Company Quick10K Filing
Quick10K
Pfizer
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$40.64 5,552 $225,630
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-07-01 Quarter: 2018-07-01
10-Q 2018-04-01 Quarter: 2018-04-01
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-10-01 Quarter: 2017-10-01
10-Q 2017-07-02 Quarter: 2017-07-02
10-Q 2017-04-02 Quarter: 2017-04-02
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-02 Quarter: 2016-10-02
10-Q 2016-07-03 Quarter: 2016-07-03
10-Q 2016-04-03 Quarter: 2016-04-03
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-27 Quarter: 2015-09-27
10-Q 2015-06-28 Quarter: 2015-06-28
10-Q 2015-03-29 Quarter: 2015-03-29
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-28 Quarter: 2014-09-28
10-Q 2014-06-29 Quarter: 2014-06-29
10-Q 2014-03-30 Quarter: 2014-03-30
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-27 Officers, Exhibits
8-K 2019-06-14 Regulation FD, Other Events, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-04-25
8-K 2019-03-11 Other Events, Exhibits
8-K 2019-01-29 Earnings, Exhibits
8-K 2018-12-19 Enter Agreement
8-K 2018-12-07 Other Events
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-09-27 Officers, Exhibits
8-K 2018-09-04 Other Events, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-04-26
8-K 2018-03-02 Officers, Exhibits
8-K 2018-02-22 Officers, Exhibits
8-K 2018-01-30 Earnings, Exhibits
ULTA Ulta Beauty 20,450
MAN ManpowerGroup 5,540
FLNT Fluent 540
LBY Libbey 57
FSSN Fision 0
DPWW Diego Pellicer Worldwide 0
UGHL Union Bridge Holdings 0
OW Owens-Illinois Group 0
BWMG Brownie's Marine Group 0
SKIN Skinovation Pharmaceutical 0
PFE 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation and Significant Accounting Policies
Note 2. Assets and Liabilities Held for Sale
Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
Note 4. Other (Income)/Deductions-Net
Note 5. Tax Matters
Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests
Note 7. Financial Instruments
Note 8. Inventories
Note 9. Identifiable Intangible Assets and Goodwill
Note 10. Pension and Postretirement Benefit Plans
Note 11. Earnings per Common Share Attributable To Common Shareholders
Note 12. Contingencies and Certain Commitments
Note 13. Segment, Geographic and Other Revenue Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-15 pfe-0331201910qxexhibit15.htm
EX-31.1 pfe-0331201910qxexhibit311.htm
EX-31.2 pfe-0331201910qxexhibit312.htm
EX-32.1 pfe-0331201910qxexhibit321.htm
EX-32.2 pfe-0331201910qxexhibit322.htm

Pfizer Earnings 2019-03-31

PFE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 pfe-03312019x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

For the quarterly period ended March 31, 2019

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)

DELAWARE
(State of Incorporation)
13-5315170
(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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES   X 
NO ___

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES   X 
NO ___

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

Large Accelerated filer  X                 Accelerated filer  ___                Non-accelerated filer  ___          Smaller reporting company  ___    Emerging growth company  ___

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ____
NO   X 
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $.05 par value
 
PFE
 
New York Stock Exchange
0.000% Notes due 2020
 
PFE20A
 
New York Stock Exchange
0.250% Notes due 2022
 
PFE22
 
New York Stock Exchange
1.000% Notes due 2027
 
PFE27
 
New York Stock Exchange

At May 6, 20195,559,929,190 shares of the issuer’s voting common stock were outstanding.



Table of Contents
Page
 
 
 
 
 
 
Condensed Consolidated Statements of Income for the three months ended March 31, 2019 and April 1, 2018
 
 
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and April 1, 2018
 
 
Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018
 
 
Condensed Consolidated Statements of Equity for the three months ended March 31, 2019 and April 1, 2018
 
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and April 1, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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 below:
2018 Financial Report
Financial Report for the fiscal year ended December 31, 2018, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2018
2018 Form 10-K
Annual Report on Form 10-K for the fiscal year ended December 31, 2018
ACA (Also referred to as U.S. Healthcare Legislation)
U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
ACIP
Advisory Committee on Immunization Practices
ALK
anaplastic lymphoma kinase
Alliance revenues
Revenues from alliance agreements under which we co-promote products discovered or developed by other companies or us
Allogene
Allogene Therapeutics, Inc.
Anacor
Anacor Pharmaceuticals, Inc.
AOCI
Accumulated Other Comprehensive Income
Astellas
Astellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc.
Bamboo
Bamboo Therapeutics, Inc.
Biopharma
Pfizer Biopharmaceuticals Group
BMS
Bristol-Myers Squibb Company
BRCA
BReast CAncer susceptibility gene
CAR T
chimeric antigen receptor T cell
CDC
U.S. Centers for Disease Control and Prevention
cGMP
current Good Manufacturing Practices
Citibank
Citibank, N.A.
Developed Markets
U.S., Western Europe, Japan, Canada, South Korea, Australia, Scandinavian countries, Finland and
New Zealand
EEA
European Economic Area
EGFR
epidermal growth factor receptor
EH
Essential Health
EMA
European Medicines Agency
Emerging Markets
Includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea),
Latin America, Eastern Europe, the Middle East, Africa, Central Europe and Turkey
EPS
earnings per share
EU
European Union
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
FDA
U.S. Food and Drug Administration
GAAP
Generally Accepted Accounting Principles
GIST
gastrointestinal stromal tumors
GPD
Global Product Development organization
GSK
GlaxoSmithKline plc
GS&Co.
Goldman, Sachs & Co. LLC
HER2-
human epidermal growth factor receptor 2-negative
hGH-CTP
human growth hormone
HIS
Hospira Infusion Systems
Hisun Pfizer
Hisun Pfizer Pharmaceuticals Company Limited
Hospira
Hospira, Inc.
HR+
hormone receptor-positive
ICU Medical
ICU Medical, Inc.
IH
Innovative Health
IPR&D
in-process research and development
IRS
U.S. Internal Revenue Service
IV
intravenous
Janssen
Janssen Biotech Inc.
J&J
Johnson & Johnson
King
King Pharmaceuticals LLC (formerly King Pharmaceuticals, Inc.)

3


LDL
low density lipoprotein
LEP
Legacy Established Products
LIBOR
London Interbank Offered Rate
Lilly
Eli Lilly & Company
LOE
loss of exclusivity
MCC
Merkel cell carcinoma
MCO
managed care organization
MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Medivation
Medivation LLC (formerly Medivation, Inc.)
Merck
Merck & Co., Inc.
Meridian
Meridian Medical Technologies, Inc.
Moody’s
Moody’s Investors Service
NDA
new drug application
NSCLC
non-small cell lung cancer
NYSE
New York Stock Exchange
OPKO
OPKO Health, Inc.
OTC
over-the-counter
PARP
poly ADP ribose polymerase
PBM
pharmacy benefit manager
Pharmacia
Pharmacia Corporation
PP&E
property, plant & equipment
PsA
psoriatic arthritis
Quarterly Report on Form 10-Q
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019
RA
rheumatoid arthritis
RCC
renal cell carcinoma
R&D
research and development
ROU
right of use
Sandoz
Sandoz, Inc., a division of Novartis AG
SBS
short bowel syndrome
SEC
U.S. Securities and Exchange Commission
SFJ
SFJ Pharmaceuticals Group
Shire
Shire International GmbH
SI&A
selling, informational and administrative
SIP
sterile injectable pharmaceuticals
S&P
Standard and Poor’s
Tax Cuts and Jobs Act or TCJA
legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017
Therachon
Therachon Holding AG
UC
ulcerative colitis
U.K.
United Kingdom
U.S.
United States
ViiV
ViiV Healthcare Limited
WRDM
Worldwide Research, Development and Medical


4


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
 
Three Months Ended
(MILLIONS, EXCEPT PER COMMON SHARE DATA)
 
March 31,
2019

 
April 1,
2018

Revenues
 
$
13,118

 
$
12,906

Costs and expenses:
 
 
 
 
Cost of sales(a)
 
2,433

 
2,563

Selling, informational and administrative expenses(a)
 
3,339

 
3,412

Research and development expenses(a)
 
1,703

 
1,743

Amortization of intangible assets
 
1,183

 
1,196

Restructuring charges and certain acquisition-related costs
 
46

 
43

Other (income)/deductions––net
 
92

 
(178
)
Income from continuing operations before provision for taxes on income
 
4,323

 
4,127

Provision for taxes on income
 
433

 
556

Income from continuing operations
 
3,889

 
3,571

Discontinued operations––net of tax
 

 
(1
)
Net income before allocation to noncontrolling interests
 
3,889

 
3,570

Less: Net income attributable to noncontrolling interests
 
6

 
9

Net income attributable to Pfizer Inc.
 
$
3,884

 
$
3,561

 
 
 
 
 
Earnings per common share––basic:
 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.69

 
$
0.60

Discontinued operations––net of tax
 

 

Net income attributable to Pfizer Inc. common shareholders
 
$
0.69

 
$
0.60

 
 
 
 
 
Earnings per common share––diluted:
 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.68

 
$
0.59

Discontinued operations––net of tax
 

 

Net income attributable to Pfizer Inc. common shareholders
 
$
0.68

 
$
0.59

 
 
 
 
 
Weighted-average shares––basic
 
5,635

 
5,957

Weighted-average shares––diluted
 
5,750

 
6,057

(a) 
Excludes amortization of intangible assets, except as disclosed in Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets.
Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.

5


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
 
Three Months Ended
(MILLIONS OF DOLLARS)
 
March 31,
2019

 
April 1,
2018

Net income before allocation to noncontrolling interests
 
$
3,889

 
$
3,570

 
 
 
 
 
Foreign currency translation adjustments, net
 
324

 
758

Reclassification adjustments
 
2

 
15

 
 
326

 
773

Unrealized holding gains/(losses) on derivative financial instruments, net
 
267

 
(114
)
Reclassification adjustments for (gains)/losses included in net income(a)
 
(263
)
 
44

 
 
4

 
(69
)
Unrealized holding gains on available-for-sale securities, net
 
40

 
160

Reclassification adjustments for (gains)/losses included in net income(a)
 
11

 
(174
)
Reclassification adjustments for unrealized gains included in Retained earnings(b)
 

 
(462
)
 
 
51

 
(476
)
Benefit plans: actuarial gains, net
 

 
163

Reclassification adjustments related to amortization
 
60

 
62

Reclassification adjustments related to settlements, net
 

 
37

Other
 
(23
)
 
(86
)
 
 
37

 
175

Reclassification adjustments related to amortization of prior service costs and other, net
 
(46
)
 
(46
)
Reclassification adjustments related to curtailments of prior service costs and other, net
 

 
(7
)
Other
 

 
2

 
 
(46
)
 
(51
)
Other comprehensive income, before tax
 
372

 
352

Tax provision on other comprehensive income
 
25

 
432

Other comprehensive income/(loss) before allocation to noncontrolling interests
 
$
348

 
$
(80
)
 
 
 
 
 
Comprehensive income before allocation to noncontrolling interests
 
$
4,237

 
$
3,490

Less: Comprehensive income attributable to noncontrolling interests
 
1

 
10

Comprehensive income attributable to Pfizer Inc.
 
$
4,236

 
$
3,480

(a) 
Reclassified into Other (income)/deductions—net and Cost of sales in the condensed consolidated statements of income. For additional information on amounts reclassified into Cost of sales, see Note 7E. Financial Instruments: Derivative Financial Instruments and Hedging Activities.
(b) 
For additional information, see Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.
Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.

6


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
 
March 31,
2019

 
December 31,
2018

 
 
(Unaudited)
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
$
1,937

 
$
1,139

Short-term investments
 
9,682

 
17,694

Trade accounts receivable, less allowance for doubtful accounts: 2019—$538; 2018—$541
 
9,599

 
8,025

Inventories
 
8,029

 
7,508

Current tax assets
 
3,598

 
3,374

Other current assets
 
2,567

 
2,461

Assets held for sale
 
9,877

 
9,725

Total current assets
 
45,290

 
49,926

Long-term investments
 
2,859

 
2,767

Property, plant and equipment, less accumulated depreciation: 2019—$16,158; 2018—$16,591
 
13,467

 
13,385

Identifiable intangible assets, less accumulated amortization
 
34,039

 
35,211

Goodwill
 
53,487

 
53,411

Noncurrent deferred tax assets and other noncurrent tax assets
 
1,946

 
1,924

Other noncurrent assets
 
4,333

 
2,799

Total assets
 
$
155,421

 
$
159,422

 
 
 
 
 
Liabilities and Equity
 
 

 
 

Short-term borrowings, including current portion of long-term debt: 2019—$4,471; 2018—$4,776
 
$
9,410

 
$
8,831

Trade accounts payable
 
4,156

 
4,674

Dividends payable
 

 
2,047

Income taxes payable
 
1,849

 
1,265

Accrued compensation and related items
 
1,797

 
2,397

Other current liabilities
 
10,276

 
10,753

Liabilities held for sale
 
1,935

 
1,890

Total current liabilities
 
29,423

 
31,858

 
 
 
 
 
Long-term debt
 
35,733

 
32,909

Pension benefit obligations, net
 
5,125

 
5,272

Postretirement benefit obligations, net
 
1,332

 
1,338

Noncurrent deferred tax liabilities
 
3,591

 
3,700

Other taxes payable
 
14,712

 
14,737

Other noncurrent liabilities
 
6,346

 
5,850

Total liabilities
 
96,263

 
95,664

 
 
 
 
 
Commitments and Contingencies
 


 


 
 
 
 
 
Preferred stock
 
19

 
19

Common stock
 
468

 
467

Additional paid-in capital
 
86,635

 
86,253

Treasury stock
 
(110,781
)
 
(101,610
)
Retained earnings
 
93,388

 
89,554

Accumulated other comprehensive loss
 
(10,923
)
 
(11,275
)
Total Pfizer Inc. shareholders’ equity
 
58,806

 
63,407

Equity attributable to noncontrolling interests
 
352

 
351

Total equity
 
59,158

 
63,758

Total liabilities and equity
 
$
155,421

 
$
159,422

Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.

7


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
 
 
PFIZER INC. SHAREHOLDERS
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
 
 
 
 
(MILLIONS, EXCEPT PREFERRED SHARES)
 
Shares

 
Stated Value

 
Shares

 
Par Value

 
Add’l
Paid-In Capital

 
Shares

 
Cost

 
Retained Earnings

 
Accum. Other Comp.
Loss

 
Share-
holders’ Equity

 
Non-controlling interests

 
Total Equity

Balance, January 1, 2019
 
478

 
$
19

 
9,332

 
$
467

 
$
86,253

 
(3,615
)
 
$
(101,610
)
 
$
89,554

 
$
(11,275
)
 
$
63,407

 
$
351

 
$
63,758

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,884

 
 
 
3,884

 
6

 
3,889

Other comprehensive income/(loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
353

 
353

 
(4
)
 
348

Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(68
)
 
 
 
(68
)
 
 
 
(68
)
Preferred stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 

 
 
 

Noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 

Share-based payment transactions
 
 
 
 
 
26

 
1

 
383

 
(7
)
 
(306
)
 
 
 
 
 
78

 
 
 
78

Purchases of common stock
 
 
 
 
 
 
 
 
 
 
 
(180
)
 
(8,865
)
 
 
 
 
 
(8,865
)
 
 
 
(8,865
)
Preferred stock conversions and redemptions
 
(12
)
 

 
 
 
 
 
(1
)
 

 

 
 
 
 
 
(1
)
 
 
 
(1
)
Other(a)
 
 
 

 
 
 

 

 

 

 
19

 

 
19

 

 
19

Balance, March 31, 2019
 
466

 
$
19

 
9,358

 
$
468

 
$
86,635

 
(3,801
)
 
$
(110,781
)
 
$
93,388

 
$
(10,923
)
 
$
58,806

 
$
352

 
$
59,158

 
 
PFIZER INC. SHAREHOLDERS
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
 
 
 
 
(MILLIONS, EXCEPT PREFERRED SHARES)
 
Shares

 
Stated Value

 
Shares

 
Par Value

 
Add’l
Paid-In Capital

 
Shares

 
Cost

 
Retained Earnings

 
Accum. Other Comp.
Loss

 
Share-
holders’ Equity

 
Non-controlling interests

 
Total Equity

Balance, January 1, 2018
 
524

 
$
21

 
9,275

 
$
464

 
$
84,278

 
(3,296
)
 
$
(89,425
)
 
$
85,291

 
$
(9,321
)
 
$
71,308

 
$
348

 
$
71,656

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 


 
3,561

 


 
3,561

 
9

 
3,570

Other comprehensive income/(loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 


 


 
(81
)
 
(81
)
 
1

 
(80
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 


 


 


 


 


 


Common stock
 
 
 
 
 
 
 
 
 
 
 
 
 


 
(65
)
 


 
(65
)
 


 
(65
)
Preferred stock
 
 
 
 
 
 
 
 
 
 
 
 
 


 

 


 

 


 

Noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 


 


 


 

 

 

Share-based payment transactions
 
 
 
 
 
24

 
1

 
321

 
3

 
29

 


 


 
351

 


 
351

Purchases of common stock
 
 
 
 
 
 
 
 
 
 
 
(145
)
 
(6,063
)
 


 


 
(6,063
)
 


 
(6,063
)
Preferred stock conversions and redemptions
 
(11
)
 

 
 
 
 
 
(1
)
 

 

 


 


 
(1
)
 


 
(1
)
Other(b)
 
 
 

 
 
 

 

 

 

 
1,175

 

 
1,175

 

 
1,175

Balance, April 1, 2018
 
513

 
$
21

 
9,299

 
$
465

 
$
84,599

 
(3,437
)
 
$
(95,460
)
 
$
89,961

 
$
(9,402
)
 
$
70,184

 
$
358

 
$
70,541

(a) 
Represents the cumulative effect of the adoption of a new accounting standard in the first quarter of 2019 for leases. For additional information, see Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards.
(b) 
Represents the cumulative effect of the adoption of new accounting standards in the first quarter of 2018 for revenues, financial assets and liabilities, income tax accounting, and the reclassification of certain tax effects from Accumulated other comprehensive income. For additional information, see Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in Pfizer’s 2018 Financial Report.
Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.

8


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 
 
Three Months Ended
(MILLIONS OF DOLLARS)
 
March 31,
2019

 
April 1,
2018

Operating Activities
 
 
 
 
Net income before allocation to noncontrolling interests
 
$
3,889

 
$
3,570

Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
1,545

 
1,567

Asset write-offs and impairments
 
155

 
7

TCJA impact(a)
 
(131
)
 
(68
)
Deferred taxes from continuing operations
 
(60
)
 
294

Share-based compensation expense
 
185

 
182

Benefit plan contributions in excess of expense
 
(151
)
 
(692
)
Other adjustments, net
 
(236
)
 
(161
)
Other changes in assets and liabilities, net of acquisitions and divestitures
 
(3,498
)
 
(2,715
)
Net cash provided by operating activities
 
1,698

 
1,983

 
 
 
 
 
Investing Activities
 
 

 
 

Purchases of property, plant and equipment
 
(460
)
 
(386
)
Purchases of short-term investments
 
(1,402
)
 
(913
)
Proceeds from redemptions/sales of short-term investments
 
3,601

 
6,463

Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less
 
5,941

 
4,507

Purchases of long-term investments
 
(84
)
 
(605
)
Proceeds from redemptions/sales of long-term investments
 
44

 
576

Acquisitions of intangible assets
 
(158
)
 
(32
)
Other investing activities, net
 
67

 
57

Net cash provided by investing activities
 
7,550

 
9,667

 
 
 
 
 
Financing Activities
 
 

 
 

Proceeds from short-term borrowings
 
609

 
428

Principal payments on short-term borrowings
 
(1,766
)
 
(2,493
)
Net proceeds from/(payments on) short-term borrowings with original maturities of three months or less
 
2,032

 
(83
)
Proceeds from issuance of long-term debt
 
4,942

 

Principal payments on long-term debt
 
(3,004
)
 
(355
)
Purchases of common stock
 
(8,865
)
 
(6,063
)
Cash dividends paid
 
(2,045
)
 
(2,032
)
Proceeds from exercise of stock options
 
126

 
372

Other financing activities, net
 
(495
)
 
(495
)
Net cash used in financing activities
 
(8,467
)
 
(10,720
)
Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents
 
12

 
55

Net increase in cash and cash equivalents and restricted cash and cash equivalents
 
792

 
985

Cash and cash equivalents and restricted cash and cash equivalents, beginning
 
1,225

 
1,431

Cash and cash equivalents and restricted cash and cash equivalents, end
 
$
2,018

 
$
2,416

 
 
 

 
 

Supplemental Cash Flow Information
 
 
 
 
Cash paid (received) during the period for:
 
 

 
 

Income taxes
 
$
235

 
$
257

Interest paid
 
385

 
259

Interest rate hedges
 
(33
)
 
20

(a) 
As a result of the enactment of the TCJA in December 2017, Pfizer’s Provision for taxes on income for (i) the three months ended March 31, 2019 was favorably impacted by approximately $131 million, primarily as a result of additional guidance issued by the U.S. Department of Treasury and (ii) the three months ended April 1, 2018 was favorably impacted by approximately $68 million, primarily related to certain tax initiatives associated with the lower U.S. tax rate as a result of the TCJA.
Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.

9


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


Note 1. Basis of Presentation and Significant Accounting Policies

A. Basis of Presentation

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

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

The financial information included in our condensed consolidated financial statements for subsidiaries operating outside the U.S. is as of and for the three months ended February 24, 2019 and February 25, 2018. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three months ended March 31, 2019 and April 1, 2018.

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year.

We are responsible for the unaudited financial statements included in this Quarterly Report on Form 10-Q. The interim financial statements include all normal and recurring adjustments that are considered necessary for the fair statement of results for the interim periods presented. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2018 Financial Report.

At the beginning of our 2019 fiscal year, we began to manage our commercial operations through a new global structure consisting of three business segments––Pfizer Biopharmaceuticals Group (Biopharma), Upjohn and Consumer Healthcare. Biopharma and Upjohn are the only reportable segments. We have revised prior-period segment information to reflect the reorganization. For additional information, see Note 13.

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

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

Our recent significant business development activities include:
On December 19, 2018, we announced that we entered into a definitive agreement with GSK under which we and GSK have agreed to combine our respective consumer healthcare businesses into a new consumer healthcare joint venture, which will operate globally under the GSK Consumer Healthcare name. Assets and liabilities associated with our Consumer Healthcare business were reclassified as held for sale in the consolidated balance sheets as of March 31, 2019 and December 31, 2018. We expect to complete the transaction during the second half of 2019, subject to customary closing conditions, including GSK shareholder approval, which occurred on May 8, 2019, and required regulatory approvals.
For additional information, see Note 2 and Notes to Consolidated Financial Statements––Note 2. Acquisitions, Divestitures, Assets and Liabilities Held for Sale, Licensing Arrangements, Research and Development and Collaborative Arrangements, Equity-Method Investments and Privately Held Investment in Pfizer’s 2018 Financial Report.
B. Adoption of New Accounting Standards
On January 1, 2019, we adopted four new accounting standards.
Leases––On January 1, 2019, we adopted a new accounting standard for leases and changed our lease policies accordingly. Under the new standard, the most significant change is the requirement of balance sheet recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. We adopted the new accounting standard utilizing the modified retrospective method using a simplified transition approach, and, therefore, no adjustments were made to our prior period financial statements. We have elected the package of practical expedients for transition which are permitted in the new standard. Accordingly, we did not reassess whether (i) any expired or existing contracts are or contain leases under the new standard, (ii) classification of leases as operating leases or capital leases would be different under the new standard, or (iii) any initial direct costs would have met the definition of initial direct costs under the new standard. Additionally, we did not elect to

10


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

use hindsight in determining the lease term for existing leases as of January 1, 2019. We recorded noncurrent ROU assets of $1.4 billion and current and noncurrent operating lease liabilities of $1.4 billion as of January 1, 2019. We also recorded the cumulative effect of adopting the standard as an adjustment to increase the opening balance of Retained earnings by $30 million on a pre-tax basis ($20 million after-tax), relating to previously deferred sale-leaseback gains that can be recognized under the new rules.
Adopting the standard related to leases impacted our prior period condensed consolidated balance sheet as follows:
(MILLIONS OF DOLLARS)
 
As Previously Reported Balance at
December 31, 2018

 
Effect of Change
Higher/(Lower)

 
Balance at
January 1, 2019

Other current assets
 
$
2,461

 
$
(1
)
 
$
2,460

Noncurrent deferred tax assets and other noncurrent tax assets
 
1,924

 
(11
)
 
1,913

Other noncurrent assets
 
2,799

 
1,351

 
4,149

Other current liabilities
 
10,753

 
258

 
11,011

Other noncurrent liabilities
 
5,850

 
1,060

 
6,910

Retained earnings
 
89,554

 
20

 
89,574

Adoption of the standard related to leases did not have a material impact on our condensed consolidated statements of income or condensed consolidated statements of cash flows for the quarter ended March 31, 2019. For additional information, see Note 1D.
Amortization Period for Certain Callable Debt Securities Held at a Premium––We prospectively adopted the standard, which shortens the amortization period for certain callable debt securities held at a premium. The new guidance requires the premium to be amortized to the earliest call date. We do not have any investments with features subject to this standard and, therefore, there was no impact to our condensed consolidated financial statements from the adoption of this new standard.
Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity and Accounting for Certain Financial Instruments with Down Round Features––We prospectively adopted the standard, which changes the accounting for warrants or convertible instruments that include a down round feature. We do not have any financial instruments with features subject to this standard and, therefore, there was no impact to our condensed consolidated financial statements from the adoption of this new standard.
Accounting for Share-Based Payments to Nonemployees––We prospectively adopted the standard, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. We do not have any share-based awards issued to nonemployees and, therefore, there was no impact to our condensed consolidated financial statements from the adoption of this new standard.

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

C. Revenues and Trade Accounts Receivable
Our accruals for Medicare rebates, Medicaid and related state program rebates, performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts totaled $5.5 billion as of March 31, 2019 and $5.4 billion as of December 31, 2018.
The following table provides information about the balance sheet classification of these accruals:
(MILLIONS OF DOLLARS)
 
March 31, 2019

 
December 31, 2018

Reserve against Trade accounts receivable, less allowance for doubtful accounts
 
$
1,232

 
$
1,288

 
 
 
 
 
Other current liabilities:
 
 
 
 
Accrued rebates
 
3,344

 
3,208

Other accruals
 
559

 
531

 
 
 
 
 
Other noncurrent liabilities
 
410

 
399

Total accrued rebates and other accruals
 
$
5,544

 
$
5,426


11


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

D. Leases

On January 1, 2019, we adopted a new accounting standard for leases. For further information, see Note 1B.
We lease real estate, fleet, and equipment for use in our operations. Our leases generally have lease terms of 1 to 30 years, some of which include options to terminate or extend leases for up to 5 to 10 years or on a month-to-month basis. We include options that are reasonably certain to be exercised as part of the determination of lease terms. We may negotiate termination clauses in anticipation of any changes in market conditions, but generally these termination options are not exercised. Residual value guarantees are generally not included within our operating leases with the exception of some fleet leases. In addition to base rent payments, the leases may require us to pay directly for taxes and other non-lease components, such as insurance, maintenance and other operating expenses, which may be dependent on usage or vary month-to-month. Variable lease payments amounted to $59 million for the three months ended March 31, 2019. We have elected the practical expedient in the new standard to not separate non-lease components from lease components in calculating the amounts of ROU assets and lease liabilities for all underlying asset classes.
We determine if an arrangement is a lease at inception of the contract in accordance with guidance detailed in the new standard and we perform the lease classification test as of the lease commencement date. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
For operating leases, the ROU assets and liabilities are presented in our condensed consolidated balance sheet as follows:
(MILLIONS OF DOLLARS)
 
Balance Sheet
Classification
 
Balance at
March 31, 2019

ROU assets
 
Other noncurrent assets
 
$
1,280

Lease liabilities (short-term)
 
Other current liabilities
 
253

Lease liabilities (long-term)
 
Other noncurrent liabilities
 
1,043

Our total lease costs are as follows:
 
 
Three Months Ended

(MILLIONS OF DOLLARS)
 
March 31, 2019

Operating lease cost
 
$
100

Variable lease cost
 
59

Sublease income
 
(10
)
Total lease cost
 
$
149

Other supplemental information includes the following:
(MILLIONS OF DOLLARS)
 
Weighted-Average Remaining Contractual Lease Term (Years)
 
Three Months Ended

March 31, 2019

Operating leases
 
7.5
 
 
Weighted-average discount rate:
 
 
 
 
Operating leases
 
 
 
3.7
%
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
Operating cash flows from operating leases
 
 
 
78

ROU assets obtained in exchange for new operating lease liabilities
 
 
 
46


12


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

The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded in the condensed consolidated balance sheet as of March 31, 2019:
(MILLIONS OF DOLLARS)
 
 
Period
 
Operating Lease Liabilities
Next one year(a)
 
$
287

1-2 years
 
241

2-3 years
 
207

3-4 years
 
175

4-5 years
 
144

Thereafter
 
435

Total undiscounted lease payments
 
1,489

Less: Imputed interest
 
193

Present Value of Minimum Lease Payments
 
1,296

Less: Current portion
 
253

Noncurrent portion
 
$
1,043

(a) 
Reflects lease payments due within 12 months subsequent to the balance sheet date.
In April 2018, we entered an agreement to lease space in an office building in New York City. We will relocate our global headquarters to this property with commencement expected in 2022. Our future minimum rental commitment under this 20-year lease is approximately $1.7 billion.
Prior to our adoption of the new lease standard, rental expense, net of sublease income, was $301 million in 2018, $314 million in 2017 and $292 million in 2016.
As of December 31, 2018, the future minimum rental commitments under non-cancelable operating leases follow:
(MILLIONS OF DOLLARS)
 
2019

 
2020

 
2021

 
2022

 
2023

 
After 2023

Lease commitments
 
$
300

 
$
252

 
$
210

 
$
267

 
$
248

 
$
2,040

Note 2. Assets and Liabilities Held for Sale

On December 19, 2018, we announced that we entered into a definitive agreement with GSK under which we and GSK have agreed to combine our respective consumer healthcare businesses into a new consumer healthcare joint venture that will operate globally under the GSK Consumer Healthcare name. In exchange for contributing our Consumer Healthcare business, we will receive a 32% equity stake in the new company and GSK will own the remaining 68%. The transaction is expected to close in the second half of 2019, subject to customary closing conditions, including GSK shareholder approval, which occurred on May 8, 2019, and required regulatory approvals. Upon the closing of the transaction, we will deconsolidate our Consumer Healthcare business and recognize a gain for the difference in the fair value of our 32% equity stake in the new company and the carrying value of our Consumer Healthcare business. We will account for our 32% equity stake in the new company after closing of the transaction as an equity-method investment. Assets and liabilities associated with our Consumer Healthcare business were reclassified as held for sale in the consolidated balance sheets as of March 31, 2019 and December 31, 2018. The Consumer Healthcare business assets held for sale are reported in Assets held for sale and Consumer Healthcare business liabilities held for sale are reported in Liabilities held for sale. This includes the Consumer Healthcare business tax assets and liabilities related to fully dedicated consumer healthcare subsidiaries. The amounts associated with the Consumer Healthcare business, as well as other assets classified as held for sale consisted of the following:

13


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

(MILLIONS OF DOLLARS)
 
March 31, 2019
 
December 31, 2018
Assets Held for Sale
 
 
 
 
Cash and cash equivalents
 
$
61

 
$
32

Trade accounts receivable, less allowance for doubtful accounts
 
550

 
532

Inventories
 
563

 
538

Other current assets
 
57

 
56

PP&E
 
687

 
675

Identifiable intangible assets, less accumulated amortization
 
5,776

 
5,763

Goodwill
 
1,972

 
1,972

Noncurrent deferred tax assets and other noncurrent tax assets
 
59

 
54

Other noncurrent assets
 
105

 
57

Total Consumer Healthcare assets held for sale
 
9,830

 
9,678

Other assets held for sale(a)
 
47

 
46

Assets held for sale
 
$
9,877

 
$
9,725

 
 
 
 
 
Liabilities Held for Sale
 
 
 
 
 
 
 
 
 
Trade accounts payable
 
$
335

 
$
406

Income taxes payable
 
55

 
39

Accrued compensation and related items
 
140

 
93

Other current liabilities
 
371

 
353

Pension benefit obligations, net
 
39

 
39

Postretirement benefit obligations, net
 
33

 
33

Noncurrent deferred tax liabilities
 
884

 
870

Other noncurrent liabilities
 
78

 
56

Total Consumer Healthcare liabilities held for sale
 
$
1,935

 
$
1,890

(a) 
Other assets held for sale consist of PP&E.
As a part of Pfizer, pre-tax income on a management business unit basis for the Consumer Healthcare business was $281 million for the three months ended March 31, 2019 and $265 million for the three months ended 2018.
Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives

We incur significant costs in connection with acquiring, integrating and restructuring businesses and in connection with our global cost-reduction/productivity initiatives. For example:
In connection with acquisition activity, we typically incur costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and
In connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems.

All of our businesses and functions may be impacted by these actions, including sales and marketing, manufacturing and R&D, as well as groups such as information technology, shared services and corporate operations.
2017-2019 Initiatives and Organizing for Growth
During 2018, as we reviewed our business opportunities and challenges and the way in which we think about our business operations, we determined that at the start of our 2019 fiscal year, we would begin operating under our new commercial structure, which reorganizes our operations into three businesses––Biopharma, a science-based innovative medicines business; Upjohn, a global, primarily off-patent branded and generic established medicines business; and a Consumer Healthcare business (see Note 13). To operate effectively in this structure and position ourselves for future growth, we are focused on creating a simpler, more efficient operating structure within each business as well as the functions that support them. Beginning in the fourth quarter of 2018, we reviewed previously planned initiatives and new initiatives to ensure that there was alignment around our new structure and combined the 2017-2019 initiatives with our current Organizing for Growth initiatives to form one cohesive plan. Initiatives for the combined program include activities related to the optimization of our manufacturing plant network, the centralization of our corporate and platform functions, and the simplification and optimization of our operating

14


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

business structure and functions that support them. Through March 31, 2019, we incurred approximately $735 million associated with manufacturing optimization, and approximately $793 million associated with other activities.
In 2019, we expect restructuring, implementation and additional depreciation charges of about $800 million and, of that amount, we expect approximately 20% of the total charges will be non-cash.
Current-Period Key Activities
For the first three months of 2019, we incurred costs of $92 million composed of $64 million associated with the 2017-2019 and Organizing for Growth initiatives, $25 million associated with the integration of Hospira and $3 million associated with all other acquisition-related initiatives.
The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
 
 
Three Months Ended
(MILLIONS OF DOLLARS)
 
March 31,
2019

 
April 1,
2018

Restructuring charges/(credits):
 
 

 
 

Employee terminations
 
$
(2
)
 
$
(8
)
Asset impairments
 
9

 
2

Exit costs
 
3

 
(3
)
Restructuring charges/(credits)(a)
 
10

 
(9
)
Integration costs(b)
 
36

 
52

Restructuring charges and certain acquisition-related costs
 
46

 
43

Net periodic benefit costs recorded in Other (income)/deductions––net
 
6

 
32

Additional depreciation––asset restructuring recorded in our condensed consolidated statements of income as follows(c):
 
 

 
 

Cost of sales
 
9

 
17

Selling, informational and administrative expenses
 
1

 

Research and development expenses
 
3

 

Total additional depreciation––asset restructuring
 
13

 
17

Implementation costs recorded in our condensed consolidated statements of income as follows(d):
 
 

 
 

Cost of sales
 
13

 
16

Selling, informational and administrative expenses
 
9

 
17

Research and development expenses
 
4

 
6

Total implementation costs
 
26

 
39

Total costs associated with acquisitions and cost-reduction/productivity initiatives
 
$
92

 
$
131

(a) 
In the first quarter of 2019, restructuring charges are primarily associated with cost reduction initiatives and mainly represent asset write downs, partially offset by the reversal of previously recorded accruals for employee termination costs and asset impairments related to our acquisition of Hospira. In the three months ended April 1, 2018, restructuring credits were primarily due to the reversal of previously recorded accruals for exit costs related to our acquisition of Hospira, as well as cost-reduction and productivity initiatives not associated with acquisitions.
The restructuring activities for the three months ended March 31, 2019 are associated with the following:
Biopharma ($13 million charge); Upjohn ($13 million credit); and Other ($10 million charge).
The restructuring activities for the three months ended April 1, 2018 are associated with the following:
Total reportable segments ($14 million credit); and Other ($4 million charge). At the beginning of fiscal 2019, we revised our operating segments and are unable to directly associate these prior-period restructuring charges with the new individual segments.
(b) 
Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes. In the first quarter of 2019 and 2018, integration costs were primarily related to our acquisition of Hospira.
(c) 
Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions.
(d) 
Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives.

15


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

The following table provides the components of and changes in our restructuring accruals:
(MILLIONS OF DOLLARS)
 
Employee
Termination Costs

 
Asset
Impairment Charges

 
Exit Costs

 
Accrual

Balance, December 31, 2018(a)
 
$
1,203

 
$

 
$
49

 
$
1,252

Provision/(Credit)
 
(2
)
 
9

 
3

 
10

Utilization and other(b)
 
(145
)
 
(9
)
 
(15
)
 
(169
)
Balance, March 31, 2019(c)
 
$
1,057

 
$

 
$
37

 
$
1,093

(a) 
Included in Other current liabilities ($823 million) and Other noncurrent liabilities ($428 million).
(b) 
Includes adjustments for foreign currency translation.
(c) 
Included in Other current liabilities ($669 million) and Other noncurrent liabilities ($424 million).
Note 4. Other (Income)/Deductions—Net
The following table provides components of Other (income)/deductions––net:
 
 
Three Months Ended
(MILLIONS OF DOLLARS)
 
March 31,
2019


April 1,
2018

Interest income(a)
 
$
(66
)
 
$
(77
)
Interest expense(a)
 
361

 
310

Net interest expense
 
295

 
233

Royalty-related income
 
(89
)
 
(96
)
Net gains on asset disposals
 
(1
)
 
(7
)
Net gains recognized during the period on investments in equity securities(b)
 
(111
)

(118
)
Net realized losses on sales of investments in debt securities
 


3

Income from collaborations, out-licensing arrangements and sales of compound/product rights(c)
 
(82
)
 
(142
)
Net periodic benefit credits other than service costs(d)
 
(40
)
 
(82
)
Certain legal matters, net
 
4

 
(19
)
Certain asset impairments(e)
 
150

 

Business and legal entity alignment costs(f)
 
119

 
3

Net losses on early retirement of debt(g)
 
138

 
3

Other, net(h)
 
(291
)

42

Other (income)/deductions––net
 
$
92

 
$
(178
)
(a) 
Interest income decreased in the first quarter of 2019, primarily driven by a lower investment balance. Interest expense increased in the first quarter of 2019, primarily as a result of higher interest rates.
(b) 
The net gains on investments in equity securities for the first quarter of 2019 include gains of $43 million related to our investment in Allogene. The first quarter of 2018 included gains of $61 million related to our investment in ICU Medical stock. For additional information, see Note 7B.
(c) 
Includes income from upfront and milestone payments from our collaboration partners and income from out-licensing arrangements and sales of compound/product rights. In the first quarter of 2019, primarily includes $60 million in milestone income from Mylan Pharmaceuticals Inc. related to the FDA’s approval and launch of Wixela Inhub®, a generic of Advair Diskus® (fluticasone propionate and salmeterol inhalation powder). In the first quarter of 2018, primarily includes, among other things, a $75 million milestone payment received from Shire related to their first dosing of a patient in a Phase III clinical trial of a compound out-licensed by Pfizer to Shire for the treatment of ulcerative colitis, and a $40 million milestone payment from Merck in conjunction with the approval of ertugliflozin in the EU.
(d) 
For additional information, see Note 10.
(e) 
In the first quarter of 2019, primarily includes intangible asset impairment charges of $130 million composed of: (i) $90 million related to WRDM IPR&D, which relates to a pre-clinical stage asset from our acquisition of Bamboo Therapeutics, Inc. (Bamboo) for gene therapies for the potential treatment of patients with certain rare diseases; and (ii) $40 million related to a Biopharma developed technology right, acquired in connection with our acquisition of King, for government defense products. The WRDM IPR&D intangible asset impairment charge was the result of a determination to not use certain Bamboo IPR&D acquired in future rare disease development. The intangible asset impairment charge related to the Biopharma developed technology right reflects, among other things, updated commercial forecasts including manufacturing cost assumptions. In addition, the first quarter of 2019 includes other asset impairments of $20 million.
(f) 
In the first quarter of 2019, represents incremental costs associated with the design, planning and implementation of our new organizational structure, effective in the beginning of 2019, and primarily includes consulting, legal, tax and advisory services. In the first quarter of 2018, represents expenses for changes to our infrastructure to align our commercial operations that existed through December 31, 2018, including costs to internally separate our businesses into distinct legal entities, as well as to streamline our intercompany supply operations to better support each business.
(g) 
In first quarter of 2019, represents net losses due to the early retirement of debt, inclusive of the related termination of cross-currency swaps.
(h) 
In the first quarter of 2019, includes among other things, credits of $72 million, reflecting the change in the fair value of contingent consideration, and dividend income of $64 million from our investment in ViiV. In the first quarter of 2018, primarily includes, among other things, charges of $102 million, reflecting the change in the fair value of contingent consideration, partially offset by dividend income of $59 million from our investment in ViiV.

16


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

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

 
$

 
$

 
$

 
$
90

Intangible assets––Developed technology right(b)
 

 

 

 

 
40

Total
 
$

 
$

 
$

 
$

 
$
130

(a) 
The fair value amount is presented as of the date of impairment, as these assets are not measured at fair value on a recurring basis.
(b) 
Reflects intangible assets written down to fair value in the first three months of 2019. Fair value was determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We started with a forecast of all the expected net cash flows associated with the asset and then applied an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the product; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
Note 5. Tax Matters

A. Taxes on Income from Continuing Operations

Our effective tax rate for continuing operations was 10.0% for the first quarter of 2019, compared to 13.5% for the first quarter of 2018.
The lower effective tax rate for the first quarter of 2019 in comparison with the same period in 2018 was primarily due to:
the tax benefit recorded as a result of additional guidance issued by the U.S. Department of Treasury related to the enactment of the TCJA;
the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, as well as
an increase in tax benefits associated with the resolution of certain tax positions pertaining to prior years, and the expiration of certain statutes of limitations.
Our estimated $15 billion repatriation tax liability on accumulated post-1986 foreign earnings for which we plan to elect, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, payment over eight years through 2026 is reported in Income taxes payable ($750 million) and the remaining liability is reported in Other taxes payable in our consolidated balance sheet as of March 31, 2019. The first installment of $750 million was paid in April 2019.
B. Tax Contingencies

We are subject to income tax in many jurisdictions, and a certain degree of estimation is required in recording the assets and liabilities related to income taxes. All of our tax positions are subject to audit by the local taxing authorities in each tax jurisdiction. These tax audits can involve complex issues, interpretations and judgments and the resolution of matters may span multiple years, particularly if subject to negotiation or litigation. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution.
The U.S. is one of our major tax jurisdictions, and we are regularly audited by the IRS. With respect to Pfizer, the IRS has issued a Revenue Agent’s Report (RAR) for tax years 2009-2010. We are not in agreement with the RAR and are currently appealing certain disputed issues. Tax years 2011-2015 are currently under audit. Tax years 2016-2019 are open, but not under audit. All other tax years are closed.
In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (2013-2019), Japan (2017-2019), Europe (2011-2019, primarily reflecting Ireland, the United Kingdom, France, Italy, Spain and Germany), Latin America (1998-2019, primarily reflecting Brazil) and Puerto Rico (2011-2019).

17


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

C. Tax Provision on Other Comprehensive Income
The following table provides the components of Tax provision on other comprehensive income:
 
 
Three Months Ended
(MILLIONS OF DOLLARS)
 
March 31,
2019

 
April 1,
2018

Foreign currency translation adjustments, net(a)
 
$
27

 
$
(34
)
Unrealized holding gains/(losses) on derivative financial instruments, net
 
59

 
(4
)
Reclassification adjustments for (gains)/losses included in net income
 
(55
)
 
(7
)
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b)
 

 
1

 
 
4

 
(9
)
Unrealized holding gains on available-for-sale securities, net
 
5

 
20

Reclassification adjustments for (gains)/losses included in net income
 
1

 
(22
)
Reclassification adjustments for tax on unrealized gains from AOCI to Retained earnings(c)
 

 
(45
)
 
 
7

 
(47
)
Benefit plans: actuarial gains, net
 

 
38

Reclassification adjustments related to amortization
 
3

 
14

Reclassification adjustments related to settlements, net
 

 
9

Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b)
 

 
637

Other
 
(5
)
 
(20
)
 
 
(2
)
 
677

Reclassification adjustments related to amortization of prior service costs and other, net
 
(11
)
 
(11
)
Reclassification adjustments related to curtailments of prior service costs and other, net
 

 
(7
)
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b)
 

 
(144
)
Other
 

 
6

 
 
(11
)
 
(155
)
Tax provision on other comprehensive income
 
$
25

 
$
432

(a) 
Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.
(b) 
For additional information on the adoption of a new accounting standard related to reclassification of certain tax effects from AOCI, see Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.
(c) 
For additional information on the adoption of a new accounting standard related to financial assets and liabilities, see Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.
Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests
The following table provides the changes, net of tax, in Accumulated other comprehensive loss:
 
 
Net Unrealized Gains/(Losses)
 
Benefit Plans
 
 
(MILLIONS OF DOLLARS)
 
Foreign Currency Translation Adjustments

 
Derivative Financial Instruments

 
Available-For-Sale Securities

 
Actuarial Gains/(Losses)

 
Prior Service (Costs)/Credits and Other

 
Accumulated Other Comprehensive Income/(Loss)

Balance, December 31, 2018
 
$
(6,075
)
 
$
167

 
$
(68
)
 
$
(6,027
)
 
$
728

 
$
(11,275
)
Other comprehensive income/(loss)(a)
 
304

 

 
44

 
40

 
(35
)
 
353

Balance, March 31, 2019
 
$
(5,772
)
 
$
167

 
$
(24
)
 
$
(5,986
)
 
$
693

 
$
(10,923
)
(a) 
Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $4 million loss for the first three months of 2019.
As of March 31, 2019, with respect to derivative financial instruments, the amount of unrealized pre-tax net gains on derivative financial instruments estimated to be reclassified into income within the next 12 months is approximately $345 million. The net gains are expected to be offset primarily by net losses from reclassification adjustments related to foreign currency exchange-denominated forecasted intercompany inventory sales and available-for-sale debt securities.

18


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

Note 7. Financial Instruments

A. Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the financial assets and liabilities measured at fair value using a market approach on a recurring basis by balance sheet categories and fair value hierarchy level as defined in Notes to Consolidated Financial Statements––Note 1E. Basis of Presentation and Significant Accounting Policies: Fair Value in Pfizer’s 2018 Financial Report:
 
 
March 31, 2019
 
December 31, 2018
(MILLIONS OF DOLLARS)
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
Financial assets measured at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term investments
 
 
 
 
 
 
 
 
 
 
 
 
Classified as equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
1,570


$


$
1,570


$
1,571


$


$
1,571

Equity(a)
 
26

 
16

 
11

 
29

 
17

 
11

 
 
1,597

 
16

 
1,581

 
1,600

 
17

 
1,583

Classified as available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
Government and agency—non-U.S.
 
5,406

 

 
5,406

 
9,609

 

 
9,609

Corporate and other
 
1,773

 

 
1,773

 
5,482

 

 
5,482

 
 
7,180

 

 
7,180

 
15,091

 

 
15,091

Total short-term investments
 
8,776

 
16

 
8,760

 
16,691

 
17

 
16,674

Other current assets
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
81

 

 
81

 
97

 

 
97

Foreign exchange contracts
 
482