
Net periodic benefit credits other than service costs^(d)	(40		)	(82		)
Certain legal matters, net	4			(19		)
Certain asset impairments^(e)	150			—
Business and legal entity alignment costs^(f)	119			3
Net losses on early retirement of debt^(g)	138			3
Other, net^(h)	(291		)	42
Other (income)/deductions––net	$	92		$	(178	)


^(a)	Interest income decreased in the first quarter of 2019, primarily driven by a lower investment balance. Interest expense increased in the first quarter of 2019, primarily as a result of higher interest rates.


^(b)	The net gains on investments in equity securities for the first quarter of 2019 include gains of $43 million related to our investment in Allogene. The first quarter of 2018 included gains of $61 million related to our investment in ICU Medical stock. For additional information, see Note 7B.

^(c)

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 quarter of 2019, primarily includes $60 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 first quarter of 2018, primarily includes, among other things, a $75 million milestone payment received from Shire related to their first dosing of a patient in a Phase III 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.


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

^(e)

In the first quarter of 2019, primarily includes intangible asset impairment charges of $130 million composed of: (i) $90 million related to WRDM IPR&D, which relates to a pre-clinical stage asset from our acquisition of Bamboo Therapeutics, Inc. (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 quarter of 2019 includes other asset impairments of $20 million.

^(f)

In the first quarter 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 first quarter 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.


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

^(h)

In the first quarter of 2019, includes among other things, credits of $72 million, reflecting the change in the fair value of contingent consideration, and dividend income of $64 million from our investment in ViiV. In the first quarter of 2018, primarily includes, among other things, charges of $102 million, reflecting the change in the fair value of contingent consideration, partially offset by dividend income of $59 million from our investment in ViiV.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



The following table provides additional information about the intangible assets that were impaired in the first quarter of 2019 in Other (income)/deductions:
	Fair Value^(a)								Three Months Ended March 31, 2019
(MILLIONS OF DOLLARS)	Amount		Level 1		Level 2		Level 3		Impairment
Intangible assets––IPR&D^(b)	$	—	$	—	$	—	$	—	$	90
Intangible assets––Developed technology right^(b)	—		—		—		—		40
Total	$	—	$	—	$	—	$	—	$	130


^(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 three 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

Our effective tax rate for continuing operations was 10.0% for the first quarter of 2019, compared to 13.5% for the first quarter of 2018.

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


•	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;


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


•	an increase in tax benefits associated with the resolution of certain tax positions pertaining to prior years, and the expiration of certain statutes of limitations.

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 ($750 million) and the remaining liability is reported in Other taxes payable in our consolidated balance sheet as of March 31, 2019. The first installment of $750 million was paid in April 2019.

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. With respect to Pfizer, the IRS has issued a Revenue Agent’s Report (RAR) for tax years 2009-2010. We are not in agreement with the RAR and are currently appealing certain disputed issues. 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 (2011-2019).

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

C. Tax Provision on Other Comprehensive Income



The following table provides the components of Tax provision on other comprehensive income:
	Three Months Ended
(MILLIONS OF DOLLARS)	March 31, 2019			April 1, 2018
Foreign currency translation adjustments, net^(a)	$	27		$	(34	)
Unrealized holding gains/(losses) on derivative financial instruments, net	59			(4		)
Reclassification adjustments for (gains)/losses included in net income	(55		)	(7		)
Reclassification adjustments of certain tax effects from AOCI to Retained earnings^(b)	—			1
	4			(9		)
Unrealized holding gains on available-for-sale securities, net	5			20
Reclassification adjustments for (gains)/losses included in net income	1			(22		)
Reclassification adjustments for tax on unrealized gains from AOCI to Retained earnings^(c)	—			(45		)
	7			(47		)
Benefit plans: actuarial gains, net	—			38
Reclassification adjustments related to amortization	3			14
Reclassification adjustments related to settlements, net	—			9
Reclassification adjustments of certain tax effects from AOCI to Retained earnings^(b)	—			637
Other	(5		)	(20		)
	(2		)	677
Reclassification adjustments related to amortization of prior service costs and other, net	(11		)	(11		)
Reclassification adjustments related to curtailments of prior service costs and other, net	—			(7		)
Reclassification adjustments of certain tax effects from AOCI to Retained earnings^(b)	—			(144		)
Other	—			6
	(11		)	(155		)
Tax provision on other comprehensive income	$	25		$	432


^(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 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 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)	304			—		44			40			(35		)	353
Balance, March 31, 2019	$	(5,772	)	$	167	$	(24	)	$	(5,986	)	$	693		$	(10,923	)


^(a)	Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $4 million loss for the first three months of 2019.

As of March 31, 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 $345 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.

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:
	March 31, 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	$	1,570	$	—	$	1,570	$	1,571	$	—	$	1,571
Equity^(a)	26		16		11		29		17		11
	1,597		16		1,581		1,600		17		1,583
Classified as available-for-sale debt securities:
Government and agency—non-U.S.	5,406		—		5,406		9,609		—		9,609
Corporate and other	1,773		—		1,773		5,482		—		5,482
	7,180		—		7,180		15,091		—		15,091
Total short-term investments	8,776		16		8,760		16,691		17		16,674
Other current assets
Derivative assets:
Interest rate contracts	81		—		81		97		—		97
Foreign exchange contracts	482		—		482		477		—		477
Total other current assets	563		—		563		574		—		574
Long-term investments
Classified as equity securities:
Equity^(a)	1,290		1,265		24		1,223		1,193		30
Classified as trading securities:
Equity funds	52		51		—		50		50		—
	1,341		1,317		24		1,273		1,243		30
Classified as available-for-sale debt securities:
Government and agency—non-U.S.	44		—		44		94		—		94
Corporate and other	389		—		389		397		—		397
	434		—		434		491		—		491
Total long-term investments	1,775		1,317		458		1,764		1,243		521
Other noncurrent assets
Derivative assets:
Interest rate contracts	461		—		461		335		—		335
Foreign exchange contracts	269		—		269		232		—		232
Total other noncurrent assets	731		—		731		566		—		566
Total assets	$	11,845	$	1,333	$	10,512	$	19,595	$	1,260	$	18,335

Financial liabilities measured at fair value on a recurring basis:
Other current liabilities
Derivative liabilities:
Interest rate contracts	$	2	$	—	$	2	$	5	$	—	$	5
Foreign exchange contracts	89		—		89		78		—		78
Total other current liabilities	91		—		91		82		—		82
Other noncurrent liabilities
Derivative liabilities:
Interest rate contracts	178		—		178		378		—		378
Foreign exchange contracts	232		—		232		564		—		564
Total other noncurrent liabilities	410		—		410		942		—		942
Total liabilities	$	501	$	—	$	501	$	1,024	$	—	$	1,024

^(a)

As of March 31, 2019, short-term equity securities of $10 million and long-term equity securities of $23 million are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan. As of December 31, 2018, short-term equity securities of $11 million and long-term equity securities of $29 million are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis



The following table presents the financial liabilities not measured at fair value on a recurring basis, including the carrying values and estimated fair values using a market approach:
	March 31, 2019						December 31, 2018
	Carrying Value		Estimated Fair Value				Carrying Value		Estimated Fair Value
(MILLIONS OF DOLLARS)			Total		Level 2				Total		Level 2
Financial Liabilities
Long-term debt, excluding the current portion	$	35,733	$	39,016	$	39,016	$	32,909	$	35,260	$	35,260

The differences between the estimated fair values and carrying values of held-to-maturity debt securities, restricted stock and private equity securities, and short-term borrowings not measured at fair value on a recurring basis were not significant as of March 31, 2019 or December 31, 2018. The fair value measurements of our held-to-maturity debt securities and our short-term borrowings are based on Level 2 inputs. The fair value measurements of our private equity securities, which represent investments in the life sciences sector, are based on Level 3 inputs using a market approach.

In addition, as of March 31, 2019 and December 31, 2018, we had long-term receivables whose fair value is based on Level 3 inputs. As of March 31, 2019 and December 31, 2018, the differences between the estimated fair values and carrying values of these receivables were not significant.

Total Short-Term and Long-Term Investments



The following table represents our investments by classification type:
(MILLIONS OF DOLLARS)	March 31, 2019		December 31, 2018
Short-term investments
Equity securities	$	1,597	$	1,600
Available-for-sale debt securities	7,180		15,091
Held-to-maturity debt securities	906		1,003
Total Short-term investments	$	9,682	$	17,694

Long-term investments
Equity securities	$	1,290	$	1,223
Trading equity funds securities	52		50
Available-for-sale debt securities	434		491
Held-to-maturity debt securities	55		59
Private equity investments at cost, as adjusted, or equity method	1,029		944
Total Long-term investments	$	2,859	$	2,767
Held-to-maturity cash equivalents	$	213	$	199

B. Investments



At March 31, 2019, the investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt and equity securities at March 31, 2019 and December 31, 2018 is as follows, including, as of March 31, 2019, the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities:
	March 31, 2019																	December 31, 2018
			Gross Unrealized							Maturities (in Years)										Gross Unrealized
(MILLIONS OF DOLLARS)	Amortized Cost		Gains		Losses			Fair Value		Within 1		Over 1 to 5		Over 5		Total		Amortized Cost		Gains		Losses			Fair Value
Available-for-sale debt securities
Government and agency––non-U.S.	$	5,462	$	6	$	(17	)	$	5,451	$	5,406	$	44	$	—	$	5,451	$	9,754	$	7	$	(58	)	$	9,703
Corporate and other^(a)	2,178		1		(17		)	2,162		1,773		386		3		2,162		5,905		—		(27		)	5,878
Held-to-maturity debt securities
Time deposits and other	617		—		—			617		562		16		39		617		668		—		—			668
Government and agency––non-U.S.	557		—		—			557		557		—		—		557		592		—		—			592
Total debt securities	$	8,815	$	7	$	(34	)	$	8,787	$	8,299	$	446	$	43	$	8,787	$	16,920	$	8	$	(85	)	$	16,842


^(a)	Primarily issued by a diverse group of corporations.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



The following table presents the net unrealized (gains) and losses for the period that relate to equity securities still held at the reporting date, calculated as follows:
	Three Months Ended
(MILLIONS OF DOLLARS)	March 31, 2019			April 1, 2018
Net gains recognized during the period on investments in equity securities^(a)	$	(111	)	$	(118	)
Less: Net gains recognized during the period on equity securities sold during the period	(5		)	(19		)
Net unrealized gains during the reporting period on equity securities still held at the reporting date	$	(106	)	$	(98	)


^(a)	The net gains on investments in equity securities are reported in Other (income)/deductions––net. For additional information, see Note 4.

C. Short-Term Borrowings



Short-term borrowings include:
(MILLIONS OF DOLLARS)	March 31, 2019			December 31, 2018
Commercial paper	$	3,947		$	3,100
Current portion of long-term debt, principal amount	4,473			4,781
Other short-term borrowings, principal amount^(a)	1,000			966
Total short-term borrowings, principal amount	9,420			8,847
Net fair value adjustments related to hedging and purchase accounting	(1		)	(5		)
Net unamortized discounts, premiums and debt issuance costs	(9		)	(11		)
Total Short-term borrowings, including current portion of long-term debt, carried at historical proceeds, as adjusted	$	9,410		$	8,831


^(a)	Other short-term borrowings primarily include cash collateral. For additional information, see Note 7E.

D. Long-Term Debt

New Issuances



In the first quarter of 2019, we issued the following senior unsecured notes:
		Principal
(MILLIONS OF DOLLARS)	Maturity Date	As of March 31, 2019
2.800% notes^(a)	March 11, 2022	$	500
2.950% notes^(a)	March 15, 2024	750
3.450% notes^(a)	March 15, 2029	1,750
3.900% notes^(a)	March 15, 2039	750
4.000% notes^(a)	March 15, 2049	1,250
Total long-term debt issued in the first quarter of 2019^(b)		$	5,000


^(a)	Fixed rate notes may be redeemed by us at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest.


^(b)	The weighted-average effective interest rate for the notes at issuance was 3.57%.

Retirements

In January 2019, we repurchased all €1.1 billion ($1.3 billion, at exchange rates on settlement) principal amount outstanding of the 5.75% euro-denominated debt that was due June 2021 before the maturity date at a redemption value of €1.3 billion ($1.5 billion, at exchange rates on settlement). As a result, in the first quarter of 2019, we recorded a net loss of approximately $138 million, which included the related termination of cross-currency swaps, and that was recorded in Other (income)/deductions––net in the condensed consolidated statement of income in the first quarter of 2019. For additional information, see Note 4.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



The following table provides the aggregate principal amount of our senior unsecured long-term debt, and adjustments to report our aggregate long-term debt:
(MILLIONS OF DOLLARS)	March 31, 2019			December 31, 2018
Total long-term debt, principal amount	$	35,122		$	32,558
Net fair value adjustments related to hedging and purchase accounting	793			479
Net unamortized discounts, premiums and debt issuance costs	(189		)	(136		)
Other long-term debt	7			7
Total long-term debt, carried at historical proceeds, as adjusted	$	35,733		$	32,909
Current portion of long-term debt, carried at historical proceeds, as adjusted	$	4,471		$	4,776

E. Derivative Financial Instruments and Hedging Activities

Foreign Exchange Risk

A significant portion of our revenues, earnings and net investments in foreign affiliates is exposed to changes in foreign exchange rates. We manage our foreign exchange risk, in part, through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. We also manage our foreign exchange risk, depending on market conditions, through fair value, cash flow, and net investment hedging programs through the use of derivative financial instruments and foreign currency debt. These financial instruments serve to protect net income against the impact of remeasurement into another currency, or against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions.

The derivative financial instruments primarily hedge or offset exposures in the euro, Japanese yen, U.K. pound, Chinese renminbi and Swedish krona.

As a part of our cash flow hedging program, we designate foreign exchange contracts to hedge a portion of our forecasted euro, Japanese yen, Chinese renminbi, Canadian dollar, U.K. pound and Australian dollar-denominated intercompany inventory sales expected to occur no more than two years from the date of each hedge.

Interest Rate Risk

Our interest-bearing investments and borrowings are subject to interest rate risk. With respect to our investments, we strive to maintain a predominantly floating-rate basis position, but our strategy may change based on prevailing market conditions. We currently borrow primarily on a long-term, fixed rate basis. From time to time, depending on market conditions, we will change the profile of our outstanding debt by entering into derivative financial instruments like interest rate swaps. We entered into derivative financial instruments to hedge or offset the fixed interest rates on the hedged item, matching the amount and timing of the hedged item. The derivative financial instruments primarily hedge U.S. dollar fixed-rate debt.



The following table provides the fair value of the derivative financial instruments and the related notional amounts presented between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:
(MILLIONS OF DOLLARS)	March 31, 2019						December 31, 2018
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
Derivatives designated as hedging instruments:
Foreign exchange contracts^(a)	$	18,353	$	713	$	248	$	22,984	$	654	$	586
Interest rate contracts	11,145		543		180		11,145		432		383
			1,255		429				1,085		968

Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	15,111	38		72		$	15,154	55		55

Total			$	1,294	$	501			$	1,140	$	1,024


^(a)	As of March 31, 2019, the notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted inventory sales was $6.5 billion.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk:
	Amount of Gains/(Losses) Recognized in OID^(a)						Amount of Gains/(Losses) Recognized in OCI^{(a), (b)}					Amount of Gains/(Losses) Reclassified from OCI into OID and COS^{(a), (b)}
(MILLIONS OF DOLLARS)	Mar 31, 2019			Apr 1, 2018			Mar 31, 2019		Apr 1, 2018			Mar 31, 2019		Apr 1, 2018
Three Months Ended
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Foreign exchange contracts^(c)	$	—		$	—		$	210	$	(143	)	$	209	$	(72	)
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach	—			—			56		28			54		27

Derivative Financial Instruments in Fair Value Hedge Relationships:
Interest rate contracts	329			(399		)	—		—			—		—
Hedged item	(329		)	399			—		—			—		—
Foreign exchange contracts	—			(7		)	—		—			—		—
Hedged item	—			8			—		—			—		—

Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign exchange contracts	—			—			23		(5		)	—		—
The portion on foreign exchange contracts excluded from the assessment of hedge effectiveness	—			—			41		2			24		6

Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency short-term borrowings^(d)	—			—			35		(42		)	—		—
Foreign currency long-term debt^(d)	—			—			38		(92		)	—		—

Derivative Financial Instruments Not Designated as Hedges:
Foreign exchange contracts	(120		)	(55		)	—		—			—		—
All other net	—			—			1		—			—		—
	$	(120	)	$	(55	)	$	404	$	(251	)	$	286	$	(39	)


^(a)	OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the condensed consolidated statements of income. COS = Cost of Sales, included in Cost of sales in the condensed consolidated statements of income. OCI = Other comprehensive income/(loss), included in the condensed consolidated statements of comprehensive income.

^(b)

For derivative financial instruments in cash flow hedge relationships, the gains and losses are included in Other comprehensive income––Unrealized holding gains/(losses) on derivative financial instruments, net. For derivative financial instruments in net investment hedge relationships and for foreign currency debt designated as hedging instruments, the effective portion is included in Other comprehensive income––Foreign currency translation adjustments, net.


^(c)	Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax gain of $202 million within the next 12 months into Cost of sales. The maximum length of time over which we are hedging future foreign exchange cash flow relates to our $1.8 billion U.K. pound debt maturing in 2043.


^(d)	Short-term borrowings include foreign currency short-term borrowings with carrying values of $1.1 billion as of March 31, 2019, which are used as hedging instruments in net investment hedges. Long-term debt includes foreign currency long-term borrowings with carrying values of $2.0 billion as of March 31, 2019, which are used as hedging instruments in net investment hedges.



The following table provides the total amount of each income and expense line in which the results of fair value or cash flow hedges are recorded:
	Three Months Ended
(MILLIONS OF DOLLARS)	March 31, 2019		April 1, 2018
Cost of sales	$	2,433	$	2,563
Other (income)/deductions—net	92		(178		)

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



The following table provides the amounts recorded in our condensed consolidated balance sheet related to cumulative basis adjustments for fair value hedges:
	March 31, 2019					April 1, 2018
(MILLIONS OF DOLLARS)	Carrying Amount of Hedged Assets/Liabilities		Cumulative Amount of Fair Value Hedging Adjustment Gains/(Losses) Included in the Carrying Amount of the Hedged Assets/Liabilities			Carrying Amount of Hedged Assets/Liabilities		Cumulative Amount of Fair Value Hedging Adjustment Gains/(Losses) Included in the Carrying Amount of the Hedged Assets/Liabilities
Short-term investments	$	—	$	—		$	286	$	(1	)
Long-term investments	45		(1		)	45		(1		)
Short-term borrowings, including current portion of long-term debt	1,500		1			999		1
Long-term debt	9,945		(282)			11,372		100

Certain of our derivative instruments are covered by associated credit-support agreements that have credit-risk-related contingent features designed to reduce both counterparties’ exposure to risk of defaulting on amounts owed by the other party. As of March 31, 2019, the aggregate fair value of these derivative instruments that are in a net liability position was $209 million, for which we have posted collateral of $214 million in the normal course of business. If there had been a downgrade to below an A rating by S&P or the equivalent rating by Moody’s, we would not have been required to post any additional collateral to our counterparties.

As of March 31, 2019, we received cash collateral of $948 million from various counterparties. The collateral primarily supports the approximate fair value of our derivative contracts that are in a net asset position. With respect to the collateral received, the obligations are reported in Short-term borrowings, including current portion of long-term debt.

F. Credit Risk

On an ongoing basis, we review the creditworthiness of counterparties to our foreign exchange and interest rate agreements and do not expect to incur a significant loss from failure of any counterparties to perform under the agreements. There are no significant concentrations of credit risk related to our financial instruments with any individual counterparty, except for certain significant customers. For additional information on significant customers, see Notes to Consolidated Financial Statements––Note 18C. Segment, Geographic and Other Revenue Information: Other Revenue Information in Pfizer’s 2018 Financial Report. As of March 31, 2019, we had amounts due from a well-diversified, high quality group of banks ($1.7 billion) from around the world. For details about our investments, see Note 7B above.

In general, there is no requirement for collateral from customers. However, derivative financial instruments are executed under credit-support agreements that provide for the ability to request to receive cash collateral, depending on levels of exposure, our credit rating and the credit rating of the counterparty, see Note 7E above.

Note 8. Inventories



The following table provides the components of Inventories:
(MILLIONS OF DOLLARS)	March 31, 2019		December 31, 2018
Finished goods	$	2,287	$	2,262
Work-in-process	5,182		4,701
Raw materials and supplies	560		546
Inventories^(a)	$	8,029	$	7,508
Noncurrent inventories not included above^(b)	$	637	$	618


^(a)	The change from December 31, 2018 reflects increases for certain products to meet targeted levels in the normal course of business, including inventory build for supply recovery and market demand.


^(b)	Included in Other noncurrent assets. There are no recoverability issues associated with these amounts.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 9. Identifiable Intangible Assets and Goodwill

A. Identifiable Intangible Assets

Balance Sheet Information



The following table provides the components of Identifiable intangible assets:
	March 31, 2019							December 31, 2018
(MILLIONS OF DOLLARS)	Gross Carrying Amount		Accumulated Amortization			Identifiable Intangible Assets, less Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization			Identifiable Intangible Assets, less Accumulated Amortization
Finite-lived intangible assets
Developed technology rights	$	89,379	$	(59,913	)	$	29,465	$	89,430	$	(58,895	)	$	30,535
Brands	923		(717		)	206		923		(708		)	215
Licensing agreements and other	1,442		(1,150		)	292		1,436		(1,140		)	296
	91,743		(61,780		)	29,963		91,788		(60,743		)	31,045
Indefinite-lived intangible assets
Brands and other	1,994					1,994		1,994					1,994
IPR&D	2,082					2,082		2,171					2,171
	4,076					4,076		4,165					4,165
Identifiable intangible assets^(a)	$	95,819	$	(61,780	)	$	34,039	$	95,954	$	(60,743	)	$	35,211


^(a)	The decrease in Identifiable intangible assets, less accumulated amortization, is primarily due to amortization and intangible asset impairment charges, partially offset by additions for the period. See Note 4 for additional information on intangible asset impairments.



Our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization:
	March 31, 2019
	Biopharma		Upjohn		WRDM
Developed technology rights	99	%	1	%	—
Brands, finite-lived	100	%	—		—
Brands, indefinite-lived	42	%	58	%	—
IPR&D	87	%	—		13	%

Amortization

Total amortization expense for finite-lived intangible assets was $1.2 billion for the first quarter of 2019 and $1.2 billion for the first quarter of 2018.

B. Goodwill

Prior to 2019, we managed our commercial operations through two distinct business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). At the beginning of our 2019 fiscal year, we reorganized our commercial operations and our businesses are now managed through three different operating segments––Biopharma, Upjohn and Pfizer’s Consumer Healthcare business (see Note 13 for further information). Our Consumer Healthcare business is classified as held for sale as of December 31, 2018 and March 31, 2019 and, therefore the goodwill attributable to the Pfizer Consumer Healthcare business is included in Assets held for sale in the accompanying condensed consolidated balance sheets and not included in the table below (see Note 2 for further information). As a result of the reorganization of our commercial operations, our remaining goodwill is required to be reallocated amongst the new Biopharma and Upjohn operating segments. The allocation of goodwill is a complex process that requires, among other things, that we determine the fair value of each reporting unit under our old and new management structure and the portions being transferred. Therefore, we have not yet completed the allocation, but it will be completed in the current year.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



The following table provides the components of and changes in the carrying amount of Goodwill:
(MILLIONS OF DOLLARS)	Biopharma		Upjohn		To be Allocated^(a)		Total
Balance, December 31, 2018	$	—	$	—	$	53,411	$	53,411
Other^(b)	—		—		76		76
Balance, March 31, 2019	$	—	$	—	$	53,487	$	53,487


^(a)	The amount to be allocated includes the goodwill associated with our former operating segments (see above), for which the allocation to our new reporting units, and, as a result, to the new operating segments, is pending.


^(b)	Primarily reflects the impact of foreign exchange.

Note 10. Pension and Postretirement Benefit Plans



The following table provides the components of net periodic benefit cost/(credit):
	Three Months Ended
	Pension Plans
	U.S. Qualified						U.S. Supplemental (Non-Qualified)				International						Postretirement Plans
(MILLIONS OF DOLLARS)	March 31, 2019			April 1, 2018			March 31, 2019		April 1, 2018		March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018
Net periodic benefit cost/(credit):
Service cost	$	—		$	—		$	—	$	—	$	32		$	37		$	9		$	10
Interest cost	157			151			12		13		54			54			19			18
Expected return on plan assets	(223		)	(263		)	—		—		(80		)	(92		)	(8		)	(9		)
Amortization of:
Actuarial losses	37			30			2		4		20			26			1			2
Prior service credits	(1		)	—			—		—		(1		)	(1		)	(45		)	(45		)
Curtailments	—			2			—		—		—			—			—			(7		)
Settlements	1			20			—		17		—			—			—			—
Special termination benefits	—			—			6		—		—			—			—			—
	$	(28	)	$	(58	)	$	20	$	33	$	25		$	24		$	(23	)	$	(31	)



The following table provides the amounts we contributed, and the amounts we expect to contribute during 2019, to our pension and postretirement plans from our general assets for the periods indicated:
	Pension Plans
(MILLIONS OF DOLLARS)	U.S. Qualified		U.S. Supplemental (Non-Qualified)		International		Postretirement Plans
Contributions from our general assets for the three months ended March 31, 2019	$	1	$	71	$	44	$	29
Expected contributions from our general assets during 2019^(a)	10		167		191		149


^(a)	Contributions expected to be made for 2019 are inclusive of amounts contributed during the three months ended March 31, 2019. The U.S. supplemental (non-qualified) pension plan, international pension plan and the postretirement plan contributions from our general assets include direct employer benefit payments.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 11. Earnings Per Common Share Attributable to Common Shareholders



The following table provides the detailed calculation of EPS:
	Three Months Ended
(IN MILLIONS)	March 31, 2019		April 1, 2018
EPS Numerator––Basic
Income from continuing operations	$	3,889	$	3,571
Less: Net income attributable to noncontrolling interests	6		9
Income from continuing operations attributable to Pfizer Inc.	3,884		3,562
Less: Preferred stock dividends––net of tax	—		—
Income from continuing operations attributable to Pfizer Inc. common shareholders	3,883		3,562
Discontinued operations––net of tax	—		(1		)
Net income attributable to Pfizer Inc. common shareholders	$	3,883	$	3,560
EPS Numerator––Diluted
Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions	$	3,884	$	3,562
Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders and assumed conversions	—		(1		)
Net income attributable to Pfizer Inc. common shareholders and assumed conversions	$	3,884	$	3,561
EPS Denominator
Weighted-average number of common shares outstanding––Basic	5,635		5,957
Common-share equivalents: stock options, stock issuable under employee compensation plans, convertible preferred stock and accelerated share repurchase agreements	115		100
Weighted-average number of common shares outstanding––Diluted	5,750		6,057
Stock options that had exercise prices greater than the average market price of our common stock issuable under employee compensation plans^(a)	2		2
Cash dividends declared per share	$	0.36	$	0.34


^(a)	These common stock equivalents were outstanding for the periods presented, but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect.

Note 12. Contingencies and Certain Commitments

We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, including tax and legal contingencies. For a discussion of our tax contingencies, see Note 5B. For a discussion of our legal contingencies, see below.

A. Legal Proceedings

Our legal contingencies include, but are not limited to, the following:

•

Patent litigation, which typically involves challenges to the coverage and/or validity of patents on various products, processes or dosage forms. We are the plaintiff in the majority of these actions. An adverse outcome in actions in which we are the plaintiff could result in loss of patent protection for a drug, a significant loss of revenues from that drug or impairment of the value of associated assets.


•	Product liability and other product-related litigation, which can include personal injury, consumer, off-label promotion, securities, antitrust and breach of contract claims, among others, often involves highly complex issues relating to medical causation, label warnings and reliance on those warnings, scientific evidence and findings, actual, provable injury and other matters.


•	Commercial and other matters, which can include merger-related and product-pricing claims and environmental claims and proceedings, can involve complexities that will vary from matter to matter.


•	Government investigations, which often are related to the extensive regulation of pharmaceutical companies by national, state and local government agencies in the U.S. and in other jurisdictions.

Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, which could be substantial, and/or criminal charges.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

We believe that our claims and defenses in matters in which we are a defendant are substantial, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations in the period in which the amounts are accrued and/or our cash flows in the period in which the amounts are paid.

We have accrued for losses that are both probable and reasonably estimable. Substantially all of our contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies heavily on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.

Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

The principal pending matters to which we are a party are discussed below. In determining whether a pending matter is a principal matter, we consider both quantitative and qualitative factors in order to assess materiality, such as, among other things, the amount of damages and the nature of any other relief sought in the proceeding, if such damages and other relief are specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be, or is, a class action and, if not certified, our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; whether related actions have been transferred to multidistrict litigation; any experience that we or, to our knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters in which we are the plaintiff, we consider, among other things, the financial significance of the product protected by the patent(s) at issue. As a result of considering qualitative factors in our determination of principal matters, there are some matters discussed below with respect to which management believes that the likelihood of possible loss in excess of amounts accrued is remote.

A1. Legal Proceedings––Patent Litigation

Like other pharmaceutical companies, we are involved in numerous suits relating to our patents, including but not limited to, those discussed below. Most of the suits involve claims by generic drug manufacturers that patents covering our products, processes or dosage forms are invalid and/or do not cover the product of the generic drug manufacturer. Also, counterclaims, as well as various independent actions, have been filed alleging that our assertions of, or attempts to enforce, patent rights with respect to certain products constitute unfair competition and/or violations of antitrust laws. In addition to the challenges to the U.S. patents on a number of our products that are discussed below, patent rights to certain of our products are being challenged in various other jurisdictions. We are also party to patent damages suits in various jurisdictions pursuant to which generic drug manufacturers, payers, governments or other parties are seeking damages from us for allegedly causing delay of generic entry. Additionally, our licensing and collaboration partners face challenges by generic drug manufacturers to patents covering products for which we have licenses or co-promotion rights. We also are often involved in other proceedings, such as inter partes review, post-grant review, re-examination or opposition proceedings, before the U.S. Patent and Trademark Office, the European Patent Office, or other foreign counterparts relating to our intellectual property or the intellectual property rights of others. Also, if one of our patents is found to be invalid by such proceedings, generic or competitive products could be introduced into the market resulting in the erosion of sales of our existing products. For example, several of the patents in our pneumococcal vaccine portfolio were challenged in inter partes review and post-grant review proceedings in the United States. In June 2018, the Patent Trial and Appeal Board ruled on one patent, holding that one claim was valid and that all other claims were invalid. The party challenging that patent has appealed the decision. Challenges to other patents remain pending in jurisdictions outside the U.S. The invalidation of all of the patents in our pneumococcal portfolio could potentially allow a competitor pneumococcal vaccine into the marketplace. We are also subject to patent litigation pursuant to which one or more third parties seeks damages and/or injunctive relief to compensate for alleged infringement of its patents by our commercial or other activities. For example, our Hospira subsidiaries are involved in patent and patent-related disputes over their attempts to bring generic pharmaceutical and biosimilar products to market. If one of our marketed products is found to infringe valid patent rights of a third party, such third party may be awarded significant damages, or we may be prevented from further sales of that product. Such damages may be enhanced as much as three-fold in the event that we or one of our subsidiaries, like Hospira, is found to have willfully infringed valid patent rights of a third party.

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Actions In Which We Are The Plaintiff

Bosulif (bosutinib)

In December 2016, Wyeth LLC, Wyeth Pharmaceuticals Inc., and PF Prism C.V. (collectively, Wyeth) brought a patent-infringement action against Alembic Pharmaceuticals, Ltd, Alembic Pharmaceuticals, Inc. (collectively, Alembic), Sun Pharmaceutical Industries, Inc., and Sun Pharmaceutical Industries Limited (collectively, Sun), in the U.S. District Court for the District of Delaware in connection with abbreviated new drug applications respectively filed with the FDA by Alembic and Sun, each seeking approval to market generic versions of bosutinib. Alembic is challenging a patent covering polymorphic forms of bosutinib, which expires in 2026, and a patent covering methods of treating chronic myelogenous leukemia, which expires in 2025. Sun is also challenging the same patent covering polymorphic forms of bosutinib that expires in 2026. In March 2017, Wyeth brought a patent-infringement action against MSN Laboratories Private Limited and MSN Pharmaceuticals, Inc. (collectively, MSN), in the U.S. District Court for the District of Delaware in connection with an abbreviated new drug application filed with the FDA by MSN, seeking approval to market a generic version of bosutinib, and challenging a patent expiring in 2026 covering polymorphic forms of bosutinib. In September 2017, the case against MSN was dismissed. Also, in September 2017, Wyeth brought an additional patent-infringement action against Sun in the U.S. District Court for the District of Delaware asserting the infringement and validity of two other patents challenged by Sun, covering compositions of bosutinib and methods of treating chronic myelogenous leukemia, each of which expire in 2025.

EpiPen

In July 2010, King, which we acquired in 2011 and is a wholly-owned subsidiary, brought a patent-infringement action against Sandoz in the U.S. District Court for the District of New Jersey in connection with Sandoz’s abbreviated new drug application filed with the FDA seeking approval to market an epinephrine injectable product. Sandoz is challenging patents, which expire in 2025, covering the next-generation autoinjector for use with epinephrine that is sold under the EpiPen brand name.

Precedex Premix

In June 2014, Ben Venue Laboratories, Inc. (Ben Venue) notified our subsidiary, Hospira, that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that a patent relating to the use of Precedex in an intensive care unit setting, which expires in March 2019, was invalid or not infringed. In August 2014, Hospira and Orion Corporation (co-owner of the patent that is the subject of the lawsuit) filed suit against Ben Venue, Hikma Pharmaceuticals PLC (Hikma), and West-Ward Pharmaceutical Corp. in the U.S. District Court for the District of Delaware asserting the validity and infringement of the patent. In October 2014, Eurohealth International Sarl was substituted for Ben Venue and Hikma. In June 2016, this case was settled on terms not material to Pfizer.

In June 2015, Amneal Pharmaceuticals LLC (Amneal) notified Hospira that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that four patents relating to the Precedex premix formulations and their use, all of which expire in 2032, were invalid or not infringed. In August 2015, Hospira filed suit against Amneal in the U.S. District Court for the District of Delaware asserting the validity and infringement of the patents that are the subject of the lawsuit. In January 2018, the District Court ruled that one of the four patents was valid and infringed, and that the other three patents were invalid. In February and March 2018, respectively, each of Amneal and Hospira appealed the District Court decision to the U.S. Court of Appeals for the Federal Circuit.

In December 2015, Fresenius Kabi USA LLC (Fresenius) notified Hospira that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that certain patents relating to the Precedex premix formulations and their use, all of which expire in 2032, were invalid or not infringed. In January 2016, Hospira filed suit against Fresenius in the U.S. District Court for the Northern District of Illinois, asserting the validity and infringement of those patents. In December 2018, the District Court ruled that the asserted patents were invalid. Hospira has appealed the District Court’s decision to the U.S. Court of Appeals for the Federal Circuit.

In August 2016, Par Sterile Products, LLC (Par) notified Hospira that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that four patents relating to the Precedex premix formulations and their use, all of which expire in 2032, were invalid or not infringed. In September 2016, Hospira filed suit against Par in the U.S. District Court for the District of Delaware asserting the validity and infringement of the patents that are the subject of the lawsuit. In December 2016, the case was stayed pending the outcome of Hospira’s suit against Amneal (including all appeals).

In December 2017, Gland Pharma Limited (Gland) notified Hospira that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that six patents relating to the Precedex premix formulations and their use, all of which expire in 2032, were invalid or not

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infringed. In February 2018, Hospira filed suit against Gland in the U.S. District Court for the District of Delaware asserting the validity and infringement of four patents that are the subject of the lawsuit.

In December 2017, Jiangsu Hengrui Medicine Co., Ltd. (Hengrui) notified Hospira that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that six patents relating to the Precedex premix formulations and their use, all of which expire in 2032, were invalid or not infringed. In February 2018, Hospira filed suit against Hengrui in the U.S. District Court for the District of Delaware asserting the validity and infringement of four patents that are the subject of the lawsuit.

In February 2018, Baxter Healthcare Corporation (Baxter) filed a declaratory judgment action against Hospira in the U.S. District Court for the District of Delaware seeking a declaration of non-infringement of four patents relating to the Precedex premix formulations and their use. One of the patents included in the action expires in 2019 and the other three patents expire in 2032. In March 2018, Hospira filed a counterclaim for infringement of the patent expiring in 2019. In November 2018, the case was dismissed by mutual agreement of the parties.

Xeljanz (tofacitinib)

In February 2017, we brought a patent-infringement action against MicroLabs USA Inc. and MicroLabs Ltd. (collectively, MicroLabs) in the U.S. District Court for the District of Delaware asserting the infringement and validity of three patents challenged by MicroLabs in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 5 mg tablets. In November 2018, we settled all of our claims against MicroLabs on terms not material to Pfizer.

Separately, also in February 2017, we brought a patent-infringement action against Sun Pharmaceutical Industries Ltd. in the U.S. District Court for the District of Delaware asserting the infringement and validity of our patent covering a polymorphic form of tofacitinib, expiring in 2023, that was challenged by Sun Pharmaceutical Industries Ltd. in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 11 mg extended release tablets. In November 2017, we brought an additional patent-infringement action against Sun Pharmaceutical Industries Ltd. in the U.S. District Court for the District of Delaware asserting the infringement and validity of another patent challenged by Sun Pharmaceutical Industries Ltd, which covers the active ingredient and expires in December 2025. In October 2018, we brought a third patent infringement action against Sun Pharmaceutical Industries Ltd. in the U.S. District Court for the District of Delaware asserting the infringement and validity of our patent covering the extended release formulation of tofacitinib, which expires in 2034. In March and April 2019, the actions against Sun Pharmaceutical Industries Ltd. were dismissed by mutual agreement of the parties.

In March 2017, we brought a patent-infringement action against Zydus Pharmaceuticals (USA) Inc. and Cadila Healthcare Ltd. (collectively, Zydus) in the U.S. District Court for the District of Delaware asserting the infringement and validity of three patents: the patent covering the active ingredient expiring in December 2025, the patent covering an enantiomer of tofacitinib expiring in 2022, and the patent covering a polymorphic form of tofacitinib expiring in 2023, which Zydus challenged in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 5 mg tablets.

Also, in March 2017, we brought separate actions in the U.S. District Court for the District of Delaware against Prinston Pharmaceutical Inc., Zhejiang Huahai Pharmaceutical Co., Ltd., Huahai US Inc. and Solco Healthcare US, LLC (collectively, Prinston) and against Breckenridge Pharmaceutical Inc., Pensa Pharma S.A. and Laboratorios Del Dr. Esteve, S.A. (collectively, Breckenridge) on the two patents expiring in 2022 and 2023, respectively, that were challenged by Prinston and Breckenridge in their respective abbreviated new drug applications seeking approval to market generic versions of tofacitinib 5 mg tablets. In October 2017, we brought an additional patent-infringement action against Breckenridge in the U.S. District Court for the District of Delaware asserting the infringement and validity of four additional patents challenged by Breckenridge, three of which expire in December 2020 and one of which expires in December 2025. In March 2018, we brought another patent infringement action against Prinston in the U.S. District Court for the District of Delaware asserting the infringement and validity of an additional patent, which had been subsequently challenged by Prinston and which expires in December 2025. In May 2018, we settled all of our claims against Breckenridge on terms not material to Pfizer. In January 2019, we settled all of our claims against Prinston on terms not material to Pfizer.

In December 2018, we brought a separate patent infringement action against Teva Pharmaceuticals USA, Inc. (Teva) in the U.S. District Court for the District of Delaware asserting the infringement and validity of our patent covering extended release formulations of tofacitinib that was challenged by Teva in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 11 mg extended release tablets.

In March 2019, we brought a separate patent infringement action against Ajanta Pharma Ltd. and Ajanta Pharma USA Inc. (collectively, Ajanta) in the U.S. District Court for the District of Delaware asserting the infringement and validity of two patents: the patent covering the active ingredient that expires in December 2025 and the patent covering a polymorphic form of

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tofacitinib that expires in 2023, each of which Ajanta challenged in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 5 mg tablets.

Inlyta (axitinib)

In April 2018, Apotex Inc. notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Inlyta. Apotex Inc. asserts the invalidity and non-infringement of the crystalline form patent for Inlyta that expires in 2030. In May 2018, we filed suit against Apotex Inc. in the U.S. District Court for the District of Delaware, asserting the validity and infringement of the crystalline form patent for Inlyta.

Kerydin (tavaborole)

In September 2018, several generic companies notified us that they had filed abbreviated new drug applications with the FDA seeking approval to market generic versions of Kerydin. The generic companies assert the invalidity and non-infringement of methods of use and formulation patents for tavaborole that expire in 2026 and 2027, including pediatric exclusivity. In October 2018, Anacor, our wholly-owned subsidiary, filed infringement lawsuits against each of the generic filers in the U.S. District Court for the District of Delaware and the U.S. District Court for the District of West Virginia.

Ibrance (palbociclib)

In March 2019, several generic companies notified us that they had filed abbreviated new drug applications with the FDA seeking approval to market generic versions of Ibrance. The generic companies assert the invalidity and non-infringement of two composition of matter patents and a method of use patent covering palbociclib, each of which expire in 2023. In April 2019, we brought patent infringement actions against each of the generic filers in various federal courts, asserting the validity and infringement of the patents challenged by the generic companies.

Matters Involving Our Collaboration/Licensing Partners

Xtandi (enzalutamide)

In December 2016, Medivation and Medivation Prostate Therapeutics, Inc. (collectively, the Medivation Group); Astellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc. (collectively, Astellas); and The Regents of the University of California filed patent-infringement suits in the U.S. District Court for the District of Delaware against Actavis Laboratories FL, Inc. and Actavis LLC (collectively, Actavis); Zydus; and Apotex Inc. and Apotex Corp. (collectively, Apotex) in connection with those companies’ respective abbreviated new drug applications filed with the FDA for approval to market generic versions of enzalutamide. The generic manufacturers are challenging patents, which expire as early as 2026, covering enzalutamide and treatments for prostate cancer. In May 2017, the Medivation Group filed a patent-infringement suit against Roxane Laboratories Inc. (Roxane) in the same court in connection with Roxane’s abbreviated new drug application with the FDA for approval to market a generic version of enzalutamide. In June and July 2018, we settled all of our claims against Actavis and Apotex, respectively, on terms not material to Pfizer.

Eliquis

In February, March, and April 2017, twenty-five generic companies sent BMS Paragraph-IV certification letters informing BMS that they had filed abbreviated new drug applications seeking approval of generic versions of Eliquis, challenging the validity and infringement of one or more of the three patents listed in the Orange Book for Eliquis. The patents currently are set to expire in 2019, 2026, and 2031. Eliquis has been jointly developed and is being commercialized by BMS and Pfizer. In April 2017, BMS and Pfizer filed patent-infringement actions against all generic filers in the U.S. District Court for the District of Delaware and the U.S. District Court for the District of West Virginia, asserting that each of the generic companies’ proposed products would infringe each of the patent(s) that each generic filer challenged. Some generic filers challenged only the 2031 patent, some challenged both the 2031 and 2026 patent, and one generic company challenged all three patents. We and BMS have settled with certain of the generic companies on terms not material to Pfizer, and we and BMS may settle with other generic companies in the future.

Actions In Which We Are The Defendant

Inflectra (infliximab-dyyb)

In March 2015, Janssen and New York University, together, brought a patent-infringement action in the U.S. District Court for the District of Massachusetts against Hospira, Celltrion Healthcare Co. Ltd. and Celltrion Inc. alleging that infliximab-dyyb, to be marketed by Hospira in the U.S. under the brand name Inflectra, would infringe six patents relating to infliximab, its manufacture and use. Claims with respect to four of the patents were dismissed by the plaintiffs, leaving two patents at issue: the infliximab antibody patent and a patent relating to cell culture media. In January 2018, the antibody patent was declared invalid by the Court of Appeals for the Federal Circuit. In July 2018, the U.S. District Court for the District of Massachusetts granted defendants’ motion for summary judgment and ruled that the patent relating to cell culture media was not infringed. Janssen appealed the District Court’s decision to the U.S. Court of Appeals for the Federal Circuit.

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A2. Legal Proceedings––Product Litigation

Like other pharmaceutical companies, we are defendants in numerous cases, including but not limited to those discussed below, related to our pharmaceutical and other products. Plaintiffs in these cases seek damages and other relief on various grounds for alleged personal injury and economic loss.

Asbestos

Between 1967 and 1982, Warner-Lambert owned American Optical Corporation (American Optical), which manufactured and sold respiratory protective devices and asbestos safety clothing. In connection with the sale of American Optical in 1982, Warner-Lambert agreed to indemnify the purchaser for certain liabilities, including certain asbestos-related and other claims. As of March 31, 2019, approximately 46,400 claims naming American Optical and numerous other defendants were pending in various federal and state courts seeking damages for alleged personal injury from exposure to asbestos and other allegedly hazardous materials. Warner-Lambert was acquired by Pfizer in 2000 and is a wholly-owned subsidiary of Pfizer. Warner-Lambert is actively engaged in the defense of, and will continue to explore various means of resolving, these claims.

Numerous lawsuits are pending against Pfizer in various federal and state courts seeking damages for alleged personal injury from exposure to products allegedly containing asbestos and other allegedly hazardous materials sold by Pfizer and certain of its previously owned subsidiaries.

There also are a small number of lawsuits pending in various federal and state courts seeking damages for alleged exposure to asbestos in facilities owned or formerly owned by Pfizer or its subsidiaries.

Effexor

Beginning in May 2011, actions, including purported class actions, were filed in various federal courts against Wyeth and, in certain of the actions, affiliates of Wyeth and certain other defendants relating to Effexor XR, which is the extended-release formulation of Effexor. The plaintiffs in each of the class actions seek to represent a class consisting of all persons in the U.S. and its territories who directly purchased, indirectly purchased or reimbursed patients for the purchase of Effexor XR or generic Effexor XR from any of the defendants from June 14, 2008 until the time the defendants’ allegedly unlawful conduct ceased. The plaintiffs in all of the actions allege delay in the launch of generic Effexor XR in the U.S. and its territories, in violation of federal antitrust laws and, in certain of the actions, the antitrust, consumer protection and various other laws of certain states, as the result of Wyeth fraudulently obtaining and improperly listing certain patents for Effexor XR in the Orange Book, enforcing certain patents for Effexor XR and entering into a litigation settlement agreement with a generic drug manufacturer with respect to Effexor XR. Each of the plaintiffs seeks treble damages (for itself in the individual actions or on behalf of the putative class in the purported class actions) for alleged price overcharges for Effexor XR or generic Effexor XR in the U.S. and its territories since June 14, 2008. All of these actions have been consolidated in the U.S. District Court for the District of New Jersey.

In October 2014, the District Court dismissed the direct purchaser plaintiffs’ claims based on the litigation settlement agreement, but declined to dismiss the other direct purchaser plaintiff claims. In January 2015, the District Court entered partial final judgments as to all settlement agreement claims, including those asserted by direct purchasers and end-payer plaintiffs, which plaintiffs appealed to the U.S. Court of Appeals for the Third Circuit. In August 2017, the U.S. Court of Appeals for the Third Circuit reversed the District Court’s decisions and remanded the claims to the District Court.

Lipitor


•	Antitrust Actions

Beginning in November 2011, purported class actions relating to Lipitor were filed in various federal courts against, among others, Pfizer, certain affiliates of Pfizer, and, in most of the actions, Ranbaxy, Inc. (Ranbaxy) and certain affiliates of Ranbaxy. The plaintiffs in these various actions seek to represent nationwide, multi-state or statewide classes consisting of persons or entities who directly purchased, indirectly purchased or reimbursed patients for the purchase of Lipitor (or, in certain of the actions, generic Lipitor) from any of the defendants from March 2010 until the cessation of the defendants’ allegedly unlawful conduct (the Class Period). The plaintiffs allege delay in the launch of generic Lipitor, in violation of federal antitrust laws and/or state antitrust, consumer protection and various other laws, resulting from (i) the 2008 agreement pursuant to which Pfizer and Ranbaxy settled certain patent litigation involving Lipitor, and Pfizer granted Ranbaxy a license to sell a generic version of Lipitor in various markets beginning on varying dates, and (ii) in certain of the actions, the procurement and/or enforcement of certain patents for Lipitor. Each of the actions seeks, among other things, treble damages on behalf of the putative class for alleged price overcharges for Lipitor (or, in certain of the actions, generic Lipitor) during the Class Period. In addition, individual actions have been filed against Pfizer, Ranbaxy and certain of their affiliates, among others, that assert claims and seek relief for the plaintiffs that are substantially similar to the claims asserted and the relief sought in the purported class actions described above. These various actions have been consolidated for pre-trial proceedings in a Multi-District Litigation (In re Lipitor Antitrust Litigation MDL-2332) in the U.S. District Court for the District of New Jersey.

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In September 2013 and 2014, the District Court dismissed with prejudice the claims by direct purchasers. In October and November 2014, the District Court dismissed with prejudice the claims of all other Multi-District Litigation plaintiffs. All plaintiffs have appealed the District Court’s orders dismissing their claims with prejudice to the U.S. Court of Appeals for the Third Circuit. In addition, the direct purchaser class plaintiffs appealed the order denying their motion to amend the judgment and for leave to amend their complaint to the U.S. Court of Appeals for the Third Circuit. In August 2017, the U.S. Court of Appeals for the Third Circuit reversed the District Court’s decisions and remanded the claims to the District Court.

Also, in January 2013, the State of West Virginia filed an action in West Virginia state court against Pfizer and Ranbaxy, among others, that asserts claims and seeks relief on behalf of the State of West Virginia and residents of that state that are substantially similar to the claims asserted and the relief sought in the purported class actions described above.


•	Personal Injury Actions

A number of individual and multi-plaintiff lawsuits have been filed against us in various federal and state courts alleging that the plaintiffs developed type 2 diabetes purportedly as a result of the ingestion of Lipitor. Plaintiffs seek compensatory and punitive damages.

In February 2014, the federal actions were transferred for consolidated pre-trial proceedings to a Multi-District Litigation (In re Lipitor (Atorvastatin Calcium) Marketing, Sales Practices and Products Liability Litigation (No. II) MDL-2502) in the U.S. District Court for the District of South Carolina. Since 2016, certain cases in the Multi-District Litigation were remanded to certain state courts. In January 2017, the District Court granted our motion for summary judgment, dismissing substantially all of the remaining cases pending in the Multi-District Litigation. In January 2017, the plaintiffs appealed the District Court’s decision to the U.S. Court of Appeals for the Fourth Circuit. In June 2018, the U.S. Court of Appeals for the Fourth Circuit affirmed the District Court’s decision.

Viagra

A number of individual and multi-plaintiff lawsuits have been filed against us in various federal and state courts alleging that the plaintiffs developed melanoma and/or the exacerbation of melanoma purportedly as a result of the ingestion of Viagra. Plaintiffs seek compensatory and punitive damages.

In April 2016, the federal actions were transferred for coordinated pre-trial proceedings to a Multi-District Litigation (In Re: Viagra (Sildenafil Citrate) Products Liability Litigation, MDL-2691) in the U.S. District Court for the Northern District of California. In December 2016, federal actions filed against Lilly and filed against both us and Lilly, were transferred for coordinated pre-trial proceedings to the Multi-District Litigation (In re: Viagra (Sildenafil Citrate) and Cialis (Tadalafil) Products Liability Litigation, MDL-2691).

Intravenous Solutions

Beginning in November 2016, purported class actions were filed in the U.S. District Court for the Northern District of Illinois against Hospira, Hospira Worldwide, Inc. and certain other defendants relating to intravenous saline solution. Plaintiffs seek to represent a class consisting of all persons and entities in the U.S. who directly purchased intravenous saline solution sold by any of the defendants from January 1, 2013 until the time the defendants’ allegedly unlawful conduct ceases. Plaintiffs allege that the defendants’ conduct restricts output and artificially fixes, raises, maintains and/or stabilizes the prices of intravenous saline solution sold throughout the U.S. in violation of federal antitrust laws. Plaintiffs seek treble damages (for themselves and on behalf of the putative classes) and an injunction against defendants for alleged price overcharges for intravenous saline solution in the U.S. since January 1, 2013. All of these actions have been consolidated in the U.S. District Court for the Northern District of Illinois. In July 2018, the District Court granted defendants’ motions to dismiss the consolidated amended complaint without prejudice. Plaintiffs filed a second amended complaint in September 2018. On February 3, 2017, we completed the sale of our global infusion systems net assets, HIS, which includes intravenous saline solution, to ICU Medical. The litigation is the subject of cross-claims for indemnification by both Pfizer and ICU Medical under the purchase agreement.

Hormone Therapy Consumer Class Action

A certified consumer class action is pending against Wyeth in the U.S. District Court for the Southern District of California based on the alleged off-label marketing of its hormone therapy products. The case was originally filed in December 2003. The class consists of California consumers who purchased Wyeth’s hormone-replacement products between January 1995 and January 2003 and who do not seek personal injury damages therefrom. The class seeks compensatory and punitive damages, including a full refund of the purchase price.

Eliquis

A number of individual and multi-plaintiff lawsuits have been filed against us and BMS in various federal and state courts pursuant to which plaintiffs seek to recover for personal injuries, including wrongful death, due to bleeding allegedly as a result of the ingestion of Eliquis. Plaintiffs seek compensatory and punitive damages.

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In February 2017, the federal actions were transferred for coordinated pre-trial proceedings to a Multi-District Litigation (In Re: Eliquis (Apixaban) Products Liability Litigation MDL-2754) in the U.S. District Court for the Southern District of New York. In July 2017, the District Court dismissed substantially all of the actions that were pending in the Multi-District Litigation. In August 2017, certain plaintiffs appealed the District Court’s dismissal to the U.S. Court of Appeals for the Second Circuit. In March 2019, the U.S. Court of Appeals for the Second Circuit affirmed the District Court’s decision.

EpiPen

Beginning in February 2017, purported class actions were filed in various federal courts by indirect purchasers of EpiPen against Pfizer, and/or its affiliates King and Meridian, and/or various entities affiliated with Mylan N.V., and Mylan N.V. Chief Executive Officer, Heather Bresch. The plaintiffs in these actions seek to represent U.S. nationwide classes comprising persons or entities who paid for any portion of the end-user purchase price of an EpiPen between 2009 until the cessation of the defendants’ allegedly unlawful conduct. In August 2017, a similar lawsuit brought in the U.S. District Court for the District of New Jersey on behalf of a purported class of direct purchaser plaintiffs against Pfizer, King, Meridian and Mylan was voluntarily dismissed without prejudice. Against Pfizer and/or its affiliates, plaintiffs generally allege that Pfizer’s and/or its affiliates’ settlement of patent litigation regarding EpiPen delayed market entry of generic EpiPen in violation of federal antitrust laws and various state antitrust or consumer protection laws. At least one lawsuit also alleges that Pfizer and/or Mylan N.V. violated the federal Racketeer Influenced and Corrupt Organizations Act. Plaintiffs also filed various consumer protection and unjust enrichment claims against, and relating to conduct attributable solely to, Mylan Pharmaceuticals regarding EpiPen. Plaintiffs seek treble damages for alleged overcharges for EpiPen since 2009. In August 2017, the actions were consolidated for coordinated pre-trial proceedings in a Multi-District Litigation (In re: EpiPen (Epinephrine Injection, USP) Marketing, Sales Practices and Antitrust Litigation, MDL-2785) in the U.S. District Court for the District of Kansas with other EpiPen-related actions against Mylan N.V. and/or its affiliates to which Pfizer, King and Meridian are not parties.

Nexium 24HR and Protonix

A number of individual and multi-plaintiff lawsuits have been filed against Pfizer, certain of its subsidiaries and/or other pharmaceutical manufacturers in various federal and state courts alleging that the plaintiffs developed kidney-related injuries purportedly as a result of the ingestion of certain proton pump inhibitors. The cases against us involve Nexium 24HR and/or Protonix and seek compensatory and punitive damages and, in some cases, treble damages, restitution or disgorgement. In August 2017, the federal actions were ordered transferred for coordinated pre-trial proceedings to a Multi-District Litigation (In re: Proton-Pump Inhibitor Products Liability Litigation (No. II)) in the U.S. District Court for the District of New Jersey.

Docetaxel


•	Personal Injury Actions

A number of lawsuits have been filed against Hospira and Pfizer in various federal and state courts alleging that plaintiffs who were treated with Docetaxel developed permanent hair loss. The significant majority of the cases also name other defendants, including the manufacturer of the branded product, Taxotere. Plaintiffs seek compensatory and punitive damages.

In October 2016, the federal cases were transferred for coordinated pre-trial proceedings to a Multi-District Litigation (In re Taxotere (Docetaxel) Products Liability Litigation, MDL-2740) in the U.S. District Court for the Eastern District of Louisiana.


•	Mississippi Attorney General Government Investigation

In October 2018, the Attorney General of Mississippi filed a complaint in Mississippi state court against the manufacturer of the branded product and eight other manufacturers including Pfizer and Hospira, alleging, with respect to Pfizer and Hospira, a failure to warn about a risk of permanent hair loss in violation of the Mississippi Consumer Protection Act. The action seeks civil penalties and injunctive relief.

Adalimumab Biosimilars

Beginning in March 2019, purported class actions relating to Humira and adalimumab biosimilars were filed in the United States District Court for the Northern District of Illinois against AbbVie Inc. (AbbVie), certain affiliates of AbbVie, and other pharmaceutical manufacturers. Pfizer is a named defendant in three of the actions. The plaintiffs seek to represent nationwide and multi-state classes consisting of persons and/or entities who are indirect purchasers of Humira from January 1, 2017 until the allegedly unlawful antitrust effects cease. Against Pfizer, the plaintiffs generally allege that Pfizer’s and AbbVie’s 2018 licensing agreements, resolving all global intellectual property matters for Pfizer’s proposed adalimumab biosimilar, delayed market entry of Pfizer’s biosimilar product in the U.S. in violation of federal antitrust laws, various state antitrust or consumer protection laws, and unjust enrichment laws. Plaintiffs seek injunctive relief and treble damages for alleged overcharges for Humira since 2017.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A3. Legal Proceedings––Commercial and Other Matters

Average Wholesale Price Litigation

Pfizer, certain of its subsidiaries and other pharmaceutical manufacturers were sued in various state courts by a number of states alleging that the defendants provided average wholesale price (AWP) information for certain of their products that was higher than the actual average prices at which those products were sold. The AWP is used to determine reimbursement levels under Medicare Part B and Medicaid and in many private-sector insurance policies and medical plans. All but one of those actions have been resolved through settlement, dismissal or final judgment. The plaintiff state, Illinois, in the one remaining action, claims that the alleged spread between the AWPs at which purchasers were reimbursed and the actual sale prices was promoted by the defendants as an incentive to purchase certain of their products. The action alleges, among other things, fraud and violation of the state’s unfair trade practices and consumer protection statutes and seeks monetary and other relief, including civil penalties and treble damages.

Monsanto-Related Matters

In 1997, Monsanto Company (Former Monsanto) contributed certain chemical manufacturing operations and facilities to a newly formed corporation, Solutia Inc. (Solutia), and spun off the shares of Solutia. In 2000, Former Monsanto merged with Pharmacia & Upjohn Company to form Pharmacia. Pharmacia then transferred its agricultural operations to a newly created subsidiary, named Monsanto Company (New Monsanto), which it spun off in a two-stage process that was completed in 2002. Pharmacia was acquired by Pfizer in 2003 and is a wholly-owned subsidiary of Pfizer.

In connection with its spin-off that was completed in 2002, New Monsanto assumed, and agreed to indemnify Pharmacia for, any liabilities related to Pharmacia’s former agricultural business. New Monsanto has defended and/or is defending Pharmacia in connection with various claims and litigation arising out of, or related to, the agricultural business, and has been indemnifying Pharmacia when liability has been imposed or settlement has been reached regarding such claims and litigation.

In connection with its spin-off in 1997, Solutia assumed, and agreed to indemnify Pharmacia for, liabilities related to Former Monsanto’s chemical businesses. As the result of its reorganization under Chapter 11 of the U.S. Bankruptcy Code, Solutia’s indemnification obligations relating to Former Monsanto’s chemical businesses are primarily limited to sites that Solutia has owned or operated. In addition, in connection with its spinoff that was completed in 2002, New Monsanto assumed, and agreed to indemnify Pharmacia for, any liabilities primarily related to Former Monsanto’s chemical businesses, including, but not limited to, any such liabilities that Solutia assumed. Solutia’s and New Monsanto’s assumption of, and agreement to indemnify Pharmacia for, these liabilities apply to pending actions and any future actions related to Former Monsanto’s chemical businesses in which Pharmacia is named as a defendant, including, without limitation, actions asserting environmental claims, including alleged exposure to polychlorinated biphenyls. Solutia and/or New Monsanto are defending Pharmacia in connection with various claims and litigation arising out of, or related to, Former Monsanto’s chemical businesses, and have been indemnifying Pharmacia when liability has been imposed or settlement has been reached regarding such claims and litigation.

Environmental Matters

In 2009, we submitted to the U.S. Environmental Protection Agency (EPA) a corrective measures study report with regard to Pharmacia’s discontinued industrial chemical facility in North Haven, Connecticut. In September 2010, our corrective measures study report was approved by the EPA, and we commenced construction of the site remedy in late 2011 under an Updated Administrative Order on Consent with the EPA.

Also, in 2009, we submitted a revised site-wide feasibility study with regard to Wyeth Holdings Corporation’s (formerly, American Cyanamid Company) discontinued industrial chemical facility in Bound Brook, New Jersey. In July 2011, Wyeth Holdings Corporation finalized an Administrative Settlement Agreement with the EPA and Order on Consent for Removal Action (the 2011 Administrative Settlement Agreement) with the EPA with regard to the Bound Brook facility. In May 2012, we completed construction of an interim remedy to address the discharge of impacted groundwater from that facility to the Raritan River. In September 2012, the EPA issued a final remediation plan for the Bound Brook facility’s main plant area, which is generally in accordance with one of the remedies evaluated in our revised site-wide feasibility study. In March 2013, Wyeth Holdings Corporation (now Wyeth Holdings LLC) entered into an Administrative Settlement Agreement and Order on Consent with the EPA to allow us to undertake detailed engineering design of the remedy for the main plant area and to perform a focused feasibility study for two adjacent lagoons. In September 2015, the U.S., on behalf of the EPA, filed a complaint and consent decree with the federal District Court for the District of New Jersey that allows Wyeth Holdings LLC to complete the design and to implement the remedy for the main plant area. In December 2015, the consent decree (which supersedes the 2011 Administrative Settlement Agreement) was entered by the District Court. In September 2018, the EPA issued a final remediation plan for the two adjacent lagoons, which is generally in accordance with one of the remedies evaluated in our focused feasibility study. We have accrued for the estimated costs of the site remedies for the North Haven and Bound Brook facilities.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

We are a party to a number of other proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, and other state, local or foreign laws in which the primary relief sought is the cost of past and/or future remediation.

Contracts with Iraqi Ministry of Health

In October 2017, a number of United States service members, civilians, and their families brought a complaint in the Federal District Court for the District of Columbia against a number of pharmaceutical and medical devices companies, including Pfizer and certain of its subsidiaries, alleging that the defendants violated the United States Anti-Terrorism Act. The complaint alleges that the defendants provided funding for terrorist organizations through their sales practices pursuant to pharmaceutical and medical device contracts with the Iraqi Ministry of Health, and seeks monetary relief. In July 2018, the U.S. Department of Justice requested documents related to this matter, which are being provided.

Allergan Complaint for Indemnity

In August 2018, Pfizer was named as a defendant in a third-party complaint for indemnity, along with King, a Pfizer subsidiary, filed by Allergan Finance LLC (Allergan) in a Multi-District Litigation (In re National Prescription Opiate Litigation MDL 2804) in the U.S. District Court for the Northern District of Ohio. The lawsuit asserted claims for indemnity related to Kadian, which was owned for a short period by King in 2008, prior to Pfizer's acquisition of King in 2010. In December 2018, the District Court dismissed the lawsuit. In February 2019, Allergan filed a similar complaint in the Supreme Court of the State of New York, asserting claims for indemnity related to Kadian.

A4. Legal Proceedings––Government Investigations

Like other pharmaceutical companies, we are subject to extensive regulation by government agencies in the U.S., other developed markets and multiple emerging markets in which we operate. As a result, we have interactions with government agencies on an ongoing basis. Criminal charges, substantial fines and/or civil penalties, limitations on our ability to conduct business in applicable jurisdictions, corporate integrity or deferred prosecution agreements, as well as reputational harm and increased public interest in the matter could result from government investigations. In addition, in a qui tam lawsuit in which the government declines to intervene, the relator may still pursue a suit for the recovery of civil damages and penalties on behalf of the government. Among the investigations by government agencies are the matters discussed below.

Phenytoin Sodium Capsules

In 2012, Pfizer sold the U.K. Marketing Authorisation for phenytoin sodium capsules to a third party, but retained the right to supply the finished product to that third party. In May 2013, the U.K. Competition & Markets Authority (CMA) informed us that it had launched an investigation into the supply of phenytoin sodium capsules in the U.K. market. In August 2015, the CMA issued a Statement of Objections alleging that Pfizer and Pfizer Limited, a U.K. subsidiary, engaged in conduct that violates U.K. and EU antitrust laws. In December 2016, the CMA imposed a £84.2 million fine on Pfizer and Pfizer Limited. Pfizer appealed the CMA decision to The Competition Appeal Tribunal in February 2017. On June 7, 2018, the Competition Appeal Tribunal overturned the CMA decision as well as the associated fine. The CMA appealed the judgment to the Court of Appeal.

Greenstone Investigations

Since July 2017, the U.S. Department of Justice’s Antitrust Division has been investigating our Greenstone generics business. We believe this is related to an ongoing antitrust investigation of the generic pharmaceutical industry. The government has been obtaining information from Greenstone. In April 2018, Greenstone received requests for information from the Antitrust Department of the Connecticut Office of the Attorney General. We have been providing information pursuant to these requests.

Subpoena relating to Manufacturing of Quillivant XR

In October 2018, we received a subpoena from the U.S. Attorney’s Office for the Southern District of New York (SDNY) seeking records relating to our relationship with another drug manufacturer and its production and manufacturing of drugs including, but not limited to, Quillivant XR. We are producing records pursuant to the subpoena.

Civil Investigative Demand relating to Meridian Medical Technologies

In February 2019, we received a civil investigative demand from the U.S. Attorney’s Office for the SDNY. The civil investigative demand seeks records and information related to alleged quality issues involving the manufacture of auto-injectors at our Meridian site. We are producing records in response to this civil investigative demand.

Contracts with Iraqi Ministry of Health

See Note 12A3. Contingencies and Certain Commitments: Legal Proceedings––Commercial and Other Matters––Contracts with Iraqi Ministry of Health above for information regarding U.S. government investigations related to contracts with the Iraqi Ministry of Health.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Docetaxel––Mississippi Attorney General Government Investigation

See Note 12A2. Contingencies and Certain Commitments: Legal Proceedings––Product Litigation––Docetaxel––Mississippi Attorney General Government Investigation above for information regarding a government investigation related to Docetaxel marketing practices.

B. Guarantees and Indemnifications

In the ordinary course of business and in connection with the sale of assets and businesses and other transactions, we often indemnify our counterparties against certain liabilities that may arise in connection with the transaction or that are related to events and activities prior to or following a transaction. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we may be required to reimburse the loss. These indemnifications are generally subject to various restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of March 31, 2019, the estimated fair value of these indemnification obligations was not significant.

In addition, in connection with our entry into certain agreements, our counterparties agree to indemnify us. For example, our collaboration agreement with EMD Serono, Inc. to co-promote Rebif in the U.S. expired at the end of 2015 and included certain indemnity provisions. Patent litigation brought by Biogen Idec MA Inc. against EMD Serono Inc. and Pfizer is pending in the U.S. District Court for the District of New Jersey and the United States Court of Appeals for the Federal Circuit. EMD Serono Inc. has acknowledged that it is obligated to satisfy any award of damages.

Pfizer Inc. has also guaranteed the long-term debt of certain companies that it acquired and that now are subsidiaries of Pfizer.

C. Certain Commitments

On February 7, 2019, we entered into an accelerated share repurchase agreement with GS&Co. to repurchase approximately $6.8 billion of our common stock. Pursuant to the terms of the agreement, on February 12, 2019, we paid approximately $6.8 billion to GS&Co. and received an initial delivery of approximately 130 million shares of our common stock from GS&Co., which represented, based on the closing price of our common stock on the NYSE on February 7, 2019, approximately 80% of the notional amount of the accelerated share repurchase agreement. As of March 31, 2019, the common stock received is included in Treasury Stock. At settlement of the agreement, which is expected to occur during or prior to the third quarter of 2019, GS&Co. may be required to deliver additional shares of common stock to us, or, under certain circumstances, we may be required to deliver shares of our common stock or may elect to make a cash payment to GS&Co., with the number of shares to be delivered or the amount of such payment, as well as the final price per share, based on the volume-weighted average price, less a discount, of Pfizer’s common stock during the term of the transaction. This agreement was entered into pursuant to our previously announced share repurchase authorization. After giving effect to the accelerated share repurchase agreement and other share repurchases through March 31, 2019, our remaining share-purchase authorization was approximately $5.3 billion on March 31, 2019.

Note 13. Segment, Geographic and Other Revenue Information

A. Segment Information

At the beginning of our 2019 fiscal year, we began to manage our commercial operations through a new global structure consisting of three distinct business segments: Pfizer Biopharmaceuticals Group (Biopharma), Upjohn and Pfizer’s Consumer Healthcare business (Consumer Healthcare). The Biopharma, Upjohn and Consumer Healthcare segments are each led by a single manager. Each operating segment has responsibility for its commercial activities. Upjohn and Consumer Healthcare are responsible for their own R&D activities while Biopharma receives its R&D services from GPD and WRDM. These services include IPR&D projects for new investigational products and additional indications for in-line products. Each business has a geographic footprint across developed and emerging markets. Our chief operating decision maker uses the revenues and earnings of the three operating segments, among other factors, for performance evaluation and resource allocation. Biopharma and Upjohn are the only reportable segments. We have revised prior-period information (Revenues and Earnings, as defined by management) to conform to the current management structure. As our operations were not managed under the new structure until the beginning of fiscal 2019, certain costs and expenses could not be directly attributed to one of the new operating segments. As a result, our operating segment results for the first quarter of 2018 include allocations, which management believes are reasonable.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Operating Segments



Some additional information about our Biopharma and Upjohn business segments follows:

Biopharma is a science-based innovative medicines business that includes six business units – Oncology, Inflammation & Immunology, Rare Disease, Hospital, Vaccines and Internal Medicine. The new Hospital unit commercializes our global portfolio of sterile injectable and anti-infective medicines and includes Pfizer’s contract manufacturing operation, Pfizer CentreOne. We also incorporated our biosimilar portfolio into our Oncology and Inflammation & Immunology business units and certain legacy established products into the Internal Medicine business unit. Each business unit is committed to improving health with our innovative products from prevention to treatment to wellness – at every stage of life in communities across the globe.		Upjohn is a global, primarily off-patent branded and generic established medicines business, which includes 20 primarily off-patent solid oral dose legacy brands, as well as certain generic medicines.
Select products include: - Prevnar 13/Prevenar 13 - Ibrance - Eliquis - Enbrel (outside the U.S. and Canada) - Xeljanz - Chantix/Champix - Sutent		Select products include: - Lyrica - Lipitor - Norvasc - Celebrex - Viagra - Certain generic medicines

Pfizer’s Consumer Healthcare segment is an over-the-counter medicines business, which we announced on December 19, 2018 will be contributed to, and combined with, GSK’s consumer healthcare business to form a new consumer healthcare joint venture. See Note 2 for additional information.

Other Costs and Business Activities

Certain pre-tax costs are not allocated to our operating segment results, such as costs associated with the following:

•

WRDM––the R&D and Medical expenses managed by our WRDM organization, which is generally responsible for research projects for our Biopharma portfolio until proof-of-concept is achieved and then for transitioning those projects to the GPD organization for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. The WRDM organization also has responsibility for certain science-based and other platform-services organizations, which provide end-to-end technical expertise and other services to the various R&D projects, as well as the Worldwide Medical and Safety group, which ensures that Pfizer provides all stakeholders––including patients, healthcare providers, pharmacists, payers and health authorities––with complete and up-to-date information on the risks and benefits associated with Pfizer products so that they can make appropriate decisions on how and when to use Pfizer’s medicines.


•	GPD––the costs associated with our GPD organization, which is generally responsible for clinical trials from WRDM in the Biopharma portfolio, including late stage portfolio spend. GPD also provides technical support and other services to Pfizer R&D projects. GPD is responsible for facilitating all regulatory submissions and interactions with regulatory agencies.


•	Other––the operating results of our Consumer Healthcare business, and costs associated with other commercial activities not managed as part of Biopharma or Upjohn, including all strategy, business development, portfolio management and valuation capabilities, which previously had been reported in various parts of the organization.

•

Corporate and Other Unallocated––the costs associated with platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance, and worldwide procurement), patient advocacy activities and certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments, as well as overhead expenses associated with our manufacturing (which include

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

manufacturing variances associated with production) and commercial operations that are not directly assessed to an operating segment, as business unit (segment) management does not manage these costs.

•

Certain transactions and events such as (i) purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and PP&E; (ii) acquisition-related costs, where we incur costs for executing the transaction, integrating the acquired operations and restructuring the combined company; and (iii) certain significant items, representing substantive and/or unusual, and in some cases recurring, items (such as restructuring charges, legal charges or net gains and losses on investments in equity securities) that are evaluated on an individual basis by management and that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. Such items can include, but are not limited to, non-acquisition-related restructuring costs, as well as costs incurred for legal settlements, asset impairments and disposals of assets or businesses, including, as applicable, any associated transition activities.

Segment Assets

We manage our assets on a total company basis, not by operating segment, as many of our operating assets are shared or commingled (such as accounts receivable, as many of our customers are served by multiple operating segments). Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment. Total assets were approximately $155 billion as of March 31, 2019 and $159 billion as of December 31, 2018.

Selected Income Statement Information



The following table provides selected income statement information by reportable segment:
	Three Months Ended
	Revenues				Earnings^(a)
(MILLIONS OF DOLLARS)	March 31, 2019		April 1, 2018		March 31, 2019			April 1, 2018
Reportable Segments:
Biopharma	$	9,185	$	8,881	$	5,888		$	5,823
Upjohn	3,075		3,120		2,274			2,168
Total reportable segments	12,259		12,001		8,162			7,991
Other business activities	—		—		(1,113		)	(1,187		)
Reconciling Items:
Corporate and other unallocated	858		905		(1,278		)	(1,325		)
Purchase accounting adjustments	—		—		(1,038		)	(1,221		)
Acquisition-related costs	—		—		(28		)	(48		)
Certain significant items^(b)	—		—		(382		)	(83		)
	$	13,118	$	12,906	$	4,323		$	4,127


^(a)	Income from continuing operations before provision for taxes on income. Biopharma’s earnings include dividend income of $64 million in the first quarter of 2019 and $59 million in the first quarter of 2018 from