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EX-12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - PFIZER INCpfe-9272015x10qexhibit12.htm
EX-31.1 - CERTIFICATION BY THE CEO - SECTION 302 - PFIZER INCpfe-09272015x10qexhibit311.htm
EX-32.2 - CERTIFICATION BY THE CFO - SECTION 1350 - PFIZER INCpfe-09272015x10qexhibit322.htm
EX-31.2 - CERTIFICATION BY THE CFO - SECTION 302 - PFIZER INCpfe-09272015x10qexhibit312.htm
EX-32.1 - CERTIFICATION BY THE CEO - SECTION 1350 - PFIZER INCpfe-09272015x10qexhibit321.htm
EX-15 - ACCOUNTANTS' ACKNOWLEDGEMENT - PFIZER INCpfe-9272015x10qexhibit15.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 September 27, 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 November 2, 20156,173,001,952 shares of the issuer’s voting common stock were outstanding.



Table of Contents
Page
 
 
 
 
 
 
Condensed Consolidated Statements of Income for the three and nine months ended September 27, 2015 and September 28, 2014
 
 
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 27, 2015 and September 28, 2014
 
 
Condensed Consolidated Balance Sheets as of September 27, 2015 and December 31, 2014
 
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 27, 2015 and September 28, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
 
Three Months Ended
 
Nine Months Ended
(MILLIONS, EXCEPT PER COMMON SHARE DATA)
 
September 27,
2015

 
September 28,
2014

 
September 27,
2015

 
September 28,
2014

Revenues
 
$
12,087

 
$
12,361

 
$
34,804

 
$
36,487

Costs and expenses:
 
 
 
 
 
 
 
 
Cost of sales(a)
 
2,219

 
2,368

 
6,238

 
6,875

Selling, informational and administrative expenses(a)
 
3,270

 
3,556

 
9,761

 
10,116

Research and development expenses(a)
 
1,722

 
1,802

 
5,342

 
5,184

Amortization of intangible assets
 
937

 
972

 
2,748

 
3,090

Restructuring charges and certain acquisition-related costs
 
581

 
(19
)
 
727

 
120

Other (income)/deductions––net
 
661

 
94

 
670

 
665

Income from continuing operations before provision for taxes on income
 
2,697

 
3,587

 
9,319

 
10,437

Provision for taxes on income
 
567

 
911

 
2,178

 
2,575

Income from continuing operations
 
2,130

 
2,676

 
7,141

 
7,862

Discontinued operations––net of tax
 
8

 
(3
)
 
14

 
70

Net income before allocation to noncontrolling interests
 
2,139

 
2,672

 
7,155

 
7,932

Less: Net income attributable to noncontrolling interests
 
9

 
6

 
23

 
25

Net income attributable to Pfizer Inc.
 
$
2,130

 
$
2,666

 
$
7,132

 
$
7,907

 
 
 
 
 
 
 
 
 
Earnings per common share––basic:
 
 

 
 

 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.34

 
$
0.42

 
$
1.15

 
$
1.23

Discontinued operations––net of tax
 

 

 

 
0.01

Net income attributable to Pfizer Inc. common shareholders
 
$
0.35

 
$
0.42

 
$
1.15

 
$
1.24

 
 
 
 
 
 
 
 
 
Earnings per common share––diluted:
 
 

 
 

 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.34

 
$
0.42

 
$
1.14

 
$
1.22

Discontinued operations––net of tax
 

 

 

 
0.01

Net income attributable to Pfizer Inc. common shareholders
 
$
0.34

 
$
0.42

 
$
1.14

 
$
1.23

 
 
 
 
 
 
 
 
 
Weighted-average shares––basic
 
6,168

 
6,330

 
6,176

 
6,363

Weighted-average shares––diluted
 
6,243

 
6,403

 
6,259

 
6,441

Cash dividends paid per common share
 
$
0.28

 
$
0.26

 
$
0.84

 
$
0.78

(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
 
Nine Months Ended
(MILLIONS OF DOLLARS)
 
September 27,
2015

 
September 28,
2014

 
September 27,
2015

 
September 28,
2014

Net income before allocation to noncontrolling interests
 
$
2,139

 
$
2,672

 
$
7,155

 
$
7,932

 
 
 
 
 
 
 

 
 

Foreign currency translation adjustments, net
 
$
(535
)
 
$
(431
)
 
$
(2,170
)
 
$
(273
)
Reclassification adjustments(a)
 

 

 

 
(62
)
 
 
(535
)
 
(430
)
 
(2,170
)
 
(334
)
Unrealized holding losses on derivative financial instruments, net
 
(217
)
 
(172
)
 
(80
)
 
(229
)
Reclassification adjustments for realized (gains)/losses(b)
 
(35
)
 
441

 
(545
)
 
527

 
 
(251
)
 
269

 
(625
)
 
298

Unrealized holding gains/(losses) on available-for-sale securities, net
 
25

 
(200
)
 
(502
)
 
(107
)
Reclassification adjustments for realized (gains)/losses(b)
 
69

 
15

 
815

 
(163
)
 
 
94

 
(185
)
 
312

 
(270
)
Benefit plans: actuarial gains/(losses), net
 
(144
)
 
18

 
(122
)
 
13

Reclassification adjustments related to amortization(c)
 
140

 
48

 
409

 
146

Reclassification adjustments related to settlements, net(c)
 
36

 
19

 
98

 
58

Other
 
(10
)
 
42

 
120

 
16

 
 
23

 
127

 
506

 
233

Benefit plans: prior service credits and other, net
 

 

 
506

 

Reclassification adjustments related to amortization(c)
 
(46
)
 
(19
)
 
(115
)
 
(55
)
Reclassification adjustments related to curtailments, net(c)
 
(4
)
 
1

 
(21
)
 
12

Other
 
(1
)
 

 
(3
)
 
(1
)
 
 
(51
)
 
(18
)
 
366

 
(44
)
Other comprehensive loss, before tax
 
(721
)
 
(238
)
 
(1,611
)
 
(118
)
Tax provision/(benefit) on other comprehensive loss(d)
 
(65
)
 
83

 
267

 
71

Other comprehensive loss before allocation to noncontrolling interests
 
$
(656
)
 
$
(320
)
 
$
(1,878
)
 
$
(189
)
 
 
 
 
 
 
 
 
 
Comprehensive income before allocation to noncontrolling interests
 
$
1,483

 
$
2,352

 
$
5,277

 
$
7,743

Less: Comprehensive income/(loss) attributable to noncontrolling interests
 
2

 
1

 
(1
)
 
32

Comprehensive income attributable to Pfizer Inc.
 
$
1,481

 
$
2,351

 
$
5,278

 
$
7,711

(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)
 
September 27,
2015

 
December 31,
2014

 
 
(Unaudited)
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
$
3,099

 
$
3,343

Short-term investments
 
17,559

 
32,779

Trade accounts receivable, less allowance for doubtful accounts: 2015—$416; 2014—$412
 
9,535

 
8,401

Inventories
 
7,678

 
5,663

Current deferred tax assets and other current tax assets
 
4,883

 
4,498

Other current assets
 
2,248

 
3,019

Total current assets
 
45,001

 
57,702

Long-term investments
 
16,233

 
17,518

Property, plant and equipment, less accumulated depreciation
 
13,695

 
11,762

Identifiable intangible assets, less accumulated amortization
 
43,297

 
35,166

Goodwill
 
47,217

 
42,069

Noncurrent deferred tax assets and other noncurrent tax assets
 
1,512

 
1,544

Other noncurrent assets
 
3,911

 
3,513

Total assets
 
$
170,867

 
$
169,274

 
 
 
 
 
Liabilities and Equity
 
 

 
 

Short-term borrowings, including current portion of long-term debt
 
$
9,818

 
$
5,141

Trade accounts payable
 
3,294

 
3,210

Dividends payable
 
1,728

 
1,711

Income taxes payable
 
1,178

 
531

Accrued compensation and related items
 
2,155

 
1,841

Other current liabilities
 
9,672

 
9,197

Total current liabilities
 
27,845

 
21,631

 
 
 
 
 
Long-term debt
 
29,079

 
31,541

Pension benefit obligations, net
 
6,745

 
7,885

Postretirement benefit obligations, net
 
1,980

 
2,379

Noncurrent deferred tax liabilities
 
28,654

 
24,981

Other taxes payable
 
4,452

 
4,353

Other noncurrent liabilities
 
4,987

 
4,883

Total liabilities
 
103,743

 
97,652

 
 
 
 
 
Commitments and Contingencies
 


 


 
 
 
 
 
Preferred stock
 
27

 
29

Common stock
 
459

 
455

Additional paid-in capital
 
80,763

 
78,977

Treasury stock
 
(79,259
)
 
(73,021
)
Retained earnings
 
74,019

 
72,176

Accumulated other comprehensive loss
 
(9,170
)
 
(7,316
)
Total Pfizer Inc. shareholders’ equity
 
66,838

 
71,301

Equity attributable to noncontrolling interests
 
286

 
321

Total equity
 
67,124

 
71,622

Total liabilities and equity
 
$
170,867

 
$
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)
 
 
Nine Months Ended
(MILLIONS OF DOLLARS)
 
September 27,
2015

 
September 28,
2014

Operating Activities
 
 
 
 
Net income before allocation to noncontrolling interests
 
$
7,155

 
$
7,932

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

 
 

Depreciation and amortization
 
3,733

 
4,206

Asset write-offs and impairments
 
864

 
414

Adjustment to gain on disposal of discontinued operations
 

 
(65
)
Deferred taxes from continuing operations
 
(165
)
 
766

Share-based compensation expense
 
488

 
424

Benefit plan contributions (in excess of)/less than expense
 
(804
)
 
(208
)
Other adjustments, net
 
(184
)
 
(464
)
Other changes in assets and liabilities, net of acquisitions and divestitures
 
(1,288
)
 
(1,519
)
Net cash provided by operating activities
 
9,799

 
11,485

 
 
 
 
 
Investing Activities
 
 

 
 

Purchases of property, plant and equipment
 
(786
)
 
(845
)
Purchases of short-term investments
 
(21,068
)
 
(36,294
)
Proceeds from redemptions/sales of short-term investments
 
33,609

 
32,883

Net proceeds from redemptions/sales of short-term investments with original maturities of 90 days or less
 
5,557

 
4,945

Purchases of long-term investments
 
(6,578
)
 
(9,254
)
Proceeds from redemptions/sales of long-term investments
 
4,535

 
4,637

Acquisitions of businesses, net of cash acquired
 
(16,322
)
 
(195
)
Acquisitions of intangible assets
 
(48
)
 
(342
)
Other investing activities, net
 
346

 
325

Net cash used in investing activities
 
(756
)
 
(4,140
)
 
 
 
 
 
Financing Activities
 
 

 
 

Proceeds from short-term borrowings
 
2,022

 
8

Principal payments on short-term borrowings
 
(15
)
 
(3
)
Net proceeds from/(payments on) short-term borrowings with original maturities of 90 days or less
 
1,907

 
(2,758
)
Proceeds from issuance of long-term debt
 

 
4,491

Principal payments on long-term debt
 
(3,003
)
 
(786
)
Purchases of common stock
 
(6,160
)
 
(3,801
)
Cash dividends paid
 
(5,211
)
 
(4,970
)
Proceeds from exercise of stock options
 
1,165

 
704

Other financing activities, net
 
171

 
56

Net cash used in financing activities
 
(9,124
)
 
(7,060
)
Effect of exchange-rate changes on cash and cash equivalents
 
(162
)
 
(30
)
Net increase/(decrease) in cash and cash equivalents
 
(244
)
 
255

Cash and cash equivalents, beginning
 
3,343

 
2,183

Cash and cash equivalents, end
 
$
3,099

 
$
2,437

 
 
 

 
 

Supplemental Cash Flow Information
 
 
 
 
Cash paid during the period for:
 
 

 
 

Income taxes
 
$
1,414

 
$
1,484

Interest
 
1,162

 
1,329

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 United States (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 and nine months ended August 23, 2015 and August 24, 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.

Unless the context requires otherwise, references to “Pfizer,” “the Company,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q refer to Pfizer Inc. and its subsidiaries.

On September 3, 2015 (the acquisition date), we acquired Hospira, Inc. (Hospira) for approximately $16.0 billion in cash. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of Hospira, and, in accordance with our domestic and international reporting periods, our consolidated financial statements for the three and nine months ended September 27, 2015 reflect one month of legacy Hospira U.S. operations but do not include any financial results from legacy Hospira international operations. Hospira is now a subsidiary of Pfizer. The combination of local Pfizer and Hospira entities may be pending in various jurisdictions and integration is subject to completion of various local legal and regulatory steps. See Note 2A for additional information.

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 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).

7


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

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.
Note 2. Acquisitions, Licensing Agreements, Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment

A. Acquisitions

Hospira, Inc. (Hospira)

On September 3, 2015 (the acquisition date), we acquired Hospira, a leading provider of sterile injectable drugs and infusion technologies as well as a provider of biosimilars, for $90 per share in cash. The total fair value of consideration transferred for Hospira was approximately $16.0 billion in cash ($15.6 billion, net of cash acquired). Hospira is now a subsidiary of Pfizer. The combination of local Pfizer and Hospira entities may be pending in various jurisdictions and integration is subject to completion of various local legal and regulatory steps.

Hospira's principal business was the development, manufacture, marketing and distribution of generic acute-care and oncology injectables, biosimilars and integrated infusion therapy and medication management systems. Hospira’s broad portfolio of products is used by hospitals and alternate site providers, such as clinics, home healthcare providers and long-term care facilities. We believe our acquisition of Hospira has strengthened our Global Established Products (GEP) business, as GEP now has a broadened portfolio of generic and branded sterile injectables, marketed biosimilars, medication management systems and biosimilars in development.

The following table summarizes the provisional amounts recognized for assets acquired and liabilities assumed as of the acquisition date. The estimated values are not yet finalized (see below) and are subject to change, which could be significant. We will finalize the amounts recognized as we obtain the information necessary to complete the analyses. We expect to finalize these amounts as soon as possible but no later than one year from the acquisition date.
(MILLIONS OF DOLLARS)
 
Amounts Recognized
as of Acquisition Date (Provisional)

Working capital, excluding inventories(a)
 
$
271

Inventories
 
1,894

Property, plant and equipment
 
2,338

Identifiable intangible assets, excluding in-process research and development(b)
 
10,030

In-process research and development
 
1,120

Other noncurrent assets
 
311

Long-term debt
 
(1,928
)
Benefit obligations
 
(117
)
Net income tax accounts(c)
 
(3,645
)
Other noncurrent liabilities
 
(37
)
Total identifiable net assets
 
10,237

Goodwill
 
5,790

Net assets acquired/total consideration transferred
 
$
16,027

(a) 
Includes cash and cash equivalents, short-term investments, accounts receivable, other current assets, assets held for sale, accounts payable and other current liabilities.
(b) 
Comprised of finite-lived developed technology rights with a weighted-average life of approximately 13 years ($9.4 billion) and other finite-lived identifiable intangible assets with a weighted-average life of approximately 18 years ($590 million).
(c) 
As of the acquisition date, included in Current deferred tax assets and other current tax assets ($218 million), Noncurrent deferred tax liabilities ($3.8 billion) and Other taxes payable ($114 million, including accrued interest of $5 million).

As of the acquisition date, the fair value of accounts receivable approximated the book value acquired. The gross contractual amount receivable was $573 million, of which $7 million was not expected to be collected.

In the ordinary course of business, Hospira incurs liabilities for environmental, legal and tax matters, as well as guarantees and indemnifications. These matters may include contingencies. Except as specifically excluded by the relevant accounting standard, contingencies are required to be measured at fair value as of the acquisition date, if the acquisition-date fair value of the asset or liability arising from a contingency can be determined. If the acquisition-date fair value of the asset or liability cannot be determined, the asset or liability would be recognized at the acquisition date if both of the following criteria were

8


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

met: (i) it is probable that an asset existed or that a liability had been incurred at the acquisition date, and (ii) the amount of the asset or liability can be reasonably estimated.
Environmental Matters—In the ordinary course of business, Hospira incurs liabilities for environmental matters such as remediation work, asset retirement obligations and environmental guarantees and indemnifications. See below for items pending finalization.
Legal Matters—Hospira is involved in various legal proceedings, including product liability, patent, commercial, antitrust and environmental matters and government investigations, of a nature considered normal to its business. The contingencies arising from legal matters are not significant to Pfizer’s financial statements.
Tax Matters—In the ordinary course of business, Hospira incurs liabilities for income taxes. Income taxes are exceptions to both the recognition and fair value measurement principles associated with the accounting for business combinations. Reserves for income tax contingencies continue to be measured under the benefit recognition model as previously used by Hospira (see Notes to Consolidated Financial Statements—Note 1O. Basis of Presentation and Significant Accounting Policies: Deferred Tax Assets and Liabilities and Income Tax Contingencies in our 2014 Financial Report). Net liabilities for income taxes approximate $3.6 billion as of the acquisition date, which includes $112 million for uncertain tax positions. The net tax liability includes the recording of additional adjustments of approximately $3.5 billion for the tax impact of fair value adjustments and approximately $790 million for income tax matters that we intend to resolve in a manner different from what Hospira had planned or intended. For example, because we plan to repatriate certain overseas funds, we provided deferred taxes on Hospira’s unremitted earnings for which no taxes have been previously provided by Hospira as it was Hospira’s intention to indefinitely reinvest those earnings.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the acquisition of Hospira includes the following:

the expected specific synergies and other benefits that we believe will result from combining the operations of Hospira with the operations of Pfizer;
any intangible assets that do not qualify for separate recognition, as well as future, as yet unidentified projects and products; and
the value of the going-concern element of Hospira’s existing businesses (the higher rate of return on the assembled collection of net assets versus if Pfizer had acquired all of the net assets separately).

Goodwill is not amortized and is not deductible for tax purposes. All of the goodwill related to the acquisition of Hospira is related to our GEP segment (see Note 9 for additional information).
All the recorded amounts for assets acquired and liabilities assumed from Hospira as of the acquisition date are provisional and subject to change, which could be significant, pending finalization of the evaluation of the assets acquired and the liabilities assumed as well as the valuation efforts associated with the acquired assets and liabilities.

Actual and Pro Forma Impact of Acquisition—The following table presents information for Hospira’s operations that are included in Pfizer’s condensed consolidated statements of income beginning from the acquisition date, September 3, 2015 (see Note 1A):
 
 
Three Months Ended

 
Nine Months Ended

(MILLIONS OF DOLLARS)
 
September 27,
2015

 
September 27,
2015

Revenues
 
$
330

 
$
330

Net loss attributable to Pfizer Inc. common shareholders(a)
 
(265
)
 
(265
)
(a) 
Includes purchase accounting charges related to (i) the preliminary fair value adjustment for acquisition-date inventory estimated to have been sold ($77 million pre-tax in both the third quarter and first nine months of 2015); (ii) amortization expense related to the preliminary fair value of identifiable intangible assets acquired from Hospira ($57 million pre-tax in both the third quarter and first nine months of 2015); (iii) depreciation expense related to the preliminary fair value adjustment of fixed assets acquired from Hospira ($8 million pre-tax both in the third quarter and first nine months of 2015); and (iv) amortization expense related to the fair value adjustment of long-term debt acquired from Hospira ($3 million income pre-tax both in the third quarter and first nine months of 2015), as well as restructuring and integration costs ($413 million pre-tax in both the third quarter and first nine months of 2015).


9


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

The following table provides supplemental pro forma information as if the acquisition of Hospira had occurred on January 1, 2014:
 
 
Unaudited Supplemental Pro Forma Consolidated Results
 
 
Three Months Ended
 
Nine Months Ended
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
 
September 27,
2015

 
September 28,
2014

 
September 27,
2015

 
September 28,
2014

Revenues
 
$
12,957

 
$
13,512

 
$
38,034

 
$
39,824

Net income attributable to Pfizer Inc. common shareholders
 
2,471

 
2,679

 
7,432

 
6,966

Diluted earnings per share attributable to Pfizer Inc. common shareholders
 
0.40

 
0.42

 
1.19

 
1.08

The unaudited supplemental pro forma consolidated results do not purport to reflect what the combined company’s results of operations would have been had the acquisition occurred on January 1, 2014, nor do they project the future results of operations of the combined company or reflect the expected realization of any cost savings associated with the acquisition. The actual results of operations of the combined company may differ significantly from the pro forma adjustments reflected here due to many factors. The unaudited supplemental pro forma financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and the liabilities assumed from Hospira.
The unaudited supplemental pro forma consolidated results reflect the historical financial information of Pfizer and Hospira, adjusted to give effect to the acquisition of Hospira as if it had occurred on January 1, 2014, primarily for the following pre-tax adjustments:
Elimination of Hospira’s historical intangible asset amortization expense (approximately $9 million in the third quarter of 2015, $17 million in the third quarter of 2014, $33 million in the first nine months of 2015 and $61 million in the first nine months of 2014).
Additional amortization expense (approximately $143 million in the third quarter of 2015, $199 million in the third quarter of 2014, $541 million in the first nine months of 2015 and $579 million in the first nine months of 2014) related to the preliminary estimate of the fair value of identifiable intangible assets acquired.
Additional depreciation expense (approximately $19 million in the third quarter of 2015, $28 million in the third quarter of 2014, $72 million in the first nine months of 2015 and $83 million in the first nine months of 2014) related to the preliminary estimate of the fair value adjustment to property, plant and equipment (PP&E) acquired.
Adjustment related to the preliminary estimate of the non-recurring fair value adjustment to acquisition-date inventory estimated to have been sold (the elimination of $66 million of charges in the third quarter of 2015, the addition of $17 million of charges in the third quarter of 2014, the elimination of $42 million of charges in the first nine months of 2015 and the addition of $514 million of charges in the first nine months of 2014).
Adjustment to decrease interest expense (approximately $3 million in the third quarter of 2015, $10 million in the third quarter of 2014, $23 million in the first nine months of 2015 and $29 million in the first nine months of 2014) related to the fair value adjustment of Hospira debt.
Adjustment for non-recurring acquisition-related costs directly attributable to the acquisition (the elimination of $682 million of charges in the third quarter of 2015 and $724 million of charges in the first nine months of 2015, and the addition of $724 million of charges in the first nine months of 2014, reflecting non-recurring charges incurred by both Hospira and Pfizer).

The above adjustments were adjusted for the applicable tax impact.  The taxes associated with the adjustments related to the preliminary estimate of the fair value adjustment for acquired intangible assets, property, plant and equipment, inventory and debt reflect the statutory tax rates in the various jurisdictions where the adjustments are expected to be incurred. The taxes associated with the adjustment for the acquisition-related costs directly attributable to the acquisition were based on the tax rate in the jurisdiction in which the related deductible costs were incurred.
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 acquired Baxters 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

10


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

acquisition, we recorded $376 million in Identifiable intangible assets, primarily consisting of $371 million in Developed technology rights. We also recorded $194 million of Inventories and $12 million in Goodwill. The final allocation of the consideration transferred to the assets acquired and the liabilities assumed has been completed.

InnoPharma, Inc. (InnoPharma)
On September 24, 2014, we completed our acquisition of InnoPharma, a privately-held pharmaceutical development company, for an upfront cash payment of $225 million and contingent consideration with an estimated acquisition-date fair value of approximately $67 million. The contingent consideration consists of up to $135 million in additional milestone payments based on application filing with, and acceptance by, the U.S. Food and Drug Administration (FDA), or approval of marketing applications related to certain pipeline products by the FDA. We believe this acquisition represents a potential innovative growth opportunity for our sterile injectables portfolio in areas such as oncology and central nervous disorders. In connection with this acquisition, we recorded $247 million in Identifiable intangible assets, consisting of $212 million in In-process research and development (IPR&D) and $35 million in Developed technology rights; $81 million in net deferred tax liabilities; and $125 million in Goodwill.

B. Licensing Agreements

Cellectis SA (Cellectis)
On June 18, 2014, we entered into a global arrangement with Cellectis to develop Chimeric Antigen Receptor T-cell immunotherapies in the field of oncology directed at select cellular surface antigen targets. In August 2014, in connection with this licensing agreement, we made an upfront payment of $80 million to Cellectis, which was recorded in Research and development expenses. We will also fund research and development costs associated with 15 Pfizer-selected targets and, for the benefit of Cellectis, a portion of the research and development costs associated with four Cellectis-selected targets within the arrangement. Cellectis is eligible to receive development, regulatory and commercial milestone payments of up to $185 million per product that results from the Pfizer-selected targets. Cellectis is also eligible to receive tiered royalties on net sales of any products that are commercialized by Pfizer. In addition, in August 2014, we acquired approximately 10% of the capital of Cellectis through the purchase of newly issued shares, for a total investment of approximately $35 million. As of August 21, 2015, Pfizer’s ownership in Cellectis has been reduced to approximately 7.95% of Cellectis’ outstanding shares due to subsequent share issuances by Cellectis, including the initial public offering of Cellectis American Depository Shares.

Nexium Over-the-Counter Rights

In August 2012, we entered into an agreement with AstraZeneca PLC (AstraZeneca) for the exclusive, global, over-the-counter (OTC) rights for Nexium, a leading prescription drug approved to treat the symptoms of gastroesophageal reflux disease. In connection with this Consumer Healthcare licensing agreement, we made an upfront payment of $250 million to AstraZeneca, which was recorded in Research and development expenses when incurred. On May 27, 2014, we launched Nexium 24HR in the U.S., and on July 11, 2014, we paid AstraZeneca a related $200 million product launch milestone payment. On August 1, 2014, we launched Nexium Control in Europe, and on September 15, 2014, we paid AstraZeneca a related $50 million product launch milestone payment. These post-approval milestone payments were recorded in Identifiable intangible assets, less accumulated amortization in the consolidated balance sheet and are being amortized over the estimated useful life of the Nexium brand. AstraZeneca is eligible to receive additional milestone payments of up to $300 million, based on the level of worldwide sales as well as royalty payments, based on worldwide sales.

C. 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. Following the decision by the FDA in March 2015 to lift the partial clinical hold on the tanezumab development program, we received a $200 million upfront payment from Lilly in accordance with the collaboration agreement between Pfizer and Lilly, which is recorded as deferred income in our condensed consolidated balance sheet and is being recognized into Other (income)/deductions––net over a multi-year period beginning in the second quarter of 2015. Pfizer and Lilly resumed the Phase 3 chronic pain program for tanezumab in July 2015, which will consist of 6 studies in approximately 7,000 patients across osteoarthritis, chronic low back pain and cancer pain. Under the collaboration agreement with Lilly, we are eligible to receive additional payments from Lilly upon the achievement of specified regulatory and commercial milestones.

11


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

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. We have received the exclusive license to commercialize hGH-CTP worldwide. OPKO will lead the clinical activities and will be responsible for funding the development programs for the key indications, which include Adult and Pediatric GHD and Pediatric SGA. We will be responsible for all development costs for additional indications, all postmarketing studies, manufacturing and commercialization activities for all indications, and we will lead the manufacturing activities related to product development. 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. OPKO is also eligible to receive royalty payments associated with the commercialization of hGH-CTP for Adult GHD, which is subject to regulatory approval. Upon the launch of hGH-CTP for Pediatric GHD, which is subject to regulatory approval, the royalties will transition to tiered gross profit sharing for both hGH-CTP and our product, Genotropin.

D. Equity-Method Investments

Investment in Hisun Pfizer Pharmaceuticals Company Limited (Hisun Pfizer)

In the third quarter of 2015, we determined that we had an other-than-temporary decline in value of our equity-method investment in China, Hisun Pfizer, and, therefore, in the third quarter and first nine months of 2015, we recognized a loss of $470 million in Other (income)/deductions––net.

The decline in value resulted from lower expectations as to the future cash flows to be generated by Hisun Pfizer, as a result of lower than expected recent performance, increased competition, a slowdown in the China economy as well as changes in the regulatory environment.
In valuing our investment in Hisun Pfizer, we used discounted cash flow techniques, utilizing a 12% discount rate, reflecting our best estimate of the various risks inherent in the projected cash flows, and a nominal terminal year growth factor. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which include the expected impact of competitive, legal, economic and/or regulatory forces on the products; the long-term growth rate, which seeks to project the sustainable growth rate over the long-term; and the discount rate, which seeks to reflect the various risks inherent in the projected cash flows, including country risk.

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 nine months of 2014, we recognized a loss of approximately $30 million in Other (income)/deductions––net.

E. Cost-Method Investment

AM-Pharma B.V. (AM-Pharma)

On April 9, 2015, we acquired a minority equity interest in AM-Pharma, a privately held Dutch biopharmaceutical company focused on the development of recombinant human Alkaline Phosphatase (recAP) for inflammatory diseases, and secured an exclusive option to acquire the remaining equity in the company. The option becomes exercisable upon delivery of the clinical trial report after completion of a Phase II trial of recAP in the treatment of Acute Kidney Injury related to sepsis. Results from the current Phase II trial for recAP are expected in the second half of 2016. Under the terms of the agreement, we paid $87.5 million for both the exclusive option and the minority equity interest, which was recorded as a cost-method investment in Long-term investments, and we may make additional payments of up to $512.5 million upon exercise of the option and potential launch of any product that may result from this investment.

12


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 connection with our acquisition of Hospira, we are focusing our efforts on achieving an appropriate cost structure for the combined company. For up to a three-year period post-acquisition, we expect to incur costs of approximately $1 billion associated with the integration of Hospira.

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 associated with these programs:
Manufacturing plant network rationalization and optimization, where execution timelines are necessarily long. Our plant network strategy is expected to result in the exit of four 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 $1.2 billion associated with new non-acquisition-related cost-reduction initiatives. Through September 27, 2015, we incurred approximately $289 million and $380 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 September 27, 2015, we incurred approximately $213 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 $900 million. Through September 27, 2015, we incurred approximately $303 million associated with these initiatives.
The costs expected to be incurred during 2014-2016, of approximately $2.7 billion in total for the above-mentioned programs (but not including expected costs associated with the Hospira integration), include restructuring charges, 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 nine months of 2015, we incurred approximately $863 million in cost-reduction and acquisition-related costs (excluding transaction costs) in connection with the acquisition of Hospira and the aforementioned programs, primarily associated with our manufacturing and sales operations.

13


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
 
Nine Months Ended
(MILLIONS OF DOLLARS)
 
September 27,
2015

 
September 28,
2014

 
September 27,
2015

 
September 28,
2014

Restructuring charges(a):
 
 

 
 

 
 

 
 

Employee terminations
 
$
241

 
$
(51
)
 
$
306

 
$
(4
)
Asset impairments
 
198

 
9

 
209

 
28

Exit costs
 
30

 
4

 
40

 
44

Total restructuring charges
 
469

 
(38
)
 
555

 
68

Transaction costs(b)
 
64

 

 
70

 

Integration costs(c)
 
48

 
19

 
102

 
53

Restructuring charges and certain acquisition-related costs
 
581

 
(19
)
 
727

 
120

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

 
 

 
 

 
 

Cost of sales
 
23

 
52

 
67

 
199

Selling, informational and administrative expenses
 

 

 

 
1

Research and development expenses
 
1

 
1

 
3

 
30

Total additional depreciation––asset restructuring
 
24

 
54

 
71

 
230

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

 
 

 
 

 
 

Cost of sales
 
23

 
24

 
64

 
52

Selling, informational and administrative expenses
 
16

 
36

 
55

 
89

Research and development expenses
 
2

 
12

 
13

 
40

Other (income)/deductions––net
 
2

 

 
3

 

Total implementation costs
 
42

 
73

 
135

 
181

Total costs associated with acquisitions and cost-reduction/productivity initiatives
 
$
647

 
$
108

 
$
933

 
$
531

(a) 
In the nine months ended September 27, 2015, Employee terminations represent the expected reduction of the workforce by approximately 2,500 employees, mainly in sales, corporate and research. Employee termination costs are generally recorded when the actions are probable and estimable and include accrued severance benefits, pension and postretirement benefits, many of which may be paid out during periods after termination.
The restructuring charges for 2015 are associated with the following:
For the third quarter of 2015, the Global Innovative Pharmaceutical segment (GIP) ($16 million); the Global Vaccines, Oncology and Consumer Healthcare segment (VOC) ($7 million income); the Global Established Pharmaceutical segment (GEP) ($280 million); Worldwide Research and Development and Medical (WRD/M) ($50 million); manufacturing operations ($26 million); and Corporate ($104 million).
For the first nine months of 2015, GIP ($35 million); VOC ($20 million); GEP ($288 million); WRD/M ($66 million); manufacturing operations ($18 million); and Corporate ($127 million).
The restructuring charges for 2014 are associated with the following:
For the third quarter of 2014, GIP ($4 million); VOC ($10 million); GEP ($4 million); WRD/M ($2 million); manufacturing operations ($21 million); and Corporate ($14 million), as well as $92 million of income related to the partial reversal of prior-period restructuring charges not directly associated with the new individual segments, and reflecting a change in estimate with respect to our sales force restructuring plans.
For the first nine months of 2014, GIP ($14 million); VOC ($16 million); GEP ($34 million); WRD/M ($11 million); manufacturing operations ($59 million); and Corporate ($25 million), as well as $92 million of income related to the partial reversal of prior-period restructuring charges not directly associated with the new individual segments, and reflecting a change in estimate with respect to our sales force restructuring plans.
In September 2015, in order to eliminate certain redundancies in Pfizer’s biosimilar drug products pipeline created as a result of the acquisition of Hospira, Pfizer opted to return rights to Celltrion Inc. and Celltrion Healthcare, Co., Ltd. (collectively, Celltrion) that Hospira had previously acquired to potential biosimilars to Rituxan® (rituximab) and Herceptin® (trastuzumab). As such, upon return of the acquired rights, we wrote off the applicable IPR&D assets, totaling $160 million. In addition, we wrote-off amounts prepaid to Celltrion in

14


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

the amount of $25 million. Both these amounts are included in Asset impairments in the third quarter and first nine months of 2015. Also, upon the return of the acquired rights, we paid Celltrion $20 million, which is included in Exit costs in the third quarter and first nine months of 2015. The recorded amounts for the assets acquired from Hospira are provisional and are subject to change. See Note 2A.
(b) 
Transaction costs represent external costs directly related to the acquisition of Hospira 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
 
306

 
209

 
40

 
555

Utilization and other(b)
 
(281
)
 
(209
)
 
(66
)
 
(556
)
Balance, September 27, 2015(c)
 
$
1,139

 
$

 
$
26

 
$
1,165

(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 ($723 million) and Other noncurrent liabilities ($442 million).

Note 4. Other (Income)/Deductions—Net
The following table provides components of Other (income)/deductions––net:
 
 
Three Months Ended
 
Nine Months Ended
(MILLIONS OF DOLLARS)
 
September 27,
2015

 
September 28,
2014

 
September 27,
2015

 
September 28,
2014

Interest income(a)
 
$
(121
)
 
$
(108
)
 
$
(332
)
 
$
(303
)
Interest expense(a)
 
278

 
343

 
864

 
1,007

Net interest expense
 
157

 
235

 
533

 
703

Royalty-related income
 
(204
)
 
(251
)
 
(683
)
 
(737
)
Certain legal matters, net(b)
 

 
28

 
99

 
720

Net gains on asset disposals(c)
 
(35
)
 
(53
)
 
(230
)
 
(267
)
Certain asset impairments(d)
 
633

 
243

 
658

 
358

Business and legal entity alignment costs(e)
 
60

 
47

 
224

 
114

Other, net(f)
 
50

 
(155
)
 
70

 
(226
)
Other (income)/deductions––net
 
$
661

 
$
94

 
$
670

 
$
665

(a) 
Interest income increased in the third quarter and first nine months of 2015, primarily due to higher investment returns. Interest expense decreased in the third quarter and first nine months of 2015, primarily due to the repayment of a portion of long-term debt in the first quarter of 2015 and the benefit of the effective conversion of some fixed-rate liabilities to floating-rate liabilities.
(b) 
In the first nine months of 2014, primarily includes approximately $610 million for Neurontin-related matters (including off-label promotion actions and antitrust actions) and approximately $55 million for an Effexor-related matter.
(c) 
In the first nine months of 2015, primarily includes gains on sales/out-licensing of product and compound rights (approximately $76 million) and gains on sales of investments in equity securities (approximately $160 million). In the first nine months of 2014, primarily includes gains on sales/out-licensing of product and compound rights (approximately $128 million) and gains on sales of investments in equity securities (approximately $114 million).
(d) 
In the third quarter and first nine months of 2015, primarily includes an impairment loss of $470 million related to Pfizer's 49%-owned equity-method investment with Zhejiang Hisun Pharmaceuticals Co., Ltd. (Hisun) in China, Hisun Pfizer, (for additional information concerning Hisun Pfizer, see Note 2D) and impairment charges for intangible assets of $163 million, reflecting (i) $115 million related to developed technology rights for the treatment of attention deficit hyperactivity disorder; (ii) $28 million related to an IPR&D project for the treatment of attention deficit hyperactivity disorder; and (iii) $20 million related to an indefinite-lived brand. The intangible asset impairment charges for the third quarter and first nine months of 2015 are associated with the following: Consumer Healthcare ($20 million) and GEP ($143 million).
The intangible asset impairment charges for 2015 reflect, among other things, updated commercial forecasts due to increased competition.

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

In the third quarter of 2014, includes intangible asset impairment charges of $242 million, reflecting (i) $144 million related to developed technology rights; (ii) $79 million related to an IPR&D compound for the treatment of skin fibrosis; and (iii) $18 million related to an indefinite-lived brand. The intangible asset impairment charges for the third quarter of 2014 are associated with the following: GEP ($163 million) and Worldwide Research and Development (WRD) ($79 million).
In the first nine months of 2014, includes intangible asset impairment charges of $356 million, reflecting (i) $190 million for an IPR&D compound for the treatment of skin fibrosis (full write-off); (ii) $147 million related to developed technology rights; and (iii) $18 million related to an indefinite-lived brand. The intangible asset impairment charges for the first nine months of 2014 are primarily associated with the following: GEP ($166 million) and WRD ($190 million).
The intangible asset impairment charges for 2014 reflect, among other things, updated commercial forecasts; and with regard to IPR&D, the impact of changes to the development program and new scientific findings.
(e) 
In the third quarter and first nine months 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.
(f) 
Includes the following for 2014: (i) in the third quarter and first nine months of 2014, gains of approximately $102 million, reflecting the changes in the fair value of contingent consideration associated with prior acquisitions; (ii) in the third quarter and first nine months of 2014, income of $90 million resulting from a decline in the estimated loss from an option to acquire the remaining interest in Laboratório Teuto Brasileiro S.A.; and (iii) in the first nine months of 2014, a loss of $30 million due to a change in our ownership interest in ViiV. For additional information concerning ViiV, see Note 2D.
The following table provides additional information about the intangible assets that were impaired during 2015 in Other (income)/deductions––net:
 
 
 
 
Nine Months Ended
 
 
Fair Value(a)
 
September 27,
2015

(MILLIONS OF DOLLARS)
 
Amount

 
Level 1
 
Level 2
 
Level 3
 
Impairment
Intangible assets––IPR&D(b)
 
$

 
$

 
$

 
$

 
$
28

Intangible assets––Developed technology rights(b)
 
85

 

 

 
85

 
115

Intangible assets––Indefinite-lived brands(b)
 
22

 

 

 
22

 
20

Total
 
$
107

 
$

 
$

 
$
107

 
$
163

(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. See also Note 1C.
(b) 
Reflects intangible assets written down to fair value in the first nine months of 2015. 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 we 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 and the impact of technological risk associated with IPR&D assets; 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 21.0% for the third quarter of 2015, compared to 25.4% for the third quarter of 2014, and was 23.4% for the first nine months of 2015, compared to 24.7% for the first nine months of 2014.
The lower effective tax rate for the third quarter of 2015 in comparison with the same period in 2014 was primarily due to:
an increase in tax benefits associated with the resolution of certain tax positions pertaining to prior years with various foreign tax authorities, and the expiration of certain statutes of limitations; as well as
the non-recurrence of the non-tax deductible charge to account for an additional year of the Branded Prescription Drug Fee in accordance with final regulations issued in the third quarter of 2014 by the U.S. Internal Revenue Service (IRS),
partially offset by:
the unfavorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business.

16


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

The lower effective tax rate for the first nine months of 2015 in comparison with the first nine months of 2014 was primarily due to:
the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; and
the non-recurrence of the non-tax deductible charge to account for an additional year of the Branded Prescription Drug Fee in accordance with final regulations issued in the third quarter of 2014 by the IRS,
partially offset by:
a decline in tax 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.

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., the IRS has issued a Revenue Agents Report (RAR) for tax years 2009-2010. We are not in agreement with the RAR and are currently appealing certain disputed issues. Tax years 2011-2013 are currently under audit. Tax years 2014 and 2015 are open, but not under audit. All other tax years are closed.
With respect to Hospira, Inc., the IRS is auditing 2010-2011 and 2012-2013. Tax years 2014-2015 are open but not under audit. All other tax years are closed. The open tax years and audits for Hospira, Inc. and its subsidiaries are not considered material to Pfizer.
In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (2010-2015), Japan (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 (2010-2015).

17


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

C. Tax Provision/(Benefit) on Other Comprehensive Loss
The following table provides the components of Tax provision/(benefit) on other comprehensive loss:
 
 
Three Months Ended
 
Nine Months Ended
(MILLIONS OF DOLLARS)
 
September 27,
2015

 
September 28,
2014

 
September 27,
2015

 
September 28,
2014

 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net(a)
 
$
(7
)
 
$
23

 
$
90

 
$
13

Unrealized holding losses on derivative financial instruments, net
 
(57
)
 
(117
)
 
(160
)
 
(133
)
Reclassification adjustments for realized (gains)/losses
 
15

 
175

 
43

 
183

 
 
(42
)
 
58

 
(117
)
 
50

Unrealized holding gains/(losses) on available-for-sale securities, net
 
6

 
(27
)
 
(63
)
 
(4
)
Reclassification adjustments for realized (gains)/losses
 
1

 
2

 
63

 
(38
)
 
 
7

 
(25
)
 

 
(42
)
Benefit plans: actuarial gains/(losses), net
 
(51
)
 
5

 
(43
)
 
3

Reclassification adjustments related to amortization
 
43

 
15

 
133

 
47

Reclassification adjustments related to settlements, net
 
12

 
6

 
35

 
21

Other
 
(9
)
 
3

 
29

 
(4
)
 
 
(4
)
 
30

 
154

 
68

Benefit plans: prior service credits and other, net
 
(4
)
 

 
188

 

Reclassification adjustments related to amortization
 
(36
)
 
(7
)
 
(42
)
 
(21
)
Reclassification adjustments related to curtailments, net
 
18

 
1

 
(8
)
 
2

Other
 
2

 
2

 
2

 

 
 
(19
)
 
(4
)
 
139

 
(19
)
Tax provision/(benefit) on other comprehensive loss
 
$
(65
)
 
$
83

 
$
267

 
$
71

(a) 
Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.
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)
 
(2,237
)
 
(508
)
 
312

 
351

 
227

 
(1,854
)
Balance, September 27, 2015
 
$
(4,926
)
 
$
9

 
$
91

 
$
(5,303
)
 
$
960

 
$
(9,170
)
(a) 
Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $24 million loss for the first nine months of 2015.

As of September 27, 2015, with respect to derivative financial instruments, the amount of unrealized pre-tax losses estimated to be reclassified into income within the next 12 months is $82 million (which is expected to be offset primarily by gains resulting from reclassification adjustments related to available-for-sale securities).

18


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)
 
September 27,
2015

 
December 31,
2014

Selected financial assets measured at fair value on a recurring basis(a)
 
 
 
 
Trading funds and securities(b)
 
$
273

 
$
105

Available-for-sale debt securities(c)
 
30,145

 
39,762

Available-for-sale money market funds
 
1,103

 
2,174

Available-for-sale equity securities, excluding money market funds(c)
 
464

 
397

Derivative financial instruments in a receivable position(d):
 
 

 
 

Interest rate swaps
 
898

 
801

Foreign currency swaps
 
599

 
593

Foreign currency forward-exchange contracts
 
211

 
547

 
 
33,693

 
44,379

Other selected financial assets
 
 

 
 

Held-to-maturity debt securities, carried at amortized cost(c), (e)
 
1,676

 
7,255

Private equity securities, carried at equity-method or at cost(e), (f)
 
1,345

 
1,993

 
 
3,022

 
9,248

Total selected financial assets
 
$
36,715

 
$
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
 
$
157

 
$
17

Foreign currency swaps
 
1,341

 
594

Foreign currency forward-exchange contracts
 
203

 
78

 
 
1,701

 
689

Other selected financial liabilities(h)
 
 

 
 

Short-term borrowings, carried at historical proceeds, as adjusted(e)
 
9,818

 
5,141

Long-term debt, carried at historical proceeds, as adjusted(i), (j)
 
29,079

 
31,541

 
 
38,897

 
36,682

Total selected financial liabilities
 
$
40,598

 
$
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) 
As of September 27, 2015, trading funds and securities are composed of $91 million of trading equity funds, $102 million of trading debt funds, and $80 million of trading equity securities. As of December 31, 2014, trading securities of $105 million is composed of debt and equity securities. The trading equity securities as of September 27, 2015 and the trading debt and equity securities as of December 31, 2014 are 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 $111 million as of September 27, 2015; and foreign currency forward-exchange contracts with fair values of $159 million as of December 31, 2014.
(e) 
Short-term borrowings include foreign currency short-term borrowings with fair values of $545 million as of September 27, 2015, which are used as hedging instruments. 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 September 27, 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 $209 million and foreign currency forward-exchange contracts with fair values of $65 million as of September 27, 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 value of $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 $33.0 billion as of September 27, 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 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.

19


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

The following table provides the classification of these selected financial assets and liabilities in our condensed consolidated balance sheets:
(MILLIONS OF DOLLARS)
 
September 27,
2015

 
December 31,
2014

Assets
 
 
 
 
Cash and cash equivalents
 
$
1,215

 
$
1,389

Short-term investments
 
17,559

 
32,779

Long-term investments
 
16,233

 
17,518

Other current assets(a)
 
713

 
1,059

Other noncurrent assets(b)
 
995

 
881

 
 
$
36,715

 
$
53,627

Liabilities
 
 

 
 

Short-term borrowings, including current portion of long-term debt
 
$
9,818

 
$
5,141

Other current liabilities(c)
 
772

 
93

Long-term debt
 
29,079

 
31,541

Other noncurrent liabilities(d)
 
929

 
596

 
 
$
40,598

 
$
37,371

(a) 
As of September 27, 2015, derivative instruments at fair value include interest rate swaps ($1 million), foreign currency swaps ($518 million) and foreign currency forward-exchange contracts ($195 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 September 27, 2015, derivative instruments at fair value include interest rate swaps ($897 million), foreign currency swaps ($81 million) and foreign currency forward-exchange contracts ($16 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 September 27, 2015, derivative instruments at fair value include interest rate swaps ($13 million), foreign currency swaps ($565 million) and foreign currency forward-exchange contracts ($194 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 September 27, 2015, derivative instruments at fair value include interest rate swaps ($144 million), foreign currency swaps ($776 million) and foreign currency forward-exchange contracts ($9 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.


20


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
 
September 27,
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)
 
$
7,929

 
$
1,692

 
$

 
$

 
$
9,621

Corporate debt(b)
 
2,863

 
4,662

 
1,963

 
18

 
9,506

U.S. government debt
 
755

 
1,380

 
50

 

 
2,185

Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities
 
1

 
2,078

 
40

 

 
2,120

Western European, Scandinavian and other government agency debt(a)
 
1,606

 
274

 

 

 
1,880

Supranational debt(a)
 
1,084

 
480

 

 

 
1,564

Government National Mortgage Association and other U.S. government guaranteed asset-backed securities
 
112

 
722

 
21

 

 
854

Other asset-backed debt(c)
 
953

 
665

 
73

 
22

 
1,714

Reverse repurchase agreements(d)
 
701

 

 

 

 
701

Held-to-maturity debt securities
 
 
 
 
 
 

 
 
 
 

Time deposits, corporate debt and other(a)
 
1,482

 
7

 

 

 
1,488

Western European government debt(a)
 
188

 

 

 

 
188

Total debt securities
 
$
17,673

 
$
11,961

 
$
2,147

 
$
42

 
$
31,822

(a) 
Issued by governments, government agencies or supranational entities, as applicable, all of which are investment-grade, except for $213 million worth of Brazilian government bonds.
(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 $4.9 billion as of September 27, 2015 and $570 million as of December 31, 2014.

D. Long-Term Debt

Our long-term debt increased due to the addition of an aggregate principal amount of $1,750 million of legacy Hospira debt, recorded at acquisition date fair value of $1,928 million.
The following table provides the components of senior unsecured long-term debt acquired from Hospira:
(MILLIONS OF DOLLARS)
 
Maturity Date
 
As of
September 27,
2015

6.05% Notes (2017 Notes) (a), (d)
 
 2017
 
$
586

5.20% Notes (2020 Notes) (b), (d)
 
 2020
 
391

5.80% Notes (2023 Notes) (b), (d)
 
 2023
 
408

5.60% Notes (2040 Notes) (c), (d), (e)
 
 2040
 
539

Total long-term debt acquired from Hospira
 
 
 
$
1,924

(a) 
Interest is payable semi-annually beginning March 30, 2016.
(b) 
Interest is payable semi-annually beginning February 12, 2016.

21


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

(c) 
Interest is payable semi-annually beginning March 15, 2016.
(d) 
The notes are redeemable in whole or in part, at any time at our option, at a redemption price equal to the greater of 100% of the principal amount of the notes to be redeemed, and the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of optional redemption at a rate equal to the U.S. Treasury rate, plus an incremental percentage of 25 basis points in the case of the 2017 Notes, 50 basis points in the case of the 2020 Notes and the 2023 Notes, and 30 basis points in case of the 2040 Notes; plus, in each case, accrued and unpaid interest.
(e) 
If the 2040 Notes are redeemed on or after March 15, 2040 (six months prior to the maturity date of the 2040 Notes), the optional redemption price for the 2040 Notes will equal 100% of the principal amount of the 2040 Notes to be redeemed.
The following table provides the maturity schedule of our Long-term debt outstanding as of September 27, 2015:
(MILLIONS OF DOLLARS)
 
2017

 
2018

 
2019

 
2020

 
After 2020

 
TOTAL

Maturities
 
$
4,432

 
$
2,396

 
$
4,837

 
$
391

 
$
17,022

 
$
29,079


E. Derivative Financial Instruments and Hedging Activities

Foreign Exchange Risk

As of September 27, 2015, the aggregate notional amount of foreign exchange derivative financial instruments hedging or offsetting foreign currency exposures was $32.4 billion. The derivative financial instruments primarily hedge or offset exposures in the euro, Japanese yen and U.K. pound. The maximum length of time over which we are hedging future foreign exchange cash flow relates to our $2.3 billion U.K. pound debt maturing in 2038.

Interest Rate Risk

As of September 27, 2015, the aggregate notional amount of interest rate derivative financial instruments was $20.8 billion. The derivative financial instruments primarily hedge U.S. dollar and euro fixed-rate debt.

22


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)
 
September 27,
2015

 
September 28,
2014

 
September 27,
2015

 
September 28,
2014

 
September 27,
2015

 
September 28,
2014

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

 
$

 
$
(96
)
 
$
(383
)
 
$
(86
)
 
$
(474
)
Foreign currency forward-exchange contracts
 

 

 
(89
)
 
212

 
120

 
33

Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency swaps
 

 

 

 
21

 

 

Foreign currency forward-exchange contracts
 

 

 
(5
)
 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Financial Instruments Not Designated as Hedges:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward-exchange contracts
 
50

 
30