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PFIZER INC - Quarter Report: 2020 September (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______


COMMISSION FILE NUMBER 1-3619

----

PFIZER INC.
(Exact name of registrant as specified in its charter)
Delaware13-5315170
(State of Incorporation)(I.R.S. Employer Identification No.)

235 East 42nd Street, New York, New York  10017
(Address of principal executive offices)  (zip code)
(212) 733-2323
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.05 par valuePFENew York Stock Exchange
0.250% Notes due 2022PFE22New York Stock Exchange
1.000% Notes due 2027PFE27New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesxNo

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).
YesxNo

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).
YesNo
x

At November 2, 2020, 5,558,396,599 shares of the issuer’s voting common stock were outstanding.



Table of Contents
Page
 
 
Condensed Consolidated Statements of Income for the three and nine months ended September 27, 2020 and
September 29, 2019
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 27, 2020 and September 29, 2019
Condensed Consolidated Balance Sheets as of September 27, 2020 and December 31, 2019
Condensed Consolidated Statements of Equity for the three and nine months ended September 27, 2020 and
September 29, 2019
Condensed Consolidated Statements of Cash Flows for the nine months ended September 27, 2020 and
September 29, 2019
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
2


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:
2019 Financial ReportFinancial Report for the fiscal year ended December 31, 2019, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2019
2019 Form 10-KAnnual Report on Form 10-K for the fiscal year ended December 31, 2019
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
ACIPAdvisory Committee on Immunization Practices
ALKanaplastic lymphoma kinase
Alliance revenuesRevenues from alliance agreements under which we co-promote products discovered or developed by other companies or us
AllogeneAllogene Therapeutics, Inc.
AMLAcute Myeloid Leukemia
AnacorAnacor Pharmaceuticals, Inc.
ArrayArray BioPharma Inc.
AstellasAstellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc.
ATTR-CMtransthyretin amyloid cardiomyopathy
BambooBamboo Therapeutics, Inc.
BioNTechBioNTech SE
BiopharmaPfizer Biopharmaceuticals Group
BMSBristol-Myers Squibb Company
CDCU.S. Centers for Disease Control and Prevention
cGMPcurrent Good Manufacturing Practices
CHMPCommittee for Medicinal Products for Human Use
COVID-19novel coronavirus disease of 2019
Developed Europe
Includes the following markets: Western Europe, Scandinavian countries and Finland
Developed MarketsU.S., Developed Europe, Japan, Canada, South Korea, Australia and New Zealand
Developed Rest of World
Includes the following markets: Japan, Canada, South Korea, Australia and New Zealand
EMAEuropean Medicines Agency
Emerging Markets
Includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Eastern Europe, Africa, the Middle East, Central Europe and Turkey
EPSearnings per share
EUEuropean Union
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FDAU.S. Food and Drug Administration
FTCU.S. Federal Trade Commission
GAAPGenerally Accepted Accounting Principles
GISTgastrointestinal stromal tumors
GPDGlobal Product Development organization
GSKGlaxoSmithKline plc
hGH-CTPhuman growth hormone
HospiraHospira, Inc.
IBTIncome before tax
IPR&Din-process research and development
IRSU.S. Internal Revenue Service
IVintravenous
J&JJohnson & Johnson
JVJoint Venture
KingKing Pharmaceuticals LLC (formerly King Pharmaceuticals, Inc.)
LDLlow density lipoprotein
LIBORLondon Interbank Offered Rate
LillyEli Lilly & Company
MCOmanaged care organization
3


GLOSSARY OF DEFINED TERMS
- continued -
mCRCmetastatic colorectal cancer
mCRPC
metastatic castration-resistant prostate cancer
mCSPC
metastatic castration-sensitive prostate cancer
mRNAmessenger ribonucleic acid
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
MedivationMedivation LLC (formerly Medivation, Inc.)
MeridianMeridian Medical Technologies, Inc.
Moody’sMoody’s Investors Service
MylanMylan N.V.
NDAnew drug application
nmCRPC
non-metastatic castration-resistant prostate cancer
NSCLCnon-small cell lung cancer
OPKOOPKO Health, Inc.
PARPpoly ADP ribose polymerase
PBMpharmacy benefit manager
PharmaciaPharmacia Corporation
PP&Eproperty, plant & equipment
PsApsoriatic arthritis
Quarterly Report on Form 10-QQuarterly Report on Form 10-Q for the quarterly period ended September 27, 2020
RArheumatoid arthritis
RCCrenal cell carcinoma
R&Dresearch and development
RNAribonucleic acid
SandozSandoz, Inc., a division of Novartis AG
SECU.S. Securities and Exchange Commission
SI&Aselling, informational and administrative
S&PStandard and Poor’s
TCJAlegislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017
TherachonTherachon Holding AG
UCulcerative colitis
U.K.United Kingdom
U.S.United States
ValnevaValneva SE
ViiVViiV Healthcare Limited
VBPVolume-based procurement
WRDMWorldwide Research, Development and Medical

4


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 Three Months EndedNine Months Ended
(MILLIONS, EXCEPT PER COMMON SHARE DATA)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Revenues$12,131 $12,680 $35,961 $39,062 
Costs and expenses:
Cost of sales(a)
2,529 2,602 7,188 7,611 
Selling, informational and administrative expenses(a)
3,016 3,260 8,919 10,110 
Research and development expenses(a)
2,360 2,283 6,216 5,827 
Amortization of intangible assets898 1,212 2,688 3,578 
Restructuring charges and certain acquisition-related costs
365 435 295 
(Gain) on completion of Consumer Healthcare JV transaction
— (8,087)(6)(8,087)
Other (income)/deductions––net
1,148 319 507 537 
Income from continuing operations before provision/(benefit) for taxes on income2,176 10,727 10,014 19,190 
Provision/(benefit) for taxes on income(26)3,047 968 2,566 
Income from continuing operations2,202 7,680 9,046 16,625 
Discontinued operations––net of tax— — 
Net income before allocation to noncontrolling interests
2,202 7,684 9,046 16,628 
Less: Net income attributable to noncontrolling interests25 19 
Net income attributable to Pfizer Inc.$2,194 $7,680 $9,022 $16,609 
Earnings per common share––basic:
    
Income from continuing operations attributable to Pfizer Inc. common shareholders
$0.39 $1.38 $1.62 $2.98 
Discontinued operations––net of tax— — — — 
Net income attributable to Pfizer Inc. common shareholders
$0.39 $1.38 $1.62 $2.98 
Earnings per common share––diluted:
    
Income from continuing operations attributable to Pfizer Inc. common shareholders
$0.39 $1.36 $1.60 $2.92 
Discontinued operations––net of tax— — — — 
Net income attributable to Pfizer Inc. common shareholders
$0.39 $1.36 $1.60 $2.92 
Weighted-average shares––basic5,557 5,545 5,552 5,581 
Weighted-average shares––diluted5,633 5,649 5,622 5,690 
(a)Excludes amortization of intangible assets, except as disclosed in Note 9A and Notes to Consolidated Financial Statements––Note 1L. Basis of Presentation and Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets in our 2019 Financial Report.
See Notes to Condensed Consolidated Financial Statements.
5


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 Three Months EndedNine Months Ended
(MILLIONS OF DOLLARS)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Net income before allocation to noncontrolling interests$2,202 $7,684 $9,046 $16,628 
Foreign currency translation adjustments, net(a)
1,609 (468)96 (628)
Reclassification adjustments— 268 — 270 
 1,609 (200)96 (358)
Unrealized holding gains/(losses) on derivative financial instruments, net(372)150 (661)241 
Reclassification adjustments for (gains)/losses included in net income(b)
143 (29)(25)(372)
 (230)122 (685)(131)
Unrealized holding gains/(losses) on available-for-sale securities, net239 15 231 48 
Reclassification adjustments for (gains)/losses included in net income(c)
(85)(7)(25)30 
 155 205 77 
Benefit plans: actuarial gains/(losses), net(1,211)(171)(1,372)(175)
Reclassification adjustments related to amortization67 60 200 180 
Reclassification adjustments related to settlements, net174 38 240 40 
Other(206)42 (123)60 
 (1,177)(31)(1,055)105 
Benefit plans: prior service (costs)/credits and other, net— — — (1)
Reclassification adjustments related to amortization of prior service costs and other, net(45)(44)(134)(137)
Reclassification adjustments related to curtailments of prior service costs and other, net— (46)— (46)
Other(3)
 (47)(88)(133)(180)
Other comprehensive income/(loss), before tax310 (190)(1,572)(486)
Tax provision/(benefit) on other comprehensive income/(loss)(262)84 (527)50 
Other comprehensive income/(loss) before allocation to noncontrolling interests$572 $(275)$(1,045)$(536)
Comprehensive income before allocation to noncontrolling interests$2,774 $7,409 $8,001 $16,092 
Less: Comprehensive income/(loss) attributable to noncontrolling interests11 (6)16 
Comprehensive income attributable to Pfizer Inc.$2,763 $7,415 $7,986 $16,084 
(a)Amounts in the third quarter of 2020 primarily include gains from the strengthening of certain major currencies against the U.S. dollar and a net gain related to foreign currency translation adjustments and the impact of our net investment hedging program, both attributable to our equity method investment in the GSK Consumer Healthcare joint venture. Amounts in the first nine months of 2020 primarily include gains from the strengthening of certain major currencies against the U.S. dollar, partially offset by a net loss related to foreign currency translation adjustments and the impact of our net investment hedging program, both attributable to our equity method investment in the GSK Consumer Healthcare joint venture. See Note 2B.
(b)Reclassified into Other (income)/deductions—net and Cost of sales in the condensed consolidated statements of income. See Note 7E.
(c)Reclassified into Other (income)/deductions—net in the condensed consolidated statements of income.
See Notes to Condensed Consolidated Financial Statements.
6


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)September 27,
2020
December 31, 2019
(Unaudited)
Assets
Cash and cash equivalents$1,587 $1,305 
Short-term investments8,912 8,525 
Restricted short-term investments11,413 — 
Trade accounts receivable, less allowance for doubtful accounts: 2020—$533; 2019—$527
10,012 8,724 
Inventories9,295 8,283 
Current tax assets4,000 3,344 
Other current assets2,519 2,622 
Total current assets47,739 32,803 
Equity-method investments15,949 17,133 
Long-term investments3,059 3,014 
Property, plant and equipment, less accumulated depreciation: 2020—$16,636; 2019—$16,789
14,403 13,967 
Identifiable intangible assets, less accumulated amortization30,927 35,370 
Goodwill59,902 58,653 
Noncurrent deferred tax assets and other noncurrent tax assets2,649 2,099 
Other noncurrent assets4,355 4,450 
Total assets$178,983 $167,489 
Liabilities and Equity  
Short-term borrowings, including current portion of long-term debt: 2020—$2,149; 2019—$1,462
$13,363 $16,195 
Trade accounts payable4,141 4,220 
Dividends payable2,112 2,104 
Income taxes payable1,430 980 
Accrued compensation and related items2,425 2,720 
Other current liabilities10,683 11,083 
Total current liabilities34,154 37,304 
Long-term debt49,785 35,955 
Pension benefit obligations, net5,350 5,638 
Postretirement benefit obligations, net1,087 1,124 
Noncurrent deferred tax liabilities4,542 5,578 
Other taxes payable11,720 12,126 
Other noncurrent liabilities6,851 6,317 
Total liabilities113,487 104,042 
Commitments and Contingencies
Preferred stock— 17 
Common stock470 468 
Additional paid-in capital88,161 87,428 
Treasury stock(110,980)(110,801)
Retained earnings100,284 97,670 
Accumulated other comprehensive loss(12,676)(11,640)
Total Pfizer Inc. shareholders’ equity65,259 63,143 
Equity attributable to noncontrolling interests236 303 
Total equity65,495 63,447 
Total liabilities and equity$178,983 $167,489 
See Notes to Condensed Consolidated Financial Statements.
7


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
PFIZER INC. SHAREHOLDERS
Preferred StockCommon StockTreasury Stock
(MILLIONS, EXCEPT PREFERRED SHARES)
SharesStated ValueSharesPar ValueAdd’l
Paid-In Capital
SharesCostRetained EarningsAccum. Other Comp.
Loss
Share-
holders’ Equity
Non-controlling interestsTotal Equity
Balance, June 28, 2020
— $— 9,394 $470 $87,886 (3,840)$(110,978)$100,203 $(13,246)$64,336 $228 $64,564 
Net income2,194 2,194 2,202 
Other comprehensive income/(loss), net of tax
569 569 572 
Cash dividends declared:
Common stock
(2,113)(2,113)(2,113)
Preferred stock
— — — 
Noncontrolling interests
— (1)(1)
Share-based payment transactions
— 275 — (2)273 273 
Purchases of common stock
— — — — 
Preferred stock conversions and redemptions— — — — — — — 
Other— — — — — (1)(1)
Balance, September 27, 2020— $— 9,397 $470 $88,161 (3,840)$(110,980)$100,284 $(12,676)$65,259 $236 $65,495 
PFIZER INC. SHAREHOLDERS
Preferred StockCommon StockTreasury Stock
(MILLIONS, EXCEPT PREFERRED SHARES)
SharesStated ValueSharesPar ValueAdd’l
Paid-In Capital
SharesCostRetained EarningsAccum. Other Comp.
Loss
Share-
holders’ Equity
Non-controlling interestsTotal Equity
Balance, June 30, 2019458 $18 9,363 $468 $86,963 (3,801)$(110,786)$94,440 $(11,535)$59,568 $357 $59,924 
Net income7,680 7,680 7,684 
Other comprehensive income/(loss), net of tax
(265)(265)(9)(275)
Cash dividends declared:
Common stock
(2,006)(2,006)(2,006)
Preferred stock
— — — 
Noncontrolling interests
— 
Share-based payment transactions
— 136 — (8)128 128 
Purchases of common stock
(34)— — — 
Preferred stock conversions and redemptions
(8)— — — — (1)(1)
Other— — — — — (61)(61)
Balance, September 29, 2019
449 $18 9,366 $468 $87,099 (3,835)$(110,795)$100,113 $(11,801)$65,103 $293 $65,396 

See Notes to Condensed Consolidated Financial Statements.
8


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
PFIZER INC. SHAREHOLDERS
Preferred StockCommon StockTreasury Stock
(MILLIONS, EXCEPT PREFERRED SHARES)
SharesStated ValueSharesPar ValueAdd’l
Paid-In Capital
SharesCostRetained EarningsAccum. Other Comp.
Loss
Share-
holders’ Equity
Non-controlling interestsTotal Equity
Balance, January 1, 2020
431 $17 9,369 $468 $87,428 (3,835)$(110,801)$97,670 $(11,640)$63,143 $303 $63,447 
Net income9,022 9,022 25 9,046 
Other comprehensive income/(loss), net of tax
(1,036)(1,036)(9)(1,045)
Cash dividends declared:
Common stock
(6,408)(6,408)(6,408)
Preferred stock
— — — 
Noncontrolling interests
— (81)(81)
Share-based payment transactions
28 748 (6)(210)539 539 
Purchases of common stock
— — — — 
Preferred stock conversions and redemptions(a)
(431)(17)(15)31 (1)(1)
Other— — — — — (1)(1)
Balance, September 27, 2020
— $— 9,397 $470 $88,161 (3,840)$(110,980)$100,284 $(12,676)$65,259 $236 $65,495 
PFIZER INC. SHAREHOLDERS
Preferred StockCommon StockTreasury Stock
(MILLIONS, EXCEPT PREFERRED SHARES)
SharesStated ValueSharesPar ValueAdd’l
Paid-In Capital
SharesCostRetained EarningsAccum. Other Comp.
Loss
Share-
holders’ Equity
Non-controlling interestsTotal 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 income16,609 16,609 19 16,628 
Other comprehensive income/(loss), net of tax
(525)(525)(11)(536)
Cash dividends declared:
Common stock
(6,068)(6,068)(6,068)
Preferred stock
(1)(1)(1)
Noncontrolling interests
— (5)(5)
Share-based payment transactions
34 848 (7)(320)530 530 
Purchases of common stock
(213)(8,865)(8,865)(8,865)
Preferred stock conversions and redemptions
(28)(1)(2)— — (3)(3)
Other— — — 19 19 (61)(42)
Balance, September 29, 2019
449 $18 9,366 $468 $87,099 (3,835)$(110,795)$100,113 $(11,801)$65,103 $293 $65,396 
(a)See Note 11.
See Notes to Condensed Consolidated Financial Statements.
9


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended
(MILLIONS OF DOLLARS)September 27,
2020
September 29,
2019
Operating Activities  
Net income before allocation to noncontrolling interests$9,046 $16,628 
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities:  
Depreciation and amortization3,731 4,626 
Asset write-offs and impairments990 224 
TCJA impact— (319)
Gain on completion of Consumer Healthcare JV transaction, net of cash conveyed(a)
(6)(8,233)
Deferred taxes from continuing operations(597)2,067 
Share-based compensation expense492 448 
Benefit plan contributions in excess of expense/income(1,643)(429)
Other adjustments, net(156)(622)
Other changes in assets and liabilities, net of acquisitions and divestitures(3,080)(5,571)
Net cash provided by operating activities8,778 8,819 
Investing Activities  
Purchases of property, plant and equipment(1,467)(1,504)
Purchases of short-term investments(9,309)(4,583)
Proceeds from redemptions/sales of short-term investments8,397 7,766 
Net (purchases of)/proceeds from redemptions/sales of short-term investments with original maturities of three months or less(10,741)8,307 
Purchases of long-term investments(284)(134)
Proceeds from redemptions/sales of long-term investments648 116 
Acquisition of business, net of cash acquired— (10,861)
Acquisitions of intangible assets(38)(364)
Other investing activities, net(a)
194 145 
Net cash used in investing activities(12,601)(1,112)
Financing Activities  
Proceeds from short-term borrowings12,352 11,582 
Principal payments on short-term borrowings(17,449)(4,088)
Net (payments on)/proceeds from short-term borrowings with original maturities of three months or less
1,628 2,604 
Proceeds from issuance of long-term debt16,700 4,942 
Principal payments on long-term debt(2,511)(5,806)
Purchases of common stock— (8,865)
Cash dividends paid(6,328)(6,051)
Proceeds from exercise of stock options206 303 
Other financing activities, net(460)(667)
Net cash provided by/(used in) financing activities4,138 (6,045)
Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents
(39)(41)
Net increase in cash and cash equivalents and restricted cash and cash equivalents277 1,620 
Cash and cash equivalents and restricted cash and cash equivalents, at beginning of period
1,350 1,225 
Cash and cash equivalents and restricted cash and cash equivalents, at end of period
$1,627 $2,846 
- continued -
See Notes to Condensed Consolidated Financial Statements.
10


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Supplemental Cash Flow Information
Non-cash transactions:
32% equity-method investment in GSK Consumer Healthcare JV in exchange for contributing Pfizer’s Consumer Healthcare business(a)
$— $15,711 
Cash paid (received) during the period for:  
Income taxes
2,445 2,636 
Interest paid
1,297 1,246 
Interest rate hedges
(45)(78)
(a)The $8.2 billion Gain on completion of Consumer Healthcare JV transaction, net of cash conveyed for the nine months ended September 29, 2019 reflects the receipt of a 32% equity-method investment in the new company valued at $15.7 billion in exchange for net assets contributed of $7.6 billion and is presented in operating activities net of $146 million cash conveyed that is reflected in Other investing activities, net. See Note 2B.
See Notes to Condensed Consolidated Financial Statements.
11


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Basis of Presentation and Significant Accounting Policies

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.

A. Basis of Presentation

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

The financial information included in our condensed consolidated financial statements for subsidiaries operating outside the U.S. is as of and for the three and nine months ended August 23, 2020 and August 25, 2019. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three and nine months ended September 27, 2020 and September 29, 2019.

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 2019 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––Biopharma, Upjohn and through July 31, 2019, Consumer Healthcare. Biopharma and Upjohn are the only reportable segments. See Note 14.
Beginning in 2020, Upjohn began managing our Meridian subsidiary, the manufacturer of EpiPen and other auto-injector products, and a pre-existing strategic collaboration between Pfizer and Mylan for generic drugs in Japan (Mylan-Japan). As a result, revenues and expenses associated with Meridian and Mylan-Japan are reported in our Upjohn business beginning in the first quarter of 2020. In 2019, revenues and expenses from Meridian and Mylan-Japan were recorded in our Biopharma business. We performed certain reclassifications between the Biopharma and Upjohn segments to conform 2019 segment revenues and expenses associated with Meridian and Mylan-Japan to the current presentation. There was no impact to our consolidated financial statements. See Note 14.
Acquisitions and other business development activities completed in 2019 and in the first nine months of 2020, including the contribution of our Consumer Healthcare business to the GSK Consumer Healthcare joint venture, impacted financial results in the periods presented. See Notes to Consolidated Financial Statements—Note 1A. Basis of Presentation and Significant Accounting Policies: Basis of Presentation in our 2019 Financial Report, and Note 2.
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.
B. Adoption of New Accounting Standards in 2020
On January 1, 2020, we adopted four new accounting standards.
Credit Losses on Financial Instruments––We adopted a new accounting standard for credit losses on financial instruments, which replaces the probable initial recognition threshold for incurred loss estimates under prior guidance with a methodology that reflects expected credit loss estimates. The standard generally impacts financial assets that have a contractual right to receive cash and are not accounted for at fair value through net income, such as accounts receivable and held-to-maturity debt securities. The new guidance requires us to identify, analyze, document and support new methodologies for quantifying expected credit loss estimates for certain financial instruments, using information such as historical experience, current economic conditions and information, and the use of reasonable and supportable forecasted information. The standard also amends existing impairment guidance for available-for-sale debt securities to incorporate a credit loss allowance and allows for reversals of credit impairments in the event the issuer’s credit improves.
We adopted the new accounting standard utilizing the modified retrospective method and, therefore, no adjustments were made to amounts in our prior period financial statements. The cumulative effect of adopting the standard as an adjustment to the
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
opening balance of Retained earnings was not material. The impact of adoption did not have a material impact on our condensed consolidated statements of income for the three and nine months ended September 27, 2020 or condensed consolidated statement of cash flows for the nine months ended September 27, 2020, nor on our condensed consolidated balance sheet as of September 27, 2020. See Note 1C.
Goodwill Impairment Testing––We prospectively adopted the new standard, which eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Under the new guidance, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value. There was no impact to our condensed consolidated financial statements from the adoption of this new standard.
Implementation Costs in a Cloud Computing Arrangement––We prospectively adopted the new standard related to customers’ accounting for implementation costs incurred in a cloud computing arrangement that is considered a service contract. The new guidance aligns the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
Collaboration Agreements––We prospectively adopted the new standard, which provides new guidance clarifying the interaction between the accounting for collaborative arrangements and revenue from contracts with customers. There was no impact to our condensed consolidated financial statements from the adoption of this new standard.
On January 1, 2019, we adopted four 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 2019 included in our 2019 Financial Report.

C. Revenues and Trade Accounts Receivable
Deductions from Revenues––Our accruals for Medicare rebates, Medicaid and related state program rebates, performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts are as follows:
(MILLIONS OF DOLLARS)September 27, 2020December 31, 2019
Reserve against Trade accounts receivable, less allowance for doubtful accounts
$1,126 $1,257 
Other current liabilities:
Accrued rebates3,270 3,285 
Other accruals573 581 
Other noncurrent liabilities
622 565 
Total accrued rebates and other accruals$5,591 $5,689 
Trade Accounts Receivable––Trade accounts receivable are stated at their net realizable value. The allowance for credit losses against gross trade accounts receivable reflects the best estimate of expected credit losses of the receivables portfolio determined on the basis of historical experience, current information, and forecasts of future economic conditions. In developing the estimate for expected credit losses, trade accounts receivables are segmented into pools of assets depending on market (U.S. versus international), delinquency status, and customer type (high risk versus low risk and government versus non-government), and fixed reserve percentages are established for each pool of trade accounts receivables.
In determining the reserve percentages for each pool of trade accounts receivables, we considered our historical experience with certain customers and customer types, regulatory and legal environments, country and political risk, and other relevant current and future forecasted macroeconomic factors. These credit risk indicators are monitored on a quarterly basis to determine whether there have been any changes in the economic environment that would indicate the established reserve percentages should be adjusted, and are considered on a regional basis to reflect more geographic-specific metrics. Additionally, write-offs and recoveries of customer receivables are tracked against collections on a quarterly basis to determine whether the reserve percentages remain appropriate. When management becomes aware of certain customer-specific factors that impact credit risk, specific allowances for these known troubled accounts are recorded. Trade accounts receivable are written off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted.
During the three and nine months ended September 27, 2020, additions to the allowance for credit losses, write-offs and recoveries of customer receivables were not material to our condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 2. Acquisition, Equity-Method Investment and Licensing Arrangements
A. Acquisition
Array
On July 30, 2019, we acquired Array, a commercial stage biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule medicines to treat cancer and other diseases of high unmet need, for $48 per share in cash. The total fair value of the consideration transferred was $11.2 billion ($10.9 billion, net of cash acquired). Array’s portfolio includes Braftovi (encorafenib) and Mektovi (binimetinib), a broad pipeline of targeted cancer medicines in different stages of R&D, as well as a portfolio of outlicensed medicines, which may generate milestones and royalties over time. The final allocation of the consideration transferred to the assets acquired and the liabilities assumed has now been completed. In connection with this acquisition, we recorded: (i) $6.3 billion in Identifiable intangible assets, consisting of $2.0 billion of Developed technology rights with a useful life of 16 years, $2.8 billion of IPR&D and $1.5 billion for Licensing agreements ($1.2 billion for technology in development––indefinite-lived licensing agreements and $360 million for developed technology––finite-lived licensing agreements with a useful life of 10 years), (ii) $6.1 billion of Goodwill, (iii) $1.1 billion of net deferred tax liabilities and (iv) $451 million of assumed long-term debt, which was paid in full in the third quarter of 2019.
In 2020, we recorded measurement period adjustments to the estimated fair values initially recorded in 2019, which resulted in a reduction in Identifiable intangible assets of approximately $900 million with a corresponding change to Goodwill and net deferred tax liabilities. The measurement period adjustments were recorded to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date and did not have a material impact on our condensed consolidated statement of income for the three and nine months ended September 27, 2020.
B. Equity-Method Investment
Formation of GSK Consumer Healthcare Joint Venture

On July 31, 2019, we completed the transaction in which we and GSK combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name. In exchange for contributing our Consumer Healthcare business to the joint venture, we received a 32% equity stake in the new company and GSK owns the remaining 68%. Upon the closing of the transaction, we deconsolidated our Consumer Healthcare business and recognized a pre-tax gain of $8.1 billion ($5.4 billion, net of tax) in our fiscal third quarter of 2019 in (Gain) on completion of Consumer Healthcare JV transaction for the difference in the fair value of our 32% equity stake in the new company and the carrying value of our Consumer Healthcare business. We may record additional adjustments to the gain in future periods, which we do not expect to have a material impact on our consolidated financial statements. Our financial results, and our Consumer Healthcare segment’s operating results, for the third quarter of 2019 reflect one month of Consumer Healthcare segment domestic operations and two months of Consumer Healthcare segment international operations. Likewise, our financial results, and our Consumer Healthcare segment’s operating results, for the first nine months of 2019 reflect seven months of Consumer Healthcare segment domestic operations and eight months of Consumer Healthcare segment international operations. The financial results for the third quarter and first nine months of 2020 do not reflect any contribution from the Consumer Healthcare business.
We are accounting for our interest in GSK Consumer Healthcare as an equity-method investment. The carrying value of our investment in GSK Consumer Healthcare is approximately $15.8 billion as of September 27, 2020 and $17.0 billion as of December 31, 2019 and is reported as a private equity investment in the Equity-method investments line in our condensed consolidated balance sheet. GSK Consumer Healthcare is a foreign investee whose reporting currency is the U.K. pound, and therefore we translate its financial statements into U.S. dollars and recognize the impact of foreign currency translation adjustments in the carrying value of our investment and in Other comprehensive income. The decrease in the value of our investment from December 31, 2019 to September 27, 2020 is primarily due to approximately $617 million in pre-tax foreign currency translation adjustments (see Note 6), as well as dividends totaling approximately $825 million, which were received from the GSK Consumer Healthcare joint venture in June and September 2020, partially offset by our share of the joint venture’s earnings during that period of $306 million. We record our share of earnings from the GSK Consumer Healthcare joint venture on a quarterly basis on a one-quarter lag in Other (income)/deductions––net commencing from August 1, 2019. Therefore, we recorded our share of the joint venture’s earnings generated in the second quarter of 2020, which totaled approximately $166 million, in our operating results in the third quarter of 2020. Our total share of the joint venture’s earnings generated in the fourth quarter of 2019 and the first six months of 2020, which we recorded in our operating results for the first nine months of 2020, was approximately $306 million. See Note 4. As of the July 31, 2019 closing date, we estimated that the fair value of our investment in GSK Consumer Healthcare was approximately $15.7 billion and that 32% of the underlying equity in the carrying value of the net assets of GSK Consumer Healthcare was approximately $11.2 billion,
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
resulting in an initial basis difference of approximately $4.5 billion. In the fourth quarter of 2019, we preliminarily completed the allocation of the basis difference, which resulted from the excess of the initial fair value of our investment over the underlying equity in the carrying value of the net assets of the joint venture, primarily to inventory, definite-lived intangible assets, indefinite-lived intangible assets, related deferred tax liabilities and equity method goodwill within the investment account. During the fourth quarter of 2019, GSK Consumer Healthcare revised the initial carrying value of the net assets of the joint venture and our 32% share of the underlying equity in the carrying value of the net assets of GSK Consumer Healthcare was reduced to approximately $11.0 billion and our initial basis difference was increased to approximately $4.8 billion. The adjustment was allocated to equity method goodwill within the investment account. We began recording the amortization of basis differences allocated to inventory, definite-lived intangible assets and related deferred tax liabilities in Other (income)/deductions—net commencing August 1, 2019. During the third quarter of 2020, we recognized a write-off of a portion of our basis differences allocated to indefinite-lived and definite-lived intangible assets and related deferred tax liabilities associated with the divestiture of certain brands by GSK Consumer Healthcare during its second quarter of 2020. The amortization and write-off of these basis differences for the second quarter of 2020 totaling approximately $62 million of expense is included in our operating results in Other (income)/deductions––net in the third quarter of 2020. The total amortization and write-off of these basis differences for the fourth quarter of 2019 and the first six months of 2020, which was included in our operating results in Other (income)/deductions—net in the first nine months of 2020, was approximately $110 million of expense. See Note 4. Amortization of basis differences on inventory and related deferred tax liabilities was completely recognized by the second quarter of 2020. Basis differences on definite-lived intangible assets and related deferred tax liabilities are being amortized over the lives of the underlying assets, which range from 8 to 20 years.

As a part of Pfizer, pre-tax income on a management business unit basis for the Consumer Healthcare business was $100 million for the third quarter of 2019 and $654 million for the nine months ended September 29, 2019.
Summarized financial information for our equity method investee, GSK Consumer Healthcare, as of and for the three and nine months ending June 30, 2020, the most recent period available, is as follows:
(MILLIONS OF DOLLARS)June 30,
2020
Current assets$7,136 
Noncurrent assets37,108 
Total assets
$44,244 
Current liabilities$4,992 
Noncurrent liabilities5,195 
Total liabilities
$10,187 
Equity attributable to shareholders$33,919 
Equity attributable to noncontrolling interests138 
Total net equity$34,057 
(MILLIONS OF DOLLARS)Three Months Ended June 30, 2020Nine Months Ended
June 30, 2020
Net sales$2,927 $9,618 
Cost of sales(1,061)(4,266)
Gross profit$1,866 $5,352 
Income from continuing operations524 995 
Net income524 995 
Income attributable to shareholders518 959 

C. Licensing Arrangements
Agreement with Valneva SE
On April 30, 2020, we signed an agreement to co-develop and commercialize Valneva’s Lyme disease vaccine candidate VLA15. VLA15 is the only active Lyme disease vaccine program in clinical development today, and covers six serotypes that are prevalent in North America and Europe. Valneva and Pfizer will work closely together throughout the development of VLA15. Valneva is eligible to receive a total of $308 million in cash payments consisting of a $130 million upfront payment, which was paid and recorded in Research and development expenses in our fiscal second quarter of 2020, as well as $35 million in development milestones and $143 million in early commercialization milestones. Under the terms of the agreement, Valneva will fund 30% of all development costs through completion of the development program, and in return we will pay Valneva tiered royalties. We will lead late-stage development and have sole control over commercialization.
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PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Agreement with BioNTech
On April 9, 2020, we signed a global agreement with BioNTech to co-develop a potential first-in-class, mRNA-based coronavirus vaccine program, BNT162, aimed at preventing COVID-19 infection. The collaboration aims to rapidly advance multiple COVID-19 vaccine candidates into human clinical testing based on BioNTech’s proprietary mRNA vaccine platforms, with the objective of ensuring rapid worldwide access to the vaccine, if approved. The collaboration leverages our broad expertise in vaccine R&D, regulatory capabilities, and global manufacturing and distribution network. In connection with the agreement, we paid BioNTech an upfront cash payment of $72 million, which was recorded in Research and development expenses in our fiscal second quarter of 2020, and we made an equity investment of $113 million in common stock of BioNTech. BioNTech is eligible to receive potential future milestone payments of up to $563 million for a total consideration of $748 million. While Pfizer and BioNTech will share development costs equally if the vaccine is approved and successfully commercialized, Pfizer will be responsible for all of the development costs until commercialization of the vaccine. Thereafter, BioNTech would repay Pfizer its 50 percent share of these development costs through reductions in gross profit sharing and milestone payments to BioNTech over time. BioNTech and Pfizer will also work jointly to commercialize the vaccine worldwide (excluding China, Hong Kong, Macau and Taiwan, which are subject to a separate collaboration between BioNTech and Shanghai Fosun Pharmaceutical (Group) Co., Ltd) if development is successful and regulatory approval is obtained. We made an additional investment of $50 million in common stock of BioNTech as part of an underwritten equity offering by BioNTech, which closed in July 2020.
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 our corporate enabling functions (such as digital, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement).
Transforming to a More Focused Company Program
With the formation of the GSK Consumer Healthcare joint venture and the anticipated combination of Upjohn, our global, primarily off-patent branded and generics business, with Mylan, Pfizer is transforming into a more focused, global leader in science-based innovative medicines. Accordingly, in the fourth quarter of 2019, we began to identify and undertake efforts to ensure our cost base aligns appropriately with our Biopharmaceutical revenue base as a result of both the completed GSK Consumer Healthcare and expected Upjohn transactions. While certain direct costs have transferred or will transfer to the GSK Consumer Healthcare joint venture and to the Upjohn entities, there are indirect costs which are not expected to transfer. In addition, we are taking steps to restructure our organizations to appropriately support and drive the purpose of the three core functions of our focused innovative medicines business: R&D, Manufacturing and Commercial.
We expect corporate enabling function costs associated with this multi-year program to be incurred from 2020 through 2022 and to total approximately $1.2 billion on a pre-tax basis, with substantially all costs to be cash expenditures. Actions may include, among others, changes in location of certain activities, expanded use and co-location of centers of excellence and shared services, and increased use of digital technologies. The associated actions and the specific costs will primarily include severance and benefit plan impacts, exit costs as well as associated implementation costs.
Also as part of this program, we expect to incur costs related to manufacturing network optimization, including certain legacy cost-reduction initiatives, of approximately $500 million, with approximately 20% of the costs to be non-cash. The costs associated with this effort are expected to be incurred primarily from 2020 through 2022, and will include, among other things, implementation costs, product transfer costs, site exit costs, as well as accelerated depreciation.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
From the start of this program in the fourth quarter of 2019 through September 27, 2020, we incurred approximately $600 million associated with this program.
Current-Period Key Activities
For the first nine months of 2020, we incurred costs of $621 million composed primarily of the Transforming to a More Focused Company program. For the first nine months of 2019, we incurred costs of $452 million composed of $300 million associated with the 2017-2019 and Organizing for Growth initiatives, $272 million associated with the integration of Array, and $74 million associated with the integration of Hospira, partially offset by income of $194 million, primarily due to the reversal of certain accruals upon the effective favorable settlement of an IRS audit for multiple tax years and other acquisition-related initiatives.
The following summarizes acquisitions and cost-reduction/productivity initiatives costs and credits:
 Three Months EndedNine Months Ended
(MILLIONS OF DOLLARS)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Restructuring charges/(credits):    
Employee terminations
$(15)$82 $357 $(86)
Asset impairments
22 45 
Exit costs/(credits)(11)(1)(9)33 
Restructuring charges/(credits)(a)
(4)83 392 (50)
Transaction costs(b)
— 65 14 65 
Integration costs and other(c)
217 29 281 
Restructuring charges and certain acquisition-related costs
365 435 295 
Net periodic benefit costs recorded in Other (income)/deductions––net
— 29 19 
Additional depreciation––asset restructuring recorded in our condensed consolidated statements of income as follows(d):
    
Cost of sales
14 21 
Selling, informational and administrative expenses
— — — 
Research and development expenses
— — (3)
Total additional depreciation––asset restructuring
10 29 
Implementation costs recorded in our condensed consolidated statements of income as follows(e):
    
Cost of sales
11 14 32 45 
Selling, informational and administrative expenses
36 23 114 48 
Research and development expenses
16 
Total implementation costs
48 40 148 109 
Total costs associated with acquisitions and cost-reduction/productivity initiatives
$56 $420 $621 $452 
(a)In the first nine months of 2020, restructuring charges mainly represent employee termination costs associated with our Transforming to a More Focused Company cost-reduction program. In the third quarter of 2019, restructuring charges mainly represented employee termination costs associated with cost-reduction and productivity initiatives as well as our acquisition of Array. In the first nine months of 2019, restructuring credits mostly represented the reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of an IRS audit for multiple tax years, partially offset by employee termination costs associated with cost-reduction and productivity initiatives, as well as our acquisition of Array. See Notes to Consolidated Financial Statements––Note 5D. Tax Matters: Tax Contingencies in our 2019 Financial Report.
The restructuring activities for 2020 are associated with the following:
For the third quarter of 2020, Biopharma ($6 million charge); Upjohn ($3 million credit); and Other ($7 million credit).
For the first nine months of 2020, Biopharma ($3 million credit); Upjohn ($10 million charge); and Other ($386 million charge).
The restructuring activities for 2019 are associated with the following:
For the third quarter of 2019, Biopharma ($10 million charge); Upjohn ($6 million credit); and Other ($79 million charge).
For the first nine months of 2019, Biopharma ($38 million credit); Upjohn ($27 million credit); and Other ($15 million charge). Restructuring costs identified as Other are for restructuring activities associated with corporate enabling functions, WRDM, GPD and other manufacturing and commercial operations, as applicable. For the first nine months of 2020, restructuring costs identified as Other primarily relate to corporate enabling functions.
(b)Transaction costs represent external costs for banking, legal, accounting and other similar services.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(c)Integration costs and other represent external, incremental costs directly related to integrating acquired businesses, such as expenditures for consulting and the integration of systems and processes, and certain other qualifying costs. In the third quarter and first nine months of 2020, integration costs and other were mostly related to our acquisition of Array. In the third quarter and first nine months of 2019, integration costs and other primarily included $157 million in payments to Array employees for the fair value of previously unvested stock options that was recognized as post-closing compensation expense. See Notes to Consolidated Financial Statements––Note 2A. Acquisitions, Divestitures, Equity-Method Investments and Assets and Liabilities Held for Sale, Licensing Arrangements and Research and Development and Collaborative Arrangements: Acquisitions in our 2019 Financial Report.
(d)Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions.
(e)Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives.
The following summarizes the components and changes in restructuring accruals:
(MILLIONS OF DOLLARS)Employee
Termination
Costs
Asset
Impairment
Charges
Exit CostsAccrual
Balance, December 31, 2019(a)
$887 $— $46 $933 
Provision357 45 (9)392 
Utilization and other(b)
(411)(45)(23)(479)
Balance, September 27, 2020(c)
$832 $— $14 $847 
(a)Included in Other current liabilities ($714 million) and Other noncurrent liabilities ($219 million).
(b)Includes adjustments for foreign currency translation.
(c)Included in Other current liabilities ($607 million) and Other noncurrent liabilities ($240 million).
Note 4. Other (Income)/Deductions—Net
Components of Other (income)/deductions––net include:
 Three Months EndedNine Months Ended
(MILLIONS OF DOLLARS)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Interest income(a)
$(17)$(60)$(70)$(185)
Interest expense(a)
416 409 1,178 1,158 
Net interest expense
399 348 1,108 973 
Royalty-related income(214)(155)(525)(475)
Net gains on asset disposals(2)(32)— (33)
Net (gains)/losses recognized during the period on equity securities(b)
70 (6)(408)(153)
Income from collaborations, out-licensing arrangements and sales of compound/product rights(c)
(30)(20)(245)(124)
Net periodic benefit costs/(credits) other than service costs(d)
54 (19)(122)(110)
Certain legal matters, net
38 64 64 84 
Certain asset impairments(e)
900 28 900 188 
Business and legal entity alignment costs(f)
— 87 — 343 
Net losses on early retirement of debt— — — 138 
GSK Consumer Healthcare JV equity method (income)/loss(g)
(103)— (196)— 
Other, net(h)
38 24 (69)(294)
Other (income)/deductions––net$1,148 $319 $507 $537 
(a)Interest income decreased in the third quarter and first nine months of 2020, primarily driven by a lower investment balance and lower short-term rates. Interest expense remained relatively flat in the third quarter and first nine months of 2020, mainly as a result of the issuance of new debt related to the planned combination of Mylan and Upjohn, offset by lower rates on commercial paper. See Note 7D.
(b)The losses in the third quarter of 2020 include, among other things, unrealized losses of $131 million related to our investment in Allogene. The gains in the first nine months of 2020 include, among other things, unrealized gains of $243 million related to our investment in Allogene and unrealized gains of $154 million related to our investment in BioNTech. The gains in the first nine months of 2019 included, among other things, unrealized gains of $115 million related to our investments in Cortexyme, Inc. and SpringWorks Therapeutics, Inc. For additional information on investments, 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. The first nine months of 2020 mainly includes, among other things, (i) an upfront payment to us of $75 million from our sale of our CK1 assets to Biogen, Inc., (ii) $40 million of milestone income from Puma Biotechnology, Inc. related to Neratinib regulatory approvals in the EU and (iii) $30 million of milestone income from Lilly related to the first commercial sale in the U.S. of LOXO-292 for the treatment of RET fusion-positive NSCLC. The first nine months of 2019 primarily included, among other things, $70 million in milestone income from Mylan Pharmaceuticals Inc. related to the FDA’s approval and launch of Wixela Inhub®, a generic of Advair Diskus®.
(d)See Note 10.
(e)The third quarter and first nine months of 2020 include intangible asset impairment charges of $900 million related to Biopharma IPR&D assets for unapproved indications of certain cancer medicines, acquired in connection with our Array acquisition, and reflect, among other things, updated commercial forecasts. The first nine months of 2019 included intangible asset impairment charges of: (i) $90 million related to WRDM IPR&D, for a pre-clinical stage asset from our acquisition of Bamboo for gene therapies for the potential treatment of patients with certain rare diseases, which was the result of a
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PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
determination to not use certain Bamboo IPR&D acquired in future rare disease development, (ii) $40 million related to an Upjohn finite-lived developed technology right, acquired in connection with our acquisition of King, for government defense products and reflected, among other things, updated commercial forecasts including manufacturing cost assumptions, and (iii) $10 million related to a Biopharma finite-lived developed technology right, acquired in connection with our acquisition of Anacor, for the treatment for toenail fungus marketed in the U.S. market only, and reflected, among other things, updated commercial forecasts. The first nine months of 2019 also included other asset impairments of $48 million.
(f)In the third quarter and first nine months of 2019, represents incremental costs associated with the design, planning and implementation of our new organizational structure, effective in the beginning of 2019, and primarily includes consulting, legal, tax and advisory services.
(g)The income for the third quarter and first nine months of 2020 represents our pro-rata share of earnings from the GSK Consumer Healthcare joint venture, partially offset by equity method basis difference write-offs and amortization. See Note 2B.
(h)The third quarter of 2020 includes, among other things, charges of $144 million related to the remeasurement of Euro debt issued by Upjohn Finance B.V. in the second quarter of 2020 (see Note 7D) and dividend income of $44 million from our investment in ViiV. The first nine months of 2020 includes, among other things, dividend income of $196 million from our investment in ViiV and charges of $110 million, reflecting the change in the fair value of contingent consideration. The third quarter of 2019 included, among other things, dividend income of $43 million from our investment in ViiV and charges of $121 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity, associated with the formation of the GSK Consumer Healthcare joint venture. The first nine months of 2019 included, among other things, (i) dividend income of $184 million from our investment in ViiV, (ii) charges of $146 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity, associated with the formation of the GSK Consumer Healthcare joint venture, and (iii) $50 million of income from insurance recoveries related to Hurricane Maria.
Additional information about the intangible assets that were impaired during 2020 in Other (income)/deductions follows:
Fair Value(a)
Nine Months Ended September 27, 2020
(MILLIONS OF DOLLARS)AmountLevel 1Level 2Level 3Impairment
Intangible assets––IPR&D(b)
$1,100 $— $— $1,100 $900 
(a)The fair value amount is presented as of the date of impairment, as these assets are not measured at fair value on a recurring basis.
(b)Reflects intangible assets written down to fair value in the first nine months of 2020. 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 (1.2)% for the third quarter of 2020, compared to 28.4% for the third quarter of 2019 and was 9.7% for the first nine months of 2020, compared to 13.4% for the first nine months of 2019.
The lower effective tax rate for the third quarter of 2020 in comparison with the same period in 2019 was primarily due to:
the non-recurrence of the tax expense of $2.7 billion recorded in the third quarter of 2019 associated with the gain related to the completion of the GSK Consumer Healthcare joint venture transaction;
tax benefits associated with intangible asset impairment charges of $900 million related to Biopharma IPR&D acquired in connection with our Array acquisition; and
the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business.
The lower effective tax rate for the first nine months of 2020 in comparison with the same period in 2019 was primarily due to the aforementioned factors above, partially offset by:
the non-recurrence of the $1.4 billion tax benefits, representing taxes and interest, recorded in the first nine months of 2019 due to the favorable settlement of an IRS audit for multiple tax years (see Notes to Consolidated Financial Statements––Note 5D. Tax Matters: Tax Contingencies in our 2019 Financial Report); and
the non-recurrence of the tax benefit recorded in the first nine months of 2019 as a result of additional guidance issued by the U.S. Department of Treasury related to the TCJA.
We have elected, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, to pay our initial estimated $15 billion repatriation tax liability on accumulated post-1986 foreign earnings over eight years through 2026. The third annual installment of this liability, which is due to be paid in April 2021, is reported in current Income taxes payable, and the remaining liability is reported in noncurrent Other taxes payable in our condensed consolidated balance sheet as of September 27, 2020. Our obligations may vary as a result of changes in our uncertain tax positions and/or availability of attributes such as foreign tax and other credit carryforwards.
19


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. As of September 27, 2020, neither the CARES Act nor changes to income tax laws or regulations in other jurisdictions had a significant impact on our effective tax rate.
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 2011-2013. We are not in agreement with the RAR and are currently appealing certain disputed issues. Tax years 2014-2015 are currently under audit. Tax years 2016-2020 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 (2013-2020), Japan (2017-2020), Europe (2011-2020, primarily reflecting Ireland, the U.K., France, Italy, Spain and Germany), Latin America (1998-2020, primarily reflecting Brazil) and Puerto Rico (2016-2020).
C. Tax Provision/(Benefit) on Other Comprehensive Income/(Loss)
Components of Tax provision/(benefit) on other comprehensive income/(loss) include:
Three Months EndedNine Months Ended
(MILLIONS OF DOLLARS)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Foreign currency translation adjustments, net(a)
$47 $86 $(144)$96 
Unrealized holding gains/(losses) on derivative financial instruments, net(43)31 (126)37 
Reclassification adjustments for (gains)/losses included in net income(3)(13)(62)
(37)28 (139)(24)
Unrealized holding gains/(losses) on available-for-sale securities, net30 29 
Reclassification adjustments for (gains)/losses included in net income(11)(1)(3)
19 26 10 
Benefit plans: actuarial gains/(losses), net(288)(41)(308)(42)
Reclassification adjustments related to amortization15 23 46 41 
Reclassification adjustments related to settlements, net
40 52 10 
Other(48)(1)(28)
(281)(10)(238)12 
Reclassification adjustments related to amortization of prior service costs and other, net
(11)(11)(32)(33)
Reclassification adjustments related to curtailments of prior service costs and other, net
— (11)— (11)
Other(1)
(11)(21)(31)(43)
Tax provision/(benefit) on other comprehensive income/(loss)$(262)$84 $(527)$50 
(a)Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.
20


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests
The following summarizes 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 InstrumentsAvailable-For-Sale SecuritiesActuarial Gains/(Losses)Prior Service (Costs)/Credits and OtherAccumulated Other Comprehensive Income/(Loss)
Balance, December 31, 2019$(5,952)$20 $(35)$(6,257)$584 $(11,640)
Other comprehensive income/(loss)(a)
249 (546)179 (817)(102)(1,036)
Balance, September 27, 2020$(5,703)$(526)$144 $(7,074)$482 $(12,676)
(a)Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $9 million loss for the first nine months of 2020. Foreign currency translation adjustments primarily include gains from the strengthening of certain major currencies against the U.S. dollar, partially offset by net after-tax losses related to foreign currency translation adjustments and the impact of our net investment hedging program, both attributable to our equity method investment in GSK Consumer Healthcare joint venture (see Note 2B). The actuarial gains/(losses) activity mainly reflects interim U.S. Pfizer Consolidated Pension remeasurements, which resulted in an increase of $1.2 billion in the pension plan liability, primarily due to a reduction in the discount rate since December 31, 2019.
21


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 using a Market Approach on a Recurring Basis and Fair Value Hierarchy:
September 27, 2020December 31, 2019
(MILLIONS OF DOLLARS)TotalLevel 1Level 2TotalLevel 1Level 2
Financial assets:
Short-term investments
Classified as equity securities with readily determinable fair values:
Money market funds(a)
$12,273 $— $12,273 $705 $— $705 
Classified as available-for-sale debt securities:
Government and agency—non-U.S.
5,906 — 5,906 4,863 — 4,863 
Government and agency—U.S.
582 — 582 811 — 811 
Corporate and other
1,371 — 1,371 1,013 — 1,013 
7,859 — 7,859 6,687 — 6,687 
Total short-term investments20,132 — 20,132 7,392 — 7,392 
Other current assets
Derivative assets:
Interest rate contracts
16 — 16 53 — 53 
Foreign exchange contracts
321 — 321 413 — 413 
Total other current assets337 — 337 465 — 465 
Long-term investments
Classified as equity securities with readily determinable fair values(b)
2,092 2,063 28 1,902 1,863 39 
Classified as available-for-sale debt securities:
Government and agency—U.S.
142 — 142 303 — 303 
Corporate and other
— 11 — 11 
149 — 149 315 — 315 
Total long-term investments2,241 2,063 178 2,216 1,863 354 
Other noncurrent assets
Derivative assets:
Interest rate contracts
131 — 131 266 — 266 
Foreign exchange contracts
100 — 100 261 — 261 
Total derivative assets231 — 231 526 — 526 
Insurance contracts(c)
626 — 626 575 — 575 
Total other noncurrent assets857 — 857 1,102 — 1,102 
Total assets$23,567 $2,063 $21,504 $11,176 $1,863 $9,313 
Financial liabilities:
Other current liabilities
Derivative liabilities:
Foreign exchange contracts
$464 $— $464 $114 $— $114 
Total other current liabilities464 — 464 114 — 114 
Other noncurrent liabilities
Derivative liabilities:
Foreign exchange contracts
808 — 808 604 — 604 
Total other noncurrent liabilities808 — 808 604 — 604 
Total liabilities$1,272 $— $1,272 $718 $— $718 
(a)As of September 27, 2020, $11.4 billion of proceeds from the Upjohn debt transactions (see Note 7D) are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet.
(b)As of September 27, 2020, long-term equity securities of $181 million and as of December 31, 2019, long-term equity securities of $176 million were held in restricted trusts for employee benefit plans.
(c)Includes life insurance policies held in restricted trusts attributable to the funding of various U.S. non-qualified employee benefit plans. The underlying invested assets in these insurance contracts are marketable securities, which are carried at fair value, with changes in fair value recognized in Other (income)/deductions—net in the condensed consolidated statements of income (see Note 4).
22


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 summarizes the financial liabilities not measured at fair value on a recurring basis, including the carrying values and estimated fair values using a market approach:
September 27, 2020December 31, 2019
Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
(MILLIONS OF DOLLARS)TotalLevel 2TotalLevel 2
Financial Liabilities
Long-term debt, excluding the current portion(a)
$49,785 $59,073 $59,073 $35,955 $40,842 $40,842 
(a)As of September 27, 2020, $11.4 billion of proceeds from the Upjohn debt transactions (see Note 7D) are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet.
The differences between the estimated fair values and carrying values of held-to-maturity debt securities, private equity securities, and short-term borrowings not measured at fair value on a recurring basis were not significant as of September 27, 2020 and December 31, 2019. 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 September 27, 2020 and December 31, 2019, we had long-term receivables whose fair value is based on Level 3 inputs; the differences between the estimated fair values and carrying values of these receivables were not significant.
Total Short-Term and Long-Term Investments and Equity-Method Investments
The following summarizes our investments by classification type:
(MILLIONS OF DOLLARS)September 27, 2020December 31, 2019
Short-term investments
Equity securities with readily determinable fair values(a)
$12,273 $705 
Available-for-sale debt securities7,859 6,687 
Held-to-maturity debt securities193 1,133 
Total Short-term investments$20,325 $8,525 
Long-term investments
Equity securities with readily determinable fair values$2,092 $1,902 
Available-for-sale debt securities149 315 
Held-to-maturity debt securities37 42 
Private equity securities at cost780 756 
Total Long-term investments$3,059 $3,014 
Equity-method investments15,949 17,133 
Total long-term investments and equity-method investments$19,008 $20,147 
Held-to-maturity cash equivalents$130 $163 
(a)As of September 27, 2020 and December 31, 2019, included money market funds primarily invested in U.S. Treasury and government debt. As of September 27, 2020, $11.4 billion of proceeds from the Upjohn debt transactions (see Note 7D) are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet.
23


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
B. Investments
Debt Securities
At September 27, 2020, our investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt securities at September 27, 2020 and December 31, 2019 is as follows, including the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities as of September 27, 2020:
September 27, 2020December 31, 2019
Gross UnrealizedMaturities (in Years)Gross Unrealized
(MILLIONS OF DOLLARS)Amortized CostGainsLossesFair ValueWithin 1Over 1
to 5
Over 5TotalAmortized CostGainsLossesFair Value
Available-for-sale debt securities
Government and agency––non-U.S.
$5,743 $164 $(1)$5,906 $5,906 $— $— $5,906 $4,895 $$(38)$4,863 
Government and agency––U.S.
726 — (1)725 582 142 — 725 1,120 — (6)1,114 
Corporate and other(a)
1,379 (5)1,378 1,371 — 1,378 1,027 — (2)1,025 
Held-to-maturity debt securities
Time deposits and other
290 — — 290 258 10 23 290 535 — — 535 
Government and agency––non-U.S.
70 — — 70 65 — 70 803 — — 803 
Total debt securities$8,208 $168 $(7)$8,369 $8,182 $159 $28 $8,369 $8,380 $$(47)$8,340 
(a)Primarily issued by a diverse group of corporations.
For our portfolio of available-for-sale and held-to-maturity debt securities, any expected credit losses would be immaterial to the financial statements.
Equity Securities
The following presents the calculation of the portion of unrealized (gains)/losses that relates to equity securities, excluding equity method investments, still held at the reporting date:
Three Months EndedNine Months Ended
(MILLIONS OF DOLLARS)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Net (gains)/losses recognized during the period on equity securities(a)
$70 $(6)$(408)$(153)
Less: Net (gains)/losses recognized during the period on equity securities sold during the period(3)(16)(13)
Net unrealized (gains)/losses during the reporting period on equity securities still held at the reporting date(b)
$68 $(3)$(391)$(140)
(a)Reported in Other (income)/deductions––net. See Note 4.
(b)Included in net unrealized gains are observable price changes on equity securities without readily determinable fair values. Since January 1, 2018, there were cumulative impairments and downward adjustments of $82 million and upward adjustments of $63 million. Impairments, downward and upward adjustments were not significant in the third quarters and the first nine months of 2020 and 2019.
C. Short-Term Borrowings
Short-term borrowings include:
(MILLIONS OF DOLLARS)September 27,
2020
December 31, 2019
Commercial paper$10,990 $13,915 
Current portion of long-term debt, principal amount2,152 1,458 
Other short-term borrowings, principal amount(a)
226 860 
Total short-term borrowings, principal amount
13,367 16,233 
Net fair value adjustments related to hedging and purchase accounting— 
Net unamortized discounts, premiums and debt issuance costs(4)(43)
Total Short-term borrowings, including current portion of long-term debt, carried at historical proceeds, as adjusted
$13,363 $16,195 
(a)Other short-term borrowings primarily include cash collateral. See Note 7E.
24


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
D. Long-Term Debt
New Issuances
In the second quarter of 2020, we issued the following senior unsecured notes:
(MILLIONS OF DOLLARS)
Principal
Interest RateMaturity DateAs of
September 27, 2020
Pfizer Inc.(a)
0.800%May 28, 2025$750 
1.700%May 28, 20301,000 
2.550%May 28, 20401,000 
2.700%May 28, 20501,250 
$4,000 
Upjohn Inc., a wholly-owned subsidiary of Pfizer Inc.(b)
1.125%June 22, 2022$1,000 
1.650%June 22, 2025750 
2.300%June 22, 2027750 
2.700%June 22, 20301,450 
3.850%June 22, 20401,500 
4.000%June 22, 20502,000 
$7,450 
Upjohn Finance B.V., a wholly-owned subsidiary of Upjohn Inc.(b)
0.816%June 23, 2022750 
1.023%June 23, 2024750 
1.362%June 23, 2027850 
1.908%June 23, 20321,250 
3,600 
(a)The notes may be redeemed by us at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest. The weighted-average effective interest rate for the notes at issuance was 2.11%.
(b)In June 2020, Upjohn Inc. and Upjohn Finance B.V. completed privately placed debt offerings in connection with the previously announced proposed Reverse Morris Trust transaction that will ultimately combine Upjohn and Mylan to form a new company, Viatris. The notes may be redeemed by Upjohn Inc. and Upjohn Finance B.V., as applicable, at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest. The weighted-average effective interest rates at issuance were 2.95% for the $7.45 billion notes and 1.37% for the €3.60 billion notes. If the proposed transaction with Mylan does not close on or prior to February 1, 2021, or if, prior to such date, Upjohn Inc. and Mylan notify the trustee that the business combination agreement for the proposed transaction with Mylan is terminated, or the transaction will not otherwise be pursued, the notes must be redeemed at redemption prices equal to 101% of their respective principal amounts, plus accrued and unpaid interest. Pfizer has guaranteed these notes, and such guarantees will automatically and unconditionally terminate without the consent of holders of the notes upon the proposed distribution to Pfizer’s stockholders of all of the issued and outstanding shares of Upjohn Inc.’s common stock held by Pfizer (the Distribution). Upjohn Inc. has guaranteed the notes issued by Upjohn Finance B.V., and Upjohn Inc. will remain a guarantor of such notes post Distribution. Following the separation, Upjohn Inc. and Upjohn Finance B.V., as applicable, will remain the obligor. The proceeds from the financings will be used in part to fund a cash distribution from Upjohn Inc. to Pfizer immediately prior to the Distribution. In the interim, the $11.4 billion of proceeds are classified as Restricted short-term investments in the condensed consolidated balance sheet as of September 27, 2020 pursuant to the terms of the transaction agreements.
In the first quarter of 2020, we issued the following senior unsecured notes at a weighted average effective interest rate of 2.67%:
(MILLIONS OF DOLLARS)Principal
Interest RateMaturity DateAs of
September 27, 2020
2.625%(a)
April 1, 2030$1,250 
(a)The notes may be redeemed by us at any time, in whole, or in part, at a redemption price plus accrued and unpaid interest.
25


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following summarizes the aggregate principal amount of our senior unsecured long-term debt, and adjustments to report our aggregate long-term debt:
(MILLIONS OF DOLLARS)September 27,
2020
December 31, 2019
Total long-term debt, principal amount(a)
$48,473 $34,820 
Net fair value adjustments related to hedging and purchase accounting1,621 1,305 
Net unamortized discounts, premiums and debt issuance costs(314)(176)
Other long-term debt
Total long-term debt, carried at historical proceeds, as adjusted$49,785 $35,955 
Current portion of long-term debt, carried at historical proceeds, as adjusted (not included above)
$2,149 $1,462 
(a)As of September 27, 2020, $11.4 billion of proceeds from the Upjohn debt transactions are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet.

Retirements
In March 2020, we repurchased at par all $1.065 billion principal amount outstanding of our senior unsecured notes that were due in 2047 before the maturity date, which did not have a material impact on our condensed consolidated financial statements.
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 through the use of derivative financial instruments and foreign currency debt. These financial instruments serve to mitigate the impact on net income as a result 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, U.K. pound, Japanese yen, Swedish krona and Chinese renminbi.
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. From time to time, depending on market conditions, we will change the profile of our outstanding debt or investments by entering into derivative financial instruments like interest rate swaps, either to hedge or offset the exposure to changes in the fair value of hedged items with fixed interest rates, or to convert variable rate debt (or investments) to fixed rates. The derivative financial instruments primarily hedge U.S. dollar fixed-rate debt.
The following summarizes the fair value of the derivative financial instruments and the notional amounts:
(MILLIONS OF DOLLARS)September 27, 2020December 31, 2019
Fair ValueFair Value
NotionalAssetLiabilityNotionalAssetLiability
Derivatives designated as hedging instruments:
Foreign exchange contracts(a)
$24,545 $346 $1,187 $25,193 $591 $662 
Interest rate contracts
1,995 147 — 6,645 318 — 
493 1,187 909 662 
Derivatives not designated as hedging instruments:
Foreign exchange contracts
$16,084 75 85 $19,623 82 55 
Total$568 $1,272 $992 $718 
(a)The notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted inventory sales was $5.1 billion as of September 27, 2020 and $5.9 billion as of December 31, 2019.

26


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following summarizes 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)
(MILLIONS OF DOLLARS)Sept. 27, 2020Sept. 29, 2019Sept. 27, 2020Sept. 29, 2019Sept. 27, 2020Sept. 29, 2019
Three Months Ended      
Derivative Financial Instruments in Cash Flow Hedge Relationships:
Foreign exchange contracts(c)
$— $— $(379)$131 $(149)$
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach(d)
— — 21 22 
Derivative Financial Instruments in Fair Value Hedge Relationships:
Interest rate contracts
(9)378 — — — — 
Hedged item
(378)— — — — 
Derivative Financial Instruments in Net Investment Hedge Relationships:
      
Foreign exchange contracts
— — (257)112 — — 
The portion on foreign exchange contracts excluded from the assessment of hedge effectiveness(d)
— — 43 38 45 
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
      
Foreign currency short-term borrowings(e)
— — — 45 — — 
Foreign currency long-term debt(e)
— — (72)79 — — 
Derivative Financial Instruments Not Designated as Hedges:
Foreign exchange contracts
255 (77)— — — — 
All other net(d)
— — — (1)— — 
 $255 $(77)$(692)$429 $(104)$74 
27


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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)
(MILLIONS OF DOLLARS)Sept. 27, 2020Sept. 29, 2019Sept. 27, 2020Sept. 29, 2019Sept. 27, 2020Sept. 29, 2019
Nine Months Ended
Derivative Financial Instruments in Cash Flow Hedge Relationships:
      
Foreign exchange contracts(c)
$— $— $(721)$137 $(23)$265 
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach(d)
— — 49 105 48 108 
Derivative Financial Instruments in Fair Value Hedge Relationships:
Interest rate contracts
383 1,191 — — — — 
Hedged item
(383)(1,191)— — — — 
Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign exchange contracts
— — (17)87 — — 
The portion of foreign exchange contracts excluded from the assessment of hedge effectiveness(d)
— — 185 136 122 99 
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
Foreign currency short-term borrowings(e)
— — 65 — — 
Foreign currency long-term debt(e)
— — (69)89 — — 
Derivative Financial Instruments Not Designated as Hedges:
Foreign exchange contracts
205 (201)— — — — 
All other net(d)
— — 12 — (1)— 
$205 $(201)$(553)$617 $147 $472 
(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 net investment hedge relationships and for foreign currency debt designated as hedging instruments, the gains and losses are included in Other comprehensive income/(loss)––Foreign currency translation adjustments, net.
(c)The amounts reclassified from OCI into COS were:
a net gain of $34 million in the third quarter of 2020;
a net gain of $184 million in the first nine months of 2020;
a net gain of $66 million in the third quarter of 2019; and
a net gain of $169 million in the first nine months of 2019.
The remaining amounts were reclassified from OCI into OID. Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax loss of $192 million within the next 12 months into income. 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)The amounts reclassified from OCI were reclassified into OID.
(e)Long-term debt includes foreign currency borrowings with carrying values of $2.0 billion as of September 27, 2020, which are used as hedging instruments in net investment hedge relationships.
28


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following summarizes the amounts recorded in our condensed consolidated balance sheet related to cumulative basis adjustments for fair value hedges:
September 27, 2020December 31, 2019
Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to
Carrying Amount
Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to
Carrying Amount
(MILLIONS OF DOLLARS)
Carrying Amount of Hedged Assets/Liabilities(a)
Active Hedging RelationshipsDiscontinued Hedging Relationships
Carrying Amount of Hedged Assets/Liabilities(a)
Active Hedging RelationshipsDiscontinued Hedging Relationships
Short-term investments$45 $— $— $— $— $— 
Long-term investments— — — 45 — — 
Long-term debt2,019 131 1,165 7,092 266 690
(a)Carrying amounts exclude the cumulative amount of fair value hedging adjustments.
Certain of our derivative financial 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 September 27, 2020, the aggregate fair value of these derivative financial instruments that are in a net liability position was $1.1 billion, for which we have posted collateral of $1.2 billion in the normal course of business. If there had been a downgrade by S&P or Moody’s, we would not have been required to post any additional collateral.
As of September 27, 2020, we received cash collateral of $169 million from various counterparties that fully supports the approximate fair value of our derivative contracts and is 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. For additional information about concentrations of certain credit risk related to certain significant customers, see Notes to Consolidated Financial Statements––Note 17C. Segment, Geographic and Other Revenue Information: Other Revenue Information in Pfizer’s 2019 Financial Report. As of September 27, 2020, we had $1.4 billion due from a well-diversified, high quality group of banks from around the world. For details about our investments, see Note 7B.

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.
Note 8. Inventories
The following summarizes the components of Inventories:
(MILLIONS OF DOLLARS)September 27,
2020
December 31, 2019
Finished goods$3,521 $2,750 
Work-in-process5,014 4,743 
Raw materials and supplies760 790 
Inventories(a)
$9,295 $8,283 
Noncurrent inventories not included above(b)
$948 $714 
(a)The change from December 31, 2019 reflects increases for certain products, including inventory build for new product launches, market demand, supply recovery and network strategy, and an increase due to foreign exchange.
(b)Included in Other noncurrent assets. There are no recoverability issues associated with these amounts.
29


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 summarizes the components of Identifiable intangible assets:
 September 27, 2020December 31, 2019
(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(a)
$90,052 $(66,212)$23,840 $88,730 $(63,106)$25,625 
Brands922 (766)156 922 (741)181 
Licensing agreements and other(b)
2,385 (1,238)1,146 1,772 (1,191)582 
93,358 (68,216)25,142 91,425 (65,037)26,387 
Indefinite-lived intangible assets