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EX-15 - ACCOUNTANTS' ACKNOWLEDGEMENT - PFIZER INCpfe-3292015x10qexhibit15.htm
EX-32.1 - CERTIFICATION BY THE CEO - SECTION 1350 - PFIZER INCpfe-03292015x10qexhibit321.htm
EX-32.2 - CERTIFICATION BY THE CFO - SECTION 1350 - PFIZER INCpfe-03292015x10qexhibit322.htm
EX-31.2 - CERTIFICATION BY THE CFO - SECTION 302 - PFIZER INCpfe-03292015x10qexhibit312.htm
EX-31.1 - CERTIFICATION BY THE CEO - SECTION 302 - PFIZER INCpfe-03292015x10qexhibit311.htm
EXCEL - IDEA: XBRL DOCUMENT - PFIZER INCFinancial_Report.xls
EX-12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - PFIZER INCpfe-3292015x10qexhibit12.htm
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 29, 2015

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
YES   X 
NO ___
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ____
NO   X 

At May 4, 20156,157,669,933 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 29, 2015 and March 30, 2014
 
 
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 29, 2015 and March 30, 2014
 
 
Condensed Consolidated Balance Sheets as of March 29, 2015 and December 31, 2014
 
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 29, 2015 and March 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


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 29,
2015

 
March 30,
2014

Revenues
 
$
10,864

 
$
11,353

Costs and expenses:
 
 
 
 
Cost of sales(a)
 
1,838

 
2,045

Selling, informational and administrative expenses(a)
 
3,104

 
3,040

Research and development expenses(a)
 
1,885

 
1,623

Amortization of intangible assets
 
940

 
1,117

Restructuring charges and certain acquisition-related costs
 
60

 
58

Other (income)/deductions––net
 
(46
)
 
623

Income from continuing operations before provision for taxes on income
 
3,082

 
2,847

Provision for taxes on income
 
706

 
582

Income from continuing operations
 
2,376

 
2,265

Discontinued operations––net of tax
 
5

 
73

Net income before allocation to noncontrolling interests
 
2,381

 
2,338

Less: Net income attributable to noncontrolling interests
 
6

 
9

Net income attributable to Pfizer Inc.
 
$
2,376

 
$
2,329

 
 
 
 
 
Earnings per common share––basic:
 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.38

 
$
0.35

Discontinued operations––net of tax
 

 
0.01

Net income attributable to Pfizer Inc. common shareholders
 
$
0.38

 
$
0.36

 
 
 
 
 
Earnings per common share––diluted:
 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.38

 
$
0.35

Discontinued operations––net of tax
 

 
0.01

Net income attributable to Pfizer Inc. common shareholders
 
$
0.38

 
$
0.36

 
 
 
 
 
Weighted-average shares––basic
 
6,203

 
6,389

Weighted-average shares––diluted
 
6,292

 
6,476

Cash dividends paid per common share
 
$
0.28

 
$
0.26

(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.

3


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
 
Three Months Ended
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
March 30,
2014

Net income before allocation to noncontrolling interests
 
$
2,381

 
$
2,338

 
 
 
 
 
Foreign currency translation adjustments
 
$
(1,308
)
 
$
(75
)
Reclassification adjustments(a)
 

 
(62
)
 
 
(1,308
)
 
(137
)
Unrealized holding losses on derivative financial instruments, net
 
(315
)
 
(58
)
Reclassification adjustments for realized losses(b)
 
234

 
12

 
 
(82
)
 
(46
)
Unrealized holding gains/(losses) on available-for-sale securities, net
 
(328
)
 
108

Reclassification adjustments for realized (gains)/losses(b)
 
247

 
(99
)
 
 
(81
)
 
9

Benefit plans: actuarial gains, net
 
32

 
6

Reclassification adjustments related to amortization(c)
 
136

 
49

Reclassification adjustments related to settlements, net(c)
 
40

 
21

Other
 
158

 
(17
)
 
 
365

 
59

Benefit plans: prior service costs and other, net
 
(1
)
 

Reclassification adjustments related to amortization(c)
 
(35
)
 
(18
)
Reclassification adjustments related to curtailments, net(c)
 
(10
)
 
(4
)
Other
 

 
(1
)
 
 
(46
)
 
(23
)
Other comprehensive loss, before tax
 
(1,152
)
 
(138
)
Tax provision/(benefit) on other comprehensive loss(d)
 
105

 
(17
)
Other comprehensive loss before allocation to noncontrolling interests
 
$
(1,257
)
 
$
(121
)
 
 
 
 
 
Comprehensive income before allocation to noncontrolling interests
 
$
1,124

 
$
2,217

Less: Comprehensive income/(loss) attributable to noncontrolling interests
 
(10
)
 
7

Comprehensive income attributable to Pfizer Inc.
 
$
1,134

 
$
2,210

(a) 
Reclassified into Discontinued operations—net of tax in the condensed consolidated statements of income.
(b) 
Reclassified into Other (income)/deductions—net in the condensed consolidated statements of income.
(c) 
Generally reclassified, as part of net periodic pension cost, into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate, in the condensed consolidated statements of income. For additional information, see Note 10. Pension and Postretirement Benefit Plans.
(d) 
See Note 5C. Tax Matters: Tax Provision/(Benefit) on Other Comprehensive Loss.
Amounts may not add due to rounding.



See Notes to Condensed Consolidated Financial Statements.

4


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
December 31,
2014

 
 
(Unaudited)
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
$
3,563

 
$
3,343

Short-term investments
 
24,145

 
32,779

Trade accounts receivable, less allowance for doubtful accounts: 2015—$444; 2014—$412
 
8,920

 
8,669

Inventories
 
5,786

 
5,663

Current deferred tax assets and other current tax assets
 
4,214

 
4,498

Other current assets
 
2,815

 
2,750

Total current assets
 
49,443

 
57,702

Long-term investments
 
18,289

 
17,518

Property, plant and equipment, less accumulated depreciation
 
11,527

 
11,762

Identifiable intangible assets, less accumulated amortization
 
34,334

 
35,166

Goodwill
 
41,854

 
42,069

Noncurrent deferred tax assets and other noncurrent tax assets
 
1,477

 
1,544

Other noncurrent assets
 
3,716

 
3,513

Total assets
 
$
160,640

 
$
169,274

 
 
 
 
 
Liabilities and Equity
 
 

 
 

Short-term borrowings, including current portion of long-term debt
 
$
6,555

 
$
5,141

Trade accounts payable
 
2,724

 
3,210

Dividends payable
 

 
1,711

Income taxes payable
 
944

 
531

Accrued compensation and related items
 
1,679

 
1,841

Other current liabilities
 
8,320

 
9,197

Total current liabilities
 
20,222

 
21,631

 
 
 
 
 
Long-term debt
 
29,370

 
31,541

Pension benefit obligations, net
 
6,571

 
7,885

Postretirement benefit obligations, net
 
2,480

 
2,379

Noncurrent deferred tax liabilities
 
24,474

 
24,981

Other taxes payable
 
4,293

 
4,353

Other noncurrent liabilities
 
5,644

 
4,883

Total liabilities
 
93,053

 
97,652

 
 
 
 
 
 
 
 
 
 
Preferred stock
 
28

 
29

Common stock
 
458

 
455

Additional paid-in capital
 
80,004

 
78,977

Treasury stock
 
(79,100
)
 
(73,021
)
Retained earnings
 
74,471

 
72,176

Accumulated other comprehensive loss
 
(8,557
)
 
(7,316
)
Total Pfizer Inc. shareholders’ equity
 
67,304

 
71,301

Equity attributable to noncontrolling interests
 
283

 
321

Total equity
 
67,587

 
71,622

Total liabilities and equity
 
$
160,640

 
$
169,274

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

5


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
Three Months Ended
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
March 30,
2014

Operating Activities
 
 
 
 
Net income before allocation to noncontrolling interests
 
$
2,381

 
$
2,338

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

 
 

Depreciation and amortization
 
1,260

 
1,456

Asset write-offs and impairments
 
11

 
137

Deferred taxes from continuing operations
 
(41
)
 
345

Share-based compensation expense
 
162

 
143

Benefit plan contributions in excess of expense
 
(874
)
 
(99
)
Other adjustments, net
 
(336
)
 
(294
)
Other changes in assets and liabilities, net of acquisitions and divestitures
 
(1,879
)
 
(1,091
)
Net cash provided by operating activities
 
685

 
2,935

 
 
 
 
 
Investing Activities
 
 

 
 

Purchases of property, plant and equipment
 
(239
)
 
(292
)
Purchases of short-term investments
 
(7,546
)
 
(8,721
)
Proceeds from redemptions/sales of short-term investments
 
10,702

 
7,569

Net proceeds from redemptions/sales of short-term investments with original maturities of 90 days or less
 
5,243

 
1,500

Purchases of long-term investments
 
(3,150
)
 
(1,808
)
Proceeds from redemptions/sales of long-term investments
 
1,937

 
1,454

Acquisitions of businesses, net of cash acquired
 
(678
)
 

Acquisitions of intangible assets
 
(7
)
 
(6
)
Other investing activities, net
 
330

 
206

Net cash provided by/(used in) investing activities
 
6,592

 
(98
)
 
 
 
 
 
Financing Activities
 
 

 
 

Proceeds from short-term borrowings
 
1,998

 

Principal payments on short-term borrowings
 

 
(3
)
Net proceeds from short-term borrowings with original maturities of 90 days or less
 
863

 
1,031

Principal payments on long-term debt
 
(3,002
)
 
(752
)
Purchases of common stock
 
(6,000
)
 
(1,197
)
Cash dividends paid
 
(1,758
)
 
(1,662
)
Proceeds from exercise of stock options
 
794

 
425

Other financing activities, net
 
122

 
25

Net cash used in financing activities
 
(6,982
)
 
(2,133
)
Effect of exchange-rate changes on cash and cash equivalents
 
(74
)
 
(25
)
Net increase in cash and cash equivalents
 
220

 
679

Cash and cash equivalents, beginning
 
3,343

 
2,183

Cash and cash equivalents, end
 
$
3,563

 
$
2,862

 
 
 

 
 

Supplemental Cash Flow Information
 
 
 
 
Cash paid during the period for:
 
 

 
 

Income taxes
 
$
372

 
$
536

Interest
 
332

 
361

Amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements.

6


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

We prepared the condensed consolidated financial statements following the requirements of the U.S. Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted.

Balance sheet amounts and operating results for subsidiaries operating outside the U.S. are as of and for the three months ended February 22, 2015 and February 23, 2014.

In the condensed consolidated balance sheet as of December 31, 2014, we performed certain reclassifications to conform to current period presentation, none of which were material to our financial statements.
On February 5, 2015, we announced that we have entered into a definitive merger agreement under which we agreed to acquire Hospira, Inc. (Hospira), the world’s leading provider of injectable drugs and infusion technologies and a global leader in biosimilars, for $90 per share in cash, for a total enterprise value of approximately $17 billion. We expect to finance the transaction through a combination of existing cash and new debt, with approximately two-thirds of the value financed from cash and one-third from debt. The transaction is subject to customary closing conditions, including regulatory approvals in several jurisdictions and the approval of Hospira's shareholders, and is expected to close in the second half of 2015.

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 financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our condensed consolidated balance sheets and condensed consolidated statements of income.

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 2014 Annual Report on Form 10-K.

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 Standard

We adopted a new accounting and disclosure standard as of January 1, 2015 that limits the presentation of discontinued operations to business circumstances when the disposal of the business operation represents a strategic shift that has had or will have a major effect on our operations and financial results. This new standard is applied prospectively to all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December
15, 2014, and interim periods within those years. We did not have any disposals within the scope of this new standard and, therefore, there were no impacts to our condensed consolidated financial statements.

C. Fair Value

Our fair value methodologies depend on the following types of inputs:
Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).
Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs).
Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

7


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

Note 2. Acquisition, Collaborative Arrangements and Equity-Method Investment

A. Acquisition

Marketed Vaccines Business of Baxter International Inc. (Baxter)
On December 1, 2014 (which falls in the first fiscal quarter of 2015 for our international operations), we completed the acquisition of Baxter's portfolio of marketed vaccines for a final purchase price of $648 million. The portfolio that was acquired consists of NeisVac-C and FSME-IMMUN/TicoVac. NeisVac-C is a vaccine that helps protect against meningitis caused by group C meningococcal meningitis and FSME-IMMUN/TicoVac is a vaccine that helps protect against tick-borne encephalitis. In connection with this acquisition, we recorded $376 million in Identifiable intangible assets, primarily consisting of $371 million in Developed technology rights. We also recorded $196 million of Inventories and $11 million in Goodwill. The final allocation of the consideration transferred to the assets acquired and the liabilities assumed has not yet been completed.

B. Collaborative Arrangements

Collaboration with Eli Lilly & Company (Lilly)

In October 2013, we entered into a collaboration agreement with Lilly to jointly develop and globally commercialize Pfizer's tanezumab, which provides that Pfizer and Lilly will equally share product-development expenses as well as potential revenues and certain product-related costs. On March 23, 2015, Pfizer and Lilly announced that the companies are preparing to resume the Phase 3 clinical program for tanezumab. As a result, we received a $200 million upfront payment from Lilly in accordance with the collaboration agreement between Pfizer and Lilly, which was recorded as deferred revenue in our condensed consolidated balance sheet as of March 29, 2015 and is being recognized into Other (income)/deductions––net over a multi-year period beginning in the second quarter of 2015. This announcement followed a decision by the U.S. Food and Drug Administration (FDA) to lift the partial clinical hold on the tanezumab development program after a review of nonclinical data characterizing the sympathetic nervous system response to tanezumab. Under the collaboration agreement with Lilly, we are eligible to receive certain payments from Lilly upon the achievement of specified regulatory and commercial milestones, including the aforementioned upfront payment of $200 million, which was contingent upon the parties continuing in the collaboration after receipt of the FDA’s response to the submission of the nonclinical data.

Collaboration with OPKO Health, Inc. (OPKO)
On December 13, 2014, we entered into a collaborative agreement with OPKO to develop and commercialize OPKO’s long-acting human growth hormone (hGH-CTP) for the treatment of growth hormone deficiency (GHD) in adults and children, as well as for the treatment of growth failure in children born small for gestational age (SGA) who fail to show catch-up growth by two years of age. hGH-CTP has the potential to reduce the required dosing frequency of human growth hormone to a single weekly injection from the current standard of one injection per day. The transaction closed on January 28, 2015, upon termination of the waiting period under the Hart-Scott Rodino Act. In February 2015, we made an upfront payment of $295 million to OPKO, which was recorded in Research and development expenses, and OPKO is eligible to receive up to an additional $275 million upon the achievement of certain regulatory milestones. We have received the exclusive license to commercialize hGH-CTP worldwide. Subject to regulatory approval, OPKO is eligible to receive royalty payments associated with the commercialization of hGH-CTP for Adult GHD. Upon the launch of hGH-CTP for Pediatric GHD, the royalties will transition to tiered gross profit sharing for both hGH-CTP and our product, Genotropin. OPKO will lead the clinical activities and will be responsible for funding the development programs for the key indications, which includes Adult and Pediatric GHD and Pediatric SGA. We will be responsible for all development costs for additional indications, as well as all postmarketing studies and the commercialization activities for all indications, and lead the manufacturing activities covered by the global development plan.

C. Equity-Method Investment

Investment in ViiV Healthcare Limited (ViiV)
Our minority ownership interest in ViiV, a company formed in 2009 by Pfizer and GlaxoSmithKline plc (GSK) to focus solely on research, development and commercialization of human immunodeficiency virus (HIV) medicines, was impacted by the January 21, 2014 European Commission approval of Tivicay (dolutegravir), a product for the treatment of HIV-1 infection, developed by ViiV. This approval triggered a reduction in our equity interest in ViiV from 12.6% to 11.7%, effective April 1, 2014. As a result, in the first quarter of 2014, we recognized a loss of approximately $36 million in Other (income)/deductions––net.

8


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

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 research and development (R&D), as well as groups such as information technology, shared services and corporate operations.

In early 2014, we announced that we would be incurring costs in 2014-2016 related to new programs: our new global commercial structure reorganization and additional cost-reduction/productivity initiatives.

We have the following initiatives underway:
Manufacturing plant network rationalization and optimization, where execution timelines are necessarily long. Our plant network strategy is expected to result in the exit of six sites over the next several years. In connection with these activities, during 2014-2016, we expect to incur costs of approximately $300 million associated with prior acquisition activity and costs of approximately $1.5 billion associated with new non-acquisition-related cost-reduction initiatives. Through March 29, 2015, we incurred approximately $205 million and $293 million, respectively, associated with these initiatives.
New global commercial structure reorganization, which primarily includes the streamlining of certain functions, the realignment of regional locations and colleagues to support the businesses, as well as implementing the necessary system changes to support future reporting requirements. In connection with this reorganization, during 2014-2016, we expect to incur costs of approximately $300 million. Through March 29, 2015, we incurred approximately $179 million associated with this reorganization.
Other new cost-reduction/productivity initiatives, primarily related to commercial property rationalization and consolidation. In connection with these cost-reduction activities, during 2014-2016, we expect to incur costs of approximately $850 million. Through March 29, 2015, we incurred approximately $231 million associated with these initiatives.
The costs expected to be incurred during 2014-2016, of approximately $2.9 billion in total, include restructuring charges, integration costs, implementation costs and additional depreciation––asset restructuring. Of this amount, we expect that about a quarter of the charges will be non-cash.

Current-Period Key Activities

In the first quarter of 2015, we incurred approximately $121 million in cost-reduction and acquisition-related costs (excluding transaction costs) in connection with the aforementioned programs, primarily associated with our manufacturing and sales operations.

9


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

The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
 
 
Three Months Ended
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
March 30,
2014

Restructuring charges(a):
 
 

 
 

Employee terminations
 
$
31

 
$
30

Asset impairments
 
6

 
6

Exit costs
 
6

 
4

Total restructuring charges
 
42

 
40

Transaction costs(b)
 
5

 

Integration costs(c)
 
13

 
18

Restructuring charges and certain acquisition-related costs
 
60

 
58

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

 
 

Cost of sales
 
17

 
74

Research and development expenses
 
1

 

Total additional depreciation––asset restructuring
 
18

 
74

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

 
 

Cost of sales
 
13

 
6

Selling, informational and administrative expenses
 
26

 
15

Research and development expenses
 
8

 
11

Total implementation costs
 
48

 
32

Total costs associated with acquisitions and cost-reduction/productivity initiatives
 
$
127

 
$
164

(a) 
In the three months ended March 29, 2015, Employee terminations represent the expected reduction of the workforce by approximately 200 employees, mainly in manufacturing and sales.
The restructuring charges for the three months ended March 29, 2015 are associated with the following:
the Global Innovative Pharmaceutical segment (GIP) ($12 million); the Global Vaccines, Oncology and Consumer Healthcare segment (VOC) ($13 million); the Global Established Pharmaceutical segment (GEP) ($10 million); Worldwide Research and Development and Medical ($12 million); manufacturing operations ($22 million income); and Corporate ($18 million).
The restructuring charges for the three months ended March 30, 2014 are associated with the following:
the Global Innovative Pharmaceutical segment (GIP) ($2 million); the Global Established Pharmaceutical segment (GEP) ($7 million); Worldwide Research and Development and Medical ($1 million); manufacturing operations ($26 million); and Corporate ($4 million).
(b)
Transaction costs represent external costs directly related to acquired businesses and primarily include expenditures for banking, legal, accounting and other similar services.
(c) 
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.
(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 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, 2014(a)
 
$
1,114

 
$

 
$
52

 
$
1,166

Provision
 
31

 
6

 
6

 
42

Utilization and other(b)
 
(127
)
 
(6
)
 
(30
)
 
(162
)
Balance, March 29, 2015(c)
 
$
1,019

 
$

 
$
28

 
$
1,046

(a) 
Included in Other current liabilities ($735 million) and Other noncurrent liabilities ($431 million).
(b) 
Includes adjustments for foreign currency translation.
(c) 
Included in Other current liabilities ($648 million) and Other noncurrent liabilities ($398 million).

10


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

Note 4. Other (Income)/Deductions—Net
The following table provides components of Other (income)/deductions––net:
 
 
Three Months Ended
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
March 30,
2014

Interest income
 
$
(93
)
 
$
(92
)
Interest expense(a)
 
309

 
321

Net interest expense
 
216

 
229

Royalty-related income(b)
 
(222
)
 
(248
)
Certain legal matters, net(c)
 

 
694

Net gains on asset disposals(d)
 
(175
)
 
(181
)
Certain asset impairments(e)
 

 
115

Business and legal entity alignment costs(f)
 
101

 
29

Other, net
 
34

 
(15
)
Other (income)/deductions––net
 
$
(46
)
 
$
623

(a) 
Interest expense decreased in the first quarter of 2015, primarily due to lower interest rates on new fixed rate debt added in the second quarter of 2014 and the benefit of the effective conversion of some fixed-rate liabilities to floating-rate liabilities.
(b) 
Royalty-related income decreased in the first quarter of 2015, primarily due to a decrease in royalties earned on Amgen Inc.'s sales of Enbrel in the U.S. and Canada due to a decrease in the royalty rate per the terms of the collaboration agreement.
(c) 
In the first quarter of 2014, primarily includes approximately $620 million for Neurontin-related matters (including off-label promotion actions and antitrust actions) and approximately $50 million for an Effexor-related matter.
(d) 
In the first quarter of 2015, primarily includes gains on sales/out-licensing of product and compound rights (approximately $45 million) and gains on sales of investments in equity securities (approximately $120 million). In the first quarter of 2014, primarily includes gains on sales/out-licensing of product and compound rights (approximately $70 million) and gains on sales of investments in equity securities (approximately $95 million).
(e) 
In the first quarter of 2014, includes an intangible asset impairment charge of $114 million, virtually all of which relates to an in-process research and development (IPR&D) compound for the treatment of skin fibrosis. The intangible asset impairment charge for the first quarter of 2014 is associated with Worldwide Research and Development and reflects, among other things, the impact of changes to the development program.
(f) 
In the first quarter of 2015 and 2014, represents expenses for planning and implementing changes to our infrastructure to align our operations and reporting for our business segments established in 2014.

Note 5. Tax Matters

A. Taxes on Income from Continuing Operations

Our effective tax rate for continuing operations was 22.9% for the first quarter of 2015, compared to 20.4% for the first quarter of 2014.

The higher effective tax rate for the first quarter of 2015 in comparison with the same period in 2014 was primarily due to:
a decline in favorable benefits associated with the resolution of certain tax positions pertaining to prior years, primarily with various foreign tax authorities, and the expiration of certain statutes of limitations,
partially offset by:
the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business.


11


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

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 Inc., tax years 2009-2013 are currently under audit. Tax years 2014 and 2015 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 (2004-2015), Japan (2013-2015), Europe (2007-2015, primarily reflecting Ireland, the United Kingdom, France, Italy, Spain and Germany), Latin America (1998-2015, primarily reflecting Brazil) and Puerto Rico (2009-2015).
C. Tax Provision/(Benefit) on Other Comprehensive Loss
The following table provides the components of the Tax provision/(benefit) on Other comprehensive loss:
 
 
Three Months Ended
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
March 30,
2014

 
 
 
 
 
Foreign currency translation adjustments(a)
 
$
85

 
$
(7
)
Unrealized holding losses on derivative financial instruments, net
 
(224
)
 
(17
)
Reclassification adjustments for realized losses
 
183

 
(1
)
 
 
(41
)
 
(18
)
Unrealized holding gains/(losses) on available-for-sale securities, net
 
(31
)
 
27

Reclassification adjustments for realized (gains)/losses
 
(1
)
 
(29
)
 
 
(32
)
 
(2
)
Benefit plans: actuarial gains, net
 
12

 
1

Reclassification adjustments related to amortization
 
46

 
16

Reclassification adjustments related to settlements, net
 
15

 
8

Other
 
37

 
(12
)
 
 
109

 
13

Reclassification adjustments related to amortization
 
(13
)
 
(7
)
Reclassification adjustments related to curtailments, net
 
(4
)
 
(1
)
Other
 

 
5

 
 
(17
)
 
(3
)
Tax provision/(benefit) on other comprehensive loss
 
$
105

 
$
(17
)
(a) 
Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.

12


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

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 Loss

Balance, December 31, 2014
 
$
(2,689
)
 
$
517

 
$
(222
)
 
$
(5,654
)
 
$
733

 
$
(7,316
)
Other comprehensive income/(loss)(a)
 
(1,378
)
 
(41
)
 
(49
)
 
256

 
(29
)
 
(1,241
)
Balance, March 29, 2015
 
$
(4,067
)
 
$
476

 
$
(271
)
 
$
(5,398
)
 
$
703

 
$
(8,557
)
(a) 
Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $16 million loss for the first three months of 2015.

As of March 29, 2015, with respect to derivative financial instruments, the amount of unrealized pre-tax gains estimated to be reclassified into income within the next 12 months is $435 million (which is expected to be offset primarily by losses resulting from reclassification adjustments related to available-for-sale securities).

13


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

Note 7. Financial Instruments

A. Selected Financial Assets and Liabilities
The following table provides additional information about certain of our financial assets and liabilities:
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
December 31,
2014

Selected financial assets measured at fair value on a recurring basis(a)
 
 
 
 
Trading equity funds
 
$
94

 
$

Trading debt funds
 
102

 

Trading securities held in trust(b)
 
85

 
105

Available-for-sale debt securities(c)
 
34,930

 
39,762

Available-for-sale money market funds
 
1,883

 
2,174

Available-for-sale equity securities, excluding money market funds(c)
 
393

 
397

Derivative financial instruments in a receivable position(d):
 
 

 
 

Interest rate swaps
 
935

 
801

Foreign currency swaps
 
577

 
593

Foreign currency forward-exchange contracts
 
594

 
547

 
 
39,592

 
44,379

Other selected financial assets
 
 

 
 

Held-to-maturity debt securities, carried at amortized cost(c), (e)
 
4,323

 
7,255

Private equity securities, carried at equity-method or at cost(e), (f)
 
1,969

 
1,993

 
 
6,292

 
9,248

Total selected financial assets
 
$
45,884

 
$
53,627

Selected financial liabilities measured at fair value on a recurring basis(a)
 
 

 
 

Derivative financial instruments in a liability position(g):
 
 

 
 

Interest rate swaps
 
$
72

 
$
17

Foreign currency swaps
 
1,342

 
594

Foreign currency forward-exchange contracts
 
142

 
78

 
 
1,556

 
689

Other selected financial liabilities(h)
 
 

 
 

Short-term borrowings, carried at historical proceeds, as adjusted(e)
 
6,555

 
5,141

Long-term debt, carried at historical proceeds, as adjusted(i), (j)
 
29,370

 
31,541

 
 
35,925

 
36,682

Total selected financial liabilities
 
$
37,481

 
$
37,371

(a) 
We use a market approach in valuing financial instruments on a recurring basis. For additional information, see Note 1C. All of our financial assets and liabilities measured at fair value on a recurring basis use Level 2 inputs in the calculation of fair value, except less than 1% that use Level 1 inputs.
(b) 
Trading securities are equity securities as of March 27, 2015, and debt and equity securities as of December 31, 2014, held in trust for benefits attributable to the former Pharmacia Savings Plus Plan.
(c) 
Gross unrealized gains and losses are not significant.
(d) 
Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $114 million as of March 29, 2015; and foreign currency forward-exchange contracts with fair values of $159 million as of December 31, 2014.
(e) 
The differences between the estimated fair values and carrying values of held-to-maturity debt securities, private equity securities at cost and short-term borrowings not measured at fair value on a recurring basis were not significant as of March 29, 2015 or December 31, 2014. The fair value measurements of our held-to-maturity debt securities and our short-term borrowings are based on Level 2 inputs, using a market approach. The fair value measurements of our private equity securities carried at cost are based on Level 3 inputs.
(f) 
Our private equity securities represent investments in the life sciences sector.
(g) 
Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency swaps with fair values of $233 million and foreign currency forward-exchange contracts with fair values of $59 million as of March 29, 2015; and foreign currency swaps with fair values of $121 million and foreign currency forward-exchange contracts with fair values of $54 million as of December 31, 2014.
(h) 
Some carrying amounts may include adjustments for discount or premium amortization or for the effect of hedging the interest rate fair value risk associated with certain financial liabilities by interest rate swaps.
(i) 
Includes foreign currency debt with fair values of $557 million as of March 29, 2015 and $560 million as of December 31, 2014, which are used as hedging instruments.
(j) 
The fair value of our long-term debt (not including the current portion of long-term debt) was $34.8 billion as of March 29, 2015 and $36.6 billion as of December 31, 2014. The fair value measurements for our long-term debt are based on Level 2 inputs, using a market approach. Generally, the

14


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

difference between the fair value of our long-term debt and the amount reported on the condensed consolidated balance sheet is due to a decline in relative market interest rates since the debt issuance.

The following table provides the classification of these selected financial assets and liabilities in our condensed consolidated balance sheets:
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
December 31,
2014

Assets
 
 
 
 
Cash and cash equivalents
 
$
1,345

 
$
1,389

Short-term investments
 
24,145

 
32,779

Long-term investments
 
18,289

 
17,518

Other current assets(a)
 
1,073

 
1,059

Other noncurrent assets(b)
 
1,032

 
881

 
 
$
45,884

 
$
53,627

Liabilities
 
 

 
 

Short-term borrowings, including current portion of long-term debt
 
$
6,555

 
$
5,141

Other current liabilities(c)
 
174

 
93

Long-term debt
 
29,370

 
31,541

Other noncurrent liabilities(d)
 
1,382

 
596

 
 
$
37,481

 
$
37,371

(a) 
As of March 29, 2015, derivative instruments at fair value include interest rate swaps ($1 million), foreign currency swaps ($500 million) and foreign currency forward-exchange contracts ($572 million) and, as of December 31, 2014, include interest rate swaps ($34 million), foreign currency swaps ($494 million) and foreign currency forward-exchange contracts ($531 million).
(b) 
As of March 29, 2015, derivative instruments at fair value include interest rate swaps ($934 million), foreign currency swaps ($76 million) and foreign currency forward-exchange contracts ($22 million) and, as of December 31, 2014, include interest rate swaps ($767 million), foreign currency swaps ($99 million) and foreign currency forward-exchange contracts ($15 million).
(c) 
As of March 29, 2015, derivative instruments at fair value include interest rate swaps ($1 million), foreign currency swaps ($33 million) and foreign currency forward-exchange contracts ($140 million) and, as of December 31, 2014, include interest rate swaps ($1 million), foreign currency swaps ($13 million) and foreign currency forward-exchange contracts ($78 million).
(d) 
As of March 29, 2015, derivative instruments at fair value include interest rate swaps ($71 million), foreign currency swaps ($1.3 billion) and foreign currency forward-exchange contracts ($1 million) and, as of December 31, 2014, include interest rate swaps ($16 million) and foreign currency swaps ($581 million).

There were no significant impairments of financial assets recognized in any period presented.


15


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

B. Investments in Debt Securities
The following table provides the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities:
 
 
Years
 
March 29,
2015

(MILLIONS OF DOLLARS)
 
Within 1

 
Over 1
to 5

 
Over 5
to 10

 
Over 10

 
Total

Available-for-sale debt securities
 
 
 
 
 
 
 
 
 
 
Western European, Asian and other government debt(a)
 
$
10,827

 
$
2,228

 
$

 
$

 
$
13,055

Corporate debt(b)
 
3,562

 
4,062

 
1,814

 
66

 
9,504

Western European, Scandinavian and other government agency debt(a)
 
2,295

 
502

 

 

 
2,798

U.S. government debt
 

 
2,437

 
94

 

 
2,531

Supranational debt(a)
 
1,084

 
854

 

 

 
1,938

Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities
 
19

 
1,902

 
8

 
5

 
1,933

Government National Mortgage Association and other U.S. government guaranteed asset-backed securities
 
290

 
699

 

 

 
989

Other asset-backed debt(c)
 
914

 
959

 
8

 

 
1,882

Reverse repurchase agreements(d)
 
300

 

 

 

 
300

Held-to-maturity debt securities
 
 
 
 
 
 

 
 
 
 

Time deposits, corporate debt and other(a)
 
2,865

 
4

 
3

 

 
2,872

Western European and other government debt(a)
 
1,451

 

 

 

 
1,451

Total debt securities
 
$
23,608

 
$
13,647

 
$
1,927

 
$
71

 
$
39,253

(a) 
Issued by governments, government agencies or supranational entities, as applicable, all of which are investment-grade.
(b) 
Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment-grade.
(c) 
Includes loan-backed, receivable-backed, and mortgage-backed securities, all of which are investment-grade and in senior positions in the capital structure of the security. Loan-backed securities are collateralized by senior secured obligations of a diverse pool of companies or student loans, and receivable-backed securities are collateralized by credit cards receivables. Mortgage-backed securities are collateralized by diversified pools of residential and commercial mortgages.
(d) 
Involving U.S. securities.

C. Short-Term Borrowings

Short-term borrowings include amounts for commercial paper of $3.6 billion as of March 29, 2015 and $570 million as of December 31, 2014.

D. Derivative Financial Instruments and Hedging Activities

Foreign Exchange Risk

As of March 29, 2015, the aggregate notional amount of foreign exchange derivative financial instruments hedging or offsetting foreign currency exposures was $36.3 billion. The derivative financial instruments primarily hedge or offset exposures in the euro, Japanese yen, U.K. pound and Swiss franc. The maximum length of time over which we are hedging future foreign exchange cash flow relates to our $2.2 billion U.K. pound debt maturing in 2038.

Interest Rate Risk

As of March 29, 2015, the aggregate notional amount of interest rate derivative financial instruments was $20.4 billion. The derivative financial instruments primarily hedge U.S. dollar and euro fixed-rate debt.


16


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

The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk:
 
 
Amount of
Gains/(Losses)
Recognized in OID(a), (b), (c)
 
Amount of
Gains/(Losses)
Recognized in OCI
(Effective Portion)(a), (d)
 
Amount of
Gains/(Losses)
Reclassified from
OCI into OID
(Effective Portion)(a), (d)
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
March 30,
2014

 
March 29,
2015

 
March 30,
2014

 
March 29,
2015

 
March 30,
2014

Three Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Financial Instruments in Cash Flow Hedge Relationships:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency swaps
 
$

 
$

 
$
(732
)
 
$
(15
)
 
$
(607
)
 
$
9

Foreign currency forward-exchange contracts
 

 

 
417

 
(43
)
 
373

 
(21
)
Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency swaps
 

 

 

 
(8
)
 

 

Foreign currency forward-exchange contracts
 
2

 

 
249

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Financial Instruments Not Designated as Hedges:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward-exchange contracts
 
(41
)
 
(12
)
 

 

 

 

Foreign currency swaps
 
1

 
(3
)
 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency long-term debt
 

 

 
(3
)
 
(14
)
 

 

All other net
 

 
(3
)
 

 

 

 

 
 
$
(38
)
 
$
(18
)
 
$
(68
)
 
$
(80
)
 
$
(234
)
 
$
(12
)
(a) 
OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the condensed consolidated statements of income. OCI = Other comprehensive income/(loss), included in the condensed consolidated statements of comprehensive income.
(b) 
Also, includes gains and losses attributable to derivative instruments designated and qualifying as fair value hedges, as well as the offsetting gains and losses attributable to the hedged items in such hedging relationships.
(c) 
There was no significant ineffectiveness for any period presented.
(d) 
For derivative financial instruments in cash flow hedge relationships, the effective portion is included in Other comprehensive loss––Unrealized holding losses on derivative financial instruments, net. For derivative financial instruments in net investment hedge relationships and for foreign currency debt designated as hedging instruments, the effective portion is included in Other comprehensive loss––Foreign currency translation adjustments.

For information about the fair value of our derivative financial instruments, and the impact on our condensed consolidated balance sheets, see Note 7A. Certain of our derivative instruments are covered by associated credit-support agreements that have credit-risk-related contingent features designed to reduce our counterparties’ exposure to our risk of defaulting on amounts owed. As of March 29, 2015, the aggregate fair value of these derivative instruments that are in a net liability position was $729 million, for which we have posted collateral of $710 million in the normal course of business. These features include the requirement to pay additional collateral in the event of a downgrade in our debt ratings. If there had been a downgrade to below an A rating by Standard and Poor's (S&P) or the equivalent rating by Moody's Investors Service, on March 29, 2015, we would have been required to post an additional $21 million of collateral to our counterparties. The collateral advanced receivables are reported in Short-term investments.

E. 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. As of March 29, 2015, we had $3.1 billion due from a well-diversified, highly rated group (S&P ratings of mostly A or better) of bank counterparties around the world. For details about our investments, see Note 7B above.

In general, there is no requirement for collateral from customers. However, derivative financial instruments are executed under master netting agreements with financial institutions and these agreements contain provisions that provide for the ability for collateral payments, depending on levels of exposure, our credit rating and the credit rating of the counterparty. As of March 29, 2015, we received cash collateral of $1.4 billion from various counterparties. The collateral primarily supports the approximate

17


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

fair value of our derivative contracts. With respect to the collateral received, which is included in Cash and cash equivalents, the obligations are reported in Short-term borrowings, including current portion of long-term debt.

Note 8. Inventories
The following table provides the components of Inventories:
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
December 31,
2014

Finished goods
 
$
1,898

 
$
1,905

Work-in-process
 
3,414

 
3,248

Raw materials and supplies
 
475

 
510

Inventories
 
$
5,786

 
$
5,663

Noncurrent inventories not included above(a)
 
$
467

 
$
425

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

Note 9. Identifiable Intangible Assets and Goodwill

A. Identifiable Intangible Assets

Balance Sheet Information
The following table provides the components of Identifiable intangible assets:
 
 
March 29, 2015
 
December 31, 2014
(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
 
$
70,251

 
$
(44,759
)
 
$
25,493

 
$
70,946

 
$
(44,694
)
 
$
26,252

Brands
 
1,910

 
(869
)
 
1,041

 
1,951

 
(855
)
 
1,096

Licensing agreements and other
 
1,057

 
(897
)
 
160

 
991

 
(832
)
 
159

 
 
73,219

 
(46,525
)
 
26,694

 
73,887

 
(46,381
)
 
27,506

Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
Brands and other
 
7,206

 


 
7,206

 
7,273

 


 
7,273

In-process research and development
 
434

 


 
434

 
387

 


 
387

 
 
7,640

 


 
7,640

 
7,660

 


 
7,660

Identifiable intangible assets(a)
 
$
80,859

 
$
(46,525
)
 
$
34,334

 
$
81,547

 
$
(46,381
)
 
$
35,166

(a) 
The decrease in identifiable intangible assets, less accumulated amortization, is primarily related to amortization, partially offset by assets acquired as part of the acquisition of Baxter's portfolio of marketed vaccines. For information about the assets acquired as part of the acquisition of Baxter's portfolio of marketed vaccines, see Note 2A.
Our identifiable intangible assets are associated with the following segments, as a percentage of total identifiable intangible assets, less accumulated amortization:
 
 
March 29, 2015
 
 
GIP
 
VOC
 
GEP
Developed technology rights
 
31
%
 
36
%
 
33
%
Brands, finite-lived
 
%
 
80
%
 
20
%
Brands, indefinite-lived
 
%
 
69
%
 
31
%
In-process research and development
 
7
%
 
38
%
 
55
%


18


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

Amortization

Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets, as these intangible assets benefit multiple business functions. Amortization expense related to intangible assets that are associated with a single function is included in Cost of sales, Selling, informational and administrative expenses and/or Research and development expenses, as appropriate. Total amortization expense for finite-lived intangible assets was $1.0 billion for the first quarter of 2015 and $1.1 billion for the first quarter of 2014.

Impairment Charges

For information about impairments of intangible assets, see Note 4.

For IPR&D assets, the risk of failure is significant and there can be no certainty that these assets ultimately will yield successful products. The nature of the biopharmaceutical business is high-risk and, as such, we expect that many of these IPR&D assets will become impaired and be written off at some time in the future.

B. Goodwill
The following table provides the components of and changes in the carrying amount of Goodwill:
(MILLIONS OF DOLLARS)
 
GIP

 
VOC

 
GEP

 
Total

Balance, December 31, 2014
 
$
13,032

 
$
11,398

 
$
17,639

 
$
42,069

Additions
 

 
37

 

 
37

Other(a)
 
(69
)
 
(90
)
 
(94
)
 
(252
)
Balance, March 29, 2015
 
$
12,963

 
$
11,345

 
$
17,545

 
$
41,854

(a) 
Primarily reflects the impact of foreign exchange.



19


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

Note 10. Pension and Postretirement Benefit Plans
The following table provides the components of net periodic benefit cost:
 
 
Pension Plans
 
 
 
 
 
 
U.S.
Qualified(a)
 
U.S.
Supplemental
(Non-Qualified)(b)
 
International(c)
 
Postretirement
Plans(d)
(MILLIONS OF DOLLARS)
 
March 29,
2015

 
March 30,
2014

 
March 29,
2015

 
March 30,
2014

 
March 29,
2015

 
March 30,
2014

 
March 29,
2015

 
March 30,
2014

Three Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
72

 
$
64

 
$
6

 
$
5

 
$
48

 
$
52

 
$
14

 
$
14

Interest cost
 
169

 
175

 
14

 
15

 
79

 
100

 
32

 
42

Expected return on plan assets
 
(272
)
 
(263
)
 

 

 
(106
)
 
(114
)
 
(13
)
 
(16
)
Amortization of:
 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

Actuarial losses
 
83

 
16

 
12

 
7

 
32

 
25

 
9

 
1

Prior service credits
 
(2
)
 
(2
)
 

 

 
(2
)
 
(2
)
 
(31
)
 
(14
)
Curtailments
 
2

 
2

 

 

 

 
(1
)
 
(10
)
 
(3
)
Settlements
 
26

 
9

 
15

 
11

 

 
1

 

 

Special termination benefits
 

 

 

 

 

 
2

 

 

 
 
$
78

 
$
1

 
$
45

 
$
38

 
$
51

 
$
63

 
$
1

 
$
24

(a)
The increase in net periodic benefit costs for the three months ended March 29, 2015, compared to the three months ended March 30, 2014, for our U.S. qualified pension plans was primarily driven by (i) the increase in the amounts amortized for actuarial losses resulting from the decrease, in 2014, in the discount rate used to determine the benefit obligation (which increased the amount of deferred actuarial losses) and, to a lesser extent, a 2014 change in mortality assumptions (reflecting a longer life expectancy for plan participants), and (ii) higher settlement activity. The aforementioned increases were partially offset by (i) a greater expected return on plan assets resulting from an increased plan asset base due to a voluntary contribution of $1.0 billion made at the beginning of January 2015, which in turn was partially offset by a decrease in the expected rate of return on plan assets from 8.5% to 8.25%, and (ii) lower interest costs resulting from the decrease, in 2014, in the discount rate used to determine the benefit obligation.
(b)
The increase in net periodic benefit costs for the three months ended March 29, 2015, compared to the three months ended March 30, 2014, for our U.S. supplemental (non-qualified) pension plans was primarily driven by (i) the increase in the amounts amortized for actuarial losses resulting from the decrease, in 2014, in the discount rate used to determine the benefit obligation and, to a lesser extent, a 2014 change in mortality assumptions (reflecting a longer life expectancy for plan participants), and (ii) higher settlement activity.
(c)
The decrease in net periodic benefit costs for the three months ended March 29, 2015, compared to the three months ended March 30, 2014, for our international pension plans was primarily driven by (i) the decrease in interest cost resulting from the decrease, in 2014, in the discount rate used to determine the benefit obligation, (ii) a decrease in service cost related to changes in actuarial assumptions (lower inflation and lower rate of wage increases) and the U.K. pension plan freeze in 2014, which offset the impact of the decrease in 2014, in the discount rate used to determine the benefit obligation (the effect of which is an increase in service costs). The aforementioned decreases to net periodic benefit costs were partially offset by (i) a decrease in the expected return on plan assets due to a lower expected rate of return on plan assets and (ii) an increase in the amounts amortized for actuarial losses resulting from the decrease, in 2014, in the discount rate used to determine the benefit obligation.
(d) 
The decrease in net periodic benefit costs for the three months ended March 29, 2015, compared to the three months ended March 30, 2014, for our postretirement plans was primarily driven by (i) the increase in the amounts amortized for prior service credits and (ii) an increase in curtailment gain resulting from the implementation of changes related to the employer group waiver plan, which went into effect on January 1, 2015, as well as (iii) a decrease in interest cost resulting from the decrease, in 2014, in the discount rate used to determine the benefit obligation. The aforementioned decreases were partially offset by an increase in actuarial losses resulting from the decrease, in 2014, in the discount rate used to determine the benefit obligation.


20


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

As of and for the three months ended March 29, 2015, we contributed and expect to contribute from our general assets as follows:
 
 
Pension Plans
 
 
(MILLIONS OF DOLLARS)
 
U.S. Qualified
 
U.S. Supplemental (Non-Qualified)
 
International
 
Postretirement Plans
Contributions from our general assets for the three months ended March 29, 2015(a)
 
$
1,000

 
$
72

 
$
58

 
$
(81
)
Expected contributions from our general assets during 2015(b)
 
$
1,000

 
$
136

 
$
240

 
$
86

(a) 
Contributions to the postretirement plans were offset by reimbursements of approximately $133 million received for eligible 2014 prescription expenses for certain retirees.
(b) 
Contributions expected to be made for 2015 are inclusive of amounts contributed during the three months ended March 29, 2015, including the $1.0 billion voluntary contribution that was made in January 2015 for the U.S. Qualified plan. The U.S. supplemental (non-qualified) pension plan, international pension plan and the postretirement plan contributions from our general assets include direct employer benefit payments.


21


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

Note 11. Earnings Per Common Share Attributable to Common Shareholders
The following table provides the detailed calculation of Earnings per common share (EPS):
 
 
Three Months Ended
(IN MILLIONS)
 
March 29,
2015

 
March 30,
2014

EPS Numerator––Basic
 
 
 
 
Income from continuing operations
 
$
2,376

 
$
2,265

Less: Net income attributable to noncontrolling interests
 
6

 
9

Income from continuing operations attributable to Pfizer Inc.
 
2,371

 
2,256

Less: Preferred stock dividends––net of tax
 

 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
2,370

 
2,256

Discontinued operations––net of tax
 
5

 
73

Less: Discontinued operations––net of tax, attributable to noncontrolling interests
 

 

Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders
 
5

 
73

Net income attributable to Pfizer Inc. common shareholders
 
$
2,375

 
$
2,329

EPS Numerator––Diluted
 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions
 
$
2,371

 
$
2,256

Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders and assumed conversions
 
5

 
73

Net income attributable to Pfizer Inc. common shareholders and assumed conversions
 
$
2,376

 
$
2,329

EPS Denominator
 
 

 
 

Weighted-average number of common shares outstanding––Basic
 
6,203

 
6,389

Common-share equivalents: stock options, stock issuable under employee compensation plans, convertible preferred stock and accelerated share repurchase agreement
 
90

 
87

Weighted-average number of common shares outstanding––Diluted
 
6,292

 
6,476

Stock options that had exercise prices greater than the average market price of our common stock issuable under employee compensation plans(a)
 
34

 
43

(a) 
These common stock equivalents were outstanding for the three months ended March 29, 2015 and March 30, 2014, but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect.

Note 12. Commitments and Contingencies

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

On February 9, 2015, we entered into an accelerated share repurchase agreement with Goldman, Sachs & Co. (GS&Co.) to repurchase $5 billion of our common stock. Pursuant to the terms of the agreement, approximately 150 million shares of our common stock were received by us on February 11, 2015. At settlement of the agreement, which is expected to occur during or prior to the third quarter of 2015, GS&Co. may be required to deliver additional shares of common stock to us, or, under certain circumstances, we may be required to deliver shares of our common stock or may elect to make a cash payment to GS&Co., with the number of shares to be delivered or the amount of such payment based on the difference between the volume-weighted average price, less a discount, of our common stock during the term of the transaction and the initial $5 billion paid. This agreement was entered into pursuant to our previously announced share repurchase authorization.

A. Legal Proceedings

Our non-tax contingencies include, but are not limited to, the following:
Patent litigation, which typically involves challenges to the coverage and/or validity of our patents on various products, processes or dosage forms. We are the plaintiff in the vast majority of these actions. An adverse outcome in actions in which we are the plaintiff could result in a loss of patent protection for the drug at issue, a significant loss of revenues from that drug and impairments of any associated assets.

22


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

Product liability and other product-related litigation, which can include personal injury, consumer, off-label promotion, securities-law, antitrust and breach of contract claims, among others, often involves highly complex issues relating to medical causation, label warnings and reliance on those warnings, scientific evidence and findings, actual, provable injury and other matters.
Commercial and other matters, which can include merger-related and product-pricing claims and environmental claims and proceedings, can involve complexities that will vary from matter to matter.
Government investigations, which often are related to the extensive regulation of pharmaceutical companies by national, state and local government agencies in the U.S. and in other countries. 

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

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

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

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

The principal pending matters to which we are a party are discussed below. In determining whether a pending matter is a principal matter, we consider both quantitative and qualitative factors in order to assess materiality, such as, among other things, the amount of damages and the nature of any other relief sought in the proceeding, if such damages and other relief are specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be a class action and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; any experience that we or, to our knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information about the Company that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters, we consider, among other things, the financial significance of the product protected by the patent. As a result of considering qualitative factors in our determination of principal matters, there are some matters discussed below with respect to which management believes that the likelihood of possible loss in excess of amounts accrued is remote.

A1. Legal Proceedings––Patent Litigation

Like other pharmaceutical companies, we are involved in numerous suits relating to our patents, including but not limited to, those discussed below. Most of the suits involve claims by generic drug manufacturers that patents covering our products, processes or dosage forms are invalid and/or do not cover the product of the generic drug manufacturer. Also, counterclaims, as well as various independent actions, have been filed claiming that our assertions of, or attempts to enforce, our patent rights with respect to certain products constitute unfair competition and/or violations of antitrust laws. In addition to the challenges to the U.S. patents on a number of our products that are discussed below, we note that the patent rights to certain of our products are being challenged in various other countries. Also, our licensing and collaboration partners face challenges by generic drug manufacturers to patents covering several of their products that may impact our licenses or co-promotion rights to such products.


23


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

Actions In Which We Are The Plaintiff

Viagra (sildenafil)
In October 2010, we filed a patent-infringement action with respect to Viagra in the U.S. District Court for the Southern District of New York against Apotex Inc. and Apotex Corp., Mylan Pharmaceuticals Inc. (Mylan) and Mylan Inc. and Actavis, Inc. These generic drug manufacturers have filed abbreviated new drug applications with the FDA seeking approval to market their generic versions of Viagra. They assert the invalidity and non-infringement of the Viagra method-of-use patent, which expires in 2020 (including the six-month pediatric exclusivity period resulting from the Company’s conduct of clinical studies to evaluate Revatio in the treatment of pediatric patients with pulmonary arterial hypertension; Viagra and Revatio have the same active ingredient, sildenafil).

In May and June 2011, Watson Laboratories Inc. (Watson) and Hetero Labs Limited (Hetero), respectively, notified us that they had filed abbreviated new drug applications with the FDA seeking approval to market their generic versions of Viagra. Each asserts the invalidity and non-infringement of the Viagra method-of-use patent. In June and July 2011, we filed actions against Watson and Hetero, respectively, in the U.S. District Court for the Southern District of New York asserting the validity and infringement of the Viagra method-of-use patent.

In April 2015, we entered into settlement agreements with each of Mylan, Mylan Inc., Watson, Actavis, Inc., Apotex Inc. and Apotex Corp. pursuant to which we granted licenses to the method-of-use patent permitting Mylan, Mylan Inc., Watson, Actavis, Inc., Apotex Inc. and Apotex Corp. to launch generic versions of Viagra in the U.S. beginning on or after December 11, 2017.

Sutent (sunitinib malate)
In May 2010, Mylan notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Sutent and challenging on various grounds the Sutent basic patent, which expires in 2021, and two other patents that expire in 2020 and 2021, respectively. In June 2010, we filed suit against Mylan in the U.S. District Court for the District of Delaware asserting the infringement of those three patents. The patent expiring in 2020 was dismissed from the case prior to trial. In October 2014, the court held that the two patents expiring in 2021 were valid and infringed. In October 2014, Mylan appealed the decision to the U.S. Court of Appeals for the Federal Circuit.

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

Celebrex (celecoxib)
In March 2013, the U.S. Patent and Trademark Office granted us a reissue patent covering methods of treating osteoarthritis and other approved conditions with celecoxib, the active ingredient in Celebrex. The reissue patent, including the six-month pediatric exclusivity period, expires in December 2015. On the date that the reissue patent was granted, we filed suit against Teva Pharmaceuticals USA, Inc. (Teva USA), Mylan, Watson (as predecessor to Actavis plc), Lupin Pharmaceuticals USA, Inc. (Lupin), Apotex Corp. and Apotex Inc. in the U.S. District Court for the Eastern District of Virginia, asserting the infringement of the reissue patent. Each of the defendant generic drug companies had previously filed an abbreviated new drug application with the FDA seeking approval to market a generic version of celecoxib beginning in May 2014, upon the expiration of the basic patent (including the six-month pediatric exclusivity period) for celecoxib. In March 2014, the court granted the defendants’ motion for summary judgment, invalidating the reissue patent. In May 2014, we appealed the District Court's decision to the U.S. Court of Appeals for the Federal Circuit.

In April 2014, we entered into settlement agreements with two of the defendants, Teva USA and Watson, pursuant to which we granted licenses to the reissue patent permitting Teva USA and Watson to launch generic versions of celecoxib in the U.S. beginning in December 2014. In June 2014 and October 2014, we entered into settlement agreements with Mylan and Lupin, respectively, pursuant to which we granted licenses to the reissue patent permitting Mylan and Lupin to launch generic versions of celecoxib in the U.S. beginning in December 2014. In December 2014, Teva USA, Watson, Mylan and Lupin commenced marketing of generic versions of celecoxib.


24


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

Toviaz (fesoterodine)
We have an exclusive, worldwide license to market Toviaz from UCB Pharma GmbH, which owns the patents relating to Toviaz.

Beginning in May 2013, several generic drug manufacturers notified us that they had filed abbreviated new drug applications with the FDA seeking approval to market generic versions of Toviaz and asserting the invalidity, unenforceability and/or non-infringement of all of our patents for Toviaz that are listed in the Orange Book. Beginning in June 2013, we filed actions against all of those generic drug manufacturers in the U.S. District Court for the District of Delaware, asserting the infringement of five of the patents for Toviaz: three composition-of-matter patents and a method-of-use patent that expire in 2019; and a patent covering salts of fesoterodine that expires in 2022.

Tygacil (tigecycline)
In September 2013, Apotex Inc. notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Tygacil. Apotex Inc. asserts the non-infringement of the polymorph patent for Tygacil that expires in 2030, but has not challenged the basic patent, which expires in 2016. In September 2013, we filed suit against Apotex Inc. in the U.S. District Court for the District of Delaware asserting the infringement of the polymorph patent. In February 2015, the suit was dismissed.

In May 2014, CFT Pharmaceuticals LLC (CFT) notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Tygacil. CFT asserts the invalidity and non-infringement of (i) the polymorph patent for Tygacil and (ii) the formulation patent for Tygacil that expires in 2029, but has not challenged the basic patent. In June 2014, we filed suit against CFT in the U.S. District Court for the District of Delaware asserting the validity and infringement of the polymorph patent and the formulation patent for Tygacil.

In May 2014, Aurobindo Pharma Limited (Aurobindo) notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Tygacil. Aurobindo asserts the invalidity and non-infringement of (i) the polymorph patent for Tygacil, and (ii) the formulation patent for Tygacil, but has not challenged the basic patent. In July 2014, we filed suit against Aurobindo in the U.S. District Court for the District of Delaware, asserting the validity and infringement of the polymorph patent and the formulation patent for Tygacil.

Action In Which Our Licensing Partner Is The Plaintiff

Nexium 24HR (esomeprazole)
We have an exclusive license to market in the U.S. the over-the-counter (OTC) version of Nexium from AstraZeneca (Nexium 24HR). Beginning in October 2014, Actavis Laboratories FL, Inc., and then subsequently Andrx Labs, LLC (Andrx), and Perrigo Company plc (Perrigo), notified us that they had filed abbreviated new drug applications with the FDA seeking approval to market generic versions of Nexium 24HR prior to the expiration of one or more of AstraZeneca’s patents listed in the FDA Orange Book for Nexium 24HR. In November 2014, December 2014 and February 2015, AstraZeneca filed actions against Actavis Laboratories FL, Inc., Andrx and Perrigo, respectively, in the U.S. District Court for the District of New Jersey asserting the infringement of the challenged patents. We are not a party to AstraZeneca’s patent-infringement action.

Action In Which We Are The Defendant

Effexor XR (venlafaxine HCI)
In 2006, Wyeth and Wyeth Canada Limited (the Wyeth companies) filed an action in the Federal Court in Canada against Ratiopharm Inc. (Ratiopharm) seeking to prevent Ratiopharm from obtaining approval in Canada for its generic version of Effexor XR prior to the expiration of one of the Wyeth companies’ patents. As a result of that action, Ratiopharm was enjoined from obtaining regulatory approval for its generic product. However, in August 2007, the Federal Court of Appeal in Canada ruled that the patent at issue could not be asserted against Ratiopharm under the applicable Canadian regulations governing approvals, and it dismissed the Wyeth companies’ action.

Following the dismissal, in 2007, Ratiopharm filed an action in the Federal Court in Canada seeking damages from the Wyeth companies for preventing Ratiopharm from marketing its generic version of Effexor XR in Canada from January 2006 through August 2007. The Federal Court dismissed Ratiopharm’s action in 2011, but the Federal Court of Appeal reinstated it in 2012. In 2011 and 2012, Pfizer made payments to Teva Canada Limited, which had acquired Ratiopharm, totaling Canadian dollars 52.5 million in partial settlement of this action.


25


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

The trial in this action was held in January 2014, and the court issued various findings in March 2014. On June 30, 2014, the Federal Court in Canada issued a judgment based on those findings, awarding Teva Canada Limited damages of approximately Canadian dollars 125 million, consisting of compensatory damages, pre-judgment interest and legal costs. This judgment was satisfied by Pfizer Canada Inc., as successor to the Wyeth companies, in July 2014. In September 2014, Pfizer Canada Inc. appealed the judgment.

A2. Legal Proceedings––Product Litigation

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

Asbestos
Between 1967 and 1982, Warner-Lambert owned American Optical Corporation, which manufactured and sold respiratory protective devices and asbestos safety clothing. In connection with the sale of American Optical in 1982, Warner-Lambert agreed to indemnify the purchaser for certain liabilities, including certain asbestos-related and other claims. As of March 29, 2015, approximately 59,000 claims naming American Optical and numerous other defendants were pending in various federal and state courts seeking damages for alleged personal injury from exposure to asbestos and other allegedly hazardous materials. Warner-Lambert was acquired by Pfizer in 2000 and is now a wholly owned subsidiary of Pfizer. Warner-Lambert is actively engaged in the defense of, and will continue to explore various means of resolving, these claims.

Numerous lawsuits are pending against Pfizer in various federal and state courts seeking damages for alleged personal injury from exposure to products containing asbestos and other allegedly hazardous materials sold by Gibsonburg Lime Products Company (Gibsonburg). Gibsonburg was acquired by Pfizer in the 1960s and sold products containing small amounts of asbestos until the early 1970s.

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

Celebrex and Bextra
Beginning in late 2004, several purported class actions were filed in federal and state courts alleging that Pfizer and certain of our current and former officers violated federal securities laws by misrepresenting the safety of Celebrex and Bextra. In June 2005, the federal actions were transferred for consolidated pre-trial proceedings to a Multi-District Litigation (In re Pfizer Inc. Securities, Derivative and “ERISA” Litigation MDL-1688) in the U.S. District Court for the Southern District of New York. In March 2012, the court in the Multi-District Litigation certified a class consisting of all persons who purchased or acquired Pfizer stock between October 31, 2000 and October 19, 2005. In May 2014, the court in the Multi-District Litigation granted Pfizer’s motion to exclude the testimony of the plaintiffs’ loss causation and damages expert. We subsequently filed a motion for summary judgment seeking dismissal of the litigation, and the plaintiffs filed a motion for leave to submit an amended report by their expert. In July 2014, the court denied the plaintiffs’ motion for leave to submit an amended report, and granted our motion for summary judgment, dismissing the plaintiffs’ claims in their entirety. In August 2014, the plaintiffs appealed the District Court’s decision to the U.S. Court of Appeals for the Second Circuit.

Various Drugs: Off-Label Promotion Action
In May 2010, a purported class action was filed in the U.S. District Court for the Southern District of New York against Pfizer and several of our current and former officers. The complaint alleges that the defendants violated federal securities laws by making or causing Pfizer to make false statements, and by failing to disclose or causing Pfizer to fail to disclose material information concerning the alleged off-label promotion of certain pharmaceutical products, alleged payments to physicians to promote the sale of those products and government investigations related thereto. Plaintiffs seek damages in an unspecified amount. In March 2012, the court certified a class consisting of all persons who purchased Pfizer common stock in the U.S. or on U.S. stock exchanges between January 19, 2006 and January 23, 2009 and were damaged as a result of the decline in the price of Pfizer common stock allegedly attributable to the claimed violations. In January 2015, the parties reached an agreement in principle to resolve the matter for $400 million. In March 2015, the court preliminarily approved the settlement.

26


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

Effexor
Personal Injury Actions
A number of individual lawsuits and multi-plaintiff lawsuits have been filed against us and/or our subsidiaries in various federal and state courts alleging personal injury as a result of the purported ingestion of Effexor. Among other types of actions, the Effexor personal injury litigation includes actions alleging a variety of birth defects as a result of the purported ingestion of Effexor by women during pregnancy. Plaintiffs in these birth-defect actions seek compensatory and punitive damages. In August 2013, the federal birth-defect cases were transferred for consolidated pre-trial proceedings to a Multi-District Litigation (In re Effexor (Venlafaxine Hydrochloride) Products Liability Litigation MDL-2458) in the U.S. District Court for the Eastern District of Pennsylvania.

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

In October 2014, the District Court dismissed the direct purchaser plaintiffs’ claims based on the litigation settlement agreement, but declined to dismiss the other direct purchaser plaintiff claims. In January 2015, the District Court entered partial final judgments as to all settlement agreement claims, including those asserted by direct purchasers and end-payer plaintiffs, which plaintiffs have appealed to the United States Court of Appeals for the Third Circuit. Motions to dismiss remain pending as to the end-payer plaintiffs' remaining claims.

Zoloft
A number of individual lawsuits and multi-plaintiff lawsuits have been filed against us and/or our subsidiaries in various federal and state courts alleging personal injury as a result of the purported ingestion of Zoloft. Among other types of actions, the Zoloft personal injury litigation includes actions alleging a variety of birth defects as a result of the purported ingestion of Zoloft by women during pregnancy. Plaintiffs in these birth-defect actions seek compensatory and punitive damages and the disgorgement of profits resulting from the sale of Zoloft. In April 2012, the federal birth-defect cases were transferred for consolidated pre-trial proceedings to a Multi-District Litigation (In re Zoloft Products Liability Litigation MDL-2342) in the U.S. District Court for the Eastern District of Pennsylvania.

Neurontin
A number of lawsuits, including purported class actions, have been filed against us in various federal and state courts alleging claims arising from the promotion and sale of Neurontin. The plaintiffs in the purported class actions seek to represent nationwide and certain statewide classes consisting of persons, including individuals, health insurers, employee benefit plans and other third-party payers, who purchased or reimbursed patients for the purchase of Neurontin that allegedly was used for indications other than those included in the product labeling approved by the FDA. In 2004, many of the suits pending in federal courts, including individual actions as well as purported class actions, were transferred for consolidated pre-trial proceedings to a Multi-District Litigation (In re Neurontin Marketing, Sales Practices and Product Liability Litigation MDL-1629) in the U.S. District Court for the District of Massachusetts.

In the Multi-District Litigation, the District Court (i) denied the plaintiffs’ motion for certification of a nationwide class of all individual consumers and third-party payers who allegedly purchased or reimbursed patients for the purchase of Neurontin for off-label uses from 1994 through 2004, and (ii) dismissed actions by certain proposed class representatives for third-party payers