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EX-12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - PFIZER INCpfe-04032016x10qexhibit12.htm
EX-32.1 - CERTIFICATION BY THE CEO - SECTION 1350 - PFIZER INCpfe-04032016x10qexhibit321.htm
EX-32.2 - CERTIFICATION BY THE CFO - SECTION 1350 - PFIZER INCpfe-04032016x10qexhibit322.htm
EX-15 - ACCOUNTANTS' ACKNOWLEDGEMENT - PFIZER INCpfe-04032016x10qexhibit15.htm
EX-10.1 - PFIZER SUPPLEMENTAL SAVINGS PLAN - PFIZER INCpfe-4032016x10qexhibit101.htm
EX-31.2 - CERTIFICATION BY THE CFO - SECTION 302 - PFIZER INCpfe-04032016x10qexhibit312.htm
EX-31.1 - CERTIFICATION BY THE CEO - SECTION 302 - PFIZER INCpfe-04032016x10qexhibit311.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 April 3, 2016

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 9, 20166,064,849,361 shares of the issuer’s voting common stock were outstanding.



Table of Contents
Page
 
 
 
 
 
 
Condensed Consolidated Statements of Income for the three months ended April 3, 2016 and March 29, 2015
 
 
Condensed Consolidated Statements of Comprehensive Income for the three months ended April 3, 2016 and March 29, 2015
 
 
Condensed Consolidated Balance Sheets as of April 3, 2016 and December 31, 2015
 
 
Condensed Consolidated Statements of Cash Flows for the three months ended April 3, 2016 and March 29, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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)
 
April 3,
2016

 
March 29,
2015

Revenues
 
$
13,005

 
$
10,864

Costs and expenses:
 
 
 
 
Cost of sales(a)
 
2,851

 
1,838

Selling, informational and administrative expenses(a)
 
3,385

 
3,104

Research and development expenses(a)
 
1,731

 
1,885

Amortization of intangible assets
 
1,006

 
940

Restructuring charges and certain acquisition-related costs
 
141

 
60

Other (income)/deductions––net
 
330

 
(46
)
Income from continuing operations before provision for taxes on income
 
3,561

 
3,082

Provision for taxes on income
 
535

 
706

Income from continuing operations
 
3,026

 
2,376

Discontinued operations––net of tax
 

 
5

Net income before allocation to noncontrolling interests
 
3,026

 
2,381

Less: Net income attributable to noncontrolling interests
 
9

 
6

Net income attributable to Pfizer Inc.
 
$
3,016

 
$
2,376

 
 
 
 
 
Earnings per common share––basic:
 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.49

 
$
0.38

Discontinued operations––net of tax
 

 

Net income attributable to Pfizer Inc. common shareholders
 
$
0.49

 
$
0.38

 
 
 
 
 
Earnings per common share––diluted:
 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
$
0.49

 
$
0.38

Discontinued operations––net of tax
 

 

Net income attributable to Pfizer Inc. common shareholders
 
$
0.49

 
$
0.38

 
 
 
 
 
Weighted-average shares––basic
 
6,150

 
6,203

Weighted-average shares––diluted
 
6,214

 
6,292

Cash dividends paid per common share
 
$
0.30

 
$
0.28

(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)
 
April 3,
2016

 
March 29,
2015

Net income before allocation to noncontrolling interests
 
$
3,026

 
$
2,381

 
 
 
 
 
Foreign currency translation adjustments, net
 
67

 
(1,308
)
 
 
67

 
(1,308
)
Unrealized holding losses on derivative financial instruments, net
 
(273
)
 
(315
)
Reclassification adjustments for realized (gains)/losses(a)
 
(339
)
 
234

 
 
(612
)
 
(82
)
Unrealized holding gains/(losses) on available-for-sale securities, net
 
129

 
(328
)
Reclassification adjustments for realized losses(a)
 
209

 
247

 
 
339

 
(81
)
Benefit plans: actuarial gains, net
 

 
32

Reclassification adjustments related to amortization(b)
 
139

 
136

Reclassification adjustments related to settlements, net(b)
 
26

 
40

Other
 
38

 
158

 
 
203

 
365

Benefit plans: prior service costs and other, net
 

 
(1
)
Reclassification adjustments related to amortization(b)
 
(41
)
 
(35
)
Reclassification adjustments related to curtailments, net(b)
 
(6
)
 
(10
)
Other
 
5

 

 
 
(42
)
 
(46
)
Other comprehensive loss, before tax
 
(44
)
 
(1,152
)
Tax provision/(benefit) on other comprehensive loss(c)
 
(41
)
 
105

Other comprehensive loss before allocation to noncontrolling interests
 
$
(4
)
 
$
(1,257
)
 
 
 
 
 
Comprehensive income before allocation to noncontrolling interests
 
$
3,022

 
$
1,124

Less: Comprehensive income/(loss) attributable to noncontrolling interests
 
4

 
(10
)
Comprehensive income attributable to Pfizer Inc.
 
$
3,019

 
$
1,134

(a) 
Reclassified into Other (income)/deductions—net in the condensed consolidated statements of income.
(b) 
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.
(c) 
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)
 
April 3,
2016

 
December 31,
2015

 
 
(Unaudited)
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
$
2,561

 
$
3,641

Short-term investments
 
16,882

 
19,649

Trade accounts receivable, less allowance for doubtful accounts: 2016—$649; 2015—$384
 
9,033

 
8,176

Inventories
 
7,578

 
7,513

Current tax assets
 
2,888

 
2,662

Other current assets
 
2,355

 
2,163

Total current assets
 
41,298

 
43,804

Long-term investments
 
14,146

 
15,999

Property, plant and equipment, less accumulated depreciation: 2016—$14,002; 2015—$13,502
 
13,584

 
13,766

Identifiable intangible assets, less accumulated amortization
 
39,602

 
40,356

Goodwill
 
48,558

 
48,242

Noncurrent deferred tax assets and other noncurrent tax assets
 
1,738

 
1,794

Other noncurrent assets
 
4,003

 
3,420

Total assets
 
$
162,929

 
$
167,381

 
 
 
 
 
Liabilities and Equity
 
 

 
 

Short-term borrowings, including current portion of long-term debt
 
$
11,546

 
$
10,159

Trade accounts payable
 
3,125

 
3,620

Dividends payable
 

 
1,852

Income taxes payable
 
920

 
418

Accrued compensation and related items
 
1,725

 
2,359

Other current liabilities
 
11,419

 
10,990

Total current liabilities
 
28,735

 
29,399

 
 
 
 
 
Long-term debt
 
27,824

 
28,740

Pension benefit obligations, net
 
5,264

 
6,310

Postretirement benefit obligations, net
 
1,980

 
1,809

Noncurrent deferred tax liabilities
 
26,547

 
26,877

Other taxes payable
 
4,053

 
3,992

Other noncurrent liabilities
 
5,180

 
5,257

Total liabilities
 
99,582

 
102,384

 
 
 
 
 
Commitments and Contingencies
 


 


 
 
 
 
 
Preferred stock
 
26

 
26

Common stock
 
460

 
459

Additional paid-in capital
 
81,443

 
81,016

Treasury stock
 
(84,313
)
 
(79,252
)
Retained earnings
 
74,971

 
71,993

Accumulated other comprehensive loss
 
(9,520
)
 
(9,522
)
Total Pfizer Inc. shareholders’ equity
 
63,068

 
64,720

Equity attributable to noncontrolling interests
 
279

 
278

Total equity
 
63,347

 
64,998

Total liabilities and equity
 
$
162,929

 
$
167,381

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)
 
April 3,
2016

 
March 29,
2015

Operating Activities
 
 
 
 
Net income before allocation to noncontrolling interests
 
$
3,026

 
$
2,381

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

 
 

Depreciation and amortization
 
1,425

 
1,260

Asset write-offs and impairments
 
146

 
11

Deferred taxes from continuing operations
 
(204
)
 
(41
)
Share-based compensation expense
 
143

 
162

Benefit plan contributions in excess of expense
 
(853
)
 
(874
)
Other adjustments, net
 
229

 
(336
)
Other changes in assets and liabilities, net of acquisitions and divestitures
 
(2,261
)
 
(1,883
)
Net cash provided by operating activities
 
1,651

 
680

 
 
 
 
 
Investing Activities
 
 

 
 

Purchases of property, plant and equipment
 
(301
)
 
(239
)
Purchases of short-term investments
 
(3,489
)
 
(7,546
)
Proceeds from redemptions/sales of short-term investments
 
7,922

 
10,702

Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less
 
493

 
5,243

Purchases of long-term investments
 
(1,308
)
 
(3,150
)
Proceeds from redemptions/sales of long-term investments
 
1,142

 
1,937

Acquisitions of businesses, net of cash acquired
 
(110
)
 
(678
)
Acquisitions of intangible assets
 

 
(7
)
Other investing activities, net
 
6

 
330

Net cash provided by investing activities
 
4,355

 
6,592

 
 
 
 
 
Financing Activities
 
 

 
 

Proceeds from short-term borrowings
 
682

 
1,999

Principal payments on short-term borrowings
 
(1,350
)
 

Net proceeds from short-term borrowings with original maturities of three months or less
 
1,724

 
863

Principal payments on long-term debt
 
(1,536
)
 
(2,998
)
Purchases of common stock
 
(5,000
)
 
(6,000
)
Cash dividends paid
 
(1,854
)
 
(1,758
)
Proceeds from exercise of stock options
 
296

 
794

Other financing activities, net
 
25

 
122

Net cash used in financing activities
 
(7,014
)
 
(6,978
)
Effect of exchange-rate changes on cash and cash equivalents
 
(73
)
 
(74
)
Net increase/(decrease) in cash and cash equivalents
 
(1,080
)
 
220

Cash and cash equivalents, beginning
 
3,641

 
3,343

Cash and cash equivalents, end
 
$
2,561

 
$
3,563

 
 
 

 
 

Supplemental Cash Flow Information
 
 
 
 
Cash paid during the period for:
 
 

 
 

Income taxes
 
$
518

 
$
372

Interest
 
382

 
332

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.

The financial information included in our condensed consolidated financial statements for subsidiaries operating outside the U.S. is as of and for the three months ended February 28, 2016 and February 22, 2015. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three months ended April 3, 2016 and March 29, 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 2015 Annual Report on Form 10-K.

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.

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

In the condensed consolidated balance sheet as of December 31, 2015, we performed certain reclassifications to conform to the current period presentation of Other current assets, Other noncurrent assets, Short-term borrowings, including current portion of long-term debt and Long-term debt, and in the condensed consolidated statement of cash flows for the three months ended March 29, 2015, we performed certain reclassifications to conform to the current presentation of Proceeds from short-term borrowings for debt issuance costs in accordance with the adoption of a new accounting standard (for additional information, see Note 1B). Certain prior period reclassifications were made to the Global Established Pharmaceutical (GEP) segment operating results to conform to the current period presentation for certain organizational changes impacting GEP in 2016. For additional information, see Note 13.

On April 6, 2016, we announced that the merger agreement between Pfizer and Allergan plc (Allergan) entered into on November 22, 2015 was terminated by mutual agreement of the companies. The decision was driven by the actions announced by the U.S. Department of Treasury on April 4, 2016, which the companies concluded qualified as an “Adverse Tax Law Change” under the merger agreement. In connection with the termination of the merger agreement, on April 8, 2016 (which falls into Pfizer’s second fiscal quarter), Pfizer paid Allergan $150 million (pre-tax) for reimbursement of Allergan’s expenses associated with the terminated transaction. Pfizer and Allergan also released each other from any and all claims in connection with the merger agreement or the transactions contemplated thereby.

On September 3, 2015, we completed our acquisition of Hospira, Inc. (Hospira) and, commencing from the acquisition date, our financial statements reflect the assets, liabilities. operating results and cash flows of Hospira. As a result, legacy Hospira operations are reflected in our results of operations, GEP’s operating results, and cash flows for the first quarter of 2016, but not for the first quarter of 2015. Legacy Hospira assets and liabilities are reflected in our balance sheets as of April 3, 2016 and December 31, 2015.

7


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

B. Adoption of New Accounting Standards

We adopted a new standard as of January 1, 2016 that changed the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying value of that associated debt, consistent with the presentation of a debt discount. The update does not impact the measurement or recognition of debt issuance costs. As of April 3, 2016, debt issuance costs are $76 million and are presented as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-term debt ($75 million). In the December 31, 2015 condensed consolidated balance sheet, we have reclassified debt issuance costs of $79 million ($1 million from Other current assets and $79 million from Other noncurrent assets) and have presented them as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-term debt ($79 million) to conform to the current period presentation. For additional information, see Note 7A.

We adopted a new standard as of January 1, 2016 that requires an acquirer to recognize adjustments made in the measurement period to provisional amounts of assets acquired and liabilities assumed in a business combination in the reporting period in which the adjustment amounts are determined. There was no material impact to our condensed consolidated financial statements in the first quarter of 2016 from adopting this standard. For additional information, see Note 2A.

We adopted a new standard as of January 1, 2016 related to the accounting for hybrid financial instruments issued or held as investments and there was no material impact to our condensed consolidated financial statements from adopting this standard.

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.
Note 2. Acquisitions, Research and Development and Collaborative Arrangements, and Equity-Method Investments

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 $16.1 billion in cash ($15.7 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.

The following table summarizes the provisional amounts recognized for assets acquired and liabilities assumed as of the acquisition date, as well as adjustments made in the first quarter of 2016 to the provisional amounts initially recorded in 2015 (measurement period adjustments) with a corresponding change to goodwill. Certain 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, but no later than one year from the acquisition date.

8


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

(MILLIONS OF DOLLARS)
 
Amounts Recognized
as of Acquisition Date (as previously reported as of December 31, 2015)

 
Measurement Period Adjustments

 
Amounts Recognized as of Acquisition Date (as adjusted)

Working capital, excluding inventories
 
$
274

 
$
(6
)
 
$
268

Inventories
 
1,924

 
(16
)
 
1,908

Property, plant and equipment(a)
 
2,410

 
(53
)
 
2,357

Identifiable intangible assets, excluding in-process research and development(a)
 
8,270

 
65

 
8,335

In-process research and development
 
995

 
5

 
1,000

Other noncurrent assets
 
408

 
(46
)
 
362

Long-term debt
 
(1,928
)
 

 
(1,928
)
Benefit obligations
 
(117
)
 

 
(117
)
Net income tax accounts
 
(3,394
)
 
25

 
(3,369
)
Other noncurrent liabilities
 
(39
)
 

 
(39
)
Total identifiable net assets
 
8,803

 
(25
)
 
8,778

Goodwill
 
7,284

 
25

 
7,309

Net assets acquired/total consideration transferred
 
$
16,087

 
$

 
$
16,087

(a) 
The measurement period adjustments for Identifiable intangible assets reflect changes in the estimated fair value of acquired finite-lived developed technology rights. The measurement period adjustments for Property, plant and equipment primarily reflect changes in the estimated fair value of acquired buildings and machinery and equipment. The changes in the estimated fair values for identifiable intangible assets and property, plant and equipment are primarily to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date. The measurement period adjustments did not result from intervening events subsequent to the acquisition date.
The change in the provisional amounts had no material impact on our results of operations.
The following items are subject to change:
Amounts for certain balances included in working capital (excluding inventories), certain investments and certain legal contingencies, pending receipt of certain information that could affect provisional amounts recorded. We do not believe any adjustments for legal contingencies will have a material impact on our consolidated financial statements.
Amounts for intangibles, inventory and property, plant and equipment, pending finalization of valuation efforts for acquired intangible assets as well as the completion of certain physical inventory counts and the confirmation of the physical existence and condition of certain property, plant and equipment assets.
Amounts for income tax assets, receivables and liabilities, pending the filing of Hospira pre-acquisition tax returns and the receipt of information including but not limited to that from taxing authorities, which may change certain estimates and assumptions used.
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
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
 
March 29,
2015

Revenues
 
$
12,039

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

Diluted earnings per share attributable to Pfizer Inc. common shareholders
 
0.38

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.

9


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

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 $12 million in the first quarter of 2015).
Additional amortization expense (approximately $127 million in the first quarter of 2015) related to the preliminary estimate of the fair value of identifiable intangible assets acquired.
Additional depreciation expense (approximately $22 million in the first quarter of 2015) 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 addition of $5 million of charges in the first quarter of 2015).
Adjustment to decrease interest expense (approximately $10 million in the first quarter of 2015) related to the fair value adjustment of Hospira debt.
Adjustment for non-recurring acquisition-related costs directly attributable to the acquisition (the elimination of $14 million of charges in the first quarter of 2015), reflecting non-recurring charges incurred by Hospira, which would have been recorded in 2014 under the pro forma assumption that the Hospira acquisition was completed on January 1, 2014. Pfizer did not incur any such charges in the first quarter of 2015.

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 elimination of Hospira’s historical intangible asset amortization expense and 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 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.

B. Research and Development and Collaborative Arrangements

Research and Development Arrangement with RPI Finance Trust (RPI)

In January 2016, Pfizer entered into an agreement with RPI, a subsidiary of Royalty Pharma, under which RPI will fund up to $300 million in development costs related to certain Phase III clinical trials of Pfizer’s Ibrance (palbociclib) product primarily for adjuvant treatment of hormone receptor positive early breast cancer (the Indication). If successful and upon approval of Ibrance in the U.S. or certain major markets in the European Union (EU) for the Indication based on the applicable clinical trials, RPI will be eligible to receive a combination of approval-based fixed milestone payments of up to $250 million dependent upon results of the clinical trials and royalties on certain Ibrance sales over approximately seven years. RPI’s development funding is expected to cover up to 100% of the costs primarily for the applicable clinical trials through 2021. As there is a substantive and genuine transfer of risk to RPI, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of Research and development expenses as incurred. The reduction to Research and development expenses for the first quarter of 2016 totaled $8.8 million. Fixed milestone payments due upon approval will be recorded as intangible assets and amortized to Amortization of intangible assets over the estimated commercial life of the Ibrance product and sales-based royalties will be recorded as Cost of sales when incurred.
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

10


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

and certain product-related costs. Following the decision by the U.S. Food and Drug Administration (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 six 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.

Collaboration with OPKO Health, Inc. (OPKO)
We entered into a collaborative agreement with OPKO, which closed in January 2015, 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. 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.

C. Equity-Method Investments

Investment in Hisun Pfizer Pharmaceuticals Company Limited (Hisun Pfizer)

In the first quarter of 2016, we determined that we had an other-than-temporary decline in the value of Hisun Pfizer, our 49%-owned equity-method investment in China, and, therefore, we recognized a loss of $81 million in Other (income)/deductions––net (see Note 4). The decline in value resulted from lower expectations as to the future cash flows to be generated by Hisun Pfizer, primarily as a result of an increase in risk due to the continued slowdown in the Chinese economy. As of April 3, 2016, the carrying value of our investment in Hisun Pfizer is $680 million, which is included in Long-term investments.
In valuing our investment in Hisun Pfizer, we used discounted cash flow techniques, utilizing a 13.0% 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 Laboratório Teuto Brasileiro S.A. (Teuto)

In the first quarter of 2016, we determined that we had an other-than-temporary decline in the value of Teuto, a 40%-owned generics company in Brazil, and, therefore, we recognized a loss of $50 million in Other (income)/deductions––net (see Note 4) related to our equity method investment. The decline in value resulted from lower expectations as to the future cash flows to be generated by Teuto, primarily due to a slowdown in Brazilian economic conditions, which have been impacted by political risk, higher inflation, and the depreciation of the Brazilian Real.

In valuing our investment in Teuto, we used discounted cash flow techniques, utilizing a 17.5% 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.


11


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

We have an option to acquire the remaining 60% of Teuto, and Teuto’s shareholders have an option to sell their 60% stake in the company to us. Under the terms of our agreement with Teuto’s other shareholders, 2016 is the final year in which the call and put options may be exercised. Our investment in Teuto is accounted for under the equity method due to the significant influence we have over the operations of Teuto through our board representation, minority veto rights and 40% voting interest.
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 (not including costs of $215 million in 2015 associated with the return of acquired in-process research and development rights as described in the Current-Period Key Activities section of Notes to Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives in our 2015 Financial Report) 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 $400 million associated with prior acquisition activity and costs of approximately $1.0 billion associated with new non-acquisition-related cost-reduction initiatives. Through April 3, 2016, we incurred approximately $357 million and $570 million, respectively, associated with these initiatives.
The 2014 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 different reporting requirements. In connection with this reorganization, during 2014-2016, we expect to incur costs of approximately $225 million. Through April 3, 2016, we incurred approximately $219 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 April 3, 2016, we incurred approximately $532 million associated with these initiatives.
The costs expected to be incurred during 2014-2016, of approximately $2.5 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 quarter of 2016, we incurred approximately $228 million in cost-reduction and acquisition-related costs (excluding transaction costs) primarily in connection with the acquisition of Hospira and the aforementioned programs, mainly associated with our manufacturing operations.

12


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)
 
April 3,
2016

 
March 29,
2015

Restructuring charges(a):
 
 

 
 

Employee terminations
 
$
24

 
$
31

Asset impairments
 
1

 
6

Exit costs
 
4

 
6

Total restructuring charges
 
30

 
42

Transaction costs(b)
 
24

 
5

Integration costs(c)
 
87

 
13

Restructuring charges and certain acquisition-related costs
 
141

 
60

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

 
 

Cost of sales
 
45

 
17

Research and development expenses
 
4

 
1

Total additional depreciation––asset restructuring
 
49

 
18

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

 
 

Cost of sales
 
43

 
13

Selling, informational and administrative expenses
 
12

 
26

Research and development expenses
 
6

 
8

Total implementation costs
 
62

 
48

Total costs associated with acquisitions and cost-reduction/productivity initiatives
 
$
252

 
$
127

(a) 
In the three months ended April 3, 2016, Employee terminations represent the expected reduction of the workforce by approximately 100 employees, mainly in manufacturing. 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 the three months ended April 3, 2016 are associated with the following:
the Global Innovative Pharmaceutical segment (GIP) ($8 million); the Global Vaccines, Oncology and Consumer Healthcare segment (VOC) ($1 million); the Global Established Pharmaceutical segment (GEP) ($3 million); Worldwide Research and Development and Medical (WRD/M) ($3 million); manufacturing operations ($14 million); and Corporate ($1 million).
The restructuring charges for the three months ended March 29, 2015 are associated with the following:
GIP ($12 million); VOC ($13 million); GEP ($10 million); WRD/M ($12 million); manufacturing operations ($22 million income); and Corporate ($18 million).
(b) 
Transaction costs represent external costs for banking, legal, accounting and other similar services, most of which are directly related to the terminated transaction with Allergan.
(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, primarily related to the acquisition of Hospira.
(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, 2015(a)
 
$
1,109

 
$

 
$
48

 
$
1,157

Provision
 
24

 
1

 
4

 
30

Utilization and other(b)
 
(165
)
 
(1
)
 
(9
)
 
(175
)
Balance, April 3, 2016(c)
 
$
968

 
$

 
$
43

 
$
1,011

(a) 
Included in Other current liabilities ($776 million) and Other noncurrent liabilities ($381 million).
(b) 
Includes adjustments for foreign currency translation.
(c) 
Included in Other current liabilities ($638 million) and Other noncurrent liabilities ($373 million).


13


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)
 
April 3,
2016

 
March 29,
2015

Interest income(a)
 
$
(113
)
 
$
(93
)
Interest expense
 
306

 
309

Net interest expense
 
193

 
216

Royalty-related income
 
(187
)
 
(222
)
Certain legal matters, net(b)
 
274

 

Net gains on asset disposals(c)
 
(9
)
 
(175
)
Certain asset impairments(d)
 
131

 

Business and legal entity alignment costs(e)
 
51

 
101

Other, net(f)
 
(122
)
 
34

Other (income)/deductions––net
 
$
330

 
$
(46
)
(a) 
Interest income increased in the first quarter of 2016, primarily due to higher investment returns.
(b) 
In the first quarter of 2016, primarily includes an accrual for an unresolved legal matter and a settlement related to a patent matter.
(c) 
In the first quarter of 2016, primarily includes gains on sales/out-licensing of product and compound rights (approximately $16 million). 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).
(d) 
In the first quarter of 2016, represents an impairment loss of $81 million related to Pfizer’s 49%-owned equity-method investment with Zhejiang Hisun Pharmaceuticals Co., Ltd. (Hisun) in China, Hisun Pfizer, and an impairment loss of $50 million related to Pfizer's 40%-owned equity-method investment in Teuto. For additional information concerning Hisun Pfizer and Teuto, see Note 2C.
(e) 
In the first quarter of 2016 and 2015, represents expenses for changes to our infrastructure to align our commercial operations, including costs to internally separate our businesses into distinct legal entities, as well as to streamline our intercompany supply operations to better support each business.
(f) 
In the first quarter of 2016, primarily includes, among other things, income of $116 million from resolution of a contract disagreement.

Note 5. Tax Matters

A. Taxes on Income from Continuing Operations

Our effective tax rate for continuing operations was 15.0% for the first quarter of 2016, compared to 22.9% for the first quarter of 2015.
The lower effective tax rate for the first quarter of 2016 in comparison with the same period in 2015 was primarily due to:
benefits related to the final resolution (pending court approval) of an agreement in principle reached in February 2016 to resolve certain claims related to Protonix, which resulted in the receipt of information that raised our assessment of the likelihood of prevailing on the technical merits of our tax position;
benefits associated with our Venezuela operations;
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
an increase in benefits associated with the U.S. R&D tax credit, which was not in effect in the prior year quarter but was permanently extended on December 18, 2015,
partially offset by:
an unfavorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business.


14


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 U.S. Internal Revenue Service (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 2014-2016 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 (through date of acquisition) 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 (2010-2016), Japan (2015-2016), Europe (2007-2016, primarily reflecting Ireland, the United Kingdom, France, Italy, Spain and Germany), Latin America (1998-2016, primarily reflecting Brazil) and Puerto Rico (2010-2016).
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
(MILLIONS OF DOLLARS)
 
April 3,
2016

 
March 29,
2015

Foreign currency translation adjustments, net(a)
 
$
(14
)
 
$
85

Unrealized holding losses on derivative financial instruments, net
 
(36
)
 
(224
)
Reclassification adjustments for realized (gains)/losses
 
(72
)
 
183

 
 
(108
)
 
(41
)
Unrealized holding gains/(losses) on available-for-sale securities, net
 
17

 
(31
)
Reclassification adjustments for realized losses
 
26

 
(1
)
 
 
43

 
(32
)
Benefit plans: actuarial gains, net
 

 
12

Reclassification adjustments related to amortization
 
47

 
46

Reclassification adjustments related to settlements, net
 
9

 
15

Other
 
(1
)
 
37

 
 
55

 
109

Benefit plans: prior service costs and other, net
 

 

Reclassification adjustments related to amortization
 
(15
)
 
(13
)
Reclassification adjustments related to curtailments, net
 
(2
)
 
(4
)
Other
 
1

 

 
 
(16
)
 
(17
)
Tax provision/(benefit) on other comprehensive loss
 
$
(41
)
 
$
105

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

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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, 2015
 
$
(5,863
)
 
$
421

 
$
(227
)
 
$
(4,733
)
 
$
880

 
$
(9,522
)
Other comprehensive income/(loss)(a)
 
87

 
(504
)
 
296

 
148

 
(25
)
 
2

Balance, April 3, 2016
 
$
(5,776
)
 
$
(83
)
 
$
69

 
$
(4,585
)
 
$
855

 
$
(9,520
)
(a) 
Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $6 million loss for the first three months of 2016.

As of April 3, 2016, 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 $144 million (which is expected to be offset primarily by gains resulting from reclassification adjustments related to available-for-sale securities).

16


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)
 
April 3,
2016

 
December 31,
2015

Selected financial assets measured at fair value on a recurring basis(a)
 
 
 
 
Trading funds(b)
 
$
260

 
$
287

Available-for-sale debt securities(c)
 
27,819

 
32,078

Money market funds
 
947

 
934

Available-for-sale equity securities(c)
 
497

 
603

Derivative financial instruments in a receivable position(d):
 
 

 
 

Interest rate swaps
 
1,433

 
837

Foreign currency swaps
 
103

 
135

Foreign currency forward-exchange contracts
 
333

 
559

 
 
31,391

 
35,433

Other selected financial assets
 
 

 
 

Held-to-maturity debt securities, carried at amortized cost(c), (e)
 
1,065

 
1,388

Private equity securities, carried at equity-method or at cost(e), (f)
 
1,250

 
1,336

 
 
2,315

 
2,724

Total selected financial assets
 
$
33,705

 
$
38,157

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

 
 

Derivative financial instruments in a liability position(g):
 
 

 
 

Interest rate swaps
 
$
9

 
$
139

Foreign currency swaps
 
1,311

 
1,489

Foreign currency forward-exchange contracts
 
432

 
81

 
 
1,752

 
1,709

Other selected financial liabilities(h)
 
 

 
 

Short-term borrowings, carried at historical proceeds, as adjusted(e), (i)
 
11,546

 
10,159

Long-term debt, carried at historical proceeds, as adjusted(i), (j)
 
27,824

 
28,740

 
 
39,370

 
38,899

Total selected financial liabilities
 
$
41,122

 
$
40,608

(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 and money market funds measured at net asset value.
(b) 
As of April 3, 2016, trading funds are composed of $204 million of trading equity funds and $56 million of trading debt funds. As of December 31, 2015, trading funds are composed of $185 million of trading equity funds and $102 million of trading debt funds. As of April 3, 2016 and December 31, 2015, trading equity funds of $65 million and $85 million, respectively, 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 $144 million as of April 3, 2016; and foreign currency forward-exchange contracts with fair values of $136 million as of December 31, 2015.
(e) 
Short-term borrowings include foreign currency short-term borrowings with fair values of $547 million as of December 31, 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 April 3, 2016 or December 31, 2015. 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 $188 million and foreign currency forward-exchange contracts with fair values of $117 million as of April 3, 2016; and foreign currency swaps with fair values of $234 million and foreign currency forward-exchange contracts with fair values of $59 million as of December 31, 2015.
(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) 
We adopted a new standard as of January 1, 2016 that changed the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying value of that associated debt, consistent with the presentation of a debt discount. The update does not impact the measurement or recognition of debt issuance costs. As of April 3, 2016, debt issuance costs are $76 million and are presented as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-term debt ($75 million). In the December 31, 2015 condensed consolidated balance sheet, we have reclassified debt issuance costs of $79 million ($1 million from Other current assets and $79

17


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

million from Other noncurrent assets) and have presented them as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-term debt ($79 million) to conform to the current period presentation.
(j) 
The fair value of our long-term debt (not including the current portion of long-term debt) was $31.8 billion as of April 3, 2016 and $32.7 billion as of December 31, 2015. 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.
The following table provides the classification of these selected financial assets and liabilities in our condensed consolidated balance sheets:
(MILLIONS OF DOLLARS)
 
April 3,
2016

 
December 31,
2015

Assets
 
 
 
 
Cash and cash equivalents
 
$
809

 
$
978

Short-term investments
 
16,882

 
19,649

Long-term investments
 
14,146

 
15,999

Other current assets(a)
 
390

 
587

Other noncurrent assets(b)
 
1,478

 
944

 
 
$
33,705

 
$
38,157

Liabilities
 
 

 
 

Short-term borrowings, including current portion of long-term debt(c)
 
$
11,546

 
$
10,159

Other current liabilities(d)
 
862

 
645

Long-term debt(c)
 
27,824

 
28,740

Other noncurrent liabilities(e)
 
890

 
1,064

 
 
$
41,122

 
$
40,608

(a) 
As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($5 million), foreign currency swaps ($62 million) and foreign currency forward-exchange contracts ($323 million) and, as of December 31, 2015, include interest rate swaps ($2 million), foreign currency swaps ($46 million) and foreign currency forward-exchange contracts ($538 million).
(b) 
As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($1,428 million), foreign currency swaps ($41 million) and foreign currency forward-exchange contracts ($9 million) and, as of December 31, 2015, include interest rate swaps ($835 million), foreign currency swaps ($89 million) and foreign currency forward-exchange contracts ($20 million).
(c) 
We adopted a new standard as of January 1, 2016 that changed the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying value of that associated debt, consistent with the presentation of a debt discount. The update does not impact the measurement or recognition of debt issuance costs. As of April 3, 2016, debt issuance costs are $76 million and are presented as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-term debt ($75 million). In the December 31, 2015 condensed consolidated balance sheet, we have reclassified debt issuance costs of $79 million ($1 million from Other current assets and $79 million from Other noncurrent assets) and have presented them as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-term debt ($79 million) to conform to the current period presentation.
(d) 
As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($5 million), foreign currency swaps ($454 million) and foreign currency forward-exchange contracts ($403 million) and, as of December 31, 2015, include interest rate swaps ($5 million), foreign currency swaps ($560 million) and foreign currency forward-exchange contracts ($80 million).
(e) 
As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($4 million), foreign currency swaps ($857 million) and foreign currency forward-exchange contracts ($29 million) and, as of December 31, 2015, include interest rate swaps ($134 million), foreign currency swaps ($928 million) and foreign currency forward-exchange contracts ($1 million).

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


18


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
 
April 3,
2016

(MILLIONS OF DOLLARS)
 
Within 1

 
Over 1
to 5

 
Over 5
to 10

 
Over 10

 
Total

Available-for-sale debt securities
 
 
 
 
 
 
 
 
 
 
Western European, Asian, Scandinavian and other government debt(a)
 
$
7,056

 
$
1,033

 
$
8

 
$

 
$
8,097

Corporate debt(b)
 
3,223

 
4,786

 
1,656

 
15

 
9,680

U.S. government debt
 
1,812

 
848

 
207

 

 
2,867

Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities
 
34

 
2,110

 
71

 
11

 
2,227

Western European, Scandinavian and other government agency debt(a)
 
1,587

 
210

 

 

 
1,797

Supranational debt(a)
 
911

 
323

 

 

 
1,234

Government National Mortgage Association and other U.S. government guaranteed asset-backed securities
 
599

 
112

 
18

 

 
729

Other asset-backed debt(c)
 
461

 
682

 
40

 
4

 
1,188

Held-to-maturity debt securities
 
 
 
 
 
 

 
 
 
 

Time deposits and other
 
1,024

 
5

 

 

 
1,029

Western European government debt(a)
 
36

 

 

 

 
36

Total debt securities
 
$
16,744

 
$
10,109

 
$
2,001

 
$
31

 
$
28,884

(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. These securities are valued by third party models that use significant inputs derived from observable market data like prepayment rates, default rates, and recovery rates.

C. Short-Term Borrowings

Short-term borrowings include amounts for commercial paper of $6.5 billion as of April 3, 2016 and $4.9 billion as of December 31, 2015.

D. Derivative Financial Instruments and Hedging Activities

Foreign Exchange Risk

As of April 3, 2016, the aggregate notional amount of foreign exchange derivative financial instruments hedging or offsetting foreign currency exposures was $36.9 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 2.1 billion U.K. pound debt maturing in 2038.

Interest Rate Risk

As of April 3, 2016, the aggregate notional amount of interest rate derivative financial instruments was $20.1 billion. The derivative financial instruments primarily hedge U.S. dollar and euro fixed-rate debt.

19


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:
 
 
Three Months Ended
 
 
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)
 
April 3,
2016

 
March 29,
2015

 
April 3,
2016

 
March 29,
2015

 
April 3,
2016

 
March 29,
2015

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

 
$

 
$
55

 
$
(732
)
 
$
118

 
$
(607
)
Foreign currency forward-exchange contracts
 
1

 

 
(328
)
 
417

 
221

 
373

Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward-exchange contracts
 
(2
)
 
2

 
(12
)
 
249

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Financial Instruments Not Designated as Hedges:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency forward-exchange contracts
 
(1
)
 
(41
)
 

 

 

 

Foreign currency swaps
 
(23
)
 
1

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency short-term borrowings
 

 

 
(26
)
 

 

 

Foreign currency long-term debt
 

 

 

 
(3
)
 

 

 
 
$
(25
)
 
$
(38
)
 
$
(311
)
 
$
(68
)
 
$
339

 
$
(234
)
(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, net.

For information about the fair value of our derivative financial instruments, and the impact on our condensed consolidated balance sheets, see Note 7A above. 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 April 3, 2016, the aggregate fair value of these derivative instruments that are in a net liability position was $817 million, for which we have posted collateral of $897 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 Poors (S&P) or the equivalent rating by Moodys Investors Service, on April 3, 2016, we would have been required to post an additional $13 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 April 3, 2016, we had $2.2 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

20


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

collateral payments, depending on levels of exposure, our credit rating and the credit rating of the counterparty. As of April 3, 2016, we received cash collateral of $0.9 billion from various counterparties. The collateral primarily supports the approximate 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)
 
April 3,
2016

 
December 31,
2015

Finished goods
 
$
2,782

 
$
2,714

Work-in-process
 
3,957

 
3,932

Raw materials and supplies
 
840

 
867

Inventories
 
$
7,578

 
$
7,513

Noncurrent inventories not included above(a)
 
$
644

 
$
594

(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:
 
 
April 3, 2016
 
December 31, 2015
(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
 
$
77,630

 
$
(48,088
)
 
$
29,543

 
$
77,613

 
$
(47,193
)
 
$
30,419

Brands
 
2,103

 
(956
)
 
1,147

 
1,973

 
(928
)
 
1,044

Licensing agreements and other
 
1,772

 
(931
)
 
841

 
1,619

 
(918
)
 
701

 
 
81,505

 
(49,975
)
 
31,530

 
81,205

 
(49,040
)
 
32,165

Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
Brands and other
 
6,893

 


 
6,893

 
7,021

 


 
7,021

In-process research and development
 
1,179

 


 
1,179

 
1,171

 


 
1,171

 
 
8,072

 


 
8,072

 
8,192

 


 
8,192

Identifiable intangible assets(a)
 
$
89,577

 
$
(49,975
)
 
$
39,602

 
$
89,396

 
$
(49,040
)
 
$
40,356

(a) 
The decrease in Identifiable intangible assets, less accumulated amortization, is primarily related to amortization, partially offset by assets acquired, the impact of measurement period adjustments related to our acquisition of Hospira (see Note 2A) and the impact of foreign exchange.
Our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization:
 
 
April 3, 2016
 
 
GIP
 
VOC
 
GEP
 
WRD
Developed technology rights
 
21
%
 
29
%
 
50
%
 
%
Brands, finite-lived
 
%
 
73
%
 
27
%
 
%
Brands, indefinite-lived
 
%
 
71
%
 
29
%
 
%
In-process research and development
 
2
%
 
10
%
 
85
%
 
3
%

21


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 2016 and $1.0 billion for the first quarter of 2015.

In-Process Research and Development

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, 2015
 
$
12,689

 
$
11,120

 
$
24,433

 
$
48,242

Additions
 

 
51

 
26

 
78

Other(a)
 
76

 
60

 
102

 
238

Balance, April 3, 2016
 
$
12,765

 
$
11,231

 
$
24,562

 
$
48,558

(a) 
Primarily reflects the impact of foreign exchange.


22


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:
 
 
Three Months Ended
 
 
Pension Plans
 
 
 
 
U.S.
Qualified(a)
 
U.S.
Supplemental
(Non-Qualified)(b)
 
International(c)
 
Postretirement
Plans(d)
(MILLIONS OF DOLLARS)
 
Apr 3,
2016

 
Mar 29,
2015

 
Apr 3,
2016

 
Mar 29,
2015

 
Apr 3,
2016

 
Mar 29,
2015

 
Apr 3,
2016

 
Mar 29,
2015

Net periodic benefit cost/(credit):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost(e)
 
$
63

 
$
72

 
$
5

 
$
6

 
$
42

 
$
48

 
$
10

 
$
14

Interest cost(e)
 
134

 
169

 
12

 
14

 
60

 
79

 
22

 
32

Expected return on plan assets
 
(241
)
 
(272
)
 

 

 
(98
)
 
(106
)
 
(8
)
 
(13
)
Amortization of:
 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

Actuarial losses
 
99

 
83

 
9

 
12

 
23

 
32

 
7

 
9

Prior service credits
 
1

 
(2
)
 

 

 

 
(2
)
 
(41
)
 
(31
)
Curtailments
 
2

 
2

 

 

 

 

 
(6
)
 
(10
)
Settlements
 
15

 
26

 
10

 
15

 
1

 

 

 

 
 
$
73

 
$
78

 
$
35

 
$
45

 
$
27

 
$
51

 
$
(16
)
 
$
1

(a) 
The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our U.S. qualified pension plans was primarily driven by (i) lower service and interest costs, resulting from a change in methodology for measuring service and interest costs (see (e) below) and (ii) lower settlement activity. The aforementioned decreases were partially offset by (i) a lower expected return on plan assets resulting from a net decrease of approximately $1.1 billion in the asset base due in part to lump-sum payments made in 2015 to certain terminated colleagues to settle Pfizer’s pension obligation, partially offset by a voluntary contribution of $1.0 billion made at the beginning of January 2016 and (ii) an increase in the amounts amortized for actuarial losses.
(b) 
The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our U.S. non-qualified pension plans was primarily driven by (i) lower settlement activity and (ii) a decrease in the amounts amortized for actuarial losses resulting from the increase, in 2015, in the discount rate used to determine the benefit obligation.
(c) 
The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our international pension plans was primarily driven by (i) lower service and interest costs, resulting from foreign exchange rate changes and a change in methodology for measuring service and interest costs (see (e) below), and (ii) a decrease in the amounts amortized for actuarial losses resulting from large gains in 2015, which decreased the plan net loss position, 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 foreign exchange rates changes.
(d) 
The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our postretirement plans was primarily driven by (i) lower service and interest costs, resulting from a change in methodology for measuring service and interest costs (see (e) below) and (ii) an increase in prior service credits due to the postretirement medical plan cap changes during 2015. The aforementioned changes were partially offset by (i) a decrease in expected return on plan assets, primarily resulting from a decrease in plan assets reflecting Internal Revenue Code 401(h) reimbursements to Pfizer for eligible 2014 and 2015 prescription drug expenses for certain retirees, and (ii) lower curtailment gains.
(e) 
Effective January 1, 2016, the Company changed the approach used to measure service and interest costs for U.S. and certain international pension and other postretirement benefits. For fiscal 2015, the Company measured service and interest costs utilizing a single weighted-average discount rate derived from the bond model or yield curve used to measure the respective plan obligations. For fiscal 2016, we elected to measure service and interest costs by applying the spot rates along the yield curve, or a yield curve implied from the bond model, to the plans' liability cash flows. The Company believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis. The expected reduction in expense for 2016 associated with this change in estimate is $191 million, which is expected to be recognized evenly over each quarter of the year.


23


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

As of and for the three months ended April 3, 2016, 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/reimbursements of our general assets for the three months ended April 3, 2016(a)
 
$
1,000

 
$
70

 
$
50

 
$
(148
)
Expected contributions from our general assets during 2016(b)
 
$
1,000

 
$
126

 
$
174

 
$
(6
)
(a) 
Contributions to the postretirement plans reflect Internal Revenue Code 401(h) reimbursements totaling $198 million received for eligible 2014 and 2015 prescription drug expenses for certain retirees.
(b) 
Contributions expected to be made for 2016 are inclusive of amounts contributed during the three months ended April 3, 2016, including the $1.0 billion voluntary contribution that was made in January 2016 for the U.S. qualified plans, which was considered pre-funding for future anticipated mandatory contributions and is also expected to reduce Pension Benefit Guaranty Corporation variable rate premiums. 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.
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)
 
April 3,
2016

 
March 29,
2015

EPS Numerator––Basic
 
 
 
 
Income from continuing operations
 
$
3,026

 
$
2,376

Less: Net income attributable to noncontrolling interests
 
9

 
6

Income from continuing operations attributable to Pfizer Inc.
 
3,016

 
2,371

Less: Preferred stock dividends––net of tax
 

 

Income from continuing operations attributable to Pfizer Inc. common shareholders
 
3,016

 
2,370

Discontinued operations––net of tax
 

 
5

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

 

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

 
5

Net income attributable to Pfizer Inc. common shareholders
 
$
3,016

 
$
2,375

EPS Numerator––Diluted
 
 

 
 

Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions
 
$
3,016

 
$
2,371

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

 
5

Net income attributable to Pfizer Inc. common shareholders and assumed conversions
 
$
3,016